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Prices do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are:
a) sticky prices.
b) fixed prices.
c) regulatory prices.
d) market prices.
 
In the absence of deposit insurance, fractional reserve banking does NOT imply which of the following?
a. A more stable banking system.
b. A larger supply of money than the currency circulating in the economy.
c. A lower velocity of money for a given output level.
d. All of the above.
 
Sticky prices are an example of:
a) labor union influence.
b) government regulation of the economy.
c) economic coordination problems.
d) lack of coordination between auction prices and custom prices.
 
Which of the following actions will always lead to an increase in the investment level in the economy?
a. The Federal Reserve Board buys more bonds through open market operations.
b. The federal government reduces its defense purchases.
c. The Federal Reserve Board raises the reserve ratio of banks mainly serving small businesses.
d. The federal government undertakes a consumer confidence campaign
 
If prices are slow to adjust, then it is possible that:
a) there will be a demand surplus.
b) there will be a supply shortage.
c) some markets will not be in equilibrium.
d) all of the above.
 
Based on our understanding of the aggregate demand curve, we know that a(n) ______________ in the price level causes the quantity of real GDP demanded to ______________.
a) increase; increase
b) decrease; increase
c) decrease; remain unchanged
d) decrease; decrease
 
An expansionary open market operation
a. decreases the interest rate and the price of bonds, and increases the price of stocks
b. increases the interest rate and decreases both the price of bonds and stocks.
c. decreases the interest rate, and increases both the price of bonds and stocks
d. decreases the interest rate and the price of stocks, and increases the price of bonds.
 
The aggregate demand curve shows a(n) ____________ relationship between the ______________.
a) positive; interest rate and investment
b) negative; level of real GDP and investment
c) positive; price level and real GDP
d) negative; price level and real GDP
 
An increase in taxes will cause:
a) a rightward shift in the aggregate demand curve.
b) a leftward shift in the aggregate demand curve.
c) a rightward shift in the aggregate supply curve.
d) only a movement along the aggregate demand curve.
 
Assume I = b 0 –b 1 i and Md = m 0 + m 1 Y - m 2 i . When the sensitivity of money demand with respect to income (m 1 ) is larger, there are
a. a flatter LM curve and more crowding out of investment (I)
b. a flatter LM curve and less crowding out of investment (I)
c. a steeper LM curve and more crowding out of investment (I)
d. a steeper LM curve and less crowding out of investment (I)
 
A rightward shift in the aggregate demand curve can be caused by:
a) an increase in government spending.
b) a decrease in taxes.
c) an increase in money supply.
d) all of the above.
 
Which of the following combinations of monetary and fiscal policies is sure to raise interest rates?
a. Increase M^S, Increase T
b. Increase M^S, Decrease T
c. Decrease M^S, Increase T
d. Decrease M^S, Decrease T
 
If the stock market in Macrovia (a friendly country) has a P-E ratio that is higher than usual, which of the following reasons is NOT a possible explanation?
a. Interest rates are low and expected to remain low in the future
b. The earnings of companies in the market are growing at a faster rate than they usually do
c. Bonds in Macrovia are offering higher returns than usual
d. Investors expect other investors are willing to pay ever-increasing prices
 
The aggregate demand curve shifts to the left if:
a) the government increases spending.
b) household consumption falls.
c) the government decreases taxes.
d) the supply of money rises.
 
The reason why an increase in government expenditure has a more than proportional impact on aggregate demand is known as:
a) the wealth effect.
b) the multiplier effect.
c) the divider effect.
d) the interest rate effect.
 
Which of the following is NOT true? Assuming no trade, GDP can be measured as
a. The total number of dollars in circulation
b. The total payments to all factors of production
c. The sum of a country’s value added to total production
d. The total value of the final goods produced in the economy
 
An increase in government expenditure has a multiplier effect on aggregate demand due to:
a) the fact that the marginal propensity to consume is larger than one.
b) the additional spending by consumers stimulated by the actual government expenditure.
c) the autonomous nature of private consumption expenditure
d) the negative slope of the consumption function.
 
The real opportunity cost of holding money is captured by
a. The real interest rate
b. The nominal interest rate
c. The inflation rate
d. The real GDP growth rate
 
If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:
a) $8 million.
b) $12.5 million.
c) $15 million.
d) $2 million.
 
When the government increases G
a. Y increases, i increases, the effect on the equilibrium amount of money demanded is ambiguous.
b. Y increases, i decreases, the equilibrium amount of money demanded increases.
c. Y decreases, i increases, the equilibrium amount of money demanded decreases.
d. Y increases, i increases, the equilibrium amount of money demanded is unchanged.
 
The aggregate supply curve depicts the relationship between:
a) the unemployment rate and the total quantity of goods and services that firms supply.
b) the cost of labor and the total quantity of goods and services that firms supply.
c) the cost of inputs and the total quantity of goods and services that firms supply.
d) the level of prices and the total quantity of goods and services that firms supply.
 
The aggregate supply curve in the short run is different from the aggregate supply curve in the long run due to:
a) the recurring nature of supply shocks.
b) the crowding out effect.
c) the wealth effect.
d) the existence of sticky prices in the short run.
 
The short-run aggregate supply curve assumes that in the short run:
a) the unemployment rate is equal to the natural rate of unemployment.
b) the inflation rate is zero, that is, the economy is stagflated.
c) prices are slow to adjust.
d) the economy does not experience supply shocks.
 
The Consumer Price Index fails to take which of the following factors into account:
a. Changes in the prices of foreign goods and services United States consumers use.
b. The ability of consumers to substitute across goods.
c. Large fluctuations in energy prices (especially oil).
d. All of the above.
 
According to the short-run aggregate supply curve, the level of overall economic activity:
a) is positively affected by increases in the price level.
b) is not affected by increases in the price level.
c) is negatively affected by increase in the price level.
d) is not affected by increases in aggregate demand.
 
In the short run, a decrease in aggregate demand will:
a) decrease the price level and leave the level of output unchanged.
b) increase the price level and leave the level of output unchanged.
c) increase both the price level and the level of output.
d) decrease both the price level and the level of output.
 
Which of the following would cause the long-run aggregate supply curve to shift to the right?
a) higher energy prices
b) an increase in taxes
c) increases in government regulation
d) an increase in the labor supply
 
A technological improvement will cause:
a) a rightward shift in the aggregate demand curve.
b) a leftward shift in the aggregate demand curve.
c) a rightward shift in the aggregate supply curve.
d) a leftward shift in the aggregate supply curve.
 
If the IS curve shifts due to higher government spending, which of the following must happen?
a. The Federal Reserve Board manages the interest rate to ensure that equilibrium in the money market is maintained.
b. Investment rises due to the higher output level in the economy.
c. Consumer spending increases.
d. The tax revenues collected by the government rise.
 
When, in a boom economy, output exceeds the full employment level of output:
a) wages and prices increase over time and the long-run aggregate supply curve shifts downward over time.
b) wages and prices increase over time and the short-run aggregate supply curve shifts upward over time.
c) wages and prices increase over time and the long-run aggregate supply curve shifts upward over time.
d) wages and prices increase over time and the short-run aggregate supply curve shifts downward over time.
 
An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n):
jobless recovery
 
Macroeconomics was developed to explain:
the Great Depression
 
Question 3
A business cycle is:
the periodic fluctuation of economic activity
 
During a typical economic recovery:
unemployment drops
 
Question 5
The National Bureau of Economic Research:
is a nonprofit research organization that dates business cycles in the United States
 
The National Activity Index:
is a weighted average of 85 indicators of national economic activity
 
Which organization determines the beginning and end dates of a recession?
the National Bureau of Economic Research
 
What are the three types of Elasticity?
price elasticity of demand, income elasticity of demand, and price elasticity of supply
 
Price Elasticity of Demand
the percentage change in quantity demanded given a percent change in the price
 
What is the Price Elasticity of Demand a measure of?
how much Qd of a good responds to a change in the price of that good.
 
What is Elasticity?
Elasticity is the measure of a variable responding to changes in another variable.
 
Numerical Response of Quantity Demand (qD) divided by Quantity Supply
(qS) to one of determinants.
 
What is Price Elasticity of Demand?
E = (Percent Change qD) / (Percent Change qS)
 
What is the Alternative Elasticity Formula?
(Change in Q) / (Change in P) * ( Average of P)/(Average of Q) = 1 / Slope
 
Midpoint Elasticity Formula:
(End Value - Start Value)/(Start) * 100% =(Q/P)
 
A Product is Elastic when:
Elasticity is GREATER than the Value 1.
 
A Product is Unitary Elastic when:
Elasticity is EQUAL to the Value 1.
 
A Product is Inelastic when:
Elasticity is LESS than the Value 1.
 
What determines Price Elasticity?
The Demand Curve Slope
 
Price Elasticity is Higher for Goods that are:
Narrowly Defined than Broadly Defined
 
Price Elasticity is Higher for "Classy" products that are:
Luxurious than Necessities
 
Price Elasticity is Higher for Goods that have:
More Substitutes than No Substitutes
 
Price Elasticity is Higher in the Run that is:
Longer than the Short Run
 
qD Must have a Slope that is:
Flatter in Slope for Higher Price Elasticity
 
What is the Rule of Thumb for Demand?
The Flatter the Curve, the Higher the Elasticity
 
How would a Perfectly Inelastic Demand Curve appear as?
A Straight Vertical Line, depicting the letter I.
 
How would a Unitary Elastic Demand Curve appear as?
A Downward sloping curve, shaped as half of the letter U.
 
How would a Perfectly Elastic Demand Curve appear as?
A Straight Horizontal Line, depicting the letter E.
 
What is an example of an Elastic Item?
vacation
 
What is an example of an inelastic Item?
water
 
Price elasticity of demand formula
% change in Qd / % change in Price
 
Ed = 0, then
Perfectly Inelastic
 
Ed = infinity, then
Perfectly Elastic
 
A graph shows a perfectly elastic line when it is ______
horizontal
 
A graph shows a perfectly Inelastic line when it is ____
vertical
 
A graph shows a unit line when it is ____
at a 45 degree angle
 
The steeper the slope of a line the more _____ it is.
inelastic
 
Income Elasticity of Demand measures
how much the quantity demanded of a good responds to a change in consumers' income
 
Income Elasticity of Demand formula
% change in Qd / % change in Income
 
Normal goods income elasticity are ______
> 0
 
Inferior goods income elasticity are ______
< 0
 
Goods consumers regard as necessities tend to be income ________
Inelastic
 
Goods consumers regard as luxuries tend to be income _______
Elastic
 
People who are unemployed are those who
are searching for work but cannot find a job.
 
The labor demand curve shows the
number of workers that the firms want to hire at each wage rate.
 
The labor supply curve shows​ the
number of workers that want to work at each wage rate.
 
microeconomics
Examines the functioning of individual industries and the behavior of
individual decision-making units—firms and households.
 
aggregate behavior is
The behavior of all households and firms together.
 
sticky prices
Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.
 
Major concerns of macroeconomics are
Output growth, Unemployment, Inflation, and deflation
 
business cycle
The cycle of short-term ups and downs in the economy.
 
aggregate output
The total quantity of goods and services produced in an economy in a given period.
 
recession
A period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters.
 
depression
A prolonged and deep recession.
 
expansion or boom
The period in the business cycle from a trough up to a peak during which output and employment grow.
 
contraction, recession, or slump
The period in the business cycle from a peak down to a trough during which output and employment fall.
 
inflation
An increase in the overall price level
 
hyperinflation
A period of very rapid increases in the overall price level.
 
deflation
A decrease in the overall price level.
 
Different sectors
Households and firms make up the private sector, the government is the public sector, and the rest of the world is the foreign sector.
 
transfer payments are
Cash payments made by the government to people who do not supply goods, mservices, or labor in exchange for these payments. They include Social Security benefits, veterans' benefits, and welfare payments.
 
Macroeconomists use microeconomic theory to guide them in their work since macroeconomics studies the aggregate versions of microeconomic topics therefore the conclusion from microeconomic theory serves as an
important reference for macroeconomists.
 
In​ 1974, the price of a​ first-class postage stamp was 10 ​cents, a loaf of bread averaged 28 ​cents, gasoline was 53 cents per​ gallon, and the average price of a new car was ​$3 comma 500. In​ 2014, the postage stamp cost 49​ cents, a loaf of bread was​ $2.46, gasoline averaged​ $3.36 per​ gallon, and the average new car cost​ $32,531.
Based on this​ information, can we conclude that consumers today are worse off than consumers in​ 1974?
No, we need to compare the purchasing power of consumers in 1974 with the purchasing power of people in 2014.
 
In order to pursue the macroeconomic goal of​ stability, policy makers want to avoid prolonged periods of inflation and instead push for prolonged periods of deflation.
FALSE
 
intermediate goods
Goods that are produced by one firm for use in further processing or for resale by another firm
 
value added
The difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage
 
GDP
is the value of output produced by factors of production located within a country.
 
gross national product (GNP)
The total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced.
 
expenditure approach
A method of computing GDP that measures the total amount spent on all final goods and services during a given period
 
income approach
A method of computing GDP that measures the income—wages, rents, interest, and profits—received by all factors of production in producing final goods and services.
 
GDP calculated by the expenditure approach will be equal to the GDP calculated by the income​ approach, because
the dollar value of the expenditure on new goods and services in a year must be equal to the dollar value of the income generated in that year.
 
During​ 2002, real GDP in Japan rose about 1.3​ percent, but during the same time​ period, retail sales fell 1.8 percent in real terms.
This was made possible because the sum total of real​ investment, government​ purchases, and net exports grew while​ consumption, which is measured by retail​ sales, fell in real terms.
 
Imports are subtracted in the expenditure approach to calculating​ GDP,
because ​consumption, investment, and government spending are overstated as these include expenditures on both domestic and foreign goods.
 
Net national product is calculated as gross national product
minus depreciation.
 
When personal income taxes are subtracted from personal​ income, what is left is called
disposable personal income.
 
The economy today is
plagued by high unemployment but relatively low inflation.
 
One disadvantage of using the fixed weight approach to calculate real
GDP is​ that, it cannot capture the changes in relative prices and quantities of different goods produced in the economy.
 
A recession is
a period during which aggregate output declines and an expansion is a period when output and employment grow.
 
frictional unemployment
The portion of unemployment that is as a result of the normal turnover in the labor market; used to denote short-run job/skill-matching problems.
 
structural unemployment
The portion of unemployment that is as a result of changes in the structure of the economy that result in a significant
loss of jobs in certain industries.
 
natural rate of unemployment
The unemployment rate that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum
of the frictional unemployment rate and the structural unemployment rate
 
cyclical unemployment
Unemployment that is above frictional plus structural unemployment.
 
consumer price index (CPI)
A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the
"market basket" purchased monthly by the typical urban consumer
 
producer price indexes (PPIs)
Measures of prices that producers receive for products at all stages in the production process.
 
Price elasticity of supply measures
how much the quantity supplied of a good responds to a change in price of that good
 
Price elasticity of Supply formula
% change in Qs / % change in Price
 
Total Revenue
amount paid by buyers and received of a good
 
Total Revenue formula
Price * Quantity
 
An item is ____ if when Price increase quantity decreases a large amount
elastic
 
An item is ___ if when Price increase quantity decreases by small amount
inelastic
 
Inelastic demand curve, increase in price leads to a ______ in total revenue. why?
increases, because a small decrease in quantity
 
Elastic demand curve, increase in price leads to a ______ in total revenue. why?
decreases, because a large increase in quantity
 
If Ed > 1 , then
it is elastic
 
The national income and product accounts do all of the following EXCEPT:
track changes in income distribution
 
let economists judge our nation's economic performance
compare US income and output to that of other nations
 
The two approaches used by government in estimating GDP are:
expenditure and income
 
Gross domestic product is the total market value of all:
final goods and services produced in the United States by labor and property
 
Expenditures by individuals for durable goods, nondurable goods, and services is known as:
personal consumption expenditure
 
Investment in structures, equipment, software, and net inventory is known as:
gross private domestic investment
 
Services constitute approximately ______ of GDP
50%
 
What does M represent in the following formula? GDP = C + I + G + (X – M)
imports
 
The expenditure category that accounts for the largest share of GDP is:
personal consumption expenditures
 
What does the X represent in the following formula, used to calculate GDP? GDP = C + I + G + (X – M)
exports
 
_____ are almost 70% of GDP, while _____ are about 15% of GDP
Personal consumption expenditures; gross private domestic investments
 
Which of the following describes the informal economy?
It is largely unmeasured
 
Which equation summarizes the expenditures approach to measuring GDP?
GDP = C + I + G + (X – M)
 
The three types of consumption are:
investments, nondurables, and services
durables, nondurables, and services
compulsive, impulsive, and deliberate
investments, durables, and services
 
Elasticity
Is the measure of how much buyers and sellers respond to changes in market conditions
 
Which of the following facts cannot be used to support the claim that labor market rigidities are the cause of Europe’s higher unemployment than the United States today?
a. Europe has higher minimum wages and unemployment benefits than the United States.
b. Relative to the United States, European unemployment was low in the 1960s and has exceeded the
US for the last two decades.
c. The United States has a more dynamic labor market than Europe, with employees more frequently moving in and out of jobs.
d. Europe provides higher levels of worker protection to employees.
 
What is GDP?
The market value of all final goods and services produced within a country in a given time period.
 
Calculating GDP using expenditure approach
y = C + I + G + NX
           
Nominal GDP vs. Real GDP
Real GDP expresses prices of the final goods and services using the prices for a base year. Nominal GDP expresses
prices using the prices for the same year they are produced.
 
Calculate real GDP from nominal GDP
First calculate real and nominal GDP (same value) for base year, then calculate nominal GDP (qty x current year price)
for current year, and last calculate real GDP for current year (qty x base year price). Subtract real GDP of base year
from real GDP of current year then multiply by 100
           
Limitations of GDP
Household production and underground production
 
Household production
Real GDP omits this and underestimates the value of many people, most of them women. Household production is
higher in developing countries.
 
Underground GDP
Economic activity hidden from government to avoid taxes and regulations or production that is illegal. Again,
higher in developing countries.
 
Why does expenditure equal income?
Because firms pay out everything they receive as incomes to the factors of production, total expenditure equals income.
 
Disposable income
Income received by households minus personal income taxes paid.
 
Potential GDP
The value of real GDP when all the economy's factors of production - labor, capital, land, and entrepreneurial ability -
are fully employed.
 
Relationship between real GDP and potential GDP
Real GDP grows and fluctuates around the growth path of potential GDP.
 
How is the official UR calculated?
Number of people unemployed divided by the labor force then multiplied by 100
 
Who is considered unemployed?
To be considered unemployed, all persons who, during the week before the survey: had no employment; were
available for work; and either had made efforts to find employment during the previous four weeks, or were waiting
to be recalled to a job from which they had been laid off.
 
Marginally attached workers
a person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past.
 
discouraged worker
a marginally attached worker who has not made specific efforts to find a job within the past four weeks because previous unsuccessful attempts to find a job were discouraging.
 
underemployed workers (part-time for economic reasons)
people who work 1 to 34 hours per week but are looking for full-time work and cannot find it because of unfavorable business conditions
 
3 types of unemployment
frictional unemployment, structural unemployment, and cyclical unemployment
 
frictional unemployment
the unemployment that arises from people entering and leaving the labor force, from quitting jobs to find better ones,
and from ongoing creation and destruction of jobs - from normal labor turnover - new graduates entering labor force
 
structural unemployment
the unemployment that arises when changes in technology or international competition change the skills needed to perform jobs or change the locations of jobs
 
cyclical unemployment
the fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion