Macro Unit 2: Study Guide

If your salary was $50,000 last year, and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be this year assuming the CPI has risen from 110 to 114?

$51,818

(Table) According to the table, real GDP for 2014 is approximately:

$7,552 billion.

Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

Goods and services become less competitive and exports fall.

After the acceptance of Keynesian analysis, the government:

actions toward macroeconomic policy grew significantly.

(Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD2 to AD1?

an increase in interest rates

Which one of the following would NOT lead to higher prices?

an increase in the supply of food

Which organization determines the beginning and end dates of a recession?

the National Bureau of Economic Research

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate.

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

the multiplier effect

The four types of spending in GDP are personal consumer spending, _____ private domestic investment, government spending, and _____.

gross; net exports

Which of the following items is NOT included in the GDP deflator?

imported mangoes

In the Keynesian model, the principal determinant of saving is:

income.

If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.

right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Cost-push inflation is a situation in which the:

short-run aggregate supply curve shifts leftward.

GDP can be found either by adding up all of the _____ or all of the _____ in the economy.

spending; income

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs,are experiencing:

structural unemployment.

Which of the following describes the informal economy?

It is largely unmeasured.

Which of the following did classical economists believe would happen if the economy experienced a downturn?

The economy would self-correct.

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%:

creditors gain at the expense of debtors.

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:

fell by 1%.

We are most likely to see a recession if interest rates on long-term bonds are:

lower than interest rates on short-term bonds.

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

trough

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

disposable income; consumption

U.S. business cycles since 1950 have shown:

expansions to be longer than recessions.

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as:

discouraged workers.

If actual unemployment is at its natural rate:

inflation is very low.

(Table) According to the table, nominal GDP for 2013 is approximately:

$5,050 billion.

The largest component of GDP is:

consumption expenditure.

The twin perils of the modern macro economy are said to be:

inflation and unemployment.

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

left; decrease

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:

less, lowering both employment and income.

The value of cars that the Ford Motor Company produces in a German plant:

is a part of U.S. GNP.

The U.S. gross domestic product is equal to the total market value of all:

final goods and services produced by resources in the United States.

Core inflation is found by removing _____ from the consumer price index.

food and energy

A rising aggregate price level _____ an economy's interest rates and therefore _____ output demanded.

increases; reduces

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:

decreases by $10 billion.

Simon Kuznets:

devised the gross national product as a way of measuring a nation's economic output.

The long-run aggregate supply curve uses the classical assumptions that all variables are _____ in the long run and that long-run equilibrium occurs at _____.

fixed; full employment

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

$900

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is:

125.

If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is:

2.4%.

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:

6.67.

When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change.

Which of the following will NOT shift the aggregate supply curve to the left?

a decrease in corporate taxes

What would cause the price level to decrease and employment to increase?

a shift to the right of the SRAS curve

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the:

circular flow diagram.

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing:

deflation.

The GDP deflator is an index that includes prices of all of the following EXCEPT:

imports.

If the pound sterling appreciates against the U.S. dollar, England buys _____ U.S. goods, causing the U.S. aggregate demand curve to shift to the _____.

more; right

Which of the following items would be included in the GDP accounts?

paying $50 consultation fee over the phone with a psychic adviser

Which is a determinant of aggregate supply?

productivity

Which of the following is NOT included in gross private domestic investment?

purchases of common stock by investors

High taxes and/or heavy regulation:

raise costs of production so that the aggregate supply curve shifts to the left.

What event was a major influence on the development of macroeconomics?

the Great Depression

If a government always balances its budget:

the effect of an increase in government spending on aggregate expenditures is weakened.

A business cycle is:

the periodic fluctuation of economic activity.

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:

$0.1 trillion.

(Table) According to the table, the GDP for 2010 was:

$14,592.3 billion.

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total

$5,000

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?

0.6

The slope of the saving schedule is:

1 minus the marginal propensity to consume.

The 45-degree line in the Keynesian model represents:

AE = Y.

Which of the following illustrates the paradox of thrift?

Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

_____ is a reduction in the rate of inflation.

Disinflation

Simultaneous recession and deflation can be explained by:

a decrease in aggregate demand.

The short-run aggregate supply curve is positively sloped because:

many input prices are slow to change in the short run.

People who are considered unemployed include:

those who do not have a job and are not actively seeking employment.

_____ is the output of goods and services demanded at different price levels.

Aggregate demand

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will shift to _____.

SRAS1; P1