ECON 510 exam 2 2nd try

The overall level of prices can be measured by either______________

* the consumer price index (CPI), the price of a fixed basket of goods purchased by the typical consumer * the GDP deflator, the ratio of nominal to real GPD

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

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

_____________________ measures both total income and total expenditure on the economy's output of goods and services.

Gross Domestic Product (GDP)

If a person quits his job to become at a stay-at-home parent, the labor-force participation rate __________ and the unemployment rate _____________. A) rises, rises B) rises, stays the same C) falls, rises D) falls, stays the same

If a person quits his job to become at a stay-at-home parent, the labor-force participation rate __________ and the unemployment rate _____________. C) falls, rises

17. If many banks fail, this is likely to: A) increase the ratio of currency to deposits. B) decrease the ratio of currency to deposits. C) have no effect on the ratio of currency to deposits. D) decrease the amount of currency in circulation if the Fed takes no action.

If many banks fail, this is likely to: A) increase the ratio of currency to deposits.

If nominal GDP and real GDP both raise by 10 percent, then the GDP deflator: A) also rises by 10 percent. B) rises by about 20 percent. C) falls by 10 percent. D) is unchanged.

If nominal GDP and real GDP both raise by 10 percent, then the GDP deflator: D) is unchanged.

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent. A) 2 B) 3 C) 5 D) 8

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent. A) 2

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? A) 0.79 B) 1.03 C) 1.27 D) 3.2

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? C) 1.27

_____________ is the study of economy as a whole, including * growth in incomes * changes in the overall level of prices * the unemployment rate

Macroeconomics

Macroeconomics does not try to answer the question of: A) why some countries experience rapid growth. B) what is the rate of return on education. C) why some countries have high rates of inflation. D) what causes recessions and depressions.

Macroeconomics does not try to answer the question of: B) what is the rate of return on education.

Macroeconomics is the study of the: A) decision making by households and firms. B) activities of individual units of the economy. C) interaction of firms and households in the marketplace. D) economy as a whole.

Macroeconomics is the study of the: D) economy as a whole.

________________ attempts to explain the economy and to devise policies to improve its performance

Macroeconomists

Market-clearing models assume that prices are ____________ and are best applied to understand the economy in the ___________ run. A) flexible, long B) flexible, short C) sticky, long D) sticky, short

Market-clearing models assume that prices are ____________ and are best applied to understand the economy in the ___________ run. A) flexible, long

The __________________ rate is the fraction of the labor force that is not employed.

unemployment

A competitive firm chooses the: A) price at which to sell the product produced. B) wage to pay labor. C) quantity of labor and capital to employ. D) rental price to pay capital.

A competitive firm chooses the: C) quantity of labor and capital to employ.

A measure of how fast the general level of prices is rising is called the: A) unemployment rate B) market-clearing rate C) inflation rate D) growth rate of real GDP

A measure of how fast the general level of prices is rising is called the: B) inflation rate

A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

A severe recession is called a(n): A) depression.

A trade in a barter economy requires: A) currency. B) a check. C) scrip. D) a double coincidence of wants.

A trade in a barter economy requires: D) a double coincidence of wants.

A worker with two jobs is counted: A) once in both the household and the establishment surveys. B) once in the household survey but twice in the establishment survey. C) once in the establishment survey but twice in the household survey. D) twice in both the household survey and the establishment survey.

A worker with two jobs is counted: B) once in the household survey but twice in the establishment survey.

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

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they: C) do not have a job but have looked for work in the past four weeks

An assumption of _______ is more plausible for studying the short-run behavior of the economy, while an assumption of ______ is more plausible for studying the long-run, equilibrium behavior of the economy. A) deflation; inflation B) flexible prices; sticky prices C) inflation; deflation D) sticky prices; flexible prices

An assumption of _______ is more plausible for studying the short-run behavior of the economy, while an assumption of ______ is more plausible for studying the long-run, equilibrium behavior of the economy. D) sticky prices; flexibles prices

An example of increasing returns to scale is when capital and labor inputs: A) both increase 10 percent and output increases 5 percent. B) both increase 10 percent and output increases 10 percent. C) both increase 5 percent and output increases 10 percent. D) do not change and output decreases 5 percent.

An example of increasing returns to scale is when capital and labor inputs: C) both increase 5 percent and output increases 10 percent.

Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: A) $10,000. B) $12,000. C) $20,000. D) $22,000.

Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: B) $12,000.

Assume that the production function is Cobb-Douglas with parameter = 0.3. If capital and labor are paid their marginal products, they receive the shares of income: A) 0.3 and 0.3. B) 0.7 and 0.7. C) 0.3 and 0.7. D) 0.7 and 0.3.

Assume that the production function is Cobb-Douglas with parameter = 0.3. If capital and labor are paid their marginal products, they receive the shares of income: C) 0.3 and 0.7.

Banks create money in: A) a 100-percent-reserve banking system but not in a fractional-reserve banking system. B) a fractional-reserve banking system but not in a 100-percent-reserve banking system. C) both a 100-percent-reserve banking system and a fractional-reserve banking system. D) neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

Banks create money in: B) a fractional-reserve banking system but not in a 100-percent-reserve banking system.

Explain three factors that will affect the quantity of reserves that a bank wishes to hold

Banks' demand for reserves will be affected by (1) legal reserve requirements, (2) the size and regularity of customer deposits and withdrawals, (3) the interest rate paid on reserves relative to alternative bank investments, and (4) the uncertainty in the economy reflected in increased risk of loan defaults and bank insolvency.

Chain-weighted measures of real GDP make use of prices from: A) an unchanging base year. B) a continuously changing base year. C) a base year that is changed approximately every 5 years. D) a base year that is changed approximately every 10 years.

Chain-weighted measures of real GDP make use of prices from: B) a continuously changing base year.

Chain-weighted measures of real GDP make use of prices from: A) an unchanging base year. B) a continuously changing base year. C) a base year that is changed approximately every 5 years. D) a base year that is changed approximately every 10 years.

Chain-weighted measures of real GDP make use of prices from: B) a continuously changing base year.

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. A) positively; positively B) positively; negatively C) negatively; negatively D) negatively; positively

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. B) positively; negatively

Currency equals: A) M1. B) the sum of funds in checking accounts. C) the sum of checking accounts and paper money. D) the sum of coins and paper money.

Currency equals: D) the sum of coins and paper money.

Disposable personal income: A) is computed by subtracting personal tax from personal income. B) is generally greater than personal income. C) includes corporate profits but not dividends. D) does not include government transfers to individuals.

Disposable personal income: A) is computed by subtracting personal tax from personal income.

Economist use models because they: A) clarify our thinking B) show how exogenous variables influence endogenous variables C) are fun D) all of the above

Economist use models because they: D) all of the above

________________ use different models to examine different issues

Economists

Economists use the term money to refer to: A) income. B) profits. C) assets used for transactions. D) earnings from labor.

Economists use the term money to refer to: C) assets used for transactions.

Into which of the three categories - employed, unemployed, out of the labor force -- would an interviewer for the Current Population Survey place each of the following people? Martin Hampton is working as a high school social science teacher but is at home sick with the flu

Employed. He is out sick but still an employee of the school.

Into which of the three categories - employed, unemployed, out of the labor force -- would an interviewer for the Current Population Survey place each of the following people? Jennifer Temple is working as a second-grade schoolteacher

Employed. She is working as a full-time employee

Endogenous variables are: A) the inputs of the model. B) determined within the model. C) fixed at the moment they enter the model. D) from outside the model.

Endogenous variables are: B) determined within the model.

Excess reserves are reserves that banks keep: A) in their vaults. B) at the central bank. C) to meet legal reserve requirements. D) above the legally required amount.

Excess reserves are reserves that banks keep: D) above the legally required amount.

Exogenous variables are: A) determined within the model. B) the outputs of the model. C) explained by the model. D) determined outside the model.

Exogenous variables are: D) determined outside the model.

Models with ____________ prices describe the economy is the long run

Flexible

____________ is the sum of consumption, investment, government purchases, and net exports

GDP

GDP is all of the following except: A) the total expenditure of everyone in the economy. B) the total income of everyone in the economy. C) the overall expenditure on the economy's output of goods and services. D) the total output of the economy.

GDP is all of the following except: A) the total expenditure of everyone in the economy.

One senator criticizes the government for making an inadequate effort to stimulate the economy based on data from the BLS establishment survey which shows that the number of jobs in the economy has fallen. Another senator counters that the number of employed workers in the economy has increased over the same period, based on the BLS household survey. Explain how both senators can be correct.

If the number of self-employed workers and workers employed in new start-up firms (who are included in the household survey but not in the establishment survey) has increased more rapidly than the decline in payroll jobs counted in the establishment survey, then the number of employed workers as measured in the household survey could increase while the number of payroll jobs decreases.

In a closed economy, Y - C - G equals: A) national saving. B) private saving. C) public saving. D) financial saving.

In a closed economy, Y - C - G equals: A) national saving.

In a closed economy, private saving equals: A) Y - C - G B) Y - T - C C) Y - I - C D) Y - I

In a closed economy, private saving equals: B) Y - T - C

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. This causes: A) investment to fall and the interest rate to rise. B) investment to rise and the interest rate to fall. C) investment and the interest rate to both fall. D) investment and the interest rate to both rise.

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. This causes: B) investment to rise and the interest rate to fall.

In the U.S. economy today, real GDP per person, compared with its level in 1900, is about: A) eight times as high. B) three times as high. C) 50 percent higher. D) twice as high.

In the U.S. economy today, real GDP per person, compared with its level in 1900, is about: A) eight times as high.

In the U.S. history, deflation A. is the norm. B) is about as common as inflation. C) is rare now but occurred at times in the past. D) has never occurred.

In the U.S. history, deflation C) is rare now but occurred at times in the past.

In the classical model with fixed income, if households want to save more than firms want to invest, then: A) the interest rate rises B) the interest rate falls C) output increases D) output falls

In the classical model with fixed income, if households want to save more than firms want to invest, then: B) the interest rate falls

In the classical model with fixed output, the supply and demand for goods and services are balanced by: A) government spending B) taxes C) fiscal policy D) the interest rate

In the classical model with fixed output, the supply and demand for goods and services are balanced by: D) the interest rate

In the national income accounts, net exports equal: A) exported goods minus imported goods. B) exported goods and services minus imported goods and services. C) exported goods minus imported services. D) exported goods and services plus imported goods and services.

In the national income accounts, net exports equal: B) exported goods and services minus imported goods and services.

Microeconomics is A) the study of how macroeconomic date is constructed from individual observations. B) useful for understanding the decisions behind macroeconomic relationships. C) a separate field unrelated to macroeconomics D) a misspelling of the word macroeconomics

Microeconomics is B) useful for understanding the decisions behind macroeconomic relationships.

National saving refers to: A) disposable income minus consumption. B) taxes minus government spending C) income minus consumption minus government purchases. D) income minus investment.

National saving refers to: C) income minus consumption minus government purchases.

________________ GPD values at current prices

Nominal

Nominal GDP means the value of goods and services is measured in ______ prices. A) current B) real C) constant D) average

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

Other things equal, an increase in the interest rate leads to: A) a decrease in the quantity in the investment goods demanded B) no change in the quantity of investment goods demanded C) an increase in the quantity of investment goods demanded D) sometimes an increase and sometimes a decrease in the quantity of investment goods demanded

Other things equal, an increase in the interest rate leads to: A) a decrease in the quantity in the investment goods demanded

Into which of the three categories - employed, unemployed, out of the labor force -- would an interviewer for the Current Population Survey place each of the following people? Kyle Brown does not currently have a job. He wants to be an elementary-school teacher. He has the appropriate degree. He has not looked for a position in the past month because he doesn't believe schools are currently hiring

Out of the labor force. Discouraged workers are not counted in the labor force.

Into which of the three categories - employed, unemployed, out of the labor force -- would an interviewer for the Current Population Survey place each of the following people? Frank Peabody is attending college full-time to earn a degree in elementary education

Out of the labor force. Full-time students are not counted in the labor force

Changes is prices affects ___________

only Nominal GDP

_______________ GDP values output at constant prices

Real

Changes in output affects ________________

Real and Nominal GDP

Recessions are periods of: A) rising incomes. B) falling incomes. C) rising prices D) falling prices

Recessions are periods of: B) falling incomes.

Models with __________ prices describe the economy is the short run

Sticky

The CPI is determined by computing: A) an average of prices of all goods and services. B) the price of a basket of goods and services that changes every year, relative to the same basket in a base year. C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. D) nominal GDP relative to real GDP.

The CPI is determined by computing: C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year.

The Ford Motor Company makes a car in 2020 and sells it to the Jones family in 2021. This event increases: A) both consumption and GDP in 2020. B) both consumption and GDP in 2021. C) consumption in 2020 and GDP in 2021. D) consumption in 2021 and GDP in 2020.

The Ford Motor Company makes a car in 2020 and sells it to the Jones family in 2021. This event increases: D) consumption in 2021 and GDP in 2020.

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur: A) in the long run. B) from year to year. C) in the short run. D) from minute to minute.

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur: A) in the long run.

The demand for the economy's output: A) is always equal to the supply, regardless of the interest rate B) may be computed provided that we know disposable income C) is equal to consumption, investment, and government purchases D) is determined by government purchases and taxes

The demand for the economy's output: C) is equal to consumption, investment, and government purchases

Give two examples of macroeconomic variables and microeconomic variables.

The income of your father is a microeconomic variable, while the gross domestic product (GDP) of your country is a macroeconomic variable. The money your father saves in the bank is a microeconomic variable, while the total money in all banks and post offices of your country is a macroeconomic variable.

The labor force equals the: A) adult population B) number of employed individuals C) number of unemployed individuals D) number of employed and unemployed individuals

The labor force equals the: D) number of employed and unemployed individuals

The labor-force participation rate is the percentage of the: A) adult population that is employed B) adult population that is the labor force C) labor force that is employed D) labor force that is unemployed

The labor-force participation rate is the percentage of the: B) adult population that is the labor force

The largest component of GDP is: A) consumption B) investment C) government purchases D) net exports

The largest component of GDP is: A) consumption

The money supply consists of: A) currency plus reserves. B) currency plus the monetary base. C) currency plus demand deposits. D) the monetary base plus demand deposits.

The money supply consists of: C) currency plus demand deposits.

The real interest rate is the: A) rate of interest actually paid by consumers. B) rate of interest actually paid by banks. C) rate of inflation minus the nominal interest rate. D) nominal interest rate minus the rate of inflation.

The real interest rate is the: D) nominal interest rate minus the rate of inflation

The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called: A) a budget deficit. B) fiscal policy. C) the identification problem. D) crowding out.

The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called: D) crowding out.

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

The supply and demand for loanable fund determine the: C) real interest rate

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.

The total income of everyone in the economy adjusted for the level of base year prices is called: C) real GDP.

The unemployment rate measures the fraction of the: A) adult population that has stopped looking for work. B) adult population that is not working. C) labor force that has stopped looking for work. D) labor force that is not working.

The unemployment rate measures the fraction of the: D) labor force that is not working.

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

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

To increase the money multiplier, the Fed can: A) conduct open-market purchases. B) conduct open-market sales. C) raise the interest rate paid on reserves. D) lower the interest rate paid on reserves.

To increase the money multiplier, the Fed can: D) lower the interest rate paid on reserves.

To increase the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) buys corporate stocks. D) sells corporate stocks.

To increase the money supply, the Federal Reserve: A) buys government bonds.

Two striking features of a graph of U.S. real GDP per capita over the twentieth century are the: A) overall upward trend interrupted by a large downturn due to the economic depression in the 1930s. B) downward trend in the first half of the century followed by the upward trend in the second half. C) constant level in the first half of the century followed by the upward trend in the second half. D) nearly constant level with a large downturn in the 1930s.

Two striking features of a graph of U.S. real GDP per capita over the twentieth century are the: A) overall upward trend interrupted by a large downturn due to the economic depression in the 1930s.

Into which of the three categories - employed, unemployed, out of the labor force -- would an interviewer for the Current Population Survey place each of the following people? Brenda Dewey does not currently have a job. She has sent her resume to several school districts in the past week in the hope of finding a teacher position

Unemployed. She is actively looking for a job.

Variables that a model tries to explain are called: A) endogenous. B) exogenous. C) market clearing. D) fixed.

Variables that a model tries to explain are called: A) endogenous.

When the Fed makes an open-market sale, it: A) increases the money multiplier (m). B) increases the currency-deposit ratio (cr). C) increases the monetary base (B). D) decreases the monetary base (B).

When the Fed makes an open-market sale, it: D) decreases the monetary base (B).

How is the money supply affected by the purchase and sale of bonds through open-market operations?

When the Federal Reserve purchases bonds through open-market operations, it increases the monetary base and the money supply, while the selling of the bonds to the public decreases the monetary base and money supply.

Which of the following events would affect the CPI but not the GDP deflator? A) Boeing, the American airplane manufacturer, raises the price it charges the U.S. Air Force for fighter jets. B) Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States. C) Kellogg, the American cereal maker, cuts the price of a box of corn flakes. D) Barbers around the country raise the prices they charge for haircuts.

Which of the following events would affect the CPI but not the GDP deflator? B) Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States.

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

Which of the following is the best example of a sticky price? B) the price of a soda in a vending machine

Are the terms "market clearing" and "equilibrium" one and the same? Briefly explain

Yes, both terms represent the same notion: the balance between supply and demand. It is the balancing point at which everything that is produced gets sold and fulfills the entire demand. Thus, if all other things remain constant, then there is no tendency to change the quantity supplied and demanded at this point.

Is real GDP a better measure of economic well-being of a country than nominal GDP? Give an explanation for your answer

Yes. Nominal GDP is the current price multiplied by the quantity of all the goods and services produced in a country. Real GDP actually measures the total output (i.e. the quantity), not the price. A growth in nominal GDP can be due to an increase in quantity or price or both. Real GDP keeps price constant using a base year, so it provides a clearer picture of economic well-being.

__________ GDP measures the value of the economy's output at current prices and is a ____________ variable. A) Nominal, stock B) Nominal, flow C) Real, stock D) Real, flow

__________ GDP measures the value of the economy's output at current prices and is a ____________ variable. B) Nominal, flow