Macro Test #2
You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.
$5,500; $5,250
Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of $600 per day. He knows that if he hires another worker, he would have to pay that worker $50 per day and the company would earn revenue of $680 per day if the new worker is hired.
$80
Which of the following statements about the GDP deflator and the CPI are true?
- A higher ratio of both the CPI and the GDP deflator implies a greater price increase from the base year to the target year. - Both their formulas contain a ratio that compares what it would cost to buy a particular set of goods in the target year to what it would have cost to buy the same set of goods using base-year prices.
Which of the following people are NOT counted as potential workers?
- Children under the age of 16. - People on active duty in the military. - People that are institutionalized.
All of these are true for the labor of demand
- It is the same as the value of the marginal product of labor. - It follows the law of demand. - It is derived from the marginal product of labor.
According to the aggregate production function, which inputs drive production?
- Physical capital - Total efficiency units of labor. - Level of technology.
A shift in the credit supply curve can be caused by ____________.
- a heightened desire on the part of firms to internally fund their future activities. - an aging population that is ill-prepared for retirement. - an elevated perception on the part of households that the future may hold many "rainy days."
A shift in the credit demand curve can be caused by ___________.
- changes in household preferences or expectations. - changes in perceived business opportunities for firms. - changes in government policy.
The value of marginal product of labor (VMPL) is ____________.
- given by the marginal product of labor times the price of the firm's output. - the contribution of an additional worker to a firm's revenues.
According to the aggregate production function, GDP increases when a nation ___________.
. - increases its stock of physical capital, K - improves its technology, A - increases the human capital of its workers, H.
The equation for the unemployment rate is defined as ____________.
100% * unemployed/labor force
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?
3.5%
Which of the following cannot produce a shift in the credit demand curve?
A change in the real interest rate.
Which of the following can generate sustained growth?
Advancing the technological knowledge used in production
Which of the following would cause the labor demand curve to shift to the right?
An increase in the demand for a product
The inflation rate is calculated by comparing the percentage change in the
CPI
In February 2014, the United States added 175,000 jobs to the economy. Given this information, what can we say about the unemployment rate of the country?
It may increase, decrease, or not change depending on how many people started searching for jobs during the month.
equation for velocity in the quantity theory of money?
Nominal GDP/ money supply
The GDP deflator is calculated using ____________.
Nominal GDP/Real GDP * 100
What is the significance of the real wage as it relates to inflation?
Since an increase in inflation reduces the real wage that firms must pay, firms are more willing to hire workers, thus stimulating economic activity.
Which of the following would be classified as unemployed?
Someone who is not working and looked for work two weeks ago.
What is the key difference between the Consumer Price Index (CPI) and the GDP deflator?
The two indexes measure price changes for different "baskets" of products
How do increases in technology affect the aggregate production function?
With increases in technology, the aggregate production function shifts up, indicating more output is produced from the same amount of inputs.
All of the following individuals would be negatively impacted by rising inflation except ____________.
a homeowner with a fixed-rate mortgage.
Which of the following individuals would be most negatively affected by anticipated inflation?
a retired railroad engineer who receives a fixed income payment every month
If consumers decide to be more frugal and save more out of their income, then this will cause
a shift in the supply for loanable funds to the right.
Suppose that in 2018, all prices in the economy double and that all wages and salaries also double. In 2018 you
are no better off or worse off than you were in 2017 as the purchasing power of your salary has remained the same.
Which of the following factors does NOT cause a shift in the labor demand curve?
changes in the wage rate
If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is ___________.
creditors (people or institutions that are owed money)
To adjust for nominal variables and find the value of past income in terms of today's values, divide the ____ year's price index by the ____ year's price index and then multiply the result by the ____ year's values.
current, past, past
The goal of a country with a healthy economy is to have ____________ equal to zero.
cyclical unemployment.
Economic agents who borrow funds are known as ____, the funds that they borrow are referred to as ____, and this activity occurs in the ______ market
debtors, credit, credit or loanable funds
The labor market looks at supply and demand slightly differently than the goods and services markets. Producers now ____ labor and individuals now ____ it.
demand; supply
An aggregate production function is used to ____________.
demonstrate how the factors of production are combined to produce GDP.
The most important determinant of cross-country differences in income (or GDP) per worker appears to be ____________.
differences in technology and the efficiency of production.
Inflation is the
growth rate of the overall price level in the economy
The BLS officially classifies a person as being employed ____________.
if that person holds either a part-time or full-time paid job.
Alex is a full minus time student that works as a waiter on the weekends at Chili's. John has not responded to interview requests from banks but applied to be a realtor last week. We know that Alex is ____________, and we know that John is ____________.
in the labor force; in the labor force
According to the quantity theory of money, ____________.
in the long run, the growth in the money supply is directly related to the inflation rate.
An increase in the average worker's level of human capital will, all else equal, ____________ the total efficiency units of labor in an economy.
increase
When there is an increase in the wage rate paid to workers, the supply of labor will ____________.
increase and move up along the curve
Total efficiency units of labor in an economy can be increased by ____________.
increasing workers' skills through training.
The real wage is the
inflation-adjusted wage
What would be the impact on labor demand if there is a decrease in input costs for televisions?
labor demand increases
Hyperinflation is most likely caused by ____________.
large budget deficits financed by printing more money.
If a significant tax reduction was offered to families that homeschool their children, we would most likely see a ____________.
leftward shift in the labor supply curve.
The value of the marginal product of labor is the ____________.
market value of a worker's additional output for a firm.
The quantity equation states that the
money supply times the velocity of money equals the price level times real output.
The labor force equation is equal to the number employed ___ the number unemployed.
plus
The nominal interest rate equals the real interest rate ________ the inflation rate.
plus
A financial intermediary's main function is to match ________ with excess funds to ________ with a shortage of funds.
savers, borrowers
Fiat money is ____________.
something that is used as legal tender by government decree and is not backed by a physical commodity.
According to the quantity theory of money, the inflation rate is
the gap between the growth rate of money supply and the growth rate of real GDP.
According to the quantity theory of money, inflation is caused by
the money supply growing faster than real GDP.
The total efficiency units of labor are ____________.
the product of the total number of workers and the average human capital of each worker.
A competitive labor market is in equilibrium when ____________.
the quantity of labor demanded and the quantity of labor supplied are equivalent.
deflation is
the rate of decrease of the overall price level in the economy
The nominal interest rate will be less than the real interest rate when
the rate of inflation is negative.
The quantity theory of money assumes that ____________.
the ratio of money supply to nominal GDP is exactly constant.
A profit-maximizing firm will continue to hire workers until ___________.
the revenue from the marginal worker equals the wage rate.
Potential workers are classified as being unemployed when ____________.
they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work.
In a competitive labor market, the profit-maximizing number of workers that a firm will hire occurs where the ____________.
value of marginal product of labor is equal to the market wage.
A profit-maximizing firm will hire workers until the value of the marginal product of labor (VMPL) equals the ____. To hire beyond that would mean the firm would be paying the worker ____ than the worker's contribution to the firm.
wage, more
The real wage is the ____________.
inflation-adjusted wage.
Inflation that is ________ than what is expected benefits ________ and hurts ________.
less; lenders; borrowers
