Macroeconomics Final Exam

Which of the following is a Macro Economic Question?

How many people are employed in the economy as a whole this year?

What are periods of economic downturn when output and employment are falling called?

Recessions

What are periods of economic upturn when output and employment are rising called?

Expansions

In the United States, what organization determines when a recession begins and ends?

NBER

What is a rising overall level of prices called?

Inflation

What do economists and policymakers aim for because both inflation and deflation can cause problems?

Price Stability

What are goods and services sold to other countries called?

Exports

What is spending on productive physical capital, such as machinery and construction of buildings, and on changes to inventories called?

Investment Spending

______ is defined as the total value of all final goods and services produced in an economy during a given period, usually a year.

GDP

______ _____ ______ _______ are goods and services sold to the final, or end user called.

Final Goods and Services

GDP (Gross Domestic Product) =

C+I+G+X+NX

______ ________ is the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.

Real GDP

A ______ basket is a hypothetical set of consumer purchases of goods and services

Market basket

The _______ measures the cost of the market basket of a typical urban United States family.

CPI

________ is the number of people currently employed in the economy, either Full Time or Part Time.

Employment

The ______ _______ is equal to the sum of employment and unemployment?

Labor Force

________ unemployment is unemployment due to the time workers spend in job search.

Frictional

The ______ rate of unemployment is the unemployment rate that arises from the effects of frictional plus structural unemployment.

Natural

Natural Unemployment =____________unemployment + __________unemployment

Frictional +Structural Unemployment

The _______ interest rate is the nominal interest rate minus the rate of inflation.

Real

The _______ interest rate is expressed in dollar terms.

Nominal

_______ Exports are the difference between the value of exports and the value of imports.

Net Exports

An _______ economy is an economy that trades goods and services with other Countries.

Open

In the United States, citizens under the age of _______ are not included in the employment figures.

16

Economics is based on the question of the allocation of _______ resources.

Scarce resources.

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then what is the real interest rate?

3 percent

What is a mutual fund?

An institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds

The source of the supply of loanable funds for Investment is:

Savings

What agency calculates the CPI?

Bureau of Labor Statistics

International data on GDP and socioeconomic variables:

Leave no doubt that a nation's GDP is closely associated with its citizens' standard of living

In the CPI of the United States, what is the largest percentage for one category of the CPI?

Housing

Productivity is the amount of goods and services:

Produced for each hour of a worker's time. It is linked to the economic and fiscal policies of that nation.

Your author suggests that the CPI is not perfect, what does it tend to do?

Overstate inflation

Why must choices be made about resources (anything that can be used to produce something else)?

Scarce

Because you must choose among limited alternatives, the true cost of anything is what you must give up to get it- all costs are:

Opportunity Costs

Rational People Think at the:

Margin

Firms sell goods and services that they produce to households in __ for goods and services.

Markets

__ economics prescribes how the economy should work.

Positive

__ advantage is an ability to produce a particular good or service better than anyone else (i.e. with less total inputs).

Absolute

One important economic model is the __ that illustrates several important economic concepts.

Production Possibilities Frontier

When a rise in income increases the demand for a good, the good is called a __.

Normal Good

Two goods are __ if a rise in the price of one of the goods leads to an increase in the demand for the other good.

Substitutes

A __ in the Circular Flow Diagram is an organization that produces goods and services for sale.

Firm

The __ in the Circular Flow Diagram is the place where firms sell goods and services that they produce to households.

Markets for Goods and Services

Economic Models are __ representations of reality—and play a crucial role in economics.

Simplified

In the Circular Flow Diagram the Main Factors of Production include:

Land, Labor and Capital (Physical and Human)

Comparative Advantage involves the question of who has the lower overall __ costs.

Opportunity

Refer to figure A. What is represented by the dot "F"?

Inefficient Production

Refer to figure A. What is represented by the dot "G"?

Impossible Production

Refer to figure A. What is represented by the dots A, B, C or D?

Efficient Production

_______ _______explains the source of gains from trade between individuals and countries. Everyone has a ______ _______in something-some good or service in which that person has a lower opportunity cost than everyone else.

Comparative Advantage, Comparative Advantage

Because people usually exploit opportunities to make themselves better off, _______ can change people's behavior.

Incentives

__ is the branch of economics that is concerned with the overall ups and downs in the economy.

Macroeconomics

Economics is a ________science that studies the production, distribution, and consumption of goods and services.

Social

Principle #10 in the textbook is that society faces a short run trade-off between: _______, ________

Inflation, Unemployment

Principle #1 in the textbook is that people face _______.

Tradeoffs

Trade (Presuming it's Fair and Honest) almost always makes both countries:_____ ______

Better Off

According to the Authors of your book and the Video we watched, The Production Possibilities Frontier Shows that one goal of any economy is the expansion of the economy's production possibilities or to put it more simply the goal is:

Economic Growth

The point of intersection between Supply and Demand is called:

Equilibrium

Demand Curves generally slope in what direction?

Down

An increase in demand leads to a ______ shift of the demand curve.

rightward

There are five main factors that shift the demand curve. Please pick them from the following list:

change in: tastes, expectations, number of consumers, income, prices of related goods or services.

There is a _______ of a good or service when the quantity supplied exceeds the quantity demanded, the price is above its equilibrium level.

Surplus

A change in the quantity demanded at any given price, represented by the shift of the original demand curve to a new position, denoted by a new demand curve is a shift of the _____ curve.

Demand

The Law of _______ says that a higher price for a good or service, other things being equal, leads people to demand a smaller quantity of that good or service.

Demand

A movement along a supply curve is a change in the quantity supplied of a good arising from a change in the goods ______.

Price

Compounding refers directly to:

Interest being earned on previously-earned interest

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The future value of the $500 after 2 years is:

$583.20

The rule of 70 can be stated as follows: A variable with a growth rate of X percent per year:

Doubles every 70/X years

Which of the following best illustrates diversification?

Instead of holding onto the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services.

An index fund:

Holds all the stocks in a given stock index.

Which of the following is a function of money?

A medium of exchange, a unit of account, and a store of value.

Liquidity refers to:

The ease with which an asset is converted to the medium of exchange.

The primary difference between commodity money and fiat money is that

Commodity money has intrinsic value but fiat does not.

M1 includes

currency, demand deposits, and travelers checks.

The agency responsible for regulating the money supply in the United States is:

The Federal Reserve.

When a bank loans out $1,000, the money supply:

Increases

The discount rate is the interest rate that

The Fed charges banks for loans.

The rate at which the Fed lends money to banks is:

The discount rate.

Menu costs refers to:

The cost of more frequent price changes induced by higher inflation.

Foreign-produced goods and services that are purchased domestically are called:

Imports

If Germany purchased more goods and services abroad than it sold abroad last year, then it had:

Negative net exports which is a trade deficit

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then:

The dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.

If an economy used gold as money, its money would be:

Commodity money, but not fiat money

When prices rise,

Real estate is a better store of value than money

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

$1(1+.05)^16

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Store of value

The Fed has the powers to increase or decrease the number of dollars in the economy through the decisions of:

The FOMC

When conducting an open-market purchase, the Fed:

Buys government bonds, and in so doing increases the money supply

When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is:

A U.S. import and a French export

Which type(s) of economies interact with other economies

Only open economies.

Net capital outflow is defined as the purchase of:

Foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.

According to the Economist Milton Friedman, Inflation is a __________ phenomenon.

Monetary

When we say we can bury money in a piggy bank and then retrieve it and use it years later, we mean to illustrate the aspect of money that means it is a:

Store of Value.

What effects hekps to explain the slope of the aggregate-demand curve?

The wealth effect, interest rate effect, and exchange rate effect.

An open economy’s GDP can be expressed best by this formula:

Y = C+I+G+NX

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in:

The interest rate.

Which of the following typically rises during a recession

Unemployment

The aggregate demand is described graphically as:

Sloping downward.

Wages tend to be sticky:

because of contracts, social norms, and notions of fairness.