ECON 104 BILLE GOFFE FINAL EXAM QUESTIONS WITH 100% CORRECT ANSWERS

ECON 104 BILLE GOFFE FINAL EXAM QUESTIONS WITH 100% CORRECT ANSWERS “Capital (K) - CORRECT ANSWER manufactured goods used to produce other goods and services" "D in GDP - CORRECT ANSWER produced domestically, no matter the nationality of the producer" "Money - CORRECT ANSWER a specific asset that is a: medium of exchange a store of value a unit of account a standard of deferred payment" "=cash + checkable deposits - CORRECT ANSWER M1" "$2.5 Trillion - CORRECT ANSWER US value for M1" "M1 + savings accounts - CORRECT ANSWER M2" "$10.4 Trillion - CORRECT ANSWER US value for M2" "Spending - CORRECT ANSWER C + I + G + NX" "Production - CORRECT ANSWER final value added" "the fall of prices in an economy - CORRECT ANSWER Deflation definition" "less inflation but not a fall in prices - CORRECT ANSWER Disinflation definition" "a price index that measures the price level for consumers - CORRECT ANSWER CPI definition" "CPI - CORRECT ANSWER average consumer prices together but things that consumers purchase more of are more heavily "weighted" assume consumers purchase the same items every month - "market basket" (the weights come from the market baskets)" "Y = real GDP , L = hours worked( or number of workers) Y/L is labor productivity - CORRECT ANSWER What are the components of labor productivity?" "More capital per hour worked (K/L increase) Technological change - CORRECT ANSWER Why does Y/L increase?" "more human capital better capital better organized production - CORRECT ANSWER Technological change examples" "real GDP when the economy is at "capacity" - CORRECT ANSWER Potential GDP definition" "an easy to use approximation for the approximate number of years something takes to double - CORRECT ANSWER Rule of 70 definition" "years to double = 70/(growth rate) - CORRECT ANSWER rule of 70 formula" "households are smaller more compensation into health care most gains to the highest income/most educated - CORRECT ANSWER reasons why real per capita GDP has increased 1.5%/yr and real median income has flat lined from " "unemployed - CORRECT ANSWER if you're not working and haven't looked for a job in the last month" "labor force - CORRECT ANSWER all those working and all those looking the last month or those willing and able to work" "(unemployed / labor force) * 100 - CORRECT ANSWER unemployment rate" "5% 62% - CORRECT ANSWER Values for: unemployment rate participation rate" "underemployment rate (U-6) - CORRECT ANSWER people who have looked in the past 12 months but not in the past month those working part time but wish to work full time as a percent of the labor force plus marginally attatched" "labor force / population aged 16+ - CORRECT ANSWER labor force participation rate" "spread across the economy lasting more than a few months normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales - CORRECT ANSWER a recession is a significant decline in economic activity:" "business cycle - CORRECT ANSWER the combination of a recession and an expansion" "11 recessions - CORRECT ANSWER How many recessions have their been since WWII?" "11 months - CORRECT ANSWER Average length of a recession" "approx 2%-4% increase - CORRECT ANSWER how much does unemployment approx. increase?" "approx. 0.5%-5% - CORRECT ANSWER how much does real GDP approx decrease?" "depression - CORRECT ANSWER a severe recession" "years: unemployment: >20% peak @ 25% real GDP: decrease of 27% - CORRECT ANSWER Components of Great Depression (1929) (years, unemployment, GDP)" "external "shocks" to the economy - CORRECT ANSWER What causes recessions to happen?" "Energy (mainly oil) Monetary policy - CORRECT ANSWER Common shocks to casue a recession in the postwar era" "Fed raises interest rates to decrease inflation - CORRECT ANSWER Monetary Policy that causes recessions" "financial system seizes up, lending decreases often involves too much debt very rare often long lasting effects - CORRECT ANSWER Financial shock that causes recessions" "rapid move to raise federal tax (T) and/or cut federal purchases (G) rare - CORRECT ANSWER Fiscal Shock" "Financial Asset - CORRECT ANSWER a legal claim for future payments" "student loans, car loans, checking accounts, mortgage, bond, stock - CORRECT ANSWER examples of financial assets" "security - CORRECT ANSWER a financial asset that can be bought or sold" "stocks and bonds - CORRECT ANSWER examples of securities" "share - CORRECT ANSWER ownership in a corporation" "G + transfers + interest payments - CORRECT ANSWER federal expenditures formula" "federal expenditures - federal taxes - CORRECT ANSWER federal deficit formula" "more federal expenditures increase in the federal deficit - CORRECT ANSWER increases in these increase G" "Exports - imports - CORRECT ANSWER NX formula" "if increase of foreign income if increase in foreign currency value (depreciation) - CORRECT ANSWER increases in these will cause increase in NX" "When you calculate GDP you need -the prices of goods & services -the amount of goods & services produced -both the prices and quantities of produced goods & services -none of the above - CORRECT ANSWER both the prices and quantities of produced goods & services" "If you computed nominal GDP every year over a decade, which is fixed or held constant over these years? -prices -quantities -neither prices nor quantities - CORRECT ANSWER neither prices nor quantities" "Which is NOT part of the definition of capital, as used by economists? It ___. -must be manufactured -is used by firms -is used up in production -produces other goods and services - CORRECT ANSWER is used up in production" "The best example of fiscal policy is ___. the Fed lowering interest rates the government raising taxes - CORRECT ANSWER the government raising taxes" "Fundamentally, fiscal policy deals with which of the following? changes in the federal budget changes in M1 (one way to measure money in the economy) changes in interest rates changes in the vlaue of the dollar - CORRECT ANSWER changes in the federal budget" "If the President and Congress made decisions that increase the federal budget deficit, how will GDP growth change? It will grow more quickly. It will grow at the same rate. It will grow more slowly. - CORRECT ANSWER It will grow more quickly" "Which is most affected by the FOMC and Jerome Powell's decisions? tariffs the federal deficit taxes interest rates - CORRECT ANSWER interest rates" "If the core CPI was increasing faster than the headline (or regular) CPI, then what is most likely happening? gas prices are rising gas prices are falling the GDP deflator is rising the GDP deflator is falling - CORRECT ANSWER gas prices are falling" "When was the most rapid growth in the CPI in the period since 1970? at the start of this period in the middle of this period at the end of this period - CORRECT ANSWER at the start of this period" "If a country was experiencing deflation, then its plot of the GDP deflator would be ___ and the rate of inflation would be ___. upward sloping, negative downward sloping, negative upward sloping, positive downward sloping, positive - CORRECT ANSWER downward sloping, negative" "When does one compute the value of a "market basket?" for the CPI for the GDP deflator for real GDP for nominal GDP - CORRECT ANSWER for the CPI" "For which of the following do we NOT use percentage change when calculating their values? economic growth inflation CPI - CORRECT ANSWER CPI" "If nominal GDP was $20 trillion and real GDP was $10 trillion, then the GDP deflator would be ___. 1/2 2 50 200 - CORRECT ANSWER 200" "Which two are most likely to go together? ___ inflation and ___ in the GDP deflator. High, small increases High, large increases Low, small decreases Low, large decreases - CORRECT ANSWER High, large increases" "Why would one care about the core CPI? It measures inflaiton for food and energy prices. It includes particularly volatile components in the regular ("headline") CPI. It removes particularly volatile CPI components from the regular CPI. It is an alternative to the GDP deflator. - CORRECT ANSWER It removes particularly volatile CPI components from the regular CPI." "Say that the price of cat food increased by 5% one year and the CPI increased by 2%. Then you know that the real price of cat food changed by __. -7% -3% -3% 7% - CORRECT ANSWER " "Which of the following tends to be more stable from year to year? inflation measured by the regular (or "headline") CPI inflation measured by the core CPI - CORRECT ANSWER inflation measured by the core CPI" "If the CPI went from 100 last year to 110 this year, and if a newspaper's nominal price was $1 last year, in this year's values it would be worth ___. 100•$1.00 110•$1.00 (100/110)•$1.00 (110/100)•$1.00 - CORRECT ANSWER (110/100)•$1.00" "If the inflation rate was 2% and the dollars people earned at work was unchanged, then ___. real wages fell real wages rose nominal wages fell nominal wages rose - CORRECT ANSWER real wages fell" "Let's say that over the last year your nominal salary increased by 4% and that the CPI increased by 1%. Then your real salary increased by ___. -5% -3% 1% 3% 4% 5% - CORRECT ANSWER 3%" "One would ___ when you're converting a nominal price from one year to another. subtract multiply add divide - CORRECT ANSWER divide" "Someone would use ___ when they have the rate of inflation and want to compute ___ prices. subtraction, real subtraction, nominal division, real division, nominal - CORRECT ANSWER subtraction, real" "Say that the CPI this year is 200 and that last year it was 180. The nominal price of a gallon of milk was $4.00 last year. After adjusting for inflation, what would it be in today's prices? (180/200)*$4.00 (200/180)*$4.00 200*$4.00 $180*$4.00 - CORRECT ANSWER (200/180)*$4.00" "Which of the following government actions would be the most harmful to economic growth? granting patents fixing prices reducing corruption increasing protecting for property rights - CORRECT ANSWER fixing prices" "Markets seem to be an essential ingredient for sustained economic growth. (True or False) - CORRECT ANSWER true" "Which of the following leads to diminishing returns? increases in the money supply adding more of existing types of capital improving human capital finding better ways to organize production - CORRECT ANSWER adding more of existing types of capital" "Across the economy the following take place: (i) people have more education, (ii) firms add machines that are more efficient (iii) firms import ideas to run factories more efficiently. For how many of the above listed reasons does the curve in the per-worker production function shift up? 0 1 2 3 - CORRECT ANSWER 3" "Economic growth is likely to be ___ if the government fixed or set the price of important goods to make them affordable for consumers. hindered aided neither of the above - CORRECT ANSWER hindered" "Which of the following is the best reason for the difference in economic growth between North and South Korea? the capital to labor ratio varies GDP per person varies language differences the use of markets - CORRECT ANSWER the use of markets" "If a country has a high GDP per capita, which of the following is most likely for that country? total factor productivity is among the world's lowest the legal system does not protect property rights workers are poorly educated K/L is among the highest in the world - CORRECT ANSWER K/L is among the highest in the world" "For the U.S., which matters more for its long-run growth? increases in the money supply (the amount of money in the economy) more K/L more technology - CORRECT ANSWER more technology" "Which of the following is not technology? workers attending a conference on using Microsoft Access Starbucks adding an improved latte machine UPS adding more trucks McDonalds finding a better way to serve customers - CORRECT ANSWER UPs adding more trucks" "If A rose and K/L declined, then Y/L would ___. rise might rise or fall fall - CORRECT ANSWER might rise or fall" "If a country started to use markets, A would most likely ___. rise might rise or fall fall - CORRECT ANSWER rise" "If the rule of law improved in a country, K would most likely ___ rise might rise or fall fall - CORRECT ANSWER rise" "If A increased, which of the following would change? Y/L K/L - CORRECT ANSWER Y/L" "___ is not part of disposable income. income T G transfers - CORRECT ANSWER G" "An increase in P has the same effect on the AD curve as an increase in G. true false - CORRECT ANSWER false" "Say that both G and T grow. The AD curve then ___. would be sure to shift right would be sure to shift left might shift right or might shift left - CORRECT ANSWER might shift right or might shift left" "Say that both interest rates fell and that the U.S. dollar depreciated against foreign currencies. The AD curve then ___. would be sure to shift right would be sure to shift left might shift right or might shift left - CORRECT ANSWER would be sure to shift right" "If the price of final goods and services (P) increases then ___. the SRAS curve shifts right the SRAS curve shifts left you move down along the SRAS curve you move up along the SRAS curve - CORRECT ANSWER you move up along the SRAS curve" "In our recent graphs, we have P on the vertical axis and Y on the horizontal axis. In an expansion with deflation, the economy would be moving ___ . down and to the right down and to the left up and to the left up and to the right. - CORRECT ANSWER down and to the right" "What do we mean by "costs" in this part of the course? The value of real GDP. The average price of all final goods and services. What households pay for things they purchase. What businesses pay for things they purchase. - CORRECT ANSWER What businesses pay for things they purchase." "When the Federal funds rate drops, the AD curve shifts ___ as other interest rates, like ones that consumer use, are most likely to ___. left, rise left, fall right, rise right, fall - CORRECT ANSWER right, fall" "By value of the dollar, economists mean ___. how many U.S. dollars it takes to buy foreign currency how prices have risen in the U.S. both the previous answers - CORRECT ANSWER how many U.S. dollars it takes to buy foreign currency" "In our static model of aggregate demand and supply, if oil prices fall the AD curve will shift to the right. (True or False) - CORRECT ANSWER false" "As one moves up the SRAS curve, profits of business ___. falls stay the same rises - CORRECT ANSWER rises" "Which of the following NOT will shift AD right? lower T more G more K lower value of the dollar - CORRECT ANSWER more K" "Back in Section 2 on long-run growth, we described several reasons why the per-worker production function will shift up. Will these same factors shift the AD curve right? yes no - CORRECT ANSWER no" "If we plot the GDP deflator on the vertical axis and real GDP on the horizontal one, in which direction is the economy moving if it is experiencing inflation and an expansion? up and left up and right down and left down and right - CORRECT ANSWER up and right" "Which of the following would occur if technology improved? -the per-worker production function curve shifts up and the SRAS curve shifts right -the SRAS shifts right and the AD curve shifts right -the AD curve shifts right and the per-worker production function curve shifts up - CORRECT ANSWER the per-worker production function curve shifts up and the SRAS curve shifts right" "Technology plays a role in both the AD-SRAS graph and the per-worker production function. Which of the following would NOT occur if human capital grew? K/L would grow P would fall Y would grow Y/L would grow - CORRECT ANSWER K/L would grow" "Which best describes why recessions occur? there is a quick shift to the left in AD or SRAS there is a quick shift to the right in AD or SRAS the economy runs out of inputs so real GDP declines - CORRECT ANSWER there is a quick shift to the left in AD or SRAS" "What would happen if household disposable income rose? AD shifts right AD shifts left SRAS shifts right SRAS shifts left - CORRECT ANSWER AD shifts right" "What would be the impact if it used to take $1.50 to buy one euro and it now took $1.75? P would rise, Y would rise P would rise, Y would fall P would fall, Y would rise P would fall, Y would fall - CORRECT ANSWER P would rise, Y would rise" "What would be the best explanation if you saw an economy with rising prices and rising real GDP? taxes fell taxes rose oil prices fell oil prices rose - CORRECT ANSWER taxes fell" "We described the two most common causes of recessions in the years since the end of World War II in 1945. Which curve would be shifted as a result of these shocks? only AD only SRAS both AD and SRAS - CORRECT ANSWER both AD and SRAS" "What would happen if NX declined? AD shifts right AD shifts left SRAS shifts right SRAS shifts left - CORRECT ANSWER AD shifts left" "In our AD-SRAS graph, if the "value of the dollar fell," we mean that there has been inflation. (True or False) - CORRECT ANSWER false" "What would happen if the GDP deflator rose? AD shifts right AD shifts left move up along the AD curve move down along the AD curve - CORRECT ANSWER move up along the AD curve" "What would be the best explanation if you saw an economy with falling prices and rising real GDP? taxes fell taxes rose technology decreased technology increased - CORRECT ANSWER technology increased" "What would happen if costs to businesses fell? AD shifts right AD shifts left SRAS shifts right SRAS shifts left - CORRECT ANSWER SRAS shifts right" "Which of the following can have a negative value? C I G NX - CORRECT ANSWER NX" "Is it possible for Y/L to grow if technology and the amount of capital per worker are constant? (Yes or No) - CORRECT ANSWER No" "What would you expect to see if transfers from the government to individuals rose? -a fail in P and a rise in Y -an increase in P and a fall in Y -an increase in both P and Y -a decrease in both P and Y - CORRECT ANSWER an increase in both P and Y" "Which of the following is the most common cause of recessions in the U.S. since 1945? -a pandemic -the federal government moving to balance their budget -a financial shock -the Fed acting to reduce the rate of inflation - CORRECT ANSWER the fed acting to reduce the rate of inflation" "What would happen if the price of oil rose? -only the AD curve would shift -both the AD and SRAS curves would shift -neither the AD nor the SRAS curves would shift -only the SRAS curve would shift - CORRECT ANSWER only the SRAS curve would shift" "Which of the following is the current approximate value of the GDP deflator? -7.20% -6.40% -130 -300 - CORRECT ANSWER 130" "Which is an individual doing if they buy a bond? -borrowing (intending to pay back with interest) -investing (hoping to make a financial return) - CORRECT ANSWER investing (hoping to make a financial return)" "Which of the following had the least upward trend from 1970 to 2022? -inflation measured with the CPI -real GDP -the CPI - CORRECT ANSWER inflation measured with the CPI" "The division method of computing a real price requires that the nominal prices that are used be in what form? -percent changes -dollar amounts -both dollar amounts and percent changes - CORRECT ANSWER dollar amounts" "In general, inflation harms those who borrow money. (True or False) - CORRECT ANSWER False" "When would you need 2012 prices in the U.S.? -when computing real and nominal GDP for any year -when computing real GDP for any year -when computing nominal GDP for any year - CORRECT ANSWER when computing real GDP for any year" "The CPI is biased because it assumes that consumers buy the same number of goods each month. (True or False) - CORRECT ANSWER true" "Which would you prefer if you were borrowing money from a bank? Assume that your income rises at the rate of inflation. -loan rate of 8%, inflation rate of 5% -loan rate of 10%, inflation rate of 9% -loan rate of 9%, inflation rate of 7% - CORRECT ANSWER loan rate of 10%, inflation rate of 9%" "What would you need if you were computing real GDP for the U.S. for 2023? -prices from 2023, quantities from 2012 -prices from 2012, quantities from 2023 -prices from 2023, quantities from 2023 -prices from 2012, quantities from 2012 - CORRECT ANSWER prices from 2012, quantities from 2023" "Investment (I) - CORRECT ANSWER the purchase of capital goods by a business the purchase of of inventories by a business the purchase of a new house" "intermediate goods - CORRECT ANSWER used up or transformed in the production process" "Final goods - CORRECT ANSWER a good purchased by the final user" "consumption (C) - CORRECT ANSWER spending by households" "government purchases - CORRECT ANSWER smaller than government expenditures" "=Purchases + Transfers + Net Interest Payments - CORRECT ANSWER Government expenditures" "Y = C + I + G + NX - CORRECT ANSWER GDP formula" "Exports - Imports - CORRECT ANSWER Net Exports" "C = 71% I = 13% G = 20% NX = -3% - CORRECT ANSWER US percentages for GDP components" "$15.8 Trillion - CORRECT ANSWER Nominal value for US GDP" "GDP - CORRECT ANSWER measures production, spending, and income in a nation's economy in a very precise way" "G in GDP - CORRECT ANSWER Includes all investment ("gross investment") including that which replaces capital goods that wear out ("depreciation")" "Income - CORRECT ANSWER with some adjustments, a dollar spent on production is spending and it generates income for someone" "GDP per capita - CORRECT ANSWER the measure of GDP person" "roughly measures well-being - CORRECT ANSWER what does GDP per capita analyze?" "$48,300 - CORRECT ANSWER US value of GDP per capita" "$1,200, US in 1800 - CORRECT ANSWER Haiti value of GDP per capita, and when was this value in US (year)" "$8,400, US in 1935 - CORRECT ANSWER China value of GDP per capita, and when was this value in US (year)" "current year quantities, base year prices - CORRECT ANSWER Real GDP definition" "= Q(c) * P(b) + ... or (nominal GDP / GDP deflator) * 100 - CORRECT ANSWER Real GDP formula (2 formulas)" "when valuing production, it uses prices from the year in question - CORRECT ANSWER Nominal GDP def" "fell by .6 trillion (4.7%) - CORRECT ANSWER What happened to GDP during the Great Recession? ($/%)" "10% unemployment - CORRECT ANSWER What did the unemployment rate rise too in the Great Recession?" "increase expenditures (G and trans increased) cut taxes (to help C and I) - CORRECT ANSWER What fiscal policy changes did the federal goverment do to deal with the great recession? (what they did/what it affected)" "cut interest rates (stimulate C and I) aided the financial system - CORRECT ANSWER What monetary policy did the federal reserve do to deal with the great recession? (what they did/ what did it affect)" "GDP deflator - CORRECT ANSWER one way to measure the price level it is part of measuring inflation" "uses nominal and real GDP to measure the "price level" - CORRECT ANSWER GDP Deflator definition" "=(nominal GDP)/(real GDP) * 100 - CORRECT ANSWER GDP Deflator formula" "=[(GDP deflator (c)) - (GDP deflator (b))]/(GDP deflator (b) * 100 - CORRECT ANSWER Inflation formula using GDP Deflator" "[(market basket value of current year)/(market basket value of base year)] * 100 - CORRECT ANSWER CPI formula" "% change in price index - CORRECT ANSWER inflation" "[(CPI(c)) - (CPI(b))]/(CPI(b)) - CORRECT ANSWER inflation formula using CPI" "Core rate of inflation - CORRECT ANSWER measures inflation w/o food and energy" "Food and energy prices are particularly volatile - CORRECT ANSWER Why is Food and energy not included in Core rate of inflation?" "=(nominal value/ price index) * 100 - CORRECT ANSWER Real Value formula" "% change of real (value) = % change nominal value - inflation income, interest rate - CORRECT ANSWER Rate of change subtraction what does this apply too?" "rise in nominal wages so real wages don't change higher nominal interest rates - CORRECT ANSWER Effects from anticipated inflation" "can reduce real wages can reduce real interest rates - CORRECT ANSWER Harm from unanticipated inflation" "aids borrowers and harms lenders - CORRECT ANSWER Harm from reduction of real interest rates due to unanticipated inflation" "menu costs increase value of money declines - CORRECT ANSWER harm from anticipated inflation" "No, Countries don't become richer at the expense of other countries. Countries just grow at different rates - CORRECT ANSWER Does Zero Sum growth exist?" "productive workers (real GDP per hour worked i.e. labor productivity) - CORRECT ANSWER What makes a country rich?" "diminishing returns - CORRECT ANSWER What would be the cause of drawback from investing in existing types of machines?" "sustained economic growth depends on sustained technological change due to diminishing returns to capital - CORRECT ANSWER Per-Worker Production Function explains...?" "Nothing, if inflation is anticipated, then nominal values are adjusted so the real values aren't affected - CORRECT ANSWER What happens to the per worker production graph is a country experiences anticipated inflation?" "increases K/L increase in technology - CORRECT ANSWER What explains growth in the per-worker production function?" "the rule of law government research and development more education improvements in health globablization's impact on growth markets - CORRECT ANSWER What leads to K/L increases and technological change?" "limits government power settles disputes and protects property patents and copyrights as incentives helps K increase and technological change - CORRECT ANSWER The rule of law" "adds to human capital - CORRECT ANSWER What does more education do to increase K/L and technological change" "countries that trade more w/ other countries grow more rapidly globalization aids investment (better K, increase human capital, better organized firms) - CORRECT ANSWER Globalization impact in helping K and technological change?" "markets set wage rates above minimum all nominal prices are set in markets and are flexible markets foster innovation and respond to customer interest institutions increase markets growth - CORRECT ANSWER What do markets do to aid growth in countries?" "marginally attatched - CORRECT ANSWER people that have looked in the past 12 months but not in the last month" "(unemployed + marginally attached + part time wanting full time)/(labor force + marginally attached) - CORRECT ANSWER U-6 unemployment rate" "when cyclical unemployment is 0 the unemployment rate is 5%-6% at full employment economy is at potential GDP - CORRECT ANSWER the natural rate of unemployment is when" "cyclical unemployment - CORRECT ANSWER unemployment caused by a business cycle recession" "frictional unemployment - CORRECT ANSWER short-term unemployment that arises from the process of matching workers with their jobs" "structural unemployment - CORRECT ANSWER unemployment that arises from a persistent mismatch between skills and attributes of workers and the requirements of jobs" "Turnover in the Labor Market - CORRECT ANSWER every year, numerous jobs are lost and created - part of "creative destruction"" "Okun's law - CORRECT ANSWER the connection between real GDP (Y) and the unemployment rate (u)" "since the labor force grows with populations increases and since productivity rises, some economic growth is needed to keep the unemployment rate constant over time - CORRECT ANSWER Idea about okun's law" "% change of real GDP = 3-2(change in unemployment) - CORRECT ANSWER Okun's law formula" "corporations sell stock to raise funds - CORRECT ANSWER why does a corporation sell stock?" "vote on corporate matters may get "dividends" sell stock for more than the purchase price (appreciation) - CORRECT ANSWER What do investors get to do with stock?" "bonds - CORRECT ANSWER a way for a large business or governments to borrow from willing investors" "they promise fixed nominal payments in the future to the investors from the issuer - CORRECT ANSWER agreement when purchasing a bond" "the price of a bond varies and they trade in very active markets - CORRECT ANSWER How are bonds and stocks similar in price trends?" "They buy through mutual funds - CORRECT ANSWER How do most individual investors buy bonds?" "stocks are risky and they offer higher returns - CORRECT ANSWER compared stock and bonds, which is more risky and which offers higher returns" "stocks over time increase in value - CORRECT ANSWER what is the overall trend in stock prices?" "Defined Benefit - CORRECT ANSWER your employer sets funds aside for your retirement, manages them and pays you from your retirement until your death" "save early and save often - CORRECT ANSWER what is the method to saving for retirement?" "defined contribution plans employers match contributions you make IRAs - CORRECT ANSWER How to save?" "Price level (P) - CORRECT ANSWER average prices in the entire economy" "Aggregate demand - CORRECT ANSWER total spending in the economy, it is graphed against the price level" "C + I + G + NX - CORRECT ANSWER AD formula" "consumption - CORRECT ANSWER household disposable income" "income - taxes + transfer payments - CORRECT ANSWER Household disposable income formula" "disposable wealth increases wealth increases - CORRECT ANSWER increases in these increase Consumption" "increase in interest rates - CORRECT ANSWER increases in these decrease consumption" "interest rates decrease taxes on investment decrease - CORRECT ANSWER decreases in these increase Investment" "Aggregate supply - CORRECT ANSWER total production (from firms)" "SRAS - CORRECT ANSWER shows how production responds to P over short periods" "increase in K increase in Technology increase in Labor (anything that increases the Per-worker production function) - CORRECT ANSWER Things that increase SRAS" "Dynamic AD and SRAS - CORRECT ANSWER inflation and growth as a backdrop to macroeconomic events" "=(face value - P(t-bill))/(P(t-bill)) - CORRECT ANSWER interest rates for bonds formula" "required reserve ratio - CORRECT ANSWER % of customers deposits that banks need to keep in the fed" "= (ratio%) * deposits - CORRECT ANSWER Required reserve ration formula" "federal expenditures - CORRECT ANSWER " The business cycle is the same thing as economic growth. (True or False) - CORRECT ANSWER False" "Which of the following is the best example of capital? -a family buying a newly produced home -a shoe store adding to its inventories -a ship used to carry oil across the ocean -the production and sale of a new delivery van for UPS - CORRECT ANSWER a ship used to carry oil across the ocean" "How are pollution and GDP related? A. only the harm from pollution is included in GDP B. the value of produced goods that lead to pollution are counted in GDP and pollution is not counted C. goods whose production creates pollution are not counted in GDP - CORRECT ANSWER the value of produced goods that lead to pollution are counted in GDP and pollution is not counted" "GDP has various shortcomings in measuring well-being. Which of the following is not one of these? -the value of leisure -the harm from pollution -the cost of crime and other social problems -the production of intermediate goods - CORRECT ANSWER the production of intermediate goods" "Which of the following would not be in real GDP when measured by production? -a car produced by GM & sold in New York -the government purchasing a new truck -a pencil manufactured in the U.S. that is sold in Japan -the production of steel that is in turn used to make a car - CORRECT ANSWER the production of steel that is in turn used to make a car" "Which of the following is an example of an intermediate good as counted in GDP? -a drill used by a professional carpenter -a computer owned by Amazon that processes orders -lumber used in the construction of a new home -a delivery truck owned by FedEx - CORRECT ANSWER lumber used in the construction of a new home" "Which of the following is the least likely to be investment? -a household buying a new house -a household saving for retirement -GM building a new factory -a car dealer adding to its cars on hand - CORRECT ANSWER a household saving for retirement" "Which of the following would not be in this quarter's real GDP? -a new house that sold today -a used truck that was sold to a business -a bookstore adding to books in its warehouse -a book manufactured in the U.S. and then sold in Mexico - CORRECT ANSWER a used truck that was sold to a business" "Which of the following is not part of GDP? -purchases of new goods by households -firms buying new machines -the government buying new schools -businesses paying bribes to government officials - CORRECT ANSWER businesses paying bribes to government officials" "Which of the following is NOT an example of investment? -McDonalds building a new restaurant -Amazon adding books for consumers in its warehouses -you paying your tuition at Penn State -your parents purchasing a new house - CORRECT ANSWER you paying your tuition at Penn State" "If there is more production of final goods in the economy, then income ___. -will fall -might fall -will rise -might rise - CORRECT ANSWER will rise" "___ GDP is used to track the economy since it ___ correct for the impact of inflation (rising prices). -Nominal, does -Nominal, does not -Real, does -Real, does not - CORRECT ANSWER Real, does" "When we measure GDP by income, production, or spending, one is certain to be larger than the others. (True or False) - CORRECT ANSWER false" "The current value of real GDP is -less than $10 trillion -between $10 trillion and $14 trillion -between $14 trillion and $18 trillion -more than $18 trillion - CORRECT ANSWER more than $18 trillion" "Transfer payments ___ counted in GDP. Also, they ___ a payment for a good or service the government received. -are, are -are, are not -are not, are -are not, are not - CORRECT ANSWER are not, are not" "Which is currently the largest in the U.S.? -debt -deficit - CORRECT ANSWER debt" "If federal expenditures fall, then all else equal the federal deficit will most likely do what? fall stay the same rise - CORRECT ANSWER fall" "Which of the following best describes the CARES Act? It was an example of Congress and the President working together to increase the amount of money in the economy. It was an example of a major tax cut designed to speed economic growth. It was an example of monetary policy. It was the largest example of fiscal policy to date. - CORRECT ANSWER It was the largest example of fiscal policy to date." "If the President and Congress make decisions that decrease the budget deficit, GDP will most likely grow ___. more quickly at the same rate more slowly - CORRECT ANSWER more slowly" "If federal expenditures suddenly increased (say to fight a pandemic), which is most likely to happen? the government will print more money taxes will be raised the government will borrow more - CORRECT ANSWER the government will borrow more" "Which of the following is the most likely response if inflation was at 10%? the Fed would be raising interest rates the Fed would be lowering interest rates the federal government would be raising taxes the federal government would be lowering taxes - CORRECT ANSWER the Fed would be raising interest rates" "During and after the Covid Recession, monetary policy was ___, while fiscal policy was ___. little used, little used used extensively, little used little used, used extensively used extensively, used extensively - CORRECT ANSWER used extensively, used extensively" "Why was the Fed created in 1913? to control inflation to avert bank panics to maximize employment to collect taxes - CORRECT ANSWER to avert bank panics" "Which of the following does the President have the most control over? monetary policy fiscal policy - CORRECT ANSWER fiscal policy" "Which would be the best example of the dual mandate in action? the Fed lowering the federal funds rate if the unemployment rate was rising the Fed lowering the federal funds rate if the unemployment rate was falling the federal government cutting taxes if the unemployment rate was falling the federal government cutting taxes if the unemployment rate was rising - CORRECT ANSWER the Fed lowering the federal funds rate if the unemployment rate was rising" "One responsibility of the Fed is paying back the federal debt. (True or False) - CORRECT ANSWER False" "In part, the dual mandate describes how ___ should respond to __. the Fed, high inflation the Fed, a high federal funds rate Congress and the President, high inflation Congress and the President, a high federal funds rate - CORRECT ANSWER the Fed, high inflation" "What is the best description of current monetary policy? a falling federal funds rate a rising federal funds rate the decline in transfer payments with the Covid Recession - CORRECT ANSWER a rising federal funds rate" "Which of the following is NOT associated with or part of monetary policy? Federal Open Market Committee (FOMC) a central bank deficit interest rates - CORRECT ANSWER deficit" "Which period saw the greatest increases in the GDP deflator? 1980 to 1990 1990 to 2013 - CORRECT ANSWER 1980 to 1990" "If the CPI was improved to remove its known inaccuracies, the reported rate would be ___. -Lower -Higher - CORRECT ANSWER Lower" "Why would one care about the core CPI? It measures inflaiton for food and energy prices. It includes particularly volatile components in the regular ("headline") CPI. It removes particularly volatile CPI components from the regular CPI. It is an alternative to the GDP deflator. - CORRECT ANSWER It removes particularly volatile CPI components from the regular CPI." "If there was deflation over a year in an expansion, which would grow the most over that year? -Real GDP -GDP deflator -nominal GDP - CORRECT ANSWER Real GDP" "Which is least likely to fall in the recessions since 1970? real GDP the CPI the GDP deflator - CORRECT ANSWER the GDP deflator" "Which of the following would NOT be measured in terms of dollars (i.e. would NOT have a dollar sign in front)? real GDP a price index nominal GDP value of all items in the CPI market basket - CORRECT ANSWER a price index" "Which of the following tends to be more stable from year to year? inflation measured by the regular (or "headline") CPI inflation measured by the core CPI - CORRECT ANSWER inflation measured by the core CPI" "If the GDP deflator had a value of 200, you could be sure that ___. inflation was 50% inflation was 200% prices had fallen by half since the base year prices had doubled since the base year - CORRECT ANSWER prices had doubled since the base year" "If the market basket doubled in value from one year to the next, then for sure ___. the GDP deflator equals 100 the CPI equals 100 economic growth was 100% the inflation rate was 100% - CORRECT ANSWER the inflation rate was 100%"