Macroeconomics midterm study guide – Flashcards
251 test answers
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markets and the government
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in a mixed economy, what to produce and how to produce are determined by
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girl shopping for shoes
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each of the following is a factor of production EXCEPT
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the amount people want exceeds the amount available at a zero price
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goods are scarce if and only if
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inputs
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resources are also known as
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the natural dye that makes the eyeshadow blue
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Monica likes to wear red lipstick, and she always wears blue eyeshadow whenever she has red lips. a resource for the eye shadow is
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good
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Ina likes to wear red lipstick, and she always wears blue eyeshadow whenever she has red lips. Te red lipstick is a
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Adam Smith
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the 18th century enlightenment philosopher who wrote The Wealth of Nations, which included the idea of the "invisible hand," was
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the added benefit of producing more dresses exceeds cost
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Donna Karan produces dresses, shoes, and tights. she will produce more dresses if
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opportunity cost
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is measured by how much of one good/service you have to forgo in order to get some stated amount of another good/service
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the dress
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when Rita decides to buy a $200 pair of high heels instead of a $400 dress to wear to prom, her opportunity cost is
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all relevant factors except one change when studying an economic effect
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the "other things equal" assumption means
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inward
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A decline in available natural resources (inputs) will cause the PPF to shift
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that choosing to produce one good implies sacrificing production of other goods
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the Production Possibility Frontier (PPF) shows
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1,2, and 3
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Changes in which of the following factors would affect the growth of an economy? 1. quantity and quality of human and natural resources 2. amount of capital goods available 3. technology
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1 and 2
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Which of the following is an example of a resource? 1. petroleum 2. a factory 3. a cheeseburger diner
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1 and 2
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which of the following situations represent(s) resource scarcity? 1. a growing economy needs large bodies of water to build dams for hydroelectric power 2. there is a finite amount of petroleum in the physical environment 3. casette tapes are no longer being produced
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2
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which of the following statements is/are normative? 1. the price of gasoline is rising 2. the price of gasoline is too high 3. gas prices are expected to gall in the near future
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money supply
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the long-run growth rate of an economy will be increased by an increase in all of the following EXCEPT
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will not move; movement will be up the curve
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Dresses and skirts are substitutes. If the price of skirts increases, the demand curve for dresses
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will not move; movement will be up the curve
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lipstick and eyeshadow are substitutes. If the price of lipstick increases, the demand curve for lipstick
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when price increases, quantity demanded decreases
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the demand curve is downward sloping because
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shifted to the right
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recently, Toms shoes have soared in popularity. When that happened, the demand curve for Toms shoes
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girls can buy more makeup
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when the price of makeup falls, the quantity demanded of makeup increases because
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incomes decrease
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the demand curve will shift to the left for normal goods when
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will shift to the right
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if there is an increase in the population of girls, then the demand curve for high heels
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will shift to the right
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if the expectations that the price of skirts will increase over the next year, then the demand curve for skirts right now
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income increases
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the demand curve will shift to the left for inferior goods when
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price effect
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each of the following is a reason that the Law of Demand exists EXCEPT
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households are demanders in the product markets and suppliers in the factor markets
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which of the following is true according to the circular flow model?
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the demand for one increases when the price of the other increases
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two goods are substitutes if
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an increase in demand for new potatoes
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Raclette is essentially Raclette cheese over boiled new potatoes. if the price of this cheese is decreased we would expect
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air travel is a normal good and vacation travel by car is an inferior good
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when the economy suffers a downturn, vacationers are more likely to take car trips than to fly. which of the following provides the most reasonable explanation for this phenomenon?
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a decrease in the price of good X
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which of the following will not cause an increase in demand for good X?
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when income increases, the demand decreases
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a good is inferior if:
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induce producers to supply more
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the supply curve is upward sloping because higher prices
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illustrates how quantity supplied rises as price rises
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the supply curve
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more will be supplied at the same price as before
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an increase in supply means that
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will shift to the left
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a manufacturer can make either dresses or skirts. If the price at which she can sell dresses increases, then (c.p.) the supply curve for skirts
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will shift to the right
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the price at which parachutes are sold decreases, then (c.p.) the supply curve for pantyhose
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will not move; movement will be up the supply curve
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the price at which parachutes are sold increases, then (c.p.) the supply curve for parachutes
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will shift to the right
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the government lowers taxes on petroleum, which decreases its cost, then (c.p.) the supply curve for pantyhose
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will shift to the left
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the government imposes new environmental regulations on the production of nylon, which increases its cost, then (c.p.) the supply curve for parachutes
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will shift to the right
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if Coach adopts the new iPad technology to streamline production, the supply curve for Coach purses will
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will shift to the right
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if there is an increase in the number of Louis Vuitton high heel sellers, then the supply curve for Louis Vuitton high heels
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will shift to the right
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with summer coming to an end, producers believe that at the end of the month they will need to lower the price at which they sell bikinis. therefore, the current supply curve for bikinis
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had shifted to the right
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Matilda killed a cow for its hide to make a leather mini-dress and treated herself to steak. When Matilda killed the cow for its hide, the supply curve for beef
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will shift to the right
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dresses and skirts are substitutes. if the price at which dresses are sold increases, then (c.p.) the demand curve for skirts
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will shift to the left
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Coach purses and Louis Vuitton heels are complements. if the price at which Coach purses are sold increases, then (c.p.) the demand curve for Louis Vuitton heels
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rises; rises
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When demand increases, Price ___ and quantity ___
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indeterminate; rises
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when demand and supply increase, Price ___ and quantity ___
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rises; indetermiante
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when demand increases and supply decreases, Price ___ and quantity ___
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rises; falls
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when supply decreases, Price ___ and quantity ___
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indeterminate; falls
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when demand and supply decrease, Price ___ and quantity ___
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falls; indeterminate
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when demand decreases and supply increase, Price ___ and quantity ___
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falls; falls
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when demand decreases, Price ___ and quantity ___
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falls; rises
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when supply increases, Price ___ and quantity ___
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will shift to the right
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a manufacturer can make either dresses or skirts. if the price at which she can sell dress decreases, then (c.p.) the supply curve for skirts
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will shift to the left
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the price at which parachutes are sold increases, then (c.p.) the supply curve for pantyhose
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will not move; movement will be down the supply curve
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the price at which parachutes are sold decreases, then (c.p.) the supply curve for parachutes
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will shift to the left
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Petroleum is used to make nylon. Glen Raven Mills uses nylon to make pantyhose and parachutes. If the government increases taxes on petroleum, which decreases its cost, then (c.p.) the supply curve for pantyhose
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will shift to the right
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with summer coming to an end, producers believe that at the end of the month they will need to lower the price at which they sell bikinis. therefore, the current supply curve for bikinis
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price is higher than equilibrium price (Quantity demanded < Quantity supplied)
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when market disequilibrium is caused by a price floor (i.e. minimum wage)
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price is lower than equilibrium price (Quantity demanded > Quantity supplied)
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when market disequilibrium is caused by a price ceiling (i.e. rent control)
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productive physical capital (i.e. machines)
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investment spending represents spending on
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c+i+x-m
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which one of the following equations correctly measures GDP?
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that involves double-counting
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the intermediate goods are not counted in the calculation of GDP because
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your purchase of your neighbor's 2001 Toyota
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which of the following would NOT be included in this year's GDP?
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imports from exports
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Net exports are calculated by subtracting
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household production
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as a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in
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is adjusted for price-level changes (i.e. inflation)
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the major difference between real and nominal GDP is that real GDP
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recipients of transfer payments have not produced of supplied goods and services in exchange for these payments
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which of the following best explains why transfer payments are not include in the calculation of GDP?
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the government increases its domestic purchases of food for use by the military
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which of the following transactions would represent an addition to a nation's current GDP?
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the price level is increasing
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if real GDP is increasing at 3% per year and nominal GDP is increasing at 7% per year, which of the following is necessarily true?
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increased saving by individuals increases their chances of becoming unemployed
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in the "paradox of thrift":
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output and employment are falling
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recessions are periods when
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business cycle
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the short-run alternation between economic downturns, recessions, and economic upturns and expansions is known as the
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during depressions employment falls faster than during recessions
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the basic difference between an economic resin and economic depression is that
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an expansion
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if during a period of several months we observe the economy to be simultaneously increasing its level of output and unemployment, we could assume that the economy is in
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higher employment
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a recession leads to all of the following EXCEPT
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two consecutive quarter
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in many countries, economists adopt the rule that a recession is a period of at least ______, during which aggregate output falls
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the economy did not experience another severe and prolonged economic downturn comparable to it
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according to official statistics for the U.S., after the experience of the Great Depression
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expansion
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in a typical business cycle, the business cycle trough is immediately followed by the
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the unemployment rate
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which of the following measure is typically used as an indicator of the conditions in the labor market?
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recession
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in a typical business cycle, the business cycle peak is immediately followed by the recession
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recession
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economists have identified several consecutive months of falling employment and forecasts for the next few months are for more of the same. at what point in the business cycle is the economy apparently located?
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is a temporary minimum level of real GDP
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the trough of the business cycle
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business cycle peak, recession, business cycle trough, expansion
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the sequence of the business cycle phases is
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unemployment
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the most painful effect of a recession is
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the total number of people actively working
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employment is
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the total number of people employed and unemployed
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the labor force is
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the percent of the labor force that is unemployed
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the unemployment rate is
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be out of work and be actively looking for a job
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to be counted as unemployed, one must:
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lower the official unemployment rate
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the presence of discouraged workers in the economy tends to
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frictional unemployment
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unemployment that is due to the time workers spend in job search is considered
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unemployment that results when people seeking jobs do not have the education or skills to do the job that are available or there are no jobs that need the skills of the people looking for work
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structural unemployment is
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equal to the sum of frictional and structural unemployment
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the natural rate of unemployment is
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there is no cyclical unemployment
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the natural rate of employment is achieved when
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an autoworker who is laid off from an automobile company due to a decline in sales caused by a recession
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an example of cyclical unemployment is an
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discouraged workers who have given up looking for a job
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the official unemployment rate ignores
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it reduces the risk of losing the best workers
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firms pay efficiency wages because
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the unequal distribution of wealth among members of society
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each of the following can be a cause of the business cycle EXCEPT
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it can lead to inflation
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each of the following is a reason unemployment is bad EXCEPT
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can only measure price changes of domestically produced goods
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a price index includes each of the following EXCEPT
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123.07
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in the country of Incarnatia, a market basket of goods and services cost $130 in 2007, $140 in 2008, and $160 in 2009. Based on this information and considering 2007 as the base year, the price index in 2009 was
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consumer price index
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the _____ is the most widely used measure of inflation in the U.S.
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25%
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if the CPI is 120 in Year 1 and 150 in Year 2, then the rate of inflation from Year 1 to Year 2 is
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changes in the prices of goods and services typically purchased by consumers
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the consumer price index reflects the
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changes only in the base year, every 5-7 years
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which of the following is NOT true concerning the consumer price index? the consumer price index:
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20% more than the same market basket purchased in the base year
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you read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical market basket in 2008 would have cost
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real wage
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the wage rate divided by the price level is the
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real income
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income divided by the price level is
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the Bureau of Labor Statistics collects data on the prices of only a few goods and services
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Many economists believe that the CPI overstates inflation for each of the following reasons EXCEPT
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product price index
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which of the following statistics is used to measure changes in the prices that firms pay for goods and services
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maintain the purchasing power of retirees
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the purpose of indexing Social Security payments to the CPI is to
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increased cost of transactions due to inflation
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shoe-leather costs refer to the
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unit-of-account costs
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the costs arising from the way inflation makes money a less reliable unit of measurement are known as
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costs associated with business changing prices
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menu costs of inflation re the
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hyperinflation
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an increase in the price level that is extremely rapid (say 400% per year) is called
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4%
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suppose that the nominal rate of interest is 7% and the inflation rate is 3% then the real rate of interest is equal to
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the lenders gain and the borrowers lose
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if a bank sets its nominal interest rate for lending and adjusts it for expected inflation, if the the actual inflation rate turns out to be less than the expected inflation rate, then:
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3.3%
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suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. then the inflation rate is (R= N- ?)
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the real interest rate plus the rate of inflation
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the nominal interest rate equals
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aggregate price level
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a measure of the overall level of prices in the economy is the
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consumption of final goods and services
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demand-pull inflation is caused by
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increased production costs
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cost-push inflation is caused by
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the CPI reflects the prices of all goods produced in an economy
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each of the following is a difference between the GDP deflator and the CPI EXCEPT
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Borrowers, people whose incomes are indexed (COLA: cost of living adjustment)
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usually, when inflation rises very quickly, which TWO of the following will benefit?
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a downward slope
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the negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve
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rises; falls
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according to the aggregate demand curve, when the aggregate price level ____, the quantity of aggregate demand ____
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a movement on the aggregate demand curve
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in general, a change in the price level, all other things unchanged, causes
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decreases and consumer spending decreases
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according to the wealth effect, when the price level increases, the purchasing power of assets
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C (consumption), I (investment), G (government expenditures), and X-I (net exports)
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the components of aggregate demand are
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consumption and investment
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the aggregate demand curve is negatively sloped in part because of the impact of interest rates on
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interest rates and thus affect the quantity of investment and consumption demanded
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the interest rate effect is the tendency for changes in the price level to affect
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interest rates to rise, borrowing to fall, and aggregate demand to fall
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according to the interest rate effect, an increase in the price level causes
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a fall in the price level will raise the interest rate and reduce investment spending
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which of the following is NOT true regarding the aggregate demand curve?
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the aggregate demand curve shifts to the left
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suppose that the stock market crashes, which changes wealth. Which of the following is most likely to occur?
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changes in the price level
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which of the following is a factor which cannot shift the aggregate demand curve?
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lower labor productivity
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the aggregate demand curve would shift to the left for all of the following reasons EXCEPT
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the aggregate demand curve shifts to the right
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if the government lowers income taxes,
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the aggregate demand curve shifts to the right
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if the government increases its spending,
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the aggregate demand curve shifts to the left
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a decrease in the money supply is likely to cause
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the public becomes more optimistic about future income
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aggregate demand will increase if
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Federal Reserve lowers the interest rate by increasing the money supply
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all of the following are examples of fiscal policy, EXCEPT when the
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increase; decrease
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if the government wants to increase aggregate demand, it would ____ spending and _____ taxes
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increases; right
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if the Fed increases the quantity of money in circulation, investment _____ and the aggregate demand curve shifts to the _____
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saving increases by less than $x
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when disposable income increases by $x, which of the following could occur?
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spending multiplier
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an increase in the marginal propensity to consume causes and increase in which of the following?
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5
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if the MPC is .8, the multiplier is [1/(1-MPC)]
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the marginal propensity to save increases
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the value of the spending multiplier decreases when
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the marginal propensity to save increases
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the MPC decreases when
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decrease; decrease
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if business taxes increase, aggregate supply will ____ and employment will ____
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it suggests that increases in output can occur without increases in the price level
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which of the following is true of a horizontal supply curve?
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purchasing power of wealth decreases
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the aggregate demand curve is downward sloping because as the price level increases the
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a decrease in unemployment
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an increase in aggregate demand when the economy is in equilibrium will result in
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taxes
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a decrease in which of the following will increase aggregate demand?
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unemployment rate
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if an economy's aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the
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an increase in the money supply
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an inflationary gap can be eliminated by all of the following EXCEPT
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a decrease in employment
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a contractionary supply shock would most likely result in
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decrease; decrease; increase
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if aggregate demand decreases due to a decrease in consumption, then the price level will ____, output will ____, and the unemployment rate will ____
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the cost of productive resources (inputs)
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the short-run aggregate supply curve is likely to shift to the left when there is an increase in
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a decrease in aggregate supply
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Stagflation is caused by
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real national output and the price level
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the intersection of the aggregate supply curve and the aggregate demand curve occurs at the economy's equilibrium level of
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an across-the-board reduction of wages in the manufacturing sector
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which of the following would most likely cause a rightward shift in an economy's aggregate supply curve?
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unemployment falls with little inflation
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equilibrium real GDP is FAR BELOW full employment and the government lowers household taxes. which is the likely result? (answer based on SRAS with three stages)
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always vertical in the long run
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which is the best way to describe the AS curve in the long run?
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real interest rate
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the long-run growth of an economy will be increased by an increase in all of the following EXCEPT
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decrease; increase
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a decrease in energy costs will most likely cause the price level to ____ and real GDP to _____
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negative supply shocks cause the factor prices to decrease
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which of the following best explains how an economy could simultaneously experience high inflation and high unemployment
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2
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a change in which of the following will cause the short-run aggregate demand curve to shift? 1. price level 2. government spending 3. the cost of all inputs
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increase; not change
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in an economy with a horizontal supply curve, an increase in government spending will cause output to ____ and price level to ___
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increase; decrease; increase
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if private savings increase, the supply of loanable funds will _____, interest rates will _____, and the amount of borrowing will ______
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savings
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physical capital is purchased through investment spending, which in turn is mostly financed out of
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the total amount of borrowing decreases
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when the government runs a budget deficit, all of the following happen EXCEPT
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the real interest rate
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the price in the loanable funds market is
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reducing investment spending on physical capital
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crowding out negatively affects the economy by
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the federal government spends more than it collects in taxes in a given year
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federal budget deficits occur when
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the decrease in investment spending caused by an increase in government spending
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crowding out is best described as which of the following?
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higher interest rate
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an increase in government spending and/or decrease in taxes leads to a
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appreciating the value of the dollar
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when the U.S. government engages in deficit spending, that spending is primarily influenced by
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decrease; decrease
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in the short run, a restrictive fiscal policy will cause aggregate demand to ____ and price level to ____
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decreasing taxes to stimulate aggregate demand
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which of the following policies would a Keynesian recommend during a period of high unemployment and low inflation?
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the size of the national debt will increase
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which of the following will occur if the federal government runs a budget deficit?
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changes in the money supply
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which of the following does NOT come under the rubric of fiscal policy?
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decrease taxes
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suppose the economy is experiencing a recessionary gap. to move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to
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an increase in government spending
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if the economy is at potential output, and consumption spending suddenly decreases due to a fall in consumer confidence, the appropriate fiscal policy is
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decrease; decrease; increase
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if aggregate demand decreases due to a decrease in consumption, then the price level will ___, output will ___, and the unemployment rate will ____
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decrease, decrease
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if business taxes increase, aggregate supply will __ and employment will ___
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increasing/decreasing taxes
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each of the following is a tool of Monetary Policy EXCEPT
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they encourage it
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what effect do low interest rates have on business investment?
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interest rate
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the cost of money is the
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actions the Fed takes to influence the economy
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what does "monetary policy" mean?
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one that keeps only a small part of customers' deposits on hand
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what does a "fractional reserve system" mean?
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the opportunity cost of holding money increases as interest rates get higher
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why does a high interest rate discourage people from holding their money in cash?
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the portion of a deposit that a bank must keep on hand
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what is the required reserve ratio?
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by reducing the discount rate
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one way the Fed encourages banks to loan more money is
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the sale decreases the money supply
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how does a bond sale made by the Fed affect the money supply?
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the board members are appointed for 14 year terms
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what provides the Federal Reserve Board a high degree of political independence?
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the u.s. president
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who nominates (appoints) the members of the Board of Governors of the Fed?
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the federal reserve
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who issues U.S. paper currency?
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it can be disruptive to the whole banking system
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what is the major reason the Fed rarely changes the reserve requirement?
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open market operations
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what is the policy used by the Fed to change the money supply?
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decrease; increase
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an increase in the money supply will ____ real interest rates and ______ real output
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lower interest rates and more investment
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an expansionary monetary policy will lead to
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high inflation
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under which of the following conditions would a restrictive monetary policy be most appropriate?
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$8,000
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assume that the reserve requirement is 20%. if a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loan is
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the buying and selling of government bonds by the Fed
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open market operations refer to which of the following activities?
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decrease; increase; decrease
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an open market sale of bonds by the Fed will most likely ____ the money supply, ____ the interest rate, and _____ aggregate demand
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travel in the U.S. is less expensive for europeans
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when the dollar value of the euro is high
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foreign exchange market
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the market in which foreign currencies are traded is known as the
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the euro depreciated and the dollar appreciated during this period of time
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Suppose that the price of a euro was $1.47 on January 1, 2013 and decline to $1.40 for a euro on January 12, 2013. This implies that
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.50 euros (€)
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if the rate of exchange is 1€ = US$2, then US$1=
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price of currencies between two countries
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the exchange rate is the
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americans will buy fewer goods from abroad
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if the U.S. dollar appreciates, we expect all of the following EXCEPT
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the demand for euros to increase, appreciating the euro
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suppose that the US and the European Union (EU) are the only trading partners in the world. If interest rates in the US are significantly lower than those in the EU, we would expect
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the US dollar will appreciate
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if the economy of europe expands rapidly and this increases european tourism to the US, which of the following will be the likely result?
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an appreciation of the dollar, which will raise US imports
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suppose that europeans began to view the US as a more attractive investment opportunity. Which of the following is likely to be the next series of events?
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demand curve for the euro to the right; appreciate
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in the forex, an increase in the rate of return available in the EU will shift the ____ and the euro will _____
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an exchange rate regime
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the rule that governs a country's policy toward its exchange rate is known as the
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set by the government
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a fixed exchange rate id
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consumer tastes
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each of the following is a determinant of exchange rates EXCEPT
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increase; appreciate
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if foreign investors increase their purchases of US government bond, the demand for dollars will ___ and the international value of the dollar will _____
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decrease; increase; appreciate
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in a flexible system of exchange rates, an open market sale of bonds will most likely ____ the money supply, ____ the interest rate, and ____ the value of the dollar
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increase; decrease
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if Mexicans increase their investment in the US (which means they have to buy dollars), the supply of Mexican pesos to the foreign exchange market will _____ and the follar price of the peso will ____
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increase; decrease
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with an increase in investment demand in the US, the real interest rate and the demand for dollars rise. In this situation the money supply in the US will ___ and the international value of the dollar will ______
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an increase in interest rates in the US
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which of the following would CAUSE the US dollar to increase in value compared to the Japanese yen? (that is, one of the following led to the US dollar being able to purchase more yen than before.)
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decrease; increase
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assume that the supply of loanable funds increases in Vountry X, causing its interest rates to decline. Therefore, the international value of Country X's currency would ___, which would lead to a(n) _____ in Country X's exports
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bondholders (buyers) gain some ownership of a corporation
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all of the following are true regarding bonds EXCEPT
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dividend payments, capital gains
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stock owners can earn money from TWO of the following
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maturity value of a bond
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par value is the
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is the interest rate earned on a bond
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a coupon payment
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expected to grow quickly and significantly in the future
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if a company's stock is selling at a high PE ratio, it could indicate that the company is
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the present value of the bond
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in order to calculate how much to pay now for a bond, one would need to know each of the following EXCEPT
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it is guaranteed by the federal government
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why is a FDIC insured certificate of deposit considered a safe investment?
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a device for combining the stock of many companies and offered as a single investment
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what is a mutual fund?
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a bond issued by a corporation as a way to borrow money
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what is a corporate bond?
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the risk of the money stock mutual fund is greater than that of the Treasury Bond
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How does the risk involved in a stock mutual fund com are with the risk of a US Treasury Bond?
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arranges stock trading of many of the largest and most established companies in the US
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what does the New York Stock Exchange do?
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an index that show the performance of a limited number but representative stocks
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what is the Dow Jones Industrial Average?
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are blue-chip stocks
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of the following, the safest stocks
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$95.24
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A $100 bond that earns 5% and matures in 1 year would cost Present Value= Future Value/ (1+i)^n
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less than
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the liquidity of bonds is ___ that of savings accounts
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when a company's stock is first available to the public
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an IPO is
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common
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most stock is ___ stock
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inversely
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the price of a bond varies ____ with its interest rate
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lose money
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if a person buys a bond paying 5% interest and then the interest rates go up, if the bondholder sells her bond, she would
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up; decreases
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Typically, when stock prices are going up, the interest rate of bonds goes ____ and the price of bonds ____
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