macroeconomics final
what are the functions of the federal reserve system?
1. The Fed supplies the economy with fiduciary currency. 2. The Fed holds depository institutions' reserves and provides payment-clearing systems. 3. The Fed acts as the government's fiscal agent. 4. The Fed supervises depository institutions. 5. The Fed conducts monetary policy. 6. The Fed intervenes in foreign currency markets. 7. The Fed acts as the "lender of last resort."
Suppose that in 2013, a typical U.S. student attending a state-supported college bought 10 textbooks at a price of $80 per book and enrolled in 30 credit hours of coursework at a price of $380 per credit hour. In 2014, the typical student continued to purchase 10 textbooks and enroll in 30 credit hours, but the price of a textbook rose to $100 per book, and the tuition price increased to $420 per credit hour. The base year for computing a "student price index" using this information is 2013.
100
The price index for any base year is
100
Adult population: 292 million Employed adults: 199 million Unemployed adults: 6 million a. The unemployment rate is nothing%. (Enter your response rounded to two decimal places.)
2.93%
Rational, self-interested government officials seeking more funding for mass transit through higher taxes should consider A. how to spend the funds for their own individual gain. B. that taxpayers may prefer to commute in their own cars rather than depend on mass transit. C. the fact that raising taxes is generally unpopular and may result in a potential loss in a future election. D. that taxpayers may prefer to use mass transit to save on gas cost.
c
The biggest component of GDP using the expenditure approach is ____________ and the biggest component of GDP using the income approach is _____________. A. investment expenditures; profit B. government expenditures; taxes C. consumer expenditures; wages D. consumer expenditures; profit
c
The long-run aggregate supply curve is determined by A. the amount of inflation in the economy. B. the real value of cash balances. C. the full-employment level of real output. .D. the relationship between price and quantity supplied.
c
What is the difference between microeconomics and macroeconomics? A. Microeconomics lends itself to empirical analysis while macroeconomics uses the concept of incentives. B. Microeconomics examines the big picture while macroeconomics examines individual units. C. Microeconomics is the study of decision making undertaken by individuals while macroeconomics looks at the behavior of the economy as a whole. D. Microeconomics deals with positive analysis while macroeconomics deals with normative analysis.
c
What is the difference between the balance of trade and the balance of payments? A. Only the balance of payments includes exports and imports. B. Only the balance of trade includes exports and imports. C. Both the balance of trade and the balance of payments consider exports and imports, while the balance of payments also includes cross-border exchange of services, income and financial assets. .D. Both the balance of trade and the balance of payments consider exports and imports, while the balance of trade also includes cross-border exchange of services, income and financial assets.
c
Which of the following is not an argument against free trade? A. Infant industry. B. Dumping. C. Comparative advantage. D. Exporting technologies can pose a threat to national defense.
c
Which of the following statements is not true about the use of GDP as a measure of national welfare? A. GDP is limited as a measure of national welfare since it does not account for labor market discrimination. .B. GDP is limited as a measure of national welfare since it does not consider the amount of leisure time available to the nation's residents. C. GDP is a useful measure of national welfare since it excludes nonmarket transactions. .D. GDP is limited as a measure of national welfare since it does not consider environmental quality.
c
Which of the following would least likely be, for the typical student, the opportunity cost of attending a class at 11:00 a.m.? A. Taking a much needed course offered by another department. B. Accepting work at the mall as a part-time sales associate. .C. Partying with a close circle of friends. .D. Getting the "jump" on most students by getting to the dining hall for lunch before the mid-day rush.
c
is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by typical consumers in urban areas.
consumer price index (cpi)
unemployment resulting from business recessions that occur when aggregate (total) demand is insufficient to create full employment.
cyclical unemployment
. A municipality taxing hotel guests to obtain funding for a new sports stadium should consider all of the following, except A. all other alternative sources of funding the sports stadium. B. the total cost of building the sports stadium. C. the impact of that tax on possible reduction of tourism in the local region. D. the winning potential of the sports team using the stadium.
d
A trade deficit implies that A. the number of items imported is larger than the number of items exported. B. the dollar value of exports exceeds the dollar value of imports. .C. the number of items exported is larger than the number of items imported. D. the dollar value of imports exceeds the dollar value of exports.
d
All of the following are key price indexes except the A. CPI. B. PPI. C. GDP deflator. D. KLB.
d
All of the following will shift the short-run aggregate supply and the long-run aggregate supply except for A. a depletion of raw materials. B. decreased competition. C. increased training and education of the labor force. D. a temporary change in input prices.
d
Contractionary monetary policy causes the A. price level to increase. .B. amount of government spending to increase. C. dollar value of real GDP to increase. D. interest rate to increase.
d
The opportunity cost of attending a class at 11:00 a.m. will likely differ from the opportunity cost of attending a class at 8:00 a.m. because A. a student's evaluation of any given set of alternatives is likely to be time-sensitive. B. nothing is going on at 8 a.m. C. the number and variety of alternatives at 11 a.m. are likely to differ from those available at 8 a.m. D. both A and C are correct.
d
When a country protects an infant industry in the hope that it will become efficient enough to compete effectively in the world market A. the import-restricting arrangements often remain after the time period allotted for the industry to mature. B. the stockholders of companies in the infant industry gain when they are protected from world competition. C. consumers in that country lose if they continue to pay a price higher than the world price for the good in question. D. All of the above. .E. A & C only.
d
is any item that sellers will accept as payment.
medium of exchange
AD SHIFT: Deflation has occurred during the past year.
movement down along
the price level has increased this year (ad shift)
movement up along
is the interest rate that does not take inflation into account.
nominal interest rate
are the values of variables such as GDP and investment expressed in current dollars, also called money values; measurement in terms of the actual market prices at which goods and services are sold.
nominal values
Everyone should enjoy open access to healthcare (p or n)
normative
Increasing the earnings of minimum wage employees is desirable, and raising the minimum wage is the best way to accomplish this. (p or n)
normative
how can the federal reserve monetary policy actions influence market interest rates?
open market operations, changes in the reserve ratio, changes in the interest rates paid on reserves, and discount rate changes.
statistical measure of average prices that uses annually updated weights based on surveys of consumer spending.
personal consumption expenditure (pce)
Categorize each of the following conclusions as being the result of positive analysis LOADING... or normative analysis LOADING... . a. A higher minimum wage will reduce employment opportunities for minimum wage workers.
positive
Heathcare subsidies will increase the consumption of health care (positive or normative statement)
positive
the cost of today's market basket of goods expressed as a percentage of the cost of the same market basket during a base year.
price index
is a statistical measure of a weighted average of prices of goods and services that firms produce and sell.
producer price index (ppi)
the hypothesis that changes in the money supply lead to equiproportional changes in the price level
quantity theory of money and prices
adjusts for the inflation and gives the real rate of a bond or a loan.
real interest rate
are measurement of economic values after adjustments have been made for changes in the average of prices between years.
real values
what is the difference between nominal gdp and real gdp?
real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.
is a group of nations that grants members special trade privileges.
regional trade bloc
are regulations that nations in regional trade blocs establish to delineate product categories eligible for trading preferences.
rules of origin
is unemployment resulting from the seasonal pattern of work in specific industries. It is usually due to seasonal fluctuations in demand or to changing weather conditions that render work difficult, if not impossible, as in the agriculture, construction, and tourist industries.
seasonal unemployment
ad shift: Real GDP levels of all the nation's major trading partners have declined.
shifts to left
Real GDP levels of all the nation's major trading partners have declined. (ad shift)
shifts to right
is a property of an item that makes it desirable for use as a means of settling debts maturing in the future; an essential property of money.
standard of deferred payment
is the ability to hold value over time; a necessary property of money.
store of value
unemployment of workers over lengthy intervals resulting from skill mismatches with position requirements of employers and from fewer jobs being offered by employers constrained by governmental business regulations and labor market policies.
structural unemployment
Suppose that there is a temporary, but significant, increase in oil prices in the economy depicted in the figure to the right. which way should sras be shifted?
to the left
is moving partially assembled products into a member nation of a regional trade bloc, completing assembly, and then exporting them to other nations within the bloc, so as to benefit from preferences granted by the trade bloc.
trade deflection
is shifting existing international trade from countries outside a regional trade bloc to nations within the bloc.
trade diversion
is a measure by which prices are expressed; the common denominator of the price system; a central property of money.
unit of accounting
is the successor organization to the GATT that handles trade disputes among its member nations.
world trade organization (wto)
what determines changes in equilibrium of exchange rates?
•Changes in real interest rates. •Changes in consumer preferences. •Perceptions of economic stability.
any event that causes the aggregate supply curve to shift inward or outward.
Aggregate supply shock
how to fix exchange rates?
Central banks can keep exchange rates fixed as long as they have enough foreign exchange reserves to deal with potentially long-lasting changes in the demand for or supply of their nation's currency.
the total market value of all final goods and services produced during a year by factors of production located within a nation's borders.
GDP
what are limitations of gdp as a measure of national welfare?
GDP is a measure of the value of production in terms of market prices and an indicator of economic activity. It is not a measure of a nation's overall welfare.
price index formula?
Price Index = Cost of Market Basket in 2014/ Cost of Market Basket in base year 2013 times 100 Cost of Market Basket in 2014/ Cost of Market Basket in base year, 2013×100.
equation of exchange formula?
Ms(V)=PY
what is the relationship between the price of existing bonds and rate of interest?
The market price of existing bonds (and all fixed-income assets) is inversely related to the rate of interest prevailing in the economy.
If a firm in China sells its product in the U.S. at a price below its cost of production, the firm is said to be A. experiencing diseconomies of scale. B. acting in the interest of consumers and producers in U.S. market. C. dumping its goods in the U.S. market. D. None of the above.
c
formula for counting unemployment?
Unemployment rate= Unemployed adults/ Labor force Unemployed adults/ Labor force times ×100 = 2.932.93%
A politician states "taxes should be raised to provide more spending on school lunch programs." This is A. a normative economic statement. .B. a ceteris paribus assumption. C. a positive economic statement. D. an economic fact.
a
An increase in the price of gasoline will reduce the amount of gasoline purchased. This is A. a positive economic statement. .B. a negative economic statement. C. a normative economic statement. D. an economic assumption.
a
If federal budget deficits LOADING... increase, then a part of that deficit A. will be financed by foreign dollar holders, who will buy fewer U.S. exports, thus increasing the U.S. trade deficit. B. will be financed by domestic bond holders, who will buy fewer U.S. exports, thus decreasing the U.S. trade deficit. C. will be financed by domestic bond holders, who will buy fewer imports, thus increasing the U.S. trade deficit. D. will be financed by foreign dollar holders, who will sell fewer imports, thus decreasing the U.S. trade deficit.
a
Suppose that the wage rate of labor increased temporarily. The result of this would be best described by A. a decrease in the short-run aggregate supply curve only. .B. an increase in both the short-run aggregate supply and long-run aggregate supply curves. C. an increase in the short-run aggregate supply curve only. D. a decrease in both the short-run aggregate supply and long run aggregate supply curves.
a
The long-run aggregate supply curve shifts outward when A. there is economic growth. B. there are changes in the power of government. C. the real-balance effect takes hold. D. there is increased demand of real goods and services.
a
Which of the following will increase both the short-run and long-run aggregate supply curves? A. Younger workers in the labor force receive better and more training than their predecessors. B. The wage rate decreases throughout the economy temporarily. C. There are fewer firms involved in perfectly competitive and monopolistically competitive market structures as the economy features more oligopolies than before. D. The supply of key raw materials such as petroleum and bauxite are reduced.
a
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this deficit, the U.S. government must A. decrease taxes. B. retire previous debt first. C. pay a higher rate of interest on the bonds it sells. .D. increase the money supply.
c
any event that causes the aggregate demand curve to shift inward or outward.
aggregate demand shock
how can i find the long run equilibrium price level?
at the point where the aggregate demand curve (AD) crosses the long-run aggregate supply curve (LRAS)
Central banks can keep exchange rates fixed as long as A. the IMF would allow them to do so. B. they have enough foreign exchange reserves to deal with potentially long-run changes in the demand or supply of its currency. C. there is a constant amount of gold in the world. D. the central banks of each country are able to get the approval from the commercial banks of their respective countries.
b
If a country has a comparative advantage in the production of some good then A. that country should let other nations produce that good so that they may focus on new products that will expand job opportunities for their citizens. B. that country can produce the good at a lower opportunity cost compared to other producers. .C. that country should specialize in the production of that good and not trade with other nations so that they can keep all the gains for themselves. D. All of the above.
b
Many economists view the natural rate of unemployment as the level observed when real GDP is given by the position of the long-run aggregate supply curve LOADING... . There can be positive unemployment in this situation because A. business cycles are an inherent feature of the economy causing cyclical unemployment to naturally occur. B. information is costly and rigidities always exist causing some types of unemployment (frictional and structural) to occur even in the long run after everyone in the economy has fully adjusted to any changes. C. corporations need the presence of some unemployment to keep workers "in line." D. in a free society some people will always prefer idleness over work.
b
The expenditure approach to tabulating GDP A. excludes investment expenditures because they yield consumption in the future. B. adds up the total amount spent on newly produced domestic goods and services during the year. Your answer is correct.C. adds consumption expenditures, investment expenditures, government expenditures, interest payment and wages. D. adds up the total value of all income earnings during the year.
b
The long-run aggregate supply curve will not shift if there is a change in A. technology. B. the price level. .C. amount of labor. D. amount of capital.
b
What is the basic structure of the Federal Reserve Bank? A. There is one major bank with 25 branches. B. There are 12 district banks, a Board of Governors and a Federal Open Market Committee. .C. It is the combination of all private banks in the U.S. excluding Savings and Loans banks. D. There is one major bank located in Washington D.C. with branch banks located in every major city.
b
When a firm's production is subsidized by its government and then the firm sells its products in a foreign country at a price below the cost of production, this is called A. a tariff. B. dumping. .C. a quota. t.D. involuntary export expansion.
b
Which of the following is true concerning shifts of the long-run aggregate supply curve? A. An increase in the long-run aggregate supply curve causes its slope to become steeper as real GDP increases. B. An increase in the long-run aggregate supply curve is depicted as a rightward shift and an increase in real GDP. C. A decrease in the long-run aggregate supply curve cannot happen in the modern Keynesian Model. D. An increase in the long-run aggregate supply curve causes greater unemployment.
b
a. Suppose, there are new discoveries of key raw materials. Which of the following best describes the result of this event? A. The short-run aggregate supply curve shifts out while the long-run aggregate supply curve shifts in. B. Both the short-run and long-run aggregate supply curves shift outward. .C. Both the short and long-run aggregate supply curves shift inward. D. The short-run aggregate supply curve shifts inward while the long-run aggregate supply curve shifts outward.
b
Long-run equilibrium in the economy will occur A. at the point of secular inflation. B. at the price level where total planned real expenditures equals real GDP at full employment. Your answer is correct.C. at the output level consistent with the vertical aggregate demand curve. D. where the production possibilities curve intersects the demand curve.
b
is a system of accounts that measures transactions of goods, services, income, and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time period.
balance of payments
is the difference between exports and imports of physical goods.
balance of trade
A rational LOADING... , self-interested student decides whether to purchase a textbook required for a particular class based on all of the following, except A. whether he can borrow the textbook from his friends. B. the price of the textbook. C. whether the textbook has an attractive dust jacket. D. his limited resources, such as income and time.
c
Between early 2005 and late 2007, total planned expenditures by U.S. households substantially increased in response to an increase in the quantity of money in circulation. From a short-run Keynesian perspective, the predicted effects of this event on the equilibrium U.S. price level and equilibrium U.S. real GDP were A. a decrease in the price level along with a decrease in equilibrium real GDP. B. an increase in the price level along with a decrease in equilibrium real GDP. C. an increase in the price level along with an increase in equilibrium real GDP. D. a decrease in the price level along with an increase in equilibrium real GDP.
c
If a country has an absolute advantage in the production of some good then A. that country should specialize in the production of that good and produce until the marginal benefit to society of the production of that good is zero. B. that country should specialize in the production of that good and not trade with other nations so that they can keep all the gains themselves. C. that country has the ability to produce more output from given inputs of resources than other producers can. Your answer is correct.D. All of the above.
c
is the degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value and with small transaction costs. Money is the most liquid asset.
liquidity
You and a friend decide to spend $100 each on concert tickets. Each of you alternatively could have spent the $100 to purchase a textbook, a meal at a highly rated local restaurant, or several internet movie downloads. As you are on the way to the concert, your friend tells you that if she had not bought the concert ticket, she would have opted for a restaurant meal, and you reply that you otherwise would have downloaded several movies. The relevant opportunity costs for you and your friend of the concert tickets that you purchased are A. Any one of the following for you and your friend: a meal at a highly rated local restaurant, several internet movie downloads or a textbook. B. a textbook. a meal at a highly rated local restaurant, and several internet movie downloads for you and a textbook, a meal at a highly rated local restaurant, and several internet movie downloads for your friend. C. $100 for you and $100 for your friend. D. internet movie downloads for you and a meal at a highly rated local restaurant for your friend.
d
the AD curve slopes downwards because
desired purchases of the economy's goods and services are inversely related to the price level
The government provides a subsidy to help keep an existing firm operating, even though a group of investors otherwise would have provided a cash infusion that would have kept the company in business. This is an example of
direct expenditure offset to a fiscal policy action
are actions on the part of the private sector in spending income that offset government fiscal policy actions. Any increase in government spending in an area that competes with the private sector will have some direct expenditure offset.
direct expenditure offsets
Government expenditures fund construction of a high-rise office building on a plot of land where a private company otherwise would have constructed an essentially identical building. This is an example of
direct expenditure offsets to a fiscal policy action
As can be expected, as the price of the euro rises, the quantity demanded will fall.
downward sloping derived demand
is the price of one nation's currency in terms of the currency of another country.
exchange rate
computing GDP by adding up the dollar value at current market prices of all final goods and services.
expenditure approach
A budget deficit occurs when
expenditures exceed revenue
serves as the nation's central bank, is one of the key banking institutions in the United States. It is partly a creature of government and partly privately directed.
federal reserve system
discretionary changing of government expenditures or taxes to achieve national economic goals, such as high employment with price stability.
fiscal policy
are exchange rates that are allowed to fluctuate in the open market in response to changes in supply and demand. Sometimes called floating exchange rates.
flexible exchange rates
unemployment due to the fact that workers must search for appropriate job offers. This activity takes time, and so they remain temporarily unemployed.
frictional
is a price index measuring the changes in prices of all new goods and services produced in the economy.
gdp deflator
is an excess of government spending over government revenues during a given period of time.
government budget deficit
is measuring GDP by adding up all components of national income, including wages, interest, rent, and profits.
income approach
the tendency of expansionary fiscal policy to cause a decrease in planned investment or planned consumption in the private sector. This decrease normally results from the rise in interest rates.
indirect crowding out effect
the government reduces its taxes without decreasing its expenditures; to cover the resulting budget deficit, it issues more bonds, thereby pushing up the market interest rate and discouraging private planned investment spending. This is an example of
indirect crowding out from a fiscal policy action