macro final study
In an imaginary economy, GDP falls from $100bn to $95bn while output per worker rises from $5000 to $5020. In this economy there has been:
A fall in production and an increase in productivity
Cuts in public expenditure do not guarantee a reduction in the government's deficit because:
Aggregate demand will fall, reducing government revenue
Which of the following are classified as firms?
Companies employing unpaid student interns as well as paid workers.
Which of the following might help to minimize the costs of adapting to new technology?
Government re-training schemes
The 'paradox of thrift' refers to the fact that:
If we all save more, aggregate income will fall
This is true
Not all of broad money is legal tender
A fall in the world price of commodities will:
Shift the price-setting curve up and the Phillips curve down
10 years ago, a growing economy enjoyed an increase in GDP of $1,000 per worker per year when net investment increased the capital available to each worker by £5,000. The same level of net investment last year was followed by an increase in GDP of $800. Which of the following describes the situation?
The marginal product of capital is falling
The profit-maximizing mark-up declines as the number of firms increases. This is because:
The more firms , the more competitive the system is likely to be.
Which of the following is a distinctive characteristic of 'inclusive unions'?
They set their wage demands in accordance with the productivity of labor
The figures in the textbook show that the severity of the business cycle has declined since 1945. Which of the following is most likely to have contributed to this moderation?
the increase in government spending in the economy
A country's GDP is being measured by expenditure. Various categories of expenditure are recorded as follows: Households' spending on consumption = $100bn, Firms' spending on capital goods = $15bn, Firms' addition to inventories = $1bn, Government spending on services = $10bn, Government spending on capital goods = $2bn, Government transfers (social security etc) = $10bn, Exports = $12bn, Imports = $10bn. What is the correct estimate of GDP?
$140bn
Suppose that the productivity of labor (λ) is $35,000 per year and the equilibrium mark up (μ) is 0.25. The long-run price-setting curve will be at a real wage of:
$26,250.00
Suppose that the productivity of labour (λ) is $35,000 per year and the equilibrium mark up (μ) is 0.25. The long-run price-setting curve will be at a real wage of:
$26,250.00
In an economy where the MPC is 0.7, the proportional tax rate is 0.25 and the marginal propensity to import is 0.2, the multiplier will be:
1.48
In a linear aggregate demand model:
1/(1 - c1(1 - t) + m) is the size of the multiplier.
Which of the following will lead to a decrease in the equilibrium markup?
A lower expected long-run corporate tax rate
Assume that a bargaining gap remains constant at 1 per cent. The rate of inflation in future years will:
Accelerate by 1 per cent per year
According to the Great Economists box in Section 1.3 of The Economy, which of the following statements regarding Adam Smith are correct?
Adam Smith claimed that coordination among large number of economic actors (producers, transporters, sellers, consumers), often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. Adam Smith believed in the role of the government to improve societal welfare.
Which of the following does NOT provide a way for governments to finance a budget deficit?
An increase in taxation
Which of the following statements about the wage-setting curve is correct?
At points below the price-setting curve, the firms are setting prices too high compared to their profit-maximizing level
It is often said that independent central banks are more likely to run a successful monetary policy than governments because their commitment to low inflation is more 'credible' than government promises. One reason for this is that:
Central banks are less subject to political pressures (e.g. for lower unemployment) than governments.
Which of the following statements is correct regarding disposable income?
Disposable income is the maximum amount of expenditure (e.g. food, housing, clothing, and other goods and services) possible without having to borrow or sell possessions
The main weakness of the original Philips curve is that it ignored:
Expectations
which of the following are examples of private property?
Factories in North Korea Library books from your school or university
Imagine that at the end of 2014 your monthly income in nominal terms was £2000 per month while the index of retail prices was 100. At the end of 2015, your monthly income was £2100 while the index of retail prices was 110. During 2015, your real income had:
Fallen by 5 per cent
Which of the following economic institutions play an important role in capitalisms as an economic system?
Families, private property, markets
Insert the correct combination of terms in the following sentence: 'The budget deficit refers to...., while government debt refers to.....'
Firms borrowing, government borrowing
Which of the following statements is correct regarding measuring GDP?
GDP can be measured either as the total spending on domestically produced goods and services, or the total value added in domestic production, or the sum of all incomes received from domestic production.
Ms. Bond has wealth of £500,000. She has a market income of £40,000 per year, on which she is taxed 30%. Ms Bond's wealth includes some equipment, which depreciates by £5,000 every year. Based on this information, which of the following statements is correct?
If Ms Bond decides to spend 60% of her net income on consumption and the rest on investment, then her investment is £9,200.
Which of the following statements is true?
If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower is their markup.
Which, if any, of the following statements are true?
If government expenditure including transfers and interest payments exceeds its revenue, government debt rises.
Which of the following statements regarding fiscal policy is correct?
Unemployment benefits and taxes automatically increase government spending and cut taxation in a downturn, while they trim spending and raise taxes in a boom. These are therefore automatic stabilizers.
In the context of aggregate demand, which of the following constitutes investment?
Upgrading your firm's IT equipment
Which of the following statements is correct?
When savers buy bonds they are lending money in the money market
As a result of the diffusion of new technology, in the long run we would normally expect:
the price-setting curve to shift upwards
Okun's law applies that:
unemployment goes down in booms and up in recessions
Which of the following best describes the short-run relationship between inflation (π) and unemployment (U), ceteris paribus?
unemployment rises, inflation falls
which of the following statements regarding democracy as a political system is always true?
virtually all adults are eligible to vote in an election
At the end of 2015 the UK consumer price index was 258; at the end of 2016 it was 267. According to this information, the annual rate of inflation during 2016 was approximately:
3.3 percent
Suppose that in an economy with no taxation and no external trade, the marginal propensity to consume is 0.7. The size of the multiplier (rounded to 2 decimal places) will be?
3.33
The rate of interest that you are paying on a mortgage loan is 6.5 per cent per year. Inflation is running at 3 per cent per year. The real rate of interest that you are paying is therefore:
3.5 percent
Assume that the level of consumption in an economy is given by the expression 1000 + 0.7Y, when Y = 50,000, consumption will be:
36,000
Assume that the central bank has an inflation target of 2% per year but inflation is currently running at 4%. The nominal policy (interest) rate is currently 5%. The central bank needs to create a negative bargaining gap and estimates that the real policy rate required to achieve this is 3%. Consequently it needs to set the nominal policy rate at:
7%
The aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rate r), the government spending G and net exports X − M: Given this equation, which of the following increases the multiplier?
A fall in the marginal propensity to import.
Which of the following statements is correct?
A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.
Ceteris Paribus, in which of the following cases would the wage-setting curve shift up?
A more generous unemployment insurance scheme
An overseas bank announces that it is introducing a new type of savings account that pays a 3% fixed rate of interest for deposits of a one year duration. This 3% is:
A nominal rate of interest
A flatter aggregate consumption function, if plotted on a graph with output on the horizontal axis and aggregate consumption on the vertical axis, would indicate which of the following:
A smaller propensity to consume and a smaller multiplier
Which of the following statements is correct?
Employment rate= employed/population of working age
Which of the following statements regarding the labor market are correct?
Firms are the demand side of the labor market Wages are the prices in the labor market that determine the level of demand and supply
Suppose that net investment is running at 10 per cent of a country's annual GDP and technological developments sustain the marginal product of capital at 0.5. The population is growing at 4 per cent per year. In consequence, real income per capita is:
Growing by 1 per cent each year
Ms. Moneypenny's wealth depreciates at £5,000 a year. Her net annual income is £25,000. She will spend 40% of this net income on an extension on the house, another 40% on general consumption and save the remaining 20% in a pension fund. The tax rate is 40%. Based on this information, which of the following statements is correct?
Her before-tax income is 50,000.
An individual's well-being can be partly measured by:
Her disposable income The quality of her social and physical environment, such as friendship and clean air. goods and services that are provided by the government, such as healthcare and education Goods and services that are produced within the household, such as meals and childcare.
Which of the following leads to a higher GDP?
Higher government expenditure on education Rebuilding and reopening an abandoned shopping mall, which is immediately occupied by new businesses. building a new manufacturing factory, which requires the clearing of forests
If inflation is generally undesirable, why do policymakers choose inflation targets that are greater than zero?
If prices are generally rising, real wages can fall without a reduction in nominal wages
Which of the following may help to promote the spread of new technology in the long run?
Industry-wide-wage-bargaining
Which, if any, of the following statements are true?
Inflation redistributes income to households with fixed-rate mortgages from households relying on long-term assets with fixed interest as their source of income.
Which of the following statements regarding inflation and deflation is correct?
Inflation transfers wealth from lenders to borrowers
Favorable institutional changes are difficult to bring about because:
Institutional changes are politically sensitive since they involve winners and losers
Which of the following is a definite consequence of a high inflation rate?
It can distort price signals
An increase in the policy rate reduces aggregate demand because:
It depresses asset prices and makes people feel less wealthy
The GDP deflator differs from the CPI in the following way:
It includes the prices of exports but excludes the prices of imports
Why is deflation generally undesirable?
It might lead to cumulative reduction in aggregate demand as firms and households wait for prices to fall further
In an economy with underutilized resources, the government stimulates aggregate demand by increasing its spending. The effect on output and employment will be greater if:
Its trading partners undertake a similar policy
"The following table shows the nominal interest rate and the annual inflation rate (the GDP deflator) of Japan in the period 1996-2015 (Source: World Bank). Based on this information, which of the following statements are correct?"
Japan's real interest rate turned from being positive to negative during the period.
In periods of rapid inflation, which of the following tend to lose out?
Lenders (creditors)
The Consumer Price Index (CPI):
Measures the general level of prices that consumers pay for goods and services.
which of the following is true?
Money allows purchasing power to be transferred between consumers
In the short run, successive additions to capital produce smaller and smaller increases in output. Which of the following statement(s) could explain why GDP nevertheless continues to rise In the long run?
New capital equipment incorporates the latest technological developments
We expect the diffusion of new technology to raise both the real wage and the level of employment. But this takes time, during which some people may lose out. These include:
Older, less adaptable workers
Which of the following statements are essential features of a 'goods market equilibrium'?
Output is equal to aggregate demand
Capitalism as an economic system can be dynamic and successful because:
Profits are claimed by the capitalists', it allows failing firms to go bankrupt
which of the following are examples of capital goods?
Raw materials, buildings, intellectual property, and patents
Which of the following best describes the operation of 'automatic stabilizers'?
Some components of government spending inevitably increase when output falls
In the multiplier model, we assume the following:
That the capital stock and the state of technology are both fixed
Your monthly real wage is:
The amount you earn each month.
Which of the following statements is correct?
The base rate is the rate at which the central bank lends in the money market
Assuming that there is no government spending or trade, an economy's aggregate demand is given by its domestic consumption (C) and investment (I), AD = C+ I= c0+ c1Y+ I. In the economy's goods market equilibrium, AD = Y. Solving for Y, this yields: Y = [1/(1 - c1)] ( c0 + I). Given this equation, which of the following statements is correct?
The boost in the economy's output is the same, regardless of whether the aggregate demand shock comes from an increase in investment or in autonomous consumption, c0.
The widespread introduction of new technology into an economy takes time. The length of time between first appearance and general acceptance is known as:
The diffusion gap
The extent to which the diffusion of new technology results in increased employment depends upon the extent to which the wage-setting curve shifts upwards. Which of the following might encourage this upward shift?
The government introduces more generous unemployment benefits to compensate those losing their jobs
In an economy with no taxation and no external trade, the size of the multiplier depends on
The marginal propensity to consume
In the expression for aggregate consumption C = C0 + C1Y, C1 is known as:
The marginal propensity to consume
Which of the following is a distinguishing feature of long-run labor market equilibrium?
The number of firms is constant
You are given the following information for a country: Participation rate = 75%, Unemployment rate = 10%, Employment rate = 67.5% and Number of employed = 27 million. Based on this information, which of the following is correct?
The number of unemployed is 3 million
Which of the following statements about the banking system is correct?
The policy rate is the rate at which the central bank lends to commercial banks
In a severe recession, with falling prices, the economy may need a negative real interest rate in order to give sufficient stimulus to aggregate demand. What particular problem for conventional monetary policy do negative real interest rates pose?
The policy rate needs to be more negative than the rate of deflation but nominal rates cannot go below zero.
A household's net worth (or equity) is best described as:
The total value of assets minus the total value of its liabilities
Sections 16.8 and 16.9 argue that institutional arrangements are an important influence on economic performance. Which of the following is given as an example of favorable institutional change?
UK policy to increase competition in the labor market, 1980-90
A multiplier of 3 or above would be considered exceptionally high for most modern economies. Which of the following statements gives the most complete explanation for this fact?
We have overlooked the effect of taxation and external trade
Inflation is best described as:
a persistent rise in the general level of prices
Which of the following would increase GDP?
an increase in government spending
When a country's GDP is being measured by the output method, the total figure comes to $500bn. When measured by expenditure, we have the following components: Households' spending on consumption = $300bn, Firms' spending on capital goods = $50bn, Government spending on services = $80bn, Government spending on capital goods = $ $50bn, Government transfers (social security etc) = $10bn, Exports = $10bn and Imports = $20bn. In the circumstances, how can we say the output and expenditure methods of calculating GDP are equivalent?
both methods of calculating GDP should, in theory, give the same answer.
Which of the following transfers are classified as markets?
buy-now-pay-later deals
Imagine that the rate of inflation has been 10 per cent per year for a number of years. The central bank then introduces a 'tight' monetary policy and the rate of inflation comes down to 5 per cent per year. This reduction is an example of:
disinflation
In the current year, your economy is expected to make exports of $100bn and to import $80bn-worth of goods and services. When it comes to measuring GDP (or aggregate demand) the net effect of your external sector is that the:
external trade contributes $20m.
Considering the balance sheets of firms, households, and banks in the economy:
household deposits are the banks liabilities and the households assets
Which of the following propositions best sums up the core of Keynesian economics?
in the short-run, output depends on the level of aggregate demand
When measured over time, the nominal value of many economic variables systematically grows more rapidly than their corresponding real values. Why might this be?
inflation
Where the wage-setting curve and price-setting curve intersect,
the bargaining gap is zero