GDP is defined as the
value of all goods and services produced within a country in a given period of time
value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time
value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time
value of all final goods and services produced within a country in a given period of time
Gross domestic product measures
income but not expenditures
expenditures but not income
both income and expenditures
neither income nor expenditures
Grapes are considered intermediate goods
if the purchaser eats them, but not if the purchaser uses them to make wine to see
if the purchaser uses them to make wine to sell others but not if the purchaser eats them
whether the purchaser uses them to make wine to sell or eats them
None of the above is correct
Which of the following transactions adds to U.S. GDP for 2010?
In December 2010, Isabella eats onions that she harvested from her backyard garden in October 2010
In 2010, Ashley sells a car that she bought in 2006 to William for $5,000
An American professor teaches Economics in China during the summer of 2010 and earns the equivalent of $8000 during that time
In February 2010, Amanda buys a ticket for $10 to visit a zoo in Florida
In the economy of Ukzten in 2010, consumption was $5000, exports was $100, government purchases were $900, imports were $200, and investment was $1000. What was Ukzten's GDP in 2010?
$6800
$6700
$7200
$7000
Which of the following is NOT included in the consumption component of GDP?
Aunt Jane buys a new house
Bill buys a pizza for dinner
Bob pays his tuition and fees for college
You get a nice haircut
Darnell's employer upgrades all of its computer systems using U.S. made parts. Which component of GDP is this transaction included?
Consumption
Investment
Government Expenditure
Net Exports
If in some year real GDP was $25 billion and nominal GDP was $30 billion, what was GDP deflator?
120
83.33
1.2
0.833
Changes in nominal GDP reflect
only changes in prices
neither changes in prices nor changes in the amounts being produced
only changes in the amounts being produced
both changes in prices and changes in the amounts being produced
When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study
GNP
the GDP deflator
real GDP
nominal GDP
Which of the following statement about GDP is correct?
Nominal GDP values production at constant prices, whereas real GDP values production at current prices
Nominal GDP values production at the cost of the resources used in the production process, whereas real GDP values production at market prices
Nominal GDP values production at current prices, whereas real GDP values production at constant prices
Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process
The CPI is a measure of the overall cost of
the inputs purchased by a typical producer
the goods and services produced in the economy
the goods and services purchased by a typical consumer
the stocks on the New York Stock Exchange
The term inflation is used to describe a situation in which
stock-market prices are rising
the overall level of prices in the economy is increasing
incomes in the economy are increasing
the economy is growing rapidly
If the price of Spanish olives imported into the United States decreases, then there would be an effect on the value of
neither the GDP deflator nor the consumer price index
the GDP deflator but not on the value of the consumer price index
the consumer price index but not on the value of the GDP delator
both the GDP deflator and the consumer price index
Suppose that U.S. mining companies purchase German made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?
The consumer price index and the GDP deflator will both fall
The consumer price index and the GDP deflator will both be unaffected
The consumer price index will fall, and the GDP deflator will be unaffected
The consumer price index will be unaffected, and the GDP deflator will fall
In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?
$11.50
$5.48
$2.10
$24.15
The nominal interest rate tells you
how fast the purchasing power of your bank account rises over time
the number of dollars in your bank account today
the purchasing power of your bank account today
how fast the number of dollars in your bank account rises over time
In 2011, Sally opened an account and deposited $1000 with a nominal interest rate of 10%. A hamburger was $5 in 2011. CPI was 120 in 2011 and 129.6 in 2012. What is the purchasing power of her $1000 in 2011?
180 hamburgers
250 hamburgers
200 hamburgers
220 hamburgers
In 2011, Sally opened an account and deposited $1000 with a nominal interest rate of 10%. A hamburger was $5 in 2011. CPI was 120 in 2011 and 129.6 in 2012. What is the inflation rate?
9.6%
8%
6%
7.4%
In 2011, Sally opened an account and deposited $1000 with a nominal interest rate of 10%. A hamburger was $5 in 2011. CPI was 120 in 2011 and 129.6 in 2012. What is the real interest rate?
4%
2%
Who is included in the labor force by the Bureau of Labor Statistics?
Gabe, who does not have a job, but is looking for work
Marcus, a full-time student not looking for work
Chris, a retired engineer not looking for other work
In 2009, based on concepts similar to those used to estimate U.S. employment figures, the Italian adult non-institutionalized population was 51.070 million, the labor force was 24.710 million, and the number of people employed was 22.765 million. According to these numbers, the Italian labor-force participation rate and unemployment rate were about
48.4% and 7.9%
44.6% and 3.8%
48.4% and 3.8%
44.6% and 7.9%
Unemployment that is due to a recession is
Frictional unemployment
Structural unemployment
Cyclical unemployment
Seasonal unemployment
John worked in a ski resort last winter but he got laid off in May. Curtis has looked for work as an entry-level accountant for some time. While the general demand for accountants doesn't appear to be falling, there seems to be more job openings for senior-level accountants.
John and Curtis are both seasonally unemployed
John is structurally unemployed, and Curtis is seasonally unemployed
John and Curtis are both structurally unemployed
John is seasonally unemployed, and Curtis is structurally unemployed
Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?
2,500 deficit
2,500 surplus
1,000 deficit
1,000 surplus
In a small closed economy investment is $50 billion and private saving is $55 billion. What are public saving and national saving?
$60 billion and $5 billion
$50 billion and -$5 billion
$5 billion and $60 billion
-$5 billion and $50 billion
In a closed economy, in Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
the government as a budget deficit and investment is 1,000
the government has a budget surplus and investment is 1,000
the government has a budget surplus and investment is 2,000
the government has a budget deficit and investment is 2,000
In a closed economy, national saving is
equal to investment
usually greater than investment
usually less than investment
always less than investment
Which of the following would a macroeconomist consider as investment?
Marisa purchases a bond issued by Proctor and Gamble Corp.
Karlee purchases stock issued by Texas Instruments, Inc.
Charlie builds a new coffee shop
All of the above are correct
Which list ranks assets form most to least liquid?
$10 bills, cars, houses, bonds
$10 bills, bonds, cars, houses
bonds, $10 bills, cars, houses
bonds, cars, $10 bills, houses
Which of the following is included in M2 but not in M1?
savings deposits
currency
demand deposits
All of the above are included in both M1 and M2
You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?
Unit of account
Liquidity
Store of Value
Medium of Exchange
If the reserve ratio is 5 percent and banks keep no excess reserves, then $1,000 of additional deposits can create up to (hint: get the money multiplier first)
$200 of new money
$2,000 of new money
$20,000 of new money
If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
It increases by $100,000
It increases by $150,000
It decreases by $100,000
It decreases by $150,000
To explain the long-run determinants of the price level and the inflation rate, most economists rely on the
Quantity theory of money
Price-index theory of money
Fisher effects
Theory of hyperinflation
When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve (hint: how selling bonds changes the money supply)
Shifts right, causing the price level to rise
Shifts right, causing the price level to fall
Shifts left, causing the price level to rise
Shifts left, causing the price level to fall
When the money market is drawn with the value of money on the vertical axis,
money demand slopes upward and money supply is horizontal
money demand slopes downward and money supply is horizontal
money demand slopes upward and money supply is vertical
money demand slopes downward and money supply is vertical
As the price level decreases, the value of money
increases, so people want to hold more of it
increases, so people want to hold less of it
decreases, so people want to hold more of it
decreases, so people want to hold less of it
On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.
The $80 is a real variable and the quantity of shoes is a nominal variable
The $80 is a nominal variable and the quantity of shoes is a real variable
Both the $80 and the quantity of shoes are nominal variables
Both the $80 and the quantity of shoes are real variables
Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased
your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased.
your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased.
your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.
According to the principle of monetary neutrality, a decrease in the money supply will not change
the price level
unemployment
all of the above are correct
Suppose the money supply tripled, but at the same time velocity fell by half and real GDP was unchanged. According to the quantity equation the price level
is 1.5 times its old value
is 3 times its old value
is 6 times its old value
is the same as its old value
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then
both the nominal and the real interest rate rise
neither the nominal nor the real interest rate rise
the nominal interest rate rises, but the real interest rate does not
the real interest rate rises, but the nominal interest rate does not
In which case below is the real interest rate the highest? (hints: use fisher effect equation)
the nominal interest rate= 4% and inflation= 3%
the nominal interest rate= 3% and inflation= 1%
the nominal interest rate= 2% and inflation= -2%
the nominal interest rate= 1% and inflation= -4%
Which of the following is one of the long-run economic goals?
a zero unemployment rate
a stable interest rate
high economic growth
a stable exchange rate
Which of the following is correct?
Economic fluctuations are easily predicted by competent economists
Recessions have never occurred very close together
Spending, income, and production do not fluctuate closely with real GDP
During recessions
sales and profits fall
sales and profits rise
sales rise, profits fall
profits rise, sales fall
The long-run aggregate supply curve shifts right if
either immigration from abroad increases or more people get college degrees
immigration from abroad increases, but not if more people get college degrees
more people get college degrees, but not if immigration from abroad increases
none of the above are correct
According to Sticky-wage theory, the wage contract was determined in advance based on the expected price level. The wage was fixed in the short run. If the actual price level was higher than the expected price level, the firm would have
lower labor costs and lower profits. So the firm would decrease the production
lower labor costs and higher profits. So the firm would increase the production
higher labor costs and lower profits. So the firm would decrease the production
higher labor costs and higher profits. So the firm would decrease the production
A decrease in the expected price level shifts
only the short-run aggregate supply curve left
only the short-run aggregate supply curve right
both the short-run and the long-run aggregate supply curve left
both the short-run and the long-run aggregate supply cure right
Which of the following is NOT included in aggregate demand? (hint: AD = C + I + G + NX)
purchases of stock and bonds
purchases of services such as visits to the doctor
purchases of capital goods such as equipment in a factory
purchases by foreigners of consumer goods produced in the United States
If marginal propensity to consume (MPC) is 0.60, how much money will the household spend to buy goods and services with $50 extra income?
$20, the multiplier is 2.5
$20, the multiplier is 1.67
$30, the multiplier is 2.5
$30, the multiplier is 1.67
If marginal propensity to consume (MPC) is 0.60 and there is no crowding out, how much should Congress increase government spending to end the recession?
$50 billion
$160 billion
$240 billion
$300 billion
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) Assume policymakers do nothing, according to the theory of liquidity preference, what happens to money market?
Money demand shifts right and interest rate rises
Money demand shifts left and interest rate drops
Money supply shifts right and interest rate drops
Money supply shifts left and interest rate rises
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) IN AD-AS diagram, which curve shifts and in which direction?
Aggregate supply shifts right
Aggregate supply shifts left
Aggregate demand shifts right
Aggregate demand shifts left
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) In the short run what happens to the price level and real GDP?
both the price level and real GDP rise
both the price level and real GDP fall
the price level rises and real GDP falls
the price level falls and real GDP rises
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) If the Fed wants to stabilize this economic fluctuation, it should
buy bonds. So interest rate rises to make the curve in AD-AS diagram shift back
buy bonds. So interest rate drops to make the curve in AD-AS diagram shift back
sell bonds. So interest rate rises to make the curve in AD-AS diagram shift back
sell bonds. So interest rate drops to make the curve in AD-AS diagram shift back
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) If the Fed does nothing, what might Congress do to stabilize the economic fluctuation?
decrease government spending or raise taxes
increase government spending or raise taxes
decrease government spending or cut taxes
increase government spending or cut taxes
Suppose a computer virus disables all ATM machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand. (Draw MS & MD graph and AS & AD graph) If policymakers do nothing, the economy is able to correct the short-run fluctuation by itself. To reach the new long-run equilibrium, the change in price expectations created by this event shifts
long-run aggregate supply right
long-run aggregate supply left
short-run aggregate supply right
short-run aggregate supply left
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) Which curve shifts and in which direction?
aggregate demand shifts right
aggregate demand shifts left
aggregate supply shifts right
aggregate supply shifts left
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) If the policymakers do nothing at first, in the short-run what happens to the price level and real GDP?
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) If policymakers want to stabilize the economic fluctuation caused by hurricane Sandy, which curve shifts and in which direction?
Hurricane Sandy destroyed many factories in Eastern areas and caused a rise of the oil prices. How does this event affect the U.S. economy? Assume the government did not respond to this event at the beginning. (Draw AS & AD diagram) How is the new long-run equilibrium different from the original one?
both price and real GDP are higher
both price and real GDP are lower
the price level is the same and GDP is higher
the price level is higher and real GDP is the same
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) In the short-run what happens to the price level and unemployment rate?
both the price level and unemployment rate rise
both the price level and unemployment rate fall
the price level rises and unemployment rate falls
the price level falls and unemployment rate rises
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) In the short-run, this event causes
inflation
recession
stagflation
none of the above
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) What happens to the expected price level and what impact does this have on wage bargaining?
The expected price level falls. Bargains are struck for higher wages
The expected price level falls. Bargains are struck for lower wages
The expected price level rises. Bargains are struck for higher wages
The expected price level rises. Bargains are stuck for lower wages
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) In the long run, the change in price expectations created by this event shifts
Suppose the economy is in long-run equilibrium. A survey measure of consumer confidence indicate a wave of optimism about the economic conditions. As a result, consumers are purchasing more goods and services. Firms are expanding their business. (Draw AS & AD diagram) How is the new long-run equilibrium different from the original one?
the price level and real GDP are higher
the price level and real GDP are lower
the price level is higher and real GDP is lower
An economy if which the typical consumer's basket consists of 5 books and 10 calculators. 2006: price of a book $24 / price of a calculator $8 2007: price of a book $30/ price of a calculator $12 2008: price of a book $32/ price of a calculator $15
The cost of a basket in 2006 was
$32
$480
$200
$280
If 2006 is the base year, then the consumer price index was
100 in 2006, 270 in 2007, and 310 in 2008
200 in 2006, 135 in 2007, and 155 in 2008
200 in 2006, 270 in 2007, and 310 in 2008
100 in 2006, 135 in 2007, 155 in 2008
The inflation rate was
25.9% in 2007 and 14.8% in 2008
35% in 2007 and 20% in 2008
35% in 2007 and 14.8% in 2008
22.6% in 2007 and 12.9% in 2008
Assets Liabilities Reserves $2,000 Deposits $10,000 Loans $8,000
The reserve ratio for this bank is
0%
20%
80%
100%
If $1,000 is deposited into the First Bank of Fairfield, and the bank takes no other actions its (hint: "takes no other actions" means the bank hasn't loaned out the new deposits yet, and keeps all new deposits as reserves)
reserves will increase by $200
liabilities will decrease by $1,000
assets will increase by $1,000
reserves will increase by $800
Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be
$320
$400
$680
$750
Draw a MS-MD diagram and shift MD to the right. What is the quantity measured along the horizontal axis?
the real interest rate
the value of money
the quantity of money
Draw a MS-MD diagram and shift MD to the right. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?
an increase in the value of money
a decrease in the price level
an open-market purchase of bonds by the Federal Reserve
it is the holiday season and people want to purchase more goods and services
Draw a MS-MD diagram and shift MD to the right. Suppose the relevant money-demand curve is the one on the left; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy's real GDP amounts to
5,000
7,500
10,000
15,000
