Macroeconomics Final Exam
If real GDP is approximately $11.261 trillion for a given year and the GDP deflator for that year is 111, then nominal GDP is ______ trillion
$12.5 trillion Nominal GDP = Real GDP x GDP Deflator/100 11.261 x 111/100 = 12.49 = 12.5 trillion
Sam deposits $1,500 cash into his checking account, which the bank holds in its value. The reserve requirement is 25%. What is the change in his bank's required reserves?
$375
Suppose that a customer's willingness-to-pay for a product is $79, and the seller's willingness-to-sell is $64. If the negotiated price is $68, how much is the producer surplus?
$4
In the graph, how much is the deadweight loss at $12
$70 Deadweight loss = 12 - 5 = 7 7*(40-20) = 140 140/2 = $70
If a bond has a face value of $1,000 and has a 10% coupon rate, how much is the bond worth after interest rates increase to 12%?
$833.33
In the graph, the producer surplus is $280
False Producer surplus is $140. Producer surplus = 16-2 = 14 14 x 20 (the units for the area) = 280 280/2 = $140
The main policymaking arm of the Fed is the
Federal Open Market Committee
Suppose firms are becoming less optimistic about the economic outlook. What happens to the loanable funds market?
Loanable funds fall and interest rates fall
Suppose the government runs a larger budget surplus. What happens to loanable funds and interest rates?
Loanable funds rise and interest rates fall
The ____ curve is vertical at full employment
Long-run aggregate supply
M2 is ________ in dollar value than M1 because it also contains ________liquid assets.
larger; less
Bonds are considered to be ___________ than stocks because________.
less risky; bondholders are less affected by a firm's bankruptcy
Opportunity cost is
the value of the next-best alternative which was given up
Which of the following is the MOST liquid?
$100 in cash
Suppose economists observe that an increase in government spending of $1 billion raises aggregate expenditure by $3 billion, The economist would estimate that the marginal propensity to save (MPS) is
0.33 MPS = Change in savings/change in income MPS = 1/3 = 0.33
Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is ________ lawn(s) mowed.
0.5
If a country grows at 7% per year, approximately how many years will it take for its GDP to double by the rule of 70?
10 years
If nominal GDP in 2014 is $20 billion while real GDP is $16 billion, then the GDP deflator in 2014 is
125 GDP Deflator = Nominal GDP/ Real GDP x 100 GDP Deflator = $20 billion/$16 billion x 100 = 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%
A small country has 120 citizens: 80 are employed, 20 are unemployed, 10 are retired, and 10 are kids in school. The unemployment rate is:
20% Unemployment rate = unemployed/labor force x 100 Unemployment rate = 20/100 x 100 = 20%
If inflation is 3%, the target inflation rate is 2%, and the economy is 3% above its long-run output, what the Fed funds target is using the Taylor rule?
7%
Which of the following is NOT a function of money?
A claim to government assets such as gold
Which of the following would NOT shift the short-run aggregate supply curve to the left?
A rise in productivity
A valid price floor can cause
A surplus
Suppose the gasoline demand is rising. Which statement describes a possible cause?
Consumers expect prices to rise soon
Expansionary monetary policy shifts the ________ curve to the ________.
AD; right
Because people make decisions at the margin, when deciding whether to purchase a second car, they would therefore compare the
Additional benefit expected from a second car with the additional costs of the second car
Monetary policy is LEAST effective in reversing
An adverse supply shock
In the graph, if the government sets a minimum price of $75, this is an example of an
Binding price floor
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
Which economists believe that because the economy will always self-adjust, intervention is unnecessary?
Classical economists
Which of these is NOT a primary role of financial intermediaries?
Collecting taxes on financial transactions
A production possibilities frontier that is a straight line is the result of
Constant opportunity costs
Suppose that anticipated inflation is 4% for the coming years, with loan contacts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 5%
Debtors gain at the expense of creditors
A(n)___in government spending, a ____ domestic currency, and ____ interest rates will shift the aggregate demand curve to the left
Decrease; stronger; higher
Suppose the price level is 100 in the year 2018, 130 in the year 2019, and 150 in the year 2020. In 2020, this economy is undergoing
Disinflation
After graduating from college, Jacky works 25 hours per week at a local supermarket while actively looking for a permanent job. Jacky is classified as:
Employed
During cost-push inflation, aggregate output ______ and the aggregate price level_______
Falls; rises
In the graph, if the government sets a minimum price of $12, there is a shortage of 40 units
False
The choice to attend a free lecture involves no opportunity cost
False
The U.S. gross domestic product (GDP) is equal to the total market value of all
Final goods and services produced in the U.S
Open market operations involve the purchase and sale of
Government securities
If the reserve requirement is 20%, then a $1 increase in deposits means the money supply
Has the potential to increase by $5
Which is NOT considered a basic economic question?
How will the system accommodate change?
Which category is an example of discretionary spending?
Hurricane relief funds
Under Armour is a popular U.S. brand. However, most of its apparel is made in India. In which category would the value of Under Armour apparel sales appear?
In India's GDP
In the figure below, the economy is currently at point E2. Which fiscal policy recommendation will help return the economy to the long-run equilibrium?
Increase personal income taxes
When current real output exceeds potential real output, the Federal Reserve will _____ interest rates to fight _____.
Increase; inflation
What is the single most important factor influencing economic growth for an economy?
Increased productivity
______government spending, _______transfer payments, and _______taxes are all examples of expansionary fiscal policy
Increasing; increasing; lowering
If an economy is operating below full employment, what is likely to happen in the long run?
Input prices and wages fall; SRAS shifts to the right
Barter
Involves a double coincidence of wants if an exchange takes place
Why is increased technological knowledge for a nation important for growth?
It allows the nation to be more productive in goods and services that it produces
In economics, capital refers to
Manufactured buildings and equipment used in the production process
According to the catch-up effect, developing countries
May grow faster than developed countries because they lack the most tools and capital investment lead to higher productivity growth
Which of the following is NOT a factor of production?
Money
An increase in the price of apples would lead to a(n)
Movement up the supply curve for apples
The total accumulation of past deficits subtract surpluses is called the
National debt
The most commonly used monetary policy is
Open market operations
When the government chooses to use resources to build schools, the selected resources are no longer available to build hospitals. This BEST illustrates the concept of
Opportunity cost
When goods are produced at the lowest possible cost, an economy is said to have achieved
Production efficiency
A good example of a government imposed-price ceiling is
Rent controls
Automatic stabilizers include all of these EXCEPT
Research and development funding
What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or it is inflationary?
Sell more government bonds
To gain from trade, a country should
Specialize in the commodity for which it has a comparative advantage
GDP can be found by adding up either all of the _____ or all of the _____ in the economy
Spending; income
Which set of statements is correct?
The Federal Reserve has 12 regional banks. The Board of Governors has 7 members, each serving a 14-year term
Which of the following is LEAST likely to lead to lower interest rates?
The end of a government program that provides taxpayers with additional incentives to invest in their retirement plans
Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones increases, and (2) the price of smartphone data plans falls. What happens to the equilibrium price and equilibrium quantity?
The equilibrium price rises, but the equilibrium quantity is indeterminate
Which statement correctly describes the sequence that explains how an expansionary monetary policy simulates an economy
The policy lowers interest rates; lower interest rates increase investment; and higher investment increases aggregate demand, which impacts output and the price level
In the short run, how will an increase in aggregate demand most likely affect the overall price level and real GDP?
The price level would increase and the real GDP would increase
If a market is NOT at equilibrium
The price will change, and, in response, market participants will move along the existing supply and demand curves until and market equilibrium
At any price below the equilibrium price
The quantity demanded exceeds the quantity supplied in the market (Shortage)
Suppose policymakers wish to use fiscal policy to fight inflation. Which statement is MOST accurate?
The way to lower the inflation rate is to decrease aggregate demand, which causes a rise in unemployment
Which of the following is NOT an effective tool used by the government to promote economic growth?
Trade barriers to protect domestic industries
The low point of a business cycle is called
Trough
A recession begins after two consecutive quarters of negative growth.
True
As the price of a good increases, quantity supplied increases, and quantity demanded decreases, ceteris paribus
True
If a business increases its inventories, the change is traded as an investment
True
Macroeconomics is concerned with issues such a
Unemployment
Which of the following does occur when the aggregate price rises?
Value of money asset falls
Actual GDP in a country is estimated to be 10 percent below potential GDP. Prices are virtually unchanged from one year ago. Unemployment is 12 percent of the civilian workforce, much higher than it has been in many years. Which of the following policies would be the most appropriate for improving these economic conditions?
decreases in interest rates by the central bank
The U.S. dollars in your wallet are
fiat money
Economics is BEST defined as the study of how
people make rational decisions
If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are
underutilized