Macro Exam 2

Net capital inflow equals: A) national savings. B) imports minus exports. C) consumption. D) consumption plus government spending.

B) imports minus exports.

In 1936 economic theory changed dramatically with the publication of: A) The General Theory of Employment, Interest, and Money, by John Maynard Keynes. B) The Wealth of Nations, by Adam Smith. C) The Road to Serfdom, by F. A. Hayek. D) Principles of Economics, by Paul Samuelson.

A) The General Theory of Employment, Interest, and Money, by John Maynard Keynes

Macroeconomics entails the study of the: A) overall behavior of the economy. B) individual decision makers. C) market structures. D) cost and production decisions by firms.

A) overall behavior of the economy

The present value of $1 realized one year from now equals: A) $1 / (1 + r). B) $1 ∞ (1 + r). C) 1 + r. D) 1 / r.

A) $1 / (1 + r).

Which of the following is considered investment spending in macroeconomics? A) GM builds a new plant. B) Ryan Jones buys GM stock. C) Ryan Jones buys GM bonds. D) Ryan Jones buys GM stock and bonds.

A) GM builds a new plant.

Which question is the most appropriate to the study of MACROECONOMICS? A) How does the aggregate price level affect overall consumer spending? B) How does the level of interest rates affect Delta's decision to buy a new airplane? C) How much will Sony charge for the new game system to be introduced later this year? D) What determines whether Wachovia opens a new office in Beijing?

A) How does the aggregate price level affect overall consumer spending?

Which of the following is TRUE? A) Inflation means an increase in the overall level of prices. B) Deflation refers to a decrease in prices only in the energy and transportation sectors. C) During inflation most people enjoy an increase in their standard of living even if their wages don't increase. D) Inflation was a problem for the first time in the recession of 1929-1933.

A) Inflation means an increase in the overall level of prices.

Which is most likely a macroeconomic, not microeconomic, question? A) Is the national unemployment rate rising or falling? B) Are consumers buying more bottled water and less fruit juice? C) Are salaries for nurses rising or falling? D) Should a tax be levied on each ton of carbon dioxide a factory emits?

A) Is the national unemployment rate rising or falling?

Diminishing returns to physical capital implies that when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to _____ productivity. A) a smaller increase in B) a larger increase in C) a decrease in D) negative

A) a smaller increase in

Long-run growth is the sustained upward trend in: A) aggregate output per person over several decades. B) the unemployment rate over time. C) interest rates over time. D) aggregate output per person over the business cycle.

A) aggregate output per person over several decades.

A relatively low saving rate affects productivity growth by: A) causing a shortage of funds for investment in physical capital. B) decreasing consumption spending and increasing investment in human capital. C) reducing the tax base and preventing the government from providing public goods. D) stimulating imports and increasing the trade deficit

A) causing a shortage of funds for investment in physical capital.

A laptop computer purchased by a private individual for personal use is considered to be: A) consumption spending. B) investment spending. C) private saving. D) a transfer of income.

A) consumption spending.

Unit-of-account costs of inflation are the: A) costs associated with money not being a reliable unit of measurement. B) costs of transactions associated with avoiding the inflation tax. C) costs associated with businesses changing prices. D) transfers the government gets from printing money.

A) costs associated with money not being a reliable unit of measurement.

The total income of households after taxes and government transfers is called: A) disposable income. B) private savings. C) aggregate spending. D) investment.

A) disposable income.

The demand for loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds. A) downward; investors; increasing B) downward; savers; increasing C) upward; investors; decreasing D) upward; savers; decreasing

A) downward; investors; increasing

Private savings equals: A) income after taxes minus consumption. B) taxes minus government spending on goods and services. C) the total amount of savings accounts plus stocks plus bonds owned by households. D) income plus investment.

A) income after taxes minus consumption.

The threat of future inflation: A) makes people reluctant to lend money for long periods. B) makes people eager to lend money for long periods. C) has no effect on lending money. D) increases the value of money paid back in the future.

A) makes people reluctant to lend money for long periods

In an open economy, total investment equals: A) national savings plus capital inflow. B) private savings plus national savings plus capital inflow. C) private savings plus capital inflow. D) national savings minus private savings minus capital inflow.

A) national savings plus capital inflow.

The GDP deflator for a given year is 100 times _____ GDP for that year _____ GDP for that year. A) nominal; divided by real B) real; divided by nominal C) nominal; minus real D) real; plus nominal

A) nominal; divided by real

The unemployment rate is the: A) percent of the labor force that is unemployed. B) number of people unemployed. C) the labor force minus the number of people unemployed. D) average length of time someone is unemployed.

A) percent of the labor force that is unemployed.

Productivity is equal to: A) real GDP divided by the number of workers. B) real GDP divided by the population. C) the number of workers per machine. D) the total output produced.

A) real GDP divided by the number of workers.

The aggregate production function measures productivity as: A) real GDP per worker. B) nominal GDP per worker. C) median income per worker. D) average disposable income.

A) real GDP per worker.

Periods in which output and employment are falling are: A) recessions. B) booms. C) expansions. D) deflations.

A) recessions.

The sources of funds for investment spending are: A) savings by households, government, and foreigners. B) taxes and transfer payments. C) always equal to U.S. spending on imports. D) directed to their most productive uses by the U.S. government.

A) savings by households, government, and foreigners.

The labor force is equal to the: A) sum of employment and unemployment. B) population minus the number of employed. C) sum of the employed and the underemployed. D) number of people working.

A) sum of employment and unemployment.

A budget surplus exists when: A) taxes are greater than government spending. B) taxes are less than government spending. C) taxes are less than government spending plus investment. D) investment is less than government spending less taxes.

A) taxes are greater than government spending.

Government borrowing is: A) the amount of funds raised by government in financial markets. B) government spending on goods and services. C) government tax revenues. D) the amount of funds raised by government in the financial markets, government spending on goods and services, and government tax revenues.

A) the amount of funds raised by government in financial markets.

GDP is the: A) total market value of all final goods and services produced in an economy in one year. B) total accumulated wealth of an economy. C) volume of all dollar transactions made in an economy in one year. D) dollar amount of all sales made in the economy in one year.

A) total market value of all final goods and services produced in an economy in one year.

The value of _____ is counted in GDP. A) glass for windshields purchased by a car manufacturer B) a new car sold by a dealer C) a used car sold by a dealer D) a share of stock in a car manufacturer

B) a new car sold by a dealer

Physical capital includes: A) a worker's education or knowledge. B) machine tools. C) money. D) shares of stock.

B) machine tools.

Suppose a panel of economists predicts that a nation's real GDP per capita will double in approximately 20 years. According to the rule of 70, what must be the predicted annual growth rate of real GDP per capita? A) 140% B) 3.5% C) 2.85% D) 14%

B) 3.5%

Which one of the following is an example of consumption expenditure? A) Samantha bought an oven for her cooking show on Food Network. B) Stephanie bought a laptop for her brother. C) Jim purchased 200 shares of Google stock. D) Herman Smith spent $1,500 to buy a used car for his son.

B) Stephanie bought a laptop for her brother.

Which of the following would shift the production function upward? A) an increase in the price of oil B) an improvement in technology C) a decrease in the supply of labor D) a decline in the birth rate

B) an improvement in technology

Look at the figure Circular-Flow Model. How does the government finance its purchases of goods and services? A) by printing money B) by taxes C) by borrowing D) by taxes and borrowing

B) by taxes

Goods that are produced in a particular period but NOT sold in that period: A) go into inventory and are called consumption. B) end up in inventory and are included in investment. C) are finally included in depreciation when they are sold. D) are classified as intermediate goods

B) end up in inventory and are included in investment.

The modern macroeconomic tools used by the government are _____ policy and _____ policy. A) tax; antitrust B) fiscal; monetary C) monetary; exchange rate D) capital; labor

B) fiscal; monetary

An example of structural unemployment is a(n): A) autoworker who is temporarily laid off because of a decline in sales. B) geologist who is permanently laid off because of an increase in wages won by labor unions. C) worker at a fast-food restaurant who quits work and attends college. D) real estate agent who leaves a job in Texas and searches for a similar, higher-paying job in California.

B) geologist who is permanently laid off because of an increase in wages won by labor unions.

Economists use the term long-term growth to indicate: A) the expansion phase of the business cycle. B) growth of the economy over several decades. C) growth of the economy over one to five years. D) long-run growth of the value of a company.

B) growth of the economy over several decades.

In the factor markets: A) households supply goods and services. B) households supply resources. C) firms demand goods and services. D) firms supply goods and services.

B) households supply resources.

The skills, training, and education possessed by workers that contribute to economic growth are known as: A) saving. B) human capital. C) natural resources. D) output of labor

B) human capital.

When the government invests resources in a nation's educational system, it is investing in: A) private property. B) human capital. C) political stability. D) infrastructure.

B) human capital.

Shoe-leather costs are the: A) effect of inflation on the prices of food, clothes, and other necessities. B) increased cost of transactions due to inflation. C) high price of leather goods. D) effect of inflation on transportation costs

B) increased cost of transactions due to inflation.

An intermediate good would be: A) a new boat to be used for vacations. B) lumber used to build a house. C) payments to military personnel. D) a professor's salary.

B) lumber used to build a house.

Income divided by the price level is _____ income. A) personal B) real C) disposable D) national

B) real

The best available measure of the standard of living in a country is: A) nominal GDP per capita. B) real GDP per capita. C) the unemployment rate. D) the growth rate of productivity.

B) real GDP per capita.

Menu costs are the: A) costs of money becoming less reliable. B) real costs of changing listed prices. C) increase in the transaction costs caused by inflation. D) adjustments to the cost of living.

B) real costs of changing listed prices.

Keynesian economics promotes ideas: A) that government intervention can be destabilizing. B) that the government can help a depressed economy via fiscal and monetary policies. C) that the private sector is perfectly capable of regulating itself. D) that the free market system will always prevail.

B) that the government can help a depressed economy via fiscal and monetary policies.

Real GDP is: A) the value of the production of all final goods and services measured in current prices. B) the value of the production of all final goods and services adjusted for price changes. C) the projected future value of GDP. D) calculated by adding up

B) the value of the production of all final goods and services adjusted for price changes.

Jim has a part-time job and would prefer to have a full-time job but has been unable to find one. Jim is classified as: A) a discouraged worker. B) underemployed. C) unemployed. D) out of the labor force.

B) underemployed.

A person without a job who is actively seeking and available for work is considered: A) employed. B) unemployed. C) underemployed. D) marginally attached.

B) unemployed.

A transfer payment is a payment for: A) a military transfer to a war zone. B) which no services were rendered. C) transfer of a debt to a different person. D) being transferred to a different city by your employer.

B) which no services were rendered.

If during 2011 the Republic of Sildavia recorded a value added of $78 billion, wages of $40 billion, profits of $8 billion, and total sales of $90 billion, the value of intermediate goods purchased during 2011 in Sildavia was: A) $42 billion. B) $30 billion. C) $12 billion. D) $4 billion.

C) $12 billion.

If the labor force totals 100 million workers and 90 million are working, then the unemployment rate is: A) 1%. B) 5%. C) 10%. D) 90%.

C) 10%.

If the price index in year 1 is 146 and in year 2 is 163, the rate of inflation between year 1 and year 2 is: A) 8.2%. B) 10.43%. C) 11.64%. D) 17.0%.

C) 11.64%.

You read in the newspaper that the consumer price index in 2011 was 120. You conclude that a typical market basket in 2011 would have cost _____ more than the same market basket purchased in _____. A) 20%; 2010 B) 120%; 2010 C) 20%; the base year D) 120%; the base year

C) 20%; the base year

Output per capita in the United States in 2010 was about _____ as high as in 1900. A) twice B) 3 times C) 8 times D) 10 times

C) 8 times

Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which of the following is TRUE? A) As long as the bank charges a nominal interest rate of at least 5%, it will earn its expected return. B) If the bank charges an interest rate of 8% or higher, it will earn the expected return. C) If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected. D) If the bank charges 8% and the inflation rate is more than 3%, then the bank will have earned a higher rate of return than expected.

C) If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected.

The natural rate of unemployment will rise for all of the following reasons EXCEPT: A) more generous terms for unemployment compensation. B) an increase in union membership. C) an increase in labor productivity that translates into greater demand for labor. D) a surge in the number of young and inexperienced workers.

C) an increase in labor productivity that translates into greater demand for labor.

Which of the following institutions is important for channeling savings into investment? A) schools B) religious institutions C) banks D) the federal government

C) banks

Growth accounting estimates the: A) increase in the population rate over time. B) increase in the inflation rate over time. C) contribution of each major factor in the aggregate production function to economic growth. D) contribution of the technology factor in the aggregate production function to economic growth.

C) contribution of each major factor in the aggregate production function to economic growth.

Nominal GDP is: A) inflation-adjusted GDP. B) real GDP minus depreciation. C) current-dollar GDP. D) constant-dollar GDP

C) current-dollar GDP.

Technological progress allows workers to produce more: A) because it increases the amount of physical capital available. B) because it increases the amount of human capital available. C) even when the amount of physical capital and human capital do not change. D) only if the amount of physical capital grows at the same rate

C) even when the amount of physical capital and human capital do not change.

An economic expansion in the United States is typically associated with a(n): A) falling inflation rate. B) increase in the poverty rate. C) falling unemployment rate. D) decrease in corporate profits.

C) falling unemployment rate.

An example of investment spending is the purchase of a: A) bond by a banker. B) loaf of bread by a restaurant. C) new tractor by a farmer. D) ticket to a football game by a student.

C) new tractor by a farmer.

The aggregate price level is the: A) average price of shares on the stock market. B) average price of commodities. C) overall level of prices. D) same as the average price of gasoline

C) overall level of prices.

Unanticipated inflation: A) increases the value of money. B) decreases uncertainty about the future. C) reduces the real value of debt. D) helps lenders.

C) reduces the real value of debt.

For developed countries, which of the following is considered the most important driver in productivity growth? A) the level of educational attainment B) the amount of physical capital C) technological progress D) the abundance of natural resources

C) technological progress

National savings is the sum of private savings and: A) private consumption. B) government tax revenue. C) the budget balance. D) trade surplus.

C) the budget balance.

The Fisher effect states that: A) the nominal rate of interest is unaffected by the change in expected inflation. B) the nominal rate of interest is unaffected by the change in unexpected inflation. C) the expected real rate of interest is unaffected by the change in expected inflation. D) the expected real rate of interest increases by one percentage point for each percentage change in expected inflation.

C) the expected real rate of interest is unaffected by the change in expected inflation.

Price stability occurs when: A) the overall price level is zero. B) the economy is at full employment. C) the overall cost of living is changing very slowly. D) food prices have remained the same.

C) the overall cost of living is changing very slowly.

During a recession: A) unemployment and the growth rate of real GDP both decrease. B) unemployment decreases and the growth rate of real GDP increases. C) unemployment increases and the growth rate of real GDP decreases. D) there is no relation between unemployment and the growth rate of real GDP.

C) unemployment increases and the growth rate of real GDP decreases.

The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds. A) upward; savers; increasing B) upward; investors; decreasing C) upward; savers; decreasing D) downward; investors; increasing

C) upward; savers; decreasing

Cyclical unemployment: A) occurs when people are between jobs. B) is a lack of good matches between available jobs and skills. C) is the normal unemployment around which the actual unemployment rate fluctuates. D) is the deviation from the natural rate in the actual rate of unemployment.

D) is the deviation from the natural rate in the actual rate of unemployment.

You have an opportunity to pay $1,000 today and receive $1,200 a year from now. If the annual interest rate is 20%, the difference between the present value of the benefit and your investment is: A) $440. B) $200. C) $166. D) 0.

D) 0.

If output is growing at 5% annually, how many years will it take for output to quadruple? A) 14 years B) 10 years C) 20 years D) 28 years

D) 28 years

Which one of the following transactions is included in a current year's GDP as investment spending? A) ABC company purchased 10,000 shares of IBM stock. B) Ronnie bought a new BMW. C) Anton purchased his friend's condo. D) Maggie bought a play-gym set for her day-care business.

D) Maggie bought a play-gym set for her day-care business.

A price index: A) always includes a base year. B) measures the cost of purchasing a market basket of output across different years. C) is normalized to 100 for the base year. D) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

D) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

Which of the following will NOT increase the productivity of labor? A) technological improvements B) an increase in the capital stock C) improvements in education D) an increase in the size of the labor force

D) an increase in the size of the labor force

In the circular-flow diagram, households: A) supply goods. B) supply services. C) buy resources. D) buy goods and services.

D) buy goods and services.

In an open economy, savings can come from all of the following EXCEPT: A) domestic sources. B) foreign sources. C) government sources. D) consumption.

D) consumption.

All of the following are reasons for the economic stagnation of Latin America during the last century EXCEPT: A) irresponsible government policies that fueled high levels of inflation. B) low rates of savings. C) lack of public support for education. D) excessively large flows of foreign investment.

D) excessively large flows of foreign investment.

The interest rate is 5% in the market for loanable funds. Investors wish to borrow $100 million and savers wish to save $125 million at this interest rate. We would expect the interest rate to _____, as there is a _____ of loanable funds. A) fall; shortage B) rise; surplus C) rise; shortage D) fall; surplus

D) fall; surplus

In the circular-flow diagram, an organization that produces goods and services for sale is a: A) government. B) factor. C) household. D) firm.

D) firm.

Structural unemployment can be caused by all of the following EXCEPT: A) minimum wages. B) labor unions. C) efficiency wages. D) fluctuations in the business cycle.

D) fluctuations in the business cycle.

Frictional unemployment exists because of all of the following reasons EXCEPT: A) that new jobs are continually being created. B) that some old jobs are always being destroyed. C) that new workers are always entering the labor market. D) for the minimum wage.

D) for the minimum wage.

The value, at current market prices, of the final goods and services produced during a particular period is: A) disposable personal product. B) gross foreign factor output. C) gross personal product. D) gross domestic product.

D) gross domestic product.

Long-run economic growth is: A) higher in countries with a weak rule of law and excessive government intervention. B) lower in countries with a strong government and independent judiciary. C) lower in countries whose courts enforce property rights and whose government protects its citizens. D) higher in countries with a strong rule of law and political stability.

D) higher in countries with a strong rule of law and political stability.

Government spending is like investment in each of the following cases EXCEPT when: A) it goes to help pay for education. B) it helps provide infrastructure for the economy. C) it is used for public health measures. D) it is used for a personal income tax rebate.

D) it is used for a personal income tax rebate.

The convergence hypothesis states that international differences in real GDP per capita tend to _____ over time. A) diverge B) fluctuate C) remain constant D) narrow

D) narrow

A business cycle is a: A) very deep and prolonged economic downturn. B) period in which output and employment are rising. C) period in which output and employment are falling. D) short-run alternation between economic upturns and downturns

D) short-run alternation between economic upturns and downturns

The price determined in the market for loanable funds is: A) the margin call. B) the profit rate. C) the transaction fee. D) the interest rate.

D) the interest rate

The natural rate of employment is achieved when: A) the actual rate of unemployment is zero. B) it is above the actual rate of unemployment. C) the quantity of labor supplied is equal to the quantity of labor demanded. D) there is no cyclical unemployment.

D) there is no cyclical unemployment.

Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new work truck C) the hiring of a new police officer D) your purchase of your neighbor's 2001 Toyota

D) your purchase of your neighbor's 2001 Toyota