Macroeconomics Midterm 1, 2, and 3 answer key

assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function is C = 200 + 0.75YD, where YD is disposable income, and C is consumption, and that planned investment is $75. What is the income-expenditure equilibrium GDP for this country? A. $1,100 B. $200 C. $900 D. $275

A. $1,100

in the model below, when disposable personal income is $2,000 billion, consumption is ______________ billion A. $1,200 B. $1,000 C. $1,600 D. $400

A. $1,200

use the figure below showing the market for loanable funds. The equilibrium interest rate in the loanable funds market is _____________% A. 6 B. 8 C. 2 D. 4

A. 6

Suppose that this economy is in equilibrium at E1. If there is an increase in government purchases, ________________ will shift to the ______________ , causing a(n) _______________ in the price level and a(n) __________________ in real GDP A. AD1; right; increase; increase B. AD2; left; increase; decrease C. AD2; left; decrease; decrease D. AD1; right; decrease; increase

A. AD1; right; increase; increase

a rise in the aggregate price level will, other things equal, lead to a(n) A. Decrease in the quantity of aggregate output demand B. Leftward shift of the AD curve C. Rightward shift of the AD curve D. Increase in the quantity of aggregate output demanded

A. Decrease in the quantity of aggregate output demanded

Other things equal, investment spending _____________ when ______________ A. Decreases; firms expect sales to fall B. Decreases; the amount of obsolete or worn out physical capital increases C. Increases; the rate of growth of real GDP is low D. Increases; firms have excessive production capacity

A. Decreases; firms expect sales to fall

a decrease in the supply of money shifts the aggregate ________________ curve to the ________________ A. Demand; left B. Supply; left C. Supply; right D. Demand; right

A. Demand; left

A decrease in energy prices will: A. Increase short-run aggregate supply B. Decrease aggregate demand C. Decrease the quantity of aggregate output supplied in the short-run D. Decrease short-run aggregate supply

A. Increase short-run aggregate supply

If the Fed decreases the quantity of money in circulation, interest rates ______________ , investment spending _________________ , and the aggregate demand curve shifts to the ________________ A. Increase; decreases; left B. Decrease; increases; right C. Increase; decreases; right D. Decrease; decreases; left

A. Increase; decreases; left

Expansionary fiscal policy includes: A. Increasing government spending B. Increasing taxes C. Decreasing government spending D. Increasing the money supply

A. Increasing government spending

a factor that does NOT affect consumer spending is: A. Past disposable income B. Current disposable income C. Expected disposable income D. Wealth

A. Past disposbale income

the _________________ curve shows a positive relationahip between the aggregate price level and the quantity of aggregate output supplied when wages and prices are not fully flexible A. Short-run aggregate supply B. Long-run aggregate supply C. Aggregate spending D. Aggregate demand

A. Short-run aggregate supply

The marginal propensity to consume is: A. The change in consumer spending divided by the change in aggregate disposable income B. The proportion of total disposable income that the average family saves C. Increasing if the marginal propensity to save is increasing D. The change in consumer spending minus the change in aggregate disposable income

A. The change in consumer spending divided by the change in aggregate disposable income

government spending will NOT crowd out private spending if: A. There is a recessionary gap B. Aggregate income is at its potential level C. All of the resources in the economy are employed D. There is an inflationary gap

A. There is a recessionary gap

use the graph below. At the Y2 level of real GDP: A. There is an inflationary gap equal to the difference between Y2 and YP B. There is an inflationary gap equal to the sum of Y2 and YP C. The economy is long-run equilibrium D. There is a recessionary gap equal to the difference between Y2 and YP occurs

A. There is an inflationary gap equal to the difference between Y2 and YP

an inflationary gap will be eliminated because there is _______________ pressure on wages, shifting the ________________ A. Upward; short-run aggregate supply curve to the left B. Downward; aggregate demand cure to the left C. Downward; long-run aggregate supply curve to the right D. Downward; long-run aggregate supply curve to the left

A. Upward; short-run aggregate supply cure to the left

assume an open economy in which GDP is $12 trillion. If consumption is $8 trillion, government spending is $2 trillion, taxes are $0.5 trillion, exports are $1 trillion, and imports are $3 trillion, what is the government budget balance? A. a deficit of $1.5 trillion B. a surplus of $1.5 trillion C. a deficit of $0.5 trillion D. a surplus of $3.5 trillion

A. a deficit of $1.5 trillion

The annual percentage change in the aggregate price level is negative when there is: A. deflation B. disinflation C. inflation D. spiraling inflation

A. deflation

Net exports are calculated by subtracting: A. imports from exports B. exports from imports C. out all intermediate goods D. I, G, and value added from GDP

A. imports from exports

One person's spending is another person's: A. income B. physical capital C. loss D. opportunity cost

A. income

the demand for stocks: A. is mostly a function of buyers' beliefs about their future prices B. is largely a guessing game C. comes from companies who want to borrow money D. mostly depends on their price

A. is mostly a function of buyers' beliefs about their future prices

An increase in the value of nominal GDP over time: A. may be due to an increase in prices, in the production of goods and services, or both B. is always due to an increase in the production of goods and services C. may be due to a decrease in prices, in the production of goods and services, or both D. is always due to an increase in prices

A. may be due to an increase in prices, in the production of goods and seervices, or both

the sum of the frictional and structural rates of unemplyment is the: A. natural rate of unemployment B. natural rate of employment C. cyclical rate of employment D. cyclical rate of unemployment

A. natural rate of unemployment

the labor force is the toal: A. number of people who are employed or unemployed B. population C. number of people employes D. number of people in the population of working age

A. number of people who are employed or unemployed

human capital refers to: A. the education and knowledge embodied in the workforce B. society's investment in capital goods C. people working with capital goods D. output per worker

A. the education and knowledge embodied in the workforce

suppose that a financial cisis decreases investment spending by $100 billion, and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will _______________ by _______________ A. Decrease; $200 billion B. Decrease; $500 billion C. Decrease; $800 billion D. Increase; $400 billion

B decrease; $500 billion

Use the table below showing investment projects. If the market interest rate is 11.5%, the quantity of loanable funds demanded is: A. $1,000 B. $4,000 C. $2,000 D. $800

B. $4,000

use the table below. suppose the labor force participation rate is 62%. The labor force is equal to ____________ million A. 108.5 B. 161.2 C. 245 D. 465.5

B. 161.2

if ouput is growing at 5% annually, how many years will it take for output to quadruple? A. 10 years B. 28 years C. 14 years D. 20 years

B. 28 years

If a store has 10,000 CDs at the start of the period and 15,000 CDs at the end, then its inventory investment during the perios was ______________ CDs A. 1.5 B. 5,000 C. -5,000 D. 0.67

B. 5,000

If real GDP doubles in 12 years, its average annual growth rate is approximately: A. 4% B. 6% C. 5% D. 3%

B. 6%

given the scenario depicted in the diagram, an appropriate fiscal policy action would be: A. An increase in transfer payments B. A decrease in transfer payments C. An increase in government purchases D. A decrease in tax rates

B. A decrease in transfer payments

during a recessionary gap: A. An increase in taxes or a decrease in government purchases would shift the AD curve to the right B. All else equal, the budget deficit would increase C. Contractionary fiscal policy would help correct the problem D. Unemployment would most likely be falling

B. All else equal, the budget deficit would increase

Given the scenario depictied in the diagram, the government should _______________ aggregate demand by _________________ taxes to close the ______________ gap A. Reduce; increasing; recessionay B. Expand; cutting; recessionary C. Reduce; cutting; inflationary D. Exoand; increasing; inflationary

B. Expand; cutting; recessionary

consumer spending will likely rise if: A. The government raises tax rates B. Government transfers rise C. Government transfers fall D. The givernment raises tax rates or government transfers fall

B. Government transfers rise

an example of an automatic stabalizer that comes into effect when the economy contracts is: A. Rise in tax reciepts B. Rise in government transfers as more people recieve unemployment insurance benefits C. Fall in government purchases D. Discretionary decrease in government purchases

B. Rise in government transfers as more poeple recieve unemployment insurance benefits

the wealth effect is reflected in: A. The upward slope of the aggregate semand curve B. The downward slope of the aggregate demand curve C. The upward slope pf the aggregate supplu curve D. Increases in interest rates for savers

B. The downward slope of the aggregate demand curve

If the marginal propensity to save is small: A. The multiplier will be small B. The multiplier will not be affected C. The multiplier will be large D. The interest rate will be high

B. The multiplier will not be affected

crowding out is a phenomenon in which: A. an increase in the government's budget surplus decreases overall investment spending B. an increase in the government's budget deficit reduces overall investment spending C. an increase in imports reduces overall domestic production D. overproduction in the goods market leads to a sharp drop in the aggregate price level

B. an increase in the government's budget deficit reduces overall investment spending

The term "opportunity cost" implies that: A. no trade-offs are possible B. any decision regarding the use of a resource involves choosing between alternatives C. firms do not always exploit opportunities for profit D. individuals may make decisions that entail high costs

B. any decision regarding the use of a resource involves choosing between alternatives

the aggregate production function exhibits ____________ returns to physical capital A. increasing B. diminishing C. negative D. constant

B. diminishing

Resources are used efficiently when: A. they are also used equitably B. every oportunity to make people better off without making others worse off has been seized C. gains from the trade are still available D. scarcity is no longer an issue

B. every oportunity to make people better off without making others worse off has been seized

equity means that: A. some people obtain a disproportionate share of the goods and services produced, since incomes are not uniform B. everyone gets his or her fair share of the goods and services produced C. it is possible to produce more of some goods and services only if fewer other goods and services are produced D. man individuals get an equal share of the goods and services produced

B. everyone gets his or her fair share of the goods and services produced

Altering government spending and/or taxes in an effort to affect overall spending is a use of: A. monetary policy B. fiscal policy C. investment D. the stock market

B. fiscal policy

If wages grew at 5% lat year, and average prices grew at 3%, then the average worker: A. is worse off B. is better off C. has lost purchasing power D. is unaffected

B. is better off

If the value of a country's exports is GREATER than the value of its imports, it: A. is an economic contraction B. is running a trade surplus C. is running a trade deficit D. has high investment spending relative to savings

B. is running a trade surplus

If an economy is open: A. anyone can immigrate to the country B. it trades goods and services with other countries C. its real GDP will drop D. it does not trade goods and services with other countries

B. it trades goods and services with other countries

underemployed people are counted as employed, even though they are _____________ A. collecting unemployment benefits B. not fully using their skill C. in the military D. not working

B. not fully using their skill

bonds with a high risk of default usually: A. have a shorter maturity than bonds with a low risk of default B. pay a high rate of interest to attract investors C. have a longer maturity than bonds with a low risk of default D. can pay a low rate of interest and still attract investors

B. pay a high rate of interest to attract investors

Which would most likely be a MICROECONOMIC question? A. what determines the level of output of the economy as whole? B. should I go to business school or take a job? C. what government policies should be adopted to promote full employment and growth? D. what determines the level of employment in a given year?

B. should I go to business school or take a job?

the aggregate production function does NOT depend on: A. human capital per worker B. the amount of natural resources available C. the state of technology D. the quantity of physical capital per worker

B. the amount of natural resources available

Suppose a consumer buys a Perfect Pizza frozen cheese pizza at the grocery store for $10. Perfect Pizza purchased the dough and tomato sauce from a food processing company for $2 and bought the cheese for $1. It sold the pizza to the store for $5. How much has GDP increased? A. $18 B. $2 C. $10 D. $5

C. $10

Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. What is the value of the market basket in 2018? A. $42 B. $40 C. $44.50 D. $3.35

C. $44.50

use the table below showing unemployment and employment data in millions. The labor force in this economy is ______________ million A. 155 B. 260 C. 162 D. 195

C. 162

If the economy is at potential output, and consumer spending suddenly increases because of an increase in cosumer sonfidence, the appropriate fiscal policy is: A. An increase in the money supply to decrease interest rates B. An increase in government transfers C. A decrease in government spending D. An increase in government spending

C. An decrease in government spending

suppose that the stock market crashes, causing a large decrease in the value of many households' financial assets. The most likely outcome is a _______________ the aggregate demand curve A. Movement up B. Movement down C. Leftward shift of D. Rightward shift of

C. Leftward shift of

according to the accelerator principle, there is a _______________ relationship between _______________ and planned investment spending A. Positive; unplanned inventory investment B. Negative; expected growth C. Positive; expected growth D. Positive; the interest rate

C. Positive; expected growth

Which term is NOT an example of a resource: A. land B. a factory used to make airplane engines C. a loaf of bread purchased at your local grocery store D. employees working for wages at your local McDonald's

C. a loaf of bread purchased at your local grocery store

Which statement is TRUE? A. some very talented, skilled individuals should not specialize, since they do not help B. scarcity is not a major concern in many countries in the world C. an economic situation is in equilibrium when no individual would be better off taking a different action D. most oportunity costs are determined at the margin

C. an economic situation is in equilibrium when no individual would be better off taking a different action

Investment in human capital causes _______________ the aggregate production function A. a leftward movement along B. a rightward movement along C. an upward shift of D. a downward shift of

C. an upward shift of

The fact that resources are scarce suggests that: A. there is no shortage of resources B. additional resources require marginal analysis to allocate them efficiently C. choices must be made to utilize resources in the best manner possible D. people with higher incomes must be especially careful about their choices they make

C. choices must be made to utilize resources in the best manner possible

menu costs of inflation are the: A. costs of transactions associated with avoiding the inflation tax B. costs associstaed with money becoming a less reliable unit of measurement C. costs associated with businesses changing prices D. revenue the government gets from printing money

C. costs associated with businesses changing prices

the present value of a future payment _________ if the __________ A. decreases; interest rate decreases B. increases; future payment decreases C. decreases; interest rate increases D. increases; stock market falls

C. decreases; interest rate increases

A period of rising real GDP is the _________________ of the business cycle A. trough B. recession phase C. expansion phase D. peak

C. expansion phase

reasons that East Asian countries have exhibited tremendous economic growth during the past 40 years do not include: A. substantial technological progress B. a significant increase in physical capital per worker, made possible by very high savings rates C. government development of comprehensive regulatory frameworks for markets D. a significant increase in human capital, made possible by good basic education

C. government development of comprehensive regulatory frameworks for markets

If we add together consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's: A. budget deficit B. trade deficit C. gross domestic product D. disposable income

C. gross domestic product

when a firm buys a new machine for its business, it is considered to be: A. private saving B. consumption C. investment spending D. government spending

C. investment spending

From 2007 to 2009, the U.S. government helped the economy through one of the worst economic slumps ever. The policies employed wre based on _______________ theory A. supply-side B. classical C. keynesian D. trickle-down

C. keynesian

in an open economy, total investemnt equals: A. private savings plus capital inflows B. national savings minus private savings minus capital inflows C. national savings plus capital inflows D. private savings plus national savings plus capital inflows

C. national savings plus capital inflows

funds flow into and then back out of households. The amount of funds flowing through households is: A. $700 B. $870 C. $1,000 D. $1,020

D. 1,020

If Mega Corporation borrows $8,000 and agrees to pay the lender $9,000 in one year, the annual interest rate on the loan is approximately _____%. A. 10.5 B. 11.8 C. 9.0 D. 12.5

D. 12.5

in a simple, closed economy (no government or foreign sector), disposable income decreases from $6,000 to $4,000. If consumption decreases from $4,500 to $3,000, the multiplier is: A. 1.125 B. -4 C. 0.25 D. 4

D. 4

use the table below. The unemployment rate is _____% A. 3.65 B. 3 C. 30 D. 4.3

D. 4.3

the national debt ______________ when the federal government incures a ______________ A. Rise; surplus B. Stays the same; surplus C. Falls; deficit D. Falls; surplus

D. Falls; surplus

if the economy is a point X, there is a(n) _________________ gap with __________________ unemployment A. Recessionary; low B. Inflationary; high C. Inflationary; low D. Recessionary; high

D. Recessionary; high

Use Fig- ure: Circular-Flow Model. If the circular- flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it), and there is a decrease in exports, holding everything else constant, which outcome is likely to occur? A. a decrease in the unemployment rate B. an increase in the inflation rate C. an increase in real GDP D. a decrease in nominal GDP

D. a decrease in nominal GDP

the natural rate of unemplyment will NOT rise due to: A. more generous terms for unemployment compensation B. a surge in the number of young and inexperienced workers C. an increase in labor productivity D. an increase in labor productivity that translates into greater demand for labor

D. an incerase in labor productivity that translates into greater demand for labor

which change will NOT increase the productivity of labor A. technological progress B. an increase in the capital stock C. improved education D. an increase in the size of the labor force

D. an increase in the size of the labor force

in periods of inflation, lenders ________________ because the money that they are repaid has ________________ purchasing power than the money they loaned initially A. are worse off; more B. benefit; less C. benefit; more D. are worse off; less

D. are worse off; less

The price index in a given year is the cost of the market basket in that year _________ the cost of the market basket in the base year times 100. A. plus B. times C. minus D. divided by

D. divided by

Economists use the term long-term growth to indicate: A. growth of the economy over one to five years B. long-run growth in the value of a company C. the expansion phase of the business cycle D. growth of the economy over several decades

D. growth of the economy over several decades

Which method of discouraging speeding is likely to be the MOST effective, given that people usually exploit opportunities to make themselves better of? A. increasing the posted speed limit B. reminding drivers of the dangers of speeding C. asking drivers to reduce speed because it makes the roads safe D. increasing the fines asociated with speeding

D. increasing the fines associated with speeding

the equilibrium price in the market for loanable funds is the: A. transaction fee B. profit rate C. margin cell D. interest rate

D. interest rate

A local hardware store benefits when a new automobile plant moves to town and hires workers because the: A. presence of a new plant will guarantee that resources are used efficiently B. local circular flow will be smaller with a new plant in town C. new plant will eliminate scarcity in the area D. new jobs at the plant will increase local incomes, some of which will be spent at the hardware store

D. new jobs at the plant will increase local incomes, some of which will be spent at the hardware store

effeciency wages are usually set by employers to: A. reduce unemployment B. increase employment C. increase employment and provide better incentives for performance D. provide an incentive for better performance

D. provide an incentive for better performance

Real per capita GDP is: A. rarely used as a tool to compare countries' possible resources B. real GDP divided by the amount of capital available in the economy C. not a useful measure of human welfare D. real GDP divided by the population

D. real GDP divided by the population

The penthouse apartment in most high-rise apartment buildings usually costs more to rent than other apartments. This BEST illustrates the economic concept of: A. Specialization B. opportunity cost C. equilibrium D. scarcity

D. scarcity

Following a ________________ real GDP ________________ A. trough; decreases B. trough; decreases for one year, then increases C. peak; increases D. trough; increases

D. trough; increases

an example of physical capital is a: A. a radio that a truck driver installs in his truck for entertainment purposes B. truck that a worker buys for personal use C. worker who physically learns how to drive a truck his company buys D. truck that a company purchases for deliveries

D. truck that a company purchases for deliveries

if technology advances: A. human capital becomes less useful B. GDP per capita declines C. physica; capital becomes less productive D. workers can produce more with fixed amounts of physical and human capital

D. workers can produce more with fixed amounts of physical and human capital