Question;Final ReviewA person who studies macroeconomics encounters many different types of growthrates. One of these growth rates of the value of a price index. This type of growthrate is called ana. economic growth rateb. exchange ratec. inflation rated. interest rateA component of GDP that tends to change very drastically during economicrecessions, and is often responsible for most of the severity of a recession, isa. Consumptionb. Investmentc. Government purchasesd. Exportse. ImportsAccording to the National Bureau of Economic Research, the most recent U.S.recession began near the end of 2007. Since the preceding recession ended nearthe end of 2001, there were six years between these two recessions. Based oneconomic data from the last 40 years, this interval between recessions is _______.a. Much shorter than averageb. Fairly close to the averagec. Much longer than the averaged. A record: its the longest interval the US economy has had betweenrecessionse. A record: its the shortest interval the US economy has had betweenrecessionsIn the U.S economy, the demand for loanable funds comes mostly from _______,who use these funds mostly to financea. Households, home purchases.b. Firms, investment spendingc. Units of government, their budget deficitsd. Households, purchases of consumer durable goodse. Firms, fringe benefits paymentsA bank made a loan to a manufacturing firm, in dollars. The loan had a fixednominal interest rate of 5 percent. The average annual inflation rate over the termof the loan turned out to be 2 percent. Which of the following statements aboutthis loan is correct?a. Over the term of this loan, the purchasing power of a dollar fell at anaverage rate of approximately 3% per year.b. The average annual growth rate of the real value of the dollars repaid,relative to the real value of the dollars lent, was approximately 3 percentc. The real interest rate on the loan turned out to be approximately 7 %.d. If the bank had expected the average annual inflation rate, over the loansterm, to turn out to be 3%, then it was disappointed with the loansoutcome.184.108.40.206.e. If the firm had expected the real interest rate on the loan to be 2%, then itwas pleased with the loans outcomeIn microeconomics, you learned that economists think of the main item thatadjusts to clear the market for any particular as the unit price of that good.Economists often think of the levels of national saving and investment as beingdetermined in a single market. They think of the item that plays the role of theunit price, in this market, asa. The overall price levelb. The actual inflation ratec. The nominal interest rated. The real interest ratee. The exchange rateIn the foreign exchange market, the price of a U.S. dollar rises from.67 euros to.75 euros. Other things equal, ______a. The value of a European version of the consumer price index is likely tofall.b. European currency has appreciated against U.S currency.c. Goods imported from Europe will become cheaper in the United Statesd. The price of a euro, in dollars, has fallen from approximately 1.33 euros toapproximately 1.25 euros.e. A U.S produced car that formerly cost 16,000 euros in Europe now costs20,000 euros.To calculate the value of the Consumer Price Index for a particular month, youmust calculatea. The market value, using prices from that month, of a basket of goods andservices based on the composition of consumer spending during themonth.b. The market value, using prices from that month, of a basket of goods andservices based on the composition of consumer spending during somefixed base period.c. The market value, using prices from a fixed base period, of a basket ofgoods and services based on the composition of consumer spending duringthe base periodd. Both a and ce. Both b and cIf the government runs a budget deficit during a year, thena. Public saving for the year is negative.b. It must increase taxes, during the year, to raise the funds needed to coverthe deficit.c. At the end of the year, the national debt will be equal to the amount of thedeficit.d. Government consumptions spending exceeds government investmentspending by the amount of the deficit.e. The money supply increases by the amount of the deficit.10. In the modern U.S monetary system, the ______ is responsible for makingcurrency available to the public. This currency has value, and can be used makepayments, because_____a. Federal Reserve System, the Fed will convert it into gold, at a fixed rate,on demand.b. Federal Reserve System, the Fed manages the supply of currency to limitthe amount in circulation.c. U.S. Treasury Department, the Treasury will convert it into gold, at a fixedrate, on demand.d. US Treasury Department, the Treasury manages the supply of currency tolimit the amount in circulationse. None of the items above is correct11. If a county is running a trade deficit, then_____a. The market value of its exports exceeds the market value of its imports.b. Its domestic spending exceeds its domestic incomec. It is lending to other countries, or buying assets from foreigners, or giveforeign aid.d. Its national saving exceeds its private investment.e. All of the above items are correct.12. The following list gives the values of a number of items form the National Incomeand Product Accounts. What is the value of Gross Domestic Product (GDP)?Exports100Private Saving 550Private Investment700Consumptions 3000Taxes (net of transfers)250Imports300Government Purchases300(consumption and investment)a. 4000b. 5200c. 3800d. 4350e. 410013. When the US government calculates GDP using the total-spending approach,household spending for college tuition is categorized as consumption spending.Many economists argue that it really should be categorized as ________spending, becausea. Investment, a college education increases a students human capital.b. Government, U.S colleges also receive substantial financial support formthe government.c. Investment: colleges use tuition funds to finance construction, as well aspurchases of equipment for teaching and research.d. Government, most spending for college tuition is financed by governmentloans.e. Investment, colleges use most of their tuition revenue to pay facultysalaries, rewarding their human capitals14. Imagine a barter economy in which people trade many different goods for manyother goods, but merchants post the prices of the goods they sell in terms of asingle reference good. This system works because everyone keeps track of theunit price of each good in terms of the reference good. This economy has______but not_________.a. Commodity money, fiat moneyb. A pattern of trade, a coincidence of wantsc. A unit of account, a medium of exchanged. Money, currencye. A store of value, a unit of account15. If real GDP for a particular year is higher than nominal GDP for the same year,then we know thata. The average level of prices fell during the year.b. Total production is higher, in that year, than it was in the base year.c. The value of the GDP deflator for that year exceeds 100d. The average level of prices was lower, in that year, than it was in the baseyear.e. Nothing, the definition of real GDP implies that this should be true everyyear.16. During the last 65 years (roughly, the period after World War II), the average U.S.unemployment rate (the usual estimate of the natural rate of the unemployment)has been closet to ____ percent.a. 3b. 6c. 9d. 12e. 1517. Most macroeconomists believe that a country cannot experience persistently highinflation unless the countrys____a. Government has allowed the countrys money supply to grow at anexcessively rapid rate.b. Firms have colluded with each other in order to drive up prices.c. Households have spend too much of their income and saving too little.d. Government has run excessively large budget deficits financed by issuinggovernment bonds18. The U.S unemployment rate is calculated as fraction, with a numerator and adenominator. The value in the denominator is closets to____.a. The total U.S populationb. The total U.S population, excluding people in the armed forces.c. The total U.S population, excluding people in the armed forces, childrenunder 16.d. The total U.S population, excluding people in the armed forces, childrenunder 16, full-time students, and retired people.e. The total U.S. population, excluding people in the armed forces, childrenunder 16, full-time students, and retired people, and other people who arenot actively looking for work19. Which of the following expenditures would not be considered a U.S investmentexpenditures, for the current year, according to the definition used by the U.S.government when it calculates GDP using the total-spending approach?a. A U.S computer manufacturing company builds 1000 computers thisyear, but has not sold them by the end of the yearb. A US delivery company buys a new delivery truck this year that wasmanufactured in Japanc. A US automobile manufacturer buys robotic equipment for itsassembly line, the equipment was manufactured in the United Statesthis yeard. A U.S resident buys $100,000 worth of stock in a US startup softwarefirm that began operating this year.e. A U.S computer manufacturing company builds 1000 computers thisyear, but has not sold them by the end of the year20. During the last 65 years, U.S government purchases (consumption andinvestment) have averaged roughly 20 percent of GDP, and this ratio has shownlittle tendency to rise or fall overtime. But many economists argue that the relativesize of the U.S government has increased substantially during this period. Thebasis for this argument is the fact that _____ are not included in governmentpurchases, and they have increased substantially during this period.a.b.c.d.e.Government transfer paymentNational defense expendituresState and local government purchasesWages and salaries of government employeesPayments to government contractors21. The most common way for the U.S money supply to increase is for.a. The U.S. Treasury to issue additional money to finance federalgovernment spending.b. The U.S. Treasury to lend newly issued money to the Federal ReserveSystem, which uses it to make loans to private banksc. The Federal Reserve System to reduce its reserve requirements, allowingbanks to take money out of their reserves and make it available to thepublic.d. The U.S. Treasury department to write checks drawn on the FederalReserve Banks, releasing money from those banks into the economy.e. The Federal Reserve System to use newly-issued money to purchase U.S.Treasury securities from private financial institutions.22. At the beginning of a 30- year period, two countries had the same averagestandard of living. The two countries also had the same average real GDP growthrate during the period. At the end of the period, however, the average livingstandard in the first country was much higher than in the second country. Themost likely explanation for this observation is thata. The first county devoted a much higher percentage of its GDP toinvestmentsb. The second country experience much slower technological change.c. The second country allowed its money supply to grow at a much fasterrated. The population of the second county grew at a much faster rate.e. The first county had a much more effective educational system.23. One of the reasons Gross Domestic Product is measured in dollars, rather than inphysical units, is that____.a. We have no reason to be interested in changes in the physical amount ofproduction.b. We are interested in domestic (US) production, and only domestic goodsare sold for dollars.c. If the dollar value of our production increases, then our living standardshave increased, even if our physical production has not changedd. Measuring GDP in dollars allow us to include financial assets in GDP, notjust goods and physical assetse. Different goods are measured in different physical units, we dont haveany common physical unit that would allow us to add them up in aneconomically meaningful way.24. Although checking accounts (demand deposits, etc.) are created and administeredby private banks, the government has considerable influence on the total value ofthe checking account balances in the economy. The main source of this influenceis that fact that____.a. The Federal Reserve System imposes fractional reserve requirements onchecking accounts, and it controls the supply of money banks can use asreservesb. The treasury department places an upper limit of the checking accountbalances of each bank. The limit is based on the population in the banksarea.c. State government banking agencies imposes taxes based on banks totalchecking account balances, the tax rate increases sharply as a banksdeposits increase.d. A bank remains eligible for federal reserve check-clearing services only ifit keeps its total checking account balances below a cap established by theFed based on the volume of economic aticivty in the banks areae. The Federal Deposits Insurance Corporation (FDIC) will only covers abanks checking accounts if its keeps its total checking account balancesbelow a cap based on the total federal income tax payment of itsdepositors.25. Oil-producing country A increases its oil production this year, sells the oil in theworld market, and uses the funds to buy consumers goods from foreign countries.Oil producing country B increases its oil production, this year, by the sameamount. It sells the oil in the world market and uses the funds to buy capital goodsfrom foreign countries. Other things equal, which country will experience thebiggest increases in GDP in later years.a. Both countries will experience the same increase in GDP this year, butcounty B probably will experience bigger increases in future years.b. Country B will experience a bigger increase in GPD this year, but countryA probably will experience bigger increases in future yearsc. Country B, in both casesd. Both countries will experience the same increases in GDP this year and infuture yearse. Neither country will experience an increase in GDP this year, but countryB probably will experience bigger increases in future years.
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