Intermediate Macro-economics
A period of falling prices is called: a. deflation. b. inflation. c. a depression. d. a recession.
a
If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? a. $12 trillion b. $12.5 trillion c. $15 trillion d. $18.75 trillion
a
In the classical model with fixed income, if the interest rate is too low, then investment is too ______, and the demand for output ______ the supply. a. high; exceeds b. high; falls short of c. low; exceeds d. low; falls short of
a
A firm's economic profit is: a. the price of output minus the wage minus the rental price of capital. b. revenue minus costs. c. revenue plus capital costs. d. the price of output minus labor costs.
b
Based on the table, what is the leverage ratio at the bank? a. 3 b. 4.67 c. 5 d. 10
c
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: a. decreases by 0.85 units. b. decreases by 0.15 units. c. increases by 0.15 units. d. increases by 0.85 units.
a
If Y = AK^0.5L^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 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
a
If output is described by the production function Y = AK L , then the production function has: a. constant returns to scale. b. diminishing returns to scale. c. increasing returns to scale. d. a degree of returns to scale that cannot be determined from the information given.
a
In the long run, the level of national income in an economy is determined by its: a. factors of production and production function. b. real and nominal interest rate. c. government budget surplus or deficit. d. rate of economic and accounting profit.
a
In the national income accounts, all of the following are classified as government purchases except: a. payments made to Social Security recipients. b. services provided by police officers. c. purchases of military hardware. d. services provided by U.S. senators.
a
In the national income accounts, the purchases of durables, nondurables, and services by households are classified as: a. consumption. b. investment. c. government purchases. d. net exports.
a
Nominal GDP means the value of goods and services is measured in ______ prices. a. current b. real c. constant d. average
a
The CPI is a: a. Laspeyres price index. b. Paasche price index. c. Laspeyres quantity index. d. Paasche quantity index.
a
The GDP deflator is equal to: a. the ratio of nominal GDP to real GDP. b. the ratio of real GDP to nominal GDP. c. real GDP minus national GDP. d. nominal GDP minus real GDP.
a
The factor that makes national saving equal investment, in equilibrium, is: a. the interest rate. b. private saving. c. public saving. d. fiscal policy.
a
The marginal propensity to consume is: a. expected to be between zero and one. b. equal to disposable income divided by consumption. c. the amount by which consumption changes when wealth increases by one dollar. d. normally assumed to increase as taxes increase.
a
The most frequently used tool of monetary policy is: a. open-market operations. b. changes in the discount rate. c. changes in reserve requirements. d. changes in interest rate paid on reserves.
a
The size of the monetary base is determined by: a. the Federal Reserve. b. the Federal Reserve and banks. c. preferences of households about the form of money they wish to hold. d. business policies of banks and the laws regulating banks.
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
To increase the money supply, the Federal Reserve: a. buys government bonds. b. sells government bonds. c. buys corporate stocks. d. sells corporate stocks.
a
Unlike the real world, the classical model with fixed output assumes that: a. capital and labor are fully utilized. b. all capital is fully utilized, but some labor is unemployed. c. all labor is fully employed, but some capital lies idle. d. some capital lies idle, and some labor is unemployed.
a
An example of an imputed value in the GDP is the: a. value added of meals cooked at home. b. housing services enjoyed by homeowners. c. rental services of automobiles to their owners. d. value of illegal drugs sold.
b
A production function is a mathematical relationship between?: a. factor prices and the marginal product of factors. b. factors of production and factor prices. c. factors of production and the quantity of output produced. d. factor prices and the quantity of output produced.
c
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: a. constant marginal product of labor. b. increasing marginal product of labor. c. constant returns to scale. d. increasing returns to scale.
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
In 2013, the GDP of the United States totaled about: a. $16.8 billion. b. $168 billion. c. $16.8 trillion. d. $168 trillion.
c
In a closed economy with fixed output, when government spending increases: a. private saving decreases. b. private saving increases. c. public saving decreases. d. public saving increases.
c
In a closed economy, the components of GDP are: a. consumption, investment, government purchases, and exports. b. consumption, investment, government purchases, and net exports. c. consumption, investment, and government purchases. d. consumption and investment.
c
In the circular flow diagram, firms receive revenue from the _____ market, which is used to purchase inputs in the _____ market. a. goods; financial b. factor; financial c. goods; factor d. factor; goods
c
Macroeconomists call assets used to make transactions: a. real income. b. nominal income. c. money. d. consumption.
c
Prices of items included in the CPI are: a. averaged, with the price of every item weighted equally. b. weighted according to the amount of the item produced in GDP. c. weighted according to the quantity of the item purchased by the typical household. d. chained to the base year by the year-to-year growth rate of the item.
c
Private investment goods as measured in GDP are purchased by: a. business firms alone. b. households alone. c. business firms and households. d. business firms, households, and governments.
c
Real GDP means the value of goods and services is measured in ______ prices. a. current b. actual c. constant d. average
c
When the demand for loanable funds exceeds the supply of loanable funds, households want to save ______ than firms want to invest, and the interest rate ______. a. more; rises b. more; falls c. less; rises d. less; falls
c
The price received by each factor of production is determined by: a. demand for output and supply of factors. b. demand for factors and supply of output. c. demand and supply of output. d. demand and supply of factors.
d
If the productivity of farmers has risen substantially over time because of technological progress, and workers can move freely between being farmers and barbers, the neoclassical theory of distribution predicts that the real wages of: A. both barbers and farmers should have remained constant over time. B. both barbers and farmers should have risen over time. C.farmers should have risen while the real wage of barbers should have remained constant. D.barbers should have risen while the real wage of farmers should have remained constant.
b
Important characteristics of macroeconomic models include all of the following except: a. simplifying assumptions. b. functional relationships based on randomized control trials. c. endogenous and exogenous variables. d. implicit or explicit consistency with microeconomic foundations.
b
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: a. I rises by 1,000 and r rises by 10 percentage points. b. I rises by 1,000 and r is unchanged. c. I is unchanged and r rises by 10 percentage points. d. I is unchanged and r rises by 15 percentage points.
c
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.
c
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 ______. a. self-employed; unemployed b. unemployed; self-employed c. with jobs; on firms' payrolls d. on firms' payrolls; with jobs
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
When a firm sells a product out of inventory, GDP: a. increases. b. decreases. c. is not changed. d. increases or decreases, depending on the year the product was produced.
c
All of the following actions increase government purchases of goods and services except the: a. federal government's sending a Social Security check to Betty Jones. b. federal government's sending a paycheck to the president of the United States. c. federal government's buying a Patriot missile. d. city of Boston's buying a library book.
a
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: a. lower investment and raise the interest rate. b. raise investment and lower the interest rate. c. lower both investment and the interest rate. d. raise both investment and the interest rate.
a
Assume that a firm is considering building a factory that will cost $5 million. It believes that it can get a profit from this factory of $600,000 per year for many years. The interest rate at which the firm can borrow money is 15 percent. After evaluating whether it should build the factory, the firm decides that it should: a. not build because the rate of return on the factory is only 6 percent. b. not build because the rate of return on the factory is only 12 percent. c. build because the rate of return on the factory is 30 percent. d. build because the rate of return on the factory is 35 percent.
b
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 GDP (in 2002 prices) in 2009 was: a. $5. b. $6.50. c. $9.50. 'd. $11.
b
Exhibit: Saving, Investment, and the Interest Rate 2.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? a. point A b. point B c. point C d. point D
b
For much of the twentieth century, skill-biased technological change ______ the demand for high-skilled workers, while the increase in the pace of educational advancement increased the supply of skilled workers. Because educational advancement _______ skill-biased technological change, we should expect _____ wages for skilled workers. a. increased; outpaced; higher b. increased; outpaced; lower c. decreased; slowed down; higher d. decreased; slowed down; lower
b
If saving exceeds investment demand and consumption is not a function of the interest rate: a. the demand for loans exceeds the supply of loans. b. the interest rate will fall. c. the interest rate will rise. d. saving will fall
b
If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then saving a. decreases by 0.85 units. b. decreases by 0.15 units. c. increases by 0.15 units. d. increases by 0.85 units.
b
In a system with 100-percent-reserve banking: a. all banks must hold reserves equal to 100 percent of their loans. b. no banks can make loans using deposits made at their institutions. c. the banking system completely controls the size of the money supply. d. no banks can accept deposits.
b
In principle, the GDP accounts should—but do not—have an imputation for: a. housing services enjoyed by homeowners. b. rental services of automobiles driven by owners. c. meals cooked in restaurants. d. housing services enjoyed by renters.
b
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.
b
In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will: a. increase. b. decrease. c. remain unchanged. d. either increase or decrease, depending on whether consumption is greater or less than investment.
b
Macroeconomic models are used to explain how ______ variables influence ______ variables. a. endogenous; exogenous b. exogenous; endogenous c. microeconomic; macroeconomic d. macroeconomic; microeconomic
b
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, a. provides a real, rather than a nominal, rate of inflation. b. gives a better measure of ongoing, sustained price changes. c. is more consistent with measures of inflation used in other countries. d. fluctuates more than measures of inflation that include food and energy prices.
b
People use money as a unit of account when they: a. hold money to transfer purchasing power into the future. b. use money as a measure of economic transactions. c. use money to buy goods and services. d. hold money to gain power and esteem.
b
Since 1960, the U.S. ratio of labor income to total income has: a. been about 2.5 to 1 .b. remained relatively steady. c. increased steadily. d. decreased steadily.
b
The assumption that the factor's supply is fixed will imply that the factor's a. supply curve is horizontal. b. supply curve is vertical. c. supply curve slopes up to the right. d. demand curve slopes up to the right.
b
The preferences of households determine the: a. reserve-deposit ratio. b. currency-deposit ratio. c. size of the monetary base. d. loan-deposit ratio.
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
Variables that a model takes as given are called: a. endogenous. b. exogenous. c. market clearing. d. macroeconomic.
b
When a pizza maker lists the price of a pizza as $10, this is an example of using money as a: a. store of value. b. unit of account. c. medium of exchange. d. flow of value.
b
When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a ______ interest rate and ______ in the quantity of investment. a. higher; no change b. higher; an increase c. lower; no change d. lower; an increase
b
When the Fed decreases the interest rate paid on reserves, it: a. increases the reserve-deposit ratio (rr). b. decreases the reserve-deposit ratio (rr). c. increases the monetary base (B). d. decreases the monetary base (B).
b
A trade in a barter economy requires: a. currency. b. a check. c. scrip. d. a double coincidence of wants.
d
All of the following actions are investments in the sense of the term used by macroeconomists except: a. Apple's building a new factory. b. a corner candy store's buying a new computer. c. John Smith's buying a newly constructed home. d. Sandra Santiago's buying 100 shares of Apple stock.
d
All of the following are flows variables except: a. the number of new automobile purchases. b. the number of people losing their jobs. c. business expenditures on plant and equipment. d. the government debt.
d
Bank reserves equal: a. gold kept in bank vaults. b. gold kept at the central bank. c. currency plus demand deposits. d. deposits that banks have received but have not lent out.
d
If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: a. 0.6. b. 1.67. c. 2.0. d. 2.5.
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
In computing GDP: a. expenditures on used goods are included. b. production added to inventories is excluded. c. the amount of production in the underground economy is imputed. d. the value of intermediate goods is included in the market price of the final goods.
d
In the United States since the end of World War II: a.the labor-force participation rates of both men and women have increased. b.the labor-force participation rates of both men and women have decreased. c.the labor-force participation rate of men has increased, while the labor-force participation rate of women has decreased. d.the labor-force participation rate of men has decreased, while the labor-force participation rate of women has increased.
d
Public saving: a. is always positive. b. is the overall level of household wealth held in government bonds. c. is decided by the Federal Reserve. d. depends on the government's tax collections relative to its expenditures.
d
The demand for loanable funds is equivalent to: a. national saving. b. private saving. c. public saving. d. investment.
d
The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement. a. reserve b. margin c. liquidity d. capital
d
The neoclassical theory of distribution: a. was developed by Karl Marx. b. is rejected by most economists today. c. shows that the national income of an economy is not equal to total output. d. is a theory of how national income is divided among the factors of production.
d