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Georgia State University - MACROECONO 200 Final Exam Study Guide Lecture 5: Aggregate Demand and Supply 1)Use the table below to answer the following question: The equilibrium output is ______, and the equilibrium price level is $____

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Georgia State University - MACROECONO 200

Final Exam Study Guide

Lecture 5: Aggregate Demand and Supply

1)Use the table below to answer the following question:

1. 1. The equilibrium output is ______, and the equilibrium price level is $____.
   2. Assume aggregate demand grows by 200 at each price level. What are the new equilibrium output and aggregate price level?
      1. The new equilibrium output is 400, and the aggregate price level is $100.
      2. The new equilibrium output is 600, and the aggregate price level is $120.
      3. The new equilibrium output is 700, and the aggregate price level is $112.50
      4. The new equilibrium output is 800, and the aggregate price level is $100.
2. A rising aggregate price level _____ an economy's interest rates and therefore _____ output demanded.
   1. increases; increases
   2. increases; reduces
   3. reduces; increases
   4. reduces; reduces
3. Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

1. 1. Prices fall and increase real wealth.
   2. Consumer confidence declines and consumption spending falls.
   3. Goods and services become less competitive and exports fall.
   4. Interest rates fall and boost investments.

 

4. Which is a determinant of aggregate supply?
   1. interest rates
   2. productivity
   3. prices of substitutes
   4. household expectations
5. Cost-push inflation is a situation in which the:
   1. short-run aggregate supply curve shifts rightward.
   2. aggregate demand curve shifts rightward.
   3. short-run aggregate supply curve shifts leftward.
   4. aggregate demand curve shifts leftward.
6. Several factors can shift short-run aggregate supply curves, including:
   1. the number of consumers and average population age.
   2. input prices and government regulations.
   3. aggregate demand and consumer tastes.
   4. substitute and complementary products.
7. If an economy is in recession, the intersection of the short-run aggregate supply curve and aggregate demand curve occurs at an output level _____ the long-run output capability of the economy.
   1. equal to
   2. above
   3. parallel to
   4. below
8. An economy cannot increase its output level beyond its long-run maximum full-employment capacity unless:
   1. more consumers migrate to the country.
   2. firms reduce their output capabilities.
   3. underlying improvements in production capacity take place.
   4. government regulations permit productive capacity to grow.
9. High taxes and/or heavy regulation:
   1. can cause firms to boost production so they can cover the added costs.
   2. raise costs of production so that the aggregate supply curve shifts to the left.
   3. are not likely to affect firms' behavior, since they are more concerned about profits than taxes or regulation
   4. are likely to shift aggregate supply to the right
10. The _____ is vertical at full employment
    1. Short-run aggregate supply curve
    2. long-run aggregate supply curve
    3. short-run aggregate demand curve
    4. long-run aggregate demand curve
11. If the government raises taxes or increases regulations, the short-run aggregate supply curve will shift from SRAS₀ to _____ and the price level will be at ____.

 

 

11. 1. SRAS₁; P₀
    2. SRAS₁; P₁
    3. SRAS₂; P₁
    4. SRAS₂; P₂
12. Which of the following would NOT cause a rightward shift in aggregate supply?
    1. an increase in production by employees
    2. a decrease in wages paid to employees
    3. fear of inflation
    4. a decrease in tax receipts
13. Which of the following would NOT cause a shift in the short-run aggregate supply curve?
    1. an increase in resource prices
    2. a decrease in the expected rate of inflation
    3. a major technological advance
    4. a decrease in real interest rates
14. A decrease in regulation would cause aggregate:
    1. supply to shift to the left.
    2. demand to shift to the right.
    3. demand to shift to the left.
    4. supply to shift to the right.
15. Which of the following might cause a change in short-run aggregate supply?

 

 

1. 1. Unions successfully negotiate higher wages.
   2. Businesses are increasingly optimistic about the future.
   3. Consumer incomes decrease.
   4. Taxes on businesses increase

 

.

 

15. 5. Unions successfully negotiate higher wages.
    6. Subsidies to firms increase.
    7. Consumer incomes decrease.
    8. Workers and firms believe that inflation is going to fall.
16. Which of the following will NOT shift the aggregate supply curve to the right?
    1. the discovery of cheap solar energy
    2. the development in the methods of production of nanotechnology
    3. an increase in the minimum wage
    4. a decrease in corporate taxes
17. What happens if business expectations improve?
    1. Aggregate supply shifts to the left.
    2. Aggregate supply shifts to the right.
    3. Aggregate demand shifts to the left
    4. Aggregate demand shifts to the right.

Lecture 6: Fiscal Policy and Debt

18. The primary tools of fiscal policy are:
    1. inflation and growth
    2. taxation and spending
    3. banking and currency
    4. investment and employment
19. To boost economic activity and employment during a U.S. economic downturn, the government will frequently use expansionary fiscal policy. Such a policy might be composed of:
    1. reducing government spending and transfer payments and increasing taxes.
    2. decreasing the size of the military and leaving taxes unchanged.
    3. increasing government spending and transfer payments and reducing taxes.
    4. increasing foreign aid and reducing unemployment insurance spending.
20. Contractionary fiscal policy is deployed in response to policy makers’ concerns about:
    1. inflation.
    2. deflation.
    3. recession.
    4. contractions.
21. Some policy makers believe crowding out occurs when excessive government spending:
    1. causes higher interest rates, thereby displacing private sector consumption and investment.
    2. forces lower interest rates, thereby attracting more private investment and borrowing that displaces government borrowing.
    3. occurs because consumers attempt to borrow beyond the capacity of banks to lend.
    4. will immediately require higher taxes to fund the higher spending levels.
22. Some critics of expansionary fiscal policy believe that:
    1. helping poor people in a recession produces an incentive to look for a job.
    2. accumulating more government debt is more harmful than the short-run effects of a recession.
    3. a recession should be dealt with by increasing the size of government.
    4. such a policy should be pursued only to support excessive economic growth.

 

 

23. A fiscal policy lag is the length of time it takes:
    1. the president to develop a simulative tax and spending program to present to Congress.
    2. the states to identify spending projects that are candidates for federal funding.
    3. the president and Congress to agree on a possibly controversial tax and spending program and to begin implementation.
    4. contractors to hire additional employees required to implement the new federal spending programs
24. The national debt is the sum of all:
    1. national government debt, worldwide.
    2. consumer and corporate debt.
    3. federal, state, and local governmental borrowing.
    4. prior federal deficits minus prior surpluses.
25. An expansionary fiscal policy can result in:
    1. higher unemployment rates.
    2. inflation and higher GDP.
    3. lower prices.
    4. a recession.
26. The largest category of federal government spending in 2015 was:
    1. defense.
    2. social Security.
    3. education.
    4. net interest.
27. The largest source of federal government revenues is:
    1. corporate income taxes.
    2. Social Security taxes.
    3. individual income taxes.
    4. excise and estate taxes.
28. _____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy.
    1. reducing; increasing; raising
    2. reducing; reducing; raising
    3. reducing; reducing; reducing
    4. raising; increasing; raising
29. If a government collects $1,400 in tax revenue and spends $1,600, it has:
    1. a surplus of $200.
    2. a deficit of $200.
    3. a balanced budget of $200.
    4. a public debt of $200.
30. Which of the following items is NOT public debt?
    1. treasury notes
    2. treasury bonds
    3. U.S. dollars
    4. U.S. savings bonds
31. The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported.
    1. information
    2. recognition
    3. implementation
    4. decision

 

Lecture 7: Saving, Investment, and the Financial System

32. Money represents anything that can be exchanged for goods and services or for the:
    1. return of defective goods.
    2. payment of debt.
    3. benefits of ownership.
    4. personal well-being of holders.
33. Money has three roles in an economy. It is a medium of exchange, a unit of account, and a(n):
    1. economic value.
    2. economic lubricant.
    3. store of value.
    4. way to grow.
34. The M1 definition of the money supply used by the government includes:
    1. currency and demand deposits (checking/debit accounts).
    2. savings accounts and money market deposits.
    3. money market mutual funds and small-time deposits.
    4. total bank deposits and mutual fund balances.
35. The market for loanable funds most specifically connects:
    1. buyers and sellers.
    2. firms and investors.
    3. governments and financial institutions.
    4. borrowers and savers.
36. The price of loanable funds is the:
    1. real interest rate.
    2. savings rate.
    3. spending rate.
    4. capital gains rate.
37. _____ minimize the risk of lending money by pooling money from many savers and by lending to many borrowers.
    1. stock markets
    2. government programs
    3. banks
    4. equity funds
38. Because banks are in the business of lending money, they will _____ so savers don’t need to.
    1. gather information from borrowers
    2. concentrate all funds on a single borrower
    3. issue stock as part of lending activities
    4. encourage additional deposits
39. Bonds are an IOU from a business or a government promising to pay back the value of the bond plus:
    1. additional principal.
    2. premium payments.
    3. bond insurance payments.
    4. interest payments.
40. _____ pay(s) the lowest interest rate.
    1. homeowners
    2. corporations
    3. the U.S. government
    4. credit card borrowers
41. When a company issues stock, it is agreeing to share the company’s _____ and _____ with the investor.
    1. good-will; products
    2. profits; control
    3. patents; technology
    4. debt; long-term assets
42. The yield for a perpetuity bond is determined by the simple formula:

Yield = Interest Payment/Price of Bond

or

Price of bond = Interest payment / Yield

42. 1. The yield on a $1,000 perpetuity bond that pays $40 a year forever to the bondholder is what percent?  
    2. Suppose that actions taken by the Fed cause interest rates in the economy to fall by 2%. How will this affect the price of the bond presented in part (a), that pays $40 per year in interest? The price of the bond would change to:
43. Which of the following bond-pricing formulas is correct?
    1. Price of bond = Interest payment × Yield
    2. Yield = Interest payment / Price of bond
    3. Price of bond = Yield / Interest payment
    4. Yield = Price of bond/ Interest payment
44. Consider a country’s market for loanable funds depicted below. The supply of loanable funds (S) and demand for loanable funds (D) are given in the graph.

 

 

44. 1. If workers fear that unemployment will increase, then the ____ loanable funds most likely _____, and the equilibrium interest rate ______.
45. Suppose that a bond’s yield is 2% and the price is $1,000. How much are the total interest payments on this bond, if Yield = Interest rate / Price of bond?

 

46. Suppose that a bond’s total interest payments are $400, and its yield is 5%. How much is this bond’s price?

 

 

Lecture 8: Money Creation and the Federal Reserve

47. Much of the money creation in the U.S. economy is done through actions of _____ and _____.
    1. savings banks; credit unions
    2. the Federal Reserve; commercial banks
    3. the U.S. Mint; the Bureau of Printing and Engraving
    4. the stock market; the purchasers of bonds                           
48. The portion of deposits that banks must keep on hand for day-to-day operations and other purposes is called the:
    1. loan-to-assets ratio.
    2. inflation protection.
    3. reserve requirement.
    4. banks’ profit margins.
49. If the reserve requirement is 25%, how much can a bank lend from an initial $1,000 deposit of cash?
    1. $800
    2. $2,500
    3. $250
    4. $750                                           
50. The _____ enables calculation of the maximum amount of money that can be created from a dollar deposited into the banking system.
    1. money multiplier
    2. monetary creator
    3. banking divisor
    4. Fed calculator
51. The actual money multiplier is lower than the theoretical maximum because of _____ in the economy.           
    1. deficits
    2. inflation
    3. leakages
    4. growth
52. When the economy is _____, money leakage tends to rise; this tends to slow the money creation process.
    1. strong
    2. weak
    3. transparent
    4. accelerating
53. The _____ is the central bank of the United States.
    1. Bank of America
    2. U.S. Department of the Treasury
    3. U.S. Bank
    4. Federal Reserve
54. The main function of a central bank is to:
    1. assist banks in finding customers.
    2. influence monetary policy.
    3. print cash.
    4. determine which banks are solvent.

 

 

First Purity Bank Assets Liabilities

Reserves: $700,000          Deposits: $2,000,000              Loans: $1,300,000

55. When the Fed buys bonds, its demand _____ the price of bonds, _____ nominal interest rates.
    1. increases; increasing
    2. increases; decreasing
    3. decreases; increasing
    4. decreases; decreasing

 

Lecture 9: Monetary Policy

56. The goals of the Federal Reserve’s monetary policy are to keep:
    1. unemployment low and the inflation rate stable.
    2. unemployment low and the inflation rate at zero percent.
    3. money supply stable and the unemployment rate at zero percent.
    4. money supply low and the unemployment rate at zero percent.
57. Three tools of monetary policy that are available to the Federal Reserve are:
    1. setting the money supply, setting the unemployment rate, and insuring bank deposits.
    2. maintaining a healthy banking system, printing currency, and minting coins.
    3. setting the reserve requirements, setting the discount rate, and setting the federal funds rate.
    4. increasing federal debt, setting the unemployment rate, and moral persuasion.
58. The Federal Reserve is most likely to deploy contractionary economic policy if:
    1. the economy was encountering high levels of inflation.
    2. banks had become too large to be managed successfully.
    3. the economy was poised to enter a recession.
    4. it wanted to increase the money supply in the economy.
59. High levels of inflation negatively impact the economy by:
    1. decreasing the revenue of firms.
    2. increasing the unemployment rate.
    3. reducing the money supply and reducing the growth rate of real GDP.
    4. reducing the purchasing power of savings.
60. Quantitative easing involves the Federal Reserve:
    1. selling risky assets to banks.
    2. increasing bank reserve requirements.
    3. requiring banks to make more loans.
    4. buying risky assets from banks.
61. Classical economists believe that monetary policy is:
    1. only effective in recessions.
    2. only effective in expansions.
    3. effective in almost all economic situations.
    4. is completely ineffective.

 

62. Keynesians believe that monetary policy can be effective:
    1. in the short run.
    2. in almost every economic situation.
    3. in situations of liquidity traps.
    4. when banks become too aggressive in terms of lending.
63. According to the equation of exchange, what is the level of output if M = 1,000, V = 5, and P = 20?
    1. 10
    2. 50
    3. 100
    4. 250
    5. 5000
64. If the inflation is 3%, the target inflation rate is 2%, and the economy is 3% above its long-run output, what is the fed duns target using the Taylor rule?

 

 

 

Lecture 10: Macroeconomic Policy: Challenges in a Global Economy

65. Which of the following did not contribute to the 2008 financial crisis?
    1. not enough subprime mortgage lending
    2. easy lending standards by banks
    3. bond ratings that were too high relative to their risk
    4. credit default swaps
    5. the use of leveraging to boost investment returns
66. Output begins to grow after reaching the trough; employment fails to grow. This describes a:
    1. recession
    2. jobless recovery
    3. depression
    4. lagging recovery
    5. double-dip recession
67. A financial instrument backed by a collection of mortgages is called a(n):
    1. adjustable-rate mortgage.
    2. collateralized debt obligation.
    3. credit default swap.
    4. collateralized mortgage obligation.
68. Some analysts blame the financial crisis of 2007-2009 on Federal Reserve policy. They   argue that:
    1. a restrictive policy lowered aggregate demand and GDP.
    2. low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.
    3. the Fed securitized the mortgages into collateralized debt obligations and encouraged excessive risk taking.
    4. the Fed did not adequately regulate the mortgage market's credit standards for issuing loans as required by the Federal Reserve Act.
69. Which action was NOT taken in response to the financial crisis?
    1. a bailout of Lehman Brothers
    2. purchases of over $1 trillion in mortgage-backed securities by the Federal Reserve
    3. an increase in the FDIC's guarantee on deposits from $100,000 to $250,000 per account
    4. over $100 billion in loans by the Fed to AIG
70. The 2007–2009 recession can be shown as a combination of a(n) _____ in aggregate demand and _____ in the short-run aggregate supply.
    1. decline; an increase
    2. increase; an increase
    3. decrease; a decrease
    4. decline; no change
71. Deflation can be a problem because it:
    1. leads to higher wages.
    2. makes it more difficult to pay off debt.
    3. can easily become hyperinflation.
    4. increases interest rates.
72. Credit default swaps:
    1. are a type of collateralized debt obligation.
    2. are a type of insurance against defaults.
    3. were accurately priced before the housing market collapsed.
    4. made AIG the most profitable company in the United States.

 

73. One implication of the Phillips curve when it is unable to shift in the short run, is that:
    1. fiscal and monetary policies have no impact on the economy.
    2.  the economy is in a liquidity trap.
    3.  policymakers face a tradeoff between low unemployment and low inflation.
    4.  fiscal policy is more effective than monetary policy.
74. According to the equation for the Phillips curve, if wages increase by 5% and productivity decreases by 2%, then inflation will be:
    1. –3%.
    2.  3%.
    3.  7%.
    4.  2.5%.
75. The long-run Phillips curve:
    1. is downward sloping, indicating a tradeoff between unemployment and inflation.
    2. shifts to the right when the expected inflation rate increases.
    3. shows no tradeoff between inflation and unemployment; that is, any inflation rate in the long run can be consistent with the natural rate of unemployment.
    4. is upward sloping, showing that higher rates of unemployment are associated with higher rates of inflation.
76. As inflationary expectations rise, the _____ Phillips curve shifts to the _____.
    1. long-run; right
    2. short run; right
    3. long-run; left
    4. short run; left
77. Adaptive expectations theory describes the use of _____ to form expectations of inflation.
    1. all publicly available information
    2. expected future policies
    3. present data
    4. past rates of inflation only

 

 

 

 

78. Economic expectations formed after individuals make the best possible use of all publicly available information are known as _____ expectations.
    1. public
    2. rational
    3. judgmental
    4. adaptive
79. One major conclusion of the rational expectations theory is that:
    1. macroeconomic policy can be used to fine-tune the economy.
    2. macroeconomic policy has no impact on GDP, even in the short run.
    3. consumers do not always make rational decisions.
    4. citizens cannot rationally expect the government to pursue the proper economic policy.
80. One of the reasons wages may be sticky is because of:
    1. imperfect information.
    2. inefficiency wages.
    3. the Phillips curve.
    4. Friedman's curse.
81. What factor does NOT help to explain the recent phenomenon of a jobless recovery?
    1. a rapid increase in productivity
    2. greater reliance on temporary and part-time workers
    3. outsourcing
    4. higher levels of government stimulus spending
82. Which of these is NOT a way that hiring practices have changed over the past few decades?
    1. firms use more temporary workers.
    2. firms are more likely to add overtime shifts for permanent employees.
    3. firms are more likely to use just-in-time hiring practices.
    4. firms are more likely to hire permanent employees.
83. Who will NOT be hurt if the United States monetizes its debt?
    1. people on fixed incomes
    2. people who make fixed mortgage payments
    3. lenders who receive fixed payments
    4. people who own checking accounts

Lecture 11 – International Trade

 

84. Specialization and trade can occur between _____ or between _____.

            A.         rich countries; poor countries

            B.         countries; individuals

C.        retailers; producers

                  D.        hunters; gathers

85. People and nations specialize in what they do best relative to others. The resulting benefits are referred to as the _____ trade.

      A.         downside of

      B.         deterrents to

      C.        barriers to

      D.        gains from

86. Countries _____ goods they are relatively good at producing and _____ goods they are less efficient at producing.

      A.         export; import

      B.         import; export

      C.        import; import

      D.        export; export

87. Comparative advantage occurs when a country or individual can produce a good at a _____ than another country or individual.

      A.         higher opportunity cost

      B.         lower raw material cost

      C.        lower opportunity cost

      D.        lower labor cost

88. Trade allows (or forces) a country to consume:

      A. beyond the limits of its production capability as represented by its                                   production possibilities frontier (PPF).

      B. at less than the limits of its production capability as represented by its PPF.

      C. a different portfolio of goods than it can produce based on the resources                       available within its borders.

      D. only the goods produced by its potential trading partner.