Macro Flashcards
The concept of scarcity is derived from the fact that
Available resources are limited.
Which of the following trade-offs does the production possibilities frontier illustrate?
Once an economy has reached the efficient points on its production possibilities frontier, the only way of getting more of one good is to get less of the other. correct
An increase in which of the following is most likely to cause the production possibilities curve of a country to shift outward?
the labor force
PPC factors
- Advances in technology
- Changes in resources
- Changes in the labor force
When can two countries gain from trading two goods?
- One country only has resources to produce good A, and the other can only produce good B.
- Both can produce both goods but its more expensive for one than the other.
- One country is better at producing both goods and one sucks at both.
What situation would shift the supply curve for bicycles in or to the left.
An increase in the price of aluminum used for the production of the bike frame.
BC Its more costly to produce, sellers will increase price, which decreases output.
In the economy of Fairview in 2020, exports were $1000, GDP was $8000, government purchases were $2000, imports were $1200 and consumption was $3000. What was Fairview investment spending in 2020?
32,000
REMEMBER
GDP = C+I+G+(X-M)
*Subtract NX
The investment component of GDP measures spending on
Residential construction, Business equipment, business structures, changes in inventory.
The GDP Deflator Ratio of
nominal GDP to the inflation rate multiplied by 100
Suppose a basket of goods and services has been selected to calculate the CPI and 2010 has been selected as the base year. In 2009, the basket’s cost was $90; in 2010, the basket’s cost was $97; and in 2011, the basket’s cost was $101. The value of the CPI in 2011 was
104.1 & Inflation rate was 4.1
CPI = Market Basket GIVEN
_________________ * 100
Market Basket BASE
INFLATION RATE = CPI2 - CPI1
_____________ *100
CPI 1
An increase in which of the following is most likely to cause demand-pull inflation?
Consumer spending
Demand Pull Inflation
When a demand for a good or service is greater than the supply, allowing producers to raise the price.
Assume that last year the CPI was 150 and a household’s nominal income was $30,000. If the CPI this year is 160 to be as well off as last year, the household should have an increase in nominal income of
2000
The US Department of Labor statistics defines a person as unemployed if he/she
Is without a job but is looking for one
The natural rate of unemployment can be defined as the unemployment rate that exists when the economy is
Has only cyclical and structural unemployment
An increase in what would most likely lead to a decrease in aggregate demand?
Increase in household savings
explain why the aggregate demand curve slopes downward?
A lower price level reduces the interest rate, which encourages greater spending on investment goods.
Which of the following explains why the aggregate demand curve is downward sloping?
The wealth effect
The long-run aggregate supply curve shifts right if
Technology improves, but not if immigration from abroad decreases
To raise long run economic growth rate, a country should design and implement policies that do which of the following?
Encourage savings and investment.
Decrease in what will cause the short-run aggregate supply curve to shift to the right?
Decrease in wages
Increase in what will cause the short run aggregate supply curve to shift left?
Increase in nominal wages
If the government repeals an investment tax credit and increases income taxes
Real GDP and price level fall
The purchase of government bonds from the public in open market by the Fed will
Increase money supply
If there is a surplus of loanable funds, then
the supply is greater than the demand and the interest rate will FALL
A bank’s reserve ratio is 5 percent and the bank has $10,270 in reserve. Its deposits amount to
Reserve
Requirement * Bank Deposit
Which of the following does the Federal Reserve not do?
Lend to consumers who want to purchase homes
An increase in the budget deficit would cause a
Shortage of loanable funds at the original interest rates would eventually rise.
Which of the following will cause the real interest rate to decrease in the loanable funds market?
An increase in private savings
The M1 measure of money supply primarily consists of which of the following?
Currency in circulation and checkable bank deposits
Assuming expected inflation rate is stable, an increase in interest rates will lead to
a decrease in private investment
When conducting open-market operations for expansionary monetary policy, the Fed
buys government bonds, and in so doing increases the money supply.
The real interest rate for a consumer loan is 5%, and the expected inflation rate is 2%. What is the nominal interest rate for the consumer loan?
7%
Nominal - Inflation
In a certain economy, when income is $500, consumer spending is $350. The value of the multiplier for this economy is 3.33. It follows that, when income is $1000, consumer spending is
MPC =
If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $5 billion increase in government expenditures would shift the aggregate demand curve right by
. $20 billion, but the effect would be larger if there were an investment accelerator. correct
To counteract a recession the Fed could what?
Buy bonds on the open market and lower the reserve requirement
An increase in which of the following will most likely reduce the federal government’s budget deficit?
Income tax rates
Assume that the short-run aggregate supply curve is horizontal and the marginal propensity to consume is 0.75. Assuming no crowding out and no international trade, if the government wishes to increase the equilibrium gross domestic product by $100 million, it should increase government spending by
$25 million
Which of the following will decrease GDP by the greatest amount?
$20 billion decrease in government spending correct
Which of the following government policies is most likely to lead to an increase in long-run economic growth?
Increasing spending on human capital improvement
An economy is facing moderate output growth but significantly high inflation rates. The Federal Reserve can undertake which of the following policy actions to address the problem?
Decreasing the money supply
Human capital refers to which of the following?
The education and experience of the labor force correct
Increases in real income per capita are made possible by
improved productivity correct
A deficit in the US trade balance can be described as
an excess of the value of imports over the value of exports.
If exchange rates are allowed to fluctuate freely and the US demand for Indian rupees increases, which of the following will most likely occur?
The dollar price of Indian goods will increase
If central banks in Asia reduce the supply of their own currencies on the foreign exchange market relative to the US dollar, which of the following will occur?
Asian goods will be more expensive for US consumers correct
If the United States dollar depreciates in the foreign exchange market, which of the following will occur?
United States exports will increase.
Which of the following is included in the investment component of real gross domestic product?
An apparel company purchases fifteen new sewing machines.
Gross domestic product is defined as which of the following?
The total market value of all final goods and services produced by an economy in a given time period
The real interest rate for a consumer loan is 5 percent, and the expected inflation rate is 2 percent. What is the nominal interest rate on the consumer loan?
Nominal = inflation + Interest
Real Interest Rate Formula
RIR = Nominal - Inflation
Which of the following groups is most likely to benefit from unanticipated inflation
Debtors
If a country’s consumer price index was 200 last year and is 190 this year, which of the following must be true for the country from last year to this year?
The price level has decreased by 5 percent
cpi 2 -cpi 1
_________ *100
cpi1
The goal of the consumer price index is to measure changes in the
cost of living
Which of the following explains why the aggregate demand curve is downward sloping?
The wealth effect
Which of the following is true about bonds
Bondholders receive interest payments
The M1 measure of the money supply primarily consists of which of the following?
Currency in circulation and checkable bank deposits
Assume the velocity of money and real gross domestic product are constant. According to the quantity theory of money, an increase in the money supply will result in which of the following?
An increase in the price level
If the nominal gross domestic product is $8 trillion and the money supply is $2 trillion, the velocity of money is
4
MV=PT
n increase in the money supply results in an increase in which of the following?
Nominal gross domestic product
A revenue-neutral replacement of some portion of the federal personal income tax with a general sales tax would most likely result in
smaller overall progressivity in the tax structure
n increase in income tax rates with no change in government spending will result in which of the following?
A decrease in private savings
The national debt of the United States is the
accumulation of all past government deficits
Fiscal policy refers to the idea that aggregate demand is affected by changes in
government spending and taxes.
As income level increases from $500 to $1,000, consumption increases from $700 to $1,100. The marginal propensity to consume is equal to
Change in consumer spending
______________
Change in income
.80
An expansionary monetary policy will be most effective in increasing real output if
investment spending is sensitive to changes in interest rates
Suppose that the economy is operating at full employment. If the government wants to discourage consumption spending, stimulate investment spending, and maintain full employment output, which of the following combinations of monetary and fiscal policies would most likely achieve these goals? (Monetary Policy, Fiscal Policy)
ncrease money supply, Increase personal income taxes
Which of the following policies will most likely stimulate economic growth?
A tax credit on investment spending correct
Which of the following policies would most likely be recommended in an economy with an annual inflation rate of 3 percent and an unemployment rate of 11 percent?
A decrease in the tax rate on corporate profits and a decrease in the discount rate
The United States federal government budget deficits tend to be large when which of the following is low?
The growth rate of the economy correct
According to the short-run Phillips curve, which of the following will occur when the Federal Reserve increases the money supply
unemployment rate will decrease, and the inflation rate will increase
To raise its long-run rate of economic growth, a country should design and implement policies that do which of the following?
Encourage saving and investment
Assume that a country with an open economy has a fixed exchange-rate system and that its currency is currently overvalued in the foreign exchange market. Which of the following must be true at the official exchange rate?
The quantity of the country’s currency supplied exceeds the quantity demanded. correct
Which of the following would most likely be the immediate result if the United States increased tariffs on most foreign goods?
Prices of domestic goods would increase. correct
A deficit in the United States trade balance can be described as
an excess of the value of imports over the value of exports
Which of the following would occur if the international value of the United States dollar decreased?
United States exports would increase
In the calculation of the CPI, books are given greater weight than magazines if
consumers buy more books than magazines.
