Macroeconomics Final
An initial decrease in a bank's reserves will decrease checkable deposits
by an amount greater than the decrease in reserves
The new short-run equilibrium will be where
the new aggregate demand curve intersects the original short-run aggregate supply curve on the original long-run aggregate supply curve
Technological progress is affected by (check all that apply)
-entrepreneurship -new software developments -private property rights -investment in capital
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
The Phillips curve exhibits
the relationship between the unemployment and the inflation rates
Congress broadened the Fed's responsibility since
the 1930s as a result of the Great Depression
If, in the long run, real GDP returns to its potential level, then in the long run,
the Phillips curve is vertical
The cyclically adjusted budget deficit is the deficit in the federal government's budget if
the economy were at potential GDP
Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if bank reserves increase by $60 billion?
$1,200 billion increase
Situation 1 will be _____1._________ Situation 2 because the ___2.___ is lower Now suppose you are JPMorgan Chase, and you are making car loans. Which situation above would you now prefer? JPMorgan Chase would prefer__________
1. better than 2. real interest rate JPMorgan Chase would prefer Situation 2
A shortage is the amount by which the ______ exceeds the _______
1. quantity demanded 2. quantity supplied
3 3 x (4+1)=
15
If the money supply is growing at a rate of 4 percent per year, real GDP (real output) is growing at a rate of 2 percent per year, and velocity is constant, what will the inflation rate be?
2%
Consider the figure on the right. It shows growth rates in real GDP per hour worked in the United States for various periods from 1900 onward. According to the figure, economic growth (as measured by growth in real GDP per hour worked) in the United States was slowest during the period from
2006 to 2016
There are ________ members of the Board of Governors, who the President of the United States appoints to ________. One of the Board members is appointed Chairman for ________.
7; 14-year nonrenewable terms; a 4-year renewable term
If the government increases expenditure without raising taxes, this will A. increase the budget deficit and require the government to borrow additional funds B. cause the interest rate to increase, thereby, reducing private investment and crowding out the private sector C. cause a decrease in the domestic exchange rate which will increase exports and decrease imports D. All of the above E. A and B only
A & B only
Which of the following is an example of an expansionary fiscal policy?
A decrease in taxes
What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010?
Both real and nominal average hourly earnings increased.
What is fiscal policy?
Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives
Consider the choices below. All of these except one truly represent the record of productivity growth in the United States from 1800 to the present. Find the one that does not belong.
GDP per capita fell rapidly between 1900 and 1950.
Why doesn't the Phillips curve represent a permanent trade-off between unemployment and inflation in the long run?
In the long run, aggregate supply is vertical
What changes should they make if they decide a contractionary fiscal policy is necessary?
In this case, Congress and the president should enact policies that decrease government spending and increase taxes
The Federal Reserve uses two definitions of the money supply, M1 and M2, because
M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply
Imagine a graph that shows a situation in which the economy was in equilibrium at potential GDP (at point A) when the demand for housing sharply declined. Question 1: What actions can Congress and the president take to move the economy back to potential GDP? Question 2: As a result of the government's actions, the Question 3: The new equilibrium will be
Question 1: Increase government spending or decrease taxes Question 2: aggregate demand curve will shift right Question 3: where the new aggregate demand curve intersects the original short-run aggregate supply curve, on the long-run aggregate supply curve
Question 1: An increase in interest rates affects aggregate demand by Question 2: As the interest rate increases,
Question 1: shifting the aggregate demand curve to the left, reducing real GDP and lowering the price level Question 2: consumption, investment, and net exports decrease; aggregate demand decreases
Which of the following statements is correct? a. The relationship between two variables is nonlinear whether it is represented by a straight line or by a curved line b. The relationship between two variables is linear when it is represented by a curved line and nonlinear when it is represented by a straight line. c.The relationship between two variables is linear when it is represented by a straight line and nonlinear when it is represented by a curved line d.The relationship between two variables is linear whether it is represented by a straight line or by a curved line
The relationship between two variables is linear when it is represented by a straight line and nonlinear when it is represented by a curved line
The figure shows how growth rates of real GDP per capita for the entire world have changed over long periods. Based on the data from the figure which one of the following statements is false?
The smallest acceleration in growth occurred during the twentieth century as the average annual growth rate increased from 1.3 percent per year to 2.3 percent per year.
The prevalence of Alzheimer's dementia is very high among residents living in nursing homes. A student concludes that it is likely that living in a nursing home causes Alzheimer's dementia. What is the flaw in the student's reasoning?
The student is drawing a false conclusion; he is making the error of reverse causality
Have poor countries been catching up to rich countries?
There has been catch-up by some poor but industrialized countries.
Why does a $1 increase in government purchases lead to more than a $1 increase in income and spending?
Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending
The period between the high point of economic activity and the following low point is called
a recession.
The low point of economic activity is called
a trough
If actual inflation is higher than expected inflation, the
actual real wage is less than the expected real wage: unemployment falls
The stimulus package will shift the __________________ curve to the _______________
aggregate demand, right
A country's rate of economic growth is important because
an economy that grows too slowly fails to raise the living standards of its citizens.
The period between the low point of economic activity and the following high point is called
an expansion
Without the stimulus package, potential GDP is ________________ equilibrium real GDP
greater than
The diagram to the right is an example of
a time-series graph
To increase the money supply, the FOMC directs the trading desk, located at the Federal Reserve Bank of New York, to
buy U.S. Treasury securities from the public
Long-run growth in GDP is determined by
capital, labor productivity, and technology
Consider the per-worker production function to the right. Equal increases in the quantity of capital per hour worked lead to _____________ increases in output per hour worked
diminshing
The short-run Phillips curve will be
downward slopping
Purchases of which types of goods are business cycles most likely to affect?
durable goods
Most of the poor countries experience slow growth because of all the following reasons except
excellent public health and education
Since nominal incomes increase with inflation,
expected inflation does not affect the purchasing power of the average consumer
The U.S. dollar can best be described as
fiat money
Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through
foreign direct investment
The government policy that does not increase economic growth is
foreign trade policy that favors imposing a high tariff on imported high-tech goods
Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing so, government can help promote growth because greater property rights
give entrepreneurs more incentive to take risks that create new products, ideas, and more technology
Automatic stabilizers are
government spending and taxes that automatically increase or decrease along with the business cycle
Government unemployment insurance tends to
increase the unemployment rate by lowering the opportunity cost of job search.
As a result of the fiscal policy, real GDP
increases
Huggies diapers. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.
less than
McDonald's Big Macs. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.
less than
As a result of crowding out in the short run, the effect on real GDP of an increase in government spending is often
less than the increase in government spending
The economic growth model predicts that the
level of per capita GDP in poor countries will increase faster than rich countries and the poor nations will catch up with the rich nations.
Why is the Fed sometimes said to have a "dual mandate"? The Fed is said to have a" dual mandate" because
maintaining price stability and high employment are the two most important goals of the Fed
Technological change _______________ for economic growth than additional capital.
more important
Boeing passenger aircraft. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.
more than
Chevron's sales of advanced plastics to be used in automobile manufacturing. Production of this good is likely to fluctuate ____________ fluctuations of real GDP during the business cycle.
more than
Ford F-150 trucks. Production of this good is likely to fluctuate _____________ fluctuations of real GDP during the business cycle.
more than
There are innings in a typical baseball game
nine
In the diagram to the right, the curve labeled "S" is apparently _____, while the curve labeled "D" is apparently _____.
nonlinear; linear
The relationship between two variables is positive when ________, and the relationship between two variables is negative when ________.
one variable increases and the other increases; one variable increases and the other decreases
The high point of economic activity is called
peak
The payment of government unemployment insurance reduces the severity of recessions by
preventing a huge drop in income and spending for the unemployed.
The diagram to the right illustrates a very important relationship in economics between two variables: the price of a good and the quantity demanded of that good.
price (dollars per bushel) on the vertical axis and quantity (bushels per week) on the horizontal axis.
Long-run economic growth in the United States is best measured using
real GDP per capita, which has been trending strongly upwards over the past century
The type of unemployment most likely to result in hardship for the people who are unemployed is
structural because this type of unemployment requires retraining to acquire new job skills.
When Congress established the Federal Reserve in 1913, its main responsibility was
to make discount loans to banks suffering from large withdrawals by depositors
The sun revolves around the earth.
true
Two examples of automatic stabilizers in the U.S. are
unemployment insurance payments and the progressive income tax system
Automatic stabilizers can reduce the severity of a recession because, during a recession,
unemployment payments rise and tax collections fall, providing more spending ability to push the economy back to full employment
Nominal incomes generally increase with inflation because
when inflation is anticipated, average nominal incomes also increase by the same percentage as the rate of inflation
Which of the following shows a negative nonlinear relationship?
y= 34/x
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease; increase
It is argued that a policy of tax simplification will result in:
A shift from LRAS 1 to LRAS 2 with higher output at a lower price level.
Economists often are interested in percentage change from one period to the next. The percentage rate of change of gross domestic product (GDP) is an important macroeconomic variable. If in 2010 GDP was $11,150 billion dollars, and GDP increased to $11 comma 60311,603 billion in 2011, what is the growth rate of the U.S. economy in 2011?
4.1%
If the money supply is growing at a rate of 4 percent per year, real GDP (real output) is growing at a rate of 2 percent per year, and velocity is growing at 3 percent per year instead of remaining constant, what will the inflation rate be?
5%
Why do economic growth rates matter?
All of the above
As the economy nears the end of an expansion, which of the following typically occurs?
All of the above occur
The figure in the window on the right shows the per-worker production function as a graph. In the figure, we measure capital per hour worked along the horizontal axis and real GDP per hour worked along the vertical axis. Letting K stand for capital, L stand for labor, and Y stand for real GDP, real GDP per hour worked is Y/L, and capital per hour worked is K/L. The curve represents the production function. Use the figures to help determine which one of the following statements is true:
An increase in capital per hour worked from $20,000 to $30,000 increases real GDP per hour worked from $200 to $350.
The economic definition of money is
Any asset that people are generally willing to accept in exchange for goods and services
If Congress and the president decide an expansionary fiscal policy is necessary, what changes should they make in government spending or taxes?
In this case, Congress and the president should enact policies that increase government spending and decrease taxes
The Phillips curve was developed by A.W. Phillips in 1957 and shows the relationship between unemployment and inflation. The curve, shown at the right, indicates what type of relationship between the two variables?
Inverse relationship
Which of the following is included in M2 but not M1?
Money market deposit accounts in banks
Strong rule-of-law countries grow more rapidly than weak rule-of-law countries. What factor will most likely improve economic growth in weak rule-of-law countries?
Political reform
Suppose the government decreases taxes. Use the aggregate demand and aggregate supply model to explain the effects of the decrease in taxes on the economy. Question 1: As a result of the tax cut, the Question 2: The new short-run equilibrium will be
Question 1: aggregate demand curve will shift right Question 2: where the new aggregate demand curve intersects the original short-run aggregate supply curve, to the right of the long-run aggregate supply curve
Question 1: When the Fed conducts an open market purchase, the Fed __________ and the money supply _______________ Question 2: As a result of the open market purchase, the Question 3: The new equilibrium will be where Question 4: When the Fed conducts an open market purchase, the interest rate should
Question 1: buys securities from banks, increases Question 2: Question 3: the new money supply curve intersects the original money demand curve Question 4: decrease
Question 1:Suppose the government reduces the corporate income tax rate. This will increase the return to firms for investing, which should _______________ investment and cause _______________ in capital in the long run. Question 2: As a result of the corporate tax cut, the long-run aggregate supply curve will Question 3:The new long-run equilibrium will be Question 4:The long-run impact of a reduction in corporate tax rates would be
Question 1: increase, an increase Question 2: shift to the right Question 3: where the aggregate demand curve intersects the new long-run aggregate supply curve Question 4: an increase in long-run potential output while actually reducing inflation
Question 1: Imagine a graph shows equilibrium in the money market. The equilibrium interest rate is determined at point E where the downward-sloping money demand and vertical money supply curves intersect. Suppose the Fed wants to lower the equilibrium interest rate. To lower the equilibrium interest rate, the Fed will take actions that will Question 2: The new equilibrium will be
Question 1: shift the money supply curve to the right Question 2: where the new money supply curve intersects the original money demand curve
Question 1: If the Fed believes the economy is about to fall into recession, it should Question 2: If the Fed believes the inflation rate is about to increase, it should
Question 1: use an expansionary monetary policy to lower the interest rate and shift AD to the right Question 2: use a contractionary monetary policy to increase the interest rate and shift AD to the left
Which one of the following is not one of the monetary policy goals of the Fed?
Reduce income inequality
________ is a problem that occurs when someone concludes that a change in variable X caused a change in variable Y when, in fact, it is a change in variable Y that caused a change in variable X.
Reverse causality
Who is responsible for fiscal policy?
The federal government controls fiscal policy
How might the growth rates in the figure be different if they were calculated for real GDP per capita instead of per hour worked? (Hint:How do you think the number of hours worked per person has changed in the United States since 1900?)
The growth rate of real GDP per capita would be higher than the growth rate of real GDP per hour.
Firm X, a leading manufacturer of rubber tires in country A, caters to almost one-third of the domestic tire market. The country was hit by a recession last year that caused the national output growth to be negative. Simon Reeds, the CEO of firm X, feels that these fluctuations in the business environment are short-lived and expects the economy to recover very soon. In spite of the recession, Simon feels that the firm can actually invest in expanding its facilities as it has sufficient cash flows to continue its operation during the crisis period. The firm's marketing head, Sandra Jones, counters this by saying that the firm is already losing sales due to the recession and they should not increase costs further by making large-scale investments in the present climate. Which of the following questions is most relevant to answer in order to determine the accuracy of the CEO's claim?
What are consumer expectations of future growth?
Economics arrives at the conclusion that economic growth will always improve economic well-being. Do you agree?
Yes, economic growth increases living standards, improves health and education, and builds a corruption-free society.
By raising the discount rate, the Fed leads banks to make _________ loans to households and firms, which will _________ checking account deposits and the money supply.
fewer; decrease
The three types of unemployment are
frictional, structural, and cyclical unemploment