Economics - Macro Flashcards
1
Q
Macroeconomists are least concerned with?
A
individual market prices
2
Q
Since 1900, U.S. real gross domestic product has increased by a factor of?
A
forty
3
Q
A historical event that produced a notable decline in the U.S. real gross domestic product?
A
the Great Depression
4
Q
The Latin term “per capita” translates most literally to
A
per head
5
Q
What equation gives average labor productivity?
A
Total output in an economy divided by total number of workers employed
6
Q
In what region of the world is production per person lowest?
A
South Asia
7
Q
What term refers to the fluctuation between troughs and peaks in economic activity?
A
business cyle
8
Q
Recessions are most associated with?
A
declining employment opportunities
9
Q
During which of the following periods did the U.S. aggregate prices fall?
a. 1929 to 1933
b. 1975 to 1979
c. 1939 to 1942
d. 1996 to 2000
e. 2013 to 2017
A
1929 to 1933
10
Q
The labor force is made up of the
A
employed and the unemployed
11
Q
If a country runs a trade surplus, it is most likely that
A
exports exceed imports
12
Q
In 2019, the average output per person in the U.S. economy was closest to?
a. $65,000
b. $110,000
c. $82,000
d. $37,000
e. $173,000
A
$65,000
13
Q
What statist appears in the denominator of the unemployment rate?
A
the labor force
14
Q
At what rate did inflation during World War I peak?
A
20%
15
Q
Since which decade has the U.S. run a trade deficit?
A
the 1970s
16
Q
What term refers to the process of combining many different things into a single economic variable?
A
aggregation
17
Q
Gross domestic product is defined as the
A
market value of all final goods and services produced within a country during a specified period
18
Q
An ice cream shop owner purchases milk from a local dairy farmer to make her product. In this example milk is a?
A
intermediate good
(goods used in the process of producing a final good)
19
Q
NewAuto Co. purchases $100,000 worth of steel from a steel producer and converts it into $500,000 worth of automobiles. What is the total value contributed to GDP?
a. $500,000
b. $400,000
c. $1,100,000
d. $100,000
e. $600,000
A
500,000
(steel is an intermediate good - additions to GDP are the total of the final good in this case the automobile)
20
Q
In the mid-1600s, Sir William Petty attempted to measure national output to?
A
assess the Irish’s ability to pay taxes to the British government
21
Q
Whom did the U.S. Department of Commerce commission in 1932 to develop a system to measure national output?
A
Simon Kuznets
22
Q
Which of the following exchanges would be counted towards this year’s GDP?
a. A couple buys plane tickets to Europe.
b. A domestic energy company imports oil from abroad.
c. A family sells a home they have lived in for ten years.
d. A business owner buys a five-year-old piece of capital equipment.
e. A firm sells steel to an auto manufacturer.
A
A couple buys plane tickets to Europe
23
Q
Brenda is a local cow farmer. In one year, she produces $500 worth of milk. She sells $250 at a local farmers market and uses the other $250 to make ice cream, which she sells for $400. What is Brenda’s contribution to GDP?
a. $900
b. $150
c. $400
d. $500
e. $650
A
$650
24
Q
How do economists conventionally account for national defense when calculating GDP?
A
They include all national defense expenditures in GDP
25
How has the increase in women in the paid labor force most affected GDP?
It has resulted in a shift from non-market to market activity
26
Spending by firms on final goods and services is counted towards GDP as?
Investment
27
Government purchases do not include?
Social Security payments
(does include public infrastructure investment, military spending, teacher salary, wages to police & firefighters)
28
For what purpose do economists use REAL GDP?
to isolate the effects of changes in production
29
Suppose a country produces two goods: jeans and shirts. In 2015, the country produced 20 shirts at $10 each and 10 jeans at $25 each. In 2016, the country produced 30 shirts at $15 each and 15 jeans at $20 each. Using 2015 as the base year, real GDP in 2016 is
a. $450
b. $500
c. $900
d. $750
e. $675
$675
30
What group calculates the Consumer Price Index in the U.S.?
The Bureau of Labor Statistics
31
By what means are the components of the market basket for the Consumer price Index determined?
Household surveys
32
The Consumer Price Index is calculated every?
month
33
What term appears in the denominator in the calculation of CPI (Consumer Price Index)?
cost of the bundle in base year
34
According to the substitution effect, if the price of apples increases, then?
households will shift consumption to oranges
35
What commission found that CPI overstated the rate of price inflation by 1.3% per year?
the Boskin Commission (in 1996)
(3 areas of upward bias are substitution bias, unmeasured quality change, introduction of new goods & services)
36
What term appears in the numerator in the calculation of GDP deflator?
nominal GDP
37
What would be a good explanation of why the GDP deflator has risen less than the CPI?
The GDP deflator adjusts to changing consumption patterns
38
Which of the following adults would the Bureau of Labor Statistics NOT consider to be employed?
a. a basketball player who plays three games per week
b. a financial planner who is on a beach vacation with his family
c. a doctor who has been on sick leave for two weeks due to an injury
d. a research assistant working as an unpaid intern
e. a part-time math tutor who works 10 hours per week
A research assistant working as an unpaid intern (if you make wages/get paid you are employed)
39
The labor force participation rate is calculated as the ratio of the
labor force to the working-age population - currently about 61%
40
New workers entering the labor force would be counted in measures of?
frictional unemployment
41
What causes structural unemployment?
mismatch between job openings and job seekers
42
The criteria for being considered unemployed state that a person without a job must have looked for one within the past?
four weeks
43
What group in the U.S. had the highest unemployment rate as of July 2020?
a. women 25 to 35 years old
b. Asian women
c. African American men
d. teenagers
e. Hispanic adults
Teenagers
44
The diagram that illustrates the set of interactions between the major sets of economic actors in our economy is called the
Circular flow model
45
Households do not use income to?
buy factors of production
(do use income for: saving money, buy goods & services, paying taxes)
46
What accounts for most of the variation in GDP per capita?
average labor productivity
47
Economic growth most directly leads to
improvements in living standards
48
What do firms receive in return for selling goods and services?
revenue
49
Machinery is an example of?
Physical capital
(tools & machinery that workers use to produce goods and services)
50
How is human capital most similar to physical capital?
It is created by sacrificing the current consumption
51
Human capital is?
a person's knowledge and skills gained which they use to produce a good/service
52
What country has a high standard of living due to oil reserves?
Mexico, Saudi Arabia, Germany, England, India
Saudi Arabia
(also Kuwait)
53
If China’s economy is larger than that of Taiwan, then it MUST be true that
a. China has an absolute advantage over Taiwan
b. Chinese citizens are more productive than Taiwanese citizens
c. China has a higher GDP per capita than Taiwan
d. Chinese citizens have greater consumer surplus than Taiwanese citizens
e. China has fewer trade barriers than Taiwan
China has an absolute advantage over Taiwan
54
Which of the following countries has the LEAST amount of natural resources?
a. Democratic Republic of Congo
b. the United States
c. Kuwait
d. Japan
e. Russia
Japan
55
What factor has contributed the most to raising average labor productivity historically?
technology
56
MOST of the difference in standards of living between North and South Korea can be attributed to differences in
governmental institutions
57
Why would it be unwise for an economy to invest all its money in human and physical capital?
No goods and sercices would be available to consume
58
How could an economy incentivize advancements in human capital?
offering subsidies for college education
59
What primary factors of production do households provide?
land, labor, capital (provide in exchange for income)
60
To economists the term "investment" refers to
purchasing new capital equipment
61
Households save money through?
financial markets
62
When a company borrows money, it issues
bonds
63
What does a bond's date of maturity state?
when the loan will be repaid
64
What term refers to the original amount of an investment?
principal (this is the amount that bonds repay on their date of maturity)
65
What does it mean for a company to default on its bonds?
The company fails to make its promised payments
66
How are stockholders most different from bondholders
Stockholders have a greater potential for high returns
67
A bank is an example of a
financial intermediary
68
Who primarily bears the risk of a bank's lending operations?
its stockholders
69
Which of the following bonds would carry the highest interest rate?
a. a bond from a government set to mature in 3 years
b. a bond from a reputable company set to mature in 10 years
c. a bond from a notorious company set to mature in 1 year
d. a bond from a risky company set to mature in 10 years
e. a bond from a risky company set to mature in 5 years
a bond from a risky company set to mature in 10 years
70
Which of the following investors would benefit MOST from a mutual fund?
a. a 55-year-old financial planner who prefers to hold individual stocks
b. a 45-year-old millionaire with a diversified portfolio
c. a 67-year-old retiree who does not want to invest in stocks
d. a large insurance company that needs to invest its cash
e. a 21-year-old college student who has a small amount of money to save
a 21-year-old college student who has a small amount of money to save
71
Mutual funds do not allow investors to?
eliminate risk
72
Who determines the price of a stock?
buyers and sellers
73
A company would most likely pay a divident if?
it enjoys good economic prospects
74
Which of the following scenarios is an example of equity finance?
a. An investor sells Walmart stock to pay for a house.
b. An investor purchases a mutual fund to save money.
c. A bank lends money to Starbucks to expand its footprint.
d. Nike issues bonds to facilitate a company acquisition.
e. Costco sells stock to build a new department store.
Costco sells stock to build a new department store
(equity finance refers to the sale of stock by a company)
75
If an economy is closed, then it must be true that?
net exports are zero
(closed economies do not engage in international trade)
76
An expression that illustrates the equality of income and expenditures?
income = consumption expenditures + investment + government purchases (in a closed economy)
77
Private saving is expressed as
income - consumption expenditures - taxes
78
What must be true if the government runs a budget surplus?
Taxes exceed government purchases
79
What company purchased Anheuser-Busch?
Inbev (a Brazilian & Belgian owned brewing company in 2008)(this was a foreign purchase of domestic assets, reducing the U.S. net capital outflows)
80
What company purchased Rockefeller Center in 1989?
Mitsubishi (this was a foreign purchase of domestic assets, reducing the U.S. net capital outflows)
81
How is foreign direct investment most different from portfolio investment?
The buyer plans to actively manage the assets
82
In an open economy, if net capital outflows are negative, then?
investment exceeds saving
83
Which of the following transactions would increase the United States’ net capital outflow?
a. A U.S. resident purchases a home in New York.
b. A French technology company sells its products in the United States.
c. A British wine company purchases a vineyard in California.
d. Intel sells its manufacturing in China.
e. Microsoft purchases property in Germany.
Microsoft purchases property in Germany
(net capital outflow increases from domestic purchases of foreign assets)
84
Suppose a British company purchased $3,000 worth of grapes from a German company and sold $1,000 worth of spirits to France. What is the change in England’s net capital outflows?
a. $1,000
b. $3,000
c. -$2,000
d. $0
e. $4,000
-$2,000
85
What variable appears on the y-axis of a supply and demand graph for savings?
interest rate
86
The real interest rate equals
the nominal interest rate less inflation
87
Crowding out is defined as the
tendency of government deficits to reduce private investment
88
How would a reduction in the tax rate on interest income affect the market for saving?
The supply of savings would increase
89
An investor would be more likely to borrow money if?
the expected return exceeds the interest rate
90
Why do people usually hold onto money?
to complete transactions easily
91
Like money, stocks function as a
store of value
92
As a unit of account, money
facilitates comparisons of economic value
93
What term do economists use to describe all of the different stores of value in an economy?
wealth
94
What does liquidity measure?
the ease with which an asset can be converted into a medium of exchange
95
Which of the following assets has the GREATEST liquidity?
a. a vacant plot of land
b. a share of supermarket stock
c. a vacation home
d. a limited partnership interest
e. an antique art painting
a share of supermarket stock
96
Most restaurants express prices on their menus in dollars. The practice illustrates money's use as a
unit of account
97
How does commodity money most differ from fiat money?
commodity money holds intrinsic value
98
Items that represent commodity money
gold, silver, rocks, cowrie shells, jewels
99
What good functioned as a medium of exchange in World War II prisons?
cigarettes
100
Assets that could be considered money
savings account, dollar bill, checking account, mutual fund account
(credit cards act as a loan to be paid back)
101
Fiat money's value most depends on
government decree
102
Assets in M1 and M2 most differ in their
liquidity
103
Together, M1 and M2 constitute
the stock of money (in an economy)
104
What assets are part of M2?
savings deposits, small denomination time deposits, retail money funds, and all of M1
105
What entity regulates the supply of money in the United States?
central bank (ours is the Federal Reserve)
106
How many members are on the Federal Reserve's board of governors?
seven
107
What regional bank's president is a permanent member of the FOMC (Federal Open Market Committee)?
New York (due to the location of the New York stock exchange)
108
The FOMC meets every?
six weeks
109
How does the Federal Reserve increase the money supply through open market operations?
It purchases United States government bonds
110
A bank's assets consist of?
reserves and loans
111
Banks that use fractional reserves can?
make the economy more liquid (by creating more money)
112
High-powered money includes?
currency and reserves
113
The money multiplier is calculated as?
the reciprocal of the reserve ratio
114
Why does the Federal Reserve rarely adjust reserve requirements?
It is disruptive to the banking industry
115
The discount rate is the interest rate
the Federal Reserve charges on loans made to banks
116
How can the Federal Reserve decrease the money supply?
raising reserve requirements, selling U.S. government bonds, and increasing key interest rates
117
A bank has $50 in deposits. It creates money until total deposits equal $200. What is the reserve ratio?
a. 3
b. 0.5
c. 4
d. 0.1
e. 0.25
0.25
118
A bank is considered solvent if?
Assets exceed liabilities
119
The Federal Reserve has most control over?
the discount rate
120
How much did the U.S. price level fall during the Great Depression?
25%
121
In addition to the Great Depression, the U.S. price level fell during?
the 2008 financial crisis
122
Inflation primarily reflects changes in?
the value of money (a reduction in the value of moeny)
123
What magnifies the effect of open market operations?
Fractional reserves
124
How is moeny most similar to other items in an economy?
Its value is derived by supply and demand interactions
125
How did the development of Apply Pay affect the market for money?
It decreased demand
126
Why is demand for money downward sloping?
As the value of money decreases, people need more money to buy goods
127
If the Federal Reserve purchases government bonds, it is most likely that
prices increase
(the supply of money increase - which results in an increase in demand for goods & services which results in higher prices)
128
What term reflects that changes in the quantity of money have no effect on real quantities in the economy in the long run?
neutrality of money
129
Items that represent real quantities (in physical units)
tons of steel, gallons of oil, pounds of pork, bushels of wheat
130
Which of the following equations represents the quantity equation?
a. V x M = P x Y
b. V / M = Y / P
c. V x Y = M x P
d. M / V = P x Y
e. V x P = M x Y
V x M = P x Y
131
The velocity of money is best defined as the?
number of times a dollar bill is used during a year
132
If the money supply increase, ti is least likely that?
nominal GDP decreases
133
Which of the following issues does NOT represent a cost of inflation?
a. Cash users have to visit the ATM more often.
b. Rising prices distort the long-run neutrality of money.
c. Borrowers and lenders face increased risk in credit markets.
d. Relative prices may not reflect the relative costs of production.
e. Firms have to adjust prices frequently
Rising prices distort the long-run neutrality of money
134
Suppose an economy’s nominal GDP is $2,000 and its supply of money is $500. What is the velocity of money?
a. 5
b. 10
c. 50
d. 2
e. 4
4
135
What term refers to a period between a peak and a trough in economic activity?
recession
136
The recurrent alternation between peaks and troughs in economic activity is called the
business cycle
137
For a recession to occur, real GDP growth must decline for at least
two consecutive quarters (or 6 months)
138
What entity officially determines the start and end dates of expansions and recession int he United States economy?
The nNational Bureau of Economic Research
139
Why primarily do declines in unemployment lag the onset of expansions?
Businesses are slow to hire
140
What term refers to the quantity of goods & services that the economy can produce when using its resources at normal rates?
potential output
141
What expression yields the value of the output gap?
Y - Y *
(Y represents actual output, and Y* is potential output)
142
The natural rate of unemployment could be best described as?
frictional unemployment plus structural unemployment
143
Why did the natural rate of unemployment increase in the 1970s?
More women entered the paid workforce
144
Arthur Okun was a chief economic advisor to?
President Kennedy
145
Okun's Law describes the relationship between the output gap and?
cyclical unemployment
(a 1% increase in cyclical unemployment is associated with a 2% increase in the output gap)
146
Growth in potential output depends least on?
changes in the output gap
(growth depends on - technological advancements, growth in the population, growth in productive resources)
147
What can account for deviations between actual output and potential output?
Prices do not adjust immediately
148
John Maynard Keynes developed a new economic model in response to?
the Great Depression
149
What is depicted on the y-axis in the Keynesian model?
aggregate price level
(x-axis is real GDP)
150
Why do shifts in relative prices not explain the downward-sloping aggregate demand curve?
A drop in the aggregate price level means that all goods have gotten cheaper
151
What is a likely effect of a lower price level on the market for savings?
Lower interest rates encourage people to borrow money
152
Exports are likely to increase when?
Domestic price level decreases
153
Who owns the SpaceX company?
Elon Musk
154
The SpaceX company's construction of satellites most directly incentivizes increased?
investment spending
155
Why was the supply curve upward sloping in the microeconomic analysis of markets?
As price increases, more resources are diverted toward the particular market
156
The Keynesian model represents short-term aggregate supply as a
upward-sloping line
157
Resources are fully employed where
the short-run aggregate supply curve intersects potential output
158
What component of GDP does the foreign exchange rate most affect?
net expo
159
Which of the following events would be LEAST likely to shift the aggregate demand curve to the right?
a. Consumers’ disposable income increases.
b. The government lowers taxes.
c. Interest rates increase.
d. The government passes a major infrastructure spending bill.
e. Stock prices increase
Interest rates increase
160
How does an increase in the expected price level affect the Keynesian model?
aggregate supply shifts up
161
The 1973 OPEC oil embargo best illustrates a?
aggregate supply shock (causing the aggregate supply to shift to the left)
162
Holding the velocity and quantity of money constant, a lowered price level will most likely?
increase real GDP
163
Factors that affect the aggregate demand curve
Consumer sentiment, monetary policy, fiscal policy, new technologies
(does not include long-run potential output)
164
How would the Keynesian model adjust to account for long-run growth of real GDP?
potential output shifts to the right
165
Suppose the aggregate demand curve shifts to the left. How does output return to potential?
Prices fall
166
Which of the following statements BEST describes the effect of a negative aggregate supply shock?
a. Aggregate demand shifts to the right.
b. Potential output shifts to the left.
c. The economy is producing beyond its potential.
d. Aggregate demand shifts to the left.
e. The output gap is negative
The output gap is negative
167
What is the basic explanation for recessions and expansions in the Keynesian model?
short-run inflexibility of prices
168
The intersection of aggregate demand and short-run aggregate supply in the Keynesian model most directly influences?
aggregate production (and price level)
169
Suppose the money supply increases at 6% per year, and potential output increases at 4% per year. Holding the velocity of money constant, the inflation rate is CLOSEST to
a. 4%
b. 10%
c. 2%
d. 0%
e. 6%
2%
170
If an economy perfectly anticipates the level of inflation, then?
the ouput gap will equal zero
171
Examples of expansionary fiscal policy
increasing the amount of government spending, reducing taxes (actions designed to stimulate the economy as a whole)
172
What component of GDP is most directly affected when the government lowers income taxes?
consumption
(people will have more money in their pockets and will usually spend it)
173
To slow down an economy producing above its potential, the Federal Reserve could
raise interest rates
(causing firms and consumers to reduce spending)
174
If a nation’s aggregate demand curve intersects the short-run aggregate supply curve at a point on the long-run aggregate supply curve, then the nation
Has an output gap of zero
175
Why are fiscal and monetary policy controversial
The effects of their actions take time to be felt
176
What U.S. president financed a military buildup in the 1960s?
Johnson
177
The Federal Reserve varies the money supply to influence
interest rates
178
In the Keynesian model, an increase in the money supply manifests as a
rightward shift in aggregate demand
179
Expansionary fiscal policy is most likely to be counterproductive due to?
time lag
(takes a while for the effects to be felt)
180
Net exports are always equal to
net capital outflow
181
In a closed economy, investment is equal to
Y - C - G
182
New knowledge created by R & D is considered a _______ good.
Public
183
How do you calculate real GDP per capita?
Real GDP per capita is equal to labor productivity multiplied by employment rate
Ex: Average labor productivity is $200, and 75% of the population is employed. What is real GDP per capita?
200*.75 = 150
184
When a household wishes to save, they become a member of the ______ market.
Financial market
185
Bureau of Labor Statistics contacts how many households every month to determine the Unemployment Rate?
60,000 households
186
How do you calculate CPI?
CPI is calculated as 100 x (current basket price) / (base year basket price)
Ex: A market basket cost $200 in the base year, and now costs $250.
100 x 200 / 250 - 20,000 / 250 = 125
187
Boskin commission calculated CPI overstates change in price level by how much?
1.3%
188
Who headed the Boskin Commission?
Michael Boskin back in 1996
189
How do you calculate nominal GDP?
To calculate nominal GDP, current year output is multiplied by current year prices. Base year prices only matter for real GDP
190
The government project to compile a system to measure nation output happened concurrently with what event in U.S. history?
the Great Depression
191
Goods used as inputs in production of other goods are called
Intermediate goods
192
The space between a peak and a trough in an economic cycle is called
recession
193
When imports exceed exports, it's called
a trade surplus
194
How do you calculate GDP deflator?
The GDP deflator is calculated as 100*(nominal GDP)/(real GDP)
Ex: Nominal GDP is $5 million and the GDP deflator is 250. What is real GDP?
Solve for real GDP gives you $2 million
195
When was the Federal Reserve created
1913
196
The money multiplier has an inverse relationship to
reserve requirement
The money multiplier is calculated as one over the reserve requirement
197
Federal Reserve charges an interest rate on overnight loans, it's called _____ rate
Discount rate
198
When people quickly remove money from their banks a ________ could occur.
Bank run
199
Since 1960, CPI has increased by a factor of
8.6
200
The supply of money is considered ____
perfectly inelastic (supply of money is vertical on a graph)
201
The property of money that causes it to have no effect on real values is called the
neutrality of money
202
average number of times that a dollar is spent in a year is known as the
velocity of money
203
The velocity of money times the money supply is equal to
GDP
V x M = Y x P = nominal GDP
204
What decade did inflation reach double digits?
1970s
205
How long did the Great Depression last, in months?
43 months from 1929 to 1933
206
During recessions, what economic indicator increases?
Unemployment
207
What is potential output?
Potential output is the GDP when an economy is using its resources at normal, sustainable rates and is in neither a recession nor an expansion.
208
What is the natural rate of unemployment?
rate of unemployment when cyclical unemployment is zero and is comprised of structural and frictional unemployment.
209
The AS/AD model is also called
Keynesian Model
210
On the AS/AD model, what is measured on the vertical axis
price level
211
On the AS/AD model, what is measured on the horizontal axis
real GDP
212
The General Theory of Employment, Interest, and Money was written by
John Maynard Keynes
213
