Macro- Final

If supply is upward sloping, an increase in demand, all other things unchanged, will result in a(n) _____ in equilibrium price and a(n) _____ in equilibrium quantity.

increase; increase

Refer to Figure: A Money Market. If the interest rate is r3, the interest rate will _____ because there is a _____ of money in the market.

fall; surplus

When banks borrow from and lend reserves to each other, they are participating in the _____ market.

federal funds

Refer to Figure: AD-AS. Assume that the economy is in long-run equilibrium. If the Federal Reserve lowers the key interest rate:

the aggregate demand curve will shift to AD2.

The aggregate production function does NOT depend on

the amount of natural resources

Money is neutral in _____ since it cannot alter _____.

the long run; real aggregate output

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect

the money demand curve to shift inward.

Which item would not be included in this year's GDP?

the purchase of your neighbor's house, which was built in 1994

If the exchange rate is ¥200 per U.S. dollar, the U.S. price level is 120, and the Japanese price level is 600, then the real exchange rate is:

¥40.

(Ref 3-3 Table: Coffee and Salmon Production Possibilities II) Use Table: Coffee and Salmon Production Possibilities II. This table shows the maximum amounts of coffee and salmon, both measured in pounds, that Brazil and Alaska can produce if they just produce one good. Brazil has an absolute advantage in producing:

coffee only

Gross domestic product is defined as:

consumer spending + government purchases of goods and services + investment spending + exports - imports.

Consider the supply curve for cotton shirts. An increase in the price of cotton will:

decrease the supply of cotton shirts.

When a currency depreciates, the prices of its exports to other countries will:

decrease.

The Taylor rule:

provides guidance for setting a federal funds rate target.

If nominal GDP increases from one year to the next, _____ must have risen.

real GDP or prices or both

In an economy whose aggregate real output is growing faster than the total population:

real GDP per capita is rising

Refer to Figure: AD-AS Model I. If the economy is at point X, there is a(n) _____ gap with _____ unemployment.

recessionary; high

(Ref 42-2 Figure: Output Gap) Refer to Figure: Output Gap. If the economy is producing at Y2, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.

recessionary; potential; actual; expansionary

Examples of fiscal policy do NOT include:

reducing the interest rate by increasing the money supply.

Assume the United States imposes a new tariff on wines imported from France. Who benefits from this action?

U. S. winemakers

Raising taxes shifts the _____ curve to the _____.

aggregate demand; left

A survey reveals that, on a small island, 40 people have jobs, 10 people are not working but are looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is _____%.

20

Which statement about GDP is false?

GDP can be calculated by summing government spending and tax revenues.

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

The price will decrease, but quantity may increase, decrease, or stay the same.

The money supply curve is:

an increase in the money supply lowers the equilibrium rate of interest.

The quantity equation, M•V = P•Y, where M is the quantity of money, V is the velocity of money, P is the price of output, and Y is the amount of output. If we assume that the velocity of money and output are relatively stable (unchanged) in the long run, then we can expect that an increase in the money supply (M) by the Federal Reserve Bank will result in ____

an increase in the price level in the long-run.

Investment in human capital causes _____________the aggregate production function.

an upward shift of

If the exchange rate is $1.50 per euro, the U.S. price level is 180, and the eurozone price level is 120, then the real exchange rate per euro is:

$1

If a country has a population of 1,000 people, an area of 100 square miles, and a GDP of $5 million, then its GDP per capita is:

$5,000

If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 2%, the opportunity cost of holding the checking account as money is:

1%.

If the labor force totals 100 million workers and 90 million are working, then the unemployment rate is _____%.

10

Real per capita GDP is:

real GDP divided by the population.

Refer to Figure: AD-AS Model II. As the size of the labor force increases over time, the _____ curve will shift to the _____.

LRAS; right

(Ref 42-6 Figure: Monetary Policy III) Refer to Figure: Monetary Policy III. Expansionary economic policy will lead to an equilibrium GDP of:

Y4.

(Ref 42-1 Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. If the economy is in an inflationary gap at point h, it can move to point i as a result of:

a decrease in the money supply.

A negative demand shock can cause:

a recessionary gap.

Refer to Figure: Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates:

a short-run equilibrium.

An increase in capital stock would:

cause a movement to the right along a stationary production function.

(Ref 3-4 Table: Comparative Advantage I) Use Table: Comparative Advantage I. Finland has a comparative advantage in producing:

cell phones only

Real GDP is nominal GDP adjusted for:

changes in prices.

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will_____ and short-run aggregate supply will _____.

decrease; increase

Suppose the economy is operating in long-run equilibrium and a positive demand shock hit. We expect a short-run increase in real GDP and the price level and a long-run _____ in real GDP and _____ the price level.

decrease; increase

A decrease in demand and a decrease in supply will lead to a(n) _____ in equilibrium quantity and a(n) _____ in equilibrium price.

decrease; indeterminate change

Monetary policy that lowers the interest rate is called _____ because it _____.

expansionary; increases aggregate demand

Discouraged workers:

have given up looking for a job.

A positive demand shock leads to:

higher prices and higher employment.

Long-run economic growth will be sustainable:

if it can continue in spite of the limited supply of natural resources and the impact of growth on environment

The economy is in a recession. The desired FISCAL policy is a(n):

increase in government purchases of goods and services.

When the Federal Reserve buys Treasury bills, this leads to a(n):

increase in the money supply.

Expansionary monetary policy _____ the money supply, _____ interest rates, and _____ consumption and investment spending.

increases; decreases; increases

Refer to Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a) and government spending increases, the result will likely be:

inflation.

When actual output is above potential output, over time:

nominal wages will increase, and the short-run supply curve will shift to the left.

Purchases of imported products are:

not a part of the GDP calculation.

A person who is NOT working or looking for work is:

not counted in the unemployment rate.

The labor force is the total:

number of people who are employed or unemployed.

Investment spending is spending on:

productive physical capital.

If countries engage in international trade

they can consume outside their production possibility frontiers.

An inflationary gap will be eliminated because there is _____ pressure on wages, shifting the _____.

upward; short-run aggregate supply curve to the left

Suppose that a panel of economists predicts that a nation's real GDP per capita will double in approximately 20 years. According to the rule of 70, what must be the predicted annual growth rate of real GDP per capita?

3.5%

If the exchange rate is 8 yuan per U.S. dollar, the U.S. price index is 145, and the Chinese price index is 206, the real exchange rate is _____ yuan.

5.63

(Ref 21-3 Figure: Technological Progress and Productivity Growth) Use Figure: Technological Progress and Productivity Growth. If there is an increase in physical capital per worker (all other factors remaining unchanged), it is BEST indicated by a move from:

A to B

(Ref 42-4 Figure: Monetary Policy I) Refer to Figure: Monetary Policy I. If the economy is initially in equilibrium at E2and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

AD2 will; the right, causing; inflationary

(Ref 21-2 Figure: Productivity) Use Figure: Productivity. An improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from:

B to C.

Which example illustrates consumption expenditure?

Stephanie bought a laptop for her brother.

If the inflation rate is higher than a borrower expects it to be during the duration of a loan, which of the following is true?

The borrower will pay a lower real interest rate on the loan than expected.

Consider the market for iPads. What happens if a fantastic new alternative tablet is developed by Samsung and, at the same time, a boat carrying a large shipment of iPads is attacked by pirates and sunk?

The change in price is indeterminate and quantity decreases.

Consider the market for corn. What happens if there is an increased demand for corn tortillas and, at the same time, a new corn seed becomes available that dramatically increases the yield per acre?

The change in price is indeterminate; quantity increases.

Diminishing returns to physical capital implies that, when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to _____ productivity.

a smaller increase in

An economy is said to have a comparative advantage in the production of a good if it can produce that good

at a lower opportunity cost than another economy

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate.

decrease; higher

A decrease in the supply of money with no change in demand for money will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate.

decrease; rise

Other things equal, rising interest rates lead to a _____ in investment spending and a _____ in _____ spending.

fall; fall; consumer

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely:

increase.

If the U.S. dollar appreciates relative to currencies in other countries, then U.S. imports will _____ and exports will _____.

increase; decrease

If the interest rate on CDs rises from 5% to 10%, the opportunity cost of holding money will _____ and the quantity demanded of money will _____.

increase; decrease

A sale of Treasury bills by the Federal Reserve _____ interest rates and _____ the money supply.

raises; reduces

Productivity is equal to:

real GDP divided by the number of workers.

The major tools of monetary policy available to the Federal Reserve System include:

reserve requirements, open-market operations, and the discount rate. "Rod"

If inflation increases from 2% to 5%, the money demand curve will:

shift to the right.

An example of an intermediate good is:

steel purchased by aircraft manufacturers.