Main Ideas in Principles of Macroeconomics Organized by Section of Term
Based on Study Guide for Final Spr 2013
Line pointing towards ROW in Circular flow is imports, line pointing from ROW to circular
flow is exports (direction of money)
Identify what role money plays in each of the following parts of the story.
Hint: Select each role only once.
Medium of Unit of Store of
Role of Money Exchange Account Value
Yakov writes a check for $4,000. 0 A A
Yakov can easily determine that the
Bank's Balance Sheet
Assets Liabilities and Owners' Equity
Reserves $200 Deposits $1 ,600
Loans $800 Debt $250
Securities $1,000 Capital (owners' equity) $150
Suppose a new customer adds $100 to his account at Midwestern Mutual Bank, which the owners
1. Problems and Applications Q1
You would expect a bond of an Eastern European government to pay a higher \/ interest rate as compared to a bond of the U.S. government.
5 Points: - 0 / 1
You would expect a bond that repays the principal in year 2040 to pa
Compiete the foiiowing tabie by iiing in the missing ceiis.
Real GDP Nominal GDP GDP Deator
Year (In 2000 dollars) (In current dollars) (Base year 2000)
1970 3,000 1,200 _J
1980 5,000 3,000 J 60
1990 6,000 8 000 6,000
2000 7,000 X 8,000
2010 7,500 V 15,
Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply.
J The riskiness of each asset
\I Cl The total value of liabilities
J C] The size of the monetary base
It Points: 0.33 / 1
. . . . . , LUU 7*. -.V-.
The inflation rate in 2018 is not the same using the two methods because the CPI V/ holds the basket of goods and services constant, while
the GDP deflator \/ allows it to change.
5 Points: _ 1/ 1
Explanation: Close Explanation A
Indicate whether each scenario will affect the GDP deator or the CPI for the United States. Check all that apply.
Shows up in
Scenario Deflator CPI
An increase in the price ofa Japanesemade television that is popular among U.S. consumers cfw_j
8. Risk and return
Suppose Amy is choosing how to allocate her portfolio between two asset classes: riskfree government bonds and a risky group of diversified stoc
The following table shows the risk and return associated with different combinations of sto
Over time, new workers will move into the aircraft industry, bringing its wage down until wages are equal across the two industries. See
Section: How Long Are the Unemployed without Work?
If for some reason wages fail to adjust to the new equilibrium leve
Now suppose that workers do not value the mandated benefit at all.
Which of the following statements are true under this circumstance? Check all that apply.
\I Employers are worse off than before the mandated benefit.
4' The wage rate will decline by less
This $90 decline means that the bank's capital decreases to $200 $90 = $110, while deposits and reserves remain unchanged. See
Sections: Money Creation with Fractional Reserve Banking; and Bank Capital, Leverage, and the Financial Crisis of 20082009.
If the Fed wants to keep the price level stable instead, it should increase the money supply by 5% \/ next year.
It Points: - 0/1
Explanation: Close Explanation A
Recall that the quantity equation relates the quantity of money (M) to the nominal value o
Complete the following table to show the effect of a new deposit an excess and required reserves when the required reserve ratio is 20%.
Hint: If the change is negative, be sure to enter the value as negative number.
Amount Deposited Change in Excess Rese
Based on this information, complete the following table by computing Barrys contribution to the measures of income listed.
Ba rry's Contribution
Measure of Income (Dollars)
Gross Domestic Product
Net National Product
.-_-_., -. .m ._-. ., ._ .-.,. -v. . -Vr.- -.,.,._.
Suppose that one day the economy opens itself to international trade and, as a result, starts importing autos and exporting aircraft.
This would cause the demand for labor in the auto manufacturing indus
Transaction Consumption Investment Ex_ports
Uncle Henry buys a new refrigerator from a domestic manufacturer. D :, ,:,
Aunt Jane buys a new house from a local builder. C] :, _:
The Jackson family buys an old Victorian house from the Walker m m 7 7
Scenario 2: An investment tax credit effectively lowers the tax bill of any rm that purchases new capital in the relevant time period. Suppose the
government repeals a previously existing investment tax credit.
Shift the appropriate curve on the graph to
Use the blue curve (circle points) to graph Jamals utility function at wealth levels of $0, $1 million, $4 million, $9 million, and $16 million.
Your Answer Correct Answer
4_0 Utility Function
0 2 4 6 8 10 12 14
Given your answers to the previous task, indicate whether each of the following is considered money in the U.S. economy.
Plastic credit card A o
5 Points: _
Explanation: Close Exl:
Nominal GDP Real GDP
Year (Dollars) (Dollars) GDP Deator
2016 200 200 100
2017 400 400 100
2018 800 400 200
Compute the percentage change in nominal GDP, real GDP, and the GDP deatar in 2017 and 2018 from the preceding year.
Percentage Change In.
When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the
investment \I component of GDP while also decreasing \l net exports by the same amount. Therefore, the purchase of
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Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual
contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from
Next, show the effect the previous change in the market for TV screens has on the market for lm streaming.
Price of Film Streaming Services
Quantity of Film Streaming Services
Complete the following table by indicating the effect each of the following transactions has on U.S. net capital outow and whether it involves direct
investment or portfolio investment.
Effect on Net Capital Type of Investment
Transaction Outflow Involved
Attempts: 0.4 0.4 Average: 0.4/1
13. Problems and Applications Q7
Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises, the quantity of hot dogs demanded falls V/ , which
lowers \/ the demand for ketchup. Because o