Macro Test #5

A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. How big is the economy's stock of capital at the end of the year?

$1,100,000

If the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by:

$15 billion

An institution that brings buyers and sellers together.

Market

Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate?

10%

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: a.) The quality of education increases.

Assuming better education translates into better work skills, then productivity should rise and this would shift the curve outward.

The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate.

Freedom of choice

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice.

Freedom of enterprise

Which of the following transactions would count in GDP? Select one or more answers from the choices shown. a.) Kerry buys a new sweater to wear this winter. b.) Patricia receives a Social Security check. c.) Roberto gives his daughter $50 for her birthday. d.) Latika sells $1000 of General Electric stock. e.) Karen buys a new car. f.) Amy buys a used car.

Kerry buys a new sweater to wear this winter Karen buys a new car

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off.

Mutually agreeable

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property.

Private Property

An increase in ______________ GDP guarantees that more goods and services are being produced by an economy. a. Nominal b. Real

Real

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: b.) The number of unemployed workers increases.

Should not affect location of curve. Production moves inward, away from the curve.

Which of the following scenarios will shift the investment demand curve right? Select one or more answers from the choices shown. a.) Business taxes increase. b.) The expected return on capital increases. c.) Firms have a lot of unused production capacity. d.) Firms are planning on increasing their inventories.

b.) The expected return on capital increases d.) Firms are planning on increasing their inventories

Which of the following is not a function of the Fed?

b.) advising Congress on fiscal policy

The three functions of money are:

medium of exchange, a store of value and a unit of account

What each individual or firm believes is best for itself and seeks to obtain.

self-interest

Suppose that the Fed has set the reserve ratio at 10 percent and that banks collectively have $2 billion in excess reserves. What is the maximum amount of new checkable-deposit money that can be created by the banking system?

$20 billion

Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig= $30 billion, C=$60 billion, and Xn=-$10 billion. How big is G?

$20 billion

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit.

Competition

The economy is in a recession. A congresswoman suggests increasing spending to stimulate aggregate demand but also at the same time raising taxes to pay for the increased spending. Her suggestion to combine higher government expenditures with higher taxes is

The worst possible combination of tax and expenditure changes

If inventories unexpectedly rise, then production ___________________ sales and firms will respond by _______________ output.

exceeds; reducing

Draw a supply and demand graph and identify the areas of consumer surplus and producer surplus. Given the demand curve, what impact will an increase in supply have on the amount of consumer surplus shown in your diagram? Explain why.

An increase in supply will lower the price and increase the amount of consumer surplus for a given demand curve. Any individual that was receiving consumer surplus before the change in supply will realize an increase in consumer surplus as the price falls and the difference between their maximum willingness to pay and the market price widens.

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: d.) A devastating earthquake destroys numerous production facilities.

The curve should shift inward with the destruction of resources (capital).

Explain how (if at all) each of the following events affects the location of a country's production possibilities curve: c.) A new technique improves the efficiency of extracting copper from ore.

The curve should shift outward as more production is possible with existing resources.

What are the two major ways in which an economy can grow and push out its production possibilities curve? LO1.7 a.) Better weather and nicer cars. b.) Higher taxes and lower spending. c.) Increases in resource supplies and advances in technology. d.) Decreases in scarcity and advances in auditing.

The economy produces output from resource inputs like land, labor, and capital. So one major way for an economy to grow and push out its production possibilities curve is for it to obtain more resources . The second major way is to develop new and better technologies so that the economy can produce more from any given amount of resources.

Most economists agree that the immediate cause of the large majority of cyclical changes in the levels of real output and employment is unexpected changes in

The level of total spending

Indicate whether each of the following statements applies to microeconomics or macroeconomics a.) The unemployment rate in the United States was 8.1 percent in August 2012 b.) A U.S. software firm discharged 15 workers last month and transferred the work to India. c.) An unexpected freeze in central Florida reduced the citrus crop and caused the price oranges to rise. d.) U.S. output, adjusted for inflation, decreased by 2.4 percent in 2009. e.) Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point. f.) The consumer price index rose by 3.8 percent from August 2011 to August 2012

a.) Macroeconomics b.) Microeconomics c.) Microeconomics d.) Macroeconomics e.) Microeconomics f.) Macroeconomics

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal? a. A large decrease in real estate values, including private homes b. A sharp, sustained increase in stock prices c. A 5-year increase in the minimum age for collecting Social Security benefits d. An economy-wide expectation that a recession is over and that a robust expansion will occur e. A substantial increase in household borrowing to finance auto purchases

a. Consumption schedule: Downward Saving schedule: Upward b. Consumption schedule: Upward Saving schedule: Downward c. Consumption schedule: Upward Saving schedule: Downward d. Consumption schedule: Upward Saving schedule: Downward e. Consumption schedule: Upward Saving schedule: Downward

Identify following arguments about economic growth as being either anti-growth or pro-growth. a.) Growth means worker burnout and frantic schedules. b.) Rising incomes allow people to buy more education, medical care, and recreation. c.) The Earth has only finite amounts of natural resources. d.) We still have poverty, homelessness, and discrimination even in the richest countries. e.) Richer countries spend more money protecting the environment. f.) Natural resource prices have fallen rather than increased over time.

a.) Anti-growth b.) Pro-growth c.) Anti-growth d.) Anti-growth e.) Pro-growth f.) Pro-growth

Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. a.) A woman who wants to start a slower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area. b.) Shops stock and sell the goods their customers want but the government levies a sales tax on each transaction in order to fund elementary schools, public libraries, and welfare programs for the poor. c.) The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens.

a.) Command System b.) Market System c.) Laissez-faire system

What effect will each of the following have on the supply of auto tires? a.) A technical advance in the methods of producing tires. b.) A decline in the number of firms in the tire industry. c.) An increase in the prices of rubber used in the production of tires. d.) The expectation that the equilibrium price of auto tires will be lower in the future than currently. e.) A decline in the price of the large tired used for semi trucks and earth-hauling rigs (with no change in the price of auto tires). f.) The levying of a per-unit tax on each auto tire sold. g.) The granting of a 50-cent-per-unit subsidy for each auto tire produced.

a.) Increase b.) Decrease c.) Decrease d.) Increase e.) Increase f.) Decrease g.) Increase

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a.) Small automobiles become more fashionable. b.) the price of large automobiles rises (with the price of small autos remaining the same). c.) Income declines and small autos are an inferior good. d.) Consumers anticipate that the price of small autos will greatly come down in the near future. e.) The price of gasoline substantially drops.

a.) Increase b.) Increase c.) Increase d.) Decrease e.) Cannot be determined

Identify each of the following situations as something that either promotes growth or retards growth. a.) Increasing corruption allows government officials to steal people's homes. b.) A nation introduces patent laws for the first time. c.) A court order shuts down all banks permanently. d.) A poor country extends free public schooling from 8 years to 12 years. e.) A nation adopts a free-trade policy. f.) A formerly communist country adopts free markets.

a.) Retards growth b.) Promotes growth c.) Retards growth d.) Promotes growth e.) Promotes growth f.) Promotes growth

Select all of the following that are true. To an economist, a coercive government can be useful in order to: a.) Reallocate resources in order to improve efficiency b.) Fight negative externalities c.) Ensure low gas prices d.) Provide a low-risk economic environment for individuals and firms

a.) True b.) True c.) False d.) True

What effects would each of the following have on aggregate demand or aggregate supply, other things equal? In each case, use a diagram to show the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward. a.) A widespread fear by consumers of an impending economic depression. b.) A new national tax on producers based on the value added between the costs of the inputs and the revenue received from their output. c.) A reduction in interest rates at each price level. d.) A major increase in spending for health care by the federal government. e.) The general expectation of coming rapid inflation. f.) The complete disintegration of OPEC, causing oil prices to fall by one-half. g.) A 10 percent across-the-board reduction in personal income tax rates. h.) A sizable increase in labor productivity (with no change in nominal wages). i.) A 12 percent increase in nominal wages (with no change in productivity). j.) An increase in exports that exceeds an increase in imports (not due to tariffs).

a.) aggregate demand will decrease b.) aggregate supply will decrease c.) aggregate demand will increase d.) aggregate demand will increase e.) aggregate demand will increase f.) aggregate supply will increase g.) aggregate demand will increase h.) aggregate supply will decrease i.) aggregate supply will decrease j.) aggregate demand will increase

Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a.) "If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries." b.) "Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets." c.) "Each day, central planners in the old Soviet Union were tasked with setting 27 million prices -- correctly." d.) "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

a.) creative destruction b.) incentive problem c.) coordination problem d.) invisible hand

Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: a.) French fries b.) airport screening c.) court systems d.) mail delivery e.) medical care State why you answered as you did in each case.

a.) market system; because of the rivalry between the suppliers b.) government; because everyone should be able to benefit, not just one person c.) government; because everyone should be able to benefit, not just one person d.) government; because everyone should be able to benefit, not just one person e.) market system; rivalry between suppliers

__________________ occur when politicians commit to making a series of future expenditures without simultaneously committing to collect enough tax revenues to pay for those expenditures. a.) Budget deficits b.) Debt crises c.) Loan guarantees d.) Unfunded liabilities

d.) unfunded liabilities

True or False. The term economic investment includes purchasing stocks, bonds, and real estate.

false