Final Exam Flashcards
You are looking at the market for Diet Coke. Consider these two things happening separately (not at the same time.)
- The price of Diet Pepsi decreases
- The incomes of buyers of Diet Coke increase, and Diet Coke is a normal good.
a. neither 1 nor 2 would cause the demand curve for Diet Coke to shift left
b. both 1 and 2 would cause the demand curve for Diet Coke to shift left
c. only 1 would cause the demand curve for Diet Coke to shift left
d. only 2 would cause the demand curve for Diet Coke to shift left
c
If the value of the GDP deflator in 2015 is exactly 110.7, and the value of nominal GDP in 2015 is 19.7T, which of the following comes closest to the value of real GDP in 2015?
a. 16.2 T
b. 16.9 T
c. 17.8 T
d. 18.4 T
c
Consider the following purchases:
- A new Toyota Prius is built and sold in Alabama in 2016 (Toyota is Japanese)
- A ne Ford Figo is built and sold in India in 2016 (Ford is American)
a. Both 1 and 2 would be included in the calc of US GDP for 2016
b. Neither 1 nor 2 would be included in the calc of US GDP for 2016
c. only 1 would be included in the calc of US GDP for 2016
d. only 2 would be included in the calc of US GDP for 2016
c
You are looking at the market for smartphones. Consider these 2 things happening at the same time:
1. The tech used to produce smart[hones improves significantly
2. The incomes of buyers of smartphones increases, and smartphones are a normal good.
What will we see in the market after all curves have shifted?
a. A higher equilibrium price, and we cannot say about equilibrium quantity
b. A higher equilibrium quantity, and we cannot say about price
c. A lower equilibrium price and lower equilibrium quantity
d. none of the above
b
What is the term, discussed in your textbook, for government payments such as unemployment checks and social security payments for which the government receives no goods or services in return?
transfer payments
What is the actual current value of the GDP deflator?
112.2 or 12.2%
Consider these statements:
- The current level of Federal debt is approximately $20T
- The current level of Federal debt is too high
- The current level of federal debt should be lowered through a government austerity program
a. 1 and 3 are positive statements; 2 is a normative statement
b. 2 and 3 are positive statements; 1 is a normative statement
c. 1 and 2 are positive statements; 3 is a normative statement
d. none of the above
d
Consider the following statements:
- The value of leisure is not included in GDP
- The purchase of financial assets, such as stocks and bonds, is not included in GDP
a. Both 1 and 2 were listed in the textbook as shortcomings of GDP as a measure of wellbeing
b. neither 1 nor 2 was listed in the textbook as shortcomings of GDP as a measure of wellbeing
c. only 1 was listed in the textbook as shortcomings of GDP as a measure of wellbeing
d. only 2 was listed in the textbook as shortcomings of GDP as a measure of wellbeing
c
You are looking at the market for apple pies. You see that the price of apples (an input to apple pies) has increased significantly. In the market for apple pies we will see…
a. Supply shift right, producing a lower equilibrium quantity and a lower equilibrium price
b. Supply shift left, producing a lower equilibrium quantity and a lower equilibrium price
c. Supply shift right, producing a higher equilibrium quantity and a higher equilibrium price
d. Supply shift left, producing a lower equilibrium quantity and a higher equilibrium price
d
Which of the following is not a component of “I” in GDP?
a. Business structures
b. Durable goods
c. Residential investment
d. All of the above
b
Consider these three purchases that take place in 2016:
- A house sold in KS that was originally built and sold in 1992
- The highway patrol for the state of KS purchases 100 brand new cars for its officers
- A newlywed couple in KS purchases a new, custom-built bed from Unruh Furniture (a local company)
a. All there would be included in 2016 GDP and all three would be part of durable goods
b. only 1 and 2 would be included in 2016 GDP and both would be part of durable goods
c. only 2 and 3 would be included in 2016 GDP but only 3 would be part of durable goods
d. only 1 and 3 would be included in 2016 GDP and both would be part of durable goods
c
Products A and B are complements on the demand side. If the price for product A decreases what will we see in the market for product B?
a. demand shifting left which is a decrease in demand
b. demand shifting right which is an increase in demand
c. demand shifting left which is a decrease in quantity demanded
d. demand shifting right which is and increase in quantity demanded
b
What is the current value of Real GDP for the US right now and what is the rate at which the US economy is currently growing?
$16.8 T; 1.9%
Economists estimate the size of the US underground economy to be…
a. At most, 3% of GDP
b. At most, 5% of GDP
c. At most, 10% of GDP
d. At most, 20% of GDP
c
You are looking at the market for tortilla chips. Two things happen at the same time: the price of corn, an input to tortilla chips, decreases. And also the price of salsa, a complement to tortilla chips, decreases. In the market for tortilla chips we will see:
a. Demand shift left, supply shift left, a higher equilibrium price and we cannot say about equilibrium quantity
b. Demand shift left, supply shift right, a higher equilibrium quantity and we cannot say about equilibrium price
c. Demand shift right, supply shift right, a higher equilibrium quantity and we cannot say about equilibrium price
d. Demand shift left, supply shift left, a lower equilibrium price and we cannot say about equilibrium quantity
c
GDP (gross domestic product) is the market value of all goods and services produced in a country during a given period of time (usually a year).
Is this accurate? If not, what is wrong with it?
No; it should say “final” goods and services
If buyers of jet skis expect the price to decrease in the future we will see _________ today, and if sellers of jet skis also expect the price to decrease in the future we will see _________ today.
a. Demand shift right; supply shift left
b. Demand shift right; supply also shift right
c. Demand shift left; supply shift right
d. Demand shift left; supply also shift left
c
What is the name (not initials) of the organization that calculates GDP and what is the year that is currently used as the base year when calculating real GDP and the GDP deflator?
Bureau of Economic Analysis; 2009
Which of the following will not result in a lower equilibrium price in the market you’re looking at?
a. You’re looking at the market for butter and the price of margarine decreases
b. You’re looking at the market for motorcycle helmets and the price of motorcycles decreases
c. You’re looking at the market for electric cars, and the technology used to make the electric cars improves
d. Actually all three of the above will result in a lower equilibrium price in the market we’re looking at
b
Which of the following is correct?
a. U3 in Brianlandia is significantly higher than current value of U3 in the US
b. U3 in Brianlandia is significantly lower than current value of U3 in the US
c. U3 in Brianlandia is nearly identical to the current value of U3 in the US
d. none of the above
c
In the country of Brianlandia there are 78 million people currently working; this includes people working both full and part time. There are 4M people who aren’t working but have looked in the past 4 weeks, aren’t in the hospital, not in prison, not in the military. If Brianlandia calculated U3 exactly as the BLS does for the US which of the following comes closest to the value of U3?
a. 6.2%
b. 5.6%
c. 5.1%
d. 4.9%
d
what is the current annual measure of inflation?
2.5%
If nominal interest rate on a mortgage is 4.2% and inflation is the current annual measure of inflation as reported in the CPI, what is the real interest rate?
1.7%
If unemployment is caused by the existence of a minimum wage it must be that…
a. the min wage is below the market wage
b. the min wage is above the market wage
c. the min wage is equal to the market wage
d none of the above
b
Consider the following:
- A Ford truck made and sold in Mexico
- A Mitsubishi made and sold in Alabama
a. 1 would be included in calculation of US GDP but 2 would not
b. 2 would be included in calculation of US GNP but 1 would not
c. Both would be included in calculation of US GNP and US GDP
d. none of the above
d
In the market for loanable funds, if there is a decrease in corporate taxes, we would see…
the demand for loanable funds shift right, producing a higher interest rate
If congress votes to increase the corporate tax rate what do we see on market for loanable funds graph?
Demand shift left
If the government runs a budget surplus what do we see on market for loanable funds graph?
supply shift right
Which of the following is not part of market for loanable funds graph?
a. the amount of net exports that makes up the (X-M) of GDP
b. The interest rate
c. the amount of investment that makes up I in GDP
d. all of the above are a part of market for loanable funds graph
a
Assume the current # of discouraged workers in the US in Feb is 6M. Assume in March that 1M of these discouraged workers start looking for a job. They do not find a job, but they start looking. Which is correct assuming nothing else changes?
a. the numerator of U6 will be smaller in March than it was in Feb
b. the numerator of U6 will be larger in March than it was in Feb
c. the numerator of U6 will be unchanged between March and Feb
d. none of the above
c
5 components of GDP when it is calculated using the income approach that we discussed in class
wages, profit, interest, rent, taxes
WPRIT
Richard was fired 2 months ago from his job as an architect because he refuses to use a computer and architectural software to do his designs. That is the exact reason his firm fired him. Richard’s situation is best described as….
structural unemployment
The same Richard has been looking for a new job every single day since he was fired. He has never missed a day looking. In a calculation of U6, Richard would be…
a. Included in the numerator but not the denominator
b. included in the denominator but not the numerator
c. included in both the numerator and denominator
d. not included in either
c
Calculate U6
(Unemployment + Marginally attached + Part time for economic reasons) / (Labor force + Marginally attached)
Who is included in the labor force?
Employed and unemployed; not included people under 16, hospitalized, institutionalized, in the military
The entity that calculates CPI is ______ and the entity that determines the beginning and ends of business cycles is ______.
Bureau of Labor Statistics; National Bureau of Economic Research
Which of the following is not one of the 4 largest components in CPI market basket?
a. transportation
b. medical expenses
c. recreation
d. all of the above are included in the 4 largest components
c
Consider the following:
- If we are in a recession we know prices are falling
- If we are in an expansion we know unemployment is declining
a. 1 and 2 are correct
b. 1 and 2 are incorrect
c. Only 1 is correct
d. only 2 is correct
b (inflation is falling in recession)
(unemployment doesn’t decrease in expansion)
4 ways CPI differs from GDP deflator
- CPI is calc monthly; GDP is quarterly
- CPI only measures consumer products using market basket; GDP includes items like helicopters
- CPI base year: 1983; GDP base year: 2009
- CPI quantity doesn’t matter; GDP quantity matters
The difference between nominal and real interest rate is…
a. the nominal equals real rate plus the inflation
b. the real is the rate you actually see advertised and nominal takes into account inflation
c. the nominal is the real divided by inflation rate
d, the real is nominal multiplied by the inflation rate
a
Sometime the CPI market basket contains one good, such as a ticket to a movie in a theatre, and an increase in the price of the movie ticket causes people to shift their purchases to something else instead, like streaming a movie on netflix. This is called ______ and it means that CPI might ______ how the price change affects consumers.
substitution bias; overstate
Which of the following was not listed in the book as one of the answers to the question “Why don’t more low income countries experience rapid growth?
a. corruption and failure to enforce the rule of law
b. insufficient natural resources
c. wars and revolutions (political instability)
d. poor public health and education
b
What was the name of the index created by Dr. Alberto Cavallo from MIT that tracks changes in 5M online prices everyday?
Billion Prices Project
On March 15, the Fed’s FOMC voted to do what?
raise the target for the Fed Funds Rate
Assume that full employment output is $20T and current GDP is $17.5T. If the gov believes they can successfully fill the gap between those 2 with an initial injection of $500B of spending what is the value that they believe the MPC is?
a. .75
b. .8
c. .6
d. None of the above
b 20T - 17.5T = 2.5T 500x = 2500 x = 5 1 / (1 - MPC) = 5 1 = 5(1 - MPC) 1 = 5 - 5MPC 4 = 5MPC .8 = MPC
- M1 gets bigger
- M2 gets bigger
- M2 stays the same
Assume you take $1000 out of savings account and keep it as currency. which of the following is most accurate?
a. 1 and 3 will happen; not 2
b. 1 and 2 will happen; not 3
c. 1 will happen; not 2 or 3
d. none of the above
a
You are looking at the AD/SRAS/LRAS model and AD and SRAS are currently intersecting to the right of LRAS. Real wages are declining. Which of the following is most accurate regarding what you could expect to see on the graph as a result of this?
a. Unemployment was at 8% and it decreases to 7.5%
b. Unemployment was at 8% and it increases to 8.5%
c. Unemployment was at 4% and it decreases to 3.5%
d. Both a and c are accurate
c
What is the current reserve requirement for a bank that has exactly $100M in assets? What is it if the bank has $200M in assets?
3%; 10%
<15.5 = 0%
15.5 > 115.1 = 3%
>115.5 = 10%
You are looking at the AD/SRAS/LRAS model and AD and SRAS are currently intersecting to the left of LRAS. Which of the following would cause a shift in AD in such a way as to move the intersection closer to LRAS?
a. decrease in the banks reserve requirement
b. an increase in incomes in the rest of the world
c. an increase in consumer confidence and improved consumer expectations
d. all of the above
d
Assume that prices in all other countries are increasing, while prices of goods in the US are not. What would this cause?
a. NX to decrease, which would ultimately move AD to the left
b. NX to increase, which would ultimately move AD to the right
c. NX to increase, which would ultimately move AD to the left
d. NX to decrease, which would ultimately move SRAS to the right
b
What is the current value of M2?
13.35T
Assume the current reserve requirement is 6%. Also assume people keep 20% out as currency. Assume $40,000 initial deposit is made into a bank. If the bank loans out all that it can, and all loans are re-deposited into the same bank, taking into account what people keep out as currency, which of the following comes closest to the total amount of deposits–including the initial deposit–once the money has worked its way entirely through the system?
a. $184,000
b. $132,000
c. $251,000
d. $288,000
a
- Fiscal policy is enacted by the Federal Reserve
- One example of fiscal policy would be a reduction in taxes
- One example of fiscal policy would be raising interest rates
Which is most accurate?
a. , 2, and 3 are all incorrect
b. 1, 2 and 3 are all correct
c. 3 is correct and 2 and 1 aren’t
d. 1 and 3 are incorrect and 2 is not
d
In the quantity theory of money, what exactly does PY represent?
nominal GDP
In Chapter 12 we examined the factors that affect the different parts of aggregate expenditure. Which of the following is correct as we learned in Chapter 12?
a. Interest rates affected the planned investment part of AE but it did not affect the consumption part
b. taxes affected the planned investment part of AE but not the Net exports part
c. the exchange rate affected the consumption part of AE but not he planned investment part
d. both a and b are correct
b
Current Account
- Goods that we export to other countries: positive
- Goods that we import from other countries: negative
- Services that we export: positive
- Services that we import: negative
- Income we receive on an investment: positive
What was our current account deficit in 2016?
$481B
Actual > Implied
= overvalued
Actual < Implied
= undervalued
4 Determinants of Exchange rates in the Long run
- Price levels – ultimately the forces working on PPP affect exchange rates whether or not PPP is actually achieved
- Productivity: increase productivity lowers costs, increasing demand for that good and that country’s currency
- Consumer’s preferences
- Barriers of trade: tariffs and quotas
Maastricht Treaty
Signed 1991; put into effect 1993
-Blueprint for a truly integrated economic and monetary union
What happened in 1999 in Europe?
All European currencies were pegged to the Euro and they started getting people used to the idea of the Euro but there was NOT a physical Euro
What happened in 2002 in Europe?
The introduced the physical Euro and replaced all other currencies within 6 months
Globalization
increasingly integrated world economy marked by increased trade of goods and services and increased flow of labor and capital
Reasons for Undertaking FDIs
- To serve a foreign market
- To avoid tariffs (taxes on imports)
- To gain access to raw materials
- To gain access to low cost labor
- To reduce exchange rate risk
- To respond to industry competition
A measure of our trade with other countries, including goods, services, and assets
Balance of Payments
Balance of Payments
A measure of our trade with other countries
1. Goods
2. Services
3. Assets
-Building
-Bond
Maintained by bureau of economic analysis
Exchange rates
- the value at which 1 currency trades for another
- affect any country’s volume of imports and exports
Nominal exchange rate
what you see reported
Real exchange rate
adjusted for price level
Demand for Country’s Currency
- Income
- When our income (GDP) increase; we demand lots of foreign stuff
- Income (GDP) decreases; we demand less foreign stuff - Prices
- If we have inflation; our stuff costs more; foreign stuff is cheaper - Interest rates
- If a country’s interest rate increase; demand for their currency shifts right - Speculation
- If you think that something will happen to the currency then it will affect the exchange rate
In a recession the $ gets ________
stronger
Inflation in home country makes the home country’s currency _______
weaker
If a country’s interest rates rise what happens to the demand for that country’s currency?
shift right
If you sell to the rest of the world, strong dollar is ______
bad
If the dollar is strong we ________ more and ___________ less
importing; exporting
If the dollar is weak we ________ more and ___________ less
exporting; importing
If the dollar is stronger; the price of one barrel of oil is ______
low
What was the U.S. current account balance in 2016
-481 Billion
What was China’s current account balance in 2016
194 Billion
What was Germany’s current account balance in 2016
297 Billion
What does a Financial Account record
Purchases of assets, both physical and financial
If the U.S. buys a building or bond in another country, what type of entry is it in a Financial Account
Negative
If the U.S. buys a building or bond in another country, what type of entry is it in a Current Account
None
If the U.S. sells a building or bond to another country, what type of entry is it in a Financial Account
Positive
If the U.S. sells a building or bond to another country, what type of entry is it in a Current Account
None
What was the U.S. 2016 Financial Account Balance
406 Billion
do most currencies float or are they pegged
float
True or False
Most Currencies are pegged
False
What is the short run list for exchange rates?
- Prices
- Income
- Interest Rates
- Speculation
What does purchasing power parity measure?
the value of what the money buys
3 reasons why purchasing power parity doesn’t work perfectly
- Not all products can be traded internationally
- Products are different across countries and so are consumer’s tastes and preferences
- Country’s impose barriers to trade
- Tariffs
- Quotas
How will PPP correct itself?
In the long run the demand for another country’s currency will go up thus driving the price for the product up in that country and eventually it will draw even to the other currency
How many countries in the EU?
27
How many people in the EU?
over 500M
Currencies that float change based off of what
Supply and Demand
Which country has a pegged currency
China
What is the defining characteristic of a pegged currency
The currency is not allowed to change
Why has the United States had low inflation over the span of our lifetime
China’s pegged currency
How did China’s Pegged Currency affect the sale of the goods and services in the U.S. in other countries.
It made other countries unable to compete with China
Why was the EU created?
it was an anti war movement centered around coal and steel production
ECSC
European coal and steel community
Free trade area
goods and services flow across borders without any restrictions
Common Market
goods and services flow across borders without any restrictions
-Inputs to production flow across borders without any restrictions (labor and capital)
Requirements to be in the EU
- Have a stable democratic gov
2. Have a functioning market economy
Requirements to be in Euro Zone
- Inflation must be low
- Interest rates must be low
- Budget deficit must not be too high
- Debt must not be too high
Advantages of Common Currency
- Increase ease of doing business
- reduce costs
- increase competition - Allows for economies of scale in international dealings (size = strength)
- Individual countries able to borrow more cheaply
- Less risky
- Part of this big strong entity
When did China unpeg it’s currency
2005
When China unpegged it’s currency in 2005, what did it switch to
a “managed float”
What did China do to it’s currency in 2008
it repegged it’s currency
What did China do to it’s currency in 2010
it fully unpeggs it’s currency
What is the biggest disadvantage of a common currency
Countries are not able to pursue independent monetary policies
Euro Zone countries each have their own _______ but not their own _________.
fiscal policy; monetary policy
Why might you bailout someone you’ve already lent money to?
the loan is an asset and if they default then the asset loses value
How do you calculate how far a country is away from PPP with another country?
Divide actual exchange rate by the price of the big mac (closest to 0 is closest to PPP)
What was the term for a group of countries where goods and services flow freely across borders and factors of production also flow freely across borders?
a. A customs union
b. A free trade area
c. A common market
d. None of the above
c
Which of the following is accurate?
a. the acronym ECSC stands for European Country and State Coalition
b. the acronym ECSC stands for European Coalition of Sovereign Countries
c. the acronym ECSC stands for European Culture and Societal Community
d. none of the above
d (European Coal and Steel Community)
Based on our discussions of the euro in lecture which of the following is incorrect?
a. when the euro was created this reduced the cost of doing business across different countries
b. when the euro was created this made it cheaper for some countries to borrow (issue bonds)
c. when the euro was created this allowed some countries to abandon their market economies
d. actually all three of the above are incorrect
c
The euro was actually introduced in Europe, in currency and coin form (not for accounting purposes) in what year?
a. 1999
b. 2000
c. 2001
d. 2002
d
In our discussions of the Euro-Zone and the current challenges it faces which of the following statements is correct?
a. each country in the Euro-Zone is able to implement its own monetary policy and its own fiscal policy
b. each country in the Euro-Zone is able to implement its own monetary policy but not its own fiscal policy
c. each country in the Euro-Zone is able to implement its own fiscal policy but not its own monetary policy
d. no country in the Euro-Zone is able to implement either its own fiscal or monetary policy
c
As discussed in lecture, which of the following is most accurate? Over the last 40 years…
A. Most of the time, the U.S. current account balance has been positive
B. Most of the time, the U.S. current account balance has been negative
C. The U.S. current account has been pretty evenly split between a negative and a positive balance
D. It’s a trick question; the U.S. current account hasn’t existed for 40 years; it’s relatively new
B
An investor in Lawrence, Kansas earns $50 a month that comes as income from owning a Japanese government.
A. That $50 enters the Current Account as a negative entry
B. That $50 enters the Financial Account as a positive entry
C. That $50 enters the Current Account as a positive entry
D. That $50 does not enter the Balance of Payments in any way
C
A U.S. company purchases a factory in Bonn, Germany. Which of the following is correct (holding all else equal).
A. The current account will increase
B. The current account will decrease
C. The current account might increase or decrease depending on the exchange rate
D. The current account will be unaffected
D
With regard to the Balance of Payments discussed in class and in the text, if a U.S. investor purchases a German corporate bond, the purchase of the bond itself is ____ but the income from the bond is ____
A. Part of the current account; also part of the current account
B. Part of the financial account; also part of the financial account
C. Part of the current account; part of the financial account
D. None of the above
D
Which was not one of the reasons, discussed in lecture, why a company might want to undertake foreign direct investment (FDI)
A. to gain access to raw materials
B. To avoid tariffs (taxes on imports)
C. To gain access to low cost labor
D. Actually all three of the above were discussed as reasons why a company might undertake FDI
D
Whats in M1?
Coins and currency
Checking accounts
Travelers checks
What’s all in M2
Everything in M1 Money Market Mutual Funds Money Market Accounts Small CD's Savings Accounts
What is the vertical axis of the per worker production function?
Output (GDP)
What is the horizontal axis of the per worker production function?
capital per unit of labor
In diminishing marginal returns…
at least one input is fixed
Quantity theory of money formula
MV = PY -M: Money Supply -V: Velocity -P: Price level -Y: Real GDP (PY: Nominal GDP)
Assumed that an initial injection of $750 billion into the economy ultimately increases GDP from $17 trillion to $20 trillion. For this to happen, what would the value of MPC have to be? and what would the multiplier be?
MPC: .75
Multiplier: 4
750x = 3000 = 4
1 / (1 - MPC) = 4
1 = 4 - 4MPC
MPC = 3/4
Assumed that an initial injection of $750 billion into the economy ultimately increases GDP from $17 trillion to $20 trillion. For this to happen, what would the value of MPC have to be? and what would the multiplier be?
MPC: .75
Multiplier: 4
750x = 3000 = 4
1 / (1 - MPC) = 4
1 = 4 - 4MPC
MPC = 3/4
What causes SRAS to shift right?
- Oil price drop
- Labor costs decrease
- Positive Tech shock
The Fed raised interest rates, how would this show up on the SRAS/LRAS/AD graph
IR increase; money supply decrease; AD shifts left
What are the 3 names for LRAS?
Long run aggregate supply; potential GDP; Full employment output
Assume the MPC = .75. Which of the following is correct? An initial injection of $500 B into the economy after it ripples through ultimately will increase overall output…
From $18T to $20T
1 / (1 - .75) =4
4 * 500B = 2T
Which of the following would not shift SRAS left?
a. the price of oil increases significantly and quickly
b. technology advances significantly and quickly
c. real wages increase significantly and quickly
b
Assume the current reserve requirement is 10%. Also assume people keep 15% out as currency. Assume $30,000 initial deposit is made into a bank. If the bank loans out all that it can, and all loans are re-deposited into the same bank, taking into account what people keep out as currency, what is the total amount of deposits once the money has worked through the system?
(1/ res req) + amt kept as currency / (res req + amt kept as currency)
1.15 / .25 * 30000 = 138000
Regarding the Quantity Theory of Money that we discussed in class, if real GDP is $12T and the price level is 2 and the money supply is 8 trillion what must the value of velocity be?
MV = PY 8V = 12 * 2 V = 3
If congress votes to increase the corporate tax rate, which would we see.
A. Demand shift right
B. Demand shift left
C. Supply shift right
D. Supply shift left
B
If the government ran a budget surplus, which would we see
A. Demand shift right
B. Demand shift left
C. Supply shift right
D. Supply shift left
C
Suppose a tax cut successfully closes the gap between “current” GDP of 16.3 trillion and “potential GDP” of 19 trillion. If the MPC= .75, how much was the original tax cut?
A. 600 Billion
B. 800 Billion
C. 1 trillion
D. None of the above
D
As discussed in lecture, which of the following parts of U.S. debt is the largest?
A. The portion of the debt that we owe to individual investors
B. The portion of the debt that we owe to the Federal Reserve
C. The portion of the debt that we owe to state and local governments
D. It’s a trick question, a and b are almost exactly the same size
A
Which of the following is correct based on our discussion of the Federal Government’s budget in lecture. On the Revenue side
A. Payments from corporate income taxes make up a larger part of the government’s revenue than payments on social security taxes
B. Payments from corporate income taxes make up a larger part of the government’s revenue than payments from individual income taxes
C. A and B
D. None of the above
D
Consider the following two phenomena:
- The dollar gets stronger compared to other currencies
- (X-M) decreases because M increases
As discussed in lecture, which of the following is most accurate if interest rates rise in the U.S.(compared to interest rates in other countries)
A. Both 1 and 2 are correct
B. Neither 1 or 2 is correct
C. Only 1 is correct
D. Only 2 is correct
A
As discussed in lecture, the basic idea behind supply side economics is that lowering the taxes on an activity will cause what
The participation in that activity to increase, thus producing a higher GDP
What is the term for taking a bunch of financial assets like mortgages and bundling them together to create a new investment instrument?
securitization
If AE is different from GDP it is primarily because of ______ and specifically because of _______.
I; changes to inventories
- the exchange rate
- the unemployment rate
- the price level
Which of the following is correct?
a. 1 and 2 will affect investment as a part of AE; 3 will not
b. . 3 and 2 will affect investment as a part of AE; 1 will not
c. . 1 will affect investment as a part of AE; 2 and 3 will not
d. none of the above
d
Throughout 2008 and 2009 the Fed spent billion of $ buying bonds. the goal of this was to _________ which would have the effect of __________ ultimately producing a _____ level of output.
increasing the money supply; pushing AD to the right; higher
- In reality, the Fed often changes the res req if it wants to adjust the money supply
- In reality the Fed often buys/sells gov bonds if it wants to adjust the money supply
which of the following is accurate?
a. both are correct
b. both are incorrect
c. only 2 is correct
d. only 1 is correct
c
The USD becomes weaker compared to all major currencies in the world. On an SRAS/AD/LRAS graph we would see…
higher price levels and a rightward shift in AD
- Reducing taxes is one example of monetary policy
- Monetary policy decisions made by the Fed must be approved by congress
- The chairman of the fed must be approved by the senate
Which is most accurate?
a. 1 and 2 are incorrect; 3 is correct
b. 1 and 3 are incorrect; 2 is correct
c. 1, 2, and 3 are all correct
d. only 1 is correct
a
If you believe you can successfully fill a gap between current GDP of 17.6 trillion and potential GDP of 20 Trillion by EITHER a tax cut of 800 billion OR an injection of government spending of 600 billion, you must believe that
A. The MPC is .8
B. The MPC is .75
C. The MPC is .6
D. None of the above
B
Consider there 3 states regarding “Quantitative Easing” that we discussed in class
- If the interest rate on long term bonds decreases, other long term interest rates will decrease as well
- If the price of long term bonds decreases, the interest rates on long term bonds will decrease as well
- The Fed’s goal was to reduce the prices of long term bonds
Which is most accurate
A. 1, 2, and 3 are all incorrect
B. 1, 2, and 3 are all correct
C. Only 2 is correct
D. Only 1 is correct
D
In our discussion of the Phillips Curve, which of these would cause the short-run Phillips Curve to shift upward
A. An increase in Unemployment
B. An increase in real GDP
C. An increase in expected inflation
D. An increase in the real interest rate
C
Assume that GDP is 6% below where we want it to be, and inflation is 2% above where we want it to be. Also assume current inflation is 1% and the real Fed Funds rate is 1%. According to the Taylor Rule, if the weights on the output gap and inflation gap are each .5, what should the nominal Fed Funds Rate be set at?
A. 4%
B. 1%
C. 2%
D. None of the above
D
What percentage of the ARRA was made up of tax cuts
37
What percentage of the ARRA was made up of Government Spending
63
Recall our discussion in lecture of the financial meltdown. Which of the following is correct
A. Collateralized debt obligations were a type of insurance you could purchase on a credit default swap
B. Credit Default Swaps were a type of insurance you could purchase on collateralized debt obligations
C. A and B
D. None of the above
B
As discussed in lecture, what was the “magic” number for “how much debt is too much” that two Harvard economists came up with, which turned out to be not such a magic number at all when a lowly little graduate student proved them wrong
A. Debt-to-GDP ratio of 150%
B. Debt-to-GDP ratio of 100%
C. Debt-to-GDP ratio of 90%
D. Debt-to-GDP ratio of 75%
C
- Today, in April 2017, our debt is the highest its ever been
- Today, in April 2017, our Debt-to-GDP ratio is the highest its ever been
- Today, in April 2017, our deficit is the highest its ever been
- We have never had to raise the “debt ceiling” in this country before this year
Which of the following is most accurate
A. Only 4 is correct
B. Only 3 is correct
C. Only 2 is correct
D. Only 1 is correct
D
Based on our in-class discussion of the Phillips Curve, which of the following is the correct term regarding the idea that people base their expectations of inflation on what inflation was last year
A. Rational Expectations
B. Adaptive Expectations
C. Nominal Expectations
D. Cyclical Expectations
B
If you believe you can exactly fill a gap between current GDP of 17.5 Trillion and potential GDP of 19 Trillion with a tax cut of 1 Trillion, what must be the value of MPC and what must be the value of the Tax Multiplier
MPC: .6
Tax Multiplier: 1.5
In our discussion of the government’s budget in class, on the expenditure side (money flowing out), what were the 2 largest categories in order
Largest: Transfer Payments
2nd Largest: Defense
In class, we discussed Supply Side Economics. In that discussion, your textbook indicated that cutting income taxes and corporate taxes would produce which of the following effects
A. Supply Shift Left
B. Demand Shift Left
C. Demand Shift Right
D. Supply Shift Right
D
The American Recovery and Reinvestment Act was intended to
A. Shift LRAS Right
b. Shift AD Left
c. A and B
D. None of the Above
D
In the Money Market, if the demand for money shifts right, interest rates will ____ .Since all interest rates move together, This would show up as ___ ____ ___
A. Decrease, Increase in Supply of Money
B. Decrease, Decrease in Real Interest Rates
C. Increase, Decrease in Real Interest Rates
D. Increase, Increase in Real Interest Rates
D
In the Money Market, which of the following would cause a decrease in real interest rates
A. The Federal Reserve sells bonds
B. The Federal Reserve increases the target for the Fed Funds Rate
C. The Federal Reserve increases the reserve Requirement
D. None of the Above
D
What is on the Vertical axis of the Money Market Graph
A. The Overall Price Level
B. Real GDP
C. The velocity of money
D. None of the above
D
What is our current Debt-to-GDP ratio
19.8 to 18.9
105%
How much money do we owe other countries
6.4 Trillion
What is the Taylor Rule Used for
To set the target for the Fed Funds Rate
In the text, when your author was discussing tax cuts and supply-side effect, which of the following was not listed as one of the three impacts of reducing corporate income taxes
A. The pace of technological change might increase
B. Corporations would see a higher return on investment in new equipment
C. Corporations would hire more employees if their tax rates fell
D. Actually, all three were listed as impacts of reducing corporate income taxes
C
