Macroeconomics Final

To judge whether or not an economy is doing well, it is useful to look at a. GDP b. the inflation rate c. The unemployment rate d. the trade deficit

A. GDP

Gross domestic product (GDP) is the market value of all final goods and services produced ........................ in a given period of time. a. for a country b. by all of the citizens of a country c. inside and outside a country for that country d. Within a country

D. Within a country

GDP Deflator =

Nominal GDP ------------------------ X 100 Real GDP

unemployment rate

Number of unemployed ----------------------------------X 100% Labor Force

If nominal GDP is $20 trillion and real GDP is $16 trillion, the GDP deflator is a. 125. b. 0.80 c. 80. d. 1.25.

a. 125

What was the inflation rate in 2015? a. 20 percent b. 16.7 percent c. 10 percent d. 8 percen

a. 20 percent

. Consumption spending refers to the spending by households, with the exception of purchases of a. New housing b. intangible products c. all services provided within the border of the country d. tangible products

a. New housing

If everything else remains constant (Ceteris paribus), what kind of economic situation we will have if minimum wages increases considerably? a. Only inflation. b. deflationary growth (expansion) c. stagflation. d. recession.

a. Only inflation

The local Chevrolet dealership has an increase in inventory of 25 cars in 2014. In 2015 it sells all 25 cars. a. The value of increased inventory will be counted as part of GDP in 2014, but the value of the cars sold in 2015 will not cause GDP to increase. b. The value of the increased inventory will not affect 2014 GDP, but will be included in 2015 GDP. c. The value of the increased inventory will be counted as 2014 GDP and the value of the cars sold in 2014 will increase 2015 GDP. d. None of the above are correct.

a. The value of increased inventory will be counted as part of GDP in 2014, but the value of the cars sold in 2015 will not cause GDP to increase.

Aggregate-Demand Curve shows the quantity of goods and services that ..........., ..........,,,,, and ................. want to buy at each price level. a. household, firms, the government b. consumers, producers, and foreigners c. producers, foreigners, and the government d. firms, all consumers, and all producers e. all consumers, all firms, and foreigners

a. household, firms, the government

If everything else remains constant (Ceteris paribus), what kind of economic situation will we have if the government spends an additional 65 billion for war? a. Inflationary growth (expansion). b. deflationary growth (expansion) c. stagflation. d. recession.

a. inflationary growth (expansion)

Government purchases is a part of GDP, it refers to spending on goods and services by a. local, state, and federal governments b. state and local government c. the federal government d. the federal and local government

a. local, state, and federal governments

Reserve ratio refers to: a. the fraction of deposits that banks hold as reserves. b. the amount of money the Fed should have as cash. c. ratio of reserve to discount rate. d. ratio of discount rate to reserve. e. none of the above.

a. the fraction of deposits that banks hold as reserves.

Which of the following is the correct definition of GDP? a. the market value of all final goods and services produced within a country in a given period of time b. the market value of all final goods and services produced by the citizens of a country c. the market value of all goods produced within a country d. None of the above is correct.

a. the market value of all final goods and services produced within a country in a given period of time

Based on the quantity equation, if M = 100, V = 3, and Y = 200, then P = a. 1. b. 1.5 c. 2. d. None of the above is correct.

b. 1.5

Economic fluctuations are: a. regular and Unpredictable. b. Irregular and Unpredictable. c. Irregular and predictable. d. regular and predictable.

b. Irregular and Unpredictable

Suppose a bank has a 10 percent reserve ratio, $4,000 in deposits, and it loans out all it can given the reserve ratio. a. It has $40 in reserves and $3,960 in loans. b. It has $400 in reserves and $3,600 in loans. c. It has $444 in reserves and $3,556 in loans. d. None of the above is correct.

b. It has $400 in reserves and $3,600 in loans.

Which of the sentences concerning the aggregate demand and aggregate supply model is correct? a. The aggregate demand and supply model is nothing more than a large version of the model of market demand and supply. b. The price level adjusts to bring aggregate demand and supply into balance. c. The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price. d. All of the above are correct

b. The price level adjusts to bring aggregate demand and supply into balance.

Depression is defined as a severe ............... a. inflation b. recession c. stagflation d. unemployment

b. recession

Money multiplier is a. the velocity of money. b. the amount of money the banking system generates with each dollar of reserves. c. the percentage of money demand which the Fed generates. d. the percentage of money supply that the Treasury generates. e. the percentage of money demand that the Treasury generates.

b. the amount of money the banking system generates with each dollar of reserves.

Suppose a bank has $10,000 in deposits and $8,000 in loans. It has a reserve ratio of a. 2 percent. b.12.5 percent c.20 percent. d.80 percent.

c. 20 percent

An Italian company opens a pasta company in the U.S. The profits from this pasta company are included in a. both U.S. and Italian GNP. b. both U.S. and Italian GDP. c. U.S. GDP and Italian GNP. d. U.S. GNP and Italian GDP

c. U.S. GDP and Italian GNP.

Business cycles a. are explained mostly by fluctuations in consumption. b. no longer are very important due to government policy. c. are fluctuations in real GDP and related variables over time. d. are easily predicted by competent economists.

c. are fluctuations in real GDP and related variables over time.

Higher prices of raw materials cause a. demand pull inflation. b. demand push inflation. c. cost push inflation. d. structural inflation. e. stagflation

c. cost push inflation.

Most macroeconomic variables......................... and as output falls, ........................... a. fluctuate together, employment rises b. fluctuate together, unemployment decreases c. fluctuate together, unemployment rises d. fluctuate together, income rises

c. fluctuate together, unemployment rises

After the terrorist attack on September 11, governments raised expenditures to increase security at airports. These purchases of goods and services are a. not included in GDP since they are not productive. b. not included in GDP since the government will have to raise taxes to pay for them. c. included in GDP since government expenditures are included in GDP. d. included in GDP only to the extent that the Federal, and not state or local governments, paid for them.

c. included in GDP since government expenditures are included in GDP.

The equation MV=PY shows that the only reason for inflation is: a. velocity of money. b. Y, the real GDP. c. the cost of raw materials. d. increase in money supply. e. increase in demand for money.

c. increase in money supply.

Over time people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example people eat at restaurants relatively more and prepare their own meals at home relatively less. By itself this change would a. make GDP fall over time. b. not make any change in GDP over time. c. make GDP rise over time. d. change GDP, but in an uncertain direction.

c. make GDP rise over time.

Monetary neutrality expresses the proposition that changes in the ........................... do not affect ............................ a. money demand, real variables b. money supply, nominal variables c. money supply, real variables d. money demand, nominal variables

c. money supply, real variables

If everything else remains constant (Ceteris paribus), what kind of economic situation we will have if oil prices increases considerably? a. Inflationary growth (expansion). b. deflationary growth (expansion) c. stagflation. d. recession.

c. stagflation

With respect to aggregate demand and supply model, if everything else remains constant (Ceteris paribus), what kind of economic situation we will have if average price level increases and output decreases, i.e., Pand Q( output)? a. Inflationary growth (expansion). b. deflationary growth (expansion) c. stagflation. d. recession.

c. stagflation

Which of the following is included in the aggregate demand for goods and services? a. consumption demand b. investment demand c. net exports d. All of the above are correct.

d. All of the above

Grapes are a. always counted as an intermediate good. b. counted as an intermediate good whether they are used to produce another good or consumed. c. counted as an intermediate good only if they are consumed. d. counted as an intermediate good only if they are used to produce another good like wine

d. counted as an intermediate good only if they are used to produce another good like wine

Most economists believe that classical economic theory is a good description of the world a. in neither the short nor long run. b. in the short run and in the long run. c. in the short run, but not in the long run. d. in the long run, but not in the short run.

d. in the long run, but not in the short run

Quantity theory of money is a theory asserting that the quantity of money available determines the ................ and that the growth rate in the quantity of money available determines the inflation rate. a. unemployment b. nominal GDP c. real GDP d. price level

d. price level

The Fed can increase the money supply by conducting open market a. sales and raising the discount rate. b. sales and lowering the discount rate. c. purchases and raising the discount rate. d. purchases and lowering the discount rate.

d. purchases and lowering the discount rate.

The model of aggregate demand and aggregate supply explains the relationship between a. the price and quantity of a particular good. b. unemployment and output. c. wages and employment. d. real GDP and the price level.

d. real GDP and price level

With respect to aggregate demand and supply model, if everything else remains constant (Ceteris paribus), what kind of economic situation we will have if average price level and output decrease, i.e., Pand Q (output)? a. Inflationary growth (expansion). b. deflationary growth (expansion) c. stagflation. d. recession.

d. recession

real interest rate

nominal int. rate - inflation rate