MacroEconomics Final
What is the coupon payment of a bond with a face value of $5,000 and an annual intrest rate of 4%? Coupon payment is equal to
$200
Suppose that in an economy, net taxes and goverment spending are independent of income. It is determined that when govt. spending decreases by $100 billion, income falls by $1000 billion. In this economy the value of MPS=________. The value of MPC=________.
0.10,0.90
If an economy, when net taxes decrease by $200 billion, real GDP increases by $800 billion. The value of the MPC in the economy is
0.80
Suppose, you are lending money to your friend julia and you want a real rate of return of 8% . Futhermore, you expect inflation rate to be 3%. Which of the following interest should you charge?
11%
The FOMC (Federal Open Market Committee) consits of ___ members. 7 of the member are ___________. _______ of the 12 preisdents of the Federal Reserve banks vote on a rorating basis. The president of the NY Federal Reserve Bank ______ gets a vote.
12,The board of Govenors,4,Always
Suppose the economy MPC is 0.80. Congress has decided that 75 percent of an increase in a specific goverment expenditure initiative (G) must be covered by an increase in taxes (T). Both G and T are independent of income. For this economy, the net value of the govt. spending multiplier is
2.00
Assume that in Splendora, planned investment is $50billion, but actual investment is 85 billion. Unplanned inventory is
35 billion
Assume there in no goverment or foreign sector. If the MPS is 0.25, the multiplier is
4
Assume there is no goverment or forign sector. If the multiplier is 2, a $20 billion increase in planned investment will cause aggregate output to increase by
40 billion
If earl received an $800 bonus and his MPS is 0.25, his consumption rises by $_______ and his saving rises by $__________.
600;200
In the Republic of Priceland, in 2009 the consumer price index was 221.00. In 2010 the index increased to 237.58. Calculate the rate of inflation in Priceland between 2009 and 2010
7.50%
Capitol Stock: Stock of capitol on January 1,2009 11,000 Billion Stock of capital on December 31, 2009 $11,900 billion. From this you can conclude that in 2009, the level of net investment
900 billion
__________ is determined in the goods market and influences the __________
Output;Money Demand
If the economy is operating way below capacity, an increase in aggregate demand causes a big change in the ________ and small change in _______
Output;Price Level
Consumption is ___________ related to household income and wealth and hosuseholds' expectations about the future, and _______ related to interest rates.
Positively:Negatively
If___________ equilibrium output ________, the price level decreases
actual; is below potential aggregate ouput
The relationship between the level of prices and the total demand for all goods and services is
aggregate demand
Macroeconomics tend to combine many markets into one. This method is known as
aggregation
The aggregate supply curve shows the relationship between the aggregate quantity of output supplied by _______ and ______________
all the firms in an economy; the overall price level
Using money as a medium of exchange is more efficient than barter because
barter requires a double coincidence of wants
Short Run fluctuations of an economy are called
business cycles
The capacity for long-run economic growth for an economy is determined
by the size of its labor force, its capital stock, and productivity of labor and capital.
If output is falling and unemployment is rising, the economy must be in an
contraction
Expansionary fiscal policy is used by the goverment to
create new jobs in the economy
Transfer payments are not included in GDP calculation because these are
income recieved, but not as payments for providing current goods and services
A __________ in inflationary expectations that causes firms to increase their prices shifts the aggregate supply curve to the _____________
increase ; Left
To decrease the price level the goverment could adopt policies that
increase aggregate supply and decrease aggregate demand
A decrease in the intrsest rate will
increase the optimal money balance
On june 5, 2003, the European Central Bank acted to decrease the short-term intrest rate by half a perctentage point to 2 percent. At this time European countries were growing very slowly or were in recession.It was hoped that, due to the rate cut, planned investment would __________ and aggregate output or income would _______.
increase,increase
If MPC increases, the value of the investment multiplier ______
increases
According to the real wealth effect ( or real balance effect), a decrease in the price level
increases consumers' expenditures due to a increase in the purchasing power of household wealth
If the Fed __________ the money supply, there will be a ________ of money and the equilibrium intrest rates will ________
increases;surplus;fall
Suppose planned investment and consumption are independent of interest rate. If the money supply is increased,
intrest rates fall, but investment and consumption do not change and consequently GDP does not change
During a recession
investment may not respond positively to lower interest rates since low demand for goods utilization and low investment.
In the base year, nominal GDP
is always equal to real GDP
The opportunity cost of holding money
is the foregone interest from holding bonds
If interest rates decrease to a very low level, people will most likely hold
less bonds more cash
Dealing with the control of the nations money supply
monetary policy
If the long-run aggregate supply curve is vertical, the ____________ a change in net taxes on aggregate output in the long run is zero.
multplier effect of
The demand for money and the intrsest rate are
negatively related
Your college bookstore receives a shipment of new economic texts for $60,000. This transaction is
not included in GDP calcuation, since books bought by the bookstore are intermediate goods
At higher intrest rates the
quantity of money demanded is lower
Contrationary monetary policy
r^>I(down)>AE(Down)>Y(down)
Recession is a period during which
real GDP declines for at least 2 consecutive quarters
The structural deficit
remains the same at full employment
If households wealth increases, the consumption function
shifts upward since, for the same level of income, individuals can spend more.
Johns grandfather was a coal miner in Pennsylvania. After the mines shut down in the 1940's he could not find a job. He was
structurally unemployed
Planned investment must equal actual investment for
the economy to be in equilibrium
The two links between_______ and _________ are the intrest rate and the unemploment rate.
the goods market;the money market
If there is excess demand in the money market,
the interest rate will increase until the quantity of money demanded is equal to the quantity of money supplied.
The term "privately held federal debt" refers to
the part of the federal debt that is held by private individuals and organizations.
The crowding effect refers to
the reduction in private investment caused by increases in goverment spending.
If an increase in the US money supply resulted in a very large change in the price level and a very small change in aggregate output
then the US economy must have been on the very steep part of its short-run aggregate supply curve.
If actual investment exceeds planned investment
there will be an accumulation of inventories
One reason why GDP is not a good measure of national well being is that it fails to take into account
value of leisure
If corinne's income is reduced to zero after she loses her job, her __________ will be greater than zero and her ________ will be less than zero.
Consumption;Saving
In the circular flow diagram, the diffrent payments made by _______ to ________ include wages, rent and profits.
Firms;Households
Goverment policies that deal with taxes and spending are known as
Fiscal Policy
The smaller the MPS, the smaller the mulitiplier
False
Banks borrow not only from the Fed but also from each other. What is the interest rate in this market called?
Federal funds rate
Which of the following is NOT a point raised by those who argue agaianst worth?
Growth is required to improve conditions for the poor
Which of the following is NOT a position held by the advocates of economic growth?
Growth often makes available goods of dubious usefulness
Which of the following best describes the relationship between aggregate expenditure and real GDP?
If aggregate expenditure falls short of real GDP, inventories will accumulate and real GDP and aggregate income will fall in future.
If there is an unexpected decrese in investor confidence, leading to a sharp decrease in orders for new plants and equipment
Income (GDP) decreases, consumption decreases, savings decreases, investment decreases, demand for money decreases and rate of interest decreases.
The major lesson of the circular flow diagram is that total _______ must equal total_________.
Income;Spending
National output began to increase during the fourth quarter of 2001 and continued to increase until the first quarter of 2003. At the same time, employment declined with a loss of over 2 million jobs.
Increase In labor activity
During the last half of the 1990's the federal goverment budget went from deficit to surplus. Since 2001, through, the reverse is true. What has significantly contributed to recent budget deficits?
Increased Medicare payments,Lower tax rates,The war in Iraq
In 1899 the Bayer Company marketed acetylsalic acid as a pain reliever in powder form under the name Asprin.
Innovation
Beginning in the late 1950's the field of nanoscience emerged as scientsists developed and refined techniques for the manipulation of materials billionths of a meter wide.
Invention
The long-run aggregate supply curve
Is vertical because all prices (both input and output prices) change at the same rate in the long run
Much of modern macroeconomics has roots in the works of
John Maynard Keynes
Increasing the required reserve ratio shifts the money supply curve to the _______ and ________ the equilibrium interest rate
Left;Increases
The extent of the crowding effect increases if planned investment becomes _______ sensitive to changes in interest rate.
More
Ingrid is paid on the 1st of every month and her car payment is due on the 10th of every month. This is an example of
Nonsynchronization of income and spending
The substantial increase in the average tax rate in the last half of the 1990's was due to the
Omnibus Budget Reconciliation Act of 1993.
In a business cycle a peak occurs before the beginning of a _________ and a trough occurs before the beginning of a ___________.
Recession;Expansion
Per capita ouput is __________ output per worker or productivity.
Smaller than
The demand for steel has decreased in July without any change in supply. Six months later there still has been no change in steel prices. This is an example of
Sticky Price
Beginning in England around 1750, productivity increased significantly in agriculture and textiles as a result of
Technical Change & Capital Accumulation
What institution has formal responsibility for setting U.S monetary policy?
The FOMC (Federal Open Market Committee)
Which of the following is an example of a contractionary fiscal policy?
The federal goverment decreasing the amount of money spent on public health programs
Suppose the treasury of the US issues bonds AND sells them to the republic to finance the deficit. What happens to the money supply and why?
The money supply remains unchanged because every dollar taken in by the Treasury goes right back into circulation through goverment spending
Welfare payments are an example of
Transfer Payments
An excess demand for money drives intrest rates up
True
An increase in the MPC increases the multiplier
True
The larger the MPC, the smaller the MPS
True
Toyota, a Japan based company manufactures a Camry automobile in Kentucky, USA and sells included in
U.S GDP under exports
We can use macroeconomic analysis to
Understand why economies grow
Although inflation was low, the real GDP growth rate in 1994 was relatively high and the labor market was beginning to tighten. Concerned about inflation, the Fed raised the bill rate from 3.1 percent in the fourth quarter of 1993 to 5.8 percent in the first quarter of 1995. Some people argued that the Fed
Was using a policy of leaning against the wind
Suppose a govt. implements expansionary macroeconomic policies at at a time when the economy is approaching full capacity. Policies will result in
a small increase in aggregate output relative to the price level increase
Suppose the economy is initially operating well below capacity. In this case, an expansionary macroeconomic policy will result in
a small price increase relative to the output increase
when income _________ the money ______ curce shifts to the left
decreases:demand
The aggregate demand curve slopes downward because at higher price level the purchasing power of consumers' assets _______ and consumption ________
decreases;decreases
If the quantity of money supplied is greater than the quantity of money demanded, then the interest rate will
fall
aggregate demand_______ when the price level rises because the higher price level causes the demand for money to increase, causing interest rates to _______
falls;Rise
In the goods and services market _________ only demand
households
