Econ test 1

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In 2006, output per capita in the United States was approximately equal to:

$43,800

By the end of the 1990s, many people argued that the United States had entered a New Economy. Which of the following was considered a characteristic of the New Economy when compared to previous economic conditions?

all of the above: sustained higher growth, lower unemployment, and lower inflation.

The standard of living typically refers to

output per capita

By 2006, the U.S. trade deficit as a percentage of U.S. output was approximately equal to:

6%

In February 2007, former chairman of the Fed, Alan Greenspan, put the probability of a U.S. recession at:

33%

Economists have suggested that the relatively higher unemployment in Europe has been caused by which of the following?

inadequate macroeconomic policies

Which of the following countries had the lowest level of output per capita in 2006?

Spain

At what point could the Euro be used as currency?

January 1 2002

In 2006, output per capita in China was approximately equal to:

$2,100

Inflation represents:

an increase in the aggregate price level

Between 2006 and 2008, the annual rate of output growth in China was approximately equal to:

10%

Which of the following explains the relatively high growth rate of output in China since 1980?

a transition from central planning to a market economy

Fill in the blank for the following: GDP is the value of all _____ produced in a given period.

final goods and services

When using the income approach to measure GDP, the largest share of GDP generally consists of:

labor income

For this question, assume that 1980 is the base year. Given macroeconomic conditions in the United States over the past three decades, we know that:

real GDP and nominal GDP were equal in 1980.

Suppose nominal GDP increased in a given year. Based on this information, we know with certainty that:

either real output or the price level (GDP deflator) have increased.

Use the following information to answer this question. If nominal GDP rises from $100 trillion to $120 trillion, while the GDP deflator rises from 2.0 to 2.2, the percentage change in real GDP is approximately equal to:

0%

Hedonic pricing is

the process of pricing individual characteristics of a good or service

In a given year, suppose a company spends $100 million on intermediate goods and $200 million on wages, with no other expenses. Also assume that its total sales are $800 million. The value added by this company equals:

$700 million.

A firm's value added equals:

its revenue minus its cost of intermediate goods.

Suppose you are provided with the following data for your country for a particular month: 200 million people are working, 20 million are not working but are looking for work, and 40 million are not working and have given up looking for work. The official unemployment rate for that month is

9.1%

In the United States, someone is classified as unemployed if he or she

does not have a job, and is looking for one

An individual is said to be a discouraged worker if he or she

wants to work, but has given up searching for a job

Which of the following tends to occur when the unemployment rate increases?

a reduction in the labor force participation rate

Capital income's share of U.S. GDP in 2006 was equal to:

29%

The labor force in the United States is defined as:

the sum of the total number of individuals who are employed and the officially unemployed.

Suppose a country using the United States system of calculating official unemployment statistics has 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million do not want jobs at all.
The labor force is

30 million

The labor force participation rate is

.6

The official unemployment rate is

.33

The GDP deflator provides a measure of which of the following?

the ratio of nominal GDP to real GDP.

Which of the following calculations will yield the correct measure of real GDP?

nominal GDP/GDP deflator

. The prices for which of the following goods are included in both the GDP deflator and the consumer price index?

goods bought by households

Suppose we switch the base year from 2000 to 2008. This change in the base year will cause:

none of the above: nominal GDP in every year to increase, nominal GDP in every year to decrease, both nominal and real GDP in every year to decrease, real GDP in every year to decrease.

Pure inflation occurs when:

all prices and nominal wages rise by the same percentage

One if the reasons macroeconomists have concerns about inflation is that inflation causes:
a. real GDP to rise.

none of the above: real GDP to rise, nominal GDP to fall, wages to rise as fast as prices, real GDP to exceed nominal GDP.

Changes in GDP in the short run are caused primarily by:

demand factors

Changes in GDP in the medium run are determined primarily by:

supply factors

Changes in GDP in the long run are determined primarily by:

none of the above: monetary policy, fiscal policy, demand

Which of the following prices will be used when calculating the rate of growth of real GDP between the year's 2005 and 2006 using the chain method?

the average of prices in 2005 and 2006

Which of the following factors is NOT believed to affect output in the long run?

monetary policy

In the United States, labor income accounted for approximately what share of GDP by 2006?

64%

In the United States, indirect taxes accounted for approximately what share of GDP by 2006?

7%

Prices for which of the following are included in the GDP deflator, but not included in the Consumer Price Index?

firms' puchases of new equipment

Macroeconomists are concerned about changes in the unemployment rate because changes in the unemployment rate provide information about

the state of the economy and the welfare of those who are unemployed

Based on the notation presented in Chapter 2, which of the following expressions represents nominal GDP?

PtYt

Deflation generally occurs when which of the following occurs?

the consumer price index decreases

During the mid-1980s, we observed a significant reduction in oil prices. In the United States, we would expect that this reduction in oil prices would cause:

a larger reduction in the CPI compared to the GDP deflator

Suppose nominal GDP in 2009 does not change (compared its previous level in 2008). Given this information, we know with certainty that:

more information is needed to answer this question

During the late 1990s, Japan experienced reductions in the GDP deflator. Given this information, we know with certainty that:

the overall price level in Japan decreased during these periods

Hedonic pricing is used to:

none of the above: convert nominal values to real values, calculate the difference between nominal GDP and real GDP, measure the rate of change in real GDP, obtain chain-weight indexes

GDP in current dollars is equivalent to which of the following?

none of the above: real GDP, GDP in terms of goods, GDP in 2000 dollars, GDP in constant dollars

Which of the following does NOT represent real GDP?

GDP in current dollars

For the U.S. economy, which of the following represents the largest component of GDP?

none of the above: imports, investment, government spending, exports

Which of the following types of government spending is included when calculating GDP?

all of the above: spending at the federal level, state level, and municipal level

Which of the following would NOT be considered part of fixed investment spending (I)

Exxon increases its inventories of unsold goods

Which of the following is true for a "closed economy"?

there are no imports or exports

Which of the following is an exogenous variable in our model of the goods market in Chapter 3?

government spending (G)

Which of the following is an endogenous variable in our model of the goods market in Chapter 3?

all of the above: consumption (C), disposable income (YD), saving (S), total income (Y)

Disposable income equals:

the sum of consumption and saving

The marginal propensity to consume represents

the change in consumption caused by a one-unit change in disposable income.

Let the consumption function be represented by the following equation: C = c0 + c1YD. For this equation, we assume that c1 is

none of the above: negative, larger than c0, different at different levels of income, equal to one

Suppose the consumption equation is represented by the following: C = 250 + .75YD. The multiplier in this economy is

4

Suppose the consumption equation is represented by the following: C = 250 + .75YD. Given this information, the marginal propensity to save is

. .25

Which of the following occurs when disposable income is zero?

none of the above: a. consumption must be zero.
b. saving must be zero.
c. saving must be positive.
d. consumption is negative

Equilibrium in the goods market requires that

production equals demand.

An economy is in equilibrium when which of the following conditions is satisfied?

total saving equals investment

C = 1000 + .75YD
I = 500
G = 2000
T = 1000
The equilibrium level of GDP for the above economy equals:

11000

C = 1000 + .75YD
I = 500
G = 2000
T = 1000
The multiplier for the above economy equals:

4

Suppose government spending increases by 100 for the above economy. Given the above information, we know that equilibrium output will increase by:

400

The equation for private (or, equivalently, household) saving in this model is S =:

-1000 + .25YD

Which of the following would tend to make the multiplier smaller?

An increase in the marginal propensity to save

Which of the following represents total saving for an economy?

none of the above: a. the sum of private saving and fixed investment.
b. the sum of private saving and consumption.
c. the sum of taxes and government spending.
d. the excess of taxes over government spending

Based on our understanding of the paradox of saving, we know that a reduction in the desire to save will cause:

an increase in equilibrium GDP.

Which of the following events will cause a reduction in equilibrium output?

all of the above: a. an increase in the marginal propensity to save.
b. an increase in taxes.
c. a reduction in the marginal propensity to consume.

Based on our understanding of consumption and saving, we know that the marginal propensity to consume and the marginal propensity to save must

sum to exactly one

Suppose there is an increase in autonomous consumption. Specifically, suppose c¬0 increases where C = c0 + c1YD. This increase in autonomous consumption will cause which of the following to increase?

all of the above: a. equilibrium income.
b. equilibrium disposable income.
c. demand.

If C = 2000 + .9YD, what increase in government spending must occur for equilibrium output to increase by 1000?

100

Which of the following equals demand in an open economy?

C + I + G + X - IM

Which of the following equals demand in a closed economy?

none of the above: a. C + I + G + X
b. C + I + G + X - IM
c. C + I + G + IM - X

Suppose an open economy is in equilibrium. Given this information, we know with certainty that:

Y = Z

For a closed economy, which of the following conditions must be satisfied for equilibrium to be maintained?

none of the above: a. G = T
b. X = IM = 0
c. C = S

Autonomous spending in a closed economy equals which of the following?

c0 + I + G - c1T

Based on our understanding of the model presented in Chapter 3, we know that an increase in c1 (where C = c0 + c1YD) will cause:

the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a larger effect on output

Based on our understanding of the model presented in Chapter 3, we know that a reduction in c1 (where C = c0 + c1YD) will cause:

the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a smaller effect on output

An increase in the marginal propensity to save from .3 to .4 will cause:

the ZZ line to become flatter and a given change in autonomous consumption (c0)) to have a smaller effect on output

A reduction in the marginal propensity to save from .4 to .3 will cause:

the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a larger effect on output

An increase in the marginal propensity to save from .1 to .2 will cause:

a reduction in the multiplier and a given change in autonomous consumption (c0) to have a smaller effect on output

When the economy is in equilibrium, we know with certainty that:

none of the above: a. public saving equals investment
b. private saving equals investment
c. G = T

When a closed economy is in equilibrium, we know with certainty that:

I = S + (T-G)

An increase in the desire to save by households will cause:

a reduction in output

An increase in taxes will cause:

no change in investment

A tax cut will will cause:

no change in investment

Based on our understanding of the model presented in Chapter 3, we know with certainty that an equal and simultaneous increase in G and T will cause:

an increase in output

Based on our understanding of the model presented in Chapter 3, we know with certainty that an equal and simultaneous reduction in G and T will cause:

a reduction in output

Based on our understanding of the model presented in Chapter 3, a reduction in investment will cause:

a reduction in output

Suppose business confidence decreases causing a reduction in investment. Based on our understanding of the model presented in Chapter 3, we know with certainty that a reduction in investment will cause:

a reduction in consumption as the economy adjusts to this decrease in investment

Suppose the marginal propensity to consume equals .8 (i.e., c1 = .8). Given this information, which of the following events will cause the largest increase in output?

G increases by 200

Which of the following is a characteristic of bonds?

are sold for a price that varies inversely with the interest rate.

Which of the following is a flow variable?

money

Which of the following is a component of money?

none of the above: a. bonds.
b. saving.
c. income.
d. stocks.

Which of the following is a component of money?

all of the above: a. coins held by the nonbank public.
b. bills held by banks.
c. checkable deposits

Which of the following will cause an increase in the amount of money that one wishes to hold?

a reduction in the interest rate increase.

The money demand curve will shift to the right when which of the following occurs?

an increase in income.

The money demand curve will shift to the left when which of the following occurs?

none of the above: a. a reduction in the interest rate
b. an increase in the interest rate
c. an open market sale of bonds by the central bank
d. an increase in income

Which of the following is NOT included as a component of the M1 definition of money?

none of the above: a. bonds.
b. checkable deposits.
c. coins and bills held by the nonbank public.
d. all of the above.

In 2006, the average U.S. household held approximately how much currency (dollar bills and coins)?

$1600`

Which of the following countries has adopted the U.S. dollar as its own currency?

Ecuador

At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that:

the price of bonds will tend to fall.

The interest rate will increase as a result of which of the following events?

an open market purchase of bonds by the central bank.

Which of the following is NOT an asset on a bank's balance sheet?

All of the above.
a. Reserves.
b. Loans.
c. checkable deposits.

Which of the following is a liability on a bank's balance sheet?

Checkable deposits.

Which of the following is a liability for the central bank?

currency.

Suppose a one-year discount bond offers to pay $1000 in one year and currently sells for $950. Given this information, we know that the interest rate on the bond is

5.3%

Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 15% interest rate. Given this information, we know that the bond's price must be:

$869.56

Banks are different from other financial intermediaries because

some of a bank's deposits are money.

Which of the following generally occurs when a central bank pursues expansionary monetary policy?

the central bank purchases bonds and the interest rate decreases.

Which of the following generally occurs when a central bank pursues contractionary monetary policy?

the central bank sells bonds and the interest rate increases.

Which of the following will occur when the central bank pursues expansionary monetary policy?

none of the above.
a. a leftward shift in the money demand curve and a leftward shift in the money supply curve
b. a rightward shift in the money demand curve and a leftward shift in the money supply curve.
c. a leftward shift in the money demand curve and a rightward shift in the money supply curve.
d. a rightward shift in the money demand curve and a rightward shift in the money supply curve.

Which of the following is a component of high powered money?

currency in circulation plus bank reserves.

For this question, assume that individuals do NOT hold currency (i.e., c = 0). If the ratio of reserves to deposits is .10, the money multiplier is:

10

Which of the following will cause the money multiplier to become smaller?

none of the above.
a. an increase in high powered money.
b. a decrease in the ratio of reserves to checkable deposits.
c. an increase in the public's preference for checking deposits as opposed to holding currency.
d. a reduction in high powered money.

The money supply will tend to fall when which of the following occurs?

a decrease in the ratio of reserves to deposits.

Which of the following events will cause the interest rate to increase?

all of the above
a. an open market sale of bonds
b. an increase in the reserve deposit ratio (i.e., )
c. an increase in income

The federal funds rate is determined in which of the following markets?

none of the above
a. the market for U.S. treasury securities
b. the money market
c. the bond market
d. the market for central bank money

For this question, assume that individuals do NOT hold currency (i.e., c = 0). The money multiplier is equal to:

none of the above
a. 1
b. 1/(1 - c)
c. 
d. 1/(1- )

For this question, assume that individuals do NOT hold currency (i.e., c = 0).. The money multiplier is equal to:

none of the above
a. 1/(1-c)
b. 1/[c + (1-c)]
c. [c + (1-c)]
d. 1/

For this question, assume that individuals hold both currency and checkable deposits. The money multiplier is equal to:

1/[c + (1-c)]

We would expect which of the following to occur when the central bank pursues expansionary monetary policy?

an increase in bond prices and a reduction in i

We would expect which of the following to occur when the central bank pursues contractionary monetary policy?

a reduction in bond prices and an increase in i

Based on our understanding of the determinants of the interest rate and bond prices, we know that a reduction in income will cause:

an increase in bond prices and a reduction in i

We would expect which of the following to occur when the central bank conducts an open market sale of bonds?

a reduction in the monetary base (H)

We would expect which of the following to occur when the central bank conducts an open market purchase of bonds?

an increase in the money supply

The U.S. government currently insures each bank account up to what level?

$100,000

An increase in the reserve ratio, , will cause:

a reduction in the money multiplier

A reduction in the reserve ratio, , will cause:

an increase in the money multiplier

An increase in the parameter c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?

a reduction in the money multiplier

A reduction in the parameter c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?

an increase in the money multiplier

An increase in income will tend to cause which of the following?

an increase in the interest rate

If individuals do not hold currency, we know that:

all of the above
a. M = D
b. H = R
c. the money multiplier is 1/

If individuals do not hold checkable deposits, we know that:

all of the above

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