2012 Macro Multiple Choice (Balance of Payments)

2012 Macro Multiple Choice (Balance of Payments)

Cheat Sheet here.

Answer - (B)

Surplus = Exports > Imports

2012 Macro Multiple Choice (PPC, LRAS, Productivity, Growth)

2012 Macro Multiple Choice 

(PPC, LRAS, Productivity, Growth)

Answer - (E)

Answer - (E)

(A) Physical Capital - capital formation would increase labor productivity

(B) Human Capital - smarter/more skilled humans would increase labor productivity

(C) Technology - would increase labor productivity

(D) Educational Achievement - smarter/more skilled humans would increase labor productivity

(E) Labor Force -  is the least likely to increase productivity

2012 Macro Multiple Choice (Fiscal & Monetary Combo)

2012 Macro Multiple Choice (Fiscal & Monetary Combo)

Answer - (A)

First - you must know that fiscal = Taxes & Government spending

monetary = OMO, discount rate, reserve requirements

Second - Fiscal and Monetary policies - expansionary and contractionary

Third - inflation is the price level

So, a reduction in inflation (PL) is a contractional fiscal and monetary policy

Fiscal - Increase taxes (contractional) - AD decreases PL falls

Monetary - Sell Bonds (contractional) - MS decreases, interest rates rise, investment falls, PL falls

 Answer - (D)

Understand that demand-pull inflation is an increase in AD pushes the PL up.

Reducing Demand pull inflation, means lowering AD thus the PL

The fiscal policy to reduce Demand Pull inflation = Government spending decreases and taxes increase

If this Fiscal contractionary policy occurs
(A) GDP will decrease
(B) Labor force participation rate will decrease
(C) the PL price level will decrease
(D) Unemployment will increase
(E) Wage levels will fall

Answer - (C)

2012 Macro Multiple Choice (Reserve Requirements)

2012 Macro Multiple Choice (Reserve Requirements)

Cheat Sheet here.

Answer - (D)

Understand that excess reserves can be loaned out.

Understand the difference between required reserves and excess reserves.

Understand that both sides must equal.

Answer - (B)

$100 - 10%(RRR) = 90 x 10(1/.1) = $900

2012 Macro Multiple Choice (MPC/MPS)

2012 Macro Multiple Choice (MPC/MPS)

Cheat Sheet here

Answer - (E)

In AP econ you can choose to do two things with your money, spend it (MPC), or save it (MPS).

Answer - (D)

The multiplier is 1/1-.75 = 1/.25 = 4 x 2m = 8m change 

Answer - (B)

Tricky Bastards!!!

Ok, so the point is to know that the MPC is about how much is spent from an extra dollar of income.

The extra dollar is a percentage spent of an increase or decrease, specifically the change in income.

Here the change in income is from an income of $40,000 to $50,000

This is a $10,000 change in income

&

$10,000 x .8 = 8,000

2012 Macro Multiple Choice (Unemployment, Inflation, Phillips Curve)

2012 Macro Multiple Choice (Unemployment, Inflation, Phillips Curve)

Cheat Sheet here

Answer - (B)

Hyperinflation Video

Answer - (B) 

If you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news.

Answer - (A)

Answer - (C)

From the cheat sheet

Answer - (C)

 Answer - (D)

From the cheat sheet

Answer - (E)

Answer - (E)

2012 Macro Multiple Choice (Monetary Policy)

2012 Macro Multiple Choice (Monetary Policy)

Monetary Policy Cheat Sheet here.

Answer - (D)

Transactions Demand

On a daily basis people need money on hand for the things that they routinely buy. You have to get a haircut or stop by the store on the way home from work to pick up some milk. You have transactions that you need to conduct, and therefore you have a demand for money. The transactions demand for money is using money as a medium of exchange. Notice in the graph below that the Transactions Demand for Money (DMT) is denoted as a vertical line when graphed against the interest rate. The demand for money as a medium of exchange is independent of the interest rate, because when you are on your way home from work and need to pick up milk, the interest rate does not affect how much milk you buy.

Answer - (C)

If interest rates increase, then citizens will get more money to have their cash in the bank. They will be paid more to keep their cash in the bank. In essence their opportunity cost of holding cash in their pockets has increased. They will hold less cash in their pockets if banks pay them to deposit it in the bank. How many more times can I say it????

Answer - (D)

 From the cheat sheet -

Answer - (C)

Let me say tis another way - a decrease in inflationary expectations = reducing the price level, thus reducing AD or RGDP.

So, what will reduce AD/RGDP

(A) decrease in MPS = increase in MPC, therefore people spend more and increase AD

(B) decrease in imports means an increase in exports = AD increases

(C) decrease in MS means an decrease in investment  = AD decrease

(D) increase in deficit means increase in government spending  = AD increase

(E) increase in the price of raw materials is an increase in AS = Cost push inflation

Answer - (E)

Answer - (C)

Economies operating below full-employment means that the economy is in recession. The FED would want to have an expansionary policy.

Answer - (B)

Answer - (C)

From the cheat sheet.

Answer - (A)

If investment is more responsive it means that as the money supply is increased and nominal interest rates fall, then investment will be stimulated to higher levels and therefore RGDP increases more.

Answer - (A)

Answer - (E)

FED wouldn't want to stimulate growth if the inflation rate is high.

Answer - (E)

Monetarists

Answer - (B)

Rational Expectation Theory