Macro Final
A cash withdrawal from the banking system
-decreases reserves -decreases excess reserves -decreases deposits
Because workers in the United States work fewer hours per week, on average, than they did over 100 years ago,
GDP is lower than it would be if US workers worked the same workweek they had 100 years ago
GDP is not a perfect measure of well-being because
GDP is not adjusted for pollution
Which of the following statements is true?
The US economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas
Several studies have shown promising links between green tea consumption and cancer prevention. How does this affect the market for green tea?
The green tea demand curve shifts to the right because of a change in tastes in favor of green tea.
Which of the following best explains why productivity growth in the United States has been faster than in other leading industrialized nations?
There are fewer government regulations in the United States regarding the way firms can hire and fire workers
Which of the following is the best example of a tariff?
a $150 fee imposed on all imported residential air conditioners
A decrease in consumer confidence can put your job at risk if
aggregate expenditures fall
The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was
at potential GDP
The primary tool the Federal Reserve uses to increase the money supply is
buying Treasury securities
Consumption expenditures do not include household purchases of
new houses
The table above lists the highest prices five consumers are willing to pay for a concert ticket. If the price of one ticket is $50
no one will buy a ticket
If credit card balances rise in the economy, then M1 will ____________ and M2 will ____________
not change; not change
Real GDP will increase
only if the quantity of final goods and services produced rises.
Foreign direct investment in the United States declined 42 percent in the first quarter of 2009. This means that
people or firms in other countries reduced their building of facilities or purchases of facilities in the United States by 42 percent in the first quarter of 2009.
The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called
producer surplus
To decrease the money supply, the Federal Reserve could
raise the required reserve ratio
Since the Social Security system began in 1935, the number of workers per retiree has
continually declined
The "new economy" that emerged in the mid- 1990s is based on
information technology
In the United States in 2013, the Bureau of Economic Analysis began counting spending on research and development as ___________, which counts as a part of GDP.
investment
The real interest rate equals the nominal interest rate _____________ the inflation rate.
minus
To affect the market outcome, a price floor
must be set above the equilibrium price
In order to be binding, a price floor
must lie above the free-market equilibrium price
Trade restrictions tend to preserve ________ in the protected industries and lead to ________ in other industries.
relatively few jobs; job losses
M2 includes M1 plus
savings account balances, money market deposit accounts in banks, small-denomination time deposits, and noninstitutional money market fund shares
The CPI is also referred to as
the cost-of-living index
The sum of consumer surplus and producer surplus is equal to
the economic surplus
The discount rate is
the interest rate the Fed charges to banks for loans from the Fed
Gross domestic product understates the total production of final goods and services because of the omission of
the underground economy
Firms free ride on the research and development of other firms when they
use knowledge other firms have developed without paying for that knowledge.
If the Fed's policy is contractionary, it will
use open market operations to sell Treasury bills
If firms find that consumers are purchasing less than expected, which of the following would you expect?
Aggregate expenditure will likely be less than GDP
Which of the following would shift the supply curve for energy drinks to the left?
a decrease in the number of firms that produce energy drinks
A quota is
a limit placed on the quantity of goods that can be imported into a country
The minimum wage is an example of
a price floor
Under what circumstances would the GDP deflator be less than 100 after the base year
The GDP deflator will be less than 100 if there has been deflation relative to the base year
MPC + MPS =
1
Monthly expenditures for a family of 4 in 2015 averaged $1,400. In 2016, the cost of the same purchases was $1,500. If 2015 is the base year, what was the CPI in 2016?
107
Prices of smartphones (assume that this is a normal good) have fallen in recent years. Over this same period, the price of the components used to produce smartphones has also fallen and consumer incomes have risen. Which of the following best explains the falling prices of smartphones?
The supply curve for smartphones has shifted to the right more than the demand curve has shifted to the right.
The aggregate demand curve will shift to the right ________ the initial increase in government purchases.
by more than
The aggregate demand curve will shift to the right _________ the initial decrease in taxes
by more than
Georg, a German citizen, just purchased 10 shares of stock in Microsoft, a US company. This purchase is an example of
foreign portfolio investment
Lowering the interest rate will
increase investment projects by firms
Because minimum wage is a price floor
it will create a deadweight loss
Economic surplus is maximized in a competitive market when
marginal benefit equals marginal cost
The Industrial Revolution
marked the beginning of significant economic growth in the world
Rising prices erode the value of money as a ___________ and as a ___________.
medium of exchange; store of value
The quantity equation states that the
money supply times the velocity of money equals the price level times real output
By the 2000s, an important market change occurred when investment banks became significant participants in the secondary market for
mortgages
The income effect of a price change results in a
movement along the demand curve due to a change in purchasing power brought about by the price change.
Which is the smallest component of aggregate expenditure
net export expenditures
The easiest way for a country to obtain access to technology is through
promoting foreign direct investment
At market equilibrium
quantity demanded equals quantity supplied
Consider the hypothetical information in the table above for potential real GDP, real GDP, and the price level in 2016 and in 2017 if the Federal Reserve does not use monetary policy. If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2017, which of the following will be lower than if the Fed had taken no action?
real GDP and the inflation rate
If prices are rising on average, then
real GDP will be greater than nominal GDP in the years before the base year.
To examine how the total production of an economy has changed over time, it would be better to examine
real GDP.
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B
the unemployment rate is very low
Depreciation is
the value of worn-out equipment, machinery, and buildings
If the price is $25
there is a surplus of 300 units
Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if
there is technological change
Bank reserves include
vault cash and deposits with the Federal Reserve
If an economy experiences deflation, the real interest rate
will be greater than the nominal interest rate
Tax cuts on business income ___________ aggregate demand
would increase
Figure 7-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 7-1. Under autarky, the equilibrium price is
$30
The CPI in 1990 was 131, and the CPI in 2010 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?
$66,565
Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP? C = 2,000 + 0.9Y I = 2,500 G = 3,000 NX = 400
$79,000
Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals
$8,750
Consider the data above for a simple economy. Refer to Table 9-1. The unemployment rate for this simple economy equals
(100,1,100) x 100
Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market. Refer to Figure 4-9. What is the size of the unit tax?
$5
Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2011 is the base year, then what is the CPI for 2016?
208
Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. What area represents consumer surplus at P2?
A
Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from
C to B
Which of the following statements is true about the US economy?
Each year, many new jobs are created and many existing jobs are destroyed.
If planned aggregate expenditure is greater than total production
GDP will increase
If inflation in the United States is lower than inflation in other countries, what will be the effect on net exports for the United States?
Net exports will rise as US exports increase.
Assume that the graphs in this figure represent the demand and supply curves for frozen yogurt. Which panel describes what happens in the market for frozen yogurt when the price of ice cream, a substitute product, increases?
Panel (c)
Which of the following is considered contractionary fiscal policy?
Congress increases the income tax rate.
What impact would including members of the military in employment, labor force, and working-age population statistics have on the unemployment rate and the labor force participation rate?
Including members of the military would reduce the unemployment rate and increase the labor force participation rate.
Which of the following statements about inflation targeting is true?
Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation, improving their planning and the efficiency of the economy.
The following equations represent the demand and supply for bird feeders. QD = 35 - P QS = -5 + 3P What is the equilibrium price (P) and quantity (Q - in thousands) of bird feeders?
P = $10; Q = 25 thousand
Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?
Real GDP grows by 2.3% in the second quarter.
Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?
Real equilibrium GDP will rise
Why doesn't the Fed have both a money supply target and an interest rate target?
The Fed does not control money demand
The equilibrium wage in a local labor market is $10 per hour. If a minimum wage of $15 per hour is imposed, which of the following will occur?
There will be an increase in unemployment
A decrease in the price of pork will result in
a smaller quantity of pork supplied
An unplanned increase in inventories results from
actual investment that is greater than planned investment
Fiat money is generally issued by
central banks
The multiplier is calculated as the
change in real GDP/ change in autonomous expenditure
Investment spending includes spending on
changes in business inventories
Autarky is a situation in which a country
does not trade with other countries
Nominal GDP will increase
if either the price level or the quantity of goods and services produced rises.
Domestic producers require time to gain experience and lower their unit costs; this will allow these producers to compete successfully in international markets. This statement describes the ________ argument for protectionism.
infant industry
In 1930, the U.S. government attempted to help domestic firms that were harmed by the Great Depression by passing the Smoot-Hawley Tariff. In response to this tariff, other countries ________ and international trade ________.
raised their tariffs; collapsed
The GDP deflator is the
ratio of nominal GDP to real GDP multiplied by 100
What is human capital
the accumulated knowledge and skills that workers acquire from education, training, and their life experiences
A general formula for the multiplier is
1/(1-MPC)
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
2.7%
The table above reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2010. Refer to Table 9-14. The percentage change in real average earnings from 1965 to 2010 equals
24.6 percent
If the nominal interest rate is 6% and the inflation rate is 2% then the real interest rate is
4%
You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn
4.4%
If the consumption function is defined as C = 7,250 + 0.8Y, what is the multiplier?
5
At a price of $25, how many units will be sold?
500
The table above shows the demand schedules for Kona coffee of two individuals (Luke and Ravi) and the rest of the market. At a price of $6, the quantity demanded in the market would be
89 lbs.
The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S2 (point B). If there is an increase in number of companies producing motorcycles and a decrease in income (assume motorcycles are a normal good), the equilibrium could move to which point?
C
Trade restrictions are often motivated by a desire to save domestic jobs threatened by competition from imports. Which of the following counter-arguments is made by economists who oppose trade restrictions?
Consumers pay a high cost for jobs saved through trade restrictions
Suppose you deposit $2,000 into Bank of America and that the required reserve ratio is 10 percent. How does this affect the bank's balance sheet?
Excess reserves rise by $1,800
Autonomous expenditure is a type of expenditure that does not depend on
GDP
Which of the following provides health-care coverage to people age 65 and over?
Medicare
A technological advancement would be represented by a movement from
S1 to S2
Which of the following goods is directly counted in GDP?
a 12-inch Subway sandwich purchased by a student
Which of the following is not one of the three sources of technological change?
additional amounts of existing capital
Investment spending increases during __________, and decreases during _________.
an expansion; a recession
Most economists believe that the best monetary policy target is
an interest rate
An economic principle that explains why people pursue different occupations is
comparative advantage
An increase in the interest rate
increases the opportunity cost of holding money
Textbook examples of trade between two nations are simplified in order to show how two nations both benefit from trade. These examples are misleading because
some individuals in both countries may be made worse off because of trade
Actual investment spending does not include
spending on consumer durable goods
When the price of a good rises, consumers buy a smaller quantity because of the ______ effect and the ______ effect
substitution; income
In the 1930s the United States charged an average tariff rate
that exceeded 50 percent
The monetary policy target the Federal Reserve focuses primarily on today is
the interest rate
Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country
total consumption of goods is greater
Protectionism is the use of _____________ to protect domestic firms from foreign competition
trade barriers
Which of the following is not counted in M1
credit card balances
The natural rate of unemployment is the amount of unemployment
equal to frictional plus structural unemployment
If a bank receives a $1 million discount loan from the Federal Reserve, the the bank's reserves will
increase by $1 million
A supply curve
is a curve that shows the relationship between the price of a product and the quantity of the product supplied
According to new growth theory,
knowledge capital is subject to increasing returns.
According to Douglass North, the Industrial Revolution occurred in England because
the British Parliament took control of the government and could credibly commit to upholding property rights
Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market. Refer to Figure 4-9. How much of the tax is paid by buyers?
$3
Since 1953 the United States has imposed a quota to limit the imports of peanuts. Figure 7-3 illustrates the impact of the quota. Refer to Figure 7-3. What is the value of revenue to foreign producers who are granted permission to sell in the U.S. market when there is a quota?
$44 million
Table 4-4 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. Refer to Table 4-4. If a minimum wage of $10.00 an hour is mandated, what is the quantity of labor demanded?
350,000
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff. Refer to Figure 7-2. Without the tariff in place, the United States consumes
45 million pounds of coffee
Figure 4-3 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. Refer to Figure 4-3. What area represents the deadweight loss at P2?
C + E
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives
Which of the following is an example of a trade restriction?
Japan places a tax on all Korean automobiles
If the economy is in equilibrium, it is at a level of aggregate expenditure given by point
K
FICA is a payroll tax imposed on employers and workers that is used to fund Social Security and Medicare. Which of the following statements regarding the tax is true?
Most economists believe the burden of the tax falls almost entirely on workers
Assume that the graphs in this figure represent the demand and supply curves for blu-ray discs. Which panel best describes what happens in this market if there is a substantial increase in the price of blu-ray players?
Panel (d)
Figure 7-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 7-1. Suppose the government allows imports of leather footwear into the United States. What will be the quantity of imports?
Q2-Q0
"Because Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the demand for Coke to decrease. This initial shift in demand for Coke results in a lower price for Coke; this lower price will cause the demand curve for Coke to shift to the left." Which of the following correctly comments on this statement?
The statement is false because a change in the price of Coke would not change the demand for Coke
The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A). If there is a surplus of motorcycles how will the equilibrium point change?
There will be no change in the equilibrium point
If firms sell exactly what they expected to sell, all of the following will be true except
aggregate expenditure will be greater than GDP
In the figure above, the movement from point A to point B in the money market would be caused by
an open market sale of Treasury securities by the Federal Reserve
The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.
by more than
The largest liability on the balance sheet of most banks is its
checking account and savings account deposits of its customers
The table above lists the highest prices three consumers, Curly, Moe, and Larry, are willing to pay for a bottle of champagne. If the price of the champagne falls from $24 to $14
consumer surplus increases from $32 to $53
M1 includes
currency in circulation, checking account deposits in banks, and holdings of traveler's checks.
The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the
decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.
From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely
decrease interest rates
Due to low interest rates, increased banking regulations, and technological change, JPMorgan Chase announced it would ________ the number of persons it employed in 2015 and this would ________ the total number of persons unemployed in the economy.
decrease; increase
According to the World Bank, Albania does one of the worst jobs as a country enforcing the rule of law. The consequence of a weak rule of law is
difficulty in attracting investment and low economic growth.
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B
firms are operating below capacity
Which of the following is an objective of fiscal policy?
high rates of economic growth
Countries that are more globalized tend to have
higher growth rates in real GDP per capita
The difference between the __________ for a good and the __________ is called consumer surplus
highest price a consumer is willing to pay; price the consumer actually pays
Gross domestic product understates the total production of final goods and services because of the omission of
household production
An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE
includes the prices of more consumer goods and services
From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply, then the Federal Reserve would most likely
increase interest rates
If the Fed buys US Treasury securities, then this
increases reserves, encourages banks to make more loans, and increases the money supply
The law of demand implies, holding everything else constant, that as the price of yogurt
increases, the quantity of yogurt demanded will decrease
During a business cycle expansion, total production _________ and total employment __________.
increases; increases
Inflation that is _________ than what is expected benefits _____________ and hurts _________.
less; lenders; borrowers
By offering more generous unemployment insurance programs, European countries can expect
longer periods of unemployment for their workers.
Developing countries with low savings rates and poor levels of health and education are likely to experience
low rates of growth in real GDP per capita
The Federal Reserve was established in 1913 to
stop bank panics by acting as a lender of last resort
The United States has developed a comparative advantage in digital computers, airliners, and many prescription drugs. The source of its comparative advantage in these products is
technology
The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because
the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy.
The slope of the consumption function is equal to
the change in consumption divided by the change in disposable income
The substitution effect of a price change refers to
the change in quantity demanded that results from a change in price making a good more or less expensive relative to other goods that are substitutes
In recent years, a monetary growth rule has fall out of favor because
the close relationship between movements in M1 and movements in real GDP has become weaker
If the price of smartphones was to increase, then
the demand for smartphone apps would decrease
Net worth is
the difference between a firm's assets and liabilities
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
the economy is below full employment
If cynical unemployment is eliminated in the economy, then
the economy is considered to be at full employment
Suppose that the level of GDP associated with point N is potential GDP. If the U.S. economy is currently at point K,
the economy is in recession
Hyperinflation can be caused by
the government selling bonds to the central bank
The federal funds rate is
the interest rate banks charge each other for overnight loans
When the Fed increases the money supply,
the interest rate falls and this stimulates investment spending
Suppose the government launches a successful advertising campaign that convinces workers with high school degrees to quit their jobs and become full time college students. This would cause
the labor force participation rate to decrease
A supply curve shows
the marginal cost of producing one more unit of a good or service
If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then
the multiplier is 8
When the Fed uses contractionary policy,
the price level rises less than it would if the Fed did not pursue policy
Suppliers will be willing to supply a product in all of the following situations except when
the price received is less than the additional cost of producing the product
If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on
the producer price index
Deadweight loss refers to
the reduction in economic surplus resulting from not being in competitive equilibrium
The major shortcoming of a barter economy is
the requirement of a double coincidence of wants
When an economy faces diminishing returns,
the slope of the per worker production function becomes flatter as capital per hour worked increases.
With the exception of during recessions, workers in Canada are eligible for unemployment benefits for about twice as long a period of time as workers in the United States. As a result,
the unemployment rate in Canada is usually higher than in the United States
For how long does a patent give a firm the exclusive legal right to a product?
20 years
Technological change is illustrated in the per-worker production function in the figure above by a movement from
B to C.
The ratio of the increase in ____________ to the increase in ________ is called the multiplier.
equilibrium real GDP; autonomous expenditure
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200. Refer to Scenario 8-1. The value of each canoe in gross domestic product equals
$1,200
If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to
$10,000
Figure 7-1 shows the U.S. demand and supply for leather footwear. Refer to Figure 7-1. Suppose the government allows imports of leather footwear into the United States. What will the market price be?
$24
