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foundations macroeconomics

Questions and Answers of Foundations Macroeconomics

3. Which of the following would NOT shift aggregate supply to the right? (A) A decrease in the price of oil (B) Government reducing regulations on manufacturing (C) Government easing requirements for
2. Which of the following would shift the short-run aggregate supply curve to the right? (A) An increase in business taxes (B) A requirement for car manufacturers to retrofit their plants to be able
1. If a major disruption of worldwide oil supplies occurred, resulting in 25- to 40-percent higher oil prices, how would it impact the SRAS curve? (A) The oil crisis would be offset by decreased
1. Use the graph below to answer all parts of the questions that follow.(a) Describe what causes the shift in aggregate demand between AD1 and AD2 . (b) How is the multiplier between AD2 and AD3
3. If the marginal propensity to consume is 0.75, the government decreases personal income taxes by $100, real gross domestic product will (A) increase by $300 (B) decrease by $400 (C) increase by
2. Assume that Jacob spent $20,000 of his disposable income of $30,000 in 2019. If his disposable income increased to $40,000 and his marginal propensity to consume equals 0.8, what did his
1. If a city of 100,000 people invests $1 billion in a major electrical grid upgrade, what direct outcome will businesses in the city during the upgrade? (A) Inflation will rise due to increased
1. In one to three paragraphs, explain how changes in income and taxes affect spending, savings, and the GDP.
• The inflation rate rises from 1.3 percent to 4.0 percent.
• International sales of American-made cars increase.
• Congress passes a law raising income tax rates across the board.
• Unemployment jumps as businesses lay off workers.
• Banks cut interest rates for consumer loans.
1. Use the graph below to answer all parts of the questions that follow.(a) Describe the relationship between price level and real GDP reflected in the graph. (b) If the U.S. experiences a
3. Which would be the most effective way for government action to reduce falling aggregate demand between 1929 and 1933? (A) Offer businesses low interest loans for investment. (B) Promote certain
2. How does the leftward shift on the curve reflect the shock to employment during the Depression? (A) GDP fell because of fear of inflationary price levels. (B) Rising price levels made it difficult
1. Which of the following best describes why aggregate demand shifted left between 1929 and 1933? (A) Interest rates for loans dropped quickly. (B) Exchange rates for the U.S. dollar depreciated. (C)
1. In one to three paragraphs, explain what aggregate demand is and how it is determined.
1. Country Y, a country that makes cars and computers, is in a recession. (a) Draw a correctly labeled production possibilities curve for Country Y. Place cars on the vertical axis and computers on
3. Why is the concept of the output gap important in the field of economics?
2. How does full employment relate to the output gap?
1. What is the definition of the output gap?
1. For items (a) through (d), draw a point where each scenario would fall on the business cycle graph shown above. (a) The Great Depression (Indicate with a letter a.) (b) The Internet Boom (Indicate
3. What factor or factors determine when a recession becomes a depression? (A) the depth of the trough experienced (B) the length and severity of the contraction (C) what phase of the business cycle
2. An output gap is the difference between (A) actual and potential output (B) full-employment output and potential output (C) recessionary output and output during a depression (D) a peak and the
1. What is the long-term directional trend of the economy? (A) cyclical (B) upward (C) downward (D) fluctuating (E) flat
1. In one to three paragraphs, explain what the business cycle is, identify its phases and discuss the concepts of actual output, potential output, and the output gap.
1. Country Z has the following output and prices for 2018 and 2019. Goods 2018 Quantity 2018 Price 2019 Quantity 2019 Price Hats 5,000 $8 5,000 $10 Scarves 2,000 $4 2,000 $5 Gloves 2,000 $4 3,000 $6
3. A base year is (A) determined by the Federal Reserve Board (B) calculated by subtracting real GDP from nominal GDP (C) used for comparing changes in economic activity (D) always five years before
2. Which statement best describes per capita GDP? (A) It is always higher in countries with large populations. (B) Its increase indicates a stable population. (C) It is considered a universally
1. Calculate the nominal GDP for Country X given the data in the table below (in billions of dollars). Consumption 850 Gross Private Domestic Investment 684 Government Spending 572 Depreciation 254
1. In one to three paragraphs, explain the difference between real and nominal GDP and demonstrate how real GDP is calculated using the GDP deflator.
1. The chart below compares inflation (left axis) and the price of crude oil (right axis) between the years 1969 and 1988. The shaded areas indicate a U.S. recession. Use the chart to answer the
3. The Federal Reserve Bank increases interest rates in order to (A) keep the rate of inflation below 2 percent (B) increase wages (C) increase the amount of money in circulation (D) counteract an
2. Other things remaining constant, if a drought occurs or the price of oil increases, these events could cause (A) An inflationary spiral (B) An increase in real wages (C) Demand-pull inflation (D)
Harry benefits, if he pays the loan off early.
1. If Harry borrows $10,000 at a rate of 4 percent for a period of five years and inflation occurs at a rate of 6 percent during that time, who benefits from the high rate of inflation? (A) The bank
1. In one to three paragraphs, explain the cost of inflation to individuals, businesses, and the economy.
economy of Country X between year 1 and year 4? (d) What are some actions the government of Country X might decide to take in years 4 and 5? (e) What does the CPI tell us about real wages during that
1. Country X has a CPI of 195 in year 1; 209 in year 2; 211 in year 3; 203 in year 4; 201 in year 5; and 208 in year 6. (a) Calculate the inflation rate for Country X between year 1 and year 2. (b)
3. Why is the CPI not an accurate measure of the economy? (A) It does not include the value of improved quality. (B) It is based only on goods from 1982 to 1983. (C) It overestimates real wages. (D)
2. In the country of Bornesia, CPI for 2008 was 100 and in 2009 the CPI was 120. Calculate Bornesia’s inflation rate for 2009. (A) 5 percent (B) 10 percent (C) 15 percent (D) 20 percent (E) 25
1. The Consumer Price Index (CPI) is used to measure (A) changes in the prices of all goods and services in an economy over time (B) change in the price of a select group of consumer goods and
1. In one to three paragraphs, explain what the CPI is and how it helps to calculate inflation, deflation, disinflation, and real variables, such as wages.
1. Between 2000 and 2007, the U.S. unemployment rate varied from approximately 4 percent (2000) to 6 percent (2003) to 4.5 percent (2007), while the unemployment rate in the Eurozone varied from
3. Which of the following are included in the labor force? (A) students (B) part-timers (C) retirees (D) volunteers (E) stay-at-home parents
2. Calculate the labor force participation rate. (A) 10 percent (B) 20 percent (C) 60 percent (D) 93.5 percent (E) 99.5 percent
1. Calculate the unemployment rate. (A) 4.2 percent (B) 6.03 percent (C) 6.4 percent (D) 12.01 percent (E) 24 percent
1. In one to three paragraphs, describe the different types of unemployment and why the rate of unemployment is difficult to assess.
1. (a) Explain the difference between an intermediate good and final good. (b) Provide an example of an intermediate good. (c) Provide an example of a non-market transaction. (d) In your own words,
3. Genuine Progress Indicator (GPI) and Human Development Index (HDI) are considered measurements that (A) track income inequality (B) fill in gaps in GDP (C) reveal gaps in government spending (D)
2. Identify which transaction is included in the expenditures approach to GDP. (A) the purchase of a new car (B) the services of a barber cutting his child’s hair (C) mowing your neighbor’s lawn
1. Which of the following items are used to calculate GDP? (A) The purchase of glass by a car manufacturer to make cars (B) The purchase of paint by a house painter. (C) The purchase of sweet corn by
1. In one to three paragraphs, explain the limitations of GDP.
1. Use the passage below to answer all parts of the questions that follow. Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the
3. Which of the following is NOT included in the income approach to calculating GDP? (A) Money earned by a boat dealer (B) Money the government spends on military equipment (C) Money received by a
2. The circular flow of economic activity between consumers and producers includes which of the following? (A) Households buy factors of production from firms and firms sell factors of production to
1. Why is the GDP considered to be an essential economic measurement? (A) It is the sum of final goods and services the economy produces in a given time period. (B) It identifies the different
1. In one to three paragraphs, explain the circular flow model and how GDP is measured.
1. Many factors can affect the equilibrium price and quantity of a product. Lightnings and Stealthys are two brands of running shoes, and each has a price of $80. How would the supply or demand and
3. A surplus of goods in a market sends a signal to (A) producers to increase supply of the good in order to increase their sales (B) producers to raise prices to cover the expense of making goods
2. Which of the following correctly describes how price adjustments eliminate a shortage? (A) As the price rises, the quantity demanded increases while the quantity supplied decreases. (B) As the
1. When the demand curve shifts left and the supply curve does not change, what happens to the equilibrium price? (A) It decreases. (B) It stays the same. (C) It shifts right. (D) It increases. (E)
1. In one to three paragraphs, explain how demand for and supply of a good or service determine the equilibrium price in a competitive market.
1. Many factors besides price can affect the supply of a product. Explain how each of the following situations would most likely affect the supply of a given product or service. (a) Congress votes to
3. Which best explains why supply curves slope upward? (A) Supply and price have an inverse relationship. (B) Prices have a positive relationship with supply. (C) Elasticity of supply varies
2. Which of the following would most likely cause the supply curve to shift to the right in the supply of doctors in the United States who practice general medicine rather than a specialty? (A) An
1. A decrease in the number of televisions produced in a country in response to a fall in price demonstrates (A) the law of supply (B) the difference between elasticity and inelasticity (C) the
1. In one to three paragraphs, explain what influences the supply of goods and services in a competitive market.
1. With electric cars in mind, use the following mock headlines to determine whether demand increases, decreases, or remains the same and explain what prompted the change in demand (change in
3. Unlike a change in price, a change in a determinant of demand results in (A) a decrease in quantity demanded overall (B) an increase in prices overall (C) an increase in the price demand of
2. If consumers buy more of Good B when the price of Good A rises, what is the relationship between the two goods? (A) Good A is more of a luxury than Good B. (B) Good B is more expensive than Good
1. The law of demand states that the quantity of a good or service demanded varies (A) directly with its price (B) inversely with its price (C) in the same direction as total supply of the good (D)
1. In one to three paragraphs, explain the effect the price of a good or service has on consumer demand
1. Suppose that countries A and B produce only two goods: cheese and fish. The table below summarizes the average hourly worker productivity for each country and commodity. NUMBER OF KILOGRAMS
3. Which of the following is a basic economic concept that makes mutually beneficial trade possible? (A) Absolute advantage (B) Specialization (C) Trade-offs (D) Scarcity (E) Opportunity cost
2. If a country possesses a skilled workforce and cutting-edge technology, this means that it would (A) have an absolute advantage over many other countries in the production of a variety of goods
1. In what term is the opportunity cost of a commodity expressed? (A) Resources (B) Hours of labor (C) Another commodity (D) Gains from trade (E) Money
1. In one to three paragraphs, explain how engaging in trade increases production and consumption.
1. A country produces both servers (capital goods) and smartphones (consumer goods). The PPC below shows how many of each can be produced per week in various combinations, ranging from all servers
3. Production at point F on the graph might occur if (A) engineers improved the efficiency of auto production (B) manufacturers decreased production of autos (C) farmers in other countries increased
2. What is the opportunity cost of raising automobile production from 3 million vehicles to 4 million vehicles? (A) 1 million vehicles (B) 2 million vehicles (C) 3 million tons of rice (D) 2 million
1. Which of the following best explains this graph? (A) The graph provides a visual representation of how Hurdlandia shifted production from rice to automobiles over time. (B) The graph illustrates
1. Explain the purpose of a production possibilities curve and how economists use it.
4. Why is the concept of scarcity important in the field of economics?
3. What is an example of scarcity?
2. How does this concept relate to macroeconomics?
1. What is the definition of scarcity?
1. Use the passage below to answer all parts of the questions that follow. “Some commodities [products] are rising in value, from the effects of taxation, from the scarcity of the raw material of
3. The fundamental economic problem that exists in any society is the (A) number of different mineral resources it has (B) the ratio of goods to services that it produces (C) amount and condition of
2. Macroeconomists are more likely than microeconomists to study (A) why an individual chooses to buy one computer rather than another (B) why a worker decides to leave one job to take another one
1. The term used to describe when a person organizes a business, creating a new product and hoping to make a profit is (A) microeconomics (B) human resources (C) capital resources (D) consumption (E)
1. In one to three paragraphs, explain the concepts of scarcity and economic resources.
Explain consumption, investment, inflation and monetary policy
10.17 The efficiency of the decentralized equilibrium in a search economy. Con- sider the model of Section 10.8. Let the interest rate, r, approach zero, and assume that the firms are owned by the
10.16 Consider the model of Section 10.8. Suppose the economy is initially in equi- librium, and that A then falls permanently. Suppose, however, that entry and exit are ruled out; thus the total
10.15 Suppose we replace the assumption in equation (10.76) that the worker and the firm divide the surplus from their relationship equally with the assump- tion that fraction f of the surplus goes
10.14 Describe how each of the following affects equilibrium employment in the model of Section 10.8: (a) An increase in the job breakup rate,b. (b) An increase in the interest rate, r. (c) An
10.13 In the setup described in Problem 10.12, suppose that w is distributed uni- formly on [ a,+ a], and that C < u (a) Find V in terms of p,a, and C. (b) How does an increase in a affect V? Explain
10.12 Partial-equilibrium search. Consider a worker searching for a job. Wages, w, have a probability density function across jobs f(w) that is known to the worker; let F(w) be the associated

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