MacroEcon Final

If real GDP doubles in 35 years, its average annual growth rate is approximately:

2%.

( Figure: Loanable Funds) Use Figure: Loanable Funds. Which scenario might produce a new equilibrium interest rate of 5% and a new equilibrium quantity of loanable funds of $75 billion?

The expected profitability of business investment declines.

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

an increase; an increase

( Figure: Crowding Out) Use Figure: Crowding Out. If the supply curve for loanable funds shifts to the right, and the demand for loanable funds does not change, the result will be a(n) _____ in borrowing and a(n) _____ in the interest rate.

increase; decrease

( Figure: Inflationary and Recessionary Gaps) Use Figure: Inflationary and Recessionary Gaps. At E 2 , the economy:

is in long-run equilibrium.

Education:

is more important to economic growth than the amount of physical capital a worker has available.

Assuming a positive interest rate, the dollar amount of a future payment is _____ its present value.

more than

A $100 million increase in government spending increases equilibrium GDP by:

more than $100 million.

During rapid price inflation, firms must frequently change prices. The cost of changing listed prices is known as the _____ cost.

real interest rate

In April 2020, the COVID-19 pandemic led to a(n) _____ and a large spike in _____.

recession; unemployment

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

recessionary; high

A general increase in wages will result primarily in the _____ curve shifting to the _____.

short-run aggregate supply; left

One factor that does NOT explain why frictional unemployment exists is:

the minimum wage.

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If GDP is $850 billion:

there is an inflationary gap.

Government payments to households for which no good or service is provided in return are called:

transfer payments.

A recessionary gap occurs if:

actual aggregate output is less than potential output.

If unplanned inventory investment is positive, then most likely:

aggregate expenditure on goods and services is less than forecast.

If the dollar amount of nominal GDP decreases, then it is possible that ____ .

aggregate output decreases by more than prices

A recessionary gap occurs when:

aggregate output is below potential output.

A negative supply shock often results in:

an increase in the aggregate price level and a decrease in aggregate output.

Assume that the marginal propensity to consume is 0.8 and that potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output, the government should:

decrease spending by $10 billion.

In a simple, closed economy (no government or foreign sector), if the marginal propensity to consume increases, the marginal propensity to save will:

decrease.

If policy makers want to decrease real GDP by $100 billion, and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____.

decrease; $40 billion

If a government runs large budget deficits over consecutive years, with the public debt growing _____ GDP, the ratio of debt to GDP will _____.

faster than; increase

If legislation required the federal budget to be balanced at all times, _____ as an automatic stabilizer of the business cycle.

fiscal policy could not operate

A double coincidence of wants is necessary:

for barter exchange.

All other things equal, an increase in the demand for loanable funds would MOST likely be caused by a(n):

forecast by the Federal Reserve of solid economic growth.

Natural unemployment equals _____ unemployment plus _____ unemployment.

frictional; structural

In a market basket:

goods and services are constant, and their prices may change.

Changes in aggregate demand can be caused by changes in:

government spending.

Net exports are calculated by subtracting:

imports from exports.

( Figure: Inflationary and Recessionary Gaps) Use Figure: Inflationary and Recessionary Gaps. The intersection of the SRAS and AD curves in panel (a) indicates an economy:

in a recessionary gap.

If expected GDP increases, then current planned investment will _____.

increase

As a result of a decrease in the value of the dollar in relation to other currencies, U.S. imports decrease and exports increase. Consequently, there is a(n):

increase in aggregate demand.

An increase in the demand for money would result from a(n):

increase in the price level.

Assume an open economy in which GDP is $20 trillion. If consumption is $14 trillion, government spending is $3 trillion, taxes are $2 trillion, government transfers are $0, exports are $2 trillion, and imports are $3 trillion, what is the net capital inflow?

$1 trillion

( Figure: Aggregate Demand) Use Figure: Aggregate Demand. The quantity of output demanded if the price level is 100 is:

$12 trillion.

According to the information in Table: Calculating GDP, what is GDP? Table: Calculating GDPRent$2,400Consumption Spending$7,900Social Security benefit$6,100Investment spending$2,100Wages and salaries$6,500Exports$800Interest$1,900Government purchases of goods and services$2,600Profits$1,400Imports$1,200Purchase of stocks$6,300Unemployment compensation$3,950Payroll taxes$2,965Sales taxes$1,300

$12,200

Given an annual interest rate of 3%, the present value of a future payment of $2,080 to be paid in one year is:

$2,019.42.

If the required reserve ratio is 25%, and the money supply increases by $100,000, then the initial reserve injection by the Federal Reserve was:

$25,000.

Holding human capital per worker and technology constant, the estimated aggregate production function in Jamaica is Y / L = 40 × K / L , where Y = real output, L = number of workers, and K = quantity of physical capital. If K / L = $80, then real GDP per worker is:

$3,200.

In 2019, consumer spending was $15,000, investment spending was $4,000, and net exports were -$500. GDP in 2019 was $22,000, government purchases of goods and services were _____ .

$3,500

In 2019, consumer spending was $14,000, government purchases of goods and services were $3,700, and net exports were -$500. If GDP in 2019 was $21,000, investment spending was _____ .

$3,700

Holding human capital per worker and technology unchanged, the estimated aggregate production function in Jamaica is Y / L = 50 × K / L , where Y = real output, L = number of workers, and K = quantity of physical capital. If K / L = $81, then real GDP per worker is:

$4,050

If the wage rate is $9 per hour, and the price level is 2, then the real wage is:

$4.50.

The reserve requirement is 20%. Oleg receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves. How much of the $1,000 deposit can the bank lend out?

$800

( Figure: The Money Supply and Aggregate Demand) Use Figure: The Money Supply and Aggregate Demand. Panel _____ illustrates what happens when the Fed decides to _____ Treasury bills and _____ the money supply.

(b); sell; decrease

In an economy with no taxes and no imports, disposable income increases from $1,000 to $2,000. If consumption increases from $800 to $1,500, the marginal propensity to save is _____.

0.3

Assuming no taxes and no trade, the multiplier equals:

1 / (1 - MPC ).

From 1996 to 2005, the average annual growth rate of total factor productivity in the United States was _____%.

1.6

An economy initially has 200 units of physical capital per worker. Each year, it increases the amount of physical capital by 10%. According to the aggregate production function, each 1% increase in physical capital per worker, holding human capital and technology constant, increases output per worker by 0.25%. In three years' time, what is the level of physical capital per worker?

266.2 units

If the nominal interest rate is 4%, and the inflation rate is 1%, then the real interest rate is _____%.

3

In an economy with no taxes and no imports, disposable income increases from $1,000 to $2,000. If consumption increases from $800 to $1,500, the multiplier is _____.

3.33

In February 2020, roughly _____% of unemployed individuals had been unemployed for less than 5 weeks.

35.1

If the slope of the aggregate spending line is 0.75, the multiplier is:

4

Assume an economy has grown by 4% per year over the past 30 years. During the same period, the labor force has grown by 1% per year, and the quantity of physical capital has grown by 5% per year. Each 1% increase in physical capital per worker is estimated to increase productivity by 0.4%. Assume that human capital has not changed during the past 30 years. How fast has physical capital per worker grown?

4%

If the marginal propensity to consume is 0.8, then the multiplier is:

5

( Figure: Fiscal Policy II) Use Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E 1 . If there is an increase in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

AD 1 ; left; decrease; decrease

( Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. An increase in aggregate demand is illustrated by a movement from:

AD 1 to AD 2 .

( Figure: Monetary Policy I) Use Figure: Monetary Policy I. If the economy is initially in equilibrium at E 1 , and the central bank buys Treasury bills, _____ shift to _____ a(n) _____ gap.

AD 1 will; AD 2 , closing; recessionary

( Figure: Technological Progress and Productivity Growth) Use Figure: Technological Progress and Productivity Growth. Which change in real GDP is MOST likely to have resulted from a gradual deterioration in property rights because of excessive government intervention?

C to B

From 1980 to 2018, the annual average growth rate of real GDP per capita in _____ was 3.7%.

Ireland

( Figure: Short- and Long-Run Equilibrium II) Use Figure: Short- and Long-Run Equilibrium II. Given the state of the economy depicted in the diagram, what would be an appropriate policy response by the government?

Raise tax rates to close an inflationary gap.

Both _____ and _____ may cause structural unemployment.

a binding minimum wage; union wages

Chained dollars is:

a method of calculating changes in real GDP, using an early base year and a late base year. Next

(Scenario: Assets and Liabilities of the Banking System) If the required reserve ratio is 6%, and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply? ​ Scenario: Assets and Liabilities of the Banking SystemAssetsLiabilitiesLoans$1,800,000Deposits$2,000,000Reserves$200,000 ​

about $1,333,333

A binding minimum wage in a labor market is set _____ the equilibrium wage and causes a _____ of job-seekers.

above; surplus

Chain-linking is a method of calculating changes in real GDP that ____ together a growth rate calculated using an early base year and one calculated using a late base year.

averages

Financial intermediaries involved in shadow banking typically:

borrow money short term and lend or invest long term.

In the circular-flow diagram, firms:

buy resources.

An increase in the wealth of households, other things equal, will _____ the aggregate consumption function.

cause an upward shift of

If a country imports more than it exports, and the government budget deficit increases, interest rates will _____, and the amount of borrowing will _____.

change unpredictably; increase

If the Federal Reserve conducts a $10 million open-market sale, and the reserve requirement is 20%, the monetary base will:

decrease by $10 million.

A decrease in the demand for loanable funds would MOST likely be caused by a(n):

decrease in perceived business opportunities.

As aggregate demand declined from 1929 to 1933, during the Great Depression, the GDP deflator:

decreased by 26%.

Contractionary monetary policy:

decreases aggregate demand.

In 1820, Mexico had a higher real GDP per capita than did Japan. Yet now Japan is one of the richest countries in the world, and Mexico is poor. Japan's high rate of economic growth likely CANNOT be explained by:

heavy government intervention in markets.

( Figure: Policy Alternatives) Use Figure: Policy Alternatives. If the economy is in equilibrium at Y 1 in panel (a), and government spending increases, the result will likely be:

inflation

An example of human capital is a person's:

job skills.

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

left; inflationary

A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real interest rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation will hurt the _____ because the actual rate of inflation is _____ than the anticipated rate of inflation.

lender; higher

( Figure: The Market for Loanable Funds II) Use Figure: The Market for Loanable Funds II. If the interest rate is below 6%, the quantity of loanable funds supplied will be _____ the quantity of loanable funds demanded.

less than

An INCREASE in the number of discouraged workers tends to:

lower the official unemployment rate.

( Figure: Consumption and Real GDP) Use Figure: Consumption and Real GDP. The slope of the consumption function is called the:

marginal propensity to consume.

An increase in the value of nominal GDP over time:

may be due to an increase in prices, in the production of goods and services, or both.

If a central bank announces an inflation target, it:

may have to sacrifice some control over interest rates.

During deflation, the:

overall price level falls.

A factor that does NOT affect consumer spending is:

past disposable income.

Economists are optimistic that growth can continue in the face of resource scarcity because:

prices of scarce resources rise and provide incentives to find alternative energy sources.

Assume a closed economy in which GDP is $110 billion. If government spending is $30 billion, consumption is $70 billion, taxes are $20 billion, and investment spending is $10 billion, then:

private savings is $20 billion.

( Figure: Monetary Policy and the AD - SRAS Model) Use Figure: Monetary Policy and the AD-SRAS Model. If the economy is in a recessionary gap at point f , it could move to point g as a result of:

purchases of government securities in the open market.

Financial markets spread the potential gains and losses of borrowing and lending among many firms and individuals, decreasing overall uncertainty. The financial system thereby:

reduces risk.

Examples of fiscal policy do NOT include:

reducing the money supply to raise the interest rate.

A person who is _____ loses more in welfare from losing $100 than he or she gains in welfare from winning $100.

risk-averse

( Figure: The Market for Loanable Funds II) Use Figure: The Market for Loanable Funds II. Other things equal, an increase in taxes on savings and investment income will shift _____ to the _____ and _____ the interest rate.

supply; left; increase

( Figure: An Increase in Aggregate Demand) Use Figure: An Increase in Aggregate Demand. At the short-run equilibrium at Y 2 and P 2 :

the SRAS curve will shift to the left.

According to the liquidity preference model, _____ money determines the interest rate.

the supply of and demand for

Banks are illiquid because:

their loans are less liquid than their deposits.

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:

there is a recessionary gap.

Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75 YD , where YD is disposable income, and C is consumption, and that planned investment is $75. If real GDP is $1,100:

unplanned investment equals zero.