Macroeconomics Final Exam
the change in some economic variable, usually from one period to the next, expressed as a percentage
percent change
the study of "what is?"; descriptive, can be tested with data, doesn't have to be a true fact
positive analysis
a measure of the average prices of goods and services in the economy
price level
measures the average prices of goods and services in the economy; affects consumption through wealth; P increases W decrease C decreases
price level
shows the relationship between the price level and the quantity of real GDP supplied by forms in the short run; upward sloping
short-run aggregate supply curve
money allows value o be stored easily; if you do not use all your accumulated dollars to buy goods and services today, you can hold the rest to use in the future
store of value
unemployment arising from lack of skills; often results from technological process
structural unemployment
firms have to pay corporate income taxes on their profits, including profits from new buildings, equipment, and other investment goods that firms purchases; T increases I decreases; T decreases I increases
taxes
an increase in the quantity of output firms can produce using a given quantity of inputs
technological change
almost anything that raises the amount of real GDP that can be produced with a given amount of labor and capital; invention, innovation, diffusion, organization, specialization, education
technological progress
the impact of the price level on investment and consumption; P increases r increases C decreases AD decreases
the interest-rate effect
the impact of the price level on net exports; P increases exports decrease imports increase NX decreases AD decreases
the international-trade effect
impact of the price level on consumption; P increases W decreases C decreases AD decreases
the wealth effect
measured as (Y+TR-T) and is the most important determinant of consumption; when Yd increases C increases
current disposable income
what five factors does C depend on
current disposable income, household wealth, expected future income, price level, real interest rate
unemployment caused by a business cycle (recession)
cyclical unemployment
workers laid off as a result of a recession suffer a. structural unemployment b. frictional unemployment c. natural unemployment d. cyclical unemployment
cyclical unemployment
firms that borrow funds from savers and lend them to borrows
financial intermediaries
markets were financial securities (stocks and bonds) are bought and sold
financial markets
the system of financial markets and financial intermediaries through which firms acquire funds from households to make investments
financial system
changes in federal taxes and government purchases
fiscal policy
shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government; downward sloping
aggregate demand curve
jack just told his boss that he thinks his boss is an idiot. it is likely that jack will be experiencing _______ unemployment in the near future. a. frictional b. structural c. cyclical d. permanent
frictional
short-term unemployment that arises from the normal turnover in labor markets; relocating to a different region, looking for higher pay, etc
frictional unemployment
"household production" refers to a. home-based craft businesses b. the home building sector of the economy c. goods and services people produce for themselves d. the manufacturing of durable household products
goods and services people produce for themselves
spending by federal, state, and local government on goods and services
government purchases
measured as the household's assists minus its liabilities; W increases C increases
household wealth
three main sources of demand for loanable funds:
households, government, corporations
two main sources of supply of loanable funds:
houses and government
measures by how much equilibrium real GDP changes if autonomous expenditure changes by $1
multiplier
the purchase of a new Ford car by a German citizen is included in a. consumption expenditures b. investment expenditures c. government purchases d. net exports
net exports
the value of final good and services evaluated at current-year prices
nominal GDP
the stated interest rate on a loan
nominal interest rate
the study of "what ought to be?"; judgmental, prescriptive, reflects somebody's opinion rather than a fact
normative analysis
some types of G and T change automatically during a business cycle
automatic stabilizers
a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100
GDP deflator
paper money; has no value besides being generally accepted as a payment for goods and services
fiat money
macroeconomic model that focuses on the relationship between total spending and real GDP, assuming that the price level is constant
aggregate expenditure model
comes from two forms: the usual physical capital and human capital; output is an increasing function of K; if the other inputs, labor and technology, are held fixed then capital exhibits diminishing returns
capital
difference between cash revenues received by a firm and the cash spending by the firm; CF increases I increases
cash flow
a good used as money that also has a value independent of its use as money; gold and silver
commodity money
designed from scratch every time; requires changes in legislature
discretionary fiscal policy
the fed buys bonds Ms increases r decreases; Y<Y*; recession
easier expansionary monetary policy
reserves that banks hold over and above the legal requirement
excess reserves
investors feeling optimistic or pessimistic about the economy is a very important determinant of investment; optimistic I increases; pessimistic I decreases
expectations of future profitability
what are the four most important variables that determine the level of investments?
expectations of future profitability, real interest rate, taxes, cash flow
most people refer to keep their consumption fairly stable from year to year, even if their income fluctuates significantly
expected future income
it takes time for a new policy to take an effect
impact lag
it takes time to implement a new policy
implementation lag
includes all types of skilled and unskilled labor basically "lumped" together; typically measured as aggregate hours or number of individuals employed; aggregate output is an increasing function of L; if the other inputs, capital and technology, are held fixed then labor should exhibit diminishing returns
labor
reasons were don't see global convergence among developing countries:
lack of economic freedom and private property rights, police instability, low rates of saving and investment, poor public education and health
money serves as a medium of exchange when sellers are willing to accept it in exchange for goods and services
medium of exchange
the actions the federal reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives
monetary policy
represents the cost of investing because a lot of firms have to take out business loans to make investments and r is the price they have to pay for loans; r increases cost of making investment increases I decreases; r decreases I increases
real interest rate
reward to save is increases and households are likely to save more and spend less; r increases and C decreases
real interest rate
it takes time to recognize that there is a problem which calls for a change in monetary policy
recognition lag
the minimum fraction of deposits banks are required to keep as reserves by law; it is 10% of checking deposits
required reserve ratio
reserves that a bank is legally required to hold based on its checking account deposits
required reserves
deposits that a bank keeps as cash in its vault or/and on deposit with the federal reserve
reserves
the fed sells bonds Ms decreases r increases; Y>Y*; boom
tighter contractionary monetary policy
in a barter system, each good has many prices; in a monetary economy, the price of ALL goods and services are stated in terms of one good money
unit of account
the measure of how fast money is turned over in the economy
velocity
alternating periods of economic expansion and economic recession
business cycle
the additional cost or benefit associated with a small amount of extra of some action
marginal cost and benefit
the equilibrium wage in a local labor market is $10 per hour. if a minimum wage of $15 per hour is imposed, which of the following will occur? a. there will be a decrease in the quantity of labor supplied by households b. there will be an increase in the quantity of labor demanded by firms c. there will be an increase in unemployment d. all of the above
all of the above
which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita? a. many of these developing countries do not have a functioning court system that can enforce laws b. countries that are relatively poor are more likely to experience wars and revolution c. countries that are relatively poor are likely to have a lower quality of health care d. all of the above
all of the above
which of the following is a positive economic statement? a. people should not buy SUVs b. scarcity necessitates that people make trade-offs c. the government should mandate electric automobiles d. foreign workers should not be allowed to work for lower wages than the citizens of a country
scarcity necessitates that people make trade-offs
which of the following statement is true about scarcity? a. scarcity refers to the situation in which unlimited wants exceed limited resources b. scarcity is only a problem when a country has too large a population c. scarcity arises when there is a wide disparity of income distribution d. scarcity is not a problem for the wealthy
scarcity refers to the situation in which unlimited wants exceed limited resources
anyone in the WAP who is not employed an has actively looked for a job during the survey period and is waiting to be recalled to a job from which they had been laid off
unemployed
the percentage of labor force that is unemployed
unemployment rate
which of the following is a macroeconomics question? a. what factors determine the price of carrots? b. what determines the wage of auto workers? c. what determines the production of DVDs? d. what determines the inflation rate?
what determines the inflation rate
which of the following is a macroeconomics question? a. what determines the unemployment rate? b. what factors determine the price of potatoes? c. what determines the wage of airline workers? d. what determines the production of CDs?
what determines the unemployment rate?
which of the following best described the "wealth effect"? a. when the price level falls, the nominal value of household wealth falls b. when the price level falls, the nominal value of household wealth rises c. when the price level falls, the real value of household wealth falls d. when the price level falls, the real value of household wealth rises
when price level falls, the real value of household wealth rises
discouraged workers are a. workers who have consistently been looking for work for more than 4 weeks b. workers who find their current jobs unfulfilling and are considering a job change c. workers who have stopped looking for work because they believe there are no jobs for them d. worked who have a part time job but want a full time job
workers who have stopped looking for work because they believe there are no jobs for them
which of the following transactions represents the purchase of a final good? a. Starbucks purchase coffee beans b. delta buys a new European-made jetliner c. your father buys a new John Deere riding lawn mower d. apple buys processors from intel to install in their computers
your father buys a new John Deere riding lawn mower
manufactured goods that are used to produce other goods and services
capital
which of the following transactions would take place in the "underground economy"? a. John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes b. Matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it c. Paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per gallon of that price goes to the government as tax revenue d. Elizabeth tells her mother she's going to work but really goes to see a movie
John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes
which of the following is an example of a worker experiencing cyclical unemployment? a. a lifeguard who was hired during the summer season is laid off after summer is over b. a freightliner employee that got laid off because of the recession of 2007-2009 c. a worker who quits his job because he does not get along with his boss d. an assembly line worker who loses his job because of automation e. a worker who changes jobs to move closer to her family
a freightliner employee that got laid off because of the recession of 2007-2009
which of the following policies would reduce structural unemployment? a. building an online job database that helps workers find jobs b. implementing an unemployment insurance policy c. an increase in the minimum wage d. a job retraining program
a job retraining program
an example of a final good would be a. a soy latte sold by Starbucks to a student b. the whipped cream sold to Starbucks c. the coffee beans sold to Starbucks d. the soy milk sold to Starbucks
a soy latte sold by Starbucks to a student
which of the following is an example of a worker experiencing frictional unemployment? a. a worker who changes jobs to move closer to her family b. an assembly line worker who loses his job because of automation c. a freightliner employee that got laid off because of the recession of 2007-2009 d. a lifeguard who was hired during the summer season is laid off after summer is over
a worker who changes jobs to move closer to her family
consider the following statements: a. car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area b. banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment c. firms produce more of a particular DVD when its selling price rises which of the above statements demonstrates that economic agents respond to incentives? a. a only b. b only c. c only d. a and b e. a, b, and c
a, b, and c
which of the following is an example of a worker experiencing structural unemployment? a. a freightliner employee that got laid off because of the recession of 2007-2209 b. a lifeguard who was hired during the summer season is laid off after summer is over c. a worker who quits his job because he does not get along with his boss d. an assembly line worker who loses his job because of automation e. a worker who changes jobs to move closer to her family
an assembly line worker who loses his job because of automation
which of the following will raise consumer expenditures? a. an increase in interest rates b. an increase in the price level c. an increase in expected future income d. a general decline in housing prices
an increase in expected future income
the "international trade" effect states that a. an increase in the price level will raise exports b. an increase in the price level will raise net exports c. an increase in price level will lower imports d. an increase in price level will lower net exports
an increase in price level will lower net exports
consider the following statements: a. car owners purchase more gasoline from a gas station that sells gasoline at a higher price than other rival gas stations in the area b. banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment c. firms produce more of a particular DVD when its selling price falls which of the above statements demonstrates that economic agents respond to incentives? a. a only b. b only c. c only d. a and b e. a, b, and c
b only
a fresh tomato is an example of a a. barter money b. representative money c. fiat money d. commodity money
barter money
which of the following policies would reduce frictional unemployment? a. building an online job database that helps workers find jobs b. implementing an unemployment insurance policy c. an increase in the minimum wage d. a job retraining program
building an online job database that helps workers find jobs
investment spending will increase when a. firms become more pessimistic about earning future profits b. the corporate income tax increases c. business cash flow increases d. the interest rate rises
business cash flow increases
where governments decide what to product, how to produce it, and who received the goods and services
centrally planned economies
the substitution bias in the consumer price index refers to the idea that consumers ______ the quantity of products they buy in response to price, and the CPI does not reflect this and ______ the cost of the market basket. a. do not change; underestimates b. do not change; overestimates c. change; underestimates d. change; overestimates
change; overestimates
a fresh peach is an example of a a. fiat money b. representative money c. commodity money d. barter money
commodity money
a pack of cigarettes is an example of a. barter money b. representative money c. fiat money d. commodity money
commodity money
an average of the prices of the goods and services purchased by a typical urban family of four
consumer price index
spending by households on goods and services, not including spending on new houses, including domestic and imported goods
consumption
what is the largest component of aggregate expenditure? a. consumption expenditures b. planned investment expenditures c. government expenditures d. net exports expenditures
consumption expenditures
the largest component of spending in GDP is a. government spending b. consumption spending c. investment spending d. net exports spending
consumption spending
if you have trouble finding a job because of a recession, we would say that you are a. frictionally unemployed b. seasonally unemployed c. cyclically unemployed d. structurally unemployed
cyclically unemployed
a situation in which unlimited wants exceed the limited resources viable to fulfill those wants
scarcity
the five most important variables that determine the level of consumption are a. government purchases, interest rates, income, taxes, and transfers b. disposable income, wealth, expected future income, price level, and interest rate c. government purchases, saving account balances, wealth, interest rates, portfolio balances d. wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances
disposable income, wealth, expected future income, price level, and interest rate
refers to a phase of a business cycle when GDP is increasing
economic growth
anyone in the WAP who: did any work at all as a paid employee, worked in their own business or profession or on their own farm, worked 15 hours or more as unpaid workers in a family-operated enterprise, did not work but had jobs or businesses form which they were temporarily absent due to illness, vacation, labor dispute, etc
employed
rising real GDP, from a trough to the next peak
expansion
marla is an architect who is designing a home for chuck. chuck is paying marla $150 our hour to design his new home. when chuck and marla get married, marla continues to work on designing the home, but she no longer charges chuck for her work. as a result GDP _______ because ______. a. rises; marla becomes more productive once she's married b. falls; marla's work becomes less valuable once she's married c. falls; marla's work takes place in the underground economy once she's married d. falls; marla's architectural design services are no longer bought by chuck once they're married
falls; Marla's architectural design services are no longer bought by chuck once they're married
which of the following is a positive economic statement? a. the government should revamp the health care system b. the standard of living in the US should be higher c. if the prices of iPhones falls, a larger quantity of iPhones will be purchased d. the US government should not have bailed out US auto manufacturers
if the prices of iPhones falls, a larger quantity of iPhones will be purchased
all of the following policies are ways for a country to promote long-run economic growth except a. imposing stricter regulations to limit foreign direct investment b. undergoing political reform to decrease corruption c. increasing vaccinations against infectious diseases d. enacting stronger laws to protect property rights
imposing stricter regulations to limit foreign direct investment
increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can a. lower life expectancy b. increase standards of living c. increase the level of poverty d. increase infant mortality
increase standards of living
the percentage increase in the aggregate price level from one year to the next
inflation rate
which of the following increases labor productivity? a. a decline in the health of the population b. an increase in the aggregate hours of work c. decreases in the availability of computers and factory buildings d. inventions of new machinery, equipment, or software
inventions of new machinery, equipment, or software
if aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? a. inventories will rise, and GDP and employment will decline b. inventories will rise, and GDP and employment will rise c. inventories will decline, and GDP and employment will rise d. inventories will decline, and GDP and employment will decline
inventories will rise, and GDP and employment will decline
acquisition of capital by firms
investment
spending by firms on new factories, office buildings, machinery, and additions to inventories, AND spending by households on new houses
investment
the purchase of a new house is included in a. consumption expenditures b. investment expenditures c. government purchases d. net exports
investment expenditures
if firms are more optimistic that future profits will rise and remain strong for the next few years then a. investment spending will remain unaffected b. investment spending will rise and then fall c. investment spending will fall d. investment spending will rise
investment spending will rise
components of GDP
labor income, capital income, indirect business taxes, net income of foreigners, depreciation
the quantity of goods and services that can be produced by one worker or by one hour of work
labor productivity
when AE=Y, a. saving equals zero b. net exports equal zero c. the federal budget is balanced d. macroeconomic equilibrium
macroeconomic equilibrium
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
macroeconomics
which of the following is likely to increase measured GDP? a. a greater number of women decide to stay at home and provide day care for their children under age 5 b. tax rates increase and more people attempt to underreport their income for tax purposes c. more people decide to do their own lawn maintenance and give up using a professional service d. marijuana becomes legal to grow and sell in all fifty states
marijuana becomes legal to grow and sell in all fifty states
where the decisions of households and firms determine what is produced, how it is produced and who receives the goods and services
market economies
which of the following questions or statements regarding medical school is normative? a. medical students who enter specialized fields make a larger contribution to society than do student who enter primary care b. what role does tuition play in a student's decision about whether to attend medical school? c. how do changes in expected future incomes affect the decisions of medical students about which specialty to choose? d. have tuition increases had a large effect or a small effect on the number of applications to medical school?
medical students who enter specialized fields make a larger contribution to society than do student who enter primary care
the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
microeconomics
Deshawn's detailing is a service that details cars at the customer's homes or places of work. Deshawn's cost for a basic package is $40, and he charges $75 for this service. for a total price of $9, deshawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. should deshawn continue to offer the engine detailing service? a. yes, he still makes a profit by selling the engine detailing service with the basic detailing package b. yes, but only if he raises the price of the basic detailing package c. no, his marginal benefit is less than his marginal cost d. more information is needed for deshawn to make this decision
no, his marginal benefit is less than his marginal cost
if you withdraw $4,000 from your checking account at Auburn Bank and buy a 6-month CD with it (a type of the deposit), then M1 will _____ and M2 will ____. a. decrease; decrease b. decrease; increase c. not change; increase d. decrease; not change e. not change; not change
not change; increase
if you withdraw $500 from your checking account at Auburn Bank and hold it as cash, then M1 will _____ and M2 will _______. a. decrease; decrease b. decrease; increase c. increase; decrease d. not change; increase e. not change; not change
not change; not change
a full-time student who is not working is categorized as a. employed b. unemployed c. frictionally unemployed d. a discouraged worker e. not in the labor force
not in the labor force
the increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but _____ quality increases. this causes the CPI to ______ the cost of the market basket. a. not; understate b. also; understate c. not; overstate d. also; overstate
not; overstate
the highest-valued alternative given up in order to engage in some activity
opportunity cost
the highest point in real GDP at the end of an expansion and right before a contraction
peak
enforcing property rights in an economy will a. raise the level of investment b. cause the market system to work less efficiently c. decrease the level of foreign portfolio investment d. encourage corruption and expand the underground economy
raise the level of investment
using all available information to achieve your goals
rational
the value of final goods and services evaluated at base-year prices
real GDP
the nominal interest rate minus the inflation are
real interest rate
falling RGDP, from a peak to the next trough
recession
disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by a. reducing human capital b. increasing labor productivity c. increasing technological change d. reducing physical capital
reducing human capital
suppose you want to open a coffee shop in your home town. you consider taking out a small business loan from a local bank. which of the scenarios below would you prefer as a borrower? scenario 1: nominal interest rate is 10%, inflation is 5% scenario 2: nominal interest rate is 15%, inflation is 12% scenario 3: nominal interest rate is 7%, inflation is 3% scenario 4: nominal interest rate is 9%, real interest rate is 6% a. scenario 1 b. scenario 2 c. scenario 3 d. scenario 4
scenario 2
what is human capital? a. labor productivity b. buildings, equipment, and machinery owned by firms c. buildings, equipment, and machinery owned by individuals rather than firms d. the accumulated knowledge and skills that workers acquire from education, training, and their life experiences
the accumulated knowledge and skills that workers acquire from education, training, and their life experiences
by definition, economics is the study of a. supply and demand b. how to make money in a stock market c. how to make money in a market economy d. the choices people make to attain their goals, given their scarce resources
the choices people make to attain their goals, given their scarce resources
which of the following is counted in GDP? a. the value of leisure b. the value of do-it-yourself work c. the value of goods and services produced in the underground economy d. the cost of a speed boat purchased by drug smugglers
the cost of a speed boat purchased by drug smugglers
who, in a centrally planned (or command-and-control) economy, decides what goods and services will be produced with the scarce resources available in that economy? a. the government, consumers and producers b. consumers and producers c. consumers d. producers e. the government
the government
who, in a mixed economy, decided what goods and services will be produced with the scarce resources available in that economy? a. the government b. consumers c. producers d. consumers and producers e. the government, consumers, and producers
the government, consumers, and producers
US net export spending rises when a. the growth rate of US GDP is slower than the growth rate of GDP in other countries b. tje price level in the US rises relative to the price level in other countries c. the inflation rate is higher in the US relative to other countries d. the value of the US dollar increases relative to other currencies
the growth rate of US GDP is slower than the growth rate of GDP in other countries
consider two countries, alpha and beta. in alpha, real GDP per capita is $6,000. in beta, real GDP per capita is $9,000. based on the theory of global convergence, what would you predict about the growth rates in real GDP per capita across these two countries? a. the growth rate of real GDP per capita will be lower in alpha than it is in beta b. the growth rate of real GDP per capita will be higher in alpha than it is in beta c. the growth rate of real GDP in alpha and beta will be the same d. the economic growth model makes no predictions regarding differences in growth rates of real GDP per capita across the two countries
the growth rate of real GDP per capita will be higher in alpha than it is in beta
consider two countries, alpha and beta. in alpha, real GDP per capita is $9,000. in beta, real GDP per capita is $6,000. based on the theory of global convergences, what would you predict about the growth rates in real GDP per capita across these two countries? a. the growth rate of real GDP per capita in alpha and beta will be the same b. the growth rate of real GDP per capita will be higher in alpha than it is in beta c. the growth rate of real GDP per capita will be lower in alpha than it is in beta d. the economic growth model makes no predictions regarding differences in growth rates of real GDP per capita across the two countries
the growth rate of real GDP per capita will be lower in alpha than it is in beta
an increase in the production of one good requires the reduction in the production of some other good
trade-off
the lowest point in the real GDP at the end of a contraction or recession
trough