Macro Final

Paying a salesperson more for increased sales is an example of:

an incentive.

Which of these is considered a supply shock?

an increase in input costs

Collateralized debt obligations:

are financial instruments backed by a collection of mortgages.

The two basic determinants of economic growth are _____ and _____.

expanding resources; improving technologies

(Figure: Tanks and Health Care) Which point in the figure is obtainable but NOT efficient?

point f

One implication of the Phillips curve when it is unable to shift in the short run, is that:

policymakers face a tradeoff between low unemployment and low inflation.

The payment to entrepreneurship is called:

profit.

If the economy is facing inflationary pressures, the Federal Reserve will:

raise interest rates.

If the economy has high levels of unemployment, the Federal Reserve will:

reduce interest rates.

(Table) The table shows the production possibilities schedule for guns and butter. As the production of butter increases, the opportunity cost of butter:

remains constant.

When an economy is operating efficiently, the production of one more unit of a good will result in some loss of production of another good because:

resources are limited and efficiency implies that all resources are already in use.

Tightening monetary policy causes interest rates to _____ and aggregate _____ to _____.

rise; demand; decrease

The law of supply states that as prices _____, the quantity _____.

rise; supplied rises

Monetary policy is LEAST effective in maintaining low inflation and high GDP when:

there has been a supply shock.

Adaptive expectations theory describes the use of _____ to form expectations of inflation.

past rates of inflation only

(Figure: Understanding Phillips Curves) What is the expected inflation rate associated with Phillips curve PCb?

5%

_____ occurs when the value of a currency falls relative to other currencies.

Currency depreciation

(Figure: Determining Curves) The curve in the graph represents a:

Phillips curve.

The graph that shows the tradeoff between inflation and money wages is called the:

Phillips curve.

_____ occur(s) when goods are produced at the lowestpossible cost, and _____ occur(s) when individuals who desire a product the most receive those goods and services.

Production efficiency; allocative efficiency

In the equation of exchange, if M= $1.5 trillion, V= 7, and P= 1.05, then:

Q= $10 trillion.

Which statement about markets is TRUE?

They bring buyers and sellers together.

(Figure: Interpreting PPF Shifts 3) Which statement would NOT be a possible explanation for the shift depicted in the graph?

Unemployment rises.

Scarcity refers to the fact that:

a person must make choices given the resource limitations he or she faces.

When the _____ outweigh(s) the _____ of the information, people will attempt to obtain the information.

benefits; costs

In counteracting demand shocks, the Federal Reserve can achieve:

both full employment and price stability.

(Figure: Determining Long-Run and Short-Run Economic Shifts) Starting at point J, the economy will move to point _____ in the short run if policymakers successfully reduce aggregate demand.

m

A leveraged account:

magnifies both gains and losses.

An institution that enables buyers and sellers to interact and transact with one another is known as a(n):

market.

In a liquidity trap:

monetary policy is ineffective in changing income and output.

The production possibilities model holds _____ and _____ constant.

resources; technology

The long-run Phillips curve shows:

the relationship between inflation and unemployment when the actual inflation rate and the expected inflation rate are equal.

In the equation of exchange, if M= $2 trillion, P= 1.5, and Q= $8 trillion:

the velocity of money (V) = 6.

Suppose an MP3 player sells for $75 in the United States and for 50 pounds in Britain. Which exchange rate is consistent with purchasing power parity?

£1 for US$1.50

(Table) Based on the table:

Mexico has a comparative advantage in producing airplanes.

(Figure: Understanding Phillips Curves) What is the natural rate of unemployment associated with Phillips curve PCa?

4%

The rational expectations theory describes the assumption that people are _____, and the adaptive expectations theory describes the assumption that people are _____.

forward-looking; backward-looking

If 1 euro will buy $1.30:

$1 will purchase 0.77 euro.

(Table) The balance of trade is:

-$500 billion.

(Figure: Interpreting Supply Shifts 3) When the supply shifts from S0 to S1(a leftward shift of the supply curve), the equilibrium quantity changes from:

20 units to 15 units.

Foreign aid transfers are part of the _____ account.

current

_____ advantage exists when one country can produce more of a good than another country.

Absolute

Which of these is NOT an example of market failure?

Competition leads firms to provide products at the lowest possible price.

(Figure: Exchange Rate Shifts) When demand for U.S. goods increases, the demand curve will shift from _____ to _____ and the exchange rate will shift from _____ to _____.

D0; D1; e0; e1

Consider the following statements. Which, if any, are positive statements? I. Main Street needs more coffee shops. II. A new parking garage on campus will reduce parking congestion. III. Last winter, the state should have spent more money on snow removal.

II only

Which statement about inflation targeting is true?

If the Fed pursues an inflation target, it increases the money supply when the actual inflation rate is below the target inflation rate.

Which statement illustrates the law of demand?

Lindsay offers to buy more sticks of chewing gum at $1 than at $2.

What occurs during a negative demand shock?

Output and price level decrease.

Which scenario does NOT fall under the category of microeconomics?

The cost of living has risen due to rising housing and food prices.

Which of these was NOTa factor leading to the financial crisis of 2007-2009?

The public lacked faith in the ability of the U.S. Treasury to pay government bonds.

Which factor would NOT change the demand for sea kayak tours?

a decrease in the price of a sea kayak tour

(Table) In the table, at a price of $5:

a shortage of 40 units occurs.

Assume that inflation rates for the past 5 years have been 1%, 2%, 2.5%, 2%, 2%. The Federal Reserve announces that it is going to decrease the money supply because it is concerned about inflationary pressures in the economy. If people form their expectations _____, then in light of the Fed's announcement, they will expect an inflation rate of _____.

adaptively; 1.9%

In economics, the term "land" includes:

all natural resources.

Butter is a substitute for margarine. If the price of margarine drops, we would expect to see:

both the price of butter and quantity of butter fall.

If the unemployment rate is 10% and the inflation rate is 2%, the Federal Reserve will most likely:

buy bonds.

(Table) The current account balance is a:

deficit of $85.

The twin goals of monetary policy are:

economic growth with low unemployment and stable prices with moderate long-term interest rates.

Ceteris paribus,a decrease in the number of businesses selling pizza will cause a(n):

increase in the equilibrium price of pizza.

If the dollar depreciates relative to the yuan, then American exports to China will:

increase.

One of the problems with deflation is that it:

increases the real value of existing debt.

The short-run Phillips curve holds _____ constant.

inflationary expectations

Capital, which includes all manufactured products that are used to produce other goods and services, earns:

interest.

A credit default swap:

is essentially the same as insurance against a default.

There is a(n) _____ relationship between price and quantity demanded.

negative

If the demand for iPhones rises as incomes increase, then the iPhone is a(n) _____ good.

normal

The Phillips curve tradeoff worsened in the 1970s because of:

oil shocks.

In a jobless recovery:

output begins to rise but employment growth does not.

Both _____ on credit by households and _____ interest rates set in motion the events that led to the 2007-2009 financial crisis.

overspending; low

The theory of comparative advantage says that countries:

should export those goods they can produce at a lower opportunity cost than another country.

The simultaneous occurrence of rising inflation and rising unemployment is called:

stagflation.

Over the last 10 years, laptop computer prices have moved down while their quantity has increased. This indicates that:

supply has increased more than demand.

When specialization is used:

there are greater gains in material well-being.

(Figure: Interpreting Market Equilibrium) The equilibrium price and quantity in this market are:

$15 and 3,000 units.

(Table) The table shows the number of hours Paul spends either reading books or watching movies. Paul only has 10 hours he can use on the activities. If Paul decides to go from spending2 hours reading books to 4 hours reading books, what is his opportunity cost for watching movies?

2 hours of movie watching

Heather has one employee in her sweater shop who can sew six sweaters a day. When she hires a second person, the two employees can make ten sweaters together. Thinking at the margin, the extra benefit received from hiring a second worker is _____ sweaters.

4

The concept of purchasing power parity implies that the:

Big Mac should cost about the same in all countries.

The main role of a market is to:

allocate resources.

An increase in the price of ice cream causes the demand for sprinkles to decrease. In this case, ice cream and sprinkles are _____ goods.

complementary

To counteract a positive demand shock, the Federal Reserve uses _____ monetary policy, which _____.

contractionary; reduces both output and the price level

The money illusion:

is the misperception that one is wealthier; it occurs when the money supply grows.

A nominal exchange rate:

is the price of one country's currency for another's.

(Figure: Determining Production Possibilities) The graph shows the production possibilities frontier for goods A and B while Xmarks a combination that:

is unobtainable with current resources.

Suppose there is unseasonable summer weather in a resort town. We can expect demand to shift _____ and the equilibrium price for hotels to _____.

left; fall

The resource known as "labor" includes:

physical and mental skills and talents.

If the unemployment rate is 4.5% and the inflation rate is 6%, the Federal Reserve will most likely:

sell bonds.

The stagflation of the 1960s and 1970s showed policymakers that:

the Phillips curve could shift over time.

In the market for cable television, fewer people are subscribing to cable while the cost of providing cable television has increased. As a result, we can expect a(n):

unknown change in the equilibrium price but a decrease in the equilibrium quantity of cable television.

The short-run aggregate supply curve is _____ and the long-run aggregate supply curve is _____.

upward sloping; vertical

Because of scarcity:

we face tradeoffs in nearly every choice we make.

Assume that a student attends a four-year college with tuition costs of $20,000 per year, room and board costs of $5,000 per year, and books/entertainment costs of $1,000 per year. If the student did not go to college, she would work at a job that pays $25,000 per year but still face the same room and board and entertainment expenses. The opportunity cost of attending college for this student for four years is:

$100,000

(Table) If Germany decided to produce skirts, what is Germany's opportunity cost?

0.5 of a sweater

If 1 dinar will buy 25 cents, how many dinar will one U.S. dollar buy?

4

(Figure: PPF of Econia (a small nation)) Looking at the production possibilities frontier (PPF) of Econia, which changes in production would leave the citizens of Econia with a lower level of welfare or satistaction?

A movement from Dto E.

Paolo can walk three dogs or mow two lawns in two hours. Ashantican walk six dogs or mow three lawns in two hours. One can conclude that:

Ashanti has absolute advantage in dog-walking; and Paolo has comparative advantage in lawn-mowing.

Suppose a country faces an inflation rate = 5%; target inflation rate = 2%; current federal funds rate = 3%; current GDP is 4% below full-employment GDP, and long-run real GDP growth rate = 3%. Which statement correctly describes monetary policy actions that would be recommended according to the monetary rule, inflation targeting, and the Taylor rule?

The monetary rule would recommend ongoing steady expansion; inflation targeting would recommend contractionary policy; the Taylor rule would recommend expansionary policy.

Which circumstance would increase the supply of pork sausage?

a decrease in the price of ingredients used to produce sausage

(Figure: Understanding Expectation Theories) Assume the economy is at point c. According to the theory of adaptive expectations, if the Federal Reserve announces and then implements a contractionary policy, the economy will move from point c to point:

b to point d.

(Figure: Shifts in SRAS and AD) If the economy is at short-run equilibrium point bbecause of a negative supply shock, the Federal Reserve could enact an expansionary monetary policy, thus shifting the new equilibrium to point _____. As a result of this, the price level would _____ and real output would _____.

c; further increase; increase

The _____ summarizes the flow of money into and out of domestic and foreign assets.

capital account

(Figure: Interpreting Demand Curves) In the demand curve shown, an increase in price from $1 to $2 will:

cause quantity demanded to fall from 30 units to 20 units.

If American farmers sell corn to a Russian grain dealer, then the _____ account is _____.

current; credited

(Figure: Policy Changes in the Short Run) To move the economy from point b to point a in the short run, Federal Reserve policymakers implement _____ monetary policy, thereby accepting _____ to reduce _____.

expansionary; a higher rate of inflation; unemployment

The balance of trade is(are):

exports of goods and services minus imports of goods and services.

A country decides to depreciate its currency. In the short run _____, but in the long run _____.

exports will increase aggregate demand; rising costs of imported inputs will decrease aggregate supply

When the supply of surfboards increases and the demand for surfboards falls simultaneously, the price of surfboards will:

fall.

A market demand curve:

is the horizontal summation of individual demands.

When the interest rate falls, American bonds become _____ attractive to foreign investors, often leading to a(n) _____ in the value of the U.S. dollar in foreign exchange markets.

less; decrease

If the price of kayaks rises, the:

quantity supplied of kayaks increases.

(Figure: Determining Long-Run and Short-Run Economic Shifts) Starting at point J, the economy will move to point _____ in the long run if policymakers reduce aggregate demand.

r

If consumers believe that an item will not be available in the future, then demand will shift _____ and the equilibrium quantity will _____.

right; rise

Wheat is the main input in the production of flour. If the price of wheat increases, all else equal, we would expect the:

supply of flour to decrease.

The Taylor rule:

targets the federal funds rate.

A point on a nation's production possibilities frontier indicates:

that resources are fully utilized in producing the given combination of goods and services.

The opportunity costs of attending college do NOT include:

the expenditures for food.

The Taylor rule suggests that:

the federal funds target rate should be equal to 2% plus the inflation rate plus one-half the inflation gap plus one-half the output gap.

The phenomenon that interest rates may be so low that increases in the money supply will have no impact on aggregate demand is called:

the liquidity trap.

Monetary policy deals with how:

the money supply is controlled to target interest rates.

If a market is NOT at equilibrium:

the price will change and, in response, market participants will move along the existing supply and demand curves until the market reaches equilibrium.

The difference between the nominal and real exchange rates is that:

the real exchange rate takes relative purchasing power into account, while the nominal rate does not.

Opportunity costs exist because:

using resources for one activity means that their use elsewhere must be given up.

Thinking at the margin involves:

weighing the impact of one additional activity.

A surplus exists:

when quantity supplied exceeds the quantity demanded.

John chose to buy a pizza. If he had not bought the pizza, he would have bought either a hot dog or a burger. John's opportunity cost of buying the pizza is:

whichever alternative, the hot dog or the burger, has the next highest value to John