xtra-Final-practice

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Most Important Names: Adam Smith

John Maynard Keynes

Most Important Measures:

GDP = Nominal GDP = Current $ GDP Real GDP = Constant $ GDP

Real per-capita GDP = Real GDP / population

Price Indexes: Price Deflator, Consumer Price Index (CPI), Producer Price Index (PPI) Productivity = Output / Input

Most Important Concepts:

Opportunity Cost & Law of Increasing Cost Law of Demand & Law of Supply

Equilibrium

Price Mechanism = Market Mechanism Surplus & Shortage

Capitalism Inflation

Recession & Depression

Frictional, Structural & Cyclical Unemployment

Natural Rate of Unemployment = Full Employment Rate of Unemployment Business Cycle & Trend

Countercyclical Policy

Fiscal Policy – expansionary & contractionary Monetary Policy – expansionary & contractionary Budget Deficit & National Debt

Supply-Side Economics

Money: M1, M2, uses & creation

Reserves = Required Reserves + Excess Reserves Federal Reserve

Tools of the Federal Reserve: reserve ratio, discount rate, open market operations Economic Growth

Productivity

Comparative Advantage Protectionism

Barriers to Trade: quotas & tariffs

Balance of Payments: current & capital accounts Exchange Rates: fixed & flexible

Most Important Graphs:

Production Possibilties Curve = Transformation Curve Markets

Demand Pull & Cost Push Inflation Business Cycle & Trend

Keynesian Cross Diagrams Laffer Curve

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Review of Macroeconomic Problems & Policies:

Problem Fiscal Policy Monetary Policy

Recession Expansionary FP

to raise AD by:

Increasing gov’t spending Decreasing taxes

Increasing transfers

Expansionary MP to raise AD by:

Increasing the money supply (decreasing interest rates)

Inflation Contractionary FP

to reduce AD by:

Decreasing gov’t spending Increasing taxes

Decreasing transfers

Contractionary MP to reduce AD by:

Decreasing the money supply (increasing interest rates)

Multiple Choice Questions to help you prepare for your Macroeconomic Final (The Final Exam will

NOT

consist entirely of multiple choice questions.)

_____1) The study of how we allocate our scarce resources is called:

a) economics

b) accounting c) sociology d) falconry

_____2) What you sacrifice in order to receive something is called: a) loss

b) shortage

c) opportunity cost

d) deficit

_____3) Free trade:

a) encourages competition b) increases efficiency

c) can lead to all parties increased welfare

d) all of the above

_____4) Factors of production is another name for: a) output

b) resources

c) goods

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_____5) A graph of a nation’s full production points is called: a) production possibilities curve

b) transformation curve

c) both a) and b)

d) none of the above

_____6) The shape of such a curve is usually depicted as: a) convex

b) concave

c) linear d) horizontal

_____ 7) This shape is due to: a) constant costs b) decreasing costs

c) increasing costs

____8) A nation’s potential to produce may increase as: a) it adds people to its population

b) it adds capital to its factories c) it improves its infrastructure

_____9) What are the two sides of the market?

a) demand and supply

b) buyers and consumers c) sellers and producers d) surplus and shortage

_____10) Which of the following does not shift demand? a) market price

b) consumer incomes

c) costs of production

d) taxes

_____11) A negative slope demonstrates: a) a direct relation

b) an inverse relation

c) no relation d) an agreement

_____12) Increased consumer incomes: a) always increase demand

b) usually increase demand

c) never increase demand d) only affect supply

_____13) Which pair has a similar effect on demand?

a) increased price of substitutes, increased price of complements b) decreased price of substitutes, decreased price of complements

c) decreased price of substitutes, increased price of complements

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_____14) Which of the following may cause a shift in both demand and supply? a) price

b) tastes

c) expectations

d) costs

_____15) Supply curves generally: a) have negative slopes

b) have positive slopes

c) bend backwards d) are quite steep

_____16) When demand and supply intersect: a) buyers and sellers agree on price

b) buyers and sellers agree on quantity exchanged c) there is no surplus or shortage

_____17) Too much is produced when price is set:

a) above the equilibrium price

b) below the equilibrium price c) is set equal to the equilibrium price d) when there is a shortage

_____18) GDP equals: a) C + I + G + (X-M) b) C + S + T

c) Wages + rent+ interest + profit

d) Only a) & b)

_____19) Items excluded from GDP: a) intermediate goods

b) illegal drug sales c) used car sales

_____20) The largest component of GDP is:

a) private consumption

b) private investment c) government spending d) net exports

_____21) A trade deficit indicates that a nations imports are:

a) greater than its exports

b) less than its exports c) equal to its exports

_____22) Which measure of a nation’s output is adjusted for inflation?

a) nominal GDP

b) current $ GDP

c) real GDP

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_____23) Which price index is likely to predict future inflation at the retail level? a) Price Deflator

b) Consumer’s Price Index

c) Producer’s Price Index

d) Dow Jones Industrial Average

_____24) Which statistic is the best indicator of the average family’s cost of living?

a) GDP

b) CPI

c) PPI

d) unemployment rate

_____25) Which statistic is likely to rise during recession?

a) unemployment rate

b) CPI

c) PPI

d) Dow Jones Industrial Average

_____26) Which type of unemployment is most sensitive to the business cycle? a) frictional

b) structural

c) cyclical

d) it depends

_____27) Which statistic measures output lost to excessive unemployment? a) depreciation

b) CPI

c) Unemployment rate

d) GDP gap

_____28) What is the fluctuation of economic activity called?

a) business cycle

b) trend

c) GDP

d) policy

_____28) How are most of our economic policies oriented?

a) short run, countercyclical

b) short run, procyclical c) long run, countercyclical d) long run, procyclical

_____29) Which great economist proposed a solution to the Great Depression?

a) Adam Smith

b) J.B. Say

c) Thomas Malthus

d) J.M. Keynes

_____30) Which of the following is not a fiscal policy measure? a) cutting taxes

b) expanding medicare c) balancing the budget

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_____31) Which of the following is an expansionary policy?

a) cutting taxes

b) raising taxes

c) cutting government spending d) expanding regulations on business

_____32) When is it countercyclical to run a budget deficit? a) never

b) always

c) during recession

d) during inflation

_____33) Balancing the budget strictly:

a) means government outlays and receipts are the same b) means fiscal policy will be weakened

c) will encourage wider swings of the business cycle

_____34) The largest single item in our federal budget is: a) national defense

b) welfare

c) social security

d) interest on the debt

_____35) The public debt held outside the government is: a) larger than our yearly GDP

b) equal to our yearly GDP

c) less than our yearly GDP

_____36) One should never borrow for: a) productive investment

b) maximizing employment

c) current consumption

d) anything at all

_____37) Money is:

a) a medium of exchange b) a store of value c) a standard of value

_____38) Most money is: a) minted or printed b) backed by gold or silver

c) held or created within the banking system

_____39) Which of the following is not money? a) transaction deposits

b) credit cards

c) checking accounts

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_____40) What institution oversees our money supply? a) the Treasury

b) the Comptroller of the Currency c) the Mint

d) the Federal Reserve System

_____41) Banks create money by:

a) loaning or investing

b) printing or engraving c) lying or cheating

_____42) These are liquid assets a bank must hold: a) reserve requirement

b) required reserves

c) excess reserves d) total reserves

_____43) These are liquid assets a bank can lend: a) reserve requirement

b) required reserves

c) excess reserves

d) total reserves

_____44) If the reserve ratio doubles: a) the deposit multiplier doubles

b) the credit multiplier is halved

c) the amount of money created increases d) bank loan volume grows

_____45) The rate the Federal Reserve charges banks for loans is called: a) prime rate

b) discount rate

c) federal funds rate d) open market rate

_____46) Which rate do banks charge each other for overnight loans? a) prime rate

b) discount rate

c) federal funds rate

d) open market rate

_____47) Expansionary monetary policy typically involves: a) creating more money

b) lowering interest rates c) responding to recession

_____48) Which of the following would contract the money supply? a) lowering the reserve ratio

b) lowering the discount rate

c) the central bank selling securities in the open market

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_____49) What is a tax on imports called?

a) tariff

b) quota c) barrier d) protectionism

_____50) Which of the following is a non-tariff barrier to trade? a) differential licensing for foreigners and domestics b) subsidies to domestic food growers

c) varying pollution regulation among nations

_____51) With free trade:

a) for every winner, there is a loser

b) nations follow their comparative advantage

c) competition is minimized d) fair trade is guaranteed

_____52) The price of one currency in terms of another currency is called: a) free trade

b) balance of trade

c) exchange rate

_____53) If a nation follows a contractionary monetary policy, its exchange rate will: a) most likely depreciate

b) most likely appreciate

c) most likely remain unaffected

_____54) Which of the following could cause a depreciating domestic currency? a) lower relative inflation in the domestic economy

b) relatively stronger growth in the domestic economy

c) higher relative real interest rates in the domestic economy

_____ 55) Economic growth depends upon: a) better trained workers

b) improved technology c) more abundant resources