MACROecon FINAL prep (Tests 1-4)
What is the value of the bank's total reserves?
$100 million total reserves is vault cash+deposits with federal reserve banks
The price elasticity of supply for a good is 3 if:
a 1 percent decrease in price leads to a 3 percent decrease in quantity supplied.
Which of the following will decrease the short-run aggregate supply?
a decrease in the personal income tax rates
A proposition about the relationship between two variables that can be proven false is called:
a hypothesis.
A substantial increase in the price of oranges (a normal good) is likely to result from:
a prolonged freeze in Florida.
A linear demand curve will have which of the following properties?
a slope that is constant and price elasticity that varies
A price of $25 per unit will result in:
a surplus of 200 units.
The natural level of employment occurs if there is no
cyclical unemployment.
Economists are generally in support of:
free international trade.
Activities of consumers and firms:
have both costs and benefits.
Inflationary and recessionary gaps can be closed by the economy's self-correcting adjustments mechanism that shift
the SRAS curve
Suppose the U.S. dollar price of the Euro falls. This means that
the U.S. exchange rate has risen and the U.S. dollar buys less euros
The key signals that send messages to buyers and sellers to buy or not to buy or to sell or not to sell are, all other things unchanged:
prices.
Market failure occurs when:
private decisions do not result in an efficient allocation of scarce resources.
Disposable personal income is
the same thing as after-tax wage income
A systematic set of procedures through which knowledge is created is:
the scientific method.
Based on the exhibit, and assuming there are no third-party payers:
the total amount spent on health services is $80 million per week. (or it is the equilibrium price)
The labor force is made up of
the total number of adults working, or, not working but looking for and available for work.
Social Security payments to U.S. citizens are called
transfer payments and are not included in GDP.
Any factor of production is capital if it:
was produced and can be used to produce other goods and services..
To assess changes in average standards of living,
we subtract the percentage rate of growth of population from the percentage rate of growth of output to get the percentage rate of growth of output per capita.
Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries
with high rates of economic growth.
All of the following are examples of external cost EXCEPT:
zoning restrictions on your property
Which of the following is a consequence of unanticipated inflation? I. It reduces the value of money. II. It increases the value of future obligations. III. It increases uncertainty about the future.
I and III only
The position of the long-run aggregate supply curve is determined by: I. the aggregate production function II. the labor demand curve III. the labor supply curve IV. the prevailing average price level
I, II, and III
Which of the following is a source of wage stickiness? I. fixed wage contracts II. minimum wage laws III. workers and firms want to avoid complexity of negotiating contracts frequently
I, II, and III
Which of the following statements is true of the economy in the long run? In the long run, I. real GDP eventually moves to potential because all wages and prices are assumed to be flexible. II. the economy can achieve its natural level of employment and potential output at any price level. III. there is no cyclical unemployment.
I, II, and III
In the long run, economic growth will lead to I. the opportunity to produce more consumer goods. II. the opportunity to produce more capital goods. III. a higher material standard of living. IV. a more equitable distribution of income.
I, II, and III only
Which of the following items is a stock variable? I. consumption expenditure II. gross private investment III. a trade surplus IV. government debt
III and IV only
The intersection of the economy's aggregate demand and long-run aggregate supply curves I. determines its equilibrium real GDP in both the long run and the short run. II. determines its equilibrium price level in both the long run and the short run. III. occurs at the economy's potential output.
III only
If two countries participate in free trade:
both countries as a whole will gain from the trade
If the real GDP is $7,000 billion and the implicit price deflator is 1.08, what is the value of nominal GDP?
$7,560 or (7000 x 1.08)
Price elasticity of demand formula
((QD1 - QD2) / (QD1 + QD2)) / ((P1 - P2) / (P1 + P2))
What is the price elasticity of demand between $2.25 (QD 25) and $2.00 (QD 50)?
-5.67 %change in QD/ % change in price so (25-50/25+50)/(2.25-2.00/2.25+2.00)
What is the value of the implicit price deflator for 2002? base period is 2003 where price per unit is $500 and output is 400. 2002 price per unit is $400 and output is 300.
0.8--- take 2002/2003 so (400x300)/(500x300)= 120,000/150,000= 0.8. You have to adjust for the same level of output.
If George, Barbara, and Dan are the only three buyers in the market, and the price of a bag of chocolate-covered peanuts is 80 cents, the total market demand is ________ bags per month. at 80cents George demands 15, Barbara 10, and Dan 80.
105
Suppose that the expected exam scores from studying economics for 0, 1, 2, or 3 hours are 65, 80, 90, and 95 points, respectively, while the expected exam scores for studying 0, 1, 2, or 3 hours of accounting are 50, 65, 70, and 70 points, respectively. With 3 total hours of study time, the marginal benefit in terms of your economics score of spending the first hour studying economics is _______ points.
15
If population increases at an average rate of 2% per year and output increases at an average rate of 5% per year, then output per capita will double in
24 years
Use the rule of 72 to determine how long it takes for real GDP to double if real GDP grows at 3% per year
24 years because 72/3 = 24
Now suppose 4,000 of the people (in Table 5-8) who are in the Labor Force, looking for work, get discouraged and give up their searches. What is the unemployment rate?
5.97%
Perfectly inelastic
= 0
Perfectly elastic
= infinity
Your purchase of groceries from Safeway is represented by which two flows?
A and B
What is the difference between a flow variable and a stock variable?
A flow variable is a variable that is measured over a specific period of time while a stock variable is a variable that is independent of time.
A feature that distinguishes economists' approach to making choices is (are):
ALL OF THE ABOVE!!! -assigning opportunity costs a major role in their analyses of choices. -assuming individuals make choices to maximize objectives. -emphasizing that choices are made at the margin.
Which of the following statements is true? A. Unexpected inflation benefits lenders and hurts borrowers. B. Unexpected deflation benefits lenders and hurts borrowers. C. Unexpected inflation benefits borrowers but does not affect lenders. D. Unexpected deflation benefits lenders but does not affect borrowers.
B. Unexpected deflation benefits lenders and hurts borrowers.
In the short run, all prices are flexible.
False
The equation of exchange determines the supply of money in the economy.
False
Government expenditure is the largest single category of GDP.
False, it is consumption
If two goods are substitutes, a decrease in the price of one will result in an increase in demand for the other.
False.
Your grandfather tells you that his Social Security payments are indexed. What does this mean?
It means that the dollar value of his Social Security payment is adjusted for changes in the price level so that his purchasing power is constant.
One disadvantage of commodity money is that
Its quantity can fluctuate erratically.
Implicit Price Deflator formula
Nominal GDP/Real GDP
What has happened to an assistant professor's salary between 1967 and 1997? Where is 1967 it was 10,000 with a price index of 1.0, and in 1997 it was 40,000 with a price index of 4.2
The purchasing power of an assistant professor's salary has fallen by about 4.8%.
An example of a positive statement is:
The rate of unemployment is 4 percent.
A good is scarce if we must sacrifice something to obtain it.
True
An increase in the money supply will decrease both interest rates and exchange rates.
True
Double counting occurs when both intermediate and final goods are included in the GDP.
True
Which of the following exemplifies the outlet bias in the computation of the CPI?
Yu-Jen does most of her family's shopping at Costco instead of Safeway because the prices at Costco are more competitive.
Aggregate demand is the total value of real GDP that
all sectors of the economy are willing to purchase at various average price levels, all other things unchanged.
To eliminate a recessionary gap, policy-makers may pursue
an expansionary policy that increases aggregate demand.
A movement from point B to point E on could be due to
an increase in consumer confidence
The monetary aggregate, M1, increases when
an individual switches funds from a savings account to a checking account.
Economists in general agree that rent controls are:
an inefficient and ineffective way to help low-income families.
Given the equilibrium after a change in supply from S1 to S2:
at the old price of $2.50, there will be pressure for the price to fall.
The principle of fractional reserve banking makes it possible for a
bank to make loans.
If there are external costs, a tax imposed on sellers will:
decrease the equilibrium quantity.
The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged?
demand will increase by about 2.9 percent
Profit is the:
difference between a firm's total revenue and its total economic cost.
Goods and services produced abroad and sold in the domestic economy are called
imports
At a price of $60 with a third party payer, the total cost of health-care services compared to the price that would prevail if there were no third-party payers has:
increased from $80 million to $180 million.
Which of the following would be a part of macroeconomics? A study of:
inflation.
It is difficult to measure the contribution of the service sector to GDP because
it is difficult to determine what counts as a unit of output.
A price ceiling will have no effect if:
it is set above the equilibrium price.
If the economy is initially at Y1, supply-side economists would advocate
lower taxes to encourage people to work more.
A source of economic growth is:
more factors of production.
In our society, a good for which exclusion is possible is:
municipal swimming pools.
For an inferior good, income elasticity of demand will be:
negative.
Most economists' disagreements are a result of:
normative considerations.
During an economic slump, policies that lower interest rates may not actually boost investment because
of pessimistic expectations by businesses about the future of the economy.
The sequence of a business cycle phases is
peak, recession, trough, expansion.
Although in most cases the price elasticity of labor supply is ________ , for some individuals it may be ________ .
positive; negative
A set of rules that specify the ways in which the resource for which they are defined may be used are:
property rights.
Government's role of providing national defense is considered:
providing certain goods and services.
The total value of all final goods and services produced in a country during a given period, adjusted to eliminate the effects of changes in prices is called
real GDP.
Which of the following is the best indicator of a nation's overall economic performance?
real gdp
All other things unchanged, a higher exchange rate
reduces net exports and aggregate demand.
One source of high health care costs is the:
relatively large fraction of health care expenditures paid by third-party payers.
In a command socialist economy:
resources are government owned and government exercises broad power over their use
A price below the equilibrium price will:
result in pressure for price to rise.
As the economy moves from point A towards, say, point D, it will find that the opportunity cost of each additional submarine:
rises.
All other things unchanged, an increase in personal income tax rates will
shift the aggregate demand curve to the left.
Exponential economic growth can be depicted by
shifts in the LRAS curve to the right in which the successive increases are larger and larger.
Most firms in the United States today are:
sole proprietorships and partnerships.
A decrease in supply is caused by:
suppliers' expectations of higher prices in the future.
In the stock market:
the demand for stocks in recent years has been greatly affected by demographic change and rising incomes.
Suppose the economy is initially at point A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD2. As a result
the economy is in short-run equilibrium and it operates with an inflationary gap.
As an inflationary gap is eliminated through an economy's self-correcting adjustments process,
the equilibrium price level increases and the equilibrium real output decreases.
All of the following are indicators of a nation's standard of living except: infant mortality rate, life expectancy, literacy rate, the inflation rate measured by CPI.
the inflation rate measured by CPI.
The price elasticity of a good will tend to be greater:
the longer the relevant time period.
