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Macroeconomics

Terms in this set (44)

If consumers' earned income is unchanged, but part of their purchasing power is taken away by a tax increase, we would say there is
a decrease in disposable income.
Which of the following transactions would not be included in US GDP?
The Department of Defense purchases an aircraft carrier from a shipyard in Virginia.
A Kansas wheat farmer sells 100 metric tons of wheat to a customer in China.
A tractor manufacturer in Missouri purchases 50 tons of steel from a steel mill in Illinois, which it uses to make tractors that are sold to farmers in Kansas.
You pay $309 tuition to take an economics course at MCC.
A tractor manufacturer in Missouri purchases 50 tons of steel from a steel mill in Illinois, which it uses to make tractors that are sold to farmers in Kansas.
Which of the following correctly shows the method for calculating GDP by the expenditure approach?
Y=C+G+(EX-I)
Y=C+I+T+(EX-IM)
Y=C+I+G+(EX-IM)
Y=C+I+G+(V)
Y=C+I+G+(EX-IM)
What is the difference between nominal GDP and real GDP?
Nominal GDP is calculated using current prices, whereas real GDP is calculated using constant prices (prices that prevailed in some base period) so as to correct for inflation.
Which of the following statements is not true concerning gross domestic product (GDP)?
GDP provides a complete and comprehensive measure of a country's quality of life or overall well-being.
GDP represents the total value of all final goods and services produced within a given territory during a given period of time, usually one year.
GDP does not include the value of net factor payments from abroad, such as wages paid to domestic residents for work performed in other countries or profits of domestic firms that are earned overseas.
GDP includes the value of goods produced within our territory but sold to people in other countries.
GDP provides a complete and comprehensive measure of a country's quality of life or overall well-being.
If the money supply in an economy grows 12%, velocity decreases 4% and real output (GDP) grows 5%, what must be the growth rate of prices (inflation)? (Give answer in percent but omit the "%" sign.)
3
The residents of Erehwon consumed $10 billion worth of goods and services last year. A total of $2 billion was invested to acquire or build productive facilities, equipment or other capital goods in Erehwon. The Erehwon Government purchased $5 billion worth of goods and services. Erehwon exported $3 billion worth of goods and services to other countries. Erehwon's imports from the rest of the world totaled $4 billion. The Erehwon national football team spent $100 million on player salaries in an effort to secure a spot in the World Cup finals in 2022. What was Erehwon's GDP in billions of dollars? (omit dollar sign and zeros in answer)
Between 16 and 16
Erehwyna's nominal GDP in 2016, in billions of dollars, was 925. In 2015 it was 875. Its GDP deflator, based on a 2010 base year, was 116.7 in 2015 and 119.4 in 2016. What was Erehwyna's rate of growth of real GDP from 2015 to 2016? (Round your answer to one decimal place and do not include % sign)
Between 3.2 and 3.4
Using the same information as in the previous question, what was Erehwyna's inflation rate between 2015 and 2016 based on the GDP deflator? (give your answer in percent, leaving off the % sign and rounding to one decimal place)
Between 2.3 and 2.3
Refer to the diagram above. Assume that the starting point on the production function is point A. After an increase in Total Factor Productivity, there would be a ______________________ which would shift the LRAS curve from LRAS1 to _______________ resulting in _______________.. (Q2Q1)
shift upward of the production function to point B; LRAS2; economic growth
Refer to Exhibit 8-1. Assume that the economy is originally in equilibrium at point A. If foreign real national income rises, at which point is the economy most likely to end up in the short run?(Q2Q2)
B
Real GDP in a small country is worth $8 billion. The population of the country is 200,000. What is per capita Real GDP?
$40,000
If the money supply in an economy grows 12%, velocity decreases 4% and real output (GDP) grows 5%, what must be the growth rate of prices (inflation)?
3%
If the desired real rate of interest on a bond is 3% and the expected rate of inflation is 4%, what should be the nominal rate of interest on the bond?
7%
Which of the following actions might the Federal Reserve take if it wants to expand the money supply so as to spur economic activity and reduce unemployment?
Buy securities in the open market.
Which of the following measures might the Federal Reserve undertake if it wants to slow (contract) the growth of the money supply so as to reduce inflation?
Sell securities on the open market
The risk that a person borrowing from a bank will not be able to repay the loan is known as _________.
Credit risk
Which of the following assets would be considered the most liquid?
Cash in one's pocket
Which of the following would be an example of a "principal-agent" conflict or problem as economists use the term?
A manager of an investment fund takes excessive risks with clients' money because she will receive a big bonus if the investments pay off but will not suffer any negative consequences if the investments lose money.
Someone who takes out a loan through a mortgage agent is unable to pay the principal on the loan when it falls due.
A loan applicant lies to a bank officer about his/her monthly income and expenses and credit history.
A manager of an investment fund takes excessive risks with clients' money because she will receive a big bonus if the investments pay off but will not suffer any negative consequences if the investments lose money.
Why are deposits counted as a liability on a bank's balance sheet?
Because the deposits belong to the depositors, not the bank.
If the value of the money multiplier is five and the Fed makes a $1 billion open market purchase of securities, the money supply will:
Increase by $5 billion
Which of the following best describes the concept of "moral hazard" as used by economists with respect to financial markets?

If banks are bailed out by the government after making bad investments, they will be more cautious in their use of depositors' money in the future.
If money is to easy to obtain, people will spend it for immoral purposes.
Behaving "morally" with respect to use of depositors' money can be hazardous for a bank's bottom line.
If people are shielded from the consequences of their bad behavior, they will continue to behave badly.
If people are shielded from the consequences of their bad behavior, they will continue to behave badly.
In the United States, the interest rate banks charge each other on overnight loans of reserves is called the ________.
federal funds rate
Which of the following is the Fed's most important instrument of monetary policy?
Conducting open market operations (buying and selling of securities, such as Treasury bonds)
Changing the required reserve ratio
Changing the discount rate
Printing new paper currency
Conducting open market operations (buying and selling of securities, such as Treasury bonds)
Money that has value only because the government or monetary authorities say it does (and because people are willing to accept it) is called:
Fiat money
What happens to the economy in the transition from point F to point E, according to the diagram?(Q2Q17)
Nominal GDP increases, but so do prices, so real GDP is left unchanged.
If a one-year bond with a face value of $100 (the bond pays the bearer $100 one year from now) sells today for $85, what is the interest rate on the bond?
17.6%
Suppose people want to hold currency equal to one-fourth of their checking account balances (Cu = .25). Banks aim to keep reserves equal to one-fourth of their deposits (R = .25). If the Fed makes an open-market purchase of $ 1 million in bonds, what will be the effect on the money supply in the economy?
The money supply will: increase
by: $2.5 million
Suppose a commercial bank has $800 million in deposits, $150 million in reserves ($75 million in vault cash and $75 million on deposit at the KC Fed), $600 million in loans and $50 million in other assets. If the bank has a target reserve ratio of 20%, by how much will it have to increase or decrease its loans or buy or sell assets to reach that target? (use a minus sign if the bank must reduce loans or sell assets to reach the target; give answer in millions with no $)
Between -10 and -10
Which of the following accounts for the largest share of US Federal Government outlays?
Social Security.
Which of the following accounts for the largest share of US Federal Government receipts (revenue)?
Personal income taxes
What is the main reason that interest payments on the national debt have declined as a percent of GDP and of US Federal Government revenue since the late 1980s?
Interest rates on Federal Government borrowing (the rate paid on Treasury bonds) have decreased since the 1980s.
Which of the following actions might the US Congress take if it wants to stimulate aggregate demand and reduce unemployment?
Increase government purchases or reduce taxes.
Suppose that the exchange rate between the U.S. dollar and the Mexican peso is 1 peso = $0.11. If the U.S. dollar price per Mexican peso changes to 1 peso =$0.10, the peso is said to have __________ and the dollar to have __________.
depreciated; appreciated
Which of the following would be the most likely explanation for the movement shown in the diagram? (Q3Q6)
The Federal Reserve conducted an open market sale of securities.
(Q3Q6)
Continue to refer to the diagram in the previous question. What would be the most likely reason that the action depicted in the diagram was taken? (consistent with your answer to Question 6)
The Fed was concerned the economy was overheating, so it raised its target for the Federal Funds rate.
The classical diagram below depicts the effect of a fiscal stimulus, say an increase in government purchases. (Q3Q8)


What happens to the economy in the transition from point F to point E, according to the diagram?
Nominal GDP increases, but so do prices, so real GDP is left unchanged.
Use the diagram below to answer the next three questions:
(Q3Q9)

What sort of situation does the diagram depict?
"Stagflation" (inflation with high unemployment) caused by a supply shock.
(Q3Q9)
Continue to refer to the diagram in the previous question. What will happen if the Federal Reserve responds to the shock depicted in the diagram by expanding the money supply?
The economy will move back toward full employment, but inflation will accelerate further.
(Q3Q9)
Continue to refer to the diagram used in the previous two questions. What will happen if the Federal Reserve responds to the shock depicted in the diagram by contracting the money supply?
Inflation will moderate (prices move back toward original level), but unemployment will worsen.
Use the following diagram to answer the next four questions. (Q3Q12)

In the diagram, aggregate demand has shifted leftward, causing the economy to move from point A to point B. Which of the following best describes the situation at point B?
A recession, caused by a demand shock.
(Q3Q12)
Continue to refer to the diagram in the previous question. If the economy is at point B in the diagram and authorities do nothing, what does the conventional macroeconomic model presented in your textbook predict will happen?
The short-run aggregate supply curve will shift down and to the right to a new long-run equilibrium at point D as prices and inflation expectations adjust to the new circumstances.
(Q3Q12)
Continue to refer to the diagram used in the previous two questions. Suppose authorities are impatient, or the economy is taking too long to adjust on its own, and they want to shift the aggregate demand curve back toward its original position. What action could monetary authorities take to achieve this objective?
Purchase securities in the open market to expand the money supply and reduce interest rates.
(Q3Q12)
Continue to refer to the diagram used in the previous three questions. Suppose the economy is at point B and monetary policy measures are ineffective, perhaps because nominal interest rates are already at or near zero. What fiscal policy measures could Congress take to return the economy to full employment, according to conventional Keynesian theory?
Increase spending on public works (infrastructure)
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