Macro final

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 10%. If the Fed buys $10 million worth of government securities from the public, the change in the money supply will be

$100 million

Refer to Figure 3.8. Assume that there are only two people in the market for baseball caps: Alex and Ryan. Along the market demand curve for baseball caps, at a price of ________, quantity demanded would be ________.

$10; 11

Refer to Table 8-8. Looking at the table above, real average hourly earnings in 2005 were

$5.63.

If your tuition is $2,000 this semester, your books cost $400, you can only work 10 rather than 40 hours per week during the 15 weeks you are taking classes and you make $12 per hour, and your room and board is $4,000 this semester (same as if not attending college), then your opportunity cost of attending college this semester is

$7,800.

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 16%. If the Fed sells $5 million worth of government securities to the public, the change in the money supply will be

-$31.25 million.

If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is

-3

Refer to Figure 2.5. The opportunity cost of producing each OLED television from Point A to Point B is

1.5

Refer to Table 2.1. For Mark, the opportunity cost of writing six TV commercials is ________ poems.

18

The Federal Reserve was created in

1913

Refer to Table 8-1. Suppose that the data in the table above reflect price levels in the economy. What is the inflation rate between 2004 and 2005?

2.9%

Refer to Figure 2.5. The economy is currently at Point B. The opportunity cost of moving from Point B to Point A is the

20 OLED TVs that must be forgone to produce 30 additional LCD TVs.

Federal government outlays as a percentage of GDP are approximately

25 percent.

If the economy grows at 10 percent from year 1 to year 2 and real GDP is 300 in year 1, what will real GDP be in year 2?

330

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%

Which of the following would be considered an active fiscal policy?

A tax cut is designed to stimulate spending passed during a recession.

Which of the following best describes the "interest rate effect"?

An increase in the price level raises the interest rate and chokes off investment and consumption spending.

Which of the following is true?

At full employment, aggregate supply is equal to potential GDP.

Which of the following summarizes the president's and Congress' role in conducting monetary policy?

Congress and the president do not play a role in conducting monetary policy.

The narrowest official definition of the money supply is

M1

Refer to Figure 3.10. A decrease in quantity supplied is represented by a movement from

Point B to Point C along supply curve S2.

Refer to Figure 3.13. A decrease in the number of cattle ranchers will cause a movement from

S1 to S2.

If the CPI rises from 206.7 to 212.7 between two consecutive years, by how much has the cost of living changed between these two years?

The cost of living has increased by 2.9%.

What happens to the demand for loanable funds curve when the economy enters a recession?

The demand for loanable funds curve shifts leftward because expected profit falls.

Which of the following decreases the demand for loanable funds and shifts the demand for loanable funds curve leftward?

The economy experiences a recession.

According to the law of supply, there is a

The positive relationship between price and quantity of a good supplied

The impact of Hurricane Katrina on consumers in the economy was to make them very pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve?

This will shift the aggregate demand curve to the left.

What is true about the magnitude of the Great Depression?

Unemployment reached a level of 25%.

Which of the following produces a movement along the aggregate demand curve and does not shift the aggregate demand curve?

a change in price level

Refer to Figure 2.4. The economy moves from Point E to Point B. This could be explained by

a change in society's preferences for hybrid cars versus motorcycles.

Refer to Scenario 3.3. The mustard recall would have caused

a decrease in the demand for relish.

If the real interest rate falls, there is

a downward movement along the demand for loanable funds curve

An increase in government expenditure on goods and services leads to the

aggregate demand curve shifting rightward.

If firms' expectations about the future become pessimistic so that they think future profits will be lower, then

aggregate demand decreases and the AD curve shifts leftward.

Long-run macroeconomic equilibrium occurs when

aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.

Refer to Figure 2.2. You correctly deduce that all resources are fully employed and there are no production inefficiencies if this economy is currently operating at a point

along the production possibility frontier.

The government expenditure multiplier is used to determine the

amount aggregate demand is affected by a change in government expenditure.

Refer to Figure 3.18. The market is initially in equilibrium at Point A. If demand shifts from D1 to D2 and the price of burritos remains constant at $3.00, there will be

an excess demand of 150 million pounds of burritos.

In the figure above, the rightward shift from the demand for loanable funds curve DLF1 to the demand for loanable funds curve DLF2, could be the result of

an increase in expected profit

Which of the following is an appropriate fiscal policy if equilibrium real GDP falls below potential real GDP?

an increase in government purchases

Which of the following will shift the aggregate demand curve to the left, ceteris paribus?

an increase in interest rates

Refer to Figure 2.6. Which of the following is most likely to shift the production possibility frontier from ppf1 to ppf2?

an increase in the general educational level of the population

A decrease in demand for cameras would likely be caused by

an increase in the price of a complementary good.

An increase in demand for laptop computers would likely be caused by

an increase in the price of a substitute good.

The price of circuit boards used in the manufacturing of LCD televisions has fallen. This will lead to ________ LCD televisions.

an increase in the supply of

An open-market purchase of securities by the Fed results in ________ in reserves and ________ in the supply of money.

an increase; an increase

An increase in the price level leads to

an upward movement along the aggregate supply curve.

The "law of demand" implies that

as prices fall, quantity demanded increases.

In 1913, Congress established the Federal Reserve system with the intention of putting an end to

bank panics

In 2019, the federal government of Happy Isle had tax revenues of $1 million, and spent $500,000 on transfer payments, $250,000 on goods and services and $300,000 on debt interest. In 2019, the government of Happy Isle had a

budget deficit of $50,000.

An increase in the government ________ reduces the government's ________.

budget surplus; debt

Refer to Figure 2.2. If Microland's economy is at Point B, it could produce more capital goods

by sacrificing some consumer goods.

Government expenditure ________ change potential GDP and taxes ________ change potential GDP.

can, can

A change in income leads to a ________ that causes a ________.

change in demand; shift of the demand curve

If the government has a balanced budget, the total amount of government debt is

constant

The increase in unemployment that occurs during recessions and depressions is called

cyclical unemployment

An increase in the price of a good or service leads to a(n) ________ that leads to a(n) ________.

decrease in quantity demanded; movement along the demand curve

Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will ________ exports from the United States to Sweden and ________ U.S. aggregate demand.

decrease, decrease

A tax increase

decreases aggregate demand and the AD curve shifts leftward.

When the Fed raises the required reserve ratio, the banks' excess reserves will initially ________ and the money supply ________.

decreases, decreases

Decreasing government spending ________ the price level and ________ equilibrium real GDP.

decreases; decreases

Refer to Figure 3.7. Assume the market is initially at Point B and that pizza is a normal good. A decrease in income would cause the market to move from Point B on demand curve D2 to

demand curve D1.

Related to the Economics in Practice on page 51: The Amazon Kindle and the electronic textbooks available for the Kindle are complementary goods. Electronic textbooks and traditional, hard-copy textbooks are substitute products. If the price of electronic textbooks for the Kindle decreases,

demand for the Kindle increases, the quantity of electronic textbooks demanded increases, and demand for traditional, hard-copy textbooks decreases.

Classical economists will generally focus on policies that will

emphasize increasing the LRAS.

Which of the following is a true statement?

excess reserves = actual reserves - required reserves

A period during which aggregate output rises is known as a(n)

expansion.

The demand for loanable funds increases if

expected profit increases

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

fallen, fallen

What was one of the main catalysts of the Great Recession, which began in December 2007?

falling real estate prices

Classical economists believe that prices are sticky

false

Economist generally agree that the economy can be self-correcting in the short run, but disagree about the relative importance of the short run and long run.

false

Keynesian economists believe that the economy's adustment toward long-run equilibrium will happen naturally

false

Keynesian economists focus on long-run growth rather than AD shifts

false

Suppose the real interest rate increases from 4 percent to 6 percent. As a result,

firms decrease the quantity demanded of loanable funds.

The short-term unemployment arising from the process of matching workers with jobs is called

frictional unemployment.

The total market value of all final goods and services produced within a given period by factors of production located within a country is

gross domestic product.

Since most economies, on average, ________ over time, business cycles show a ________ trend.

grow; positive

Upon your graduation from college, you find that the economy is in recession and the unemployment rate is relatively high. Nonetheless, you continue along your career path looking for a new job because

high unemployment rates do not usually last for very long.

Once supply side effects are taken into account, tax cuts for labor income can change i.the supply of labor. ii.potential GDP. iii.the growth rate of potential GDP.

i and ii

Nominal GDP measures the value of all goods and services

in current dollars

Refer to Figure 15-1. In the graph above, if the economy is at point A, an appropriate fiscal policy by the Congress and the president would be to

increase government expenditures.

If improvements in technology have reduced the cost of producing personal computers, you accurately predict that in the market for personal computers, there will be a(n)

increase in the supply of personal computers, a decrease in the price, and an increase in the quantity demanded.

When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms

increase production and prices.

If the real interest rate falls, people decide to ________ because the opportunity cost of ________.

increase their consumption expenditure; consumption has decreased

Refer to Figure 3.17. In the Rollerblade market, which is not government controlled and is currently at a price of $1,140, you accurately predict that price will

increase, the quantity demanded will fall, and the quantity supplied will rise.

If government expenditure on goods and services increase by $10 billion, then aggregate demand

increases by $10 billion multiplied by the government expenditure multiplier.

If government expenditures on goods and services increases by $20 billion, then aggregate demand

increases by more than $20 billion.

If the real interest rate falls, other things being the same, the quantity of loanable funds demanded ________ and the quantity of loanable funds supplied ________.

increases, decreases

Aggregate demand ________ if the expected inflation rate increases because ________.

increases; people want to make purchases now before the price of goods and services begin to increase

During recessions, the number of discouraged workers ________ and this ________ the unemployment rate.

increases; reduces

Potential GDP

is independent of the price level

If resources are combined efficiently in production, then the society

is producing at a point on the production possibility frontier but not necessarily at the most-desirable point.

If inflation increases unexpectedly, then

lenders receive a lower real interest rate than they expected.

Inflation that is ________ than what is expected benefits ________ and hurts ________.

less; lenders; borrowers

In the short run, a rise in the federal funds rate ________ the price level and ________ real GDP.

lowers; decreases

Specialization and trade exploit differences in productivity across workers and

make everyone better off

The demand for loanable funds curve shows the

negative relationship between the interest rate and the quantity of loanable funds demanded

If the GDP deflator is greater than 100, then

nominal GDP is greater than real GDP

A rancher raises alpaca. Once a year, he shears them and sells the raw wool to a processor who spins it into yarn. The yarn is then sold to a mill which produces and sells alpaca sweaters. In calculating GDP we would count

only the sweaters

The short-run aggregate supply curve has a

positive slope

The supply of loanable funds curve has a ________ slope and the demand for loanable funds curve has a ________ slope.

positive; negative

The long-run aggregate supply curve shows the relationship between the ________ and ________.

price level; quantity of real GDP supplied

If the real interest rate rises, then the

quantity of saving increases and there is a movement up along the supply of loanable funds curve.

The GDP deflator is the

ratio of nominal GDP to real GDP multiplied by 100.

An increase in the expected profit from new capital brings about a

rightward shift of the demand for loanable funds curve.

The Keynesian explanation of the business cycle rests on several concepts, including

rigid money wage rates.

Workers expect inflation to rise from 3% to 5% next year. As a result, this should

shift the short-run aggregate supply curve to the left.

A farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?

store of value

Telephone operators who have lost their jobs as a result of computerized switchboards are an example of

structural unemployment.

A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as

structurally unemployed.

The federal government debt is equal to the

sum of past budget deficits minus the sum of past budget surpluses.

Which of the following serves as the central bank of the United States?

the Federal Reserve System

If there is an increase in expected future income, then

the aggregate demand curve shifts rightward.

Which of the following is not an opportunity cost of attending college?

the cost of the food that you consume while you are attending college

If no foreign companies produce in a country, but many of the country's companies produce abroad, then

the country's GNP will tend to exceed its GDP.

Which of the following is an opportunity cost of attending college?

the income you could have earned if you didn't attend college

When the Fed increases the money supply,

the interest rate falls and this stimulates investment spending

Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result,

the long-run aggregate supply curve will shift to the right.

If the quantity of real GDP demanded is greater than the quantity of real GDP supplied, then

the price level rises and firms increase production.

The quantity demanded of Pepsi has decreased. The best explanation for this is that

the price of Pepsi has increased.

The opportunity cost of the financial resources used to finance the purchase of capital is

the real interest rate

Refer to Scenario 3.2. As a result of the flooding during the winter, you would expect that

the supply of lettuce would decrease, the price of lettuce would increase, and the quantity demanded of lettuce would decrease.

If expected future income increases, then

the supply of loanable funds decreases

The price of mozzarella cheese, which is used in making pizza, increases. In the market for pizza you would expect that

the supply of pizza would decrease and the price of pizza would increase.

When Hurricane Andrew passed through Louisiana in the summer of 1992, approximately a quarter of the sugar cane crop was destroyed. Ceteris paribus,

the supply of sugar decreased, and the price of sugar increased.

Fiscal policy involves

the use of tax and spending policies by the government.

If the U.S. dollar increases in value relative to other currencies, how does this affect the aggregate demand curve?

this will shift the aggregate demand curve to the left.

The government's budget deficit or surplus equals the

total tax revenue minus total government outlays.

According to the theory of comparative advantage, ________ raise(s) productivity by lowering opportunity costs.

trade and specialization

The largest item of government outlays is

transfer payments

Classical economists belive that the general policy is to let the economy go and the market will correct itself.

true

In the recent Great Recession, we experienced lower output and high unemployment. However, the Great Depression in the 1930s was much worse and lasted much longer

true

Keynesian economists believe that savings is not helpful in the short run.

true

If the Fed's policy is contractionary, it will

use open market operations to sell Treasury bills.

A decrease in the required reserve ratio

will increase the money supply.