Principles of Macroeconomics ASU-BEEBE Final
Nominal GDP differs from real GDP because
Real GDP results from adjusting for changes in the price level
Inflation tends to
Reduce the strength of the multiplier
One way to enhance the stability of the banking system is to
Require higher bank capitalization or net worth
In the circular flow model, households earn their incomes in the:
Resource markets
Suppose that an economy produces 2400 units of output, employing the 60 units of input, and the price of the input is $30 per unit. The level of productivity in this economy is
40
The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:
9 million
Money is created when
A bank grants a loan to a customer
The two ways of looking at GDP are the
Expenditures approach and income approach
Cost-push inflation tends to be characterized by all of the following except
Falling unemployment
Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy
Federal Open Market Committee
An increase in nominal GDP will
Increase the transactions demand and the total demand for money
The aggregate demand curve shows the
Inverse relationship between the price level and the quantity of real GDP purchased
The natural rate of unemployment
Is equal to the total of frictional and structural unemployment
The unemployment rate is interpreted as the percentage of the
Labor force that are not employed
One basic difference between "labor" and "entrepreneur" is that:
Labor is hired by a firm whereas the entrepreneur owns the firm.
Which of the following Fed actions increases the excess reserves of commercial banks
Lower the reserve ratio
If a nation restricts trade with other nations, then the most likely effect is:
Make consumers in the nation worse off
Lowering the discount rate has the effect of
Making it less expensive for commercial banks to borrow from central banks
Monetary policy actions by the Fed are
More effective in a restrictive direction than they are in an expansionary direction
The full employment rate of unemployment is also called the
Natural rate of unemployment
The rate of unemployment when the economy is at its potential output is called the:
Natural rate of unemployment
International specialization and trade
Often requires the exchange of currencies
Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?
Open market operations
An increase in the price level, other things equal, will shift the
Consumption, investment, and net exports schedules of the aggregate expenditures model downward
One basic problem faced by central planners, but hardly present in a market system, has to do with:
Coordinating production in various industries so that bottlenecks do not develop.
The "invisible hand" concept refers to the
Guiding function of prices in a market system
The crowding out effect from government borrowing to finance the public debt is reduced when
Public investment complements private investment
In the circular flow diagram, firms get their ability to pay for the costs of production from the:
Revenues they receive for their products
The service a homeowner performs when she mows her yard is not included in GDP because
This is a non market transaction
Which of the following bank related policies of the Fed fosters huge moral hazard problems
Too-big-to-fail policy
When the interest rate falls, the
Total amount of money demanded increases
GDP tends to overstate economic well-being because it takes into account:
Total spending to deal with the adverse health effects of some products
Lowering the reserve ratio
Turns required reserves into excess reserves
Official unemployment rate statistics may
Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment
One essential trade-off involving business risk which the market system provides is reflected in which of the following?
Access to the firm's profits and gains are open only to those who take on the business risk of the firm
Loans of the Federal Reserve Banks to commercial banks are
An asset of the Federal Reserve Banks and a liability for commercial banks
Money is not considered to be an economic resource because:
As such it is not productive
Contractionary fiscal policy would tend to make a budget deficit become
Smaller
A fall in labor costs will cause aggregate
Supply to increase
Inflation is a rise in
The general level of prices over time
CPI compiled by the Bureau of Labor Statistics is used to computations for
The inflation rate
The higher the rate of unemployment
The larger is the GDP gap
Mia wants to buy a book. The economic perspective suggests that Mia will buy the book if:
The marginal benefit of the book is greater than its marginal cost
A decrease in aggregate supply means
The real domestic output would decrease and the price level would rise
Checkable deposits are included in
both M1 and M2
When the Federal Reserve acts to tighten money and credit in the economy, it is trying to reduce
the inflation rate
Lauren makes $150 a day as a bank clerk. She takes two days off without pay, to fly to another city to attend the concert of her favorite band. The cost of transportation and lodging for the trip is $250. The cost of the concert ticket is $50. The opportunity of Lauren's decision to attend the concert is:
$600
When the interest rate in the economy was 10%, the price of a bond with no expiration date and pays a fixed annual interest of $500 was $5000. If the interest rate in the economy falls to 6%, the price of this bond will be about
$8333
If the Consumer Price Index was 125 in one year and 120 in the following year, then the rate of inflation is approximately
-4.0 percent
The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in the economy is:
166.5
Specialization is beneficial;
At the individual, regional, and even international levels
One major element of the command system is:
Central Planning conducted by the government
One major element of the command system is
Central planning conducted by the government
Money supply M1 does not include the currency held by
Commercial banks
The built in stabilizers in the economy tend to
Dampen the irregular swings in real GDP
Check-able deposits are
Debts of commercial banks and savings institutions
A decrease in government spending will cause
Decrease in aggregate demand
Cost-push inflation is characterized by a(n)
Decrease in aggregate supply and no change in aggregate demand
In a market system, resources will move away from an industry when:
Demand for the industry's product is decreasing
The US economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate
Demand increased and aggregate supply increased
Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is
Demand pull inflation
A federal budget deficit exists when
Federal spending exceeds tax revenues in a given year
In a market system, as one industry expands while another contracts, resources will flow:
From one industry due to the changes in resource prices paid by firms
The crowding-out effect arises when
Government borrows in the money market, thus causing an increase in interest rates
A budget surplus means that
Government revenues are greater than expenditures in a given year
An increase in productivity will
Increase aggregate supply
If the price of crude oil decreased then this would most likely
Increase aggregate supply in the US
A decrease in the interest rate will cause an
Increase in the amount of money held as an asset
A decrease in interest rates caused by a change in the price level would cause a(n)
Increase in the quantity of real output demand for movement down along AD
If a nation is operating at a point inside the production possibilities curve, it indicates that the nation could:
Increase its production of both goods X and Y simultaneously
When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market
Increases and the Federal funds rate decreases
One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy
Is not subject to the timing problems of discretionary policy
GDP measured using current prices is called
Nominal GDP
The GDP deflator or price index equals
Nominal GDP divided by real GDP
The unemployed are those that are
Not employed but are seeking work
The largest expenditure component of GDP is
Personal consumption expenditures
The GDP gap measures the amount by which
Potential GDP exceeds actual GDP
In a market system, self-interest is the motivating force that:
coordinates and creates consistency in the operations of various parts of the economy
If the dollar depreciates in value relative to foreign currencies, then aggregate
demand increases
If a nation produces more consumer goods and less capital goods, then the nation will have
more consumption now, but less consumption later
In analyzing human decision and actions, economists assume that
people's behavior reflects rational self-interest