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Macroeconomics CLEP > Macro > Flashcards

Macro Flashcards

1
Q

The concept of scarcity is derived from the fact that

A

Available resources are limited.

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2
Q

Which of the following trade-offs does the production possibilities frontier illustrate?

A

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

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3
Q

An increase in which of the following is most likely to cause the production possibilities curve of a country to shift outward?

A

the labor force

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4
Q

PPC factors

A
  • Advances in technology
  • Changes in resources
  • Changes in the labor force
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5
Q

When can two countries gain from trading two goods?

A
  • 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.
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6
Q

What situation would shift the supply curve for bicycles in or to the left.

A

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.

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7
Q

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?

A

32,000

REMEMBER
GDP = C+I+G+(X-M)

*Subtract NX

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8
Q

The investment component of GDP measures spending on

A

Residential construction, Business equipment, business structures, changes in inventory.

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9
Q

The GDP Deflator Ratio of

A

nominal GDP to the inflation rate multiplied by 100

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10
Q

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

A

104.1 & Inflation rate was 4.1

CPI = Market Basket GIVEN
_________________ * 100
Market Basket BASE

INFLATION RATE = CPI2 - CPI1
_____________ *100
CPI 1

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11
Q

An increase in which of the following is most likely to cause demand-pull inflation?

A

Consumer spending

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12
Q

Demand Pull Inflation

A

When a demand for a good or service is greater than the supply, allowing producers to raise the price.

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13
Q

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

A

2000

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14
Q

The US Department of Labor statistics defines a person as unemployed if he/she

A

Is without a job but is looking for one

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15
Q

The natural rate of unemployment can be defined as the unemployment rate that exists when the economy is

A

Has only cyclical and structural unemployment

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16
Q

An increase in what would most likely lead to a decrease in aggregate demand?

A

Increase in household savings

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17
Q

explain why the aggregate demand curve slopes downward?

A

A lower price level reduces the interest rate, which encourages greater spending on investment goods.

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18
Q

Which of the following explains why the aggregate demand curve is downward sloping?

A

The wealth effect

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19
Q

The long-run aggregate supply curve shifts right if

A

Technology improves, but not if immigration from abroad decreases

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20
Q

To raise long run economic growth rate, a country should design and implement policies that do which of the following?

A

Encourage savings and investment.

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21
Q

Decrease in what will cause the short-run aggregate supply curve to shift to the right?

A

Decrease in wages

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22
Q

Increase in what will cause the short run aggregate supply curve to shift left?

A

Increase in nominal wages

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23
Q

If the government repeals an investment tax credit and increases income taxes

A

Real GDP and price level fall

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24
Q

The purchase of government bonds from the public in open market by the Fed will

A

Increase money supply

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25
Q

If there is a surplus of loanable funds, then

A

the supply is greater than the demand and the interest rate will FALL

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26
Q

A bank’s reserve ratio is 5 percent and the bank has $10,270 in reserve. Its deposits amount to

A

Reserve

Requirement * Bank Deposit

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27
Q

Which of the following does the Federal Reserve not do?

A

Lend to consumers who want to purchase homes

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28
Q

An increase in the budget deficit would cause a

A

Shortage of loanable funds at the original interest rates would eventually rise.

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29
Q

Which of the following will cause the real interest rate to decrease in the loanable funds market?

A

An increase in private savings

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30
Q

The M1 measure of money supply primarily consists of which of the following?

A

Currency in circulation and checkable bank deposits

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31
Q

Assuming expected inflation rate is stable, an increase in interest rates will lead to

A

a decrease in private investment

32
Q

When conducting open-market operations for expansionary monetary policy, the Fed

A

buys government bonds, and in so doing increases the money supply.

33
Q

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?

A

7%

Nominal - Inflation

34
Q

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

A

MPC =

35
Q

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

A

. $20 billion, but the effect would be larger if there were an investment accelerator. correct

36
Q

To counteract a recession the Fed could what?

A

Buy bonds on the open market and lower the reserve requirement

37
Q

An increase in which of the following will most likely reduce the federal government’s budget deficit?

A

Income tax rates

38
Q

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

A

$25 million

39
Q

Which of the following will decrease GDP by the greatest amount?

A

$20 billion decrease in government spending correct

40
Q

Which of the following government policies is most likely to lead to an increase in long-run economic growth?

A

Increasing spending on human capital improvement

41
Q

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?

A

Decreasing the money supply

42
Q

Human capital refers to which of the following?

A

The education and experience of the labor force correct

43
Q

Increases in real income per capita are made possible by

A

improved productivity correct

44
Q

A deficit in the US trade balance can be described as

A

an excess of the value of imports over the value of exports.

45
Q

If exchange rates are allowed to fluctuate freely and the US demand for Indian rupees increases, which of the following will most likely occur?

A

The dollar price of Indian goods will increase

46
Q

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?

A

Asian goods will be more expensive for US consumers correct

47
Q

If the United States dollar depreciates in the foreign exchange market, which of the following will occur?

A

United States exports will increase.

48
Q

Which of the following is included in the investment component of real gross domestic product?

A

An apparel company purchases fifteen new sewing machines.

49
Q

Gross domestic product is defined as which of the following?

A

The total market value of all final goods and services produced by an economy in a given time period

50
Q

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?

A

Nominal = inflation + Interest

51
Q

Real Interest Rate Formula

A

RIR = Nominal - Inflation

52
Q

Which of the following groups is most likely to benefit from unanticipated inflation

A

Debtors

53
Q

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?

A

The price level has decreased by 5 percent

cpi 2 -cpi 1
_________ *100
cpi1

54
Q

The goal of the consumer price index is to measure changes in the

A

cost of living

55
Q

Which of the following explains why the aggregate demand curve is downward sloping?

A

The wealth effect

56
Q

Which of the following is true about bonds

A

Bondholders receive interest payments

57
Q

The M1 measure of the money supply primarily consists of which of the following?

A

Currency in circulation and checkable bank deposits

58
Q

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?

A

An increase in the price level

59
Q

If the nominal gross domestic product is $8 trillion and the money supply is $2 trillion, the velocity of money is

A

4

MV=PT

60
Q

n increase in the money supply results in an increase in which of the following?

A

Nominal gross domestic product

61
Q

A revenue-neutral replacement of some portion of the federal personal income tax with a general sales tax would most likely result in

A

smaller overall progressivity in the tax structure

62
Q

n increase in income tax rates with no change in government spending will result in which of the following?

A

A decrease in private savings

63
Q

The national debt of the United States is the

A

accumulation of all past government deficits

64
Q

Fiscal policy refers to the idea that aggregate demand is affected by changes in

A

government spending and taxes.

65
Q

As income level increases from $500 to $1,000, consumption increases from $700 to $1,100. The marginal propensity to consume is equal to

A

Change in consumer spending
______________
Change in income

.80

66
Q

An expansionary monetary policy will be most effective in increasing real output if

A

investment spending is sensitive to changes in interest rates

67
Q

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)

A

ncrease money supply, Increase personal income taxes

68
Q

Which of the following policies will most likely stimulate economic growth?

A

A tax credit on investment spending correct

69
Q

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

A decrease in the tax rate on corporate profits and a decrease in the discount rate

70
Q

The United States federal government budget deficits tend to be large when which of the following is low?

A

The growth rate of the economy correct

71
Q

According to the short-run Phillips curve, which of the following will occur when the Federal Reserve increases the money supply

A

unemployment rate will decrease, and the inflation rate will increase

72
Q

To raise its long-run rate of economic growth, a country should design and implement policies that do which of the following?

A

Encourage saving and investment

73
Q

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?

A

The quantity of the country’s currency supplied exceeds the quantity demanded. correct

74
Q

Which of the following would most likely be the immediate result if the United States increased tariffs on most foreign goods?

A

Prices of domestic goods would increase. correct

75
Q

A deficit in the United States trade balance can be described as

A

an excess of the value of imports over the value of exports

76
Q

Which of the following would occur if the international value of the United States dollar decreased?

A

United States exports would increase

77
Q

In the calculation of the CPI, books are given greater weight than magazines if

A

consumers buy more books than magazines.

Macroeconomics CLEP (3 decks)

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