Macro final

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The two main official measures of money in the United States today are​ ______. The two main official measures of money in the United States​ ______ really money.

M1 and​ M2; are

Which of the following statements illustrate monetary policy​?

The Fed has raised the federal funds rate by 0.3 percent.

Which of the following statements illustrate fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

Suppose that​ yesterday, the U.S. dollar was trading on the foreign exchange market at 0.75 euros per U.S. dollar and today the U.S. dollar is trading at 0.80 euros per U.S. dollar. Which of the two currencies​ (the dollar or the euro​) has appreciated and which has depreciated​ today?

The dollar appreciated and the euro depreciated.

Sarah takes out a loan today for ​$20,000 at an interest rate of 5 percent a year. She plans to repay the loan after 5 years. How much will he have to​ pay?

25526

When operating on its PPF​, a country can produce 2 tons of butter and 200 cars OR 3 tons of butter and 150 cars. The opportunity cost of 1 ton of butter is​ ________ cars per ton of butter.

50

​________ increases​ households' saving.

A tax cut that increases disposable income

The table shows the amounts held as the various components of M1 and M2.

The value of M1 is ​$150 billion. The value of M2 is ​$1090 billion.

This infrastructure spending is fiscal stimulus.

True

What makes the supply of U.S. dollars​ change? An increase in U.S. demand for imports​ ______ the supply of U.S. dollars. A fall in the U.S. interest rate differential​ ______ the supply of U.S. dollars.

Increases; Increases

​Yesterday, the current exchange rate was ​$0.95 Canadian per U.S. dollar and traders expected the exchange rate to remain unchanged for the next month. ​Today, with new​ information, traders now expect the exchange rate next month to rise to​ $1 Canadian per U.S. dollar. Explain how the revised expected future exchange rate influences the demand for U.S.​ dollars, or the supply of U.S.​ dollars, or both in the foreign exchange market. The revised expected future exchange rate​ ______ the demand for U.S. dollars and​ ______ the supply of U.S. dollars.

Increases; decreases

The effect of the United States returning millions of workers to their home countries is​ _____ Mexico's aggregate production function and​ _____ in potential GDP.

a movement up​ along; an increase

Does inflation result from increases in aggregate​ demand, short-run aggregate​ supply, or​ long-run aggregate​ supply? Inflation results from​ ______.

a persistent increase in aggregate demand at a faster pace than that of the increase in​ long-run aggregate supply

The best forecast​ available, which is based on all the relevant information is called​ _______.

a rational expectation

If the real interest rate is below the equilibrium real interest​ rate,

a shortage of of loanable funds will cause the real interest rate to rise.

A macroeconomic equilibrium in which real GDP exceeds potential GDP is​ _____ equilibrium. And one in which real GDP is less than potential GDP is​ _____ equilibrium.

an above full-employment; a below full-employment

How does​ demand-pull inflation​ begin? A​ demand-pull inflation begins with​ _______.

an increase in aggregate demand

Give some examples of fiscal policy that increase aggregate demand. Examples of fiscal policy that increase aggregate demand include​ ______.

an increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments

According to the quantity theory of​ money, in the long run

an increase in the quantity of money creates an increase in prices but no additional increase in real GDP. Your answer is correct.

Complete the following sentence. ​If, as Stephen's income decreases​, his demand for pasta sauce increases​, then for Stephen​, pasta sauce is _______.

an inferior good

If aggregate demand grows faster than potential​ GDP, ______ gap emerges and if it grows more slowly than potential​ GDP, ______ gap emerges.

an​ inflationary; a recessionary

Discouraged workers​ ________ counted as officially unemployed because they​ ________.

are​ not; are not actively seeking work

Which of the following is​ money?

checking deposits

The consumer price index​ (CPI)

compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

​Cost-push inflation causes stagflation because it occurs when​ _______.

costs increase

A rise in the expected future exchange rate​ ______ the supply of U.S. dollars. An increase in the world demand for U.S. exports​ ______ the supply of U.S. dollars.

decreases; does not change

Paychecks in Kansas are​ growing, according to the U.S. Department of Labor. Jacqueline​ Midkiff, with the​ department's office in Kansas​ City, says the average overall increase across the board through the​ Midwest, is 1.9 percent over this time last​ year, while inflation grew at 1.4 percent for the same time period. ​Source: Kansas Public Radio​, August​ 1, 2012 Explain how​ "the average overall increase across the​ board" wage increase will influence aggregate supply. The​ "average overall increase across the​ board" wage increase​ _______.

decreases​ short-run aggregate supply because it increases​ firms' costs

Such spending is​ _______ fiscal policy.

discretionary

If the price level and the money wage rate rise by the same​ percentage, what happens to the quantity of real GDP​ supplied? Along which aggregate supply curve does the economy​ move? If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

does not​ change; long-run

What will happen to equilibrium employment and the equilibrium​ before-tax and​ after-tax wage rates and​ why? Because the tax​ ______ , the equilibrium level of employment will​ ______ , the​ before-tax wage rate will​ ______, and the​ after-tax wage rate will​ ______.

drives a wedge between the​ take-home wage and the cost of​ labor; decrease;​ rise; fall

New growth theory predicts that

economic growth can last indefinitely.

According to RBC​ theory, what is the source of the business​ cycle? What is the role of fluctuations in the rate of technological​ change? According to RBC​ theory, the source of the business cycle is​ _______, which result mainly from​ _______

fluctuations in​ productivity; fluctuations in the pace of technological change

The Fed is the lender of last​ resort, which means​ _______.

if depository institutions are short of​ reserves, they can borrow from the Fed

How can the federal government use discretionary fiscal policy to stimulate the​ economy? An economy is experiencing a recessionary gap. The government can​ ______.

increase expenditure or cut taxes to increase aggregate demand

It is unlikely that the United States is on the​ "wrong" side of this curve​ because, if it​ were, a decrease in the tax rate would​ ______ .

increase tax revenue

An increase in the demand for computers and a decrease in the number of sellers of computers will​ ________.

increase the price of a computer

By​ itself, an increase in exports

increases GDP.

An increase in expected future profits​ _______.

increases aggregate demand today

An increase in expected future income​ _______. An increase in the expected future inflation rate​ _______.

increases aggregate demand​ today; increases aggregate demand today

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______, and creates​ ______ gap.

increases real GDP above potential​ GDP; an inflationary

Why might fiscal stimulus crowd out​ investment? Fiscal stimulus that increases an existing government budget deficit​ ______ loanable​ funds, which​ ______ investment.

increases the demand​ for; increases the real interest rate and decreases

An open market purchase of securities by the Fed

increases​ banks' reserves and decreases​ banks' securities.

Compared to a balanced​ budget, when the government runs a budget​ deficit,

interest rates​ rise, and​ firms' private investment decreases.

Because of the biases in calculating the​ CPI, actual inflation is

less than the measured inflation rate.

In any​ year, real GDP

might be greater or less than potential GDP.

In calculating​ GDP, household production is

not included because there is no market transaction.

Why does the aggregate demand curve slope​ downward? The aggregate demand curve slopes downward because​ _______.

of the wealth effect and the substitution effect

What are the​ Fed's three policy​ tools? The​ Fed's three policy tools are​ _______.

open market​ operations, last resort​ loans, and the required reserve ratio

Because pollution reduces economic​ welfare, on this count real GDP

overstates economic welfare.

An international substitution effect arises because when the U.S. price level​ rises, _______.

people spend less on the more expensive​ U.S.-made items and they spend more on the less expensive​ foreign-made items

Keynesian macroeconomists recommend​ ______.

policies that actively offset changes in aggregate demand that bring recession

Monetarist macroeconomists recommend​ ______.

policies that keep taxes low to avoid disincentive effects that decrease potential GDP

Classical macroeconomists recommend​ ______.

policies that minimize the disincentive effects of taxes on​ employment, investment, and technological change

Explain the mainstream theory of the business cycle. The mainstream business cycle theory is that​ ______ grows at a steady rate while​ ______ grows at a fluctuating rate.

potential​ GDP; aggregate demand

The term​ "crowding out" relates to the decrease in

private investment from a government budget deficit.

In RBC​ theory, the lower the real interest​ rate, other things remaining the​ same, the​ ______ today.

smaller is the supply of labor

Real GDP is calculated by​ _______.

summing together the value of the​ year's production using the prices of the reference base year

What is the Laffer curve and why is it unlikely that the United States is on the​ "wrong" side of​ it? The Laffer curve is the relationship between the​ ______ and the​ ______ .

tax​ rate; amount of tax revenue collected

An assumption of neoclassical growth theory is that

technological change is random.

If the Fed sets a target exchange rate that is higher than the current exchange​ rate, then

the Fed must buy dollars.

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______.

the LAS curve​; does not change

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the SAS​ curve; increases

A​ bank's reserves include

the cash in its vault plus its deposits held at a Federal Reserve bank.

Generational imbalance is​ ______ .

the division of the fiscal imbalance between the current and future​ generations, assuming that the current generation will enjoy the existing levels of taxes and benefits

Tax cuts will not pay for themselves if​ ______.

the economy lies to the left of the maximum point on the Laffer curve

When there is a shortage of dollars in the foreign exchange​ market, ______.

the forces of supply and demand pull the foreign exchange market into equilibrium

The required reserve ratio is the

the minimum percentage of deposits that depository institutions are required to hold as reserves

A financial decision should be pursued when

the net present value is positive.

The opportunity cost of holding money balances rather than holding other assets is

the nominal interest rate.

Using the​ figure, suppose that roses are a normal good. If incomes decrease while simultaneously there is an increase in the price of the resources used to produce​ roses, then

the quantity will definitely decrease below 10 dozen roses

The nominal interest rate approximately equals which of the​ following?

the real interest rate plus the inflation rate

An automatic fiscal policy is a fiscal policy action that is triggered by​ _____. A discretionary fiscal policy is a fiscal policy action that is initiated by​ _____.

the state of the​ economy; an act of Congress

Which of the following tools is NOT a policy tool of the​ Fed?

the tax rate on interest income

If the price of chocolate chip cookies​ falls, then

there is a movement downward along the supply curve of chocolate chip cookies.

Which of the following measurements of inflation tracks the rate at which infrequently changed prices are​ changing?

the​ sticky-price CPI

Full employment occurs when the

unemployment rate equals the natural unemployment rate.

Business cycles are

unpredictable, but always have two phases and two turning points.

The tax wedge is the gap between the​ before-tax and​ after-tax ______.

wage rates

A rational expectation​ _______.

will often turn out to be​ wrong, but no other forecast that could have been made with the information available could do better

If tax revenues are​ $3,500 billion and the​ government's budget balance is a​ $720 billion​ deficit, calculate the​ government's outlays.

​$4,220

The relationship between the tax rate and the amount of tax revenue collected is called the​ ______ curve. This curve shows that​ ______.

​Laffer; tax cuts can increase tax revenue

Tax revenues​ ______ during a recession. ​Needs-tested spending​ ______ during an expansion.

​decrease; decreases

What will happen to potential​ GDP, and​ why? Potential GDP will​ ______ because​ ______ .

​decrease; employment decreases

Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ potential GDP.

​increases; decreases real GDP below

If the price level rises and the money wage rate remains​ constant, what happens to the quantity of real GDP​ supplied? Along which aggregate supply curve does the economy​ move? If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

​increases; short-run

When costs increase and the Fed wants to return the economy to full​ employment, the Fed responds by​ ______ the quantity of money. If the Fed continually responds to successive increases in​ costs, a​ ______ inflation evolves.

​increasing; cost-push

If nothing else​ changes, the​ ________ the current exchange​ rate, the​ ________ is the expected profit from holding​ dollars, all other things remaining the same.

​lower; larger

As the​ ________ interest rate​ increases, the quantity of loanable funds demanded​ ________.

​real; decreases

A tax cut pays for itself if the economy lies to the​ ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is​ ______.

​right; greater than 1

What is stagflation and why does​ cost-push inflation cause​ stagflation? Stagflation is a combination of a​ ______ in the price level and​ ______ in real GDP.

​rise; a decrease

In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium.

​rises; decreases

What are the defining features of classical macroeconomics and what policies do classical macroeconomists​ recommend? The defining feature of the classical view of macroeconomics is that the economy is​ ______.

​self-regulating and always at full employment

What are the defining features of monetarist macroeconomics and what policies do monetarist macroeconomists​ recommend? The defining feature of the monetarist view of macroeconomics is that the economy​ is______.

​self-regulating and that it will normally operate at full​ employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady

When a tax is applied to labor​ income, the result is a​ ______ full-employment quantity of labor and a​ ______ potential GDP.

​smaller; lower

Labor productivity is

real GDP per hour of labor.

During a​ year, a​ firm's net investment is ​$3,200 and depreciation is ​$800. What is the​ firm's gross investment? The​ firm's gross investment is​ ______.

$4,000

Joe has a term deposit that pays 6 percent a year and its value after two years will be ​$2,000. What is the present value of​ Joe's term​ deposit?

1779.99

Which of the following is an asset of the​ Fed?

Mortgageminus−backed securities

Facebook sold shares of stock for the first time in an IPO on May​ 18, 2012. The stock originally sold for​ $38 per share. As of October​ 19, 2012, a share of Facebook stock was valued at​ $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called

a capital loss

Which of the following will shift the supply of loanable funds curve​ leftward?

a decrease in disposable income

Give some examples of monetary policy that decrease aggregate demand. Examples of monetary policy that decrease aggregate demand include​ ______.

a decrease in the quantity of money and an increase in interest rates

How does​ cost-push inflation​ begin? A​ cost-push inflation begins when an increase in the money wage rate or an increase in the money prices of raw materials brings ​ ______ .

a decrease in​ short-run aggregate supply

If the money wage rate rises and potential GDP remains the​ same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS​ curve? A rise in the money wage rate with no change in potential GDP creates​ ______.

a leftward shift of the SAS curve and no change in the LAS curve

The government is considering raising the tax rate on labor income. Explain the​ supply-side effects of such an action and use appropriate graphs to show the directions of​ change, not exact magnitudes. What will happen to the supply of labor and the demand for labor and​ why? The supply of labor will​ ______ and the demand for labor will​ ______.

decrease because the tax weakens the incentive to​ work; not change because labor productivity​ doesn't change

How does a tax on labor income influence the equilibrium quantity of​ employment? A tax on labor income​ ______. The equilibrium quantity of labor​ ______.

decreases the supply of​ labor; decreases

Aggregate expenditures include all of the following EXCEPT

purchases of intermediate goods.

What are the defining features of Keynesian macroeconomics and what policies do Keynesian macroeconomists​ recommend? The defining feature of the Keynesian view of macroeconomics is that the economy is​ ______.

rarely at full employment

The relationship between real GDP and potential GDP is that

real GDP fluctuates about potential GDP.


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