Study Guide For
Macroeconomics Final
Dr. Frank Jacobson
For an economy, expenditure is equal to
income because:
a. By law firms must pay out all their
revenue as income to someone.
b. For every sale there is a buyer and a seller.
c. Prices of individual goods and services
change, but the average price level stays the
same.
d. None of the above is correct; expenditure
is not always equal to income for an economy.
GDP is defined as the market value of all final
goods and services produced:
a. By the citizens of a country, regardless of where
they live, in a given period of time; this definition
focuses on GDP as a measure of total income.
b. By the citizens of a country, regardless of where
they live, in a given period of time; this definition
focuses on GDP as a measure of total expenditure.
c. Within a country in a given period of time; this
definition focuses on GDP as a measure of total
income.
d. Within a country in a given period of time; this
definition focuses on GDP as a measure of total
expenditure.
Which of the following statements is correct?
a. The value of all intermediate goods and final
goods is included in GDP.
b. The value of intermediate goods is included in
GDP only if those goods were produced in the
previous year.
c. The value of intermediate goods is included in
GDP only if those goods are added to firms’
inventories to be used or sold at a later date.
d. The value of intermediate goods is never
included in GDP.
U.S. GDP and U.S. GNP are related as
follows:
a. GNP = GDP - Income earned by
foreigners in the U.S. + Income earned by
U.S. citizens abroad.
b. GNP = GDP + Income earned by
foreigners in the U.S. - Income earned by U.S.
citizens abroad.
c. GNP = GDP + Value of exported goods Value of imported goods.
d. GNP = GDP - Value of exported goods +
Value of imported goods.
Unlike national income, personal income:
a. Includes retained earnings, corporate income taxes and
social insurance contributions, and excludes interest and
transfer payments received by households from
government.
b. Excludes retained earnings, corporate income taxes,
social insurance contributions, and interest and transfer
payments received by households from government.
c. Excludes retained earnings, corporate income taxes and
social insurance contributions, and includes interest and
transfer payments received by households from
government.
d. Includes retained earnings, corporate income taxes,
social insurance contributions, and interest and transfer
payments received by households from government.
Which of the following represents a
transfer payment?
a. You transfer $1,000 from your bank
account to a mutual fund.
b. The government sends your grandfather
his Social Security check.
c. The bank transfers $10 in quarterly
interest to your savings account.
d. Your employer automatically transfers
$100 each month from your wages to a nontaxable medical spending account.
Economists use the term inflation to
describe a situation in which:
a. Some prices are rising faster than
others.
b. The economy's overall price level is
rising.
c. The economy's overall price level is
high, but not necessarily rising.
d. The economy's overall output of
goods and services is rising faster than
the economy's overall price level.
The economy's inflation rate is the:
a. Price level in the current period.
b. Change in the price level from the
previous period.
c. Change in the gross domestic
product from the previous period.
d. Percentage change in the price
level from the previous period.
In the calculation of the CPI, coffee is
given greater weight than tea if:
a. Consumers buy more coffee than tea.
b. The price of coffee is higher than the
price of tea.
c. It costs more to produce coffee than it
costs to produce tea.
d. Coffee is more readily available than
is tea to the typical consumer.
Which is the most accurate statement about the GDP
deflator and the consumer price index?
a. The GDP deflator compares the price of a fixed basket of goods
and services to the price of the basket in the base year, whereas the
consumer price index compares the price of currently produced
goods and services to the price of the same goods and services in the
base year.
b. The consumer price index compares the price of a fixed basket of
goods and services to the price of the basket in the base year,
whereas the GDP deflator compares the price of currently produced
goods and services to the price of the same goods and services in the
base year.
c. Both the GDP deflator and the consumer price index compare the
price of a fixed basket of goods and services to the price of the basket
in the base year.
d. Both the GDP deflator and the consumer price index compare the
price of currently produced goods and services to the price of the
same goods and services in the base year.
The basket of goods in the consumer price
index changes:
a. Occasionally, as does the group of goods used to
compute the GDP deflator.
b. Automatically, as does the group of goods used
to compute the GDP deflator.
c. Occasionally, whereas the group of goods used
to compute the GDP deflator changes
automatically.
d. Automatically, whereas the group of goods used
to compute the GDP deflator changes occasionally.
A nation's standard of living is
measured by its:
a.
b.
c.
d.
Real GDP.
Real GDP per person.
Nominal GDP.
Nominal GDP per person.
Productivity:
a. Is nearly the same across countries, and so
provides no help explaining differences in the
standard of living across countries.
b. Explains very little of the differences in
the standard of living across countries.
c. Explains some, but not most of the
differences in the standard of living across
countries.
d. Explains most of the differences in the
standard of living across countries.
Which of the following is true?
a. Productivity is hours worked divided by
output produced.
b. Americans have a higher standard of
living than Indonesians because American
workers are more productive than
Indonesian workers.
c. Trends in the market prices of most
resources indicate that they have become
increasingly scarce over time.
d. All of the above are correct.
The saws, lathes, and drill presses
that woodworkers at Cedar Valley
Furniture use to produce furniture
are called:
a.
b.
c.
d.
Human capital.
Physical capital.
Natural resources.
Technological knowledge.
Which of the following is considered
human capital?
a. Knowledge acquired from early
childhood education programs.
b. Knowledge acquired from grade
school.
c. Knowledge acquired from on-thejob training.
d. All of the above are correct.
In a market economy, the real, or
inflation adjusted, price of a resource
measures its:
a.
b.
c.
d.
Contribution to revenue.
Relative scarcity.
Productivity.
Contribution to efficiency.
Technological knowledge refers to:
a. Human capital.
b. Available information on how to
produce things.
c. Resources expended transmitting
society's understanding to the labor
force.
d. All of the above are technological
knowledge.
If there are diminishing returns to
capital, then:
a. Capital produces fewer goods as it
ages.
b. Old ideas are not as useful as new
ones.
c. Increases in the capital stock
eventually decrease output.
d. Increases in the capital stock increase
output by ever smaller amounts.
If a country's saving rate
increases, then in the long run:
a. Both productivity growth and
income growth increase.
b. Only productivity growth
increases.
c. Only income growth increases.
d. Neither productivity growth nor
income growth increase.
A bond is a:
a. Financial intermediary.
b. Certificate of indebtedness.
c. Certificate of partial ownership in
an enterprise.
d. None of the above is correct.
Compared to long-term bonds, other
things the same, short-term bonds
generally have:
a. More risk and so pay higher interest.
b. Less risk and so pay lower interest.
c. Less risk and so pay higher interest.
d. About the same risk and so pay about
the same interest.
Other things the same, as the maturity of
a bond becomes longer, the bond will
pay:
a. Less interest because it has less risk.
b. Less interest because it has more risk.
c. More interest because it has more
risk.
d. There is no relation between term to
maturity and risk.
People who buy stock in a corporation such as
General Electric become:
a. Creditors of General Electric, so the benefits of
holding the stock depend on General Electric's
profits.
b. Creditors of General Electric, but the benefits of
holding the stock do not depend on General
Electric's profits.
c. Part owners of General Electric, so the benefits
of holding the stock depend on General Electric's
profits.
d. Part owners of General Electric, but the benefits
of holding the stock do not depend on General
Electric's profits.
Profits paid out to stockholders are:
a. Retained earnings.
b. Dividends.
c. The denominator in the priceearnings ratio.
d. All of the above are correct.
Which of the following equations
most simply represents GDP in a
closed economy?
a.
b.
c.
d.
Y = C + I + G + NX
S=I–G
I=Y-C+G
Y=C+I+G
In a closed economy, national saving
equals:
a. Investment.
b. Income minus the sum of
consumption and government
purchases.
c. Private saving plus public saving.
d. All of the above are correct.
A budget surplus is created if:
a. The government sells more bonds
than it buys back.
b. The government spends more
than it receives in tax revenue.
c. Private saving is greater than
zero.
d. None of the above is correct.
Other things the same, when the interest
rate rises:
a. People would want to lend more, making
the supply of loanable funds increase.
b. People would want to lend less, making the
supply of loanable funds decrease.
c. People would want to lend more, making
the quantity of loanable funds supplied
increase.
d. People would want to lend less, making the
quantity of loanable funds supplied decrease.
If the nominal interest rate is 10
percent and the inflation rate is 4
percent, then the real interest rate is:
a.
b.
c.
d.
14 percent.
6 percent.
2.5 percent.
.4 percent.
Cyclical unemployment refers to:
a. The relation between the probability
of unemployment and a worker's
changing level of experience.
b. How often a worker is likely to be
employed during her lifetime.
c. Year-to-year fluctuations of
unemployment around its natural rate.
d. Long-term trends in unemployment.
The natural rate of unemployment is
the economist's notion of:
a.
b.
c.
d.
Full employment.
Cyclical employment.
Structural unemployment.
Frictional unemployment.
Unemployment data is collected:
a. From unemployment insurance
claims.
b. Through a regular survey of
about 60,000 households.
c. Through a regular survey of about
200,000 firms.
d. Unemployment data is collected
using all of the above.
The labor force:
a. Equals the number of people employed.
b. Equals the number of people employed
plus the number of people unemployed.
c. Equals the non-institutionalized adult
population.
d. Equals the number of people employed
plus the number of people cyclically
unemployed.
Which of the following definitions is
correct?
a. Labor force = number of employed.
b. Labor force = population - number of
unemployed.
c. Unemployment Rate = (number of
unemployed [number of employed +
number of unemployed]) 100.
d. Unemployment Rate = (number of
unemployed adult population) 100.
The labor-force participation rates among U.S.
men since World War II:
a. Decreased because of longer schooling, an increase in
stay-at-home dads, earlier retirement, and longer lives.
b. Decreased because of longer lives, laws that prevent
mandatory retirement, and an increase in stay-at-home
dads.
c. Increased because of better unemployment insurance,
laws that prevent mandatory retirement, and laws that
prevent age discrimination in hiring.
d. Increased because of easier job searches, better
training, and laws that prevent mandatory retirement and
age discrimination in hiring.
Since 1950, the labor-force participation
rate of women has:
a. Increased. This can be attributed to
longer lives.
b. Increased. This can be attributed
partly to advances in birth control.
c. Decreased. This can be attributed
partly to longer schooling.
d. Decreased. This can be attributed
partly to increases in the minimum wage.
Evidence from research studies by
economists:
a. Show that increased unemployment benefits
decrease the job-search efforts of the unemployed.
b. Show that increased unemployment benefits
have virtually no effect on the job-search efforts of
the unemployed.
c. Show that increased unemployment benefits
increases the job-search effort of the unemployed.
d. Find no clear-cut evidence on what increased
unemployment benefits do to job-search efforts.
If the minimum wage were currently above
the equilibrium wage, than a decrease in the
minimum wage would:
a. Increase both the quantity demanded and
the quantity supplied of labor.
b. Decrease both the quantity demanded and
the quantity supplied of labor.
c. Increase the quantity of labor demanded
and decrease the quantity supplied.
d. Decrease the quantity of labor demanded
and increase the quantity supplied.
Mia puts money into a piggy bank so
she can spend it later. What function
of money does this illustrate?
a.
b.
c.
d.
Store of value.
Medium of exchange.
Unit of account.
None of the above is correct.
An item that people can use to
transfer purchasing power from the
present to the future is called:
a.
b.
c.
d.
A medium of exchange.
A unit of account.
A store of value.
None of the above is correct.
Current U.S. currency is:
a. Fiat money with intrinsic value.
b. Fiat money with no intrinsic
value.
c. Commodity money with intrinsic
value.
d. Commodity money with no
intrinsic value.
If an economy used gold as money,
its money would be:
a. Commodity money, but not fiat
money.
b. Fiat money, but not commodity
money.
c. Both fiat and commodity money.
d. Neither fiat nor commodity
money.
Which of the following is not
included in M1?
a.
b.
c.
d.
Currency.
Demand deposits.
Savings deposits.
Travelers' checks.
Which of the following is included in
the M2 definition of the money
supply?
a.
b.
c.
d.
Credit cards.
Money market mutual funds.
Corporate bonds.
Large time deposits.
Debit cards:
a.
b.
c.
d.
Defer payments.
Are equivalent to credit cards.
Are included in M2.
Are used as a method of payment.
Each Federal Reserve District Bank
president is appointed by:
a. The US president with the
approval of the Senate.
b. The Board of Governors.
c. The voting members of the
FOMC.
d. Each bank's board of directors.
Which of the following is correct?
a. The Federal Reserve has 14 regional banks. The
Board of Governors has 12 members who serve 7year terms.
b. The Federal Reserve has 14 regional banks. The
Board of Governors has 7 members who serve 14year terms.
c. The Federal Reserve has 12 regional banks. The
Board of Governors has 12 members who serve 7year terms.
d. The Federal Reserve has 12 regional banks. The
Board of Governors has 7 members who serve 14year terms.
The Fed’s primary tool to change the
money supply is:
a. Changing the discount rate.
b. Changing the reserve
requirement.
c. Conducting open market
operations.
d. Redeeming Federal Reserve notes.
Suppose that the reserve ratio is 5
percent and that a bank has $1,000 in
deposits. Its reserves are:
a.
b.
c.
d.
$5.
$50.
$95.
$950.
If the reserve ratio is 10 percent, the
money multiplier is:
a.
b.
c.
d.
100.
10.
9/10.
1/10.
The multiplier equals:
a.
b.
c.
d.
1/R
1/(1+R)
1/(1-R)
None of the above is correct.
Which of the following lists two things
that both increase the money supply?
a. Make open market purchases, raise
the reserve requirement ratio.
b. Make open market purchases, lower
the reserve requirement ratio.
c. Make open market sales, raise the
reserve requirement ratio.
d. Make open market sales, lower the
reserve requirement ratio.
Over the last 70 years the average
annual U.S. inflation rate was about:
a. 2 percent implying that prices have
increased 10-fold.
b. 4 percent implying that prices have
increased 10-fold.
c. 2 percent implying that prices have
increased 16-fold.
d. 4 percent implying that prices
increased about 16-fold.
When prices are falling, economists
say that there is:
a.
b.
c.
d.
Disinflation.
Deflation.
A contraction.
An inverted inflation.
The supply curve of money is vertical
because the quantity of money supplied
increases:
a. When the value of money increases.
b. When the value of money decreases.
c. Only if people desire to hold more
money.
d. Only if the central bank increases the
money supply.
The supply of money increases when:
a. The value of money increases.
b. The interest rate increases.
c. The Fed makes open-market
purchases.
d. None of the above is correct.
Open-market purchases by the Fed
make the money supply:
a. Increase, which makes the value of
money increase.
b. Increase, which makes the value of
money decrease.
c. Decrease, which makes the value of
money decrease.
d. Decrease, which makes the value of
money increase.
Economic variables whose values are
measured in monetary units are
called:
a.
b.
c.
d.
Dichotomous variables.
Nominal variables.
Classical variables.
Real variables.
Economic variables whose values are
measured in goods are called:
a.
b.
c.
d.
Dichotomous variables.
Nominal variables.
Classical variables.
Real variables.
According to the classical dichotomy,
which of the following is not
influenced by monetary factors?
a.
b.
c.
d.
The price level.
Real GDP.
Nominal interest rates.
All of the above are correct.
According to the principle of
monetary neutrality, a decrease in
the money supply will not change:
a.
b.
c.
d.
Nominal GDP.
The price level.
Unemployment.
All of the above are correct.
Governments may prefer an inflation
tax to some other kind of tax because
the inflation tax:
a. Is easier to impose.
b. Reduces inflation.
c. Falls mainly on high-income
individuals.
d. Reduces the real cost of
government expenditure.
Printing money to finance
government expenditures:
a. Causes the value of money to rise.
b. Imposes a tax on everyone who
holds money.
c. Is the principle method by which
the U.S. government finances its
expenditures.
d. None of the above is correct.
Under the assumptions of the Fisher
effect and monetary neutrality, if the
money supply growth rate rises, then:
a. Both the nominal and the real interest
rate rise.
b. Neither the nominal nor the real
interest rate rise.
c. The nominal interest rate rises, but
the real interest rate does not.
d. The real interest rate rises, but the
nominal interest rate does not.
The cost of changing price tags and
price listings is known as:
a.
b.
c.
d.
Inflation-induced tax distortions.
Relative-price variability costs.
Shoeleather costs.
Menu costs.
Net capital outflow measures:
a. Foreign assets held by domestic residents minus
domestic assets held by foreign residents.
b. The imbalance between the amount of foreign
assets bought by domestic residents and the
amount of domestic assets bought by foreigners.
c. The imbalance between the amount of foreign
assets bought by domestic residents and the
amount of domestic goods and services sold to
foreigners.
d. None of the above is correct.
Which of the following is correct?
a.
b.
c.
d.
NCO = NX
NCO + I = NX
NX + NCO = Y
Y = NCO - I
If a country has a trade surplus:
a. It has positive net exports and
positive net capital outflow.
b. It has positive net exports and
negative net capital outflow.
c. It has negative net exports and
positive net capital outflow.
d. It has negative net exports and
negative net capital outflow.
You are staying in London over the summer and you have
a number of dollars with you. If the dollar appreciated
relative to the British pound then, other things the same:
a. The dollar would buy more pounds. The appreciation
would discourage you from buying as many British goods
and services.
b. The dollar would buy more pounds. The appreciation
would encourage you to buy more British goods and
services.
c. The dollar would buy fewer pounds. The appreciation
would discourage you from buying as many British goods
and services.
d. The dollar would buy fewer pounds. The appreciation
would encourage you to buy more British goods and
services.
Purchasing-power parity theory does not
hold at all times because:
a. Many goods are not easily
transported.
b. The same goods produced in different
countries may be imperfect substitutes
for each other.
c. Both a and b are correct.
d. Prices are different across countries.
Which of the following statements is
incorrect for an open economy?
a. A country can have a trade deficit,
trade surplus, or balanced trade.
b. A country that has a trade deficit has
positive net capital outflow.
c. Net exports must equal net capital
outflow.
d. National saving must equal domestic
investment plus net capital outflow.
Which of the following will reduce
the price level and real output in the
short run?
a.
b.
c.
d.
An increase in the money supply.
An increase in oil prices.
A decrease in the money supply.
Technical progress.
Refer to the Figure. The economy
would be moving to long-run
equilibrium if it started at:
a. A and moved to B.
b. C and moved to B.
c. D and moved to C.
d.None of the above is correct.
Suppose the economy is initially in longrun equilibrium and aggregate demand
rises. In the long run prices:
a. And output are higher than in the original
long-run equilibrium.
b. And output are lower than in the original
long-run equilibrium.
c. Are higher and output is the same as the
original long-run equilibrium.
d. Are the same and output is lower than in
the original long-run equilibrium.
The Stock Market Boom of 2010
Imagine that in 2010 the
economy is in long-run
equilibrium. Then stock prices
rise more than expected and
stay high for some time.
Refer to Stock Market Boom 2010. How
is the new long-run equilibrium different
from the original one?
a. The price level and real GDP are higher.
b. The price level and real GDP are lower.
c. The price level is higher and real GDP is
the same.
d. The price level is the same and real GDP is
higher.
The Stock Market Boom of 2010
Imagine that in 2010 the
economy is in long-run
equilibrium. Then stock prices
rise more than expected and
stay high for some time.
Suppose the economy is in long-run equilibrium.
Concerns about pollution cause the government to
significantly restrict the production of electricity.
At the same time, the value of the dollar falls. In
the short-run we would expect:
a. Real GDP will rise and the price level might rise,
fall, or stay the same.
b. Real GDP will fall and the price level might rise,
fall, or stay the same.
c. The price level will rise, and real GDP might
rise, fall, or stay the same.
d. The price level will fall, and real GDP might
rise, fall, or stay the same.
Keynes explained that recessions and
depressions occur because of:
a.
b.
c.
d.
Excess aggregate demand.
Inadequate aggregate demand.
Excess aggregate supply.
Inadequate aggregate supply.
When taxes increase, consumption:
a. Decreases as shown by a
movement to the left along a given
aggregate demand curve.
b. Decreases as shown by shifting
aggregate demand to the left.
c. Increases as shown by shifting
aggregate supply the left.
d. None of the above is correct.
Which of the following is the most
liquid asset?
a.
b.
c.
d.
Capital goods.
Stocks and bonds with a low risk.
Stocks and bonds with a high risk.
Funds in a checking account.
The opportunity cost of holding money:
a. Decreases when the interest rate increases,
so people desire to hold more of it.
b. Decreases when the interest rate increases,
so people desire to hold less of it.
c. Increases when the interest rate increases,
so people desire to hold more of it.
d. Increases when the interest rate increases,
so people desire to hold less of it.
Questions
?