Macroeconomics Final
if an economy gross at the rate of 3% per year, how many years will it take for income and that country to double
23
if the public holds no currency and the minimum Reserve requirement is 20%, the money multiplier is
5
Currently the U.S. is importing much more than is exported. What is the relationship between this Net Capital Flow and the Trade and Fiscal Deficits?
A negative net export implies that there is a net capital inflow or the U.S. is borrowing money from foreigners. A trade deficit is by definition the same as a net capital inflow. When the U.S. government borrows, some of this money can (and does) come from foreigners. So increases in the fiscal deficit will likely increase the trade deficit. This does not, however, have to be the case since the government borrowing may come from U.S. citizens or government savings (excess tax receipts over government spending).
In the early 1980's the U.S. economy was faced with stagflation. How is this consistent with the behavior of the Phillips Curve?
Although in the short-run the Phillips Curve outlines the negative relationship between inflation and unemployment, over the long-run the Phillips Curve can shift. The high inflation and high unemployment that characterized the early 1980's is consistent with a shift of the Phillips Curve outward.
Say you have just had a child who will live until she is 70 years old. How many times will the standard of living of this child double over her lifetime if theannual U.S. output growth rate is 2% compared to if it was 4%?
At a 2% growth rate her standard of living will double twice before she dies. If her standard of living is $20,000 today she will end up living at a standard of living of $80,000 when she dies. Compare this to what would happen if the growth rate is 4%. She could expect her standard of living to double in 18 years, then double again in another 18 years, then double again in another 18 years, and almost double again before she dies. Say the standard of living is $20,000 today. She would have a standard of living of $40,000 in 18 years, $80,000 in the second 18 years $160,000 in the third 18 years and almost get to a standard of living of $320,000 by the time she dies. Even if your daughter does not get to enjoy much of the $320,000 standard of living in her final years this would certainly improve the lives of her children compared to a 2% growth rate. So you, your kids and especially your grandchildren will live the good life if we can increase the output growth rate by just a few percentages.
What is crowding out?
Crowding out is when a balanced budget increase in government spending causes a reduction in private consumption and investment. TA: Crowding out occurs when government borrowing increases real interest rates and this causes a reduction in investment (and consumption).
the price index that represents a comparison between what it would cost to buy the total mix of goods and services within the economy today and in a base year is called the
GDP deflator
Why do economists feel that the full-employment deficit be zero even when the economy is in a recession?
In a recession the actual deficit is expected to be positive since tax receipts are less than they would have been at full employment. As long as the government does not spend more than they could have expected to get if the economy was operating at full employment the government would not run a full-employment deficit. In effect a zero full-employment deficit means the government can spend more then their current tax receipts during a recession. (This implies that the actual deficit is positive.)
the field of macroeconomics with its emphasis on understanding fluctuations in employment and production begins with which of the following economists?
John Maynard Keynes
each of the following presidents used tax cuts to stimulate the economy except president
Lyndon B Johnson
Explain what it means when economists say that the economy is operating at its potential GDP?
My answer: The economy is said to be operating at its potential GDP when labor and machines are used to capacity. TA: """then the labor market is in a long run equilibrium and the economy is at full level output. At this level of output the economy is producing the maximum amount given all the available labor is working at nominal work hours and all the available capital is being used efficiently. (also the amount of output that can be produced without causing any inflation.)
What is the difference between macroeconomics and microeconomics?
My answer: The microeconomic perspective is a bottom up view of the economy whereas macroeconomics looks at the performance of the economy as a whole. TA:Macroeconomics deals with the aggregate demand or whole economy whereas micro looks at the behavior of individuals, firms, and industries. Some topics covered in macro are; unemployment, inflation, GDP, money supply, and deficits.
Why are Efficiency Wages "efficient"?
Normally we think firms will operate efficiently if they can produce more for less. If a firm can reduce the cost of manufacturing a product (without sacrificing quality) then the firm is operating more efficiently. Efficiency Wages provide this by lowering the cost of producing the good. Even though the firm is paying a higher wage rate the total cost of the labor is lower since the firm will attract and retain the best workers and therefore reduce the costs of turnover.
if P is the price level, Y is the output, and M is the money supply, velocity equals
PY/M
if the federal government receives more than revenues in any given year than it spends, the difference is called the federal budget
Surplus
From 1988 to 2001 GDP has almost doubled. Does this mean that standard of living or the quality of societies well-being has doubled over this time period? Why?
This not correct for a number of reasons. Although nominal GDP has almost doubled, the real GDP has only increased by a third. (See the Bureau of Economic Analysis spreadsheet at this link http://www.bea.doc.gov/bea/dn/gdplev.xls) Also, since the standard of living is measured as real GDP divided by the number of people (or per capita GDP) changes in the population will affect the standard of living. Finally, there are many other important components that measure of society's well-being that are not included in the GDP per capita calculation.
a country with a blank will experience a net Capital Blank
Trade Surplus, outflow
The Federal Reserve can increase the money supply by selling treasury bills. The Fed. wants to increase the money supply by $2 million. In order to calculate the dollar amount of treasury bills the Fed. must sell what will you need to know?
You since the total increase in the money supply is the initial increase times the money multiplier you need to know the multiplier. If the multiplier was 10 then the Fed. would have to sell $200,000 in treasury bills, but if the multiplier was 2 then the Fed. would have to sell $1 million in treasury bills to ultimately increase the money supply by $2 million.
a macroeconomist classifies the purchase of all of the following as investment with the exception of
a share of stock; Investments include a new Factory, a new home, and new machinery
in 1996, the Bureau of economic analysis began using a chain weighted method of computing real GDP. The change accomplishes all of the following except
accurately accounting for the level of underground economy
in income expenditure analysis, if total inventories exceed planned inventories
aggregate expenditures are less than National output
the marginal propensity to save is the
amount by which saving increases when disposable income Rises by $1
which of the following would not cause the monetary policy rule linking real interest rates and inflation to each other to shift
an increase in inflation. shifting factors include, a contractionary fiscal policy, decreased autonomous consumption a decrease in income tax rates, an increase in investment demand
which of the following increases the productivity of Labor
an increase in the Capital stock
in light of the fed's policy rule, which of the following statements is untrue
as inflation Rises, real interest rates fall and output Rises. true statements include, as inflation Rises, the real interest rate Rises. As inflation Falls, aggregate expenditures and output rise. As the real interest rate Rises, aggregate expenditures fall. As inflation Rises, aggregate output Falls.
which of the following explanations best explains why the short run inflation adjustment curved has a positive slope
as output expands unemployment Falls placing upward pressure on prices
why is the savings curve believed to be highly inelastic or a straight upward line? how does a change in interest rates affect your savings?
as real interest rates increase the income households earn on their current savings increases. This reduces the need for additional saving. At the same time higher interest rates will make any additional saving more worthwhile since the return is now larger on every dollar saved. The combination of these two effects results in the highly inelastic savings curve. How interest rate changes affect your savings depends upon your personal spending preferences and income levels. ........ in short the savings curve is inelastic because it is not dependent on the interest rate whether or not people will want to save. People actually save more when the interest rate is higher because they will earn a higher return from interest.
lenders suffer losses from inflation
as the purchasing power of their payments Falls
efficiency wage Theory argues that firms may not lower wages in the face of persistent unemployment because the firms
believe that hire wages may lead to higher productivity
since the beginning of the 1990s, which of the following groups of people has experienced the highest rates of unemployment
black males, 16 to 19 years of age
inflationary expectations play a prominent role in the expectations augmented short-run inflation adjustment curve. From it we can conclude that when blank, the rate of inflation blank.
both ANC, output remains above potential; output remains below potential; decreases
each of the following is included in the income approach to calculating GDP except
capital gains
each of the following is included in the income approach to calculating GDP except
capital gains; what is included in the income approach to calculating GDP are the interest payments, and direct taxes, depreciation, and profit
in the circular flow model, all of the following are injections except
consumption
consider the general equilibrium for a closed Economy based on the competitive model. An increase in taxes to finance higher government spending reduces disposable income, which discourages both consumption and saving. The reduction and saving leads to a higher real rate of interest and lower investment. The offsetting impact on consumption and investment of the higher government expenditure is referred to as
crowding out
government policy is aimed at reducing the frequency and magnitude of
cyclical unemployment
arguments against the trade deficit include
decreased demand for domestically produced products, foreign ownership of our debt obligations, loss of American jobs, answer is all of the above
the rule of 70 allows us to estimate the number of years it takes for income to blank by blank the annual growth rate into / by the number 70
double; dividing
when demand equals Supply and the aggregate labor market there is no unemployment in the sense that
every qualified worker willing to work at the market wage can find a job
when demand equals Supply and the aggregate labor market, there is no unemployment in the sense that
every qualified worker willing to work in the market wage can find a job
unemployment that occurs as the result of a transition from one job to another is called
frictional unemployment
when economists talk of government savings being positive they mean
government revenue exceeds government expenditure, so there is a federal budget surplus
when a country has a budget surplus
government revenue is more than government spending
in the study of macroeconomics, the term GDP stands for
gross domestic product
business cycle fluctuations generally involve
high unemployment and low inflation
which of the following statements best describes the logic behind the Phillips curve
if unemployment is low, workers May more readily leave firms not keeping Pace with current wage rates thus contributing to inflation
a decrease in the tax rate in the model of income expenditure analysis
increases the multiplier and makes the aggregate expenditures schedule steeper
all of the following are ways to increase GDP per capita except
increasing population growth
linking increases in wage levels to increases and price is termed
indexation
the first years of the 21st century involved heated debates over each of the following except
inflation
higher living standards are best evaluated on the basis of all of the following aspects except
inflation, aspects include access to Medical Services, Environmental Quality, educational achievement, life expectancy
in the circular flow model all of the following are leakages except
investment; leakages include taxes, savings, spending on Imports
the microeconomic perspective
is a bottom-up view of the economy
the macro economics perspective
is a top-down view of the economy
which of the following is true of the aggregate expenditures schedule
it's intercept is positive and it's slope is less than that of the 45 degree line
money cannot serve as a store of value unless
it's purchasing power remains relatively stable
the Keynesian consumption function relates a household's consumption primarily to
its current income
if gross domestic product rises, in percentage terms, blank the rising prices, this indicates blank Real gross domestic product
less than; a decrease in
the Full Employment Act of 1946 requires the federal government to do all of the following except promote maximum
living standards
which of the following began or resulted from the Great Depression
macroeconomics, Deposit Insurance, Social Security, the answer is all of the above.
which of the following government expenditures is not an example of non discretionary spending
military spending
when the level of national saving in the United States declines all of the following occur except
more investment in the United States
when the level of national saving in the United States declines, all of the following occur except
more investment in the United States; occurrences include an increase in real interest rates throughout the world, less investment in the US, reductions and investment throughout the world, a smaller impact on us investment then if the US were a closed economy
the presence of deflation means that
nominal interest rates understate the rates of return on financial assets
the Consumer Price Index Over States true cost of living increases because of all of the following reasons except
none of the above all are problems; problems are the fixed basket or unchanging nature of the composition of the CPI, the nature of the changing quality of goods and services over time, the pure technical nature of the way the data are collected and analyzed, the recent revisions made to address the CPI bias
the term recession usually refers to periods
of significant decrease in Real GDP
the money neutrality principle states that in the Full Employment model, changes in the money supply will
only affect the price level
suppose the economy experienced a decrease in potential GDP. Indicate which of the outcomes would follow as a result, ceteris paribus
potential GDP shifts left, inflation Rises, interest rates rise, output Falls, inflation remains higher
if the Consumer Price Index for a given year is below 100, it implies that, relative to the base year,
prices have fallen on average
when economist talk of national saving they mean
private plus public plus foreign saving, National saving plus borrowing from abroad, the equivalent of total investment, both domestic and foreign saving, d all of the above
the need to account for the developments made in computer software falls into which of the following categories of issues regarding the Consumer Price Index
quality changes and products contained in the basket of goods
the need to account for the developments made in computer software falls into which of the following categories of issues regarding the Consumer Price Index
quality changes in products contained in the basket of goods
the Full Employment Act of 1946 and the humphrey-hawkins ACT give the federal government responsibilities for each of the following except
raising living standards; responsibilities include promoting full employment, increasing real income, balancing the federal budget, maintaining price stability
a balanced budget increase in taxes and government expenditures will, ceteris paribus,
reduce consumption and investment and raise the real interest rate
which of the following is not a potentially adverse effect of unemployment
reduced racial divisions
which of the following is not a potentially adverse effect of unemployment
reduced racial divisions; an adverse effect of unemployment would be lower future productivity, reduced self-esteem, lower wages upon Reemployment, decreased tax revenue
all of the following except one, are consequences of inflation. Which is the odd one out?
reduced tax revenue for the government; consequences of inflation are changes in relative prices, increased variability and relative prices, increased risk, increased uncertainty
in a closed economy, an increase in the federal budget deficit
reduces equilibrium investment and increases the real rate of interest
in a small open economy, a decrease in the budget deficit
reduces foreign borrowing but leaves the real rate of interest unchanged
in order for the Capital Market to be in equilibrium
savings must equal investment but the economy need not be fully employed
and economy faced with inflation shock will experience a blank impact on output and a blank long run impact on inflation if the slope of the ADI curve is steep
smaller, larger
Thomas Malthus predicted that population would expand more rapidly than the capacity of the economy to support it. That his predictions were not born out can be attributed to
technological change
List and explain two of the reasons for why the U.S. savings rate is so low?
that is related to savings but even if debt was 0 savings could still be zero. I don't see how Lowered Expectations of future growth would result in less savings. Explanations for why the US savings rate is so low include, people's faith and Social Security as a pension, improved insurance and capital markets, and changes in people's values. My answer one of the reasons the US savings rate is too low is because of its large current deficit. Another reason the US savings rate is so low is because of Lowered Expectations of future growth.
the field of macroeconomics began as an attempt to understand the causes of
the Great Depression
all of the following except one are examples of a financial intermediary. Which is not?
the US Treasury; Financial intermediaries include commercial Banks, Savings and Loan associations, mutual funds, and credit unions
the federal debt is
the accumulated difference between what the federal government has spent and what it has received and revenues
when real wages adjust to clear the labor market
the aggregate supply curve is vertical
a country's overall trade balance depends primarily upon
the balance between its National saving and investment
if the federal government spends more than any year than it receives and revenues the difference is called
the fiscal deficit
the United States experience with stagflation in the 1970s was influenced heavily by
the formation of OPEC the organization of petroleum exporting countries, gas-guzzling automobiles, energy and efficient production techniques, the answer is all of the above.
in a recession, when there is reduced demand for labor, we often observe lower employment without a fall in the real wage. All of the following, except one, are explanations offered for this. Which is the odd one out?
the labor supply curve is perfectly inelastic; explanations include, the labor supply curve is perfectly elastic, the labor supply curve is Shifting to offset shifts in the labor demand curve, the real wage is downwardly rigid, the labor supply curve is horizontal
when economist speak of human capital they are referring to each of the following except
the level of Capital stock owned by workers at the firm; human capital includes the level of Education that makes workers productive, the stock of accumulated experience that makes workers productive, the ability of workers to shift the production function represent output per worker, the stock of accumulated skills that make workers productive
the relevant cost of funds to a firm that is considering making an investment is
the market interest rate minus the rate of inflation
which of the following definitions is correct
the market or nominal rate of interest equals the real rate of interest plus the rate of inflation
in the case of a negative externality
the private Market produces too much of the good
each of the following economic factors can cause the ADI curve to shift, accept changes in
the rate of inflation. factors include, consumption spending, government expenditures, income tax rates, investment spending
which of the following government institutions / programs is a direct outgrowth of the Great Depression?
the social security system
the value-added goods approach to Computing gross domestic calculates
the sum of all firm's revenues less the cost of the intermediate Goods they use
potential gross domestic product is
the total money value of the goods and services the residents of a country could produce during a specified period if labor and machines were used to capacity
the inflation rate is positive if
there is an increase in the general level of prices
if the exchange rate between the dollar and the Yen changes from 100 yen per dollar - 125 Yen per dollar
this represents an appreciation of the dollar
the fed's concern over Rising inflation is based on which of the following sequences
tight labor markets, increased labor costs, higher prices
countries with a blank will experience a net Capital Blank
trade deficit; inflow
inflation is much more of a problem when it is
unanticipated
the Phillips curve plots the relationship between
unemployment and wage inflation
if the exchange rate between the dollar and the Yen changes from 100 yen per dollar to 125 Yen per dollar
us Goods become relatively more expensive in Japan, reducing the quantity supplied of Japanese Yen
