Macro final
Consider two people who are currently out of work. Tim is not looking for work because there have been many job cuts where he lives, and he doesn't think it likely that he will find work. Bev is not currently looking for work, but she would like a job, and she has looked for work in the past. The Bureau of Labor Statistics considers
both Tim and Bev to be marginally attached workers
Veronica deposited $1,000 into an account two years ago. The first year she earned 7 percent interest; the second year she earned 5 percent. How much money does Veronica have in her account today?
$1,123.50
In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. President Hoover's 1931 salary was equivalent to a 2015 salary of about
$1,169,408.
Which of the following will help to prevent bank runs?
100% reserve banking
Amelia knows that she has about $105 in her bank account. She knows she earned an interest rate of 4 percent, but she doesn't remember how much she opened the account with a year ago. How much did she put in?
100.96
If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was
6 percent
U.S. GDP and U.S. GNP are related as follows:
GNP = GDP − Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.
Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?
gross domestic product
In the GDP accounts production equals
income
The GDP deflator is the ratio of
nominal GDP to real GDP multiplied by 100
In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered ended within one week and therefore was short term, and what percentage of the unemployment you encountered in a given week was long term?
86.7% was short term; 88.9% was long term
Which of the following correctly explains the crowding-out effect?
An increase in government expenditures increases the interest rate and so reduces investment spending
Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?
Increase government expenditures
When a union bargains successfully with employers, in that industry,
both wages and unemployment increase
The producer price index measures the cost of a basket of goods and services
bought by firms
If the public decides to hold more currency and fewer deposits in banks, bank reserves
decrease and the money supply eventually decreases
Gwen is an unpaid worker in her family's restaurant. The Bureau of Labor Statistics counts Gwen as
employed and in the labor force
During recessions, taxes tend to
fall and thereby increase aggregate demand
Financial intermediaries are
financial institutions through which savers can indirectly provide funds to borrowers
If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in
foreign direct investment
Efficiency wages
increase productivity but increase unemployment
Most economists believe the principle of monetary neutrality is
mostly relevant to the long run
Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year?
2 percent
In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is
$60.75
Which of the following actions best illustrates moral hazard?
A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.
International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with
longer life expectancy and a higher percentage of the population that is literate
According to the liquidity preference theory, an increase in the overall price level of 10 percent
increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded
A mutual fund
is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of both stocks and bonds.
The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have
lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied
You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago. If, instead of being careless with the $1 in change, this person had deposited it into a bank and earned 2 percent interest every year for 140 years, how much would be in the account today according to the rule of 70?
16
The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?
19.5 million
Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
$4,937.5 billion
Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves?
27,000
At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?
7
Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?
7 percent
Which of the following is an example of crowding out?
An increase in government spending increases interest rates, causing investment to fall
Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?
As the price level increases, the interest rate rises, so spending falls
People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?
Both sticky price theory and sticky wage theory
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the United States?
Make it fall which by itself would decrease U.S. aggregate demand
If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?
Saving and the interest rate
Which of the following is included in M2 but not in M1?
Saving deposits
Tatiana is waiting to be recalled to a job from which she was laid off. Ivan was fired but has not looked for work during the last two months. Who does the Bureau of Labor Statistics count as "unemployed"?
Tatiana but not Ivan
Which of the following is NOT an example of monetary policy?
The Federal Reserve facilitates bank transactions by clearing checks
Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. In the long run, w hat happens to the expected price level and what impact does this have on wage bargaining?
The expected price level rises. New wage contracts are negotiated at higher wages
When looking at a graph of aggregate demand, which of the following is correct?
The variable on the vertical axis is nominal; the variable on the horizontal axis is real
Which of the following is the correct formula for calculating the consumer price index?
[(price of basket of goods and services in current year/price of basket in base year)] × 100
Which of the following shifts aggregate demand to the left?
a decrease in the money supply
The Carters' oldest son attends Big State University. He and his parents pay all his fees and tuition. These payments count in GDP as
consumption of services
Right-to-work laws
give workers in a unionized firm the right to choose whether to join the union
Countries with low GDP per person tend to have
higher rates of infant mortality.
According to liquidity preference theory, the money-supply curve would shift rightward
if the Federal Reserve chose to increase the money supply
In a closed economy, if Y, C, and T remained the same, a decrease in G would
increase public saving but not private saving.
Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?
increase taxes
Suppose an increase in interest rates causes rising unemployment and falling output. To counter this, the Federal Reserve would
increase the money supply
According to the misperceptions theory of short-run aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had
increased, so it would increase production
The CPI differs from the GDP deflator in that
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator
The one variable that stands out as the most significant explanation of large variations in living standards around the world is
productivity
In which of the following cases would the quantity of money demanded be smallest?
r = 0.06, P = 1.0
Other things the same, a higher interest rate induces people to
save more, so the supply of loanable funds slopes upward
Evidence from research studies by economists
shows that increased unemployment benefits decrease the job search efforts of the unemployed
A tax cut shifts the aggregate demand curve the farthest if
the MPC is large and if the tax cut is permanent
A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond?
$500/(1 + r) + $10,500/(1 + r)2
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2017. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. Refer to Scenario 24-1. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income?
141 percent
Which of the following statements is correct about the relationship between inflation and interest rates?
In order to fully understand interest rates, we need to know how to correct for the effects of inflation
Which of the following statements about the term of a bond is correct?
Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
Initially, the economy is in long-run equilibrium. Aggregate demand then shifts leftward by $50 billion. The government wants to increase its spending in order to avoid a recession. If the crowding-out effect is always one-third as strong as the multiplier effect, and if the MPC equals 0.6, then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?
by $30 million
Sandy has graduated from college and is devoting her time to searching for a job. She has seen plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is
frictionally unemployed. Frictional unemployment can exist even in the long run
James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is
higher than he had expected, and the real value of the loan is higher than he had expected
In the simple circular-flow diagram, with households and firms, GDP can be computed as the
income received by households, in the form of wages, rent and profit
Other things the same, if technology increases, then in the long run
output is higher and prices are lower
A larger budget deficit
raises the interest rate and reduces investment.
Which of the following is most commonly used to monitor short-run changes in economic activity?
real gdp
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
selling bonds. This selling would reduce reserves.
Liquidity preference theory is most relevant to the
short run and supposes that the interest rate adjusts to bring money supply and money demand into balance
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
the nominal interest rate rises, but the real interest rate does not
According to the classical dichotomy, which of the following increases when the money supply increases?
the nominal wage
Which of the following is not a determinant of the long-run level of real GDP?
the price level
Other things the same, as the price level decreases it induces greater spending on
both net exports and investment
Which of the following is included in GDP?
both the market value of rental housing services and the market value of owner-occupied housing services
Monetary policy
can be described either in terms of the money supply or in terms of the interest rate
The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is explained by the
classical dichotomy
The velocity of money is
the average number of times per year a dollar is spent
For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?
$1.5 trillion and $2.5 trillion, respectively
Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years?
$100(1 + .04) 10
Which of the following would shift the long-run aggregate supply curve right?
An increase in the capital stock, but not an increase in the price level
Suppose private saving in a closed economy is $12b and investment is $10b.
The government budget deficit must equal $2b
Out of the following economic statistics, which is the best measure of economic prosperity ?
The growth rate of real GDP
The initial impact of an increase in an investment tax credit is to shift aggregate
demand right
In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
Both the increased funding for states and the tax cuts
Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0.
Country B had the higher level of real GDP and real GDP per person.
An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year.
Her real and nominal salary have risen
David increases the number of companies in which he holds stocks.
This reduces firm-specific risk
Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Scenario 33-2. Which curve shifts and in which direction?
aggregate demand shifts right
Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes
both the number of people unemployed and in the labor force fall
From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate
demand right
The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called
natural resources
The inflation rate is defined as the
percentage change in the price level from the previous period
Economists use the term inflation to describe a situation in which
the economy's overall price level is rising.
What, specifically, does the vertical axis represent?
the interest rate
If the Fed increases the money supply,
the interest rate decreases, which tends to raise stock prices
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?
the interest-rate effect
