ec 309 multiple choice

. If the production function exhibits increasing returns to scale in the steady state, an increase in the rate of growth of population would lead to: A) growth in total output and growth in output per worker. B) growth in total output but no growth in output per worker. C) growth in total output but a decrease in output per worker. D) no growth in total output or in output per worker.

A

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A) increasing. B) decreasing. C) 7 percent. D) constant.

A

According to the quantity theory of money, when velocity is constant, if output is higher, ______ real balances are required, and for fixed M this means ______ P. A) higher; lower B) lower; higher C) higher; higher D) lower; lower

A

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money: A) both Central Bank A and Central Bank B should increase the quantity of money. B) Central Bank A should increase the quantity of money, whereas Central Bank B should keep it stable. C) Central Bank A should keep the quantity of money stable, whereas Central Bank B should increase it. D) both Central Bank A and Central Bank B should keep the quantity of money stable.

A

If Y = AK0.5L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1000.

A

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to: A) 300. B) 500. C) 700. D) 1,000

A

If nominal wages cannot be cut, then the only way to reduce real wages is by: A) adjustments via inflation. B) unions. C) legislation. D) productivity increases

A

If the Federal Reserve wishes to increase the money supply, it should: A) decrease the discount rate. B) increase interest paid on reserves. C) sell government bonds. D) decrease the monetary base.

A

If the equation for a country's Phillips curve is π = 0.02 - 0.8(u - 0.05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 4 percent (0.04)? A) above 2 percent (0.02) B) below 2 percent (0.02) C) 2 percent (0.02) D) -2 percent (-0.02)

A

If the marginal product of capital net depreciation equals 8 percent, the rate of growth of population equals 2 percent, and the rate of labor-augmenting technical progress equals 2 percent, to reach the Golden Rule level of the capital stock, the ____ rate in this economy must be _____. A) saving; increased B) population growth; decreased C) saving; decreased D) population growth; increased

A

In a fractional-reserve banking system, banks create money because: A) each dollar of reserves generates many dollars of demand deposits. B) banks have the legal authority to issue new currency. C) funds are transferred from households wishing to save to firms wishing to borrow. D) the wealth of the economy expands when borrowers undertake new debt obligations.

A

In a steady-state economy with a saving rate s, population growth n, depreciation rate δ, and laboraugmenting technological progress g, the formula for the steady-state ratio of capital per effective worker (k*), in terms of output per effective worker (f (k*)), is A) sf (k) / (δ + n + g). B) s / ((f (k))( δ + n + g)). C) f (k) / ((s)( δ + n + g)). D) (s - f (k)) / (δ + n + g).

A

In the Solow growth model, an economy in the steady state with a population growth rate of n but no technological growth will exhibit a growth rate of output per worker at rate: A) 0. B) n. C) δ. D) (n + δ).

A

The total income of everyone in the economy is exactly equal to the total: A) expenditure on the economy's output of goods and services. B) consumption expenditures of everyone in the economy. C) expenditures of all businesses in the economy. D) government expenditures.

A

To avoid double counting in the computation of GDP, GDP includes only the value of ______ goods. A) final B) used C) intermediate D) investment

A

Two interpretations of the IS-LM model are that the model explains: A) the determination of income in the short run when prices are fixed or what shifts the aggregate demand curve. B) the short-run quantity theory of income or the short-run Fisher effect. C) the determination of investment and saving or what shifts the liquidity preference schedule. D) changes in government spending and taxes or the determination of the supply of real money balances.

A

Which of the following would most likely be called a hyperinflation? A) Price increases averaged 300 percent per year. B) The inflation rate was 10 percent per year. C) Real GDP grew at a rate of 12 percent over a year. D) A stock market index rose by 1,000 points over a year.

A

A competitive, profit-maximizing firm hires labor until the: A) marginal product of labor equals the wage. B) price of output multiplied by the marginal product of labor equals the wage. C) real wage equals the real rental price of capital. D) wage equals the rental price of capital.

B

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is: A) $1. B) $2. C) $3. D) $6.

B

A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage: A) does not change GDP. B) decreases GDP by $60,000. C) increases GDP by $60,000. D) increases GDP by more than $60,000.

B

If y = k1/2, the country saves 10 percent of its output each year, and the steady-state level of capital per worker is 4, then the steady-state levels of output per worker and consumption per worker are: A) 2 and 1.6, respectively. B) 2 and 1.8, respectively. C) 4 and 3.2, respectively. D) 4 and 3.6, respectively.

B

In a simple model of the supply and demand for pizza, when buyers' income increases, the price of pizza ______ and the quantity purchased ______. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases

B

Macroeconomic models are used to explain how ______ variables influence ______ variables. A) endogenous; exogenous B) exogenous; endogenous C) microeconomic; macroeconomic D) macroeconomic; microeconomic

B

Open-market operations are: A) Commerce Department efforts to open foreign markets to international trade. B) Federal Reserve purchases and sales of government bonds. C) Securities and Exchange Commission rules requiring open disclosure of market trades. D) Treasury Department purchases and sales of the U.S. gold stock.

B

Which of the following is the best example of a flexible price? A) the price of a cup of coffee in a coffee shop B) the price of gasoline at a service station C) the price of a ticket at a movie theater D) the price of a book in a bookstore

B

A typical trend during a recession is that: A) the unemployment rate falls. B) the popularity of the incumbent president rises. C) incomes fall. D) the inflation rate rises

C

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they: A) are out of a job but not looking for work. B) retired from the labor force before age 65. C) do not have a job but have looked for work in the past four weeks. D) are absent from work because of bad weather or illness.

C

Assume that the money demand function is (M / P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. The equilibrium interest rate is ______ percent. A) 2 B) 4 C) 6 D) 8

C

Assume that two countries both have the per-worker production function y = k1/2, neither has population growth or technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If country A starts out with a capital-labor ratio of 4 and country B starts out with a capital-labor ratio of 2, in the long run: A) both country A and country B will have capital-labor ratios of 4. B) both country A and country B will have capital-labor ratios of 16. C) country A's capital-labor ratio will be 4, whereas country B's will be 16. D) country A's capital-labor ratio will be 16, whereas country B's will be 4.

C

GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad. A) plus; plus B) minus; minus C) minus; plus D) plus; minus

C

If GDP measured in billions of current dollars is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are: A) $673. B) -$673. C) $704. D) -$704.

C

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is: A) 12.5 percent. B) 14 percent. C) 17.5 percent. D) 20 percent.

C

If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals _____ percent. A) 0 B) 2 C) 8 D) 10

C

If the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: A) 1. B) 2. C) 4. D) 9.

C

In a small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate: A) rises, and net exports fall. B) and net exports both rise. C) falls, and net exports rise. D) and net exports both fall

C

In comparing two countries with different levels of education but the same saving rate, population growth, and rate of technological progress, one would expect the more highly educated country to have: A) a higher growth rate of total income and a higher real wage. B) a higher growth rate of total income and the same real wage. C) the same growth rate of total income and a higher real wage. D) the same growth rate of total income and the same real wage

C

Recessions are periods when real GDP: A) increases slowly. B) increases rapidly. C) decreases mildly. D) decreases severely

C

Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to ______ in the short run; and in the long run the expected price level will ______, causing the level of output to return to the natural level. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

C

The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply. A) smaller; smaller B) smaller; greater C) greater; greater D) greater; smaller

C

The supply and demand for loanable funds determine the: A) real wage. B) real rental price of capital. C) real interest rate. D) nominal interest rate.

C

The total income of everyone in the economy adjusted for the level of base year prices is called: A) a recession. B) an inflation. C) real GDP. D) a business fluctuation.

C

. In the sticky-price model, if no firms have flexible prices, the short-run aggregate supply schedule will: A) be vertical. B) be steeper than it would be if some firms had flexible prices. C) slope upward to the right. D) be horizontal.

D

A fixed-weight price index like the CPI ______ the change in the cost of living because it ______ take into account that people can substitute less expensive goods for ones that have become more expensive. A) underestimates; does not B) overestimates; does C) accurately estimates; does D) overestimates; does not

D

A higher saving rate leads to a: A) higher rate of economic growth in both the short run and the long run. B) higher rate of economic growth only in the long run. C) higher rate of economic growth in the short run but a decline in the long run. D) larger capital stock and a higher level of output in the long run.

D

Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______. A) large; frequently B) large; infrequently C) small; frequently D) small; infrequently

D

If the production function is Y = AK2/3L 1/3 in the land of Antegria, and the labor force increases by 5 percent while capital is constant, labor productivity, measured by Y / L, will: A) increase by 3.33 percent. B) increase by 1.67 percent. C) decrease by 1.67 percent. D) decrease by 3.33 percent.

D

If the production function is y = k1/2, the steady-state value of y is: A) y = ((s + g) / (δ + n))1/2. B) y = (s + g) / (δ + n). C) y = (2 / (δ + n + g))1/2. D) y = s / (δ + n + g).

D

In a simple model of the supply and demand for pizza, the endogenous variables are: A) the price of pizza and the price of cheese. B) aggregate income and the quantity of pizza sold. C) aggregate income and the price of cheese. D) the price of pizza and the quantity of pizza sold

D

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza ______ and the quantity purchased ______. A) increases; increases B) decreases; increases C) decreases; decreases D) increases; decreases

D

Unemployment insurance increases the amount of frictional unemployment by: A) making workers more frantic in their search for new jobs. B) inducing workers to accept the first job offer that they receive. C) making employers more reluctant to lay off workers. D) softening the economic hardship of unemployment.

D

Which of the following is the best example of a sticky price? A) the price of a barrel of oil B) the price of the U.S. dollar in terms of euros C) the price of a share of stock D) the price of a soda in a vending machine

D

With a Cobb-Douglas production function, the share of output going to labor: A) decreases as the amount of labor increases. B) increases as the amount of labor increases. C) increases as the amount of capital increases. D) does not depend on the amount of labor in the economy

D

All of the following are types of macroeconomics data except the: A) price of a computer. B) growth rate of real GDP. C) inflation rate. D) unemployment rate.

A

Deposit insurance is an example of ______ used to prop up the financial system. A) a giveaway of public funds B) risky lending C) a capital injection D) conventional monetary policy

A

Governments can reduce the problem of adverse selection by: A) requiring disclosure about investment projects and a firm's finances. B) providing loans from public funds. C) keeping interest rates low. D) reducing corporate income tax rates.

A

If an economy is in a steady state with a saving rate below the Golden Rule level, efforts to increase the saving rate result in: A) both higher per-capita output and higher per-capita depreciation, but the increase in per-capita output would be greater. B) both higher per-capita output and higher per-capita depreciation, but the increase in per-capita depreciation would be greater. C) higher per-capita output and lower per-capita depreciation. D) lower per-capita output and higher per-capita depreciation.

A

Real GDP ______ over time, and the growth rate of real GDP ______. A) grows; fluctuates B) is steady; is steady C) grows; is steady D) is steady; fluctuates

A

Reducing risk by holding many imperfectly correlated assets is called: A) diversification. B) moral hazard. C) risk aversion. D) leveraging.

A

An increase in the price of goods bought by firms and the government will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator.

B

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: A) government spending increases the MPC more than tax cuts. B) the government-spending multiplier is larger than the tax multiplier. C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. D) increases in government spending increase planned spending, but tax cuts reduce planned spending.

B

Consider the money demand function that takes the form (M / P)d = Y / (4i), where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy? A) i B) 4i C) 1 / (4i) D) 0.25

B

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? A) 3 percent B) 7 percent C) 10 percent D) 13 percent

B

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______, and growth of output per person will be ______. A) lower; lower B) lower; the same as it was before C) higher; higher than it was before D) higher; lower

B

If consumption is given by C = 200 + 0.75(Y - T) and investment is given by I = 200 - 25r, then the formula for the IS curve is: A) Y = 400 - 0.75T - 25r + G. B) Y = 1,600 - 3T - 100r + 4G. C) Y = 400 + 0.75T - 25r - G. D) Y = 1,600 + 3T - 100r - 4G.

B

If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is: A) 300. B) 500. C) 1,000. D) 1,300.

B

If money demand does not depend on the interest rate, then the LM curve is ______, and ______ policy has no effect on output. A) horizontal; fiscal B) vertical; fiscal C) horizontal; monetary D) vertical; monetary

B

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. A) more; increase B) more; decrease C) fewer; increase D) fewer; decrease

B

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals: A) 2,500. B) 2,800. C) 3,500. D) 4,200.

B

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ multiplied by B. A) (rr + 1)/ (rr + cr) B) (cr + 1)/ (cr + rr) C) (rr + cr)/ (rr + 1) D) (rr + cr)/ (cr + 1)

B

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labor: A) is 25 percent. B) is 75 percent. C) depends on the quantities of labor and capital. D) depends on the state of technology.

B

In the Solow growth model with population growth but no technological progress, if in the steady state the marginal product of capital equals 0.10, the depreciation rate equals 0.05, and the rate of population growth equals 0.03, then the capital per worker ratio ____ the Golden Rule level. A) is above B) is below C) is equal to D) will move to

B

The statistic economists use to measure the value of economic output is: A) the CPI. B) GDP. C) the GDP deflator. D) the unemployment rate

B

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates: A) increase. B) are unchanged. C) decrease. D) can vary wildly.

C

If the Fed reduces the money supply by 5 percent and the quantity theory of money is true, then output will fall 5 percent in the short run, and: A) prices will remain unchanged in the long run. B) output will fall 5 percent in the long run. C) prices will fall 5 percent in the long run. D) output will remain unchanged in the long run.

C

If the IS curve is given by Y = 1,700 - 100r, the money demand function is given by (M/P)d = Y - 100r, the money supply is 1,000, and the price level is 2, then if the money supply is raised to 1,200, equilibrium income rises by: A) 200 and the interest rate falls by 2 percent. B) 100 and the interest rate falls by 1 percent. C) 50 and the interest rate falls by 0.5 percent. D) 200 and the interest rate remains unchanged.

C

If the U.S. production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the Golden Rule steady-state capital-output ratio is 4.29, to reach the Golden Rule steady state, the saving rate must be: A) 17.5 percent. B) 25 percent. C) 30 percent. D) 42.9 percent

C

If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals ______ percent. A) 50 B) 58 C) 60 D) 67

C

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate. A) above; toward B) above; away from C) below; toward D) below; away from

C

The Keynesian-cross analysis assumes planned investment: A) is fixed, and so does the IS analysis. B) depends on the interest rate, and so does the IS analysis. C) is fixed, whereas the IS analysis assumes it depends on the interest rate. D) depends on expenditure, and so does the IS analysis.

C

The currency-deposit ratio is determined by: A) the Federal Reserve. B) business policies of banks and the laws regulating banks. C) preferences of households about the form of money they wish to hold. D) the Federal Deposit Insurance Corporation (FDIC).

C

The equilibrium of the Keynesian cross shows: A) determination of equilibrium income and the interest rate in the short run. B) determination of equilibrium income and the interest rate in the long run. C) equality of planned expenditure and income in the short run. D) equality of planned expenditure and income in the long run.

C

Which of the following is an example of moral hazard? A) The healthiest people buy life insurance. B) The sickest people buy health insurance. C) A person with health insurance rides a motorcycle without wearing a helmet. D) A person with life insurance exercises daily and eats healthy foods.

C

Which of the following is the best example of structural unemployment? A) Tim is looking for a job with flexible hours but has not been offered one yet. B) Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer generated animation. C) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. D) Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left.

C

Paying efficiency wages helps firms reduce the problem of adverse selection by: A) generating additional profits that can be used to pay for more proficient hiring managers. B) keeping labor unions from organizing workers in the firm. C) encouraging unsupervised workers to maintain a high level of productivity. D) providing an incentive for the best-qualified workers to remain with the firm.

D

Permitting a lower minimum wage for teenagers would likely: A) raise teenage unemployment. B) raise teenage wages overall. C) prevent teenagers from getting job experience. D) raise unemployment among unskilled adults.

D