econ midterm 2

Past profits of a firm are called:

retained earnings.

The consumption function will _____ if households' wealth decreases.

shift downward

Dog and Dog Pharmaceutical Company is considering developing a new drug for veterinarians from a recently discovered compound. The process will cost $15 million initially. The company expects it to generate revenue of $30 million immediately after a testing process that will last for 10 years. If the interest rate is 12 percent, Dog and Dog Pharmaceutical:

should not develop the new drug.

A small economy only produces two goods: soda and pizza. This information is shown in the table. Based on the table, the growth rate of nominal GDP from 2010 to 2011 was _____ percent.

10

The table represents the cost of a market basket of goods in the Rowdyville area for the years 2011, 2012, 2013, and 2014. If the base year is 2011, the inflation rate for 2014 was _____ percent.

23.1

If the consumption function is C = 250 + 0.75 x YD, then autonomous consumption is:

250.

In one nation, GDP (gross domestic product) is $14 trillion, consumption is $9 trillion, investment is $3 trillion, and net exports are -$1 trillion. In this nation, government spending is _____ trillion dollars

3

A small economy produces three items: wheat, flour, and bread. Farmer Zack produces wheat and sells it to the Big Gluten Company. The Big Gluten Company produces flour and sells it to the Fragrant Bread Corporation. This information is shown in the table. The total profit received in this economy is _____ dollars.

70

A small economy only produces two goods: soda and pizza. This information is shown in the table. Based on the table, nominal GDP in 2010 was _____ dollars.

700

The table represents the cost of a market basket of goods in the village of Roundtop for the years 2011, 2012, 2013, and 2014. If the base year is 2011, the inflation rate for 2013 was _____ percent.

8.3

If the rate of return on an investment project is _____ percent and the interest rate is _____ percent, then the firm should undertake the project if profit is the only motive.

8; 5

_____ refers to stocks of goods held to satisfy future sales.

An inventory

Bank account values up to $250,000 are insured by the:

Federal Deposit Insurance Corporation.

_____ is the category with the most weight in the U.S. Consumer Price Index.

Housing

Planned investment spending depends on all of the following EXCEPT the:

aggregate consumption function.

The marginal propensity to consume (MPC) is the:

amount of an increase in disposable income of $1 that will be spent on consumption.

The marginal propensity to consume (MPC):

can be written as the change in consumer spending divided by the change in disposable income.

Suppose aggregate wealth decreases in the economy because of the bursting of a housing price bubble. Holding everything else constant, this will MOST likely:

cause a lower level of consumer spending for any given level of disposable income.

Which of the four options best represents specialization and its relationship with trade?

comparative advantage

The marginal propensity to consume (MPC) refers to the increase in _____ spending when disposable income increases by $1.

consumer

The _____ measures the cost of the market basket of a typical urban U.S. family.

consumer price index

In a closed economy with no government, planned aggregate spending is the sum of:

consumption and planned investment.

Aggregate spending on domestically produced final goods and services is _____ the factor income earned by all households in the economy.

equal to

C + I + G + X - IM is:

equal to an economy's GDP for a given period of time.

If interest rates rise, then planned investment spending _____ and residential construction _____.

falls; falls

Social Security benefits and unemployment compensation are examples of:

government transfers.

If the interest rate is positive, the present value is always _____ the future value.

less than

Tinytown produces tractors and pizzas. Based on the table, if 2013 was the base year, real GDP in Tinytown in 2014 was:

less than nominal GDP in 2014.

What is the main goal of policymakers in regard to the business cycle?

limit the volatility of the business cycle by reducing the size of both recessions and economic booms

On a graph, if households and firms increase the level of private savings because they become pessimistic about the future, then the:

supply for loanable funds shifts to the right.

An economy has three firms: American Racquet Co, which produces tennis racquets; American Metal Co., which produces the various metals that go into racquet production; and American Ore Co., which mines the ores needed for the manufacture of the metal. This economy produces 100 racquets that sell for $50 each. There are no other goods produced in this economy. All the ore that is mined is sold to the metal company, and all the metal that is produced is sold to the racquet company. Based on the table, which is the value added by the American Metal Co.?

$2500

A small economy produces three items: wheat, flour and bread. Farmer Zack produces wheat and sells it to the Big Gluten Company. The Big Gluten Company produces flour and sells it to the Fragrant Bread Corporation. This information is shown in the table. The total value added for this economy is:

$420.

The table represents the cost of some fruits in the city of Gaga in 2013 and 2014. A market basket for constructing a price index consists of 200 oranges, 100 apples, and 100 bananas, and 2013 is the base year. The value of the price index in 2013 was:

100

The table represents data on the economy of Jonesville. Based on this table, the rate of inflation using the GDP deflator as the price index between 2013 and 2012 was approximately:

11 percent

Mama's Pies, a baking company, adds another store to sell its pastries. The new store costs $400,000 to build and it will generate revenues of $450,000. The rate of return on this investment is _____ percent.

12.5

The table shows the quantities of food and clothes that make up a two-good market basket. If 2014 is the base year, the price index in 2015:

133

Given the output and price data in the table, the growth in nominal GDP was equal to the growth in real GDP between years:

2 and 3.

Given the output and price data in the table, real GDP did not change between years:

3 and 4.

Which is the multiplier if the marginal propensity to consume (MPC) is 0.75?

4

In a closed economy with no taxes, if the marginal propensity to save is 0.25, then the multiplier is:

4.

Suppose that the CPI in 2013 was 250 and the CPI in 2014 was 260. What is the rate of inflation in this economy?

4.0% ((B-A)/A)(100)

Which is the multiplier if the marginal propensity to save (MPS) is 0.2?

5

If actual sales are greater than businesses expected, then:

unplanned inventory investment decreases.

An economy has three firms: American Racquet Co, which produces tennis racquets; American Metal Co., which produces the various metals that go into racquet production; and American Ore Co., which mines the ores needed for the manufacture of the metal. This economy produces 100 racquets that sell for $50 each. There are no other goods produced in this economy. All the ore that is mined is sold to the metal company, and all the metal that is produced is sold to the racquet company. Based on the table, which value is correct for the missing entries in the table if the value added method is used to calculate GDP (gross domestic product)?

A = $3,000; B = $500; G = $2,000; H = $2,500; I = $500

The aggregate consumption function will _____ if the marginal propensity to consume decreases.

become flatter and rotate downward

The _____ sector is responsible for most of the value added in the gross domestic product (GDP).

business

In the United States, most physical capital, with the exception of infrastructure, is created by:

businesses.

Private savings equals:

disposable income minus consumption spending.

Income after taxes are paid and government transfers are received is known as:

disposable income.

Income available to households after government transfers and taxes is called:

disposable income.

According to Keynesian economics, economic downturns are caused by

inadequate spending.

The _____ measures the changes in the prices of goods purchased by producers.

producer price index

If nominal GDP is adjusted for changes in prices, the result is:

real GDP.

Suppose aggregate wealth decreases in the economy because of the bursting of a housing price bubble. Holding everything else constant, this will MOST likely:

reduce wealth and cause a decrease in autonomous consumer spending.

Which is NOT a problem that a financial system solves in a cost effective way?

reducing inflation

Suppose a report on CNN says that the United States is heading into a recession. As a result, Bert's family, as well as many other like-minded families and individuals, reduces their spending and instead fills up their savings accounts for potential hard times. As a result of this behavior, In macroeconomics, this result is known as

the economy is actually harmed, since there is a sharp decease in consumer spending. the paradox of thrift.

As _____ becomes larger, the multiplier becomes _____.

the marginal propensity to consume (MPC); larger

Which will MOST likely cause the consumption function to shift up?

the price of an average house increases

Leap Island produces tractors and pizzas. This information is shown in the table. Based on the table, if the base year is 2014, real GDP in Leap Island was:

the same in 2013 and 2015.

Smallville produces tractors and pizzas. This information is shown in the table. Based on the table, nominal GDP in Smallville in 2014:

was greater than nominal GDP in 2013.

In theory, other things equal, receiving $1,000 today is _____ receiving $1,000 after a year.

worth less than

The present value of $300 received in 4 years if the annual interest rate is 5 percent is:

$246.81.

An economy has three firms: American Racquet Co, which produces tennis racquets; American Metal Co., which produces the various metals that go into racquet production; and American Ore Co., which mines the ores needed for the manufacture of the metal. This economy produces 100 racquets that sell for $50 each. There are no other goods produced in this economy. All the ore that is mined is sold to the metal company, and all the metal that is produced is sold to the racquet company. Based on the table, which is the value added by American Ore Co.?

$500

In a closed economy with no taxes, if the marginal propensity to consume (MPC) is 0.8, then the marginal propensity to save (MPS) is:

.2

The people described spent their money during different time periods. Label each of their scenarios as to whether they bought their goods during a time of inflation, deflation, or price stability. 1.) Peter is a compulsive gamer. He decides to buy World of Warcraft, all of its expansions, Starcraft 2, a PS3, a Wii, and an Xbox 360, since prices in general have been rising at an alarming rate..... 2.) Melissa decides to start her own personal library by amassing a private collection of books and magazines about world religions, cooking, comics, and economics. As she reads an issue of The Economist, she discovers that overall price levels have changed only 0.01% in the past two years, and decides it does not matter whether she starts the project now or later. 3.) Linda postpones her wedding even though most food prices and most service prices were dropping this year, which would help keep the cost of the wedding down. 4.) Out of these individuals, whose money gained the most value during their time period?

1.) inflation 2.) price stability 3.) deflation 4.) Linda's money gained the most value.

The table shows the quantities of food and clothes that make up a two-good market basket. The value of the market basket in 2014 was _____ dollars.

900

____ is the amount that a household would spend if it had zero disposable income.

Autonomous consumer spending

Which statement regarding the liquidity of bonds and loans is true?

Bonds are more liquid than loans.

The GDP of Littleville's economy in 2015 was $10,000, and the population was 10 people. GDP per capita in Littleville in 2015 was _____ per person.

$1,000

Calculate the GDP of Dinoland using the expenditures approach given the following data: personal consumption expenditures = $10 billion; gross private domestic investment = $5 billion; government spending = $3 billion; exports = $2 billion, imports = $1 billion

$19 billion

The _____ for a given year is 100 times the ratio of nominal GDP to real GDP in that year.

GDP deflator

Which is true regarding the circular-flow diagram and gross domestic product (GDP)?

In the circular-flow diagram of the economy, the flow of money into the goods market must equal the flow of money out of the goods market.

The _____ is the increase in consumer spending when disposable income increases by $1.

Marginal Propensity to consume

_____ is the value of all final goods and services produced in the economy during a given year; it is calculated using the current prices from the year in which the output is produced.

Nominal GDP

Which statement is true concerning the relative risk of stocks and bonds?

Stocks are usually more risky than bonds.

_____ is an equation showing how an individual household's consumer spending varies with the household's current disposable income.

The consumption function

A firm can earn a 10 percent rate of return on an investment. At which interest rate would the firm borrow money to finance the project?

The firm would only borrow money at interest rates less than or equal to 10 percent.

Which statement is true regarding expenditure and income?

The marginal propensity to consume in an economy is a positive number.

Which statement is true regarding the consumption function?

The slope of the consumption function is the change in consumption divided by the change in disposable income.

Suppose that Pandastan has a GDP of $5 billion and a population of 2 million, while Tigerstan has a GDP of $3 billion and a population of 1 million. Which country has a higher GDP per capita, and what is that value?

Tigerstan; $3,000

The graph depicts employment in the United States from 1986-2014. The grey bars represent recessions.Based on the graph, a major characteristic of a recession is... Which of these agencies officially determines when the economy is experiencing a recession?

a decrease in employment. National Bureau of Economic Research

Select the correct definition of inflation.

a general and ongoing rise in the average level of prices in an economy

The aggregate price level refers to:

a measure of the overall level of prices in the economy.

Which would NOT be considered a financial intermediary? Please choose the correct answer from the following choices, and then select the submit answer button.

a multinational corporation

The statement that "savings equals investment spending in an economy" is:

an accounting identity that is always true.

Which of the events is likely to occur when the business cycle is in a period of recession (contraction)? Which of the events is likely to occur when the business cycle is in a period of expansion?

an increase in unemployment an increase in economic growth

Government raises funds through taxation:

and by borrowing in financial markets.

If interest rates increase because the credit rating of the U.S. government is downgraded, then investment spending will:

decrease.

A _____ occurs when a borrower fails to make the payments specified by the loan or bond contract.

default

A _____ transforms the funds it gathers from many individuals into financial assets.

financial intermediary

Recessions typically hurt... The most common indicator in the labor market is... Since 1900, what has been the long-term pattern of growth in the United States?...

firms and individuals unemployment rate. an increase in real GDP (gross domestic product) per capita

Select the answer that makes each statement correct. When the government changes either its spending or tax policy to pursue economic objectives, it has changed its.. Changing the amount of money in circulation to pursue economic objectives changes the..

fiscal policy. monetary policy.

The city of Minutia produces tractors and pizzas. This information is shown in the table. Based on the table, real GDP in Minutia in 2014, using 2015 as the base year, was:

greater than nominal GDP in 2014.

The accelerator principle:

helps to explain investment booms.

The hypothetical market that illustrates how borrowers come together with lenders in an economy is called the _____ market.

loanable funds

If expected future GDP is _____, investment spending will _____.

lowered; decrease

A _____ is a financial intermediary that creates a stock portfolio and then resells shares of this portfolio to individual investors.

mutual fund

The _____ keep(s) track of the flows of money between different sectors of the economy.

national accounts

Savings in an economy is equal to _____ capital inflow. Please choose the correct answer from the following choices, and then select the submit answer button.

national savings plus

According to the accelerator principle, expected future gross domestic product (GDP) and investment spending are:

negatively correlated.

Current productive capacity and investment spending are:

negatively correlated.

The city-republic of Schilda produces tractors and pizzas. This information is shown in the table. Based on the table, if 2013 is the base year:

nominal GDP increased every year in Schilda.

The aggregate price level is a measure of the:

overall level of prices in the economy.

A _____ is a type of mutual fund that holds assets in order to provide income to its members when they retire.

pension fund

The _____ hypothesis of consumer spending suggests that consumers plan their spending based on long-term income rather than on current income.

permanent income

A bubble in _____ contributed to the 2001 recession in the United States.

technology