Econ Test 1 Homework

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 supply of capital will ________ in an economy described by a Cobb-Douglas production function

Decrease the real rental price of capital

Exogenous variables are?

Determined outside the model

Endogenous variables are?

Determined within the model

Macroeconomics is the study of?

Economy as a whole

In an economic model...

Exogenous variables affect endogenous variables

In the long run, the level of national income in an economy is determined by its?

Factors of production and production function

In this exhibit, the citizens of country XYZ come to desire more of a good A. As a result, the quantity and price of the good both rise Price of Good A - Base Year: 100, Later Year: 200 Quantity of Good A - Base Year: 100, Later Year: 200 Price of Good B - Base Year: 100, Later Year: 100 Quantity of Good B - Base Year: 100, Later Year: 100 Compute a fixed-weight index for the later year, using the base-year quantities as weights?

Fixed-weight index = 1.50

In this exhibit, the citizens of country XYZ come to desire more of a good A. As a result, the quantity and price of the good both rise Price of Good A - Base Year: 100, Later Year: 200 Quantity of Good A - Base Year: 100, Later Year: 200 Price of Good B - Base Year: 100, Later Year: 100 Quantity of Good B - Base Year: 100, Later Year: 100 Compute the GDP deflator in the later year, using your answers to parts (a) and (b)

Gross national product (GNP) deflator in later year = 1.667

Suppose that GDP (Y) is 5000. Consumption (C) is given by the equation C = 500 + 0.5 (Y-T). Investment (I) is given by the equation I = 2000 - 100r, where r is the real interest rate, in percent. Government spending (G) is 1000 and taxes (T) are also 1000. When a technological innovation changes the investment function to I = 3000 - 100r, what happens to I?

I is unchanged and r rises by 10 percentage points

A typical trend during a recession is that?

Incomes fall

Assume that the production function is Cobb-Douglas with parameter a=0.3. In the neoclassical model, if the labor force increases by 10 percent, then output?

Increases by about 7%

In the classical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving ____ and private saving _____

Increases; does not change

Which of the following will not directly contribute to output growth in the long run?

Increasing current consumer spending

When a firm sells a product out of inventory, gross domestic product (GDP)...

Is not changed

Jill earned $11 per hour in 2012 and she earned $15 per hour in 2020. The CPI in 2020 is 125 (CPI=100 in 2012), choose a correct statement

Jill's real wage increased from $11 to $13 from 2012 to 2020. 2012: 11/100 x 100, 2020: 15/125 x 100

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

Labor productivity is growing rapidly

Consider two competitive economies that have the same quantities of labor (L=400) and capital (K=400), as well as the same technology (A=100). The economies of the countries are described by the following Cobb-Douglas production functions. North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 In which economy is labor's share of income larger? Explain.

Labors share of income equals (1-a), which is larger in the South Economy (0.7) than in the North Economy (0.3)

Inflation

Later deflator - base deflator / base deflator

When the demand for loanable funds exceeds the supply of loanable funds, households and the government want to save _____ than firms want to invest, and the interest rate ______

Less; rises

A milk factory purchased $10000 of raw milk from a dairy farm, then the factory turned the raw milk into milk product which was sold to the store for $25000. Consumers spent $35000 on the milk product at the store. The value added of the product from the store is?

$10,000 Milk: 10k, Sold Milk: 25k, Consumer: 35k, so 10k increase

Assume that a tire company sells four tires to an automobile company for $400, another company sells a navigation system 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 gross domestic product (GDP) is?

$20,000

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real gross domestic product (GDP) (In 2002 prices) in 2009 was?

$6.50

Assume that total output consists of four apples and six oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of gross domestic product (GDP) is

$7

MPL

(1-a)y/l

Real wage (both versions)

(1-a)y/l or w/cpi x 100

Private saving

(Y - T) - C

Real rental

(a)y/k

CPI formula

(current year/base year) x 100

If income is 4800, consumption is 3500, government purchases is 1000, and taxes minus transfers are 800, public saving is?

-200

Suppose the Cobb-Douglas production function in an economy is Y=K4L6 where K is the amount of capital and L is the amount of labor. The economy begins with 55 units of capital and 100 units of labor. Calculate the real wage and real rental price of the capital

0.47, 0.57

If nominal gross domestic product (GDP) in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?

1.27

An economy produces two goods: Pizza and catfish. Quantities and prices per unit for year 2015 and 2020 are as follows. Pizza 2015 $8.00 100 pies Pizza 2020 $9.00 125 pies Catfish 2015 $5.00 350lbs Catfish 2020 $7.00 325lbs Compute the GDP deflator in 2020

129.52

Assume that equilibrium GDP (Y) is 5000. Consumption (C) is given by the equation C = 500 + 0.6 (Y-T). Taxes (T) are equal to 600. Government spending is equal to 1000. Investment is given by the equation I = 2160 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is?

13 percent

Use the following data to compute the consumer price index for 2020 using 2012 as the base year

146

Assume that GDP (Y) is 5000. Consumption (C) is given by the equation C= 1000 + 0.3 (Y-T). Investment (I) is given by the equation I = 1500 - 50r, where r is the real interest rate, in percent. Taxes (T) are 1000 and government spending (G) is 1500. What are the new values of private saving, public saving, and national saving?

1800, -500, 1300

Assume that GDP (Y) is 5000. Consumption (C) is given by the equation C= 1000 + 0.3 (Y-T). Investment (I) is given by the equation I = 1500 - 50r, where r is the real interest rate, in percent. Taxes (T) are 1000 and government spending (G) is 1500. What are the values of private saving, public saving, and national saving?

1800, -500, 1300

If nominal gross domestic product (GDP) grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately?

2%

All of these transactions that took place in 2009 would be included in the gross domestic product (GDP) for 2009 EXCEPT the purchase of a?

2001 Jeep Cherokee

Assume that GDP (Y) is 5000. Consumption (C) is given by the equation C= 1000 + 0.3 (Y-T). Investment (I) is given by the equation I = 1500 - 50r, where r is the real interest rate, in percent. Taxes (T) are 1000 and government spending (G) is 1500. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2000 - 50r. What are the new equilibrium values of C, I and r?

2200, 1300, 14%

Assume that GDP (Y) is 5000. Consumption (C) is given by the equation C= 1000 + 0.3 (Y-T). Investment (I) is given by the equation I = 1500 - 50r, where r is the real interest rate, in percent. Taxes (T) are 1000 and government spending (G) is 1500. What are the equilibrium values of C, I, and r?

2200, 1300, 4%

An economy produces two goods: Pizza and catfish. Quantities and prices per unit for year 2015 and 2020 are as follows. Pizza 2015 $8.00 100 pies Pizza 2020 $9.00 125 pies Catfish 2015 $5.00 350lbs Catfish 2020 $7.00 325lbs The base year is still 2015. Use the GDP deflator to compute the rate of inflation from 2015 to 2020.

29.52

An economy produces two goods: Pizza and catfish. Quantities and prices per unit for year 2015 and 2020 are as follows. Pizza 2015 $8.00 100 pies Pizza 2020 $9.00 125 pies Catfish 2015 $5.00 350lbs Catfish 2020 $7.00 325lbs Compute the nominal and real GDP in 2020. The base year is 2015.

3400, 2625

If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately?

4.7%

Suppose the Cobb-Douglas production function in an economy is Y=K4L6 where K is the amount of capital and L is the amount of labor. The economy begins with 55 units of capital and 100 units of labor. What is the ratio of capital to labor income share?

4/6

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

If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals?

60%

Assume that the investment function is given by I = 1000 - 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

Suppose the Cobb-Douglas production function in an economy is Y=K4L6 where K is the amount of capital and L is the amount of labor. The economy begins with 55 units of capital and 100 units of labor. How much output does the economy produce?

78.73

City A has a total population of 10 million, of which 70 percent are adults. Assume that 20 percent of the adult population is not looking for a job and 60 percent of the remaining adult population is employed. Compute the labor-force participation rate?

Adult population = (10*70)/100 = 7 million Labor force = (7000000)*(100-20) / 100 = 5600000 Labor-force participation rate = (5600000)*(100)/7000000 = 80%

If bread is produced using a constant returns to scale production function, then if the....

Amounts of equipment and workers are both doubled, twice as much bread will be produced

In the circular flow model, the flow of dollars from firms to households is paid ______, and the flow of dollars from households to firms is paid ______.

As wages, capital income, and profits; for goods and services

The assumption of continuous market clearing means that?

At any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price

In this exhibit, the citizens of country XYZ come to desire more of a good A. As a result, the quantity and price of the good both rise Price of Good A - Base Year: 100, Later Year: 200 Quantity of Good A - Base Year: 100, Later Year: 200 Price of Good B - Base Year: 100, Later Year: 100 Quantity of Good B - Base Year: 100, Later Year: 100 Compute nominal gross domestic product (GDP) in the base year and later year?

Base-year nominal GDP = 20,000. Later-year nominal GDP = 50,000

In this exhibit, the citizens of country XYZ come to desire more of a good A. As a result, the quantity and price of the good both rise Price of Good A - Base Year: 100, Later Year: 200 Quantity of Good A - Base Year: 100, Later Year: 200 Price of Good B - Base Year: 100, Later Year: 100 Quantity of Good B - Base Year: 100, Later Year: 100 Compute real GDP in the base year and later year?

Real GDP in base-year = 20,000. Real GDP in later-year = 30,000

_____ GDP is expressed in terms of the _____ year's dollars is a better measurement to compare real output changes across different years

Real; base

Ratio

a/1-a

Which of the following is part of the investment component of GDP?

New home purchase

GDP deflator

Nominal GDP/Real GDP x 100

Nominal rate of interest (finding interest rate using inflation)

Nominal= r + ir

Real GDP formula

Original price x quantity

Consider two competitive economies that have the same quantities of labor (L=400) and capital (K=400), as well as the same technology (A=100). The economies of the countries are described by the following Cobb-Douglas production functions. North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 Which economy has the larger production? Explain.

Output is the same in both economies, given the symmetry of the parameters of the production function and the equal quantities of labor and capital.

A fixed-weight price index like the consumer price index (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?

Overestimates; does not

The quantity of coffee demanded, Qd, depends on the price of coffee, Pc, and the price of tea, PT. The quantity of coffee supplied, Qs, depends on the price of coffee, Pc and the price of electricity, PE, according to the following equation Qd=17-2pc+10PT Qs=2+3Pc-5PE What are the exogenous variables in this model?

PT and PE

The quantity of coffee demanded, Qd, depends on the price of coffee, Pc, and the price of tea, PT. The quantity of coffee supplied, Qs, depends on the price of coffee, Pc and the price of electricity, PE, according to the following equation Qd=17-2pc+10PT Qs=2+3Pc-5PE What are the endogenous variables in this model?

Pc and Q

Consider the following closed economy in the long run. Y=5000, G-1500, T=2024, C= 100+0.8(Y-T), I=1500-250r Compute private saving and public saving

Private = 495, Public = 525

Consider the following closed economy in the long run. Y=5000, G-1500, T=2024, C= 100+0.8(Y-T), I=1500-250r Draw a loanable funds diagram and mark the equilibrium interest rate and investment on the diagram.

R is y axis, I (S) is x axis. On Y we put r at 1.92 and I.S at 1020 on x axis. Mark equilibrium where the line and draw investment line/supply line.

Consider two competitive economies that have the same quantities of labor (L=400) and capital (K=400), as well as the same technology (A=100). The economies of the countries are described by the following Cobb-Douglas production functions. North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 In which economy is the real wage longer? Explain.

Since factors are paid according to the values of their marginal products, the real wage is larger in the South Economy, because the MPL is larger in the South Economy than the North Economy

Which of the following is included in the government purchases component of GDP?

State and local government spending on goods

Nominal GDP formula

Sum of Price x Quantity

Public saving

T - G

An increase in the price of imported machinery used in production may increase inflation measured by

The CPI and PCE deflator

An increase in the price of goods bought by firms and the government will show up in?

The GDP deflator but not in the CPI

Consider two competitive economies that have the same quantities of labor (L=400) and capital (K=400), as well as the same technology (A=100). The economies of the countries are described by the following Cobb-Douglas production functions. North Economy: Y = A L0.3K0.7 South Economy: Y = A L0.7K0.3 In which economy is the marginal product of labor larger? Explain.

The MPL is larger in the south economy. The MPL depends on the value (1-a) and the average productivity of labor (Y/L). Since the average productivity of labor is the same in both countries, differences in the MPL depend on the value (1-a) which is larger in the south economy (0.7) than the north economy (0.3)

In this exhibit, the citizens of country XYZ come to desire more of a good A. As a result, the quantity and price of the good both rice. Price of Good A - Base Year: 100, Later Year: 200 Quantity of Good A - Base Year: 100, Later Year: 200 Price of Good B - Base Year: 100, Later Year: 100 Quantity of Good B - Base Year: 100, Later Year: 100 Which price index rises faster, the GDP deflator (Paasche) index or the fixed-weight index (Laspeyres) index?

The Paasche index, with current quantity weights, rises faster in this case than the base-year quantity-weighted Laspeyres index.

The salary received by a French national who works in the University of Alabama counts toward

The U.S GDP

The quantity of coffee demanded, Qd, depends on the price of coffee, Pc, and the price of tea, PT. The quantity of coffee supplied, Qs, depends on the price of coffee, Pc and the price of electricity, PE, according to the following equation Qd=17-2pc+10PT Qs=2+3Pc-5PE If the price of tea is $1.00 and the price of electricity is $0.50, what are the equilibrium price and quantity of coffee?

The equilibrium price is 5.50, and the equilibrium quantity is 16

Which is the BEST example of a flexible price?

The price of gasoline at a service station

In a simple model of the supply and demand for pizza, the endogenous variables are?

The price of pizza and the quantity of pizza sold

Which is the BEST example of a sticky price?

The price of soda in a vending machine

In a classical economy, assume that the government lowers both government spending and taxes by the same amount. This causes investment...

To rise and the real interest rate to fall

City A has a total population of 10 million, of which 70 percent are adults. Assume that 20 percent of the adult population is not looking for a job and 60 percent of the remaining adult population is employed. Compute the unemployment rate?

Unemployed population = (100-60)*(5600000)/100 = 2240000 Unemployment rate = (2240000)*(100)/5600000) = 40%

Prices of items included in the consumer price index (CPI) are?

Weighted according to the quantity of the item purchased by the typical household

National saving

Y - C - G, sum of private and public

Cobb Douglas

Y = AK^aL^1-a

To find equilibrium

Y = C + I + G

Consider the following closed economy in the long run. Y=5000, G-1500, T=2024, C= 100+0.8(Y-T), I=1500-250r Computer the interest rate and investment at equilibrium

r= 1.92, I=1020