MacroEconomics _ Final Review

Which of the following would NOT decrease demand for cheesecake?

(answer)a rise in the price of cheesecake
a fall in consumer income (assume cheesecake is a normal good)
a fall in the price of apple pie(a substitute)
a rise in the price of strawberries(a compliment)

According to the Circular Flow diagram, in resource markets () demand () which are supplied by ()

(firms)
(resources)
(households)

How do expectation of higher future prices affect the market for Vegas weddings today? (mark all that apply)

Answer : Price Increases, Supply decreases, Demand increases
Not Correct: Supply Increases, Price decreases, demand decreases

Chandler is getting ready for poker night at his apartment. If he was not having poker night, then he could have made $900 at his job in data processing & statistical reconfiguration for multinational corporations. He spent $60 on cigars, $20 on snacks, and $50 on drinks. Which of the following statements about his costs is TRUE? (Mark all that apply.)

His opportunity cost is $900, His implicit cost is $900

A perfectly inelastic demand curve: (mark all that apply.)

is represented on a graph by a vertical line, has an elasticity coefficient equal to 0

Which of the following will cause the supply curve to shift to the right?

Answer : An improvement in technology, a decrease in taxation
Not Answer: an increase in the price of an input, a fall in the number of sellers

According to the Law of Supply:

the price of a good and the quantity supplied are positively related

Which of the following will NOT occur in the market for camera when the price of a complement rises?

Answer : Equilibrium price increases
Not Answer : demand decreases, equilibrium quantity decreases, there is a surplus at the old price

If last week Central Perk sold 750 coffees for a price of $4.00 each, and this week it sells 650 coffees for a price of $4.50 each, what change most likely occurred in the market for coffee?

decrease in supply

If consumer income falls, and as a result the demand for a good falls, then that good may be classified as

normal

Fruit juice is an input in jelly. Jelly and bread are complements. If the equilibrium price of fruit juice falls, then the equilibrium price of bread will fall and the equilibrium quantity of bread will rise.

Answer One: Rise
Answer Two: Rise

When the price of a good increases, producer surplus will ___ and consumer surplus will ___.

Answer 1: increase
Answer 2: decrease

In a market where demand is given by the equation Qd = 240 - 4P and supply is given by the equation Qs = -12 + 2P, find the equilibrium quantity.

72

A rise in the price of a mystery good caused a change in the market for blue suits that led to a rise in the equilibrium price of blue suits. Which of the following could possibly be the mystery good? (Mark all that apply.)

Blue thread (an input)
red suit (a substitute)

Which of the following statements about price rationing is FALSE?

Price rationing allows every consumer to have the good. Economists believe price rationing is the least efficient rationing method.

A beef trifle is an inferior good. When consumer income falls, the ___ for the beef trifles will ___ causing the equilibrium price to ___ and equilibrium quantity to ___.

Demand, increase, increase, increase

Which of the following consequences results from an effective price floor? (Mark all that apply.)

Surplus, inefficient allocation among producers, protection from imports
Not Answers: low quality, inefficient allocation among consumers, shortage

Which of the following is a type of resource?

Natural, Labor, Capital

Which of the following is a means for the government to enforce private property rights?

legal enforcement of contracts, national defense, provide police protection

Champ can cook 48 pancakes or 12 waffles in an hour.
Brick can cook 42 pancakes or 7 waffles in an hour.
Based on the above information, Brick's opportunity cost of producing one waffle is how many pancakes?

6

Champ can cook 48 pancakes or 12 waffles in an hour.
Brick can cook 42 pancakes or 7 waffles in an hour.
Based on the above information, which of the following statements is TRUE? (Mark all that apply.)

Brick has a comparative advantage in pancake production.

Jim can produce 60 units of Jell-O or 12 beets in a day.
Dwight can produce 75 units of Jell-O or 25 beets in a day.
One beet trades for 4 units of Jell-O.
Jim and Dwight completely specialize, and the beet producer trades 9 units.
Based on the above information, Jim will consume 24 units of Jell-O and 21 beets.

Answer 1: 24
Answer 2: 9

Which of the following is NOT one of the factors that reduce information problems? (Mark all that apply)

Non- rival in consumption, Free riders
Not Answer: government standards, repeat purchase products

Deliberate control of the money supply and credit conditions can be defined as

monetary policy

Which of the following is a reason aggregate demand slopes downward? (Mark all that apply.)

Foreign Purchases Effect, Interest Rate Effect
Not Answers: Domestic Purchases Effect, Fixed Costs Effect

Which of the following is a characteristic of public goods?

non-rival in consumption, non- excludable

Michael Scott is thinking of spending $8700 on capital that will create $9100 in expected revenue for Dunder Mifflin. The expected rate of return on the investment is %_____.

4.6

A planned investment is likely to be profitable (thus borrowing will occur) when the ___ interest rate is ___ the expected rate of return.

Real, less than

In the foreign exchange market, as the exchange rate rises the dollar ___ and the foreign currency ___.

depreciates, appreciates

what explains the difference between the slopes of the short run and long run aggregate supply curves?

In the short run, costs are not fully responsive to changes in the price level due to long-term contracts.

Pencils (75, 60, 45, 30,15, 0)
Staplers (0, 1, 2, 3, 4, 5)
Given the above production possibilities, the opportunity cost of the 3rd stables is how many pencils?

15

Pencils (75, 60, 45, 30,15, 0)
Staplers (0, 1, 2, 3, 4, 5)
Given the above production possibilities, which of the following statements is TRUE ?

The opportunity cost of producing a stapler is constant as more are produced.
The PPF is a downward sloping straight line.
Not Answer: The PPF is a downward sloping bowed line.
The PPF is an upward sloping bowed line. The opportunity cost of producing a stapler increases as more are produced.

When an unregulated negative externality exists, the marginal social benefit is ___ the marginal social cost, and the socially optimal quantity is ___ the equilibrium quantity.

less than, less than

Which of the following is one of the arguments for trade restrictions?

Anti- Dumping, National Defense

When a lack of competition exists in an industry, the government can improve social welfare by decreasing the monopolist's price to a level near average total cost.

Decreasing, Price

Which of the following is an example of a change in discretionary fiscal policy?

$1 trillion stimulus package passed by Congress in 2009 to combat recession.

In the goods and services market, changes in Y on the horizontal axis imply changes in which of the following variables?

Real GDP, employment

According to the Classical view, in the goods and services market, when aggregate demand rises in an economy that is currently producing the full employment level of real GDP, in the short run there is excess (DEMAND) at the original equilibrium price level, resulting in a (FALL) in inventories, a ___ in real GDP and a ___ in the price level.

demand, fall, rise, rise

According to the Classical view, in the goods and services market, when aggregate demand falls in an economy that is currently producing the full employment level of real GDP, in the long run resource prices adjust ___, short run aggregate supply ___ causing a fall in the price level and a rise in real GDP.

downward, increases, fall, rise

Which of the following will cause a decrease in aggregate demand?

a decrease in net export, a decrease in real wealth
Not answer: an increase in the expected rate of inflation, a decrease in the real interest rate

Which of the following is NOT a type of unemployment?

Answer: inflationary unemployment
Not Answer: structural unemployment, cyclical unemployment

Which of the following is one of the costs of inflation?

Less investment, distorted relative prices

Which of the following would NOT be included in the calculation of GDP?

Answer : goods and services produced by American-Owned firms in foreign countries , Financial transactions
Not Answer: final goods, goods and services produced by foreign-owned firms in the United States

Which of the following will cause an increase in short run aggregate supply?

a decrease in resource prices

According to the aggregate expenditure model, which of the following would increase the quantity of investments demanded?

investment is autonomous
Not Answer: a decrease in consumption, an increase in consumption, an increase in income, a decrease in income, an increase in government spending

Which of the following would be included in the cost-income approach calculation of GDP?

Net income of foreigners, indirect taxes

According to Keynes, which of the following occurs when aggregate demand decreases?

Y decreases
Not Answer: P decreases, SRAS eventually increases

0 – 15 year olds: 630

Working 16 – 65 year olds: 2190

Homemakers: 410

Unemployed 16 – 65 year olds: 110

Incarcerated 18 – 65 year olds: 40

Retirees: 575

The unemployment rate for the above economy is ____%

4.78

Personal Consumption - $64,218

Personal Saving - $10,520

Indirect Taxes - $6426

Government Spending - $18,734

Private Investment - $26,300

Depreciation - $11,380

Imports - $6240

Exports - $7322

Using the expenditure approach, GDP for the above economy is $______

110,334

Find the MPS for a consumer if an $1800 increase in income causes a $1548 increase in consumption.

0.14

In the goods and services market, when input prices rise in an economy that is currently producing the full employment level of real GDP, in the short run which of the following changes occur? (Mark all that apply)

inventories fall, short run aggregate supply decreases

If the nominal interest rate is 4.14% and the inflation rate is 2.82%, the real interest rate is ___ %

1.28

If a change in equilibrium income of $580 is caused by a chance in autonomous spending of $58, what is the MPC?

0.9

Using the Quantity Theory of Money, if the price level = 1.19, real GDP = 24,000, and the velocity of money = 6, then the money supply is $___

4,760

According to the Classical view of monetary policy, which of the following is a long run effect of an increase in the rate of money supply growth?

the price level rises

Which of the following are hurt by an appreciating U.S. dollar (a fall in e)?

Gross domestic product, U.S. producers of import-competing goods, U.S. producers of Exports

Which of the following could increase the demand for the foreign exchange?

an increase in the domestic inflation rate, an increase in the foreign real interest rate
Not Answers: an increase in the domestic real interest rate, a decrease in the domestic inflation rate, an increase in foreign real income

Which of the following is NOT an impact of high tax rates on growth according to supply-side macro theory?

discourages consumption of exports
Not Answer: Alters preferences, discourages productivity, discourages investment

In the money market, when the Fed sells bonds, checkable deposits ___, the money supply ___, the nominal interest rate ___ and the public holds ___ money.

decrease, decreases, rises, less

In the loanable funds market, when the Fed sells bonds, banks issue ___ loans, the supply of loanable funds (DECREASES), the real interest rate ___ and the public borrows ___.

fewer, decreases, rises, less

In the foreign exchange market, when the Fed buys bonds, the domestic real interest rate (FALLS), the supply of foreign exchange (DECREASES), the demand for foreign exchange ___ and the exchange rate ___.

falls, decreases, increases, rises

In the goods and services market, when the Fed sells bonds, consumption and investment ___, aggregate demand ___, short run aggregate supply ___ and real GDP (DECREASES)

Decrease, Decrease, Stays the same, decreases

Which of the following will occur when the money supply decreases?

Bond prices fall, the nominal interest rate rises
Not Answer: there is excess supply of money, the money supply shifts to the right

When the Fed decreases the discount rate, banking institutions borrow ___, checkable deposits ___, loans (INCREASE), and the money supply (INCREASES).

more, increase, increase, increases

When the Fed increases the interest paid on excess reserves,

the opportunity cost of making loans rises, loans decrease, the money supply decreases

Which of the following Federal Reserve actions will decrease the money supply?

selling bonds on the open market, increasing the reserve ratio, increasing the discount rate
Not Answers: decreasing the discount rate, decreasing the reserve ratio, buying bonds on the open market

In the money market, the supply of money is ___ and the demand for money is ___.

perfectly inelastic, downward sloping

Which of the following is one of the functions of money ?

Medium of exchange, unit of account

A $75 decrease in taxes in an economy with an MPC of 0.875 would cause a change in Y of $_____.

525

in the event of a recessionary GDP gap, the appropriate discretionary fiscal policy solution is to either ___ government spending or ___ taxes, causing the budget deficit to (DECREASE)

increase, decrease, decrease

Bank of Talladega opens its doors and receives an initial deposit of $24,000. the reserve ratio is 6.25%. What is the monetary multiplier?

16

Bank of Talladega opens its doors and receives an initial deposit of $24,000. The reserve ratio is 5%. The maximum checkable deposits that can be created from the bank's initial deposit are $______.

456,000

According to the Quantity Theory of Money, if the inflation rate is 4.5%, the rate of money supply growth is 7.1% and the velocity of money is constant, then the rate of real GDP growth is ____%.

2.6

If the Fed lowers the reserve ratio from 7% to 4%, then a bank that originally possessed $55,800 in excess reserves can create $______ in new money.

1,800

On the foreign exchange market, one dollar trades for 5.18 Brazilian Real or 0.85 British Pounds. A 3000 Pound watch would cost _______ Reals. (Round to the nearest Real)

18,282

When a government deficit is funded through borrowing in private markets, in the loanable funds market, the crowding out effect causes demand to ___ which causes the real interest rate to ___ and private investment to (DECREASE)

increase, rise, decrease

When a government deficit is funded through borrowing in private markets, in the goods and services market, the crowding out effect causes consumption and investment to ___ which causes aggregate ___ to (DECREASE)

decrease, demand, decrease

When a government deficit is funded through borrowing in private markets, in the foreign exchange market, the crowding out effect causes the ___ of foreign exchange to increase and the ___ of foreign exchange to decrease, causing the dollar to (DEPRECIATE).

supply, demand, (appreciate?)

When a bank possesses $300 in required reserves and $7200 in excess reserves, the reserve ratio is %_____.

4

in the event of an inflationary GDP gap, the appropriate discretionary monetary policy solution is to ___ the money supply so that the real interest rate ___ and money holdings ___.

decrease, rises, decrease

Assume that an economy with MPC = 0.9 and Ye = $420 is in equilibrium and full employment is Yf = $600. State the ∆G0 and ∆T0 that would restore full employment.

Increase taxes by $18 or decrease spending by $20

You buy a $500 bond that pays a fixed $20 interest payment. If the interest rate falls to 3.75%, the new market value of your bond is $____. (Round to the nearest dollar.)

533

In product markets, households demand goods and services which are supplied by firms in exchange for

money

In resource markets, firms demand resources which are supplied by households in exchange for

money

Factors that cause Demand to shift (left decrease, right increase)

1) Income : Normal Goods(together), Inferior Goods(opposite)
2) Price of Related Goods: Substitutes (together), Complements (opposite)
3) Expectations of future prices (together)
4) Number of Buyers (ie age demands increase social security)
5)Tastes and Preferences

Law of Supply

the price of a good and the quantity supplied are directly (positively) related

Factors that Shift Supply Curve

1) Input/Resource Prices (opposite)
2) Technology - improves (increases)
3) Taxes (opposite)
4) Expectations of future Prices (opposite)
5) Number of sellers (enter when high or exit when low)

Solving for Pe and Qe
Qs = 2 + 2p
Qd = 20 - 4p

Qs = Qd
2 + 2p = 20 - 4p
6p = 18
Pe = $3
Qe = 2+2(3) = 20 - 4(3)
Qe = 8 units

What happens to the market when a complements price falls?

1) Demand increases
2) Shortage at the old price
3) Pe Rises
4)Qe rises

What happens to the market when the price of an input falls?

1) supply increases
2)surplus at the old price
3) Pe falls
4) Qe rises (exam 1)

What happens to the market for gas when we expect higher future prices?

1)Demand increases
2)Supply decreases
3)Pe rises
4) change in Q indetermine

Role of Government

1) Define and Enforce Property Rights
2) Correct Market Failure
3) Promote Growth and Stability using Macroeconomics Policy

Market Failure

1) Externalities
2) Public Goods
3) Lack of Competition
4) Information Problems

Public Goods

Non - rival in Consumption
Non - Excludable

Factors that reduce Information Problems

1) Repeat purchase product
2) Brand names
3) Expert Reviews ( ie consumer Reports)
4) Government Standards

Macroeconomic Policies

Fiscal Policy - the use of government spending and taxation
Monetary Policy - deliberate control of the money supply and credit conditions

Four Key Markets

1) Goods and Services
2) Resource
3) Loanable Funds
4) Foreign Exchange

Why Aggregate Demand slopes downwards

1) Purchasing power of money
2) Interest Rate Effect
3) Foreign Purchases Effect

Depreciation

a reduction in the value of one currency relative to foreign currencies

Appreciation

an increase in the value of one currency relative to foreign currencies