Macro Final Exam Review Questions

People's expectations of future inflation that do not change even if inflation rises temporarily are called ________ inflationary expectations. A) average B) autonomous C) anchored D) aggregate

C) anchored

A higher real interest rate ________ investment spending and ________ consumption spending. A) decreases; increases B) increases; decreases C) decreases; decreases D) increases; increases

C) decreases; decreases

Starting from potential output, if firms become more optimistic and decide to increase their investment in new capital, then this will shift the ________ curve to the right and generate ________. A) aggregate demand; an expansionary output gap B) aggregate supply; a recessionary output gap C) aggregate supply; an expansionary output gap D) aggregate demand; a recessionary output gap

A) aggregate demand; an expansionary output gap

The annual percentage rate of change in the price level is the: A) inflation rate. B) Fisher effect. C) cost of living. D) relative price.

A) inflation rate.

When actual output equals potential output, there is ________ output gap and the inflation rate will ________. A) no; be equal to the expected rate of inflation B) an expansionary; exceed the expected rate of inflation C) a recessionary; exceed the expected rate of inflation D) an expansionary; be lower than the expected rate of inflation

A) no; be equal to the expected rate of inflation

Shocks to ________ require the Fed to choose between inflation and output stability, while shocks to ________ do not require the Fed to choose between inflation and output stability. A) the stock market; aggregate supply B) aggregate supply; aggregate demand C) aggregate demand; aggregate supply D) the stock market; aggregate demand

B) aggregate supply; aggregate demand

If a nation has the lowest opportunity cost of producing a good, that nation has a(n) ________ in the production of that good. A) comparative advantage and an absolute advantage B) comparative advantage C) absolute advantage and possibly a comparative advantage. D) absolute advantage

B) comparative advantage

Holding other factors constant, if growing concerns about job security raise precautionary saving, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________. A) increase; decrease B) decrease; increase C) decrease; decrease D) increase; increase

B) decrease; increase

Investment is a(n) ________ that changes the ________ of capital. A) stock; flow B) flow; stock C) asset; liability D) liability; asset

B) flow; stock

Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will increase output ________ in Gamma compared to Omega, holding other factors constant. A) not at all B) less C) by the same amount D) more

B) less

Gross domestic product (GDP) equals the ________ of final ________ produced within a country during a given period of time. A) market value; goods B) market value; goods and services C) market value; services D) quantity; goods and services

B) market value; goods and services

The greater the credibility of monetary policy, the ________ likely inflationary expectations are to be anchored and the ________ the recessions caused by adverse inflation shocks. A) more; longer B) more; shorter C) less; longer D) less; shorter

B) more; shorter

If government spending increases by $1 million while net taxes are unchanged, then: A) public saving does not change. B) public saving decreases. C) public saving increases. D) private saving increases.

B) public saving decreases.

Making more frequent, but smaller cash withdrawals from banks ________ the inflation losses from holding cash and ________ the shoe leather costs of inflation. A) increases; reduces B) reduces; increases C) increases; increases D) reduces; has no impact on

B) reduces; increases

The speed at which money circulates is called: A) the pace of money. B) velocity. C) acceleration. D) the multiplier

B) velocity.

The increase in the unemployment rate during a recession is associated with which type of unemployment? A) Frictional unemployment B) Nominal unemployment C) Cyclical unemployment D) Structural unemployment

C) Cyclical unemployment

If country A can produce more of practically everything than can country B, then which of the following statements is true? A) Country B has no incentive to trade with country A. B) Country B cannot have a comparative advantage in the production of any good that country A wants to buy. C) Trade can benefit both countries. D) Country A has no incentive to trade with country B.

C) Trade can benefit both countries.

Inflation inertia is the result of the behavior of ________ and the existence of ________. A) autonomous aggregate demand; the Fed's policy reaction function B) real and nominal interest rates; an output gap C) inflation expectations; long-term wage and price contracts D) the central bank; automatic stabilizers

C) inflation expectations; long-term wage and price contracts

Typically, the unemployment rate ________ during a recession and ________ during an expansion. A) rises; rises even more B) falls; rises C) rises; falls D) rises; does not change

C) rises; falls

In an open-market sale the Federal Reserve ________ government bonds and the supply of bank reserves ________. A) buys; decreases B) buys; increases C) sells; decreases D) sells; increases

C) sells; decreases

Human capital is: A) the factories and machinery made by workers. B) the factories and machinery used by humans in the production process. C) the talents, training, and education of workers. D) the financial resources available to humans for investment.

C) the talents, training, and education of workers.

There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals: A) $10,000,000 B) $6,250,000 C) $5,000,000 D) $20,000,000

D) $20,000,000

Which of the following is an example of structural unemployment? A) Jim had a job as an engineer, but quit when his wife was transferred to another state. He looked for a month before finding a new job that he liked. B) Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C) Alan, a software engineer, lost his job when the internet startup he worked for went bankrupt. He interviewed with five companies in the area before taking a job with another firm in the industry. D) Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year.

D) Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives planned aggregate expenditure (PAE)? A) [910 - 700r] + 0.8Y B) [910 - 700r] C) [790 - 700r] D) [790 - 700r] + 0.8Y

D) [790 - 700r] + 0.8Y

Shares of stock are: A) legal promises to make regular payments to the stockholder. B) regular payments made to owners of a firm. C) legal promises to repay a debt. D) claims to partial ownership of a firm.

D) claims to partial ownership of a firm.

The basic Keynesian model is built on the key assumption that: A) menu costs are not significant. B) prices are prevented from changing frequently by government regulations. C) firms price their products so as to see a preset quantity of output. D) firms meet the demand for their products at preset prices.

D) firms meet the demand for their products at preset prices.

The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2008, pizzas cost $10 each, jeans cost $40 per pair, and milk cost $3 per gallon. In 2009, the price of pizzas increased to $14 each, while the price of jeans and milk remained the same. Between 2008 and 2009, a typical family's cost of living: A) decreased by 9 percent. B) remained the same. C) increased by 40 percent. D) increased by 9 percent.

D) increased by 9 percent.

Holding other factors constant, an increase in the capital stock ________ the real wage and ________ employment. A) increases; decreases B) decreases; increases C) increases; does not change D) increases; increases

D) increases; increases

The construction of the interstate highway system in the United States is an example of a government policy to promote economic growth by: A) improving technology. B) increasing human capital. C) improving the social and legal environment. D) increasing physical capital.

D) increasing physical capital.

Extremely rapid rates of money growth are usually the result of: A) excessively high interest rates. B) rapid population growth. C) sharp increases in productivity. D) large government budget deficits.

D) large government budget deficits.

The aggregate demand curve shifts when there are changes in: A) real GDP. B) the inflation rate. C) planned spending that are caused only by changes in output or the inflation rate. D) planned spending that are not caused by changes in output or the inflation rate.

D) planned spending that are not caused by changes in output or the inflation rate.

Most economists agree that ________ are the single most important source of productivity improvements. A) discoveries of natural resources B) increases in physical capital C) increases in human capital D) technological advances

D) technological advances

The central bank of the United States is: A) Bank of America. B) Bank One. C) Bank of the United States. D) the Federal Reserve System.

D) the Federal Reserve System.

If the professional opinions of economists regarding the natural rate of unemployment vary between 4.5 and 6 percent, then when the actual rate of unemployment equals 10.5 percent: A) the natural rate of unemployment equals 10.5 percent. B) there is probably an expansionary gap. C) the economy is probably at potential output. D) there is a probably recessionary gap.

D) there is a probably recessionary gap.

The economy is in long-run equilibrium: A) when the AD and AS curves intersect, regardless of the level of output. B) only when the business cycle is eliminated. C) when the AD and AS curves become vertical. D) when the AD and AS curves intersect at potential output, Y*.

D) when the AD and AS curves intersect at potential output, Y*.

If workers and employers agree to a three-year wage contract under the expectation of 3% inflation, and inflation turns out to be 5%, then: A) workers gain and employers lose. B) workers gain and employers gain. C) workers lose and employers lose. D) workers lose and employers gain.

D) workers lose and employers gain.