ECON 144 Final Exam - Staihr
Which is an incorrect statement?
"Potential GDP" is the same thing as "SRAS"
If Potential GDP was $18.5 trillion, and actual GDP was $17 trillion, and this gap was successfully filled with an injection of government spending $600 billion, what was the value of the MPC?
0.6
Assume a $3.2 trillion gap between actual GDP and potential GDP (also known as full employment GDP) is successfully filled by an initial injection of $800 billion in government spending. What must the value of MPC equal?
0.75
Assume actual GDP is $15 trillion and potential GDP (full employment output) is $19 trillion. A tax cut of $1 trillion successfully filled a gap between the two. What must be the value of the MPC?
0.8
In the Quantity Theory of Money, if the price level is "3" and the money supply is $12 trillion and Real GDP is $6 trillion what must velocity be?
1.5
As discussed in class, the current value of the GDP deflator is _______ and the base year the government uses when it calculates the GDP deflator is ______.
109.7; 2009
In your mind envision the equation for the Quantity Theory of Money; if the price level is "4" and the money supply is "6 trillion" and velocity is "8" what is the value of real GDP in this equation?
12 trillion
What is the current value of M2 in the U.S. today?
12.19 trillion
What is the current reserve requirement for a bank that has $99 million in deposits?
3%
Assume the nominal interest rate on a mortgage is 3.6%. If annual inflation is measured by the CPI, which of the following comes closest to the real interest rate on the mortgage based on the CPI's most recent annual information?
3.2%
Assume that inflation is 2% higher than we'd like it to be, and current inflation is 5%. Also assume that GDP is 8% lower than we'd like it to be. Assume that the current real Fed Funds Rate is 2%. If the weights on the Output Gap and the Inflation Gap are each 0.5, what will be the value that the Fed will target for the Fed Funds Rate based on the Taylor Rule as we discussed in class and in the text?
4%
What is the name, discussed in class, of the project created by Dr. Alberto Cavallo of MIT which tracks over 5 million online prices daily?
Billion Prices Project
You are looking at the AD/SRAS/LRAS model. You open up the newspaper and read that the U.S. dollar has recently become stronger against all foreign currencies such as the euro or the yen. In the AD/SRAS/LRAS framework what will we see after any/all curves have moved?
Both a) and b) (a lower price level and a lower output level)
In 1973 (and again in 2008) we saw dramatic increases in the price of oil. In the AD/SRAS/LRAS framework this would show up as...
Both a) and b) but not c) (An increase in the price level and a reduction in the output level but NOT a reduction in the interest rate)
You are looking at the demand and supply of McDonald's cheeseburgers. You look online and see that two things occur: First, 1000 new McDonald's are opening up in the next few weeks, and second, the price of beef (an input) decreases. In the market for McDonald's cheeseburger's we will see, after any/all curves have moved:
A higher equilibrium quantity and a lower equilibrium price
You open up the newspaper and read that two things are happening at once. Foreign incomes are increasing AND the Federal Reserve has increased the target for the Fed Funds Rate. Which of the following is correct?
Both of these will shift AD, but they will shift it in opposite directions
What is the name of the government entity that calculates GDP?
Bureau of Economic Analysis (BEA)
A bank needs to borrow funds to meet its reserve requirement; if it chooses to borrow from the Fed itself what is the name of the internet rate it will pay?
Discount Rate
Based on the discussions in lecture, which of the following statements is correct? In reality, the Federal Reserve...
Does not often use changes to the reserve requirement to adjust the money supply
You are looking at a graph of the money market, as we discussed in class and in the text. Assume the Federal Reserve sells bonds. Which will we see?
Money supply shifting left, producing a higher interest rate
You have $100 worth of coins sitting in a jar in your bedroom. You take these coins to your bank and deposit them in your checking account. They are not loaned out; they remain in your checking account. Which of the following is correct? When you deposited the coins...
Neither M1 nor M2 increased
As discussed in class, which is correct regarding the "debt ceiling"?
Neither a) nor b) is correct
In class and in the text we discussed why the entire world isn't rich (in the section titled "Why Don't More Low Income Countries Experience Rapid Growth?") Which of the following was not one of the reasons given?
Rapid price fluctuations that bring uncertainty to the market
As discussed in class and in the text, in the Quantity Theory of Money what is "Y"?
Real GDP
The basic idea behind supply side economics is that ___ on any activity will ____ of that activity.
Reducing taxes; increase the level
As discussed in lecture, which of the following is most accurate? As a source of government revenues, corporate income taxes in 2014...
Represented a smaller percentage of payments into the government than they did five years earlier
Assume you are looking at the AD/SRAS/LRAS model. Assume we are currently sitting at 3.9% unemployment and assume the price of oil decreases. What will we see after any/all curve have shifted?
SRAS and AD will intersect further away from LRAS
If AD and SRAS are intersecting to the left of LRAS, and we leave the market to correct itself, what will ultimately happen?
SRAS will shift right because labor costs will fall
The money market is primarily concerned with _____ and the market for loanable funds is primarily concerned with _____.
Shorter term interest rates; longer term interest rates
As discussed in lecture and in the text, which of the following represents the second largest portion of expenditures by the federal government?
Spending on defense
Brian was recently fired from his job teaching economics because he refuses to use any online resource (like Blackboard) to post grades; rather than post grades online instead he insists on keeping his grades in a ledger (notebook) and students must come and ask him what their grades are. Brian's situation would be best described as...
Structural unemployment
If nominal GDP in 2010 was exactly $14.5 trillion and the GDP deflator in 2010 was exactly 102.5, which of the following figures comes closest to real GDP in 2010?
$14.15 trillion
Assume that the reserve requirement is 6.25% and assume that people keep nothing out of the bank as currency. Also assume that an initial $18,000 deposit is made and that amount is sitting in the bank. If the bank loans out all that it can, and all the money loaned out is re-deposited into the oak, which comes closest to the total amount of deposits, including the initial deposit, after the money has worked its way through the system?
$288,000
Assume the reserve requirement is 15% and assume that people keep 10% of their money out of the bank as currency. Also assume that an initial $10,000 deposit is made and that amount is sitting in the bank. If the bank loans out all that it can, and all the money loaned out is re-deposited into the bank -- taking into account what people keep out as currency -- what is the total amount of deposits, including the initial deposit, after the money has worked its way through the system?
$44,000
Assume that the reserve requirement is 8% and assume that people keep 12% of their money out of the bank as currency. Also assume that an initial $10,000 deposit is made and that amount is sitting in the bank. If the bank loans out all that it can, and all the money loaned out is re-deposited into the bank -- taking into account what people keep out as currency -- which comes closest to the total amount of deposits, including the initial deposit, after the money has worked its way through the system?
$56,000
Assume we know that full employment GDP = $19.4 trillion and current GDP is at $17 trillion. If we know the MPC is 0.75 how large would an injection of government spending need to be in order to successfully fill the gap?
$600 billion
If the MPC is 0.6 how much would tax cuts of $400 billion amount to, using the tax multiplier, after they rippled through the economy?
$600 billion
Approximately what percentage of the government's budged to individual income taxes represent?
45%
What is the dollar amount (not the percentage) of the portion of our debt that we owe to other countries?
6.5 trillion dollars
In class we discussed Harvard economists Rogoff and Reinhardt and their work on the debt-to-GDP ratio, and their claim as to "how much debt is too much debt". (Remember their error was discovered by graduate student Thomas Herndon). How high did they say was "too high" for the debt-to-GDP ratio, because it would slow down growth?
90%
You are looking at the supply and demand for hot dogs. You open up the newspaper and read that both buyers AND sellers of hot dogs expect the price to decrease in the near future. On this graph, after any/all curves have moved, we will see:
A lower equilibrium price and we cannot say about equilibrium quantity
You are looking at the money market. We see a decrease in inflation (which means the price level is decreasing). After any/all curves have moved what will we see in the money market?
A lower interest rate
The Federal Reserve sells bonds. In the AD/SRAS/LRAS framework this will produce, after any and all curves have shifted...
A lower price level
Which function of money, discussed in class and in the text, eliminated the need for a "double coincidence of wants"?
A medium of exchange
Which of the following will not cause an increase in the demand for Chipotle burritos?
A reduction in the price of Chipotle Burritos
Which of the following will not have the effect of producing a higher equilibrium price? (regarding the market for chips)
Actually all three of the above would have the effect of increasing equilibrium price
Which is correct? (regarding NX)
Actually neither a) nor b) is correct (the current value of NX is negative because the US exports more than it imports; current value of NX is negative and this is a relatively rare occurrence)
According to the textbook, which of the following countries has what some economists would refer to as a "mixed" economy?
All of the above (Japan, Canada, United States)
What portion of the Stimulus Act (the ARRA) was made up of tax cuts?
Approximately 37%
In the country of Brianlandia there are 33 million people currently working (either full or part time). There are 28 million people who are 16 years or older, are not working, have not looked in the past 4 weeks, are not in the hospital, are not in prison, and are not in the military. There are 5 million people who are not working but have looked for a job in the past 4 weeks. These 3 numbers represent ALL the people in Brianlandia. If Brianlandia calculated the labor force participation rate exactly as the BLS does what is the labor force participation rate in Brianlandia?
Approximately 58%
What was the term for government spending and taxes that increase or decrease simply as a result of the business cycle (in other words, changes to government spending and taxes that do NOT constitute fiscal policy)?
Automatic stabilizers
Write down all the components of M1 as discussed in class and in the text.
Coins & currency; checking accounts; traveler's checks
In Chapter 12 (or Chapter 23 in the "big book") when discussing AE, "household wealth" affected which component(s) of AE?
Consumption only
As discussed in class, what is the term for the portion of the Federal Reserve that is made up of seven members of the Board of Governors plus five Regional bank presidents?
FOMC
Consider the 2009 Stimulus Act (also known as the ARRA) as discussed in class. Which of the following is most accurate? The ARRA was an example of ____ policy and was made up _____.
Fiscal; both tax cuts and government spending
During the presidency of former President George W. Bush Congress reduced taxes three times. This was an example of _____ policy designed to _____.
Fiscal; shift AD right
As discussed in class and in the text, if GDP>AE in 2013 what does this mean for 2014?
In 2014 Unemployment will increase, GDP will decrease
Brian got fired from teaching at KU about 10 months ago and he looked for work for a few days but gave up looking completely because he believes there are no jobs to be found. In a normal calculation of U6, as measured by the BLS, Brian would be...
Included in both the numerator and the denominator
If "crowding out" works the way your author Glenn Hubbard suggests that it does, we would see "G" ____ but see "C" and "I" both ____ and we'd see AD _______.
Increase; decrease; shift right and then shift left
As discussed in lecture and the text, the largest source of revenues flowing into the Federal government comes from...
Individual income taxes
In our in-class discussion of the financial meltdown which of the following did NOT play a key role in creating the crisis?
Insufficient supply of houses was created due to lack of interest in home-buying
As discussed in lecture during our study of supply side economics, the current highest marginal tax bracket for federal income tax...
Is significantly lower than it was 35 years ago when supply side economics was introduced
What is the actual mechanism that the Fed uses to target the Fed Funds rate?
It buys or sells bonds to banks, this changes the quantity of reserves a bank has to loan to other banks
What was the term, used in class and in the textbook, for the phenomenon where additional units of a variable input (like labor) are added to a fixed input (like machinery) and output increases but in smaller and smaller increments?
Law of Diminishing Returns
You take $1000 out of a savings account that you own and you keep it hidden in a book on a bookshelf in your house. Which of the following will occur?
M1 will increase and M2 will remain unchanged
This Saturday night John and Terri are planning to go to the movies to see "Ant-Man". They will be gone a total of 3 hours. During that time, they will pay a babysitter $10 per hour to watch their kids ($30 total), and the movie tickets will cost $10 each, a total of $20. The opportunity cost of John an Terri attending the movie will be...
None of the above ($30 to pay sitter; $30 for sitter + $20 for tickets; $10 the diff between what they spent at movies and what they spent for sitter)
As discussed in lecture, if the Federal Reserve wants to engage in open market operation sin order to adjust the money supply which of the following is correct?
None of the above (Fed does whatever it wants)
In 2008 we saw the price of apples increase significantly. Apples are (of course) an input to apple pie. In the market for apple pie this would ultimately cause us to see...
None of the above (bc it would be a lower equilibrium quantity but higher equilibrium price)
In our discussion of multipliers it was pointed out that numerous economists have estimated the government multiplier to have a value of <1. Based on our discussions, what condition could cause the government multiplier to be <1?
None of the above (crowing out occurs when the government borrows money, causing the multiplier to be <1 bc IR goes up)
As specifically discussed in the text, _______ is the situation where a good or service is produced in accordance with consumer preferences.
None of the above (productive efficiency, technical efficiency, economic efficiency)
As discussed in the text, sometime the CPI market basket contains one good, such as a McDonalds cheeseburger, and an increase in the price of McDonalds' cheeseburgers causes people to shift their purchases to Burger King cheeseburgers instead (and the Burger King cheeseburger is not part of the market basket). This is called _____ and it means that the CPI may _____ how price changes affect customers.
None of the above (should be substitution bias and overstate)
Which is correct: The entity that determines business cycles is the _____, while the entity that determines the unemployment rate is _____.
None of the above is correct (should be NBER, BLS)
Brian got fired from teaching at KU about 10 months ago and he looked for work for a few days but gave up looking completely because he believes there are no jobs to be found. In a normal calculation of U3, as measured by the BLS, Brian would be...
Not included in either the numerator or the denominator
In a Taylor Rule, which of the four components is usually negative and why?
Output gap; GDP is normally lower than desired
The SRAS curves slopes upward primarily because of what phenomenon, discussed in class and in the text...
Prices and wages can be slow to change
According to the textbook how large is the "Underground Economy" in the U.S.?
Probably no more than 10% of measured GDP
As the price of Product X decreases the demand curve for Product Y shifts right. What do we know for sure?
Product X and Product Y are complements
Regarding the American Recovery and Reinvestment Act (the Stimulus Act), as discussed in class, the majority of recent studies of the Act's impact showed which of the following?
That the Act had a positive and significant effect on employment and growth
Which is correct regarding the "G" component of GDP?
The "G" component is currently the second largest component (in dollar terms), after "C"
Which of the following best describes current annual inflation as measured by the CPI?
The CPI would put current annual inflation below 1%
As discussed in class, which of the following is correct regarding the Federal Reserve's recent Quantitative Easing?
The Fed bought long term bonds and sold short term bonds
This is the market for loanable funds. Which of the following is not part of the graph?
The amount of net exports that makes up the (X-M) in GDP
Assume the MPC is 0.65. Based on the multipliers we discussed in class, which would expand the overall economy more, a tax cut of $90 billion or an increase in government spending of $65 billion?
The government spending would expand the economy more
Which of the following will not shift AD to the left?
The price of the oil increases
As discussed in class which of the following would be most affected by the business cycle -- in either direction, positively or negatively?
The quantity of Dodge pick-up trucks in the market
Assume the MPC is 0.6. Assume you can choose either a government injection of $600 billion or a tax cut of $1 trillion. Which of the following is correct? After rippling through the economy...
The two will have the same impact
We know, from the text and the lecture, that in the CPI "housing" is weighted most heavily. Which of the following is weighted the next most heavily?
Transportation (including gasoline)
What was the term, discussed in class and in the text, for the number of times a dollar changes hands (used in the Quantity Theory of Money)?
Velocity (v)
In our discussions of supply side economics, which was NOT one of the assumptions of the possible benefits of cutting individual income tax rates?
We might see an increase in the pace of technological change