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foundations macroeconomics

Questions and Answers of Foundations Macroeconomics

4. You are watching your weight, and you have decided that you are going to consume 800 calories of pizza and cheeseburgers at a party Saturday night. A slice of pizza has 200 calories, and a
3. Your local coffee shop used to be the best in the neighborhood;however, due to a recent change in ownership, the quality of the service and products offered has been steadily decreasing.
2. You are thinking about buying a house in London. You find one you like that costs £1,000,000. You learn that, based on the value of the house and your wages, your bank will give you a mortgage
1. You have purchased a non-refundable ticket to the Maldives with an early morning departure scheduled for Saturday. You receive a call notifying you about an interview for a job that may be
3. Estimate how many hours you spend on social media each year. Now estimate the opportunity cost of this time in dollars.
2. Estimate the opportunity cost for a hypothetical student to spend one year in college. Express this opportunity cost in dollars. Assume that the student spends $T in tuition and $R in room and
1. Estimate the opportunity cost of going to see a movie in a movie theater. Express this opportunity cost in dollars.Hint: Think about both the out-of-pocket cost (i.e., the price of the ticket) and
11. Identify the cause and the effect of the following phenomena in a hypothetical country:a. A surge in the price of goods and an increase in the workers’ income.b. A rise in GDP and an increase
10. “Scarcity exists because people have unlimited wants in a world of limited resources.” Explain this statement using a real-life example.
9. Suppose you are living in a housing project that has 100 apartments. The housing project has its own garden, swimming pool, library, and community center. To be able to utilize the available
8. Suppose the market price of the latest model of iPhone is €759 in Germany. What are the three conditions that will need to be satisfied for the iPhone market to be in equilibrium at this price?
7. Suppose you wish to take out a mortgage to buy a new house for your family. However, the houses you like exceed your budget. You are considering three options: choose a neighborhood that is less
6. This chapter introduced the idea of opportunity cost.a. What is meant by opportunity cost?b. What is the opportunity cost of taking a year after graduating from high school and backpacking across
4. How does microeconomics differ from macroeconomics?Would the sales of iPhones in China be studied under microeconomics or macroeconomics? What about the growth rate of total economic output in
3. Examine the following statements and determine if they are examples of normative economics or positive economics.Explain your answer.a. According to the World Economic Outlook Update released by
2. Economists think of almost all human behavior as the outcome of choices. Do you agree with this statement?Based on your reading of the chapter, how would you define economics?
1. Give examples to explain how economic analysis can be positive and normative.
2. Assume the economy of Brazil, a longtime trading partner with the United States, is in long-run equilibrium with a zero current account balance. Brazil can produce 40 units of coffee or 10 units
1. Assume the United States economy is currently operating at above full employment with a real interest rate of 4 percent, an unemployment rate of 3 percent, and an inflation rate of 8 percent. (a)
60. Which of the following will cause a decrease in output in the short run? (A) An increase in government expenditures (B) An increase in consumption (C) An increase in wages (D) An increase in
59. Assume that income levels in the United States increase. What effect would this have on money demand and bond prices? Money Demand Bond Prices (A) Increase Increase (B) Increase Decrease (C)
58. The United States and Britain are trading partners. Assume the Federal Reserve purchases bonds on the open market. What is the effect of this purchase on the nominal interest rate and on the
57. Lee deposits $400 in his checking account at Southwestern Bank and there is a reserve requirement set by the Federal Reserve of 20 percent. As a result of his deposit, the money supply will
56. Which of the following monetary policies would encourage investment and increase output? (A) An increase in the discount rate (B) A decrease in personal income taxes (C) A decrease in government
55. Given the output gap indicated in the graph, assume that no fiscal nor monetary policy is changed. What would happen in the long run? (A) SRAS would shift to the right. (B) SRAS would shift to
54. Assume the economy above has a gap of $400 billion and the marginal propensity to consume is 0.75. What is the minimum amount that the government should spend in order to close the gap? (A) $100
53. Which of the following solutions would likely close the ouput gap for the economy above? (A) Decreasing the federal funds rate (B) Increasing business taxes (C) Increasing the reserve requirement
52. Which of the following is considered a negative supply shock? (A) An increase in imports (B) A decrease in oil prices (C) An influx of immigrants to a country (D) A new hybrid car being
51. Which of the following fiscal and monetary policies combined would most likely help bring a country out of a recession while keeping prices stable? (A) Increase business taxes and the discount
50. Which of the following would increase the demand for money? (A) Lower inflation rate (B) Lower transfer costs (C) Higher incomes (D) Higher interest rate (E) Expectation of an increase in bond
49. Which of the following would cause the SRPC to shift to the right? (A) An increase in the price of oil (B) An increase in the discount rate (C) An increase in government spending (D) A decrease
48. Which of the following would cause movement from point A to point B? (A) An increase in the price of oil (B) An increase in the discount rate (C) An increase in government spending (D) A decrease
47. The GDP deflator differs from the consumer price index (CPI) in which of the following ways? (A) The GDP deflator measures a market basket of goods and services over a year, and the CPI measures
46. Which of the following would shift the aggregate demand curve to the right? (A) An increase in personal taxes (B) A decrease in government spending (C) An increase in exports (D) A decrease in
45. What results would reducing the income tax paid on interest earned from savings accounts have on the loanable funds market? (A) It would increase the supply of loanable funds by raising the
44. The following table includes data for the country of Fredonia: Year Real Gross Domestic Product (in dollars) Nominal Gross Domestic Product (in dollars) 2016 150 billion 43 billion 2017 180
43. Assume the United States decides to increase government spending by borrowing. What is the budget deficit’s effect on the international value of U.S. dollar and on the U.S. balance of trade?
41. Contractionary monetary policy actions affect interest rates and business investment in which of the following ways? Interest Rates Business Investment (A) Stay the same Increase (B) Increase
40. Assume the exchange rate between the United States dollar (USD) and the Lebanese pound (LBP) began at 4 USD to 1 LBP. Later, it changed to 3 USD to 1 LBP. As a result of this change, if prices in
39. Which of the following is an example of a contractionary fiscal policy? (A) Selling bonds on the open market (B) Increasing the reserve requirement (C) Increasing personal taxes (D) Increasing
38. Assume the United States is experiencing a recessionary gap of $24 billion, and the marginal propensity to consume is 0.75. The government decides it is prudent to cut taxes. What is the minimum
37. Which of the following is an example of structural unemployment? (A) A candy worker is laid off due to new taffy-pulling machines. (B) A teacher retires. (C) A doctor sells his practice and moves
36. If nominal wages decrease, which of the following would occur to the price level and unemployment in the long run? Price Level Unemployment (A) Increase Increase (B) Increase Stay the same (C)
35. Country A has a nominal GDP of $1,800 and the money supply is $600. Calculate the velocity of money. (A) 10.0 (B) 5.0 (C) 3.0 (D) 2.5 (E) 0.3
33. Inflationary expectations would most likely decrease if there was (A) an increase in the costs of raw materials (B) an increase in the money supply (C) an increase in consumption (D) a decrease
32. Which of the following can cause cost-push inflation? (A) An increase in raw material costs (B) A decrease in wages and salaries (C) A sharp drop in natural resource prices (D) Federal incentive
31. What effect will a decrease in government spending and an increase in taxes have on price level and employment? Price Level Employment (A) Increase Increase (B) Increase No change (C) Increase
30. What monetary policy is most likely to discourage interest-sensitive spending? (A) Increasing the money supply (B) Decreasing the discount rate (C) Increasing the discount rate (D) Decreasing
29. Given the information in the table, what is the size of the labor force? (A) 5,000 (B) 9,000 (C) 81,000 (D) 90,000 (E) 95,000
28. Given the information above, what is this country’s unemployment rate? (A) 1.8 percent (B) 10.0 percent (C) 11.0 percent (D) 17.0 percent (E) 18.0 percent
27. What is meant by the velocity of money? (A) It is the speed with which the value of money changes. (B) It is the speed with which a person spends money. (C) It is the speed with which currency
26. Edgar deposits $4,000 into his bank account at Southwestern Bank. What is the maximum change in the money supply from his deposit? (A) $4,000 (B) $5,000 (C) $10,000 (D) $16,000 (E) $20,000
25. Assuming that Southwestern Bank has a reserve requirement of 20 percent, what is the maximum amount of new loans this bank can disperse? (A) $6,000 (B) $30,000 (C) $50,000 (D) $100,000 (E)
24. Angel accepts a new job where he will make $5,000 more per month than at his previous job. His marginal propensity to consume is 0.8. How much of his new income will Angel save? (A) $1,000 (B)
23. The town of Jasper Springs spent $6 million on new tennis courts for its park district sports teams. If the marginal propensity to consume is 0.9, what will be the maximum change in GDP? (A) $60
22. Which of the following monetary policy actions is designed to address an inflationary gap? (A) Buying securities (B) Lowering the discount rate (C) Lowering reserve requirements (D) Reducing the
21. Aggregate demand would increase given which of the following Federal Reserve actions? (A) An increase in the discount rate (B) An increase in government spending (C) A decrease in taxes (D) A
20. Who of the following would be considered unemployed? (A) A glass blower who was laid off and has not applied for a job in three years (B) A computer consultant who left his job to begin a new
19. Large numbers of foreign investors move their investment money from the United States to Britain because Britain is offering higher interest rates. Which of the following is most likely to result
18. What effect would a decrease in business taxes have on real income and employment? Real Income Employment (A) Decrease Decrease (B) Decrease Increase (C) No change Increase (D) Increase Decrease
17. If a given loan has an interest rate of 10 percent and the inflation rate is 4 percent, what is the real interest rate? (A) 10 percent (B) 7 percent (C) 6 percent (D) 5 percent (E) 4 percent
16. When the government operates in a budget deficit, what might be the effect on gross private domestic investment and the supply of loanable funds? Investment Supply of Loanable Funds (A) Increase
15. Raising interest rates, an increasing the reserve requirement, and raising personal income taxes are all examples of (A) fiscal policy (B) monetary policy (C) policies to address a recessionary
14. Which of the following changes would most likely shift the short-run Phillips curve to the left? (A) A purchase of bonds on the open market (B) An increase in government expenditures (C) An
13. Which fiscal policy is most likely to encourage spending by consumers and businesses? (A) Increasing the money supply (B) Lowering the discount rate (C) Cutting taxes (D) Raising the discount
12. Assume the United States and Australia are trading partners. The Federal Reserve, in trying to combat a recession, increases the money supply by purchasing bonds on the open market. How will this
11. If the nominal GDP in 2018 was $400 billion and the price index was 50, calculate the real gross domestic product. (A) $200 billion (B) $320 billion (C) $450 billion (D) $500 billion (E) $800
10. What is the opportunity cost of moving production from point C to point D? (A) 2 million units of capital goods (B) 3 million units of capital goods (C) 5 million units of consumer goods (D) 7
9. Assume the country’s production possibilities curve shifted outward so that point H lies on the curve. This would most likely cause (A) an increase in aggregate demand (B) a decrease in
8. Which of the following points on the graph would be most likely to encourage long-term growth? (A) A (B) E (C) F (D) G (E) H
7. Which of the following points on the graph represents the efficient use of a viable resource to produce both capital goods and consumer goods? (A) A (B) E (C) F (D) G (E) H
6. Use the following table of economic figures below to calculate the gross domestic product of this country Category National Expenditures (in billions of dollars) Personal Consumption 5,000
5. Assume the United States is experiencing an inflationary gap. If no action is taken by the Federal Reserve or the government, what effect will the lack of policy change have on nominal wages and
4. Sportz and Plai make tennis balls and golf clubs. With their resources, Plai can make 500 tennis rackets or 250 golf clubs and Sportz can make 150 tennis rackets and 50 golf clubs. If the terms of
3. Which of the following monetary policy tools would the Federal Reserve use to achieve a higher federal funds rate? (A) Increasing the excess reserves (B) Decreasing the required reserve ratio (C)
2. Which is true of a bank’s balance sheet? (A) Customers’ deposits are listed as liabilities. (B) The total assets should exceed the total liabilities. (C) The bank’s liabilities include loans
1. When the Federal Reserve buys bonds on the open market, which of the following combinations occurs? Money Supply Aggregate Demand Interest Rates (A) Increase Decrease Decrease (B) Increase
1. The United States and Mexico are trading partners. Assume that both have a zero current account balance. The United States has low inflation, relative to that of Mexico, and is in a recession. (a)
1. Use the following scenario to answer the free-response questions below. A U.S. firm sells military planes to the government of Canada. Both have a 4 percent real interest rate at the time of the
3. What is the trade-off that results from an increase in capital flow? (A) A decrease in net exports (B) A decrease in aggregate supply (C) A decrease in government expenditures (D) A decrease in
2. Based on your answer to question 1, what would be the impact on the United States? (A) Increasing the supply of loanable funds, increasing the real interest rate, and discouraging investment (B)
1. Assume that the real interest rate in the United States is 3 percent and the real interest rate in Mexico is 1 percent. In which direction would capital flow move? (A) Capital flow would move from
1. In one to three paragraphs, explain how differences in the real interest rate affect capital flows, foreign exchange markets, and loanable funds markets.
3. Which best describes why a depreciating currency results in decreased imports? (A) Foreign countries take advantage of the depreciated currency to raise prices. (B) The weakened currency has less
2. When a nation’s currency depreciates, which is the most likely result? (A) Imports will increase. (B) Nominal wages will increase. (C) Fewer people will buy dollars. (D) Import tariffs will be
1. What is most likely to happen if the demand for U.S. exports rises and American consumers buy fewer imported goods? (A) The value of the dollar will appreciate. (B) The balance of payments will
1. In one to three paragraphs, explain how changes in currency value affect net exports and aggregate demand.
1. Use the following scenario to answer the questions below. The United States and Brazil, where the currency is the real (pronounced rey-al), are trading partners. The United States is currently in
3. How does a tariff on imports benefit domestic producers of the same imported good? (A) It provides revenue that is given to the domestic producers. (B) It limits imports to a specified quantity
2. What is the important difference between the nominal exchange rate and the real exchange rate? (A) The nominal exchange rate accounts for a nation’s trade deficit. (B) The nominal exchange rate
1. What was the primary purpose of the Smoot-Hawley Act? (A) To restore U.S. trade after the crash of 1929 (B) To encourage other countries to reduce tariffs on goods from the United States (C) To
1. In one to three paragraphs, explain how changes in policy and economic conditions impact the foreign exchange market.
1. Answer each of the following questions using the idea that the United States and Argentina are trading partners. (a) Argentinian tourists increase visits to the United States during winter. What
3. Why does the supply curve for a currency slope upward? (A) When demand for a country’s goods rises, the country needs to supply more currency. (B) There is always a demand for currencies in a
2. If the demand curve for U.S. dollars shifts to the left, what happens to the equilibrium exchange rate of euros to dollars? (A) The equilibrium rate will result in more expensive dollars. (B) The
1. If there is a spike in export goods and services from Mexico to Germany, what will happen to the peso-euro exchange rate? (A) The euro will appreciate because more will be spent to purchase pesos.
1. In one to three paragraphs, explain what role supply and demand play in the foreign exchange market and the equilibrium exchange rate.
1. Use the following scenario to answer the questions below: China and the United States are trading partners. The currency in China is the yuan. The United States has relatively higher inflation
3. Relative income and relative inflation are factors that determine (A) the value of a country’s currency in the money market (B) the value of a country’s currency in the inflation market (C)
2. Under a floating exchange rate regime, a currency's value is directly determined by (A) the loanable funds market (B) the money market (C) the foreign exchange market (D) a country's fiscal policy

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