Macro Chapters 1-6

A competitive firm: A) is small relative to the market in which it trades. B) has to charge a lower price when it wants to sell more goods. C) has several large competitors with whom it engages in fierce competition. D) can set the wage at which it hires workers.

A

A small country might want to use the money of a large country rather than print its own money if the small country: A) is likely to be unstable, whereas the large country is likely to be stable. B) is likely to be stable, whereas the large country is likely to be unstable. C) needs the revenue for seigniorage. D) wants to control its own inflation rate.

A

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 governments 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

All of the following are measures of GDP except the total: A) expenditures of all businesses in the economy. B) income from all production in the economy. C) expenditures on all final goods and services produced. D) value of all final production.

A

All of the following are types of macroeconomics data except the: A) price of an IBM computer. B) growth rate of real GDP. C) inflation rate. D) unemployment rate.

A

An example of a nominal variable is the: A) money supply. B) quantity of goods produced in a year. C) relative price of bread. D) real wage.

A

An example of decreasing 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 increases 5 percent.

A

An important factor in the evolution of commodity money to fiat money is: A) a desire to reduce transaction costs. B) a desire to increase transaction costs. C) the fact that gold is no longer highly valued. D) a desire to use gold for jewelry.

A

Assume that a war breaks out abroad, and foreign investors choose to invest more in a large safe country, the United States. Then, the U.S. real interest rate: A) and net exports will both fall. B) will fall and net exports will rise. C) will rise and net exports will fall. D) and net exports will both rise.

A

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.

A

Equilibrium in the market for goods and services determines the ______ interest rate and the expected rate of inflation determines the ______ interest rate. A) ex ante real; ex ante nominal B) ex post real; ex post nominal C) ex ante nominal; ex post real D) ex post nominal; ex post real

A

Estimates by Goldin and Katz indicate that the financial returns of a year of college _____ between 1980 and 2005. A) increased. B) decreased. C) did not change. D) were negative.

A

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______. A) nominal; high B) nominal; low C) real; high D) real; low

A

For a closed economy, when net capital outflow is measured along the horizontal axis and the real interest rate is measured along the vertical axis, net capital outflow is drawn as a: A) vertical line at 0. B) horizontal line at the world real interest rate. C) line that slopes up and to the right. D) line that slopes down and to the right.

A

If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, public saving is: A) -200. B) 200. C) 500. D) 1,800.

A

If the Federal Reserve wishes to increase the money supply, it should: A) decrease the discount rate. B) increase interest paid on reserves. C) sell government bonds. D) decrease the monetary base.

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

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A) 3 B) 4 C) 9 D) 11

A

In 2013 in the United States, the approximate amount of GDP (in current dollars) that was spent on consumption per person was: A) $36,400. B) $53,100. C) $8,400. D) $16,800.

A

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally: A) the supply curve slopes upward and to the right. B) the demand curve slopes upward and to the right. C) the supply curve slopes downward and to the right. D) at the equilibrium price, the supply of pizza exceeds the demand for pizza.

A

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; negative C) deficit; positive D) surplus; positive

A

In a small, open economy if net exports are negative, then: A) domestic spending is greater than output. B) saving is greater than investment. C) net capital outflows are positive. D) imports are less than exports.

A

In instances of hyperinflation, the delays involved in collecting taxes often result in: A) decreased real government tax revenue. B) large capital gains for creditors. C) higher shoeleather costs of inflation. D) higher ex ante real interest rates.

A

Real GDP ______ over time and the growth rate of real GDP ______. A) grows; fluctuates B) is steady; is steady C) grows; is steady D) is steady; fluctuates

A

Skill-biased technological change ______ the demand for high-skilled workers, while the slowdown in the pace of educational advancement reduces the supply of skilled workers, resulting in relatively _____ wages for skilled workers. A) increases; higher B) increases; lower C) decreases; higher D) decreases; lower

A

The ability of macroeconomists to predict the future course of economic events: A) is no better than the meteorologist's ability to predict the next month's weather. B) is much better than the meteorologist's ability to predict the next month's weather. C) has gotten worse over time. D) is less precise than it was in the 1920s.

A

The banking system creates: A) liquidity. B) wealth. C) reserves. D) currency.

A

The ex ante real interest rate is based on _____ inflation, while the ex post real interest rate is based on _____ inflation. A) expected; actual B) core; actual C) actual; expected D) expected; core

A

The monetary base consists of: A) currency held by the public, plus reserves held by banks. B) all outstanding currency, plus reserves held by banks. C) all outstanding currency, plus demand deposits. D) all bank reserves.

A

The theoretical separation of real and monetary variables is called: A) the classical dichotomy. B) monetary neutrality. C) the Fisher effect. D) the quantity theory of money.

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

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) nearly constant level with a large downturn in the 1930s. C) downward trend in the first half of the century followed by the upward trend in the second half. D) constant level in the first half of the century followed by the upward trend in the second half.

A

Unlike the real world, the classical model with fixed output assumes that: A) all factors of production 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

Which of the following is NOT an effect of expected inflation? A) causes lower real wages. B) leads to shoeleather costs. C) increases menu costs. D) leads to taxing of nominal capital gains that are not real.

A

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

B

A rate of inflation that exceeds 50 percent per month is typically referred to as a(n): A) conflagration. B) hyperinflation. C) deflation. D) disinflation.

B

A shrinking U.S. budget deficit in the 1990s coincided with a ______ U.S. trade deficit. A) shrinking B) continuing C) nonexistent D) stable

B

An increase in the price of goods bought by firms and the government will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator.

B

An increase in the trade deficit of a small open economy could be the result of: A) an increase in taxes. B) an increase in government spending. C) an increase in the world interest rate. D) the expiration of an investment tax-credit provision.

B

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.

B

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t0 + t1Y, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by: A) 85. B) 425. C) 500. D) 525.

B

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

B

If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is: A) 300. B) 500. C) 1,000. D) 1,300.

B

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. A) more; increase B) more; decrease C) fewer; increase D) fewer; decrease

B

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is: A) 1 percent. B) 6 percent. C) -4 percent. D) -5 percent.

B

If the number of employed increases while the number of unemployed does not change, the unemployment rate: A) will increase. B) will decrease. C) will not change. D) may either increase or decrease.

B

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 wage(s) 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

According to the quantity theory and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase: A) 2 percent. B) 3 percent. C) 5 percent. D) 6 percent.

C

Accounting profit is: A) economic profit minus the return to capital. B) equal to economic profit. C) economic profit plus the return to capital. D) equal to the economic return to capital.

C

Assume that some large foreign countries begin to subsidize investment by instituting an investment tax credit. Then, if world saving does not depend on the interest rate, world investment: A) will rise and small country investment will fall. B) will rise and small country investment will remain unchanged. C) will remain unchanged and small country investment will fall. D) and small country investment will both remain unchanged.

C

Between 1880 and 1896, the price level in the United States fell 23 percent. This movement was ______ for bankers of the Northeast and ______ for farmers of the South and West. A) bad; bad B) good; good C) good; bad D) bad; good

C

Deflation occurs when: A) real GDP decreases. B) the unemployment rate decreases. C) prices fall. D) prices increase, but at a slower rate.

C

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals: A) $50 billion. B) $100 billion. C) $150 billion. D) $600 billion.

C

If inflation is 6 percent and a worker receives a 4 percent nominal wage increase, then the worker's real wage: A) increased 4 percent. B) increased 2 percent. C) decreased 2 percent. D) decreased 6 percent.

C

If purchasing-power parity holds, then changes in domestic saving will _____ the real exchange rate. A) increase B) decrease C) not change D) either increase or decrease

C

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: A) $200 billion. B) $400 billion. C) $800 billion. D) $1,000 billion.

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 large open economy, the exchange rate adjusts so that net exports equal: A) domestic saving. B) domestic investment. C) net capital outflow. D) domestic investment plus net capital outflow.

C

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will: A) rise $100 billion. B) rise $60 billion. C) rise $40 billion. D) not change.

C

In a small open economy, if the government encourages investment, through, say, an investment tax credit, investment: A) increases and is financed through an increase in national saving. B) increases and is financed through an increase in exports. C) increases and is financed through an inflow of foreign capital. D) does not increase; the interest rate rises instead.

C

In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow. A) surplus; negative B) deficit; positive C) surplus; positive D) deficit; negative

C

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 ______. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; does not change

C

Macroeconomists call assets used to make transactions: A) real income. B) nominal income. C) money. D) consumption.

C

Macroeconomists cannot conduct controlled experiments, such as testing various tax and expenditure policies, because: A) it is against the law. B) they tried it once and it did not work. C) they must make use of the data history gives them. D) economists already know the answers that would come out of the experiments.

C

One consequence of high inflation is a(n): A) appreciating nominal exchange rate. B) decrease in the price of goods measured in terms of money. C) depreciating nominal exchange rate. D) decrease in the price of foreign currencies measured in terms of the domestic currency.

C

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

C

Recessions are periods when real GDP: A) increases slowly. B) increases rapidly. C) decreases mildly. D) decreases severely.

C

The currency-deposit ratio is determined by: A) the Federal Reserve. B) business policies of banks and the laws regulating banks. C) preferences of households about the form of money they wish to hold. D) the Federal Deposit Insurance Corporation (FDIC).

C

The hyperinflation experienced by interwar Germany illustrates how fiscal policy can be connected to monetary policy when government expenditures are financed by: A) new taxes. B) borrowing in the open market. C) printing large quantities of money. D) selling gold.

C

The inflation rate is a measure of how fast: A) the total income of the economy is growing. B) unemployment in the economy is increasing. C) the general level of prices in the economy is rising. D) the number of jobs in the economy is expanding.

C

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.

C

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply. A) no; no B) large; larger C) large; smaller D) small; smaller

C

The unemployment rate: A) was zero during the 1990s in the United States. B) was zero on average between 1900 and 1950 in the United States. C) has never been zero in the United States. D) is usually zero when the economy is not in a recession or depression.

C

All of the following assets are included in M1 except: A) currency. B) demand deposits. C) traveler's checks. D) money market deposit accounts.

D

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______. A) fell; fell B) fell; rose C) rose; fell D) rose; rose

D

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities. A) safer and shorter-term B) tax-favored and foreign C) smaller-denomination and higher-grade D) riskier and longer-term

D

Credit card balances are included in: A) M1 only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

D

Credit cards: A) are part of the M1 money supply. B) are part of the M2 money supply. C) are part of both the M1 and M2 money supply. D) do not affect the money supply.

D

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.

D

GDP is the market value of all ______ goods and services produced within an economy in a given period of time. A) used B) intermediate C) consumer D) final

D

If a U.S. corporation purchases a product made in Europe and the European producer uses the proceeds to purchase a U.S. government bond, then U.S. net exports ______ and net capital outflows ______. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

D

If an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts: A) the real wage will rise and the real rental price of capital will fall. B) both the real wage and the real rental price of capital will fall. C) both the real wage and the real rental price of capital will rise. D) the real wage will fall and the real rental price of capital will rise.

D

If increased immigration raises the labor force, the neoclassical theory of distribution predicts: A) the real wage will rise and the real rental price of capital will fall. B) both the real wage and the real rental price of capital will fall. C) both the real wage and the real rental price of capital will rise. D) the real wage will fall and the real rental price of capital will rise.

D

If the nominal interest increases, then: A) the money supply increases. B) the money supply decreases. C) the demand for money increases. D) the demand for money decreases.

D

In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate: A) rises, while the real exchange rate rises and net exports fall. B) rises, while the real exchange rate falls and net exports rise. C) falls, while the real exchange rate rises and net exports rise. D) falls, while the real exchange rate rises and net exports fall.

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 an economic model: A) exogenous variables and endogenous variables are both fixed when they enter the model. B) endogenous variables and exogenous variables are both determined within the model. C) endogenous variables affect exogenous variables. D) exogenous variables affect endogenous variables.

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

D

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. A) high; exceeds B) high; falls short of C) low; exceeds D) low; falls short of

D

Macroeconomists are like scientists because they both: A) design data and conduct controlled experiments to test their theories. B) rely on data analyzed from experiments they set up in a laboratory. C) are unlimited in their use of controlled experiments. D) collect data, develop hypotheses, and analyze the results.

D

The U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with high inflation rates relative to the United States has tended to ______, and the U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with low inflation rates relative to the United States has tended to ______. A) appreciate; appreciate B) appreciate; depreciate C) depreciate; depreciate D) depreciate; appreciate

D

The adoption of an investment tax credit in a small open economy is likely to lead to: A) no change in either domestic investment or domestic saving in the small open economy. B) an increase in both domestic investment and domestic saving in the small open economy. C) an increase in domestic saving but no change in domestic investment in the small open economy. D) an increase in domestic investment but no change in domestic saving in the small open economy.

D

The central bank in the United States is the: A) Bank of America. B) U.S. Treasury. C) U.S. National Bank. D) Federal Reserve.

D

The investment function slopes ______ because there are ______ investment projects that are profitable as the interest rate decreases. A) upward; fewer B) upward; more C) downward; fewer D) downward; more

D

The world interest rate: A) is equal to the domestic interest rate. B) makes domestic saving equal to domestic investment. C) is the interest rate charged on loans by the World Bank. D) is the interest rate prevailing in world financial markets.

D

When bread is baked but put away for later sale, this is called: A) waste. B) saving. C) fixed investment. D) investment in inventory.

D

Which of the combinations listed is not a U.S. president and an important economic issue of his administration? A) President Carter, inflation B) President Reagan, budget deficits C) President G.H.W. Bush, budget deficits D) President Clinton, inflation

D

Which of the following statements about economic models is true? A) There is only one correct economic model. B) All economic models are based on the same assumptions. C) The purpose of economic models is to show how endogenous variables affect exogenous variables. D) Economists use different models to address different economic phenomenon.

D

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in: A) inflation of 1 percent and the nominal interest rate of less than 1 percent. B) inflation of 1 percent and the nominal interest rate of 1 percent. C) inflation of 1 percent and the nominal interest rate of more than 1 percent. D) both inflation and the nominal interest rate of less than 1 percent.

B

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate must: A) increase by 2 percent. B) increase by 1 percent. C) remain constant. D) decrease by 1 percent.

B

If total investment (measured in billions of current dollars) equals $741, business fixed investment is $524, and residential fixed investment is $222, then inventory investment is: A) $5. B) -$5. C) $15. D) -$15.

B

In 2013 in the United States, total government purchases per person (in current dollars) amounted to approximately: A) $1,900. B) $9,900. C) $13,500. D) $25,600.

B

In a Cobb-Douglas production function the marginal product of labor will increase if: A) the quantity of labor increases. B) the quantity of capital increases. C) capital's share of output increases. D) average labor productivity decreases.

B

In a simple model of the supply and demand for pizza, when aggregate income increases, the price of pizza ______ and the quantity purchased ______. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases

B

In a small open economy, policies that increase: A) investment tend to cause a trade surplus. B) investment tend to cause a trade deficit. C) saving do not affect the trade balance. D) saving tend to cause a trade deficit.

B

In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative

B

In practice, in order to stop a hyperinflation, in addition to stopping monetary growth, the government must: A) lower taxes and raise government spending. B) raise taxes and reduce government spending. C) change from one kind of currency to another. D) call for a new election.

B

In the United States, bank reserves consist of: A) currency and demand deposits. B) vault cash and deposits at the Federal Reserve. C) gold deposits at the Federal Reserve. D) the money supply.

B

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

B

Nominal GDP is measured in _____ prices _____ time. A) current; at a point in B) current; per unit of C) constant; at a point in D) constant; per unit of

B

Payment is deferred by using _______, but immediate access to funds occurs when using ______. A) currency; demand deposits B) credit cards; debit cards C) demand deposits; savings deposits D) debit cards; credit cards

B

The GDP deflator is a: A) Laspeyres price index. B) Paasche price index. C) Laspeyres quantity index. D) Paasche quantity index.

B

The economic statistic used to measure the level of prices is: A) GDP. B) CPI. C) GNP. D) real GDP.

B

The employment statistics computed from the establishment survey do not include: A) workers with two jobs. B) the self-employed. C) workers on firms' payrolls. D) part-time workers on firms' payrolls.

B

The inflation tax is paid: A) only by the central bank. B) by all holders of money. C) only by government bond holders. D) equally by every household.

B

The largest component of national income is: A) corporate profits. B) compensation of employees. C) proprietors' income. D) net interest.

B

The real exchange rate: A) measures how many Japanese yen one really gets for a U.S. dollar. B) is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level. C) is equal to the nominal exchange rate multiplied by the foreign price level divided by the domestic price level. D) is the price of a domestic car divided by the price of a foreign car.

B

Total investment in the United States averages about ______ percent of GDP. A) 10 B) 15 C) 20 D) 25

B

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when there is a technological advance that leads to an increase in investment demand: A) investment increases and the interest rate rises. B) investment is unchanged and the interest rate rises. C) investment and the interest rate are both unchanged. D) investment increases and the interest rate falls.

B