Macroeconomic Final Exam Review
What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?
c. decrease taxes or increase the money supply
Trade makes costs
d. Lower and raises the variety of goods and services available
Other things the same, when the price level rises, interest rates
rise, so firms decrease investment.
Aggregate demand shifts right if at a given price level
taxes fall and shifts right if the money supply increases.
Interest rates fall and investment falls. Which of the following could explain these changes?
B. The government repeals an investment tax credit.
When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is
B. a U.S. import and an Irish export.
Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called
B. a decrease in the supply of loanable funds.
Which of the following would be included as investment in the GDP accounts?
B. a firm increases its capital stock
In analyzing international trade, we often focus on a country whose economy is small relative to the rest of the world. We do so
B. because then we can assume that world prices of goods are unaffected by that country's participation in international trade.
According to the classical model, which of the following would double if the quantity of money doubled?
B. both prices and nominal income
Which of the following is a store of value?
B. cash and stocks
When a country allows trade and becomes an exporter of bicycles,
B. domestic producers of bicycles are better off, domestic consumers of bicycles are worse off, and the economic well-being of the country rises.
Which of the following correctly orders U.S. income measures from largest to smallest?
B. gross national product, net national product, national income, personal income, disposable personal income
You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency
B. has no intrinsic value. The exchange is not an example of barter.
Economists agree that
B. high inflation is costly, but they disagree about the costs of moderate inflation.
Monetary neutrality implies that an increase in the quantity of money will
B. increase the price level.
A central bank's setting (or altering) of the money supply is known as
B. monetary policy.
According to the classical dichotomy, which of the following is influenced by monetary factors?
B. nominal interest rates
A bond that never matures is known as a
B. perpetuity.
Which of the following is always measured in prices from a base-year?
B. real but not nominal GDP.
The North American Free Trade Agreement
B. reduced trade restrictions among Canada, Mexico and the United States.
When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy
B. rises
Which of the following words and phrases best captures the notion of equality?
B. sameness
In the long run, fiscal policy influences
B. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.
A measure of the volatility of a variable is its
B. standard deviation.
Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?
B. substitution bias
Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess
B. supply of money that is represented by the distance between points A and B.
Which entity within the U.S. government is responsible for computing and reporting the CPI?
B. the Department of Labor
Which of the following shifts aggregate demand to the right?
B. the Federal Reserve buys bonds.
Economic expansions in Europe and China would cause
B. the U.S. price level and real GDP to rise.
The slope of a line is equal to
B. the change in the value of y divided by the change in the value of x.
Other things the same, as the price level falls,
B. the dollar depreciates.
According to liquidity preference theory, if there were a surplus of money, then
B. the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium.
When there is an increase in government expenditures, which of the following raises investment spending?
B. the investment accelerator but not crowding out
According to the classical dichotomy, which of the following is influenced by monetary factors?
B. the nominal interest rate.
The aggregate demand and aggregate supply graph has
B. the price level on the vertical axis. The price level can be measured Suppose by the GDP deflator.
The sale of bonds
B. to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance.
If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is
C. -4 percent.
At which interest rate is the present value of $35.00 two years from today equal to about $30.00 today?
8%
Table 29-1. The information in the table pertains to an imaginary economy. Refer to Table 29-1. What is the value of M1 in billions of dollars?
A. $1,915 billion
Table 24-5 Refer to Table 24-5. The cost of the basket in 2006 was
130
Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?
$10,000.
Figure 9-24 Refer to Figure 9-24. Suppose the government imposes a tariff of $10 per unit. The amount of revenue collected by the government from the tariff is
$100
If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.
. These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower.
Table 23-6 Refer to Table 23-6. In 2013, this country's GDP deflator was
100.0.
In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?
A. $100
Dewey earned a salary of $75,000 in 2001 and $95,000 in 2006. The consumer price index was 177 in 2001 and 266 in 2006. Dewey's 2006 salary in 2001 dollars is
A. $63,214.29.
If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by
A. $700 of new reserves.
If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
A. $8,000 of new money.
Table 29-2. The information in the table pertains to an imaginary economy. Refer to Table 29-2. What is the M2 money supply?
A. $880 billion
Refer to Table 24-9. What is the consumer price index for May?
A. 166
Table 23-6 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2013 .
A. 57.9
If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is
A. 9 percent
How is net national product (NNP) calculated?
A. Depreciation losses are subtracted from the total income of a nation's citizens.
Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries either, they give her what they use to sell her. Which of the following statements is consistent with the way GDP is computed?
A. GDP will fall if Jennifer marries Thomas but not if she marries Darin.
Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?
A. Investment would decrease.
Which of the following statements is correct?
A. Most buyers of stocks and bonds prefer those issued by large and familiar companies
If the central bank in some country raised the reserve requirement, then the money multiplier for that country
A. Would decrease
The initial impact of the repeal of an investment tax credit is to shift
A. aggregate demand left.
According to 2012 data on the U.S. population
A. an increase in the overall level of prices in the economy.
An increase in the money supply
A. and an investment tax credit both cause aggregate demand to shift right.
The Federal Reserve Board of Governors
A. are appointed by the President and confirmed by the Senate.
The members of the Federal Reserve's Board of Governors
A. are appointed by the president of the U.S. and confirmed by the U.S. Senate.
When the Fed decreases the discount rate, banks will
A. borrow more from the Fed and lend more to the public. The money supply increases.
Household spending on education is included in
A. consumption, although it might be argued that it would fit better in investment.
The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to
A. decrease efficiency but increase equality.
In a closed economy, national saving is
A. equal to investment.
Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded
A. fall, and investment spending fall.
The idea of menu costs suggests that
A. firms alter prices more frequently as inflation increases.
In which case can we be sure real GDP rises in the short run?
A. foreign economies expand and government purchases rise.
A transfer payment is a payment made by
A. government, but not in exchange for a currently produced good or service.
The Federal Reserve was created
A. in 1913 by Congress
If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP
A. increases.
The interest-rate effect
A. is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.
When the Fed conducts open-market sales,
A. it sells Treasury securities, which decreases the money supply.
The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increase will most likely cause the GDP deflator to increase by
A. less than 0.5 percent.
According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would
A. lower private saving and raise public saving.
The CPI is calculated
A. monthly
As the price level rises, the interest rate
A. rises, so the supply of dollars in the market for foreign currency exchange shifts left.
The source of the supply of loanable funds is
A. saving, and the source of the demand for loanable funds is investment.
An understanding of the best ways to produce goods and services is called
A. technology.
Estimates of the values of which of the following non-market goods or services are included in GDP?
A. the estimated rental value of owner-occupied homes
When deflation exists,
A. the real interest rate is greater than the nominal interest rate.
A U.S. firm produces sweatshirts in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the sweatshirts to consumers. In which quarter(s) does(do) these transactions raise consumption?
A. the second but not the first
It is claimed that a secondary advantage of mutual funds is that
A. they give ordinary people access to the skills of professional money managers.
Figure 27-1. The figure shows a utility function. Refer to Figure 27-1. What is measured along the vertical axis?
A. utility
Economists have developed models of risk aversion using the concept of
A. utility and the associated assumption of diminishing marginal utility.
Which of the following will both make people buy more?
A. wealth rises and interest rates fall.
Which of the following statements is correct?
A.Buyers determine demand, and sellers determine supply.
Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is
B. $1.25 and the price-earnings ratio is 5.
Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?
B. $17 trillion
Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 3 percent. The future value of the $500 after 1 year is
B. $515.00.
A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?
B. $67.65
The multiplier for changes in government spending is calculated as
B. 1/(1 - MPC).
For teenagers, a 10 percent increase in the price of cigarettes leads to a
B. 12 percent reduction in the quantity demanded of cigarettes.
In the United States, the overall level of prices more than doubled during the
B. 1970s.
Refer to Table 23-10. In which year was this country's real GDP highest?
B. 2016
In the first few years of the Great Depression, unemployment rose to about
B. 25 percent, and prices fell about 22 percent.
A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of
B. 5 percent.
Scenario 29-2. Refer to Scenario 29-2. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?
B. 6,900 million tazes
Which of the following statements is correct?
B. All items that are included in M1 are included also in M2.
Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?
B. As the price level increases, the interest rate rises, so spending falls.
Consider five individuals with different occupations. Allen prepares taxes wants ribs Betty does dry cleaning wants computer fixed Calvin fixes computers wants bread Diedre bakes bread wants taxes prepared Eric barbecues ribs wants dry cleaning
B. Betty will buy from Calvin
According to 2012 data on the U.S. population, which of the following was correct for the adult population of prime working age, ages 25-54?
B. Black females had similar labor-force participation rates and higher unemployment rates com
Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good?B.
B. Janet's purchase but not ABC Suppose Bakery's purchase.
Which of the following is an example of financial intermediation?
B. Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
Which movie is an allegory about late 19th century monetary policy?
B. The Wizard of Oz
Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining?
B. The expected price level rises. Bargains are struck for higher wages.
Scenario 9-2 Refer to Scenario 9-2. Suppose the world price of cardboard is $45 and international trade is allowed. Then Boxland's consumers demand
C. 110 tons of cardboard and Boxland's producers supply 75 tons of cardboard.
The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?
C. 8.3 percent
Studies have found which of the following economic terms mentioned most often in U.S. newspapers?
C. Inflation
For the following questions, use the diagram below: Refer to Figure 34-7. Which of the following is correct?
C. It is possible that either fiscal or monetary policy might have caused the shift from AD1 to Ad2
Which of the following is not a central bank?
C. The Bank of America
Other things the same, as the price level falls, a country's exchange rate
C. The CPI and interest rates fall.
Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?
C. The demand for loanable funds shifted rightward.
Which of the following restrictions implies that private saving and investment are equal for a closed economy?
C. The economy's government is running neither a surplus nor a deficit.
Which of the following people purchased the correct asset to meet his or her objective?
C. Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by
In 1986, OPEC countries increased their production of oil. This caused
C. aggregate supply to shift right.
Which of the following is a certificate of indebtedness?
C. bonds but not stocks
Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself, this sale
C. decreases U.S. net exports and increases Russian net exports.
The Federal Open Market Committee meets approximately
C. every six weeks
Financial intermediaries are
C. financial institutions through which savers can indirectly provide funds to borrowers.
Grapes are considered intermediate goods
C. if the purchaser uses them to make wine to sell others but not if the purchaser eats them.
Keynes believed that economies experiencing high unemployment should adopt policies to
C. increase aggregate demand.
The term economists use to describe a situation in which the economy's overall price level is rising is
C. inflation.
The real interest rate is the
C. interest rate corrected for inflation.
Which of the following subcomponents of GDP can be either positive or negative?
C. inventory investment
If a government has a budget surplus, then public saving
C. is positive and increases national saving.
A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are
C. larger in closed economies than in open economies.
Changes in the interest rate bring the money market into equilibrium according to
C. liquidity preference theory, but not classical theory.
Which of the following increases when the Fed makes open-market sales?
C. neither currency nor reserves
Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at $3 per dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs sold at $1.50 per dozen and ham sold at $5 per pound. For 2009,
C. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.
As the price level falls
C. people are more willing to lend, so interest rates fall.
The nominal exchange rate is the
C. rate at which a person can trade the currency of one country for another.
Table 23-9 A country produces only ice cream and pie. Quantities and prices of these goods for the last several years are shown below. The base year is 2008. Refer to Table 23-9. In 2009, this country's
C. real GDP was $250, and the GDP deflator was 120.
To decrease the money supply, the Fed can
C. sell government bonds or increase the discount rate.
Because the liquidity-preference framework focuses on the
C. short run, it assumes the interest rate adjusts to bring the money market to equilibrium.
The Fed's control of the money supply is not precise because
C. the amount of money in the economy depends in part on the behavior of depositors and bankers.
The velocity of money is
C. the average number of times per year a dollar is spent.
The economy's two most important financial markets are
C. the bond market and the stock market.
If something happens to alter the quantity demanded at any given price, then
C. the demand curve shifts.
According to the theory of liquidity preference,
C. the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
When the Fed buys government bonds,a
C. the money supply increases and the federal funds rate decreases
The primary argument against active monetary and fiscal policy is that
C. these policies affect the economy with a long lag.
Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets
C. will result in a 60 percent increase in owner's equity.
If 2012 is the base year, then the inflation rate for 2012 equals
CPI in 2013-CPI in 2012/CPI in 2012 * 100
In the context of decisionmaking, the word "marginal" is most closely associated with the word
D. "edge."
If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is
D. -2 percent.
The average income in a rich country, such as the United States or Japan, is more than
D. 10 times, but less than 20 times, the average income in a poor country, such as Indonesia or N
The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?
D. 4.41 percent
Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?
D. All of the above are correct.
In considering how to allocate its scarce resources among its various members, a household considers
D. All of the above are correct.
The New York Federal Reserve Bank
D. All of the above are correct.
Which of the following is a decision that economists study?
D. All of the above are correct.
Who was reappointed Chair of the Board of Governors in 2009 by President Barrack Obama?
D. Ben Bernanke
Which of the following is not correct?
D. GDP and GNP typically move in opposite directions.
After a corporation issues stock, the stock
D. None of the above are correct.
Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?
D. None of the above is correct.
For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that
D. S = I + NX.
Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?
D. The quality of beef deteriorates and beef becomes more expensive relative to other goo
Which of the following shifts both short-run and long-run aggregate supply left?
D. a decrease in the capital stock
All of the following are examples of a nondurable good except
D. a queen-size bed.
The federal funds rate is the interest rate
D. banks charge each other for short-term loans of reserves.
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is
D. borrowing directly.
When a union raises the wage above the equilibrium level,
D. both the quantity of labor supplied and Suppose unemployment rise.
The inflation rate is calculated
D. by determining the percentage increase in the price index from the preceding period.
A budget deficit
D. changes the supply of loanable funds.
Higher education subsidies in the form of the federal government's student loan program have the potential to
D. create a credit bubble and debt crisis.
In recent years, the Federal Reserve has conducted policy by setting a target for the
D. federal funds rate.
The existence of money leads to
D. greater specialization and to a higher standard of living.
The nominal interest rate tells you
D. how fast the number of dollars in your bank account rises over time.
If a increase in income decreases the demand for a good, then the good is a(n)
D. inferior good.
Which of the following is not a characteristic of a bond?
D. its dividend yield
In the United States in 2012, government purchases of goods and services were
D. larger than investment, but smaller than consumption.
The slope of the supply of loanable funds is based on the logic that an increase in interest rates
D. makes saving more attractive.
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
D. people face tradeoffs.
The adage, "There is no such thing as a free lunch," means
D. people face tradeoffs.
As the price level rises
D. people will want to buy fewer bonds, so the interest rate rises.
In medieval Europe an important technological advance was the use of the padded horse collar for plowing. Once this idea was thought of, other people used it. This illustrates that knowledge is generally a
D. public good.
A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 120 in 2009. Between 2009 and 2010,
D. real output and the price level both rose
A bond buyer is a
D. saver. Long term bonds have more risk than short term bonds.
A monopoly is a market with one
D. seller, and that seller sets the price.
Which of the following is included in the investment component of GDP?
D. spending on new residential construction but not spending on stocks and bonds
Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts?
D. the interest rate would decrease and the quantity of loanable funds would increase.
The self-interest of the participants in an economy is guided into promoting general economic self-interest by
D. the invisible hand.
When the Fed sells government bonds,
D. the money supply decreases and the federal funds rate increases.
If net exports is a negative number for a particular year, then
D. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.
Which of the following is an example of using the scientific method with a natural experiment?
D. tracking the price of oil when a war in the Middle East interrupts the flow of crude oil
The money supply is 4,000, nominal GDP is 8,000, and real GDP is 2,000. Which of the following is 2?
D. velocity but not the price level.
Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause
D.the demand for this company's stock to decrease, so the price would fall
An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.
His real salary has fallen and his nominal salary has risen.
Factors of production are
a. inputs into the production process.
Much of macroeconomics attempts to explain
d.long-run growth and short-run fluctuations in real GDP.
Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?
institute an investment tax credit or increase the money supply