ECON Final
Calculate inflation rate
( ( (CPI of current year) - (CPI of base year) ) / (CPI of base year) ) x 100%
Employment to population ratio
(Employed people/working age pop) x 100%
LF participation rate
(Labor force/working age population) x 100%
Unemployment rate (UR)
(Unemployed/labor force) x 100%
Factors that can change the demand curve (there are six):
1. Price of related goods 2. Expected future price 3. Income 4. Expected future income 5. Population 6. Preferences
The largest component of the fiscal imbalance is: A) Medicare. B) Social Security. C) defense spending. D) none of the above.
A) Medicare.
Suppose the country of Tiny Town experienced frictional unemployment. This frictional unemployment would: A) be considered a natural occurrence in a growing economy. B) signal that the number of discouraged workers is growing. C) signal that there are more job leavers than job losers. D) definitely signal that the country is in a recession.
A) be considered a natural occurrence in a growing economy.
A worker's stock of knowledge is known as: A) human capital. B) financial capital. C) physical capital. D) monetary capital.
A) human capital.
In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to 2012, Armenia's standard of living: A) increased B) did not change C) decreased D) more information is needed
A) increased
Labor productivity increases with: A) increases in capital. B) increases in depreciation. C) increases in consumption expenditure. D) All of the above answers are correct.
A) increases in capital.
In one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can produce 10 pairs of shoes or 6 bookshelves. Alice has ________ advantage in producing _______. A) an absolute; bookshelves B) a comparative; bookshelves C) an absolute; shoes D) a comparative; shoes
B) a comparative; bookshelves
Janet Yellen, Chair of the Federal Reserve, must choose whether tomorrow she meets with the Secretary of the Treasury or with the Congress regarding the financial crisis. This choice reflects the: A) fact that Ms. Yellen responds to incentives. B) fact that Ms. Yellen faces scarcity. C) concept of entrepreneurship. D) use of capital.
B) fact that Ms. Yellen faces scarcity.
The federal funds rate is the interest rate A) on the 3-month Treasury bill. B) that the Fed charges commercial banks on loans. C) banks charge each other on overnight loans. D) on the 30-year treasury bond.
C) banks charge each other on overnight loans.
Frictional unemployment
Caused by normal market turnover
Cost push inflation
Caused by something such as a price change
Desired reserve ratio (drr)
Desired reserve/deposit
How are part-time workers treated when calculating the unemployment rate?
Part-time workers are counted as employed. Thus part-time workers are counted in the labor force but are NOT counted as unemployed.
Cyclical unemployment
People who lost their jobs at an economic downturn.
Real GDP (rGDP)
Price level is constant from year to year.
Q of rGDP
Q of rGDP = Y Y = C + I + G + X - M
Required reserve ratio (rrr)
Required reserves/total deposit
Changes in FX supply (there are 3)
1. As the US demand of imports increases, the supply of USD decreases 2. As the US interest rate differential increases, the supply of USD decreases 3. As the expected foreign exchange rate increases, the supply of USD increases, and the demand for foreign currency decreases.
Factors that can change the supply curve (there are six):
1. Cost of production 2. Price of related goods 3. Expected future price 4. Number of suppliers 5. Technology 6. State of nature
Discouraged worker
A marginally attached worker who gave up.
Marginally attached workers
A person or people that is currently neither working nor looking for a job but indicated that they want a job and made effort to look in the recent past.
When firms in an economy start producing more computers and fewer televisions, they are answering the ________ part of one of the two big economic questions. A) "what" B) "for whom" C) "where" D) "when"
A) "what"
If the multiplier is 4 and there are no imports or income taxes, the marginal propensity to consume is: A) 0.75. B) 1.00. C) 0.50. D) 0.25.
A) 0.75.
In a world with no money, costs are expressed in terms of other goods. If one video game costs two hamburgers, and a hamburger costs three sodas, how many sodas would it take to buy a video game? A) 6 B) 5 C) 3 D) 3/2
A) 6
The money price of pizza is $12 per pizza and the money price of a taco is $2 per taco. The relative price of a pizza is: A) 6 tacos per pizza B) 1/6 pizza per taco C) $12 per pizza D) $24 per pizza
A) 6 tacos per pizza
Suppose that in 2014, firms discover that their inventories are falling below their planned levels. Which of the following statements is CORRECT? A) Real GDP is less than equilibrium expenditure. B) Aggregate demand is less than aggregate supply. C) Even though firms are trying, they are unable to maximize profits. D) The level of aggregate savings must equal the level of desired investment.
A) Real GDP is less than equilibrium expenditure.
Which of the following items is not a component of the expenditure approach to measuring U.S. GDP? A) Social Security payments made by the government B) purchases of food made by families C) purchases of U.S.-made movies by Europeans D) purchases of new homes made by families
A) Social Security payments made by the government
Over the past four decades: A) U.S. real GDP per person has increased. B) U.S. real GDP per person has fallen below that of the other rich industrial countries. C) the growth rate of real GDP per person in the United States has been increasing. D) Both answers A and C are correct.
A) U.S. real GDP per person has increased.
When an economy produces at its electively efficient production point: A) a society can increase the production of one good only by decreasing the production of some other good that is valued more highly B) scarcity is not a problem C) a society can increase the production of all goods D) resources are not limited
A) a society can increase the production of one good only by decreasing the production of some other good that is valued more highly
The best definition for economic growth is: A) a sustained expansion of production possibilities measured as the increase in real GDP over a given period. B) a sustained expansion of consumption goods over a given period. C) a sustained expansion of production possibilities measured as the increase in nominal GDP over a given period. D) a sustained expansion of production goods over a given period.
A) a sustained expansion of production possibilities measured as the increase in real GDP over a given period.
The assumption that population growth will lead to a fall in real GDP per person rate back to subsistence level is: A) associated with Malthusians. B) accepted by all economists today. C) part of the neoclassical school of growth theory. D) central to the new growth theory.
A) associated with Malthusians.
If the Fed sells U.S. dollars, the exchange rate: A) falls. B) rises. C) does not change. D) changes, but the direction depends on whether the Fed affected the demand for dollars or the supply of dollars.
A) falls.
A reason the government expenditure multiplier is larger than 1 is because: A) government expenditure changes generate changes in consumption expenditure. B) investment increases when government expenditure increases. C) government expenditure always increases. D) taxes are left unchanged.
A) government expenditure changes generate changes in consumption expenditure.
Because of increasing marginal cost, most supply curves: A) have a positive slope B) have a negative slope C) are vertical D) are horizontal
A) have a positive slope
The ________ the expected profit, the greater is the ________. A) higher; investment demand B) lower; capital stock C) lower; investment demand D) None of the above answers is correct
A) higher; investment demand
In the circular flow of income: A) households demand goods and services that are supplied by firms, while supplying factors that are demanded by firms. B) households demand goods and services that are supplied by firms, and the firms demand factors that are supplied by intermediate firms. C) households sell goods and services while firms sell factors. D) households buy goods and services while firms sell goods and services. Firms obtain labor from households, capital from government, and raw materials from other firms.
A) households demand goods and services that are supplied by firms, while supplying factors that are demanded by firms.
The law of demand states that the quantity of a good demanded varies: A) inversely with its price B) directly with population C) inversely with the price of substitute goods D) directly with income
A) inversely with its price
A student is studying for an exam 2 hours and day and is debating whether to study an extra hour. The students marginal benefit: A) is the benefit the student receives from studying the extra hour B) is the benefit the student receives from studying all 3 hours C) is greater than the student's marginal cost D) depends on the grade the student earns on the exam
A) is the benefit the student receives from studying the extra hour
People must make choices because: A) of scarcity B) most people enjoy chopping C) There are many foods available D) None of the above answers are correct
A) of scarcity
The working-age population is defined as the number of: A) people over the age of 16 who are not in jail, hospital, or other institution. B) people working full-time jobs who are over the age of 16. C) people looking for work. D) people who have a job.
A) people over the age of 16 who are not in jail, hospital, or other institution.
During a deflation, the price level is: A) positive and falling. B) negative. C) positive and rising. D) positive and not changing.
A) positive and falling.
If the economy is at potential GDP and the Fed increases the quantity of money, then: A) potential GDP and real GDP both decrease. B) real GDP rises temporarily above potential GDP. C) potential GDP rises. D) real GDP rises permanently above potential GDP.
A) potential GDP and real GDP both decrease.
If the CPI is 120, this means that: A) prices are 20 percent higher than in the reference base period. B) prices are 120 percent higher than in the reference base period. C) prices are 0.12 times higher than in the reference base period. D) the inflation rate must be positive.
A) prices are 20 percent higher than in the reference base period.
Harry produces 2 balloon rides and 4 boat rides an hour. Harry could produce more balloon rides but to do so he must produce fewer boat rides. Harry is ________ his production possibilities frontier. A) producing on B) producing inside C) producing outside D) producing either inside or on
A) producing on
An increase in demand combined with no change in supply: A) raises the equilibrium price. B) decreases demand because the supply curve does not shift. C) results in only a movement rightward along the demand curve. D) lowers the equilibrium price.
A) raises the equilibrium price.
The ________ interest rate approximately equals the ________ interest rate minus ________. A) real; nominal; the inflation rate B) nominal; real; the inflation rate C) nominal; real; depreciation D) real; nominal; depreciation
A) real; nominal; the inflation rate
Which of the following is NOT an asset of the Federal Reserve System? A) reserves of depository institutions B) mortgage -backed securities C) U.S. government securities D) None of the above are correct because they are all assets of the Federal Reserve.
A) reserves of depository institutions
When the nominal interest rate rises, the opportunity cost of holding money: A) rises and people hold less money. B) rises and people hold more money. C) falls and people hold more money. D) falls and people hold less money.
A) rises and people hold less money.
When disposable income is 0, consumption is $2000. Then: A) saving = -$2000. B) saving = $0. C) saving = $2000. D) the MPC = 0.2.
A) saving = -$2000.
Which of the following bodies are responsible for the conduct of monetary policy? A) the Federal Reserve System B) Congress C) Congress and the President, jointly D) the President
A) the Federal Reserve System
The production possibilities frontier itself illustrates: A) the combination of goods and services that can be produced efficiently B) all possible production of capital goods C) all goods that can be produced by an economy D) all goods and services that are desired but cannot be produced due to scarce resources
A) the combination of all goods and services that can be produced efficiently
The opportunity cost of any action is: A) the highest-valued alternative given up B) all the best alternatives given up C) the dollars the action cost D) the benefit from the action minus the cost of the action
A) the highest-valued alternative given up
The AS/AD model studies the relationship between: A) the price level and real GDP. B) nominal GDP and inflation. C) unemployment and real GDP. D) the price level and unemployment.
A) the price level and real GDP.
An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________. A) the price level; downward; autonomous expenditure; rightward B) the price level; upward; autonomous expenditure; leftward C) autonomous expenditure; upward; the price level; rightward D) autonomous expenditure; upward; the price level; leftward
A) the price level; downward; autonomous expenditure; rightward
A movement along the aggregate production function is the result of a change in: A) the quantity of labor. B) technology. C) interest rates. D) capital.
A) the quantity of labor.
The aggregate demand curve shows: A) the quantity of real GDP demanded at different price levels. B) total expenditures at different levels of national income. C) that real income is directly (positively) related to the price level. D) All of the above answers are correct.
A) the quantity of real GDP demanded at different price levels.
A relative price is: A) the ratio of one price to another price. B) the number of dollars that must be given up in exchange for the good. C) also called the money price. D) not an opportunity cost.
A) the ratio of one price to another price.
Which of the following is a microeconomic topic? A) the reasons why Kathy buys less orange juice B) the reasons why total employment decreases C) the effect of the government budget deficit on inflation D) the reasons for decline in average prices
A) the reasons why Kathy buys less orange juice
The circular flow diagram shows that: A) the total amount of income generated by the economy equals the total purchases of final goods and services. B) consumption expenditure equals saving. C) goods and factor markets are independent. D) the flow of payments to the factors used to produce goods and services exceeds the flow of payments for final goods and services.
A) the total amount of income generated by the economy equals the total purchases of final goods and services.
Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create? A) zero, because Bank A has no excess reserves B) $400 C) $800 D) $200
A) zero, because Bank A has no excess reserves
Suppose that in 2015 a country has a population of 1 million and real GDP of $1 billion. In 2016, the population is 1.1 million and the real GDP is $1.1 billion. The real GDP per person growth rate is: A) zero. B) positive. C) negative. D) $1000.
A) zero.
Expected profit effect
As E increases, the expected profit from the foreign exchange rate decreases, causing the quantity supplied of USD to increase.
FX Rate Law of Demand
As E increases, the quantity of US dollars demanded decreases.
World economy
As foreign exchange rate (E) decreases, exports increase, imports decrease, and rGDP increases
Fiscal policy: tax or government expenditure (G)
As tax decreases, consumption increases
FX Rate Law of supply
As the foreign exchange rate increases, the quantity supplied of USD increases
Oligopoly
At most ten producers
If investment increases by $300 and, in response, equilibrium aggregate expenditure increases by $600, then the multiplier must be: A) 0.5. B) 2. C) 0.2. D) 5.
B) 2.
Let C represent consumption expenditure, S savings, I gross private domestic investment, G government expenditure on goods and services, and X - M net exports of goods and services. Then GDP equals: A) C + S + G - X - M B) C + I + G + X - M C) C + I + G - X - M D) C + S + G + X - M
B) C + I + G + X - M
Which of the following statements are TRUE regarding the demand for labor? I. The quantity of labor demanded depends on the real wage rate. II. If the money wage rate increases and the price level remains the same, the quantity of labor demanded decreases. A) I only B) II only C) I and II D) neither I or II
B) II only
Which of the following is NOT a normative statement? A) The government ought to provide health care to everyone. B) People buy more of a good or service when its price falls. C) The distribution of income is fair. D) Corporations should be more socially responsible.
B) People buy more of a good or service when its price falls.
Suppose Molly has an income of $35,000 annually and has inherited a savings account of $20,000. Wyatt has a job that pays $35,000 annually, but has debts totaling $6,000. Which of the following is TRUE? A) We can expect Wyatt and Molly to have equal amounts of consumption this year. B) We can expect Wyatt to save more than Molly this year. C) We can expect Wyatt and Molly to save the same proportion of their incomes this year. D) We can expect Molly to save more than Wyatt this year.
B) We can expect Wyatt to save more than Molly this year.
The state of Georgia offers free college tuition to high school students with a "B" average. In 2007, the state raised the requirement so that fewer students qualified for the scholarship. At the same time, Georgia increased state spending on health care. Suppose that college education is on the vertical axis and health care is on the horizontal axis of a PPF. Georgia's change in spending would be shown as: A) a shift in of the PPF. B) a movement down along the PPF. C) a shift out of the PPF. D) a movement up along the PPF.
B) a movement down along the PPF.
Autonomous expenditure refers to: A) aggregate expenditure solely prompted by policy. B) aggregate expenditure that does not change when real GDP changes. C) changes in short-run aggregate supply. D) aggregate expenditure that varies because of changes in real GDP.
B) aggregate expenditure that does not change when real GDP changes.
Suppose the equilibrium price of a gallon of gasoline drops from $3.00 to $2.85 and the equilibrium quantity increases from 365 millions of gallons per week to 372 millions of gallons per week. These changes can be the result of: A) a decrease in supply. B) an increase in supply. C) a decrease in demand. D) an increase in demand.
B) an increase in supply.
Which of the following increases the quantity supplied of good X but does NOT increase the supply of good X? A) an advance in the technology for producing X B) an increase in the price of X C) an increase in the price of good Y, a complement in the production of X D) a fall in the price of a factor production used to produce X
B) an increase in the price of X
Which of the following increases aggregate demand? A) an increase in taxes B) an increase in the quantity of money C) a decrease in government expenditures D) an increase in the exchange rate
B) an increase in the quantity of money
When real GDP exceeds potential GDP, then the economy has: A) a below-full-employment equilibrium. B) an inflationary gap. C) a recessionary gap. D) None of the above answers are correct.
B) an inflationary gap.
Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can: A) sell dollars. B) buy dollars. C) attempt to freeze all sales of dollars. D) any of the above actions could take place.
B) buy dollars.
Economic growth comes from: A) producing more goods than people want to consume B) capital accumulation and technological advance C) people willing to increase their skills in which case, economic growth is free D) capital accumulation and the avoidance of opportunity cost
B) capital accumulation and the avoidance of opportunity cost
An increase in the tax on interest income ________ the supply of loanable funds and ________ the equilibrium investment. A) decreases; increases B) decreases; decreases C) increases; increases D) increases; decreases
B) decreases; decreases
The stimulus package passed by Congress in 2009 to combat the recession is an example of: A) monetary policy. B) discretionary fiscal policy. C) increased taxation. D) automatic fiscal policy.
B) discretionary fiscal policy.
Unemployment caused by the normal labor turnover is called ________ unemployment. A) cyclical B) frictional C) part-time D) involuntary
B) frictional
Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage? A) cellos B) guitars C) both goods D) neither good
B) guitars
The aggregate production function relating real GDP to labor hours: A) has a positive slope and becomes steeper as employment increases. B) has a positive slope and becomes less steep as employment increases. C) has a negative slope. D) has a constant slope.
B) has a positive slope and becomes less steep as employment increases.
According to the Ricardo-Barro effect: A) government budget deficits increase households' expected future disposable income. B) households increase their personal saving when governments run budget deficits. C) government deficits raise the real interest rate. D) taxpayers fail to foresee that government deficits imply higher future taxes.
B) households increase their personal saving when governments run budget deficits.
In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. 14) In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to 2012, Armenia's standard of living ________. A) decreased B) increased C) did not change D) might have increased, decreased, or remained unchanged but more information is needed to determine which
B) increased
Technological change: A) lowers the real wage rate. B) increases potential GDP. C) decreases labor productivity. D) has no effect on employment.
B) increases potential GDP.
According to the law of diminishing returns, an additional unit of: A) labor decreases output. B) labor produces less output than the previous unit. C) capital produces more output than an additional unit of labor. D) labor produces more output than the previous unit.
B) labor produces less output than the previous unit.
Factors of production are grouped into four categories: A) land, labor, capital, money. B) land, labor, capital, entrepreneurship C) labor, capital, money, entrepreneurship D) land, capital, money, entrepreneurship
B) land, labor, capital, entrepreneurship
Gross domestic product (GDP) is the ________ in a given time period. B) market value of final goods and services produced by the economy C) value of personal consumption expenditures, gross private domestic investment, and federal government expenditures D) sum of wage and salary compensation of employees and corporate profits
B) market value of final goods and services produced by the economy
When real GDP increases, people demand: A) more money in nominal terms but less in real terms. B) more real money. C) the same quantity of real money. D) less real money.
B) more real money.
Susan likes to drink sodas. The _______ soda Susan drinks, the _______ of the last soda. A) less; lower the marginal benefit B) more, lower the marginal benefit C) less; higher the opportunity cost D) more; higher the marginal benefit
B) more; lower the marginal benefit
An economy recovering from a recession: A) moves up from its peak to a period of expansion. B) moves up from its trough to a period of expansion. C) moves down from its trough to a period of depression. D) moves down from its peak to a period of expansion.
B) moves up from its trough to a period of expansion.
The multiplier is 5.0 and autonomous expenditure increases by $30 billion. If potential real GDP is unaffected, in the long run, equilibrium real GDP will: A) increase by more than $50 billion. B) not change. C) increase by less than $50 billion. D) increase by $50 billion.
B) not change.
The long-run aggregate supply curve illustrates the: A) surpluses, shortages and equilibrium level of GDP. B) relationship of the price level and real GDP when the economy is at full employment. C) relationship of the price level and real GDP when the economy is at zero unemployment. D) amount of products producers offer at various prices when money wages and other resource prices are fixed.
B) relationship of the price level and real GDP when the economy is at full employment.
Other things remaining the same, the U.S. interest rate differential increases if the U.S. interest rate: A) falls and foreign interest rates remain constant. B) rises and foreign interest rates remain constant. C) falls and foreign interest rates rise. D) remains constant and foreign interest rates rise.
B) rises and foreign interest rates remain constant.
If a producer can use resources to produce either good A or good B, then A and B are: A) substitues in consumption B) substitutes in production C) complements in consumption D) complements in production
B) substitutes in production
The "law of demand" states that, other thing remaining the same, the higher: A) consumers' incomes, the greater is the demand. B) the price of a good, the smaller is the quantity demanded. C) the price of a good, the lower is the demand for this good. D) the price of a good, the higher is the quantity demanded.
B) the price of a good, the smaller is the quantity demanded.
If the Japanese yen was 123 per dollar and now it is 114 yen per dollar, it can be said that: A) the dollar has appreciated against the yen. B) the yen has appreciated against the dollar. C) the yen has depreciated against the dollar. D) Both answers C and B are correct
B) the yen has appreciated against the dollar.
The government's budget deficit or surplus equals the: A) change in revenue minus change in outlays. B) total tax revenue minus total government outlays. C) change in outlays divided by change in revenue. D) average outlay divided by average revenue.
B) total tax revenue minus total government outlays.
If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was: A) 22.5 perent B) 18 percent C) 1.8 percent D) 2.5 percent
C) 1.8 percent
At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's capital stock at the end of year equals: A) 1 machine B) 2 machines C) 6 machines D) 3 machines
C) 6 machines
The money price of a pizza is $12 per pizza and the money price of a taco is $2 per taco. The relative price of a pizza is: A) 1/6 pizza per taco. B) $12 per pizza. C) 6 tacos per pizza. D) $24 per pizza.
C) 6 tacos per pizza.
Suppose that, initially, the nominal interest rate is 6 percent and the inflation rate increases to 6 percent, what will be the new nominal interest rate? A) 1 percent B) 6 percent C) 9 percent D) 11 percent
C) 9 percent
In the United States, the central bank is the ________. A) Federal Reserve Bank of New York B) Bank of America C) Federal Reserve System D) Federal Reserve Bank of Washington D.C.
C) Federal Reserve System
Which of the following statements are CORRECT? I. The "highest-valued alternative given up to get something" is the opportunity cost. II. Wealthy economies don't experience opportunity costs. III. Scarcity creates opportunity costs. A) I only B) I and II C) I and III D) I, II, and III
C) I and III
Which of the following will NOT shift the supply curve for pick-up trucks? A) a technological advance B) an increase in the price of a resource used to produce pick-up trucks C) a change in the price of pick-up trucks D) a change in the number of firms supplying pick-up trucks
C) a change in the price of pick-up trucks
The Fed engages in open market operations and sells government securities. The result is: A) a lower federal funds rate. B) an unchanged federal funds rate because other interest rates did not change. C) a higher federal funds rate. D) More information is needed to determine what happens to the federal funds rate.
C) a higher federal funds rate.
An increase in the value of the multiplier can be caused by: A) an increase in the marginal propensity to import. B) a decrease in the marginal propensity to consume. C) an increase in the marginal propensity to consume. D) an increase in autonomous consumption expenditure.
C) an increase in the marginal propensity to consume.
Bicycles are made out of steel. If the price of steel increases, there is a shift in the supply curve of bicycles that leads to: A) a shift in the demand curve for bicycles. B) a permanent surplus of bicycles. C) an increase in the price of a bicycle. D) a temporary surplus of bicycles.
C) an increase in the price of a bicycle.
Money is created by: A) banks paying for depositor's insurance. B) government taxation. C) banks making loans. D) banks taking in deposits.
C) banks making loans.
Economic growth comes from ________. A) capital accumulation and the avoidance of opportunity cost B) producing more goods than people want to consume C) capital accumulation and technological advance D) people willing to increase their skills in which case, economic growth is free
C) capital accumulation and technological advance
If the Fed lowers the federal funds rate so that the exchange rate falls, then imports ________ and exports ________. A) increase; increase B) decrease; decrease C) decrease; increase D) increase; decrease
C) decrease; increase
The production possibilities frontier is: A) upward sloping and reflects unlimited choices. B) upward sloping and reflects tradeoffs in choices. C) downward sloping and reflects tradeoffs in choices. D) downward sloping and reflects unlimited choices.
C) downward sloping and reflects tradeoffs in choices.
The monetary policy instrument the Federal Reserve choose to use is the: A) exchange rate. B) quantity of money. C) federal funds rate. D) required reserves rate.
C) federal funds rate.
The business cycle refers to: A) changes in the level of employment. B) changes in the level of the stock market. C) fluctuations in the level of real GDP around potential GDP. D) changes in the level of nominal GDP.
C) fluctuations in the level of real GDP around potential GDP.
Individuals A and B both produce good X. A has a comparative advantage in the production of good X if A: A) can produce more units of X in a given time period than can B. B) can produce X using newer technology than can B. C) has a lower opportunity cost of producing good X than has B. D) has a lower opportunity cost of producing good X than of producing good Y.
C) has a lower opportunity cost of producing good X than has B.
When the economy is at full employment and investment increases, in the long run the price level will ________ and, if potential GDP does not change, in the long run real GDP will ________. A) decrease; decrease B) increase; increase C) increase; not change D) decrease; not change
C) increase; not change
The quantity theory of money states that: A) as the price level increases, the demand for money increases. B) changes in the quantity of money are determined by the commercial banks and not the Federal Reserve. C) inflation increases when the money growth rate increases. D) as the interest rate rises, the demand for money decreases.
C) inflation increases when the money growth rate increases.
The intertemporal substitution effect of the price level on aggregate demand: A) explains why aggregate demand increases when the amount of money increases. B) is the same as the real wealth effect. C) is one reason that the aggregate demand curve has a negative slope. D) is one reason that the aggregate demand curve has a positive slope.
C) is one reason that the aggregate demand curve has a negative slope.
If capital per worker rises: A) firms respond by raising they prices B) no technological progress occurs C) labor productivity increases D) labor productivity decreases
C) labor productivity increases
If the price of a CD is equal to the equilibrium price, there will be ______ of CDs and the price will ______. A) shortage; fall B) surplus; rise C) neither a shortage nor surplus, not change D) surplus; fall
C) neither a shortage nor surplus, not change
Cash assets of a commercial bank consist of: A) vault cash, a deposit account at the Fed and the value of its depositors' accounts. B) notes and coins in the bank's vault , a deposit account at the Fed and any gold held for the bank at Fort Knox. C) notes and coins in the bank's vault, a deposit account at the Fed and loans to other banks. D) vault cash, a deposit account at the Fed and the bank's stock holdings.
C) notes and coins in the bank's vault, a deposit account at the Fed and loans to other banks.
A recent survey by India's central bank reported that spending plans by firms on large new projects fell by 46 percent in the year ending March 2012, compared with the prior year. This decrease will most directly impact: A) population growth. B) technological change. C) physical capital growth. D) human capital growth.
C) physical capital growth.
The term capital, as used in macroeconomics, refers to: A) the amount of money a firm can raise in the stock market. B) the amount of money that someone can invest in a new venture. C) physical capital. D) All of the above answers are correct.
C) physical capital.
Classical growth theory argues that when real GDP per person rises above the subsistence level: A) technological change slows down, stagnating the economy B) the economy enjoys a period of permanent growth C) population growth increases, driving real GDP per person back to subsistence level D) people don't want to work as much, decreasing labor supply
C) population growth increase, driving real GDP per person back to subsistence level.
The Fed's goals include: A) monetary base stability. B) open market operations. C) price level stability. D) maintaining a low federal funds rate.
C) price level stability.
Which of the following are parts of the business cycles? A) real GDP and potential GDP B) peak and potential GDP C) recession and expansion D) inflation and recession
C) recession and expansion
If the quantity of textbooks supplied is 10,000 per year and the quantity of textbooks demanded is 12,000 per year, there is a ________ in the market and the price will ________. A) shortage; fall B) surplus; fall C) shortage; rise D) surplus; rise
C) shortage; rise
The Laffer curve is the relationship between: A) government purchases and potential GDP. B) tax revenue and potential GDP. C) tax rates and tax revenue. D) tax rates and potential GDP.
C) tax rates and tax revenue.
The production possibilities frontier shifts as: A) tastes and preferences change. B) the unemployment rate changes. C) technology changes. D) the money supply grows or shrinks.
C) technology changes.
Monetary policy includes adjustments in ________ so as to change ________. A) the quantity of money; short-run aggregate supply B) open market operations; long-run aggregate supply C) the federal funds rate; aggregate demand D) the federal funds rate; short-run aggregate supply
C) the federal funds rate; aggregate demand
If the money wage rate and other resource prices do not change when the price level rises by 10 percent, ________. A) the short-run aggregate supply curve shifts leftward B) the long-run aggregate supply curve shifts rightward C) there is movement along the short-run aggregate supply curve D) the long-run aggregate supply curve shifts leftward
C) there is movement along the short-run aggregate supply curve
In a period of rapid, unexpected inflation, resources can be lost: A) when firms invest in research and development instead of forecasting inflation. B) because rapid inflation almost always turns into a hyperinflation. C) when firms use resources to forecast inflation. D) Both answers B and C are correct.
C) when firms use resources to forecast inflation.
The labor force is defined as: A) all people capable of work. B) people with full time jobs. C) workers with jobs and unemployed workers. D) All of the above answers are correct.
C) workers with jobs and unemployed workers.
Demand pull inflation
Caused by something such as change in taste
Changes in LAS
Change in PGDP. Technology changes, full employment level is reached, capital increases
Changes in SAS
Change in PGDP. Technology changes, full employment level is reached, capital increases Wage rate changes.
Currency drain ratio (CDR)
Currency taken out/total loans
At the beginning of the year, your wealth is $10,000. During the year, you have an income of $90,000 and you spend $80,000 on consumption. You pay no taxes. Your wealth at the end of the year is: A) $100,000.00. B) $90,000.00. C) $0. D) $20,000.00.
D) $20,000.00.
As the expected future exchange rate for dollars increases: A) the demand for U.S. dollars increases. B) the supply of U.S. dollars decreases. C) both the demand for U.S. dollars and the supply of U.S. dollars increase D) Both answers A and B are correct.
D) Both answers A and B are correct.
An increase in the interest rate in the United States compared to the interest rate in Great Britain will: A) shift the demand curve for dollars rightward. B) increase the demand for pounds. C) increase the U.S. interest rate differential. D) Both answers A and C are correct.
D) Both answers A and C are correct.
The term "foreign currency" refers to foreign: I. coins II. notes III. bank deposits A) II only B) II and III only C) I and II only D) I, II, and III
D) I, II, and III
Investment is financed by which of the following? I. Government spending II. National saving III. Borrowing from the rest of the world A) I, II,and III B) I and II only C) I and III only D) II and III only
D) II and III only
Which of the following can start a demand-pull inflation? A) an increase in imports B) a decrease in productivity C) an improvement in technology D) None of the above can start a demand-pull inflation.
D) None of the above can start a demand-pull inflation.
Which of the following is NOT considered to be in the labor force? A) a person who is waiting to start a new job in the next 30 days B) a person who is not working but who has tried to find a job in the past week C) a student who works part-time D) a person who is not working and who has not tried to find a job
D) a person who is not working and who has not tried to find a job
Fiscal policy attempts to achieve all of the following objectives EXCEPT ________. A) price level stability B) sustained economic growth C) full employment D) a stable money supply
D) a stable money supply
The definition of M2 includes: A) time deposits. B) M1. C) savings deposits. D) all of the above.
D) all of the above.
All of the following shift the LAS curve EXCEPT: A) technological progress. B) a change in the capital stock. C) an increase in the stock of human capital. D) an increase in the money wage rate.
D) an increase in the money wage rate.
Stagflation is associated with A) neither cost-push inflation or demand-pull inflation because it is a different concept altogether. B) demand-pull inflation. C) both types of inflation. D) cost-push inflation.
D) cost-push inflation.
A decrease in the government budget deficit decreases the ________ loanable funds and an increase in the government budget surplus increases the ________ loanable funds. A) demand for; demand for B) supply of; demand for C) supply of; supply of D) demand for; supply of
D) demand for; supply of
The difference between gross investment and net investment is: A) initial capital. B) consumption. C) inflation D) depreciation.
D) depreciation.
Students who leave school in the spring and look for work are one source of ________. A) structural unemployment B) cyclical unemployment C) business-cycle fluctuations D) frictional unemployment
D) frictional unemployment
A recent accounting graduate from a major business school is searching for a place to begin his career as an accountant. This individual is best considered as: A) cyclically unemployed. B) structurally unemployed. C) seasonally unemployed. D) frictionally unemployed.
D) frictionally unemployed.
Generational accounting shows that the present value of the government's commitments to pay benefits are ________ the present value of its taxes. A) not comparable to B) equal to C) less than D) greater than
D) greater than
You observe that in the market for coffee that both the equilibrium price of coffee and the equilibrium quantity have increased. You predict that the demand for coffee: A) has increased less than the supply of coffee B) has increased but it is not as large as the increase in supply C) has not changed but that the supply of coffee has increased D) has increased with no change in the supply of coffee
D) has increased with no change in the supply of coffee
Other things remaining the same, the ________ the exchange rate for dollars, the greater the ________ in the foreign exchange market. A) higher; quantity of dollars demanded B) higher; expected profits from holding dollars C) lower; value of U.S. imports D) higher; quantity of dollars supplied
D) higher; quantity of dollars supplied
All economic questions are about: A) how to make money. B) how to satisfy all our wants. C) what to produce. D) how to cope with scarcity.
D) how to cope with scarcity.
Disposable income is: A) income plus transfer payments minus consumption expenditure. B) income minus saving. C) total income divided by the price level. D) income minus taxes plus transfer payments.
D) income minus taxes plus transfer payments.
An increase in saving that leads to more capital accumulation _______ labor productivity. A) does not change B) decreases C) probably changes but in an ambiguous direction D) increases
D) increases
On-the-job training is an example of: A) technological change B) increasing labor force participation C) investment in physical capital D) investment in human capital
D) investment in human capital
Two social institutions that are essential for trade to be organized are ________. A) businesses and banks B) markets and banks C) property rights and laws D) markets and property rights
D) markets and property rights
The real quantity of money is: A) inversely related to GDP. B) inversely related to the price level. C) measured in current dollars. D) measured in constant dollars
D) measured in constant dollars
Scarcity is a situation in which: A) some people can get all they want and some cannot. B) people can satisfy all their wants. C) most people can get only bare necessities. D) people cannot satisfy all their wants.
D) people cannot satisfy all their wants.
Which of the following is NOT included in the working-age population? A) discouraged workers B) retirees under the age of 55 C) people waiting to be called back to a job after being laid off D) people in prison
D) people in prison
An assumption of classical growth theory is that when ________ the population growth rate ________. A) the real wage rate falls; increases B) saving declines; decreases C) people become more skilled; decreases D) real GDP per person exceeds the subsistence level; increases
D) real GDP per person exceeds the subsistence level; increases
If the price of a hot dog is $2 and the price of a hamburger is $4, then the: A) money price of a hot dog is 2 hamburgers per hot dog. B) relative price of a hamburger is 1/2 of a hot dog per hamburger. C) money price of a hamburger is 2 hot dogs per hamburger. D) relative price of a hot dog is 1/2 of a hamburger per hot dog.
D) relative price of a hot dog is 1/2 of a hamburger per hot dog.
Along the aggregate production function, as the quantity of labor rises, real GDP: A) may rise, fall, or stay the same B) stays the same C) falls D) rises
D) rises
If the U.S. exchange rate rises, the price to foreigners of U.S.-produced goods and services ________ and the quantity of U.S. dollars demanded ________. A) falls; decreases B) falls; increases C) rises; increases D) rises; decreases
D) rises; decreases
Sweatshirts and tee-shirts are complements in consumption and the price of a sweatshirt increases. As a result, the demand for: A) sweatshirts will decrease that is, the demand curve will shift leftward. B) sweatshirts will increase that is, the demand curve will shift rightward. C) tee-shirts will increase that is, the demand curve will shift rightward. D) tee-shirts will decrease that is, the demand curve will shift leftward.
D) tee-shirts will decrease that is, the demand curve will shift leftward.
The dollar is regarded as the "safe haven" currency; investors flock to it when they are worried about the outlook for the global economy. Fears were at their greatest in late 2008 and early 2009 after the collapse of the Lehman Brothers investment bank in September 2008. If investors flocked to the dollar: A) the exchange rate would not change. B) the exchange rate could increase or decrease. C) the exchange rate would decrease. D) the exchange rate would increase.
D) the exchange rate would increase.
The supply of real GDP is a function of: A) the total expenditures of consumers, investors and government. B) only the state of technology. C) the sum of wages, salaries, corporate profits, rents and interest. D) the quantities of labor, capital and the state of technology.
D) the quantities of labor, capital and the state of technology.
The Keynesian model of aggregate expenditure describes the economy in: A) both the short run and the long run. B) only a strong expansion. C) the long run. D) the short run.
D) the short run.
Intermediate goods are excluded from GDP because: A) they represent goods that have never been purchased so they cannot be counted. B) the premise of the question is incorrect because intermediate goods are directly included in calculating GDP. C) their inclusion would understate GDP. D) their inclusion would involve double counting.
D) their inclusion would involve double counting.
How are discouraged workers treated when calculating the unemployment rate?
Discouraged workers are people who have stopped looking for work and so are not in the labor force. Hence, when calculating the unemployment rate, discouraged workers are counted in neither the number of unemployed nor in the labor force
rGDP can grow out of two different factors:
During the expansion stage, rGDP can grow back to full employment. Potential GDP can grow.
Four parties of economic coordination:
Firm, markets, household, and money
Full employment
Free of cyclical unemployment
How do you measure the economic growth rate?
It is the annual percentage change of rGDP rGDP/population
Phylip's Curve
Measures trade off between inflation and employment.
Monopolistic competition
More competitive but still limited amount of producers.
Monopoly
One seller
Real exchange rate (RER) formula
RER is equal to the exchange rate multiplied by the domestic price level divided by the foreign price level
Real exchange rate (RER)
Relative price of US produced goods to foreign produced goods
Structural unemployment
Structural changes of the market
Monetary base
Sum of bank notes, coins, and banks' deposits at the federal reserves.
Economic growth can occur two ways. What are they?
Technology change and Capital accumulation
The Loanable Funds Market
The aggregate of all individual financial markets
What is the definition of the unemployment rate?
The definition of the unemployment rate is [(number of unemployed) ÷ (labor force)] × 100. In this calculation, the labor force equals the sum of employed plus unemployed people.
Liquidity
The easiness to convert current asset into cash
Gross Domestic Profit
The market value of all final goods and services produced in a country in a given time period.
Arbitrage
The practice of seeking profit by buying in one market and selling at a higher price in another market.
Investment (I)
The purchase of new capital and additional inventory.
Money multiplier
The ratio of the change in the quantity of money to the change in the monetary base. 1/drr
Long run AS (LAS)
The relationship between the price level and the rGDP supplied when rGDP = PGDP
Short run AS (SAS)
The relationship between the quantity of rGDP supplied and the price level when the money wage rate, the price of other sources, and pGDP remains constant.
Wealth
The value of everything a person owns
Consumption (C)
Total payment for consumer goods
Natural unemployment rate
UR when we have full unemployment
Reasons for downward sloping demand curve
Wealth effect, intertemporal substitution effect, international substitution effect
Positive statement
What is
Normative statement
What ought to be
Stagflation
When the SAS shifts left, causing both inflation and recession
Long run
Where everything equals and reaches equilibrium such as full employment and PGDP
Expenditure approach
Y = C + I + G + (X - M) Aggregate income is equal to consumption, plus investments, plus government expenditure, plus net exports.
If you want to avoid recession ______ FFR.
decrease
If you want to check rising inflation ______ FFR
increase
Calculate cost of Consumer Price Index (CPI)
o Find cost of CPI basket at base year prices o Find cost of CPI basket at current year prices o (Cost of current year/cost of base year) x 100%
Savings
• Amount of income that is not paid in taxes or spent on consumption • Savings generally increases with wealth
Monetary policy: money supply and i
• As money supplied increases, consumption increases, and rGDP increases. • As nominal interest rate increases, consumption decreases, and rGDP decreases
Unemployed Worker
• Be without work but has made specific effort to look for work within the last thirty days. • Waiting to be called back to work • Waiting to start a new job within the next 30 days.
Changes in demand (AD)
• Expectations • Fiscal policy and monetary policy
How do we increase the production function? (3 ways)
• Increase physical capital • Increase human capital (teach them more) • Better technology
Comparative advantage
• Lower opportunity cost of producing something • Least to lose to produce this thing compared to other people
The Loanable Funds Market gets funds from three sources (supply)
• Savings • Government Savings (CT - G) • Borrowing from rest of world (M-X)
Government Expenditure (G)
• The government bought goods and services • Government finances their expenditure through taxes • Financial transfers are not considered G.
Perfect competition
• Unlimited buyers and sellers • Products are identical • Everyone is a price taker
