Econ 313 Final Review Midterm 1

If GDP measured in billions of current dollars is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are:

-$31.

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:

300.

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K0.5L0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

560.

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate.

positively; negatively

A competitive, profit-maximizing firm hires labor until the:

price of output multiplied by the marginal product of labor equals the wage.

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, national saving:

rises by $60 billion.

The amount of capital in an economy is a(n) ______, and the amount of investment is a(n) ______.

stock; flow

In the national income accounts, government purchases are goods and services purchased by:

the federal, state, and local governments.

In the classical model with fixed income, if households want to save more than firms want to invest, then:

the interest rate falls.

The factor that makes national saving equal investment, in equilibrium, is:

the interest rate.

What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale?

the marginal productivity of labor relative to the marginal productivity of capital

An example of increasing returns to scale is when capital and labor inputs:

both increase 5 percent and output increases 10 percent.

If an increase of an equal percentage in all factors of production increases output of the same percentage, then a production function has the property called:

constant returns to scale.

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

consumption and investment both decrease.

According to the model developed in Chapter 3, when taxes decrease without a change in government spending:

consumption increases and investment decreases.

Nominal GDP means the value of goods and services is measured in ______ prices.

current

Assume that the consumption function is given by C = 150 + 0.85(Y - T) and the tax function is given by T = t0 + t1Y. If t0 increases by 1 unit, then consumption:

decreases by 0.85 units.

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving ______ and private saving ______.

decreases; increases

A consumption function shows the relationship between consumption and:

disposable income.

All of the following actions increase government purchases of goods and services except the:

federal government's sending a Social Security check to Betty Jones.

Which of the following is a flow variable?

income

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then saving:

increases by 0.15 units.

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when:

labor productivity is growing rapidly.

In the classical model with fixed income, if the interest rate is too high, then investment is too ______, and the demand for output ______ the supply.

low; falls short of

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given level of disposable income. This shift, in a neoclassical economy, will:

lower investment and raise the interest rate.

In the national income accounts, consumption expenditures include all of the following except household purchases of:

new residential housing.

A worker with two jobs is counted:

once in the household survey, but twice in the establishment survey

Suppose that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. Government spending (G) is 1,000, and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r:

I is unchanged and r rises by 10 percentage points.

If income is 4,800, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, public saving is:

-200.

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is:

13 percent.

In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will:

decrease.

An increase in the price of imported goods will show up in:

the CPI but not in the GDP deflator.

In the classical model, what adjusts to eliminate any unemployment of labor in the economy?

the real wage

The real rental price of capital is the price per unit of capital measured in:

units of output.

The household survey conducted by the Bureau of Labor Statistics provides estimates of the number of workers ______, while the establishment survey provides estimates of the number of workers ______.

with jobs; on firms' payrolls

In a Cobb-Douglas production function, the marginal product of capital will increase if:

the quantity of labor increases.

Assume that a tire company sells four tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is:

$20,000.

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:

175.

Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be:

760.

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. In addition, assume that G=0. In this case, the equilibrium real interest rate is:

5 percent.

The real wage is the return to labor measured in:

units of output.

The marginal product of labor is:

additional output produced when one additional unit of labor is added.

Assuming that all firms maximize profits, economic profit is zero if:

all factors are paid their marginal products, and there are constant returns to scale.

The national income accounts identity for an open economy is:

Y = C + I + G + NX.

Crowding out occurs when an increase in government spending ______ the interest rate and investment ______.

increases; decreases

When bread is baked but put away for later sale, this is called:

investment in inventory.

(Look at word P 19 Midterm 1 Redo) The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)?

point A

(Look at image in Word P 20 Midterm 1) The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods?

point B

GDP is the market value of all ______ goods and services produced within an economy in a given period of time.

final

To avoid double counting in the computation of GDP, GDP includes only the value of ______ goods.

final

Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation,

gives a better measure of ongoing, sustained price changes.

In the classical model with fixed income, a reduction in the government budget deficit will lead to a:

lower real interest rate.

In a closed economy, private saving equals:

Y - T - C.

In the classical model with fixed income a decrease in the real interest rate could be the result of:

an increase in taxes.