MACRO FINAL

The circular flow of income shows that total spending is _____ total income. unrelated to less than greater than equal to

equal to

The fact that savings is not included in GDP is a major issue with it as a description of economic activity. True False Only during a recession Depends on the year and the level of consumer savings

False

Below is U.S. economic data for 2017. What was total spending? Consumption 13.312 trillion Investment 3.371 trillion Govt spending 3.412 trillion Exports 2.357 trillion Imports 2.932 trillion $22.45 trillion $20.10 trillion $20.67 trillion $19.52 trillion

$19.52 trillion

Consider the data shown in the table. Assume that the economy produces only barrels of oil. What is the nominal GDP for last year? Barrels of Oil Sold Actual Price Last Year 80,000 60$ This year 83,000 63$ $4,800,000 $4,920,000 $5,104,500 $5,229,000

$4,800,000

You go to the bank and deposit $1,000. You are told that you will receive 1.5% interest. The bank loans out your money to borrowers at a rate of 5.75%. A year later, how much money has the bank made on your money? $42.50 $57.50 $15 $72.50

$42.50

Suppose you want to realize a future value of $30,000 in 30 years on an investment you make. The average annual rate of return is 6%. What will be the present value of your investment? $5,223 $172,305 $31,800 $30,000

$5,223

Refer to the table that shows data for Panama. What was Panama's real GDP per person in the year 2004? Year | GDP | Population 2000 | 16,647,538,295.86 | 3,030,328 2001 | 16,743, 140, 578.59 | 3,089,648 2002 | 17,116, 370, 199.13 | 3,149,188 2003 | 17,836, 198,453.76 | 3,209,048 2004 | 19,177,851,509.38 | 3,269,356 2005 | 20,556,984,394.79 | 3,330,217 $5,558.09 $5,435.17 $5,865.94 $5,419.11

$5,865.94

If the interest rate is 5%, what is the future value of $500 in one year? $598 $525 $476 $530

$525

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $850, how much will you get after these deductions? $24.65 $52.70 $772.65 $77.35

$772.65

Which of the following tasks are performed by banks? (i) Print new money. (ii) Provide zero-interest loans. (iii) Create long-term loans from short-term deposits. (iv) Pool savings from many savers. (i) and (iv) (iii) and (iv) (iii) only (i) and (ii)

(iii) and (iv)

If the financial account balance is $2 trillion, then the current account balance is: -$2 trillion. $2 trillion. zero. $4 trillion.

-$2 trillion.

Technological advancement can be shown by which of these production functions? --A-- ^ --A-- --A->-A-- --A-<-A-- --A-- v --A--

--A-- ^ --A--

Refer to the following table. What was the approximate output gap in 1997? year | real GDP | potential GDP 1995 | 3.20 | 3.30 1996 | 3.45 | 3.65 1997 | 3.75 | 3.89 1998 | 4.05 | 4.10 1999 | 4.38 | 4.30 1.2% 3% -3.6% 1.9%

-3.6%

How does the following scenario impact the U.S. current account deficit? You import 10 handwoven sisal handbags from an artisan in Kenya. The bags cost a total of $500. The Kenyan artisan then immediately uses the money to buy U.S. exports worth $500. Use a positive number to express the amount the current account deficit increases and a negative number for a decrease (0 would mean no impact).

0

You purchase a certificate of deposit that pays an advertised rate of 2.25% interest per year. What is your real rate of return if the actual inflation rate is 1.65%? 1.65% 2.25% 0.6% -0.6%

0.6%

Consider the following data. What is the marginal propensity to consume? Consumption | Income 1 | 1 1.7 | 2 2.4 | 3 0.3 1 1.42 0.7

0.7

If the interest rate is 7%, what is the approximate future value of $5,000 in 10 years? Answer this WITHOUT using a calculator.

10,000

Consider the following basket of goods: 50 bottles of milk, 100 avocadoes, 50 apples, and eight pineapples. Suppose that last year, each bottle of milk was $2.50, each avocado was $1.50, each apple was $0.75, and each pineapple was $4. This year, each bottle of milk is $2.50, each avocado is $1.80, each apple is $0.80, and each pineapple is $4.30. What is the inflation rate between last year and this year? 10.13% -10% 8.99% -9.09%

10.13%

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. What is the sum of all the wages in this example

1850

In 1986, the United States recorded real GDP growth of 3.5% and nominal GDP growth of 5.5%. What was the inflation rate in 1945? 3.5% 2% 9% -2%

2%

Suppose you have the following statistics for the economy. The neutral rate of interest is 2%, the inflation rate is 3.5%, and the output gap is 1.5%. If the Federal Reserve sets the federal funds rate according to the Fed's rule of thumb, then what is the real interest rate? 7.75% 4.25% 5% 3.5%

4.25%

Imagine that the GDP is multiplier is 1.5. What is the final effect on yearly GDP if the government increases infrastructure spending by $3.2 billion (your answer should be in billions)

4.8 billion

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. Holding all esle equal, what is the profit made by the wood processing factory?

600

Which of the following is a reason to worry about government debt? Future generations can help repay the debt. Most of the debt is owed by Americans to Americans. The government never really needs to repay the debt. A debt crisis becomes more likely.

A debt crisis becomes more likely.

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand? There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales. There is a recession as output falls sharply, and prices will not have had time to adjust. All prices adjust, and the economy returns to long-run potential. There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will increase.

All prices adjust, and the economy returns to long-run potential.

If the U.S. dollar appreciates, people do NOT expect that: Americans will buy more foreign currency. Americans will buy more goods from abroad. U.S. exports to other countries will decline. Americans will buy fewer goods from abroad.

Americans will buy fewer goods from abroad.

In 2018, the Bank of Canada raised the overnight rate to 1.75%. Explain how rising interest rates in Canada would affect investment.

By raising the interest rate, investment and consumption would both decrease.

Which statement correctly describes the relationship between consumption and income? Income is always less than consumption. Consumption is always half of income. Total consumption is independent of income. Consumption and income are positively related.

Consumption and income are positively related.

Which of following people can be classified as structurally unemployed? Regan, who worked as a technician but has been let go from her company, which has failed due to recessionary pressures Delilah, who believes she can secure better employment in Seattle and has thus left her old job to move to Seattle Florrie, who has decided that she wants to start a new career as a train driver and has entered a training program to acquire the necessary skills and certification Cyrus, who is finding it difficult to get a job in his field because businesses are not hiring due to high unionized wages

Cyrus, who is finding it difficult to get a job in his field because businesses are not hiring due to high unionized wages

Consider the production functions shown here, which show the output of a bakery over time. Suppose that the bakery experiences significant wear and tear of its ovens and that this leads some of the ovens to break down. Which of the movements reflects this scenario? ------A------- -B---C-----D- ------E------- B to C A to C E to C D to C

D to C

Suppose that Mongolian government engages in contractionary fiscal policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework? A) inc shift in AS B) inc shift in AD C) dec shift in AS D) dec shift in AD

D) dec shift in AD

Suppose falling interest rates in Australia discourage saving. What effect does this have on the consumption function in Australia? A) ---A--- ^ ---A--- B) --A->-A-- C) --A-<-A-- D) ---A--- v ---A--- Figure D Figure C Figure A Figure B

Figure A

Which of the following graphs shows the correct effect on the consumption function when there is an increase in income? A) --A->-A-- B)---A--- ^ ---A--- C)---A--- v ---A--- D) --A-<-A-- Figure B Figure D Figure C Figure A

Figure A

If an economy has a positive output gap of 3%, this means: GDP is 3% below potential GDP. unemployment is 3% above the natural rate of unemployment. inflation is 3% above the long-run rate of inflation. GDP is 3% above potential GDP.

GDP is 3% above potential GDP.

Which of the following will rise when the economy is expanding? Applications for unemployment benefits Industrial production State-level unemployment Unemployment across the economy

Industrial production

When does an anticipated change in future income lead to a change in consumption for consumption smoothers? when the permanent income hypothesis fails when the consumption smoother first learns of the anticipated future change in income when the anticipated future income arrives in the paycheck It never leads to a change in consumption.

It never leads to a change in consumption.

You have four friends. Which of your friends can be described as "cyclically unemployed"? Keele, who lost her job after her company lost a lot of customers during an economic downturn Arthur, who quit his job to look for a better job Martha, who is a full-time stay-at-home parent Regan, who is in a nursing home

Keele, who lost her job after her company lost a lot of customers during an economic downturn

Which of the following people could qualify as a "discouraged worker"? Desmond, who has stopped work to become a stay-at-home parent Leonard, who thinks there are no jobs available and has given up trying to find work Lucille, a full-time student Paul, who works in Chicago but is looking for a better job in California

Leonard, who thinks there are no jobs available and has given up trying to find work

_____ income taxes and payroll taxes _____ after-tax incomes, which _____ consumption and therefore raise aggregate expenditure. Lower; raise; increase Higher; lower; increase Lower; lower; increase Higher; raise; increase

Lower; raise; increase

Which of the following is an investment? Mary buys $4,000 worth of Alibaba stock. Dale purchases a house that was built in 1940. Cameron saves $400 in his savings account. Marios builds a new house.

Marios builds a new house.

What is the difference between microeconomics and macroeconomics? Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole. Microeconomics focuses only on the forces of individual demand and individual supply, whereas macroeconomics focuses only on policy making for the economy. Microeconomics is the study of the economy as a whole, whereas macroeconomics is the study of individual decisions in specific markets. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of government policies.

Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.

You are a financial adviser. Your client wants to know the differences between stocks and bonds. Explain the differences, including an explanation of the relative risks of stocks versus bonds.

My response... A bond is an IOU essentially; you buy a bond and essentially give your money away to be used and you get paid interest for it. A stock is a share of the company that you buy to become a partial owner of the company. Bonds pay interest at certain points in time so you will definitely get paid interest. However, stocks pay dividends out at the end of periods or the end of the year to stockholders if the company did well, but if they didn't do well they likely won't pay as much or any dividends out to stockholders. This means stocks are riskier, but can gain you more money, potentially. Stocks give you a certain amount of control in a company since stockholders can vote to elect boardmembers who can dictate the future of the company and even fire the CEO; bonds do not do this, unfortunately. However, if a company goes bankrupt, the bonds are the first to be paid off, but stocks won't be paid off unless there is extra money to do so; this makes stocks riskier than bonds in this case.

Do you advise your client to invest in this project? (select all that apply) No. Because user cost of capital > expected future extra revenue. No. Because present discounted value of revenue < up-front cost of capital. Yes. Because up-front cost<present discounted value Unknown (need to know inflation) No. Depreciation > the real interest rate.

No. Because user cost of capital > expected future extra revenue. No. Because present discounted value of revenue < up-front cost of capital.

When comparing present discounted value with the up-front cost of capital, do you need to do extra work (that you did not do in your previous calculation) to take inflation into consideration? Yes. We need to forecast inflation and include it. It depends on what you are trying to accomplish. No. It is already taken into consideration. No. Inflation is irrelevant.

No. It is already taken into consideration.

Which of the following is closest to the true, underlying driver of GDP, and increases of GDP over time? Income (in particular, wages) Spending (our economy is consumption driven) Production (turning inputs into higher value outputs) All of the above are equivalent

Production (turning inputs into higher value outputs)

You use your bank debit card to purchase a bottle of soda from the convenience store. What function is the bank performing here? Maturity transformation Providing payment services Spreading risk Solving information problems

Providing payment services

Why does a temporary change in income lead to only a small change in consumption for a consumption smoother? Temporary increases in income are heavily taxed. The consumer prefers to focus on current consumption rather than future consumption. The MPC always tends to be low. The consumer tends to spread a temporary spike in income over the lifetime of the consumer.

The consumer tends to spread a temporary spike in income over the lifetime of the consumer.

Which of these indicators directly tell you about the US economy's employment situation? (select all that apply) Consumer durable goods orders The labor force participation rate Weekly unemployment claims The Case-Shiller index Gross domestic income (GDI) Gross domestic product (GDP) The Unemployment Rate The interest rate The Consumer Price Index (CPI)

The labor force participation rate Weekly unemployment claims The unemployment rate

Which of the scenarios below represents a macroeconomic decision? The president of Uzbekistan is deciding whether to boost spending on the tourism sector. You are deciding whether to buy a used textbook or rent a textbook for the semester. Your school is making a decision on whether to hire a new professor. Marios is making a decision on which university to attend.

The president of Uzbekistan is deciding whether to boost spending on the tourism sector.

Which of the following are ways unemployment impacts the macroeconomy? (select all that apply) Under utilization of resources Hysteresis occurs. Technological innovation Inflation increases. Slower accumulation of human capital

Under utilization of resources Hysteresis occurs. Slower accumulation of human capital

Which of the following accurately describe the employment / unemployment situation during the pandemic (select all that apply): Unemployment claims jumped to 10x the previously seen high The unemployment rate only stayed high for a relatively short amount of time At the beginning of the pandemic, there was an immediate surge in the number of long-term unemployed. Recently, more people have been quitting jobs than in the past Currently, there a many more job openings than usual At the beginning of the pandemic, very few people were quitting their job The unemployment rate has been very slow to come down Economist believe most of the pandemic related unemployment was structural

Unemployment claims jumped to 10x the previously seen high Recently, more people have been quitting jobs than in the past Currently, there a many more job openings than usual At the beginning of the pandemic, very few people were quitting their job

Which item would NOT be included in the U.S. financial account? a Japanese factory purchased by a U.S. company U.S. stock sold to someone in Japan a Japanese bond sold to someone in the United States a Chinese video game imported into the United States

a Chinese video game imported into the United States

Bank runs in the United States during the 1930s damaged the economy because: capital requirements prevented bank managers from taking additional lending risks. the required reserve ratio was set too high. the Federal Reserve system did not exist at the time. a loss of confidence in one bank quickly extended to other banks.

a loss of confidence in one bank quickly extended to other banks.

Credit constraints limit the: amount of money that people can borrow. amount of money that banks can accept as deposits. amount of saving that people can make. interest rates that banks can charge.

amount of money that people can borrow.

The efficient market hypothesis states that: market supply and market demand interact to reach equilibrium for the stock price. at any point in time, stock prices reflect all publicly available information. the market price for a stock will always exceed the book value of the stock. at any point in time, a firm selling a stock has engaged in efficient production methods.

at any point in time, stock prices reflect all publicly available information.

When inflation is lower than expected, there is redistribution from: borrowers to lenders. lenders to the government. borrowers to the government. lenders to borrowers.

borrowers to lenders.

Stock prices are an important macroeconomic indicator because they: can predict inflation in the economy. do not have any correlation with the state of the economy. display a random walk. can predict changes in GDP.

can predict changes in GDP.

The marginal propensity to consume is calculated as the: average level of consumption. total income in the economy minus the total consumption in the economy. change in income divided by the change in consumption. change in consumption divided by the change in income.

change in consumption divided by the change in income.

The market value of a good or service refers to the: current dollar value of that good or service. units of that good or service that are purchased by consumers. total market demand for that good or service. units of that good or service that are produced in the current period.

current dollar value of that good or service.

Depreciation refers to the: decline in the quality of output produced by a business. decline in capital due to wear and tear, obsolescence, accidental damage, and aging. spending by a business on new capital assets. fall in the price of output that the business produces.

decline in capital due to wear and tear, obsolescence, accidental damage, and aging.

In response to a negative supply shock, the government decreases taxes. The MOST likely result of the government's tax decrease is a(n) _____ in unemployment and a(n) _____ in the aggregate price level. decrease; increase decrease; decrease increase; increase increase; decrease

decrease; increase

If Congress decides to increase military spending, this is an example of: discretionary spending. Social Security. mandatory spending. health care spending

discretionary spending.

Hyperinflation is: extremely high rates of inflation. a period of high money growth in an economy. inflation that occurs when the economy is in a recession. very high rates of economic growth.

extremely high rates of inflation.

If a country has a current account deficit, it must have a: financial account surplus. balance of payments surplus. financial account deficit. balance of payments deficit.

financial account surplus.

A Brazilian bank buys shares of stock in Intel, a U.S. high-tech company. This transaction causes the U.S. balance of payments on _____ account to _____. current; decrease current; increase financial; decrease financial; increase

financial; increase

A U.S. company sells 50,000 US dollars of consulting services to a company in India. In the U.S. balance of payments account (note: + vs - matters! So include a - if needed): this transaction is entered as a payment _______ (to / from) foreigner entities of ________ ________(currency) in the _______ account.

from 50,000 dollars current

A bank can make money by: borrowing money from the government at 0% interest. giving you a particular interest return on your savings and then loaning out the same money at a lower rate of interest. storing and locking away all the deposits made by consumers. giving you a particular interest return on your savings and then loaning out the same money at a higher rate of interest.

giving you a particular interest return on your savings and then loaning out the same money at a higher rate of interest.

Which of the following figures shows the correct shift(s) in the market for Egyptian pounds (the currency of Egypt) when Egypt's domestic prices rise? A) inc shift in supply, and dec shift in demand B) dec shift in supply C) inc shift in demand D) dec shift in supply, inc shift in demand

inc shift in supply, and dec shift in demand

A carpenter's shop doubles in size, buys twice the wood, hires a second carpenter, buys a second lathe, and then manages to produce 230% more furniture than it did before. The carpenter's shop is experiencing: decreasing returns to scale. technological advancement. constant returns to scale. increasing returns to scale.

increasing returns to scale.

Stagflation is a combination of _____ unemployment and _____ inflation. increasing; increasing decreasing; decreasing increasing; decreasing decreasing; increasing

increasing; increasing

GDP is defined as the: value of all intermediate goods produced within a country in a given year. market value of all consumer goods purchased within an economy. value of all output produced by businesses within a country in a given year. market value of all final goods and services produced within a country in a given year.

market value of all final goods and services produced within a country in a given year.

A fall in prices leads to a: right shift of the aggregate supply curve. movement up and to the right along the same aggregate supply curve. left shift of the aggregate supply curve. movement down and to the left along the same aggregate supply curve.

movement down and to the left along the same aggregate supply curve.

A rise in prices leads to a: right shift of the aggregate demand curve. left shift of the aggregate demand curve. movement down and to the right, along the same aggregate demand curve. movement up and to the left, along the same aggregate demand curve.

movement up and to the left, along the same aggregate demand curve.

Which of the following are conditions of being considered part of the "working age population" (select all that apply): older than 16 not in the military not a student NOT older than 65 older than 25 working, or actively looking for work not retired not institutionalized

older than 16 not in the military not institutionalized

Which of the following are stages in the business cycle? (select all that apply): peak expansion recession recessionary gap rotation depression investment full employment potential GDP consumption trough net exports

peak expansion recession trough

During recessions: anticipated future income increases. precautionary savings rise. bequests rise. credit card bills fall.

precautionary savings rise.

The fundamental value of a business is the: present value of the future profits it will earn. earnings per share. stock price. value of the forecasted future profits.

present value of the future profits it will earn.

The GDP deflator is an index that tracks the: price that businesses pay over time for the inputs used in the production process. highest prices consumers pay over time for imported goods and services. average price that consumers pay over time for a representative basket of goods and services. price of all goods and services produced domestically.

price of all goods and services produced domestically.

The Federal Reserve was created to: provide stability in the banking sector and the economy. increase employment in the United States. correct deflation in the United States. establish a banking system in the United States.

provide stability in the banking sector and the economy.

A sales tax is a tax on: inputs used in the production of goods and services. purchases that is typically a percentage of the purchase price of goods and services. imports. income earned.

purchases that is typically a percentage of the purchase price of goods and services.

The neutral interest rate is the rate at which: the inflation rate is equal to zero. real interest rates equal nominal interest rates. real GDP equals potential GDP. real GDP exceeds potential GDP.

real GDP equals potential GDP.

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then: inflation rises by 1.5%. real wages have gone up by 2.5%. inflation decreases by 1.5%. real wages have fallen by 2.5%.

real wages have fallen by 2.5%.

The lower bound for the federal funds rate is set by the: president of the country. repurchase agreements and interest on excess reserves. discount rate. open market trading desk.

repurchase agreements and interest on excess reserves.

Inflation is a: fall in the quality of a product. decrease in the overall level of prices. rise in the economic growth rate. rise in the overall level of prices.

rise in the overall level of prices.

Assume an increase in aggregate demand. In the long run, as the economy self-corrects, the price level will _____, and potential output to _____. rise; increase fall; decrease rise; remain stable fall; remain stable

rise; remain stable

If the United Kingdom has lower interest rates relative to the United States, the supply of the pound will _____, leading to a _____ shift in the supply of the pound. fall; left fall; right rise; left rise; right

rise; right

Precautionary savings are: savings for emergency situations. borrowing from credit cards. bequests. loans from banks.

savings for emergency situations.

Suppose that consumer expectations improve. This will cause a: shift of the aggregate demand curve to the left. movement up along the aggregate demand curve. shift of the aggregate demand curve to the right. movement down along the aggregate demand curve.

shift of the aggregate demand curve to the right.

The business cycle refers to the: short-term fluctuations in economic activity. rise and fall of business revenues over time. long-term trends in economic growth. increases in GDP above potential GDP.

short-term fluctuations in economic activity.

Suppose that a CPI basket includes avocadoes, pineapples and oranges. Avocadoes become very expensive, and consumers substitute away from avocadoes and buy hummus instead. If the CPI basket does not change to reflect the move away from avocados, the result is: understated inflation. quality bias. the failure to capture real variables versus nominal variables. substitution bias.

substitution bias.

The balance of payments: is the same as the current account balance. summarizes a country's transactions with the rest of the world. is the same as the country's financial account balance. summarizes the amount of currency exchanged every year.

summarizes a country's transactions with the rest of the world.

If the government runs a budget surplus, then the _____ loanable funds shifts to the _____. demand for; left demand for; right supply of; right supply of; left

supply of; right

Three years ago, Mariam purchased a 30-year bond paying 4.75% annual interest. She now sees comparable 30-year bonds offering 6.25% annual interest rate. This scenario describes _____ risk. market term default liquidity

term

The members of the Federal Open Market Committee (FOMC) who can actually vote on policy decisions are: 12 members of Congress. the chair of the Fed and the New York Fed bank president. the Fed governors and the Fed district bank presidents. the Fed governors, the New York Fed president, and a rotating group of four other district bank presidents.

the Fed governors, the New York Fed president, and a rotating group of four other district bank presidents.

A current account deficit exists when: the balance of payments on the current account is negative. spending flowing out of the country is less than spending flowing into the country. net exports are positive. an economy buys less from foreigners than it sells to them.

the balance of payments on the current account is negative.

Social insurance is provided by: the government. foreign investors. businesses. households.

the government.

Fiscal policy is increased in its effectiveness through: monetary policy. administrative lags. the multiplier effect. crowding out.

the multiplier effect.

The real interest rate can be thought of as the price of money. the rate at which banks loan funds. the real rate of inflation. the return on a capital investment.

the price of money.

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that: the equilibrium rate of unemployment is 3.75%. the economy is experiencing an economic boom. the labor force participation rate has fallen significantly. there is 2.25% actual unemployment.

there is 2.25% actual unemployment.

Which of the following is an automatic stabilizer? discretionary spending military expenditures unemployment benefits government bailouts of firms

unemployment benefits

Maturity transformation occurs when banks: use long-term loans to create short-term deposits. use short-term loans to create long-term loans. provide payment services. assess the creditworthiness of borrowers.

use short-term loans to create long-term loans.

The aggregate demand curve is negatively sloped in part because of the impact of the: wealth effect of a change in the price level on consumer spending. interest rate effect of a change in the price level on government spending. stickiness of nominal wages and salaries. flexibility of nominal wages and salaries.

wealth effect of a change in the price level on consumer spending.

In 2007, a U.S. forever stamp cost $0.41. In 2019, a U.S. forever stamp cost $0.55. In January 2007, the consumer price index was 207.34. If in January 2019, the consumer price index was 251.1, what is the approximate price of the 2007 forever stamp in 2019 dollars? $0.41 $0.55 $0.96 $0.50

$0.50

If the average marginal propensity to consume is 0.8, then a $10 million increase in total income will lead to a _____ increase in consumption. $8 million $2 million $80 million $0.8 million

$8 million

Refer to the following statistics. Based on these statistics, the level of business investment is: Equipment: $2.5 billion Business structures: $2 billion Intellectual property: $4 billion Inventories: $0.2 billion Housing: $3 billion $6 billion. $2.5 billion. $8.7 billion. $8.5 billion.

$8.5 billion. Business investment includes structures, equipment, and intellectual property.

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. What is the total GDP, according to the income approach

8400

Which of the following graphs shows what would happen to the investment line if technological advance makes capital more productive? A) \ \ shift from A to B A > B \ \ B) \ B \ movement from A to B A \ C) \ \ shift from B to A A < B \ \ D) \ B \ movement from B to A A \

A

Why are monetary policy decisions implemented faster than fiscal policy decisions?

Because fiscal policy is implemented by the government legislature (Congress) so it can take a long time for fiscal policy decisions to be passed through the house of reps and senate and actually be implemented. Monetary policy decisions are implemented by the Fed, which doesn't have to go through as much hastle to implement their monetary polcies.

For the following items, find their best match to their categories in terms of increasing/decreasing the US aggregate demand curve or aggregate supply curves. Some may not shift either curve. Do not categorize those items. *Increase in aggregate demand (curve shifts right)* *Decrease in aggregate supply (curve shifts left)* *Increase in aggregate supply (curve shifts right)* *Decrease in aggregate demand (curve shifts left)* *Uncategorized answers* - GDP increases - Consumers feel wealthier - New technology cuts down on unproductive time on the job - International crises subside, decreasing oil prices - The stock market crashes - There is increasing uncertainty about the future economic outlook - The US Dollar appreciates - The government cuts unemployment benefits - Labor costs rise - Worldwide material shortages make it difficult to manufacture computer chips - Inflation is high

*Increase in aggregate demand (curve shifts right)* - Consumers feel wealthier - The government cuts unemployment benefits *Decrease in aggregate supply (curve shifts left)* - Labor costs rise - Worldwide material shortages make it difficult to manufacture computer chips *Increase in aggregate supply (curve shifts right)* - New technology cuts down on unproductive time on the job - International crises subside, decreasing oil prices - The US Dollar appreciates *Decrease in aggregate demand (curve shifts left)* - The stock market crashes - There is increasing uncertainty about the future economic outlook *Uncategorized answers* - Inflation is high - GDP increases

Match the factors that shift the demand & supply curves for US dollars with the mechanism through which that change the curves: *Increasing Exports (from the US)* *Increasing financial outflows (to the US)* *Increasing Imports (to the US)* *Increasing Financial inflows (to the US)* *NO CATEGORY* - decrease in barriers to US markets - increase in domestic product/service marketing - increase in domestic innovation - increase in the expected future value of the dollar - decreased price of the US dollar - depreciation - increase in GDP of other countries - decrease in barriers to foreign markets - increase in foreign innovation - increase in foreign product/service marketing - increase in US GDP - increased price of the US dollar - appreciation

*Increasing Exports (from the US)* - increase in domestic product/service marketing - increase in domestic innovation - increase in GDP of other countries - decrease in barriers to foreign markets *Increasing financial outflows (to the US)* - increase in the expected future value of the dollar *Increasing Imports (to the US)* - decrease in barriers to US markets - increase in foreign innovation - increase in foreign product/service marketing - increase in US GDP *Increasing Financial inflows (to the US)* *NO CATEGORY* - decreased price of the US dollar - depreciation - increased price of the US dollar - appreciation

What is Costa Rica's GDP deflator if its nominal GDP is $60.13 billion (in current US$) and the real GDP is $49.17 billion? 100 122.3 149.17 81.77

122.3

You take a trip to Dhaka, Bangladesh. Your hotel room costs 12,000 Bangladeshi taka per night, and the nominal exchange rate is 85 taka per U.S. dollar. How much does your hotel room cost in U.S. dollars?

141.18

_____ is a measure of how much your decision has _____ your well-being. Willingness to pay; reduced Economic surplus; increased Willingness to pay; improved Economic surplus; decreased

Economic surplus; increased

Why is fiscal policy very important at the zero lower bound?

Fiscal policy is important because monetary policy can't do much once the inflation rate approaches the zero lower bound. A lot of monetary policy deals with interest rates, but sometimes it requires fiscal policies enacted by the government to keep the inflation rate from dropping to or below 0%.

The United States trades with Nigeria. If inflation rises in Nigeria, what will happen in the market for the Nigerian naira? The demand for the naira will fall, and the naira will appreciate. The demand for the naira will fall, and the naira will depreciate. The demand for the naira will rise, and the naira will appreciate. The demand for the naira will rise, and the naira will depreciate.

The demand for the naira will fall, and the naira will depreciate.

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the medium run impact of a decrease in aggregate demand? There is a recession as output falls sharply, and prices will not have had time to adjust. There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales. There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will moderate. All prices adjust, and the economy returns to long-run potential.

There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will moderate.

The wealth effect suggests: a positive relationship between the price level and consumer spending. that changes in the price level do not affect real wealth. a negative relationship between the price level and consumer spending. that when the price level increases, the real value of money increases also.

a negative relationship between the price level and consumer spending.

The ceiling for the federal funds rate is set by the: president of the country. discount rate. repurchase agreements and interest on excess reserves. open market trading desk.

discount rate.

Owners of stock may receive income in the form of: interest. dividends. transfer payments. rent.

dividends

Economic expansions: cannot last more than five years. do not last forever due to adverse shocks. are always equal in length to economic contractions. are sharp.

do not last forever due to adverse shocks.

Which of the following will shift the aggregate demand curve? (select all that apply) expectations the existing stock of physical capital wealth the price level

expectations wealth

Changes in aggregate demand can be caused by changes in: wages. ​ business costs. raw materials costs. government spending on final goods.

government spending on final goods.

A decrease in energy prices will: increase short-run aggregate supply. decrease the quantity of aggregate output supplied in the short run. decrease aggregate demand. decrease short-run aggregate supply.

increase short-run aggregate supply.

The more Americans import from the rest of the world, the _____ the ______ of dollars in the dollar market. The more foreign individuals and corporations import from the United States, the ______ the ______ dollars in the dollar market.

larger supply larger demand

If there is deflation of 1% and a firm wants to lower real wages by 1%, it will need to: leave nominal wages unchanged. raise nominal wages by 1%. lower nominal wages by 2%. lower real wages by 2%.

lower nominal wages by 2%.

If the output gap is negative, then the Federal Reserve will use its floor framework to _____ the interest on excess reserves, borrow _____ money from financial institutions to set the lower bound for the federal funds rate, and _____ the discount rate to set the upper bound for the federal funds rate. raise; more; decrease raise; more; increase lower; less; decrease lower; less; increase

lower; less; decrease

Food stamps are an example of: health care spending. discretionary spending. mandatory spending. military defense spending.

mandatory spending.

Social Security is an example of: discretionary spending. military defense spending. health care spending. mandatory spending.

mandatory spending.

Government bonds in the United Kingdom are called gilts. In 2016, the Bank of England attempted to boost the economy through purchases of long-term gilts. This is evidence of: quantitative easing. fiscal policy. interbank loans. forward guidance.

quantitative easing.

If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. lower; down raise; up raise; down lower; up

raise; down

If the problem in the economy is continuous higher-than-expected increases in the consumer price index, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today. raise; reduce raise; induce lower; induce lower; reduce

raise; reduce

In an inflationary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to _____ spending today. raise; reduce lower; induce raise; induce lower; reduce

raise; reduce

Suppose that productivity increases as workers' health improves. This increase in productivity will: cause a movement up the short-run aggregate supply curve from left to right. cause a movement down the short-run aggregate supply curve from right to left. shift the short-run aggregate supply curve to the right. shift the short-run aggregate supply curve to the left.

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

If a government is using fiscal policy, this means that it is using _____ and _____ to attempt to stabilize the economy. bonds; stock markets spending; tax policies interest rates; tax policies spending; interbank loans

spending; tax policies

Scenario: Exchange Rates The value of a euro goes from US$1.25 to US$1.50. The exchange rate for the dollar has changed from: €0.25 to €0.50. €1.25 to €1.50. €0.80 to €0.67. €0.67 to €0.80.

€0.80 to €0.67.

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. Holding all else equal, what is the profit made by the lumberyard?

400

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. Holding all else equal, what is the profit made by the firniture factory

5,550

You are working in an investment firm where you advise clients on investment decisions. Here is the information on their project: Up-front cost: $150,000 Expected extra revenue in future years: $17,000 Real interest rate: 5.5% Depreciation rate: 10% What is the present discounted value of the stream of revenue from this project?

109,677.419

Which of the following graphs shows what would happen to the investment line if managers become pessimistic about the future state of the economy? A) \ \ shift from A to B A > B \ \ B) \ B \ movement from A to B A \ C) \ B \ movement from B to A A \ D) \ \ shift from B to A A < B \ \

D)

Which of the following is correct about a financial instrument and its future value, keeping all other things constant? The lower the present value of the instrument, the higher the future value. The shorter the time to maturity of the instrument, the lower the future value. The longer the time to maturity of the instrument, the higher the future value. The higher the interest rate on the instrument, the lower the future value.

The longer the time to maturity of the instrument, the higher the future value.

Which of the following is a scaled number? the country's national debt the sum of all incomes earned in the economy government budget deficit as a percentage of GDP total tax revenues in the economy

government budget deficit as a percentage of GDP

Which of the following explains why the price of a product might rise from one year to the next? increased costs of production an increase in quality industry pricing trends an increase in demand for the product

increased costs of production an increase in quality an increase in demand for the product

Shoe-leather costs of inflation are the costs: of lost interest on savings accounts. incurred when purchasing new footwear. of adjusting prices. incurred while trying to avoid holding cash.

incurred while trying to avoid holding cash.

In the loanable funds market, the demand for loanable funds is negatively sloped because the higher the real interest rate, the: smaller the benefits of saving. lower the profitability of investment projects. greater the benefits of saving. higher the profitability of investment projects.

lower the profitability of investment projects.

The Producer Price Index is an index that tracks the: average price that consumers pay over time for a representative basket of goods and services. highest prices consumers pay over time for imported goods and services. price of all goods and services produced domestically. price that businesses pay over time for the inputs used in the production process.

price that businesses pay over time for the inputs used in the production process.

An underemployed person is one who is: cyclically unemployed. working but whose skills are not fully utilized. employed in the underground economy. retired or outside of the labor force.

working but whose skills are not fully utilized.

Refer to the following table that shows monthly data for Japan. What was the unemployment rate in LF - labor force in millions UE - unemployed in millions LF(male) | LF(female) | #ofUE Jan 2014 | 37.6 | 28.1 | 2.4 Jun 2015 | 37.7 | 28.6 | 2.2 Dec 2016 | 38.0 | 29.2 | 2.0 Mar 2017 | 37.7 | 29.0 | 1.9 Dec 2017 | 37.8 | 29.7 | 1.8 December 2017? 2.1% 3.6% 3% 2.7%

2.7%

The table shows consumer price index data for the United States. Based on this information, what is the rate of inflation in 1993? year | CPI 1990 | 130.66 1991 | 136.17 1992 | 140.31 1993 | 144.48 1994 | 148.23 1995 | 152.38 3.04% 4.22% 2.97% 2.79%

2.97%

The table shows consumer price index data for the United Kingdom. Which year was the base year for this index? Year | CPI 2013 | 98.2 2014 | 99.6 2015 | 100 2016 | 101 2017 | 103.6 2018 | 106 2017 2016 2015 2014

2015

The table shows consumer price index data for the United Kingdom. In which year was the inflation rate the highest? Year | CPI 2013 | 98.2 2014 | 99.6 2015 | 100 2016 | 101 2017 | 103.6 2018 | 106 2014 2015 2017 2016

2017

A lumberyard pays workers $600 in wages to cut down lumber, which is then sold to a wood processing factory for $1,000. The wood processing factory pays workers $300 to process the wood, which is then sold to a furniture factory for $1,900. The furniture factory pays workers $950 to produce furniture, which is then sold for $8,400. What is the labor share of GDP in this example?

22.02

You are working in an investment firm where you advise clients on investment decisions. Here is the information on their project: Up-front cost: $150,000 Expected extra revenue in future years: $17,000 Real interest rate: 5.5% Depreciation rate: 10% What is the user cost of capital for this project?

23,250

In 2018, there were 111.01 million people aged 15 years and older in Japan. There were also 68.3 million people in the labor force. What was the labor force participation rate? 50% 38.47% 61.53% 68.3%

61.53%

The government passes a new initiative to provide a tax credit on research and innovation by firms. What is the impact on the production function, and what is the effect on economic growth in the country? The capital stock decreases, and economic growth is negatively affected. Human capital is enhanced, and economic growth is positively affected. The capital stock increases, and economic growth is positively affected. Technological advancement occurs, and economic growth occurs.

Technological advancement occurs, and economic growth occurs.

What happens to the investment line if the real interest rate increases? There is a movement down and to the right along the same investment line. The investment line shifts to the left. The investment line shifts to the right. There is a movement up and to the left along the same investment line.

There is a movement down and to the right along the same investment line.

Which of the following scenarios shows evidence of inflation? You visit the local grocery store and see that your favorite chips are on sale for today only. You go to the soda machine and realize that a bottle of Fanta now costs 15 cents more. Your friend lends you $1,000 and asks for 2% interest. Your favorite bakery has changed ownership, and the cakes now seem to be lower in quality.

You go to the soda machine and realize that a bottle of Fanta now costs 15 cents more.

The consumer price index is an index that tracks the: price of all goods and services produced domestically. average price that consumers pay over time for a representative basket of goods and services. price that businesses pay over time for the inputs used in the production process. highest prices consumers pay over time for imported goods and services.

average price that consumers pay over time for a representative basket of goods and services.

If banks are worried about high default rates and institute new tough lending regulations, then the _____ loanable funds shifts to the _____. supply of; right demand for; right demand for; left supply of; left

demand for; left

If new regulations result in banks relaxing their lending standards, then the _____ loanable funds shifts to the _____. supply of; left supply of; right demand for; left demand for; right

demand for; right

The guarantee by the FDIC to reimburse bank customers up to $250,000 per deposit in the event of bank problems is called: fractional reserve banking. reserve requirements. the discount rate. deposit insurance

deposit insurance

Dissaving is: saving plus interest earned. excess income over and above consumption. consumption plus income. excess consumption over and above income.

excess consumption over and above income.

A "final" good or service is one that is: intermediate and ready to be used as an input. not being produced for the market. finished and ready for the final user. not for sale.

finished and ready for the final user

Unemployment insurance can lead to: longer unemployment durations. a reduction in the government budget deficit. an increase in the number of retirees. fewer unemployment benefit claims.

longer unemployment durations.

In the loanable funds market, the demand for loanable funds is negatively sloped because the higher the real interest rate, the: greater the benefits of saving. higher the profitability of investment projects. lower the profitability of investment projects. smaller the benefits of saving.

lower the profitability of investment projects.

Hedging against inflation means: purchasing financial investments with returns that are protected against inflation. holding cash during periods of high inflation. making oneself knowledgeable about the costs of inflation. purchasing goods and services only when prices are low.

purchasing financial investments with returns that are protected against inflation.

Public policy can assist in improving the matching of jobs to workers by: running job search centers to help businesses identify unemployed people with the right skills. controlling the number of jobs that are offered by businesses. providing unemployment benefits for unemployed workers. lowering minimum wages.

running job search centers to help businesses identify unemployed people with the right skills.