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Economics > Macro test > Flashcards

Macro test Flashcards

1
Q

Capitalism as an economic system can be dynamic and successful because:

A

B) Profits are claimed by capitalists.
C) It allows failing firms to go bankrupt.

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2
Q

Which of the following transfers are classified as markets?

A

‘Buy-now-pay-later” deals.

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3
Q

Consider the mathematical expression
y = x0.95. Is this an example of:

A

A concave function

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4
Q

Consider the following two mathematical expressions:
(1) → y = f(x)
(2) → y = a + bX
Which of these expressions can be interpreted as expressing a linear relationship?

A

C) Both (1) and (2)

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5
Q

What per cent of the wealth in the United States is held by the bottom 50% of the population?

A

1.8

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6
Q

You and your friend are discussing your political view. Your friend says that it’s always better for Ireland to produce its own goods, rather than importing them, because producing them ourselves is always cheaper. You add the distinction that:

A

if the opportunity cost is high, importing goods could make Ireland better off.

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7
Q

Indonesia: 640 phones or 2000 cups
Colombia: 890 phones or 1800 cups

A

B) Columbia has an absolute advantage in phones and a comparative advantage in phones
C) Indonesia has an absolute advantage in coffee and comparative advantage in coffee

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8
Q

Now consider the following, slightly different, production possibilities.
Which of the following statements are true?

A

C) Indonesia has an absolute advantage in coffee and a comparative advantage in coffee

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9
Q

Which of the following statements are true?

A

Both GDP and carbon emissions follow the hockey stick shape.

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10
Q

Which of the following statements regarding employment contracts are correct?

A

Employees’ effort levels cannot be the basis of an enforceable contract.

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11
Q

Which of the following statements regarding employment rents are correct?

A

Employers can use high employment rents to exert power over employees.

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12
Q

Consider an employee with a reservation wage of €6 an hour. The employee chooses an effort level between zero and one. Which of the following statements regarding her best response curve is correct?

A

The best response curve describes the effort that the employee would choose for each level of the hourly wage.

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13
Q

Maria earns €15 per hour in her current job and works 40 hours a week. Her disutility of effort is measured as €1 per hour of work. In the case that she loses her job, she receives €5 per hour unemployment benefit. Additionally, being unemployed has psychological and social costs which is a disutility equivalent to €2 per hour. Then,

A

B) Maria’s employment rent if she can get another job with the same wage rate after 20 weeks of being unemployed is €8,800.
C) Maria’s employment rent per hour is €11.

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14
Q

You are given the following information for a country: Participation rate = 75%,
Unemployment rate = 10%,
Employment rate = 67.5%
Number of employed = 27 million.
Based on this information, which of the following is correct?

A

The number of unemployed is 3 million.

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15
Q

Consider the following equation describing the distribution of output: Price = Profit/output + x/output
What can be used instead of x here?

A

Nominal wage

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16
Q

Suppose a firm chooses are all wage above the equilibrium Price-setting curve. Which of the following could explain this?

A

Price is too high
Nominal wage is too high

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17
Q

Which of the following statements are correct regarding the principal–agent problem?

A

(c) One solution for the principal–agent problem in loans is for the borrower to provide equity.
(d) The principal–agent problem leads to credit rationing in the loans market.

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18
Q

The diagram depicts Mary’s choice of consumptions in periods 1 and 2. She has no income in period 1 and an income of $100 in period 2. In scenario 1 the interest rate is 78%, while in scenario 2 it falls to 10%. Based on this information, which of the following statements is correct?

A

The fall in the interest rate results in a shifting-out of her feasible set

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19
Q

The net worth of a sector in balance sheet terms is

A

(c) the difference between assets and liabilities

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20
Q

Bank deposits are a form of money because

A

(c) They function as a means of payment and a store of value

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21
Q

Loans made to households for house purchases are:

A

(c) liabilities of households, and assets of banks

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22
Q

The European Union recently announced sanctions on the Russian financial sector. If this causes people to panic and try to withdraw their money from the banks, this is an increase in —– risk. If the sanctions mean Russian companies were no longer profitable, this would be an increase in —– risk.

A

liquidity and default

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23
Q

Is investment a stock or a flow variable? Explain your answer.

A

Flow- component of GDP, measuring how much money is allocated to investment in a given period. If your rich uncle talks about his “his investments”, that’s something he has accumulated over a long time, namely a stock

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24
Q

True or false. Given the information depicted in the diagram below, C is not an optimal decision for Julia because the interest rate is not high enough to make more saving worth her while.

A

true: Her indifference curve is quite steep at that point. That means for Julia to be willing to give up a little consumption now requires a lot of additional consumption later. The additional consumption will she actually receive is represented by the red line. It is not steep enough to make additional saving worthwhile; in fact, she will consume more now.

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25
Q

True or false. The European Central Bank sets the bank lending rate for Ireland and other Eurozone countries.

A

False

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26
Q

Describe the pattern of quarterly GDP growth in developed countries since WWII.

A
  • economic growth was quite volatile
    • Oil Crises in the early the volatility dampened
    • Volatility has returned in more recent years
    • Great Recession
      COVID-related shutdowns in 2020.
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27
Q

What are the effects of temporary recessions on long-term outcomes? Is there evidence of business cycle effects in the wages of college graduates?

A

People who graduate during a recession have lower wages for a decade compared to people who graduate in booms.

People who lived through the Great Depression have lower willingness to purchase risky stocks.

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28
Q

Expressing Okun’s Law as Y=a+bX, which of the following parameters values are what we typically find?

A

(a) a ≥ 0
(d) b ≤ 0

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29
Q

The data for Jupiter suggest that Okun’s Law can be written as y = −0.5721x + 1.493 where y is the change in unemployment rate and x is the GDP growth rate. What is the predicted change in Jupiter’s unemployment rate if GDP grows by 3 percent?

A

Unemployment decreases by 0.223 percentage points.

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30
Q

True or False: Government transfers like unemployment benefit are included in GDP.

A

false

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31
Q

True or False: Government transfers like unemployment benefit can stabilize GDP.

A

True

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32
Q

Explain why investment is more volatile than consumption.

A

investment tends to be ‘lumpy’ in that it might take the form of a large once-off purchase every 20 years (e.g. a factory, or a truck) whereas consumption if often more transitory (e.g. a meal that ties you over for a few hours).

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33
Q

Which of the following are more likely to smooth consumption?

A

(a) Auto-enrollment in pension plans
(b) An expansion of credit union networks

34
Q

As nobody in Ireland actually wears their products, the Aran Island Jumper Company produces clothing for the export market. for the export market. A new Hollywood blockbuster starring Saoirse Ronan and Colin Farrell boosts demand for their product, and so they increase the price of a jumper from e20 to e25. What is the effect of inflation in Ireland?

A

The price level has not increased, Changes in the prices of exports do not affect CPI in Ireland.

35
Q

calculate GDP and GNP

A

GDP: Consumer expenditure +Imports + Government expenditure on goods and services +Exports– Imports

GNP: Consumer expenditure +Imports + Government expenditure on goods and services +Exports– Imports+ Net Factor income

The difference between GDP and GNP is GNP has net factor income

36
Q

Describe the pattern of public spending since WWII.

A

GDP has increased

37
Q

What is the intercept of the consumption function called? What is its interpretation?

A

Autonomous consumption
The amount of consumption if income were zero

38
Q
  1. What is the slope of the consumption function called? What is its interpretation?
A
  • Marginal prosperity to consume
    • Fraction of a $1 increase in income that would be spent
39
Q
  1. Is the relationship between income and consumption actually linear?
A
  • No
    • Straight line is taking an approximation
40
Q

What is the equilibrium condition in a basic Keynesian model?

A
  • Aggregate demand equals output
41
Q

If your economy has the capacity to produce e200 but you are only producing e150, what capacity of the economy is currently being utilised?

A
  • 75% as the economy has the capacity to produce 25% more
42
Q
  1. Consider a simple economy where C = AD = 2000 + 0.7Y . What is the equilibrium value of Y?
A
  • C= 2000+0.7Y
    • Y=2000+0.7Y
    • Y-0.7Y=2000
    • 0.3Y=2000
    • Y=ANS
43
Q
  1. Suppose Amazon invests 150 into the economy above. What is the new Y ?
A
  • We shift aggregate demand up
    • AD= 2000+0.7Y
    • AD=2150+0.7Y
    • 0.3Y=2150
    • GDP=500
44
Q
  1. The economy of Tuvalu has an MPC of 0.75. What is its multiplier?
A
  • Multiplier =1/1-mpc
    • 1/1-0.75
    • Mpc=4
45
Q
  1. Explain how changing the interest rate affects asset prices.
A
  • Interest rates have a significant impact on financial asset prices
    • Higher interest rates can decrease demand for loans and investments, causing a drop in asset prices
    • Lower interest rates can increase demand for loans and investments, leading to a rise in asset prices
    • The relationship between interest rates and asset prices is complex
    • The impact of interest rates on asset prices depends on various economic and market conditions.
46
Q
  1. Explain how changing the interest rate affects investment.
A
  • Higher interest rates can decrease demand for borrowing and investments, leading to a decrease in investment activity.
    • Lower interest rates can increase demand for borrowing and investments, leading to an increase in investment activity.
    • Interest rates can impact the cost of borrowing, which affects the profitability of investments.
      Interest rates can also affect the value of financial assets, such as stocks, bonds, and real estate, which impacts investment returns.
47
Q
  1. The economy of Tahiti has a sales tax rate of 0.25, imports 30% of its goods, and consumers spend eight-tenths of every marginal dollar of income. What is Tahiti’s multiplier?
A
  • Sales tax rate=0.25
    • Imports 30%
    • 8/10 of income is spent
    • Multiplier= 1/1-(1-t)mpc+mpm
    • T-0.25
    • Mpm=0.3
    • Mpc=0.8
    • 1/1-(1-0.25)(0.8)+0.3
    • =1.43
48
Q
  1. In the Keynesian model we covered, compare and contrast how increased government spending and decreased taxes affect GDP.
A
  • Both increased government spending G and lower taxes t will be a stimulant to the economy. However, they affect aggregate demand differently. Increasing G will shift up the intercept. Decreasing t will change the slope.
49
Q
  1. Provide an example illustrating the difference between deflation and disinflation.
A
  • Deflation: persistent decrease in the general price level of goods and services over an extended period
    • Caused by a decrease in the money supply or aggregate demand
    • Disinflation: slowing down of the rate of inflation. Deflation is, disinflation is caused by central bank policies to reduce inflation.
    • An example of deflation is the Great Depression
    • Example of disinflation is the US’s Federal Reserve’s policy in the early 1980s to reduce inflation.
50
Q
  1. What’s the Fisher Equation?
A

The real interest rate = nominal rate - inflation

51
Q
  1. Explain why people with large mortgages would like inflation.
A
  • it reduces the real value of money over time, decreasing the real value of their debt.
    • As the general price level increases, so do wages and salaries, allowing borrowers to pay back their loans with cheaper
52
Q
  1. Explain why people with large savings in the bank would hate inflation.
A
  • It reduces the purchasing power of money over time, decreasing the real value of their savings.
    • As inflation increases, the amount of goods and services that can be purchased with savings decreases
    • Reduction in the real value of savings.
    • High inflation can also lead to higher interest rates, which can reduce the value of fixed-rate savings accounts.
53
Q
  1. What did the (original) Phillips Curve plot?
A
  • Inflation and unemployment
    • Noting that it was a negative relationship
54
Q
  1. Did the relationship depicted in the Phillips Curve continue to be true?
A
  • No
    • Philips curve suggested a stable relationship between unemployment and inflation
    • Eg: you could keep unemployment at 3% if let inflation be 2%
    • The relationship disappeared it wasn’t stable
55
Q
  1. Explain how interest rates affect consumption.
A
  • changing the cost of borrowing, impacting savings and investments, reducing disposable income, and affecting inflation.
    • High-interest rates increase the cost of borrowing and reduce disposable income, which can decrease consumption.
    • low-interest rates can encourage consumption by making borrowing cheaper and increasing disposable income.
56
Q
  1. What is the difference between a slope and a first derivative?
A
  • Nothing
    • They both measures how fast something changes
    • Eg: Y=a+bX derivative and slope are b
57
Q
  1. What does a second derivative measure?
A

How fast slope is changing

58
Q
  1. Sketch what y = x2 looks like on a graph.
A

Exponential growth curve

59
Q
  1. What is x0.5 better known as?
A

Square root of x

60
Q
  1. What is the difference between concave and convex?
A

Concave: increasing but tapering off
Convex: increasing and exploding

61
Q
  1. Explain the relationship between diminishing marginal returns and concavity.
A
  • Diminishing marginal returns occur when each additional unit of input results in a smaller increase in output.
    • Concavity refers to the shape of the production function. A production function is concave when the marginal product of each additional unit of input is decreasing.
62
Q
  1. Suppose some country is poorly developed, call it Angola. All else equal, would a e1 million investment have higher or lower returns than in Ireland?
A
  • Higher returns in Angola.
  • We assume capital follows a diminishing returns pattern: places with less capital would make great use of it
63
Q
  1. In the Solow Model, what’s A?
A
  • Total factor productivity/how efficient overall economy is
  • There’s no diminishing returns to TFP
    Doubling TFP will double output
64
Q
  1. In the Solow Model, what’s K?
A

Capital
The amount of non-human resources in the economy

65
Q
  1. In the Solow Model, what’s L?
    Human labour
A

Human Labour

66
Q
  1. In the Solow Model, what’s α?
A
  • It is a parameter, between 0 and 1.
  • Parameters, unlike variables, don’t change over time.
  • It measures the extent of diminishing returns to capital.
67
Q
  1. In mathematics, what does convergence mean?
A
  • Getting closer
68
Q
  1. In economics, what does conditional convergence mean?
A
  • assuming everything is comparable
  • we expect low capital countries to growth faster than richer countries – and thus ‘catch up’ with the developed world.
69
Q
  1. If Ireland has a GDP of e300m and invests fifteen percent of it, how much does it invest?
A

45 (15% of 300)

70
Q
  1. If Ireland haze 1,200m worth of capital, and the depreciation rate is eight percent, what is depreciation this year?
A

96

71
Q
  1. Is the Irish economy outlined in Qs 14 and 15 above in equilibrium?
A
  • No, not in a growing economy sense.
  • Investment is e45m but depreciation is e96m
    capital is declining.
72
Q
  1. If Y =A2 ×B, what does log(Y)equal?
A

logY =log(A2 ×B)=logA2 +logB=2logA+logB.

73
Q
  1. If Y = A × Kα × L1−α, derive an expression for the growth rate of Y on a balanced growth path.
A

On a balanced growth path, the growth rates of output (Y), capital (K), and labor (L) are equal and constant over time.
* The growth rate of Y on a balanced growth path can be derived by taking the natural logarithm of the production function, differentiating it with respect to time, and then substituting the values of
* d[ln(A)]/dt, d[ln(K)]/dt
* d[ln(L)]/dt.
* Since we are assuming constant returns to scale, we can solve for the growth rate of Y using the equation
* g = α^(1/(1-α)).

74
Q

True or False: A flat Beveridge Curve is a sign of efficient matching in the labour market.

A
  • False.
    • That’s a sign that the vacancy rate doesn’t change much, not that it’s efficient.
    • It could be flat but really high, and that’s not a good thing.
    • Efficiency is a Beveridge Curve close to the origin, not that it’s flat.
75
Q

Which of the following are examples of private property? More than one answer may be right, and you must choose all correct answers

A

Library books from your school or university
Slaves (in historical times)

76
Q

Which of the following variables have followed the so-called `hockey-stick’ trajectory – that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

A

atmospheric CO2
GDP per capita in Ireland
labour productivity in Ireland

77
Q

Capitalism as an economic system can be dynamic and successful because:

A

It allows firms to gain market power and thus eliminate their competitors.
Profits are claimed by the capitalists.
It allows failing firms to go bankrupt.

78
Q

Which of the following are classified as firms?

A

Companies employing unpaid student interns as well as paid workers.

79
Q

Consider the mathematical expression Y=X^0.95. Is this an example of:

A

A concave function

80
Q

Which of the following statements regarding Malthusianism is false?

A

Malthusianism over-emphasizes the role of technological improvements

81
Q

The population of Salthill is 2,000 people. One-half of the population are not of working-age. The town has 700 people employed and 300 people unemployed. Expressed as a percentage, what is the unemployment rate? Input your answer as a number, e.g. 15 to indicate 15%.

A

30

82
Q

The town of Moycullen has 250 working-age adults, of whom 200 are employed and 25 are unemployed.
The unemployment rate is:

A

11%
Unemployed= 25
Labour force=250
25/250

Economics (2 decks)

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