Macroeconomics Final 2014
Assume that this economy produces only two goods Good X and Good Y. If year 1 is the base year, the value for this economy's realy GDP in year 2 is
$168
Refer to F 8.11, A $10 million increase in investment changes equilibrium output to
$240 million
How much of the tax is paid by buyers?
$5
THe equations above describe the demand and supply for Chef Ernie's. What are the equilibrium price and quantity for Chef Ernie's sushi?
$60 and 20 thousand
Bill's income is $1,000 and his net taxes are $350. His disposable income is
$650
IF consumption is $10,000 when income is $10,000 and consumption increase to $11,000 when income icnreases to $12,000 the MPS is
0.50
The unemployment rate is:
17.6%
What is Serena's opportunity cost of making a bracelet?
2 necklaces
In which case will the government collect more tax revenue?
20% tax rate and $90,000 average income`
Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as a movement form
A to B
Suppose theFed lowers its target for the federal funds rate. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from
A to B
Suppose the economy is in a recession and no policy is pursued. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from
A to E
What is the difference between an increase in supply and an increase in quantity supplied
An increase in supply means the supply curve has shfited to the right while an increase in quatity supplied refers to a movement along a given supply curve in response to an increase in price
Which of the following is consistent with the graph depicted?
An increase in the proportion of income after net taxes used for consumption
An increase in taxes would be depicted as a movement from _____.
B to A
If the two countries have the same aount of resources and the the same technological knowledge. Which country has an absolute advantage in the production of cotton?
Indonesia
If the economy is at point L, what will happen?
Inventories have risen above their desired level, and firms decrease production.
If the probability of losing your job remains _____, a recession would be a good time to purchase a home because the Feds usually _____ interest rate during the time.
Low; Lowers
The hypothetical information in the table shows what the values for real GDP and the price level will be in 2015 if the Fed does not use monetary policy. Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2015?
The Fed should lower the target for the federal funds rate
Technological advancements have led to lower prices and an increase in the sale of digital cameras. How does this affect the digital photo printing paper market?
The demand curve for digital photo printing paper shifts to the right
IN January, buyers of gold expect tath the price of gold will rise in February What happens in the gold market in January, holding all else constant?
The demand curve shifts to the right
Which of the following states is TRUE?
The unemployment rate does not tell us anything about the duration of unemployment.
Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?
They will shift the aggregate demand curve to the right.
Which of the following describes what the Fed would do to pursue an expansionary monetary policy?
Use open market operations to buy treasury bills
Why does the short-run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?
Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices
In a close economy, private saving is equal to which of the following?
Y + TR - C - T
In a closed economy, which of the following equations reflects investment?
Y - C- G
Which of the following will lead to a decrease in the equilibrium interst rate in the economy?
a decrease in GDP
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDP.
Which of the following would encourage economic growth through increases in the capital stock?
a decrease in the government deficit, an increase in household savings, and a change from an income tax to a consumption tax
Contractionary monetary policy on the part of the Fed results in
a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
a decrease in the price of flour
Starting in long-run equilibrium when the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0 if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and a movement to a shirt-run equilibrium at point _____
a leftward shift in SRAS2; a
The situation in which short-term interest rates are pushed to zero, leaving the central banks unable to lower them further is known as
a liquidity trap.
An increase in the interest rate causes
a movement up along the money demand curve
Health insurance should be provided to every citizen in a wealth nation such as the U.S. This statement is best described as
a normative statement
If consumers decide to be more frugal and save more out of their income, then this will cause
a shift in the supply curve for loanable funds to the right
If Inventory investment is higher than firms planned
actual investment is greater than planned investment
Which of the following would cause both the equilibrium price and equilibrium quantity of cotton to increase?
an increase in consumer income
Most economists believe that the best monetary policy target is
an interest rate
The law of demand implies, holding everything else constant, that
as the price of bagels increases, the quantity of bagles demanded will decrease
The total of consumer plus producer surplus is greatest
at the market equilibrium
In 2012, the city of Canfield collected $500,000 in taxes and spent $450,000. In 2012, the city of Canfield had a
budget surplus of $50,000.
If the Federal Reserve targets the interest rate and the money demand curve shifts to the left, then the Fed
can maintain the interest rate target, but at a lower quantity of the money supply.
If the Federal Reserve targets the money supply, and the money demand curve shifts to the left, then the Fed
can maintain the money supply target, but at a lower interest rate.
Changes in the federal funds rate usually result in
changes in both short-term and long-term interest rates with more of an effect on short-term interest rates.
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue
contractionary fiscal policy
The demand for durable goods
declines by a greater percentage than does GDP during recessions
In the dynamic model of Ad-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
decrease interest rates
Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
decrease.
If the government spending multiplier is 5 and government spending decreases by $200 billion, output will ______ by $_______ billion.
decrease; 1,000
An economic expansion tends to cause the federal budget deficit to _____ because tax revenues _____ and government spending or transfer payments _____.
decrease; rise;falls
A _____ in government spending, a ________ domestic currency, and ________ interest rates will shift a country's aggregate demand to the left.
decrease; stronger; higher
An increase in interest rate
decreases investment spending on machinery, equipment and factories, consumption spend on durable goods, and net exports.
An increase in individual income taxes _____ disposable income, which _____ consumption spending.
decreases; decreases
Borrowers are ______ of loanable funds, and lenders and ______ of loanable funds.
demanders;suppliers
China has a comparative advantage in the production of
digital cameras
Jake retired from the police force. He started working an hour or two a day at a paid job in city's courthosue. Jake is
employed
The ratio of the increase in _____ to the increase in _____ is called the multiplier
equilibrium real GDP; autonomous expenditure
An increase in aggregate demand results in a ______ in the _____
expansion; short run
THe total amount owed by the federal government to the public is the
federal debt
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
federal funds rate.
The interest rate that banks charge other banks for overnight loans is the
federal funds rate.
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B
firms are operating below capacity
Which of the following is NOT a category of fiscal policy?
government policies regarding money supply in the economy
If wanda's income is reduced to zero after she loses her job, her consumption will be _____ and her savings will be _____
greater than zero; less than zero
The goals of monetary poliby tend to be interrelated. For example, when the Fed pursues the goal of ______, it also can achieve the goal of _______ simultaneously.
high employment; economic growth
Expansionary monetary policy to prevent real GDP from falling below potential real gDP would cause the inflation rate to be relatively ______ and real GDP to be relatively _______
higher; higher
According to the "paradox of thrift," as individuals increase their savings,
income in the economy will fall because the decreased consumption that results from increased saving caused the economy to contrast.
During a recession, automatic stabilizers cause the federal deficit to
increase
Which of the following would be most likely to induce Congress and the president to conduct contractoinary fiscal policy?
increase in inflation
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve would most likely
increase interest rates
An increase in the interest rate
increase the opp. cost of holding money
Classifying discouraged workers as unemployed would
increase the unemployment rate
Suppose the households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency. Using the money demand and moeny supply model and assuming everything else is held constant, the equilibrium interest rate should
increase.
Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
increase.
An increase in the interest rate should ______ the demand for dollars and the value of the dollar and next exports should _______.
increase; decrease
A recession tends to cause the federal budget deficit to ____ because tax revenues _____ and government spending on transfer payment _____.
increase; fall; rises
All else equal, a shortage of display screens used in the manuafacture of tablet computers would cause the equilibrium price of the tabler computesr to _______ and the equilibrium quiatity of the tablet computers to ______
increase;decrease
Inflation tends to _____ during the expansion phase of the business cycle and _____ during the recession phase of the business cycle.
increase;decrease
If the government wants to reduce unemployment, government purchases should be ______ and/or taxes should be ______.
increased; decreased
During recessions, government spending usually
increases because unemployment payments increase
Proponents of spending on infrastructure as a means to stimulate the economy note that the multiplier effect for _____ is estimated to be larger than the multiplier effect for _____ and would therefore have a greater impact on expanding GDP.
increases in government spending; tax cuts
A falling aggregate price level ____ demand for country's exports and therefore _____ output demanded
increases; increases
During recessions, the number od discouraged workers _____ and this ____ the unemployment rate
increases; reduces
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy, this will result in
inflation higher than what would occur if no policy had been pursued
When the government runs a budget deficit, we would expect to see that
investment will fall
If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion the growth rate of real GDP between 2010 and 2011
is 3.75%
GDP is not a perfect measure of social welfare, and the society's economic well-being because
it does not include all economic activities in the ecnomy, it does not say anything about the distribution of incom,e GDP accounting rules do not adjust for production that caues negative externatlities
When a government runs a deficit
its debt increases
The presence of automatic stabilizers means that the federal deficit is _____ than it otherwise would be in a recession and _______ than it otherwise would be in an expansion.
larger; smaller
A stronger dollar will shift the U.S. aggreagete demand curve to the ____ and ____ output demanded.
left;decrease
Compare the effect on the price level and real GDP of a decrease in tax rates assuming a supply-side effect versus no supply-side effect. Compared to no supply-side effect, including a supply-side effect for the decrease in tax rates will cause the price level to increase _______ and real GDP to increase _____.
less;more
The _____ is vertical at full employment
long run aggregate supply curve
In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
lower interest rates.
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be _____ and real GDP to be ______.
lower;lower
Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ______ and the real GDP to be _______
lower;lower
Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy?
lowers the interest rate, and firms increase investment spending
In a perfectly competitive market, there are _____ buyers, and _______ sellers
many;many
The term ______ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade
market
The federal reserve's two main ______ are the money supply and the interest rate.
monetary policy targets
THe Federal Reserve cannot target both the money supply and the interest rate because is does not control
money demand
When the Federal Reserve increase the money supply, at the previous equilibrium interest rate households and firms will now have
more money than they want to hold.
The money demand curve has a
negative slope because an increase in the interest rate decrease the quantity of money demanded.
IF the GDP deflator is greater than 100, then
nomial GDP is greater than real GDP
Discouraged workers are
not considered as part of the labor force
Double counting can be avoided by
not counting the value of intermediate goods in GDp
Assume that inventories declined by more than analysts predicted. This implies that
planned aggregate expenditure was greater than real GDP.
Structural unemployment is the
portion of unemployment that is due to changes in the structure of the economy that results in a significant loss of jobs in certain industries.
If real GDP in 2012 using 2011 prices is lower tha nominal GDP of 2012 then
prices in 2012 are higher than prices in 2011
Crowding out refers to a decline in ______, as a result of an increase in ______.
private expenditures; government purchases
In response to already low interest rates doing little to stimulate the economy, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as
quantitative easing.
In the figure, the money demand curve would move from MD1 to MD2 if
real GDP increased.
A good measure of the standard of living is
real GDP per capita
An increase in aggregate demand causes an increase in ______ only in the short run, but causes an increase in _____ in both the short run and the long run.
real GDP; the price level
The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect
real interest rate
During the turmoil in the market for sub prime mortgages in 2007 and 2008, the Fed increased the volume and discount loans. The goal of the Fed was to
reassure financial markets and promote financial stability.
The President of Vulcan hires you as an economic consultant. He is concerned that the output level in Vulcan is too high and that this will cause prices to rise. He feels that it is necessary to reduce output by $10 billion. He tells you that the MPC in Vulcan is 0.6. Which of the following would be the best advice to give to the Vulcan president?
reduce government purchases by $4 billion.
The objective of a contractionary fiscal policy is to
reduce inflation
The objective of an expansionary fiscal policy is to
reduce unemployment
Firms react to unplanned increase in inventories by
reducing output
If autonomous consumption increases, the size of the multiplier would
remain constant
If oil prices decrease, the short-run aggregate supply curve shifts ____ and output supplies will be _____
right;increased
Other things equal, when the U.S. aggregate price level falls, U.S. exports _____ and U.S. imports _____
rise; fall
A government;s debt is reduced when it
runs a surplus
In the figure above, when the money supply shifts form MS1 to MS2 at the interest rate of 3 percent households and firms will
sell Treasury bills.
When the Federal Reserve decrease the money supply, at the previous equilibrium interest rate households and firms will now want to
sell Treasury bills.
Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is imposed in the market for the product
sellers bear the entire burden of the tax
The Fed can increase the federal funds rate by
selling Treasury bills, which decreases bank reserves.
A breakthrough in solar energy research that halves the cost of electricity will:
shift the aggregate supply curve to the right.
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
Economic decline is represented on a production possibilities frontier model by the production possibility frontier
shifting inward
Refer to Figure 8.1, An increase in the amount of consumption this household makes when this household's income is zero
shits the saving function downward
The aggregate expenditure model focuses on the _____ relationship between real spending and ______
short-run; real GDP
Suppose that in the beginning of 2012 the federal debt was $9 trillion. During 2012, the government balanced its budget. At the end of 2012, the federal debt
stayed the same
Scarcity
stems from the incompatibility between limited resources and unlimited wants
An auto worker in Ohio who loses her job becaues the company relocated the plant to another country represents an example of
structural unemployment
When the price of a good falls, consumers buy a larger quantity because of the _______ effect and the _______ effect
substitution; income
The natural rate of unemployment is generally thought of as the
sum of frictional unemployment and structural unemployment
The Federal Reserve can directly affect its monetary policy ______, which then affects is monetary policy _______.
targets; goals
What two factors are the keys to determining labor productivity?
technology and the quantity of capital per hour worked
THe GDP of the U.S> in 2012 was around $15.9 trillion. THis means
that the value of output in the U.S. in 2012 was around $15.9 trillion, that total spending on the final goods and services in the U.S. in 2012 was around $15.9 trillion, and that total income in the U.S> in 2012 was around $15.9 trillion
The MPC is
the change in consumption divided by the change in income
Consumer surplus is
the difference between the maximum a person is willing to pay and current market prices.
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
the economy is below full employment
How would the equilibrium interest rate respond to a change from an income tax to a consumption tax?
the equilibrium interest rate would fall.
If a firm expects that the price of its product will be higher in the future than it is today
the firm has an incentive to decrease supply now and increase supply in the future
An example of an automatic stabilizer is
the food stamp program
The difference between what a government spends and what it collects in taxes in a year
the government budget deficit or surplus
Aggregate demand increases if
the government increases spending
The use of fiscal policy to stabilize the economy is limited because
the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.
Potential GDP refers to
the level of GDP attained when all firms are producing at capacity
An increase in the price level causes
the money demand curve to shift to the right
When the Fed uses contractionary policy
the price level rises less than it would if the Fed did not pursue policy
Adam Smith's invisible hand refers to
the process by which individuals acting in their ow self-interest bring about a market outcome that benefits society as a while
Which of the following is an investment?
the purchase of a new printing press by a business
The tax multiplier is
the ratio of the change in the equilibrium level of output to the change in taxes
Fiscal policy refers to
the spending and taxing policies used by the government to influence the economy
If you earn additional $500 in disposable income one week for painting your neighbors house
the total of your consumption and saving will increase by $500
Which of the following is INCORRECT regarding tax revenues?
they increase during recessions
If the government imposes a maximum price that is above the equilibrium price,
this maximum price will have no economic impact
In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, this will result in
unemployment rates higher than what would occur if not policy had been pursued.
Which of the following is a CORRECT sequence of events during a recession?
unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises
If aggregate output is greater than planned spending, then
unplanned inventory investment is positive
Marginal analysis involves undertaking an activity
until its marginal benefit equals marginal costs
IF 2011 is the base year, the inflation rate between 2011 and 2012 is
3.8%
From an aggregate expenditure model we know the following: C= 500 + 08.Y - the equilibrium level of consumption is equal to
3100
The equilibrium level of GDP is equal to
3250
If 2010 is the base year, the infaltion rate between 2010 and 2012 is
40.2%
From an aggregate expenditure model we know the following: C=500+08.Y - The multiplier is equal to:
5
Which of the following changes would cause the equilibrium to change to point A?
A decrease in the wages of apple workers and an increase in the price of oranges, a substitute for apples
If price goes from equilibrium to P1 consumer surplus changes by the area
E-C
Which of the following is one explanation as to why the aggregate demand curve slopes downwards?
Decreases in the price level raise real wealth and increase consumption spending
______ taxes and ______ interest rates in the U.S., along with ______ incomes in other countries, will shift the U.S> aggregate demand curve to the right.
Decreasing;falling;rising
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rate to pursue its macroeconomic policy objectives.
Expansionary monetary policy refers to the _______ to increase real GDP
Federal Reserve's increasing the money supply and decreasing interest rates.
The value of what KFC produces in Japan is included in the U.S> ______ and in the Japanese _______
GNP;GDp
The Federal Reserve System's four monetary policy goals are
Price stability, high employment, economic growth, and stability of financial markets and institutions.
If the government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the following is true?
Public savings is $100 million
What happens in the market for tropical hardwood tress if the governemnt restrict the amoutn of forest lands that can be logged?
S decreases, D no change, P increases, Q decreases
If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____
SRAS2;P2
IF the two countries specialize and trade, who should export digital cameras?
South Korea
Does either China or South Korea have an absolute advantage and if so, in what product?
South Korea in both products