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Flashcards in Macro Econ Study Deck (110):
1

1. Joe’s income this year is 55,000. The consumer price CPI is 110. What Joe’s income in term of base year dollars rounded to the nearest dollar?
A. 60,500 B. 53,000 C. 49,800 D. 50,000 E. none

D

55000/110



2

2. Government can increase Long-Run economy growth by encouraging
A. Conservation of resources
B. Consumption
C. Spending
D. Saving and Investing
E. None

D

3

3. Countries that devote a long share of GDP to investment such as Singapore vs. Korea tend to have.
A. High
B. Stable growth rate
C. Low
D. Highly cyclical growth rate
E. There is no relationship between investment and growth.

D

4

4. Enforceable private property risks
A. Make economic development more likely.
B. Make economic development less likely.
C. Guarantee that economic development will occur.
D. Ultimately have title effect on economy
E. Guarantee that economic development will not occur

A

5

5. If real interest rates are too low
A. There will be excess demand in the loanable fund market
B. Nominal interest rates will have to rise
C. There will be excess supply in loanable funds market
D. Inflation must be increase
E. The GDP deflator has not been applend yet

C

Think SUPPLY then demand.

6

8. The substitution bias means that
A. Consumer substitute towards good, that have become relatively more expensive.
B. Consumers substitute towards goods that have become relatively less expense.
C. The CPI understates the increase in the cost of living each years.
D. The CPI compensates for equal changes and accurately reflect the cost of living.
E. None of the above.

B

7

9. Many countries in the far east, such as South Korea and Tawin have experience decades of repaid economic growth following by lower economic growth recent year. The phenomenon is known as
A. The catch-up-effect
B. The exploitation effect
C. The Asian effect
D. The supper growth effect
E. The over investment effect.

A

8

10. Accounting tends to grow faster when
A. Greater proportion of its works force graduate from college.
B. The trades less with the rest of the world.
C. The government restrict foreign investment info to county.
D. Saving and investment decreases.
E. The stock of physical capital is held constant.

A

9

11. Which of the following is most likely to encourage economic growth?
A. Stable private property rights.
B. An extensive welfare system
C. Frequent military take owners at the government
D. A shrinking labor force.
E. A fixed capital stock.

A

10

13. If you take nation’s total income and subtract out private consumption, a government consumption you will find.
A. GDP
B. National Saving
C. Net national product
D. Net exports
E. National consumption surplus.

B

11

14. Frictional unemployment best defined as
A. Deviation of unemployment from its natural rate
B. Unemployment of people who do not want to work.
C. Chronic unemployment due to wages not balancing supply and demand
D. Unemployment due to individuals search for new job.
E. None

D

12

16. The decrease in Money Supply, the Fed would?
A. Buy government’s bonds
B. Increase the discount rate
C. Decrease the reserve requirement
D. All of the above
E. None of the above

B

13

17. Suppose that the country of France has a 22% nominal interest rate and an expected inflation rate of 10%. Which of the following is the best estimate of the Real interest Rate in the country’s
A. 2.2) %
B. 22%
C. 12%
D. 10%
E. Not enough info.

C

Formula: Nominal Interest Rate – Inflation Rate (22% - 10% = 12%)

14

19. With sticky nominal wages an unexpected decline in aggregate demand can be expected to cause.

B. Both price and Real decrease in the Short-Run

--------------------------------------------------------------------------
"Sticky" refers to a Short Run aggregate supply curve and demand.

Since demand shifts to the left, the effect is a lower Price Level and lower Real GDP.

15

20. The main problem with active fiscal policy is that?
A. Changes in government’s spending have no effect on Aggregate Demand in short-run.
B. The multiplier effect cancels out any positive effect of fiscal policy
C. Automatic statistic countract the effect of fiscal policy.
D. It happens without any involvement by congress
E. It is difficult to time fiscal changes correctly.

E

16

21. Net exports measure an imbalances between a country’s?
A. Exports and its imports
B. Sales of domestic assets of road, and buying of foreign assets.
C. Income and expenditures
D. Saving and investment
E. All

A

17

22. Which of the following affect a country’s net foreign investment?
A. Real Interest Rates paid on foreign assets.
B. Real Interest Rates paid on domestic assets
C. Government policies that effect foreign ownership of domestic assets.
D. All of the above
E. None.

D

18

23. A country tends to grow faster when?
A. Greater proportion of its work force graduate from college.
B. It trades less with the rest of the world.
C. The government restricts direct foreign investment into others.
D. Saving and investing decrease.
E. The Stock of fiscal capital is held constant.

A

19

24. Relationship between the quantity of inputs used in production and the quantity produced from those inputs is called.
A. Productivity Equation
B. Production function
C. an input – output function.
D. A GDP deflator
E. None

B

20

25. If there is excess demand in the loan able funds.
A. Interest rates are above equilibrium
B. Interest rates are below equilibrium
C. Interest rates expected to rise
D. A & C
E. B & C

If there is excess Supply in the loanable funds framework?
A. Interest Rates are above equilibrium.
B. Total borrowing is greater than total spending.
C. Interest Rates are below equilibrium.
D. Both B & C
E. Both A & C

E

A
------------------------------------------------------------------------
Step One: Draw graph with supply and demand curve.

Step Two: Demand is greater than supply

Step Three: Interest rate is lower than equilibrium

Step Four: Rates would rise.

E.

21

Frictional unemployment?
A. Recent graduate looking for a job.
B. A mother is searching for a job and the kid has gone to college
C. New Yorker moved to California.
D. Computer program who turned down a job offer expect better job.
E. All

E


As long as they're good and didn't get fired and not because of the economy.

22

27. Reserve require are regulations concerning?
A. Amount of deposit banks are allowed to accepts
B. Amount Reserve bank must hold against deposits.
C. The total amount of loans, banks are allowed to make
D. The interest rates at which banks are allowed the FED
E. The number of open market transactions the Fed can perform.

B

23

Relationship between saving investment and net foreign investments
A. S + I
B. I – S
C. S – I
D. S/I
E. S – I

C

24

29. The U.S. organizations that is for monitory policy is
A. Congress
B. President
C. Fed Reserve
D. Cartel of privet bank.
E. The Supreme Court.

C

25

30. What is an automatic stabilizer?
A. Tool of monitory policy that enters under control of the Fed Chairman.
B. Tools of Fiscal that require specific legislation to be passed by congress.
C. Tools of fiscal policy that responds to change in the economy without any action by politician.
D. Tools of monitory policy that is Not control by Fed
E. Tools of fiscal policy that is immune to crowding out.

C

26

31. Aggregate demand predicts the short run effect of an unexpected in taxing

B. Both price level and real output decrease in short – run

27

33. Nominal and real interest rate relationship
A. Real interest rates. Expected inflation rates + the nominal interest rates
B. Real interest rates. Inflation – the nominal interest rates
C. Real interest rates. Nominal interest rates – the expected inflation rate
D. The real interest rate is nominal interest rate x by expected inflation rate.
E. None.

C

Nominal

28

34. Problems in measuring the cost of living include

A. Substitution bias B. The introd of new goods
C. Unmeasured quality changes
D. All
E. None

D

29

35. The required Reserve ration is 25% an additional 5,000 of reserves can increase the money supply by?
A. 1,250
B. 125,000
C. 25,000
D. 20,000 E. 5,000

D
INCREASE MONEY SUPPLY
(1/R) 1/25% = 4(5,000) = 20,000

1/25%= 4 (5000)=20000

KNOW RESERVE RATIO.
Reserve Ratio=25%=1/25

30

According to the theory of liquidity preferences, an increase in the rate of growth of Money Supply will cause which of the following?
A. Interest Rates will fall
B. Interest Rates will raise
C. Nominal wages will fall
D. Nominal GDP will stay the same
E. Real GDP will fall

A

31

39. Price level 5, money supply is 10 trillion dollars, velocity of money is 4. What is the value of real GDP?
A. $2 trillion
B. 8 trillion
C. 6 Trillion
D. 10.25 trillion
E. None

B



Formula: V= P x Y/ M
V= Velocity, M = Money Supply, P = Price Level, Y = Real GDP

P=5
Y=?
M=10

5 *?/ 10= 4

10*4=40
5*?=40
?=8

32

36. Which shifts the aggregate demand to the right?
A. Increase in government purchases
B. Reduction in consumer spending.
C. The selling of government securities by Fed Reserve Bank
D. Downsizing of corporate investment spending
E. All of the above

A

33

41. Number of Employment 1,800
Number of unemployment 200
Not in labor force 600
What is unemployment Rate?
A. 10 %
B. 12 %
C. 14%
D. 20%

A

1,800+200=2000

Number of Employment+Number of Unemployment=X
Number of unemployment/X=(?) X (100)

200/2000=10%

34

42. Example of structural unemployment?
A. Factory worker temporally laid of during a recession.
B. Recent Graduates
C. A mother chooses to stay with child instead of working.
D. Unskilled worker can’t get hired because the minimum wage is too high.
E. A retired person living off her saving

D

Cannot get hired because they don't want to pay you. Structure (No good) = Won't get hired

35

43. According to loan able funds framework, if business decides to eliminate or postpone expansion plans reducing their need to borrow will be that
A. There will be excess demand in the loan able fund market
B Interest rates will increase
C. Interest rates will decrease
D. Interest rates will not change
E. Interest rates either can rise or fall

C. definitely.

I think this will shift demand to the left, causing decrease in equilibrium interest rates.

36

If there is excess demand in the loan able fund market?
A. Interest rates are above equilibrium
B. Interest rates are below equilibrium
C. Interest can be expected to rise
D. A & C
E. B & C

E

37

45. Decrease of price level of consumer spending and increase in aggregate quantity of goods and services

demanded
A. Shift in the aggregate demand curve.
B. Negative slope of aggregate demand curve
C. Shift in Short-Run aggregate supply curve
D. The positive slope of the short – run aggregate supply curve
E. The positive slope of the aggregate demand curve.

B

38

Which of the following will increase the long – run growth?
A. Rate is U.S. Real GDP per person
B. Bailout unsecured comp
C. More efficient
D. A, B and C
E. A and C will increase the

C.

Bigger possibility it's A
--------------------------------------------------------------------------

The GDP per person would be used as a measure of growth, but increase in efficiency (like technological efficiency) would increase long run growth.

C.

39

47. If you take GDP and subtract the value of depreciation of the economy’s capital stock, you find the.
A. Net domestic product.
B. Net national product.
C. GNP
D. GDP Deflator
E. Nominal GDP

A

40

Sam, 2 drills process the furniture maker uses to produce tables are
A. Physical capital
B. Human capital.
C. Natural resources.
D. Technological resources
E. None.

A

41

Private property right enforceability means that you can use the reward from your effect to?
A. Sale
B. Consumers
C. Investment
D. Help the poor
E. All

E

42

52. The value of depreciation of the economy’s capital stock, you find the inflation 10 %, nominal 14, economic 8 %. What is real?
A. 14
B. 6
C. 24
D. 4
E. 2

D

Formula: Real Interest Rate = Nominal Interest rate – Inflation (14% - 10% = 4%)

43

51. If there is excess Supply in the loanable funds framework?
A. Interest Rates are above equilibrium.
B. Total borrowing is greater than total spending.
C. Interest Rates are below equilibrium.
D. Both B & C
E. Both A & C

If there is excess demand in the loanable funds MARKET?
A. Interest rates are above equilibrium
B. Interest rates are below equilibrium
C. Interest rates can be expected to rise
D. A & C
E. B & C

A Think... Up=Above

E

44

53. How big is the labor force?
# of employment 800
# of unemployment 200
Not in labor force 50
A. 250 B. 800 C. 1000 D. 1050 E. 850
c) 1000 (employed + unemployed) exclude labor force

C

45

55. Reserve requirement are regulations concerning?
A. The amount of deposits are allowed to accept.
B. The amount of reserve banks must hold against deposits.
C. The total amount of loans banks are allowed to make.
D. The interest rate at which bank can borrow from the Fed.
E. The number of open market transaction that Fed can perform

B

46

Which of the following statements most accurately describes the Fisher’s Effect?
A. States that when the rate at which the money supply grows is increasing, nominal interest rates decrease.
B. When the rates at which the money supply grows is increase, real interest rate decrease.
C. When rates at which the money supply grows in increase, nominal interest rates increase.
D. Real interest rates rise
E. None

C

Increase fish increase money

47

60. Which of the following is a form of monitory policy?
A. Increasing the Money Supply faster than usual during recession.
B. Cutting taxes during a recession
C. Increase government’s spending during recession
D. All
E. None

A

48

Privet property rights

As they see and help their neighbors.

49

A person who does not have a job and is not in the Labor force is?

Student or Retired

Answer: They are Unemployed

50

Monetary policy is used in an economy to

Create money faster during recession and slower in a BOOM

51

What is GNP

Gross National Product

U.S residents who own business abroad- income of U.S residents earned abroad

52

person who was laid off during a recession and

Cyclical

53

Technological refers to

Knowledge of current value of GDP and CPI

54

Merchandise trade deficit

Foreign investors see opportunities in US Net export

55

Physical capital

The stock of equipment and building that used to produce goods and service

56

What effects Real GDP?

All

57

Real interest rate will decrease if

Expected inflation increases

58

6%-8% economic growth rate is 2% what is nominal rate

14%

59

reserve ratio is 10% bank receives new checkable deposit of $2000

Will be able to make loans up to a max $2000
.10*2000=200


1/R (R being the reserve ratio percentage) 1/R shows the sum of deposits in reserve
(1/R) 1/10% = 10(200) = 2,000

10*200=2000

KNOW RESERVE RATIO! 1/10=10

Because it's reserve it increases

60

18% nominal rate expected inflation rate at 12% what is real interest rate? (BRAZIL, nominal rate = 18, expected interest = 12

6%

Formula: Real Interest Rate = Nominal Interest rate – Inflation (18% - 12% = 6%)

61

Government created a new tax credit to encourage business to build more factory’s

Demand for loanable funds will increase

62

Person who graduated from college is unemployed and looking for a job is

Frictional

63

what is the labor force?
Employed 1000
Unemployed 500
Not in labor force 600

1500 (1000+500)

64

Reserve ratio is 10% and a bank receive a new checkable deposit 1,000

Require to increase by 100
.10 * 1000 (reserve so it increases)

65

88. Michael Jordan is currently worth 25,000 and the CPI is 108

23,148

Formula: Income/Index (CPI) x 100

25000/108 = 231.48 x 100
23148.

66

what is an example of automatic stabilizer?
A.Income tax system
B.FDIC insurance
C.Defending system
D.Open market
E.None

D

67

Real wages are equal to

Nominal wage divided by a price index

68

Which of the following is the incorrect statement
a. during a period of inflation, prices are always rising
b. when inflation is decreasing, prices are always falling
c. if the inflation is constant, prices are neither rising or falling
d. a and b are incorrect
e. b and c are incorrect

A

69

1. The calculation of GDP does not account for the following:
a. Value of goods and services
b. ??
c. ??
d. Value of the investment
e. Both b and c

E

70

12. if you take investment by US residents in other countries and you sub tract investment by foreign resident in the US, you will find

net foreign investment

71

13. cyclical unemployment is best defined as
a. deviation of unemployment from the natural rate
b. unemployment dued to individuals searching for new jobs
c. chronic unemployment dued to wages not balancing with goods and services
d. unemployment associated with inefficiency in capital markets
e. unemployment resulting from people who don’t wish to work

D

72

If you buy a drink, private property rights give you the ability to
A. Allow someone else to drink it
B. let someone drink it when thirsty
C. Do whatever you want with it
D. Share it
E. All of the above

E

73

An open market purchase is where the Fed
a. purchases government bonds from the public, thereby decreasing the money supply.
b. purchases government bonds from the public, thereby increasing the money supply.
c. increases the money supply by selling government bonds to the public.
d. decreases the money supply by selling government bonds to the public.
e. none of the above

B

74

The aggregate demand model predicts that the short run effect of an unexpected decrease is net exports due to a recession abroad are

decrease in both the price level and real output

or ^^^
"Short Run"
-------------------------------------------------------------------------

Decrease in net exports will shift aggregate demand to the left, which means decrease in price level and real output.

75

Following shifts can explain an increase in the price level and decrease in real output.

C. A leftward shift in the Short-Run Aggregate Supply Curve.

---------------------------------------------------------------------------

Asking: Which shift would increase price level and decrease real GDP when looking at the aggregate-demand and supply market?

Has to be a leftward shift in supply.

76

According to the multiplier effect, a dollar increase in government spending will lead to
A. A multiple dollar increase in the money supply
B. An increase in aggregate demand
C. A decrease in aggregate demand
D A multiple dollar increase in the aggregate demand
E. None of the above

B

77

All of the following would cause a rightward shift in the short-run aggregate-supply curve except
a. a change in labor laws that facilitates labor mobility and thereby raises the productivity of workers.
b. the invention of a new and more powerful computer chip that increases productivity throughout the economy.
c. a war that reduces the economy’s physical capital stock.
d. new educational advances that substantially increase the level of human capital.
e. an increase in immigration.

C


78

If nominal wages adjust slowly to changing economic conditions, then a decrease in the price level will cause the real wage rate to rise and employment and real output to fall. This description of the impact of a decrease in the price level on real output is used to explain:
a. a shift in the aggregate-demand curve.
b. the negative slope of the aggregate demand curve.
c. a shift in the short-run aggregate-supply curve.
d. the vertical shape of the long-run supply curve.
e. the positive slope of the short-run aggregate-supply curve

E
--------------------------------------------------------------------------

Asking about the relationship between price level and Real GDP which is basically the aggregate demand/supply curves.

Drop in Price Level ----> Drop in GDP

Rise in Price Level -----> Rise in GDP

Sounds like a positive relation between the two; Aggregate-Supply.

79

Aggregate demand consists of

Answer: Consumption spending (C), real investment spending (I), real government spending on goods
and services (G) , and net exports (NX) (Exports –Imports = NX)

80

Which of the following is an example of frictional unemployment?
A. Recent graduate looking for a job.
B. A mother is searching for a job and the kid has gone to college
C. New Yorker moved to California unemployed searching for a job
D. Computer program who turned down a job offer expect better job
E. All

E

81

A person who was laid off during a recession is called

Cyclical

82

Structural unemployment happens when

wages in labor markets do not balance supply and demand

83

Two types of stabilization policies include:

Monetary and Fiscal Policy

84

According to loanable funds framework, if business decides to eliminate or postpone expansion plans reducing their need to borrow?
A. There will be excess demand in the loan able fund market
B Interest rates will increase
C. Interest rates will decrease
D. Interest rates will not change
E. Interest rates either can rise or fall

According to the loanable funds framework, if businesses see new opportunities to expand capacity by building new factories, the likely effect will be that:
a. Interest rates decrease due to an increase in borrowing.
b. Interest rates decrease due to a greater amount of saving.
c. There will be no change in interest rates.
d. The total quantity of borrowing and lending will fall.
e. None of the above

B or C (Probably C)

E

------------------------------------------------------------------------
C. (:

85

Fiscal policy involves using one of two strategies

Increasing Government Purchases and Cutting Taxes

86

According to the loanable funds framework, if businesses see new opportunities to expand capacity by building new factories, the likely effect will be that:
a. Interest rates decrease due to an increase in borrowing.
b. Interest rates decrease due to a greater amount of saving.
c. There will be no change in interest rates.
d. The total quantity of borrowing and lending will fall.
e. None of the above

E
???
(Interest rate will increase)
When business borrows $ The interest rate goes up (That way people would put more $ in bank so business could borrow more $)

When business eliminates business interest rate goes down (So they can borrow money easier)

87

What is Fisher Effect?

Answer: fisher effect is when money supply increases and net income rises

88

41. Number of Employment 800
Number of unemployment 200
Not in labor force 80
What is unemployment Rate?
A. 10 %
B. 12 %
C. 14%
D. 20%
E. None

Formula: Employment + Unemployment / Unemployed by Employed and multiply by 100
Answer: 20%

D

800+200=1000
200/1000=20%

Number of Employment+Number of Unemployment=X
Number of unemployment/X=(?) X (100)

89

GDP is 5 trillion dollars, the price level is $2, and money supply is 2 trillion dollars. What is the value of the velocity of money according to the quantity equation?
A. 5
B. 2
C. 10
D. 8
E. Can’t be determined.

A

Formula: V= P x Y/ M
V= Velocity, M = Money Supply, P = Price Level, Y = Real GDP

P= 2
Y=5
M= 2

2*5= 10/2=5

90

Velocity

is the average rate at which money changes hands in the economy

91

What is the Value of money?

Answer: is the buying power of a piece of currency and inversely related to the price of goods

92

A government can increase long term economic growth with?

Fiscal Policy

93

What does Consumer price index (CPI) do?

It measures changes in the price level of consumer goods and services purchased by households

94

Catch up effect is the idea

growth begins very rapidly and then diminishes

95

Business cycle is

an irregular pattern of recession and recovery

96

In economics, “real interest rate” can best be described as

B. the nominal interest rate adjusted for expected inflation

97

Which is a form of fiscal policy?

Answer: Monetary is also a form of fiscal policy

98

Education is an example of.

Investment in human

99

If the government created a new tax credit to encourage businesses to build more factories

a. interest rates could either increase or decrease.
b. the demand for loanable funds would decrease.
c. the supply of loanable funds would increase.
d. the demand for loanable funds would increase.
e. interest rates would fall due to a decrease in total amount borrowed.

D

100

A person who did not have a job and was looking for work would be categories as

unemployed

101

Which of the following is not an important determinant of the quantity of money demand
A. Availability of an ATM machine
B. Price level
C. Interest rate
D. Value of money
E. All of the above

D

102

Crowding out

suggest that fiscal policy raises interest rates, causing lower investment spending

103

The GDP deflator is
a. (Real GDP x 100)/(Nominal GDP).
b. (Nominal GDP x 100)/(Real GDP).
c. (Nominal GDP)/(Real GDP).
d. (Real GDP)/(Nominal GDP).
e. none of the above

B

104

Which of the following statements is consistent with the theory of liquidity preference?
a. When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates fall.
b. When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates rise.
c. When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates don’t change in the short run, but we will get substantial inflation.
d. When the Federal Reserve Board of Governors increases the money supply faster than usual, interest rates don’t change in the short run, but the cost of living is likely to fall.
e. None of the above statements are correct

A

105

According to the theory of “money neutrality” which of the following statements is likely to be true?
a. When the money supply is increased, real wage rates will rise.
b. When the money supply is increased, real interest rates will fall.
c. When the money supply is increased, real GDP will increase.
d. When the money supply is increased, real wage rates will fall.
e. When the money supply is increased, nominal wage rates will rise

E

Think Neutrality= Nominal

106

If the dollar value of a country’s exports is greater than the value of its imports,
a. net foreign investment is generally positive.
b. net foreign investment is unaffected.
c. net foreign investment is generally negative.
d. investment flows into the country.
e. both a and d.

A

What they own is stronger.

107

A positive consumption externality occurs when ;

A. When jack receives a benefit from johns consumption of a certain good

B. When jack receives personal benefit from his own consumption of a certain good

C. When jack benefits exceed johns benefits

D. When jack consumes of a good is not beneficial to john

A.

108

80. the 10th house is 8,000,000 and the 11th house is 9,000,000

1,000,000

109

Where is the consumer surplus

B+C
-------------------------------------------------------------------------

If you're shown a graph:
area above the equilibrium price but below the demand curve.

http://puu.sh/5mKhZ.jpg

110

According to loanable funds FRAMEWORK, if business decides to eliminate or postpone expansion plans reducing their need to borrow?
A. There will be excess demand in the loan able fund market
B Interest rates will increase
C. Interest rates will decrease
D. Interest rates will not change
E. Interest rates either can rise or fall

C
(That way people would put more $ in bank so business could borrow more $)
When business eliminates business interest rate goes down (So they can borrow money easier