Macroeconomics Final

1. If one country has a comparative advantage over another, this means:

It can produce one product at a lower opportunity cost than can the other country.

Its products are the best in the world.

It can produce more of all products than the other country.

It has a bigger market share than the other country.

2. _____ is an assumption used in economics in which other relevant factors or variables are held constant.

Caveat emptor

Habeas corpus

Montani semper liberi

Ceteris paribus

3. The field of economics that is concerned about the broader issues in the economy such as inflation, unemployment, and national output of goods and services is called:

Macroeconomics.

Microeconomics.

National economics

Labor force economics.

4. A decline in overall prices throughout the economy is called __________.

Inflation

Hyperinflation

Deflation

Disinflation

5. If the Federal Reserve sells bonds using Open Market Operations, what effect should this have on the money supply?

None

Increase the money supply

Decrease the money supply

It depends upon the value of the U.S. dollar in foreign exchange

6. The basic proposition of the law of demand is that:

Prices must adhere to all of a nation's laws.

Higher prices elicit more demand.

As the price of a good rises, a lower quantity of it is demanded

Buyers demand lower prices.

7. In the Classical model discussed in Ch. 7, workers are paid according to ___________.

The minimum wage

The rental rate of capital

Their productivity

The interest rate in the loanable funds market

8. Open market operations involve the purchase and sale of:

Government bonds.

Corporate bonds.

Municipal bonds.

Utility bonds.

9. Increasing opportunity costs occur along the PPF because:

Of unemployment in the economy.

Not all resources are alike in the production of goods and services.

Of the negative relationship between price and quantity demanded

Of inequities in the distribution of income.

10. All of the following are considered key ideas of economics except:

Choice and scarcity force tradeoffs.

People follow incentives.

Irrational behavior requires thinking on the margin.

Information is important.

11. The historical evidence shows that:

Governments ruled under dictatorships invest wisely, because they have access to allrelevant information

A country's degree of economic freedom is related to the level of economic growth.

Economic freedom is detrimental to growth, because market participants tend to makemistakes.

There is no connection between citizens' freedoms and economic prosperity.

12. ___________ occurs when the mix of goods society decides to produce is produced at the lowest possible resource or opportunity cost.

Allocative efficiency

Production efficiency

Opportunity cost

Cost allocation

13. High taxes or heavy regulation:

Can cause firms to boost production so they can cover the added costs.

Can raise costs of production so much that the aggregate supply curve can shift to theleft.

Are not likely to affect firms' behavior since they are more concerned about profit thantaxes or regulation .

Are likely to shift aggregate supply to the right.

14. All of the following are causes of the Great Depression except:

Wide spread bank failures.

Stock market crash of 1929.

Large drop in residential investment

Government cut taxes and raised spending

15. A change in one of the determinants of aggregate demand will cause the aggregate demand curve to shift. Which of the following would not cause a shift?

A change in consumption spending

Spendinga change in the price level

A change in investment

A change in net exports

16. If the BLS counted discouraged workers and the underemployed as unemployed, the unemployment rate in the U.S. would be:

The same.

Lower.

Higher.

Uncertain; it depends on the number of underemployed workers who are over age 65.

17. Scott has a Masters in sociology and drives a taxicab for a living. According to the BLS, Scott is categorized as:

Unemployed.

Underemployed.

Discouraged

Both B & C are correct.

18. Using the value added approach ensures that there is(are) no !!!!!!!!!!!!!!!!!!! in our GDP figures.

Used goods

Double-counting

Foreign investments

Inflation

19. In the Keynesian framework, the way to fight a recession is to:

Cut taxes and/or increase government spending

Increase the money supply which reduces interest rates.

Increase the population with more immigration.

Do nothing and wait for the economy to return to full employment on its own.

20. Trade can benefit society as a whole because it allows:

For a more efficient use of resources.

For goods to be obtained at a lower opportunity cost.

People to specialize in activities in which they have a comparative advantage.

All of the above are correct.

21. The reason why investment in human capital is so important is that:

Humans need capital.

It lowers the total wage bill.

It increases labor productivity.

It improves morale.

22. In the absence of copyright and patent laws:

The quality of goods and services consumed by purchasers improves.

Innovators can invent more, because they don't have to spend resources navigating thelegal system.

The profits of writers and inventors rise.

It is difficult for innovators to profit from their efforts.

23. If one country has a(n) ____________ in the production of one item, it can always produce more of the item than another nation.

Comparative advantage

Absolute advantage

Special advantage

Trade advantage

24. The M2 money supply includes:

Savings deposits.

Traveler's checks.

Small time deposits.

All of the above are correct.

25. The ________ shows the combination of two goods that are possible for a society to produce at full employment.

Full employment line

Production possibilities frontier

Goods and services frontier

Maximal productivity curve

26. Due to the invention of ATMs, many bank tellers lost their jobs. This is an example of:

Structural unemployment.

Frictional unemployment

Cyclical unemployment

Statistical unemployment

27. In our Keynesian model, when withdrawals equal injections the economy:

Is losing money.

Still needs to adjust to bring both down to zero.

Is in a recession

Is in equilibrium

28. Jennifer did not work during college. She just obtained her MBA and she is now looking for a marketing job in the retail industry. Jennifer is considered:

Structurally unemployed.

Frictionally unemployed

Cyclically unemployed

Not in the labor force

29. All of the following are examples of supply-side fiscal policies except:

Reducing corporate and business taxes

Increasing funding for public education

Decreasing investment tax credits for Research and Development

Increasing infrastructure spending

30. Crowding out:

Refers to government spending crowding out imports

Aids expansionary fiscal policy.

Completely cancels out expansionary fiscal policy.

Leads to higher interest rates and lower levels of investment.

31. Increasing taxes to fight inflation is an example of:

Conservative policy.

Contractionary policy.

Expansionary policy.

Demand-braking policy.

32. The Federal Reserve System was created in which year?

1929

1776

1978

1913

33. Why might the money multiplier be smaller in reality than our potential money multiplier?

Some banks might hold excess reserves.

Banks might have trouble finding people who want or qualify for loans.

Some money that gets loaned out might end up as cash instead of being deposited backinto the banking system.

All of the above are correct

34. The Federal Reserve System includes_________regional banks.

7

50

12

4

35. Your grandma says that people were lucky to make $1 a day in 1938. In real terms(2011 dollars), what is $1 a day equilvalent to? The CPI in 1938 was 14.1 and the CPI in 2011 is 223.5

$126.80

$15.85

$222.50

$14.85

36. In the Keynesian model, assume that full employment occurs at an output of $10,000. With an APS=0.05, a MPC= 0.5 and equilibrium output currently at $9,600, by how much would government spending need to change to move the economy to full employment?

$200

$400

-$100

$20

37. Suppose the equilibrium price of a one-bedroom apartment in Manhattan, KS is $700. The city council decides to institute a price ceiling at $500. All of the following are expected to occur except:

A surplus of apartments

A shortage of apartments

Apartment quality will deteriorate

Apartments will be converted to alternative uses, such as offices or condos.

38. Who is considered the Father of Economics?

David Ricardo

Joseph Schumpeter

Alfred Marshall

Adam Smith

39. Boeing sells an airplane to British Airways. This transaction is included in which category of GDP?

C

I

G

NX

Not Included

40. When calculating GDP, government purchases include and but not .

Wages and salaries; transfers payments; the purchase of goods and services

Transfer payments; the purchase of goods and services; wages and salaries

Wages and salaries; the purchase of goods and services; transfer payments

None of the above are correct: Government expenditures include wages and salaries,transfer payments, and the purchase of goods and services.

41. The time policy makers must wait for economic data to be collected, processed, and reported is called:

Information lag

Decision lag

Recognition lag

Collection lag

42. In class we discussed economic growth between various countries over the last 400-500 years. What was the main reason for the explosion in economic growth that occured in the 1800's?

Industrial revolution

American revolution

Kansas becoming a state

A dramatic increase in literacy rates

43. The maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, ceteris paribus, is called:

Sales volume.

Profit.

Supply.

Maximal output.

44. The capital-to-labor ratio measures:

The average number of hours worked.

The financial resources of a company divided by the number of employees.

The rate of technological improvement.

The amount of capital per worker.

45. If the stock market collapses, consumption will:

Not be affected.

Increase because stocks can now be purchased cheaply

Decrease because people feel less wealthy.

Mildly increase.

46. Assume the reserve requirement is 10% and all banks become fully loaned-up. If a new deposit of $10,000 is made into Bank X, then Bank X can make new loans of:

$9,000.

$10,000.

$1,000.

$100,000.

47. Which is the following best illustrates the wealth effect?

Simon felt he needed at least $800,000 to retire comfortably. He increased his saving tobuild up his wealth.

48. Suppose in the market for iPhones, the following two changes take place: (1) there is new production technology that allows for less labor to be used and (2) more consumers prefer iPhones over alternative technologies. What happens to the equilibrium price and the equilibrium quantity?

The equilibrium price and the equilibrium quantity rise.

The equilibrium price falls, but the equilibrium quantity is uncertain

The equilibrium price is uncertain and the equilibrium quantity rises.

The equilibrium price rises, but the equilibrium quantity is uncertain.

49. Suppose that you discover that, ceteris paribus, when the price of tomatoes increases, the demand for bleu cheese decreases. From this you conclude that:

Tomatoes and blue cheese are substitutes.

Tomatoes are inferior goods and blue cheese is a normal good.

Tomatoes and blue cheese are complements.

The demand curve for tomatoes has shifted to the left.

50. In our Keynesian model with a linear savings curve, the marginal propensity to save:

Increases when income increases.

Is the change in saving associated with a change in income.

Is equal to saving divided by income.

Decreases when income increases.

51. Consider the U.S. auto market. Suppose the following two changes take place: (1) Chrysler goes out of business and (2) a flood of new immigrants raises the U.S. population. What happens to the equilibrium price and equilibrium quantity for autos?

The equilibrium price and the equilibrium quantity rise.

The equilibrium price falls, but the equilibrium quantity is uncertain

The equilibrium price is uncertain and the equilibrium quantity rises.

The equilibrium price rises, but the equilibrium quantity is uncertain.

52. Econoimcs is often defined as the study of how society allocates __ resources to satisfy unlimited _.

Abundant; needs

Scarce; wants.

Abundant; wants.

Scarce; needs.

53. Which of the following is not a determinant of demand?

Price of the good

Income

Number of buyers

Expectations

54. In cost-push inflation, aggregate output _ and the aggregate price level ___.

Rises; rises

Rises; falls

Falls; falls

Falls; rises

55. One important aspect of modern growth theory is that:

Private businesses intentionally set out to do research to add knowledge to the publicdomain.

Most new knowledge disappears after five years.

Developments in technology have a public character; that is, they have spillover effects.

Patent law and copyrights prevent most knowledge from being made public.

56. GDP includes goods and services produced _ but it does not include goods and services produced _.

Inside the United States by foreign citizens; outside the United States by U.S. citizens.

Outside the United States by U.S. citizens; inside the United States by U.S. citizens.

Outside the United States by U.S. citizens; inside the United States by foreign citizens.

Inside the United States only by U.S. citizens; outside the United States only by U.S.citizens.

57. Assume the U.S. population is 300 million, the number unemployed is 18 million, and the number employed is 182 million. Calculate the unemployment rate for the U.S.

91%

9%

39.3%

6%

58. All of the following are examples of infrastructure except:

Interestate highway system

Private education institutions

Dams

Telecommunication networks

59. All of the following are issues with how the CPI is measured except:

Healthcare bias

Store-brand bias

Subsitution bias

New product bias

60. All of the following are categories of resources except:

Entrepreneurial Ability

Computers

Labor

Land

61. What does it mean that the Fed is meant to be the "lender of last resort"?

During a financial crisis, small businesses can get loans from their regional FederalReserve Bank.

During a financial crisis, the government can get loans from the Fed to close the budgetgap.

During a financial crisis, banks can get short-term loans from their regional FederalReserve Bank.

If a new business can not find anyone to buy their bonds, the Fed is guaranteed topurchase them

62. Primarily because of the__________ lag, Monetary policy is considered to have shorter total lag time than fiscal policy.

Implementation

Decision

Recognition

Information

63. All of the following are included in GDP using the expenditures approach except:

An entrepreneur buys a WWII ammunition bunker from the U.S. government that heplans to turn into a storage facility.

While on vacation in the U.S., a Japanese tourist breaks his leg and must visit theemergency room.

A U.S. firm adds to its inventories.

The City of Manhattan builds a new swimming pool.

64. What is the short-run impact on aggregate prices(P) and output/ GDP(Q) when the government raises taxes to balance the budget?

Lower P and higher Q

Lower P and lower Q

Higher P and higher Q

Higher P and lower Q

65. If the average propensity to consume is 0.94, and the marginal propensity to save is 0.20, then a $375 tax increase will _ income(Y) by ___.

Increase; $1,762.50

Increase ; $1,500

Decrease; $1,762.50

Decrease ; $1,500

66. -Suppose that after watching Food, Inc., milions of college students across the country become vegetarians. Consequently, the demand for tofu(which is made primarily from soybeans) increases. What will happen to the supply of tofu?

Increase

Decrease

It depends upon the magnitude of the demand shift

Nothing

67. If the amount of investment spending in an economy declines by $1,000 and the Marginal Propensity to Consume is 0.60, the effect on the economy would be a change of _____ in income/output.

-$600

$1,000

-$2,500

-$1,000

68. When money is used to measure and compare the value of goods and services, it is used as a:

Unit of account

Store of value

Medium of exchange.

Means of payment.

69. Examples of expansionary fiscal policy include all of the following except:

Decreasing taxes

Increasing government spending

Increasing transfer payments

Increasing the money supply

70. Last week, Warren Buffet bought a 2009 Lear 45XR jet. This transaction is included in which category of GDP?

C

I

G

NX