Macro. Final Exam

If the Consumption function is given by C= 500 + 0.5 Y, the production function is Y= 50K^0.5L^0.5, where K=100 and L=100, then C equals: a. 1,000 b. 2,500 c. 3,000 d. 5,000

c. 3,000

If real money balances enter the IS-LM model both through the theory of liquidity preference and the Pigou effect, then a fall in the price level will shift: a. only the LM curve b. only the IS curve c. both the LM and the IS curve d. neither the LM nor the IS curve

c. both the LM and the IS curve

In the classical 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. decreases; increases

A fall in consumer confidence about the future, which induces consumers to spend less and save more, will, according to the Mundell-Fleming model with fixed exchange rates, lead to: a. a fall in consumption and income. b. no change in consumption or income. c. no change in income but a rise in net exports. d. a fall in income but a rise in net exports.

c. no change in income but a rise in net exports.

In the Solow growth model, for any given capital stock, the _____ determines how much output the economy produces, and the _____ determines the allocation of output between consumption and investment. a. saving rate; production function b. depreciation rate; population growth rate c. production function; saving rate d. population growth rate; saving rate

c. production function; saving rate

If the ratio of reserves to deposit (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then: a. it cannot be determined whether the money supply increases or decreases b. the money supply increases c. the money supply decreases d. the money supply does not change

c. the money supply decreases

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: a. 0.02 b. 0.08 c. 0.10 d. 0.18

d. 0.18

Use the information provided below to answer the following question(s). Suppose a country using the United States' system of calculating official unemployment statistics has 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million do not want jobs at all. Refer to the information above. The labor force participation rate is a. 0.2 b. 0.3 c. 0.4 d. 0.6 e. 0.8

d. 0.6 (# of labor force/ working population) x100

Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 cost $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2044 prices. Given these data, a Laspeyres price index of 2009 prices using 2004 as the base year would be: a. 1.05 b. approximately 1.07 c. approximately 1.33 d. 1.50

d. 1.50

If the Fed announces that it will raise the money supply in the future but does not change the money supply today, a. both the nominal interest rate and the current price level will decrease b. the nominal interest rate will increase, and the current price level will decrease c. the nominal interest rate will decrease, and the current price level will increase d. both the nominal interest rate and the current price level will increase

d. both the nominal interest rate and the current price level will increase

In the Solow growth model with population growth and the labor-augmenting technological change, the break-even level of investment must cover: a. depreciating capital b. depreciating capital and capital for new workers c. depreciating capital and capital for new effective workers d. depreciating capital, capital for new workers, and capital for new effective workers

d. depreciating capital, capital for new workers, and capital for new effective workers

Centralized union wage bargaining with government intervention in Sweden gives relatively more influence to______, while firm-level union wage bargaining in the United States gives relatively more influence to____. a. efficiency wages; sectoral shifts b. sectoral shifts; efficiency wages c. insiders; outsiders d. outsiders; insiders

d. outsiders; insiders

In the Mundell- Flemming model, the exogenous variables are the: a. world interest rate, the price level, the exchange rate b. level of government spending, taxes, and income c. exchange rate and level of income d. price level, world interest rate, monetary policy, and fiscal policy

d. price level, world interest rate, monetary policy, and fiscal policy

The unemployment resulting when real wages are held above equilibrium is called______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called____ unemployment. a. efficiency; inefficiency b. efficiency; structural c. frictional; efficiency d. structural; frictional

d. structural; frictional

How do you calculate Real GDP? (Only calculated for Later Year since Base Year would be the same as Nominal GDP)

(Good A Base Year Price x Good A Later Year Quantity) + (Good B Base Year Price x Good B Later Year Quantity)

How do you calculate Nominal GDP?

(Good A Price x Good A Quantity) + (Good B Price x Good B Quantity)

How do you calculate GDP deflator?

(Nominal GDP/ Real GDP) x 100

Macroland is a small open economy with perfect capital mobility and a flexible-exchange-rate system. Macroland is initially in equilibrium at the natural level of output with balanced trade. Compare the impact of a tax cut in the short run (when prices are fixed) and in the long run (when prices are flexible) on: (a) output, (b) consumption, (c) investment, (d) net exports, and (e) the exchange rate

(a) In both the short run and long run, output is unchanged. (b) Consumption is higher in both the short run and the long run because the tax cut increases disposable income. (c) Investment is unchanged in the short run and the long run because there is no change in the world interest rate. (d) In the short run and long run, net exports decrease by the amount that consumption increases because the exchange rate increases. Starting from balanced trade, the country will have a trade deficit in the short run and the long run. (e) In the short run and long run, the exchange rate is higher because the tax cut puts upward pressure on the domestic interest rate, which attracts capital inflows and drives up the exchange rate.

The "impossible trinity" refers to the idea that a country can simultaneously pursue only two of the three following policies: free international-capital flows, monetary policy for domestic stabilization, and a fixed exchange rate. For each of the following combinations indicate what the economy gives up by selecting the combination and why the omitted policy cannot be achieved: a) a fixed exchange rate and free international- capital flows b) a monetary policy for domestic stabilization and a fixed exchange rate c) a monetary policy for domestic stabilization and free international- capital flows

a) Monetary policy for domestic stabilization b) Free- international-capital flows c) Fixed exchange rate

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be: a. 0.08 b. 0.125 c. 0.22 d. 0.435

a. 0.08

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7 (Y - T). If the planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is: a. 70. b. 120. c. 170. d. 220.

a. 70.

If Output is described by the population function Y= AK^0.2L^0.8, then the production function has: a. constant returns to scale b. diminishing returns to scale c. increasing returns to scale d. negative returns to scale

a. constant returns to scale

The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth from____, and that creditors have a_____ propensity to consume than debtors. a. debtors to creditors; smaller b. debtors to creditors; larger c. creditors to debtors; smaller d. creditors to debtors; larger

a. debtors to creditors; smaller

When the Fed increases the interest rate paid on reserves, it leads to: a. increases in the reserve-deposit ratio (rr) b. decreases in the reserve deposit ratio (rr) c. increases in the currency-deposit ratio (cu) d. decreases in the currency-deposit ratio (cu)

a. increases in the reserve-deposit ratio (rr)

The reason that the income response to a fiscal expansion is generally less in the IS-LM model than it is in the Keynesian-cross model assumes that: a. investment is not affected by the interest rate, whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment b. investment is not affected by the interest rate, whereas in the IS-LM model fiscal expansion lowers the interest rate and crowds out investment c. investment is autonomous, whereas in the IS-LM model fiscal expansion encourages higher investment, which raises the interest rate d. the price level is fixed, whereas in the IS-LM model it is allowed to vary

a. investment is not affected by the interest rate, whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment

The economy of Glovania can be described by the Solow growth model. At the steady state, in Glovania the labor force grows at 3 percent per year, labor-augmenting technology increases at 2 percent per year, the saving rate is 15 percent per year, and the rate of capital depreciation is 10 percent per year. Choosing from among the following variables—output per effective worker, output per worker, total output, labor force, capital per worker, and capital per effective worker—which variables will be growing at a: a. 2 percent rate? b. 3 percent rate? c. 5 percent rate? d. 0 percent rate?

a. output per worker, capital per worker b. labor force c. total output d. output per effective worker, capital per effective worker

Two ways for banks to borrow reserves from the Federal Reserve are through: a. the discount window and the Term Auction Facility b. open-market operations and excess reserve swaps c. decreasing the reserve-deposit ratio and decreasing the currency-deposit ratio d. fractional- reserve ranking and financial intermediation

a. the discount window and the Term Auction Facility

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _____determines real gross domestic product (GDP) and_______ determines nominal GDP. a. the productive capability of the economy; the money supply b. the money supply; the productive capability of the economy c. velocity; the money supply d. the money supply; velocity

a. the productive capability of the economy; the money supply

In a steady state with population growth and technological progress: a. the real rental price of capital is constant and the real wage grows at the rate of technological progress b. the real rental price of capital grows at the rate of technological progress and the real wage is constant c. both the real rental price of capital and the real wage grow at the rate of technological progress d. both the real rental price of capital and the real wage are constant

a. the real rental price of capital is constant and the real wage grows at the rate of technological progress

Suppose you are provided with the following data for your country for a particular month: 200 million people are working, 20 million are not working but are looking for work, and 40 million are not working and have given up looking for work. The official unemployment rate for that month is a. 7.7% b. 9.1% c. 10% d. 23% e. 30%

b. 9.1% (# of unemployed/ size of the labor force) x100

According to the theory of liquidity preference, decreasing the money supply will _____ nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will _____ nominal interest rates in the long run. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase

b. increase; decrease

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would: a. create additional money b. raises taxes and cut spending c. lower taxes and increase spending d. lower interest rates

b. raises taxes and cut spending

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, national saving: a. rises by $100 billion b. rises by $60 billion c. falls by $60 billion d. falls by $100 billion

b. rises by $60 billion

Long-run growth in real gross domestic product (GDP) is determined primarily by____, while short-run movements in real GDP are associated with_____. a. variations in labor-market utilization; technological progress b. technological progress; variations in labor-market utilization c. money supply growth rates; changes in velocity d. changes in velocity; money supply growth rates

b. technological progress; variations in labor-market utilization

In the Solow growth model with population growth but no technological progress, when the economy finds itself at the Golden Rule steady state, the marginal product of capital minus the rate of depreciation will equal: a. 0. b. the population growth rate. c. the saving rate. d. output per worker.

b. the population growth rate.

In the Mundell-Fleming model with a fixed exchange rate, a rise in the world interest rate will lead income: a. and net exports both to fall. b. to fall while net exports are unchanged. c. to be unchanged and net exports to fall. d. and net exports to both be unchanged.

b. to fall while net exports are unchanged.

In the Solow growth model, the assumption of constant returns to scale means that: a. all economies have the same amount of capital per worker. b. the steady-state level of output is constant, regardless of the number of workers. c. the saving rate equals the constant rate of depreciation. d. the number of workers in an economy does not affect the relationship between output per worker and capital per worker

d. the number of workers in an economy does not affect the relationship between output per worker and capital per worker

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. the price of pizza and the quantity of pizza sold