Macro Econ - Final Exam
Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing an apple in Oregon
2/12= 1/6 0r .17
Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing an apple in Washington
20/100= 1/5 0r 0.2
Suppose that the U.S. can produce 1,000 cars for every 250 avocados. What is the opportunity cost for each car
250/1,000= .25
With the short-run aggregate supply model, input prices are assumed to be flexible and output prices are assumed to be sticky
False - input are sticky, output flexible
The benefits and costs of international trade are estimated to be roughly equal
False - trade is beneficial
Of the national debt of the U.S., the clear majority is owed to the Chinese government
False, owed to U.S citizens
Unemployed workers who voluntarily quit their jobs to search for a better position are categorized as ________ unemployed
Frictionally
On the basis of GDP, what is the economic growth rate from 2017 to 2018? Round 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 unemployed workers 50 50 80 consumer price index 100 105 111 GDP 10,000,000 10,350,000 10,500,000
Growth Rate = GDP Yr 2 - GDP Yr 1 / GDP Yr 1 10,350,000-10,000,000/10,000,000= 3.5
The Federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the amount of private investment and consumption spending is reduced. This illustrates the
crowding out effect
suppose that a person is laid off after their employer faces difficulty due to the recession. Which type of unemployment is this describing
cyclical
When a nation is experiencing full employment
cyclical unemployment is zero
the interest rate effect suggest that
an increase in the price level will increase the demand for money, increase interest rates and decrease consumption and investment spending
Suppose that the United States places tariffs on German bicycles. as a result, we would expect
consumers in the u.s to purchase more American bikes, the price of German bicycles to increase in the u.s, employment to decrease in the German bicycle industry. All of these answers are correct
in terms of GDP calculations, what is investment
spending on physical capital, construction of new buildings, or positive changes in inventories
If you deposit money that you've earned into a savings account so that it is available for a future date, you are using money primarily as a
store of value
3 essential functions of money
store of value medium of exchange unit of account
If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing
structural unemployment
When governments use expansionary fiscal policy, which of the following is the expected short-run result
increase economic output and a higher price level
On a graph, what is the impact of expansionary monetary policy
increase in aggregate demand
An appropriate fiscal policy for a severe recession is
increase in government spending
the foreign purchases effect(also known as the net exports effect) suggest that a decrease in the U.S price level relative to other countries will
increase the U.S exports and decrease U.S imports
When the the Fed buys bonds, the money supply ____
increases
an rationale sometimes cited for protectionism is that domestic firms need help in developing and that protectionism can help a nations business become industry leaders in the future
infant industry argument
Which are examples of macroeconomic topics
inflation, economic growth, GDP
The value of money varies
inversely with the price level
which component of GDP includes inventory changes
investment
Which statement regarding the relationship between physical capital and economic growth is true
investments in machinery helps all economies but helps more in nations with lower levels of capital
Contractionary fiscal policy is so named because it
is aimed at reducing aggregate demand and thus achieving price stability.
The rule of 70 shows
the number of years that it will take GDP to double at current growth rates
According to comparative advantage, a good should be produced in that nation where
the opportunity cost is lower
An increase in the reserve ratio increases the
the percentage of deposits that commercial banks must keep rather than lend
when inflation occurs
the purchasing power of saved sums of money declines
which Is the most accurate interpretation of the import demand curve
the relationship between the price of a good and the amount of the good that a nation imports
The labor force is defined as
the total number of employed and unemployed
Which item below refers to a barter exchange
trading a taco for a cup of coffee
The low point of a business cycle is called the
trough
A central bank controls the amount of money in circulation in an economy
true
Canadian dollars are an example of fiat money
true
Credit unions are similar to commercial banks but sometimes have membership restrictions and can offer slightly better terms/rates
true
Economic activity using barter requires a double-coincidence of wants
true
One effect of tariffs are higher prices for consumers
true
Real estate is an example of an asset which is not very liquid
true
Today, the use of commodity money is less common than the use of fiat money.
true
increases in per capita GDP are associated with increases in the average standard of living
true
the aggregate demand curve shows that inflation leads to a reduction in the total level of expenditure in the economy
true
the gains from international trade come from comparative advantage rather than absolute advantage
true
when a nations autarky price is the same as the world price, the nation will neither export nor import the good
true
when a nations population increases, GDP usually increases too
true
when a tariff is imposed on a good, domestic consumption of that good declines
true
when disinflation occurs, prices are rising but at a lower rate than a previous years
true
when two nations engage in international trade, each country will necessarily have a comparative advantage in the production of one good
true
What does the term underemployment represent
when a person has a job that does not align with their human capital
When is it appropriate to use contractionary monetary policy
when inflation is a concern
The real-balances, interest-rate, and foreign purchases effects all help explain
why the AD demand curve slops down
How are the 3 big questions of economics addressed in the U.S
with markets in some cases and government provision in some cases
people are considered employed id they are
working part time but hoping to work full time
Consider the table below showing various components of spending in an economy What is the GDP in this nation? Personal consumption 1,000 Gross private domestic investment 400 exports 200 imports 100 government purchases 300 capital consumption allowance 250
1,000+400+(200-100)+300= 1800
Suppose that the U.S. can produce 1,000 cars for every 250 avocados. What is the opportunity cost for each avocado
1,000/250 = 4
Suppose that the discount rate is 2%, the required reserve ratio is 4%, and the prime interest rate is 7%. By how much will the money supply increase if the Fed puts an additional $3,000,000 into circulation?
1/.04= .25 .25x 3,000,000= 750,000
Suppose that the prime interest rate is 4%, the federal funds rate is 5%, the discount rate is 6%, and the required reserve ratio is 7%. In this case, what is the money multiplier
1/.07=14.29
Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing a PEAR in WASHINGTON
100/20 = 5 Pears
Suppose that the states of Oregon and Washington are both producing two goods, apples and pears. Washington can produce either 100 apples or 20 pears Oregon can produce either 12 apples or 2 pears What is the opportunity cost of producing a PEAR in OREGON
12/2=6 Pears
(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative (action) lag is reflected in events
3 and 4
What is the unemployment rate in 2019? 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 unemployed workers 50 50 2300 consumer price index 100 105 111 GDP 10,000,000 10,350,000 10,500,000
4700+500+2300= 7500 2300/7500=.30666667x100= 30.67
(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational (effect) lag is reflected in events
5
2018 2019 2020 Nominal $2,291 $8,551 Real GDP $4,500 $5,865 GDP Deflator 86.1. 112.7 What is the Nominal GDP in the year 2019? Round 2 decimal places
5,865 x 86.1 = 504,976.5/100 (always 100) = 5,049.77
2018 2019 2020 Nominal $2,291 $8,511 Real GDP $4,500 $5,865 GDP Deflator 86.1 112.7 What is the Real GDP in the year 2020? Round 2 decimal places
8,511 x 100(always)/112.7= 7,551.91
The nation of Workovia has a population of 15 million, of whom, 10 million are in the labor force and 9 million are working. Workovia unemployment rate is __ percent
9 million
Which of the following would most likely shift the aggregate demand curve to the right
An increase in stock prices that increases consumer wealth
Which of the following best describes the built-in stabilizers as they function in the United States
Built-in stabilizers function in a similar way to fiscal policy but are not subject to the same lags
John expects to get a raise equal to the increase in the consumer price index (CPI). The CPI has gone from 160 to 164. If Johns salary last year was 50,000, what salary does he expect to earn this year.
COME BACK TO THIS
Suppose that the discount rate is 2%, the required reserve ratio is 4%, and the prime interest rate is 7%. What is the value of the money multiplier if the Fed puts an additional $3,000,000 into circulation?
COME BACK TO THIS
Based on the information below, what is the value of M1 Checking Account Deposits: 400 Savings Account Deposits: 500 Currency in Circulation: 300 Gold Bars:300 Sum of all Credit Card Balances: 1500 Existing Traveler's Checks: 5 Real Estate Holdings: 2000 Small Denomination Time Deposits: 50 Money Market Mutual Fund Accounts: 50
Checking Account Currency in circulation existing travelers checks 400+300+5= 705
Based on the information below, what is the value of M2 Checking Account Deposits: 400 Savings Account Deposits: 500 Currency in Circulation: 300 Gold Bars:300 Sum of all Credit Card Balances: 1500 Existing Traveler's Checks: 5 Real Estate Holdings: 2000 Small Denomination Time Deposits: 50 Money Market Mutual Fund Accounts: 50
Checking Account savings account Currency in circulation existing travels checks Small denomination time deposits money market mutual fund 400+500+300+5+50+50=1,305
What happens if the discount rate is reduced
Commercial banks can borrow money from the Federal Reserve at a lower interest rate
Suppose that the discount rate decreases. Which of the following will occur as a result
Commercial banks will borrow more money from the Fed and the money supply will increase correspondingly
an increase in ______ is the best evidence for inflation
Consumer price Index
What is the role of deposit insurance in the banking industry
Deposit insurance reduces the incentive to withdraw money and therefore makes bank panics less likely
Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year?
Disinflation
In Guns,Germs and Steel, Jared Diamond argues that the main reason that growth rate in Papua New Guiena has been low because the country has not invested in education
FALSE
When Mr.Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr.Wilson does his own cleaning. What is the effect on GDP?
GDP falls as a result of this change
What is the per capita GDP in 2018. Round 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 unemployed workers 50 50 80 consumer price index 100 105 111 GDP 10,000,000 10,350,000 10,500,000
GDP/Population 10,350,000/12000= 863
Consider how many years are expected to elapse before GDP has doubled 2017 2018 Population 10000 12000 Full time workers. 4500 4600 part time workers 250 350 discouraged workers 100 200 Retired people 50 50 consumer price index 100 105 GDP 10,000,000 10,350,000
Growth Rate = GDP yr 2 - GDP yr 1/GDP yr 1 10,350,000-10,000,000/10,000,000=3.5% GDP to double. 70 Rule 70/3.5 = 20
Which definition of the money supply is the most restrictive
M1
How is monetary policy different than fiscal policy
Monetary policy refers to changes in the money supply; fiscal policy refers to changes in taxes and government spending
Suppose that the prime interest rate is 4%, the federal funds rate is 5%, the discount rate is 6%, and the required reserve ratio is 7%. In this case, by how much will the money supply increase if the Federal Reserve puts an additional $2,000 into circulation.
Money multiplier x 2,000 14.29 x 2,000 = 28,580
which of the following scenarios best represents discouraged workers
Nick, an actor who is out of work and has stopped seeking new auditions because he feels it unlikely that he'll find work
Which is the most frequently used tool of monetary policy
Open market operations
What is the inflation between 2018 and 2019 2017 2018 2019 Population 10000 12000 15000 Full time workers. 4500 4600 4700 part time workers 250 350 500 discouraged workers 100 200 700 retired people 800 2000 2300 consumer price index 100 105 111 GDP 1,000,000 1,350,000 1,500,000
Price Index Yr 2- Price Index Yr 2/Price Index Yr 1 x 100 111-105/105x100= 5.71
what is the difference between real GDP and Nominal GDP
Real GDP accounts for changes in the price level; Nominal does not
_________ unemployment is the result of changes in the business cycle
Seasonal
the catching up effect predicts that nations with lower levels of GDP will have higher growth rates than nations with higher levels of GDP
TRUE
Suppose that an analyst is concerned that fiscal policy is ineffective because of the existence of lags. What does this mean
That fiscal policy is of limited effectiveness because its benefits aren't experienced immediately but instead after some time has elapsed
Which statement regarding the Federal Reserve is true
The Federal Reserve has a great deal of freedom in choosing the policies that it deems appropriate
The GDP deflator for the base year is
always equal to 100
A nation's long-run average supply curve can shift when a change to a a nations's resource endowment takes place
True
Fractional reserve banking can lead to bank panics
True
Chris has been laid off from his job as an aircraft worker. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Chris is
Unemployed
Based on the above information, what statement is true
Washington has a comparative advantage in pears, Oregon has a comparative advantage in apples
which item should NOT be counted for GDP calculations
a USED bike that Brian purchased to treat himself
What is the impact of a reduction in government spending
a decrease in AD
the real balances effect indicated
a higher price level will decrease the real value of many financial assets and therefore reduce spending
Which of the following is not an example of gross domestic investment
a households purchase of shares of Google stock
When economists say that money is a unit of account, they mean that it is
a monetary unit for measuring and comparing the relative values of goods
Which item listed below is likely to be the least liquid
a rare and valuable painting
When economists say that money serves as a store of value, they mean that it is
a way to keep wealth in a readily spendable form for future use
Which of the following is least likely to be a problem for monetary policy
admin lag
According to the circular flow model, the value inputs sold in resource markets and the value outputs sold in product markets
are approximately equal
Retirees and creditors
are hurt by inflation because their purchasing power is reduced
Tariffs
are taxes applied to imported goods
In a fractional reserve banking system
banks can create money through the lending process
The federal funds rate is the interest rate charged by
banks for loans to other banks
Which item is an example of fiat money
bit coin
which is an example of a non-tariff barrier
box by box inspection requirements for imported fruit
The amount by which Federal government expenditures exceed Federal tax revenues during a particular year is the
budget deficit
One of the strengths of monetary policy relative to fiscal policy is that monetary policy
can be implemented more quickly
Which of the following is a tool of monetary policy
changes to the discount rate
Which item is an example of commodity money
cigarettes
In recent years, the group with the lowest unemployment rate in the United States was
college graduates
Which type of institution accepts deposits and offers banking services like checking accounts, savings accounts, and debit cards
commercial banks (ie chase, Wells Fargo)
countries engaged in international trade specialize in production based on
comparative advantage
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _______, which will ___________ investment spending.
decrease, increase
The crowding-out effect of expansionary fiscal policy suggests that
deficit spending can lead to decreases in private investment or consumptio
a person who is interested in finding a job but has stopped looking for work because they do not feel it likely that they will find work is called
discouraged worker
In the United States, people are considered unemployed if and when they
do not have a job but are available for work and have been actively seeking work
GDP measures the final value of goods and services produced to avoid the problem of
double counting
Which of the following is true about the business cycle
each cycle is unique
Which item is included in M1 but not M2
everything in M1 is included in M2
the two approaches used by the government in estimating GDP are
expenditure and income
Consider the table below showing various components of spending in an economy What is the value of net exports in this nation? Personal Consumption 1,000 Gross private domestic investment 400 Exports 200 Imports 100 Government purchases 300 capital consumption allowance
exports-imports 200-100= 100
An advantage of monetary policy is that lags do not exist
false
Central banks sometimes experience bank panics and therefore deposit insurance has been created to limit the likelihood of these events happening
false
Commodity money is used more frequently than fiat money because it does a better job of limiting transaction costs
false
If a nation with an absolute advantage in a particular good then it will also have a comparative advantage in the good
false
Presently, the central bank of the U.S. is pursuing a contractionary monetary policy
false
The central bank of the United States is the U.S. Treasury
false
The public elects the chair of the Federal Reserve System
false
The value of M1 will be larger than the value of M2 if there are substantial deposits in checking accounts
false
the U.S economy uses markets to provide all goods and services
false
under autarky, nations typically have had a trade surplus
false
when an economy is producing at full capacity, the unemployment rate falls to around 0
false
If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes
foreign purchases effect
Modern banking systems are usually based upon _____
fractional reserve banking system
______ unemployment includes workers who voluntarily quit their jobs to search for better positions
frictional
Inflation is a
general rise in prices
Which of the following activities is an example of non-market transactions
growing your own food in a vegetable garden
which of the following groups benefit from an unanticipated rise in the inflation rate
homeowners who have borrowed money through a fixed-rate mortgage
Which group benefit from an unanticipated rise in the inflation rate?
homeowners with fixed rate mortgages
suppose the domestic price of copper is 1.20 a pound in the U.S while the world price is 1 pound. Assuming no transportation costs, the U.S will
import copper
Country A limits other nations exports to Country A to 1,000 tons of coal annually. This is an example of
import quota
in the recent years the united states
imported more goods than it exported
in the theory of comparative advantage, a good should be produced in that nation where
it cost is least in terms of alternative goods that might otherwise be produced
When the Fed buys a U.S. bond in the open market
its action expands total reserves and the money supply
when changes occur in a country that lead to the economy having a higher capacity for producing goods and services, is called
long term economic growth
Which item represents expansionary monetary policy
lowering the discount rate
Which monetary policy tool is used most often in the U.S.
making sales and purchases of government bonds
which is a negative consequence associated with inflation
menu costs
On which item does the federal government of the U.S. spend the most
military/national defense
What happens if the required reserve ratio is reduced
money multiplier will increase
which of the following values is an example of a non market transaction not included in the national income and product accounts
mowing your lawn
Suppose that John has lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents. According to the Bureau of Labor Statistics, John is
not in the labor force
Open market operations ______
occur when central banks lend to commercial banks
In what way do commercial banks help economic activity
payment intermediation, by giving people additional methods to purchase goods and services, by brining together borrowers and lenders to loans all answers are correct
The high point of a business cycle is called the
peak
Taxes on imported goods that help shield domestic producers from foreign competition are called
protective tariffs
Pick another policy that would be appropriate to address concerns about inflation
raising the rrr
the factors that explain why the AD curve takes its particular pattern are
real balances, interest rate, and foreign purchases effect
A major advantage of the built-in or automatic stabilizers is that they
require no legislative action by Congress to be made effective.
The members of the Federal Reserve Board of Governors
serve 14 year terms, in a 12 federal reserve banks
the aggregate demand curve
shows the amount of real output that will be purchased at each possible price level
a production function
shows the output that is produced using different combinations of inputs combined with existing technology
Which item is included in M2 but not M1?
small denomination time deposits
A progressive tax
takes a larger share of income from wealthier people
which statement is consistent with the employment argument for protectionism
tariffs and quotas are appropriate to make sure that there are enough jobs for domestic workers
Who controls the money supply in the U.S.
the FED
suppose that the unemployment increases from 5 to 8 percent. What conclusion can be made about the labor force participation rate?
the Labor force participation rate has gone up
the capital to labor ratio measures
the amount of physical capital per worker
when comparing the benefits and costs to international trade, studies show that
the benefits exceed the costs
In the U.S., money has value because _____
the confidence that people have in dollars
In the United States, our principal measure of inflation is
the consumer price index
Which statement regarding the Federal Reserve is false
the fed is subject to close supervision by congress
Pick the policy that would be appropriate to address concerns about inflation
the fed selling bonds
