Macroeconomics Units 3-4

Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed.

total quantity; price level for output

In an AD/AS model, the point where the economy has excess capacity is called the:

Keynesian zone of the AS curve

When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________.

AS; right

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.

equilibrium

_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

Full employment GDP

If real GDP is less than potential GDP then

the unemployment rate is high and the price level is stable.

Which of the following scenarios would cause an increase in the quantity of real GDP supplied?

The aggregate price level has increased and if the wages are sticky, businesses have hired more employees as labor has become relatively cheaper.

If real GDP is not close to and lower than potential GDP then ________ and if real GDP is close to or at potential GDP then ________.

equilibrium occurs in the flat range of AS; equilibrium occurs in the steep range of AS

In the AS-AD model depicting economic growth,

the vertical line that represents potential GDP will gradually shift to the right in the long run.

The term full employment GDP" is synonymous with which of the following?"

potential GDP

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

lower unemployment.

A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:

aggregate demand.

Which of the following represents a Keynesian point of view of macroeconomics?

creating increases in aggregate demand to reduce unemployment

From a neoclassical viewpoint, government should focus less on:

cyclical unemployment.

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur?

a rise in unemployment

The Keynesian view of economics assumes that:

wages are sticky.

Which of the following government policies would be supported by neoclassical macroeconomic assumptions?

focus on long-term growth and on controlling inflation

From a neoclassical view, which of the following is a true statement?

The economy cannot sustain production above its potential GDP in the long run.

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.

potential GDP; natural rate of unemployment

Which of the following is a building block of neoclassical economics?

wages and prices will adjust in a flexible manner

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

unit of account

Which of the following is omitted in a barter transaction?

money

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

medium of exchange

Which of the following would be classified in the M1 category of the money supply?

demand deposits also known as checking accounts

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah's M1 funds.

____________ is a completely inadequate mechanism ____________________ in a modern advanced economy.

Barter; for trying to coordinate trades

Which category of the money supply would you be contributing to if you invest in money market funds?

M2

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

Money

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying power

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

her M1 funds.

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

following a loose monetary policy.

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.

expansionary monetary policy

Which of the following institutions oversees the safety and stability of the U.S. banking system?

The Federal Reserve

What is the name given to the macroeconomic equation MV = PQ?

basic quantity equation of money

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?

quantitative easing

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

borrow for the short term from the central bank.

Which of the following is a traditional tool used by the Fed during recessions?

open market operations

If nominal GDP is 1800 and the money supply is 450, then what is velocity of circulation?

4

How are the specific interest rates for the lending and borrowing markets determined?

by the forces of supply and demand

Which of the following institutions determines the quantity of money in the economy as its most important task?

Central Bank

If Keynes� law applies during economic contractions and Say�s law applies during economic expansion, how will the three goals of macroeconomics be affected?

trade-offs and connections may differ in the short run and the long run

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________.

Neoclassical economists; long run

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

demand

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

hyper-intense production will be unsustainable in the long run.

Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?

it shifts the AS curve in the long-term

In the AS-AD model, when actual equilibrium GDP falls below potential real GDP, then

cyclical unemployment occurs.

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Which component of aggregate demand would initially be affected by a change in exchange rates?

net exports

A fall in foreign prices relative to the price level in the U.S. will cause:

U.S. net exports to fall.

If equilibrium occurs in the flat range of the AS curve, then the:

economy is experiencing unemployment.

When using the aggregate demand-aggregate supply (AD-AS) model to illustrate growth and changes in the economy, which of the following things are considered?

The efficiency of the capital and financial sector.

________________ economists place an emphasis on __________ run economic performance.

Neoclassical; long

From a neoclassical viewpoint, government should focus less on:

cyclical unemployment.

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

economic growth; the size of the economy

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

inflationary increase in price level

Which of the following is a valid criticism of the rational expectations theory?

the assumption seems too strong

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

a vertical line drawn at the level of potential GDP

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands.

productivity increases

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

a double coincidence of wants

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

store of value

In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.

owning gold

A central bank that wants to increase the quantity of money in the economy will:

buy bonds in open market operations.

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

Central Bank; safety and stability of the banking system.

Which of the following events would cause interest rates to increase?

a higher discount rate

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirements

The quantitative easing policies adopted by the Federal Reserve are usually thought of as:

temporary emergency measures.

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________.

the tools of demand and supply

If 20 Mexican pesos could buy $2.00 U.S. dollars in 2006 and $1 U.S. dollar in 2010, then:

the dollar strengthened against the peso.

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

the dollar depreciated against the yen.

In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?

2010: .12 U.S. dollars; 2012: .15 U.S. dollars

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

One of the following groups is not participating in the foreign exchange markets. Which one?

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

The _____________________________ is the largest market in the world economy.

foreign exchange market

In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?

2009: .71 dollars, 2013: 1.11 dollars

When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.

soft peg

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.

taking a management responsibility

If a country’s GDP decreases, but its debt increases during that year, then the country’s debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase

A ______________________ means that government spending and taxes are equal.

balanced budget

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes.

A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.

proportional tax

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:

discretionary fiscal policy.

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

contractionary

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

progressive.

An import quota or tariff on French wine that raises the prices for wine will probably:

hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument is commonly known as the _______________.

National Interest Argument

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

domestic producers can attain the economies of scale to allow them to compete in world markets.

A rule that every imported product must be opened by hand and inspected with a magnifying glass, by one of just three government inspectors available at any given time might be referred to as __________________.

a non-tariff barrier

As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a(n) __________ advantage and toward industries where it has a(n) ___________ advantage.

comparative; comparative

Which of the following would be expected if the tariff on foreign-produced automobiles were increased?

The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise.

Tariffs are taxes imposed on _________________.

imported products

International trade is fundamentally a ________________________.

win-win situation

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

domestic producers can attain the economies of scale to allow them to compete in world markets.

_____________ are numerical limitations on the quantity of products that can be imported.

Import quotas

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

aggregate demand

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

weakening; less

The _____________ is an example of a large-scale common currency.

euro

In 2010, 100 Japanese yen purchased 0.88 U.S. dollars and in 2013, it purchased 0.93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?

2010: 113.6 yen, 2013: 107.5 yen