question

Total income households have after paying taxes and receiving government transfers

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disposable income

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Market failure may occur because

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individual actions have side effects that are not properly taken into account by the market

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A graphical representation of the relationship between the total quantity of goods and services demanded and the price level

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aggregate demand curve

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If banks were required to keep 100% of deposits in reserves, they could

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make no loans

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The point on a business cycle when real GDP stops falling and begins rising

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business cycle trough

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In the long run, changes in the money supply

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affect only the price level but they do not change aggregate output

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The double coincidence of wants problem can be solved by

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money

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An inflationary gap can be closed with

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a decrease in government purchases

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Monetary policy affects GDP and the price level by

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changing aggregate demand

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The short-run aggregate supply curve is positively sloped because

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wages are sticky or don't readily adjust to changes in economic conditions in the short run

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nominal GDP

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that year's output times same year price

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real GDP

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base year price times that year's output

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The money spent on domestically produced final goods and services

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is the GDP, appears as income to someone, and appears in the circular flow model

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Diminishing returns to physical capital means that as more and more physical capital is combined with a fixed amount of human capital with a fixed technology, eventually

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additions to aggregate output or real GDP declines

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The most important factor affecting a household's consumer spending is

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current disposable income

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A contractionary fiscal policy is a policy that

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reduces aggregate demand by decreasing government purchases

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The CPI is used for calculating payments from the U.S. government to individuals. To the extent it is biased upward, this index

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raises government expenditures

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Physical capital would include

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the tools a worker has to work with

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In the "paradox of thrift"

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increased saving by individuals increases their chances of becoming unemployed

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Long-run growth is the sustained upward trend in

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aggregate output per person over several decades

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When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have

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a trade deficit

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Deflation

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can cause decreases in output

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Among the assets of a bank are

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loans

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The marginal propensity to save is

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the fraction of an additional dollar of disposable income that is saved

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The process of bringing down inflation that has been embedded into expectations is called

answer

disinflation

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Technological improvements will

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shift the production possibility frontier outward

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Which of the following is included in GDP

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the purchase of a ticket to a Rolling Stones concert

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A key insight into macroeconomics is that in the short run the combined effect of individual decisions is

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very different from what any one individual intended

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The short-run Phillips curve represents the relationship between the unemployment rate and the rate of change in

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aggregate price level

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Which of the following demonstrates how people respond to incentives to make themselves better off?

answer

more students major in economics when they hear that salaries for economists are rising

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In the classical model, it is thought that the long-run

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and short-run aggregate supply curves are both vertical

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When banks borrow and lend reserves from each other, they are participating in the ______ market

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federal funds

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The models used in economics

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emphasize basic relationships by abstracting from complexities in the everyday world

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Conditional convergence suggests

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poor countries' growth rates may not catch up to those of richer countries without changes in education and infrastructure

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An increase in the supply of money will lead to ___ in equilibrium real GDP and ___ in equilibrium interest rate

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an increase; a decrease

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A liquidity trap is a situation in which

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using expansionary monetary policy is not effective because, the nominal interest rate is almost zero

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Contractionary monetary policy involves

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decreasing the money supply, increasing interest rates, and decreasing aggregate demand

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Medicaid, Medicare and Social Security are examples of

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transfer payments

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When a local factory closes, why does it spell bad news for the local restaurants?

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Unemployed factory workers have lower incomes and are less likely to dine out

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Human capital is

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the improvement in labor created by education and knowledge that is embodied in the work force

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Sources of funds for investment spending are

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savings by households, government, and foreigners

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The inflation tax is

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the decrease in the real value of money held by the public caused by inflation

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Long-run economic growth is

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higher in countries when it has a strong rule of law and political stability

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According to the liquidity preference model, if the Fed increases the money supply, the equilibrium interest rate ____, and this leads to ____ in the quantity demanded of nonmonetary interest-bearing financial assets

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falls; a decrease

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When the output gap is ____, reflecting an inflationary gap, the unemployment rate is ____ the natural rate of unemployment

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positive; below

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Among the losers with unexpected deflation are

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borrowers

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In the simplest circular-flow model, households supply ____ and demand ____

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factors of production; goods and services

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Decisions about monetary policy are made by

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the Federal Open Market Committee

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Examples of bank regulations designed to prevent bank runs are

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capital requirements, deposit insurance, and reserve requirements

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Labor productivity growth can be attributed to

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improvement in technological process

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The reserve ratio is the

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fraction of deposits the banks hold in their vaults plus their deposits at the Federal Reserve

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Inflation is a situation where

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the average price level increases

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An economy is said to have a comparative advantage if it

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has the lowest cost for producing a particular good

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The value of MPC is

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greater than 0 and less than 1

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A recession leads to

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reduced output, income and living standards, and higher unemployment

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The best currently available measure of the standard of living in a country is

answer

the real GDP per capita

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Money whose value derives entirely from its official status as a means of exchange is known as

answer

fiat money

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Suppose a panel of economists is predicting that a nation's real GDP per capita will double in approximately 20 years. Based upon the Rule of 70, what must be the predicted annual growth rate of real GDP per capita?

answer

3.5%

question

A recessionary gap can be closed with

answer

expansionary fiscal policy

question

Among the public goods important for economic growth are

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political stability

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The long-run aggregate supply curve is vertical because in the long run

answer

all prices are flexible

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A cut in taxes will have a greater impact on aggregate demand if it is given to

answer

people with a high MPC

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The opportunity cost of holding money is

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the difference between interest rates on monetary assets and on nonmonetary assets

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A choice made___ is a choice whether to do a little more or a little less of something

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at the margin

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Gains from trade arise because of

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specialization in production

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Monetary policy is similar among wealthy countries because the central banks of most countries

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try to keep inflation between 2% and 3% per year

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The idea that a 1 percentage point increase in the output gap will decrease the unemployment rate by 1/2 of a percentage point is known as

answer

Okun's law

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An increase in the aggregate price level

answer

increases the demand for money

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Gross domestic product is defined as

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consumer spending + government purchases + investment spending + exports - imports

question

Which of the following combination of assets are considered to be money?

answer

currency in circulation, checkable bank deposits, and travelers' checks

question

Economists generally believe that a country should specialize in the production of a good or service if

answer

they can produce the product while forgoing fewer alternative products than any other country

question

The amount of money that people demand is

answer

negatively related to the interest rate

question

Growth accounting enables us to

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estimate the effects of technological progress on economic growth

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As a consequence of the existence of a nonaccelerating-inflation rate of unemployment, or NAIRU

answer

there is no long-run tradeoff between unemployment and inflation

question

Which of the following would shift the aggregate demand curve to the left?

answer

an increase in the interest rate

question

If the Fed wants to decrease interest rates, it can

answer

increase the money supply by buying Treasury bills

question

If the multiplier is 4, and investment spending falls by $100 billion, the change in equilibrium income will be

answer

-$400 billion

question

When the economy is in a recession

answer

tax receipts decrease but unemployment insurance payments increase

question

To ____ the money supply, the Fed could ____

answer

increase; lower the discount rate

question

We have to make choices because

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resources are scarce and because choices involve a trade-off

question

Real GDP is nominal GDP adjusted for

answer

changes in prices

question

a shift to the left of the AD curve could be cause by

answer

increased government purchases, increased government transfers and by decreased taxes

question

The purpose of macroeconomic policy is to

answer

bring unemployment closer to the natural rate and to reduce the severity of recessions

question

Treasury bills

answer

usually pay lower interest rates than other short-term assets because they are less risky than other assets

question

Which of the following is a tool used by the Fed in the conduct of monetary policy?

answer

buying and selling federal government bonds

question

If the short-run macroeconomic equilibrium is ____ of the economy's potential output, then there is a(n) _____ and the aggregate price level is expected to ____

answer

to the left; recessionary gap; fall

question

The convergence hypothesis helps explain why

answer

high-income countries tend to have slower growth rates compared to lower-income countries

question

Monetary base is

answer

the sum of reserves held by the banks and currency in circulation

question

An upward shift in the consumption function can be caused by

answer

an increase in consumer wealth

question

If the money supply increases by 10%, in the long run

answer

the price level increases by 10%

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