macro theory exam#1
3. In the classical model, what adjusts to eliminate any unemployment of labor in the economy? a. the average price level b. the interest rate c. the real rental price of capital d. the real wage
d
6. According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed: a. only to the labor used in production. b. partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. c. equally between the labor and capital used in production. d. between the labor and capital used in production, according to their marginal productivities.
d
6. All of these actions are investments in the sense of the term used by macroeconomists EXCEPT: a. Apple building a new factory. b. a corner candy store buying a new computer. c. John Smith buying a newly constructed home. d. Sandra Santiago buying 100 shares of Apple stock.
d
7. 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
8. When people want to hold _____ money, the income velocity of money increases, and the money demand parameter k ______ . a. more; increases b. less; increases c. more; decreases d. less; decreases
d
6. According to the quantity theory of money 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
5. In the national income accounts, all of these 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
1. Credit card balances are included in: a. M1 only. b. M2 only. c. both M1 and M2. d. neither M1 nor M2.
d
4. If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is: a. 50. b. 100. c. 200. d. 1000.
a
4. To increase the monetary base, the Fed can: a. conduct open-market purchases. b. conduct open-market sales. c. raise the interest rate paid on reserves. d. lower the required reserve ratio.
a
8. When there is a fixed supply of loanable funds, an increase in investment demand results in: a. a higher interest rate. b. a lower interest rate. c. an increase in investment. d. a decrease in investment.
a
1. The amount of capital in an economy is a(n) _____, and the amount of investment is a(n) _____. a. flow; stock b. stock; flow c. final good; intermediate good d. intermediate good; final good
b
2. All of these transactions that took place in 2009 would be included in gross domestic product (GDP) for 2009 EXCEPT the purchase of a: a. book titled The Year 3000 that was printed in 2009. b. 2001 Jeep Cherokee. c. year 2010 calendar printed in 2009. d. ticket to see the movie 2001.
b
2. An increase in the supply of capital will: a. increase the real rental price of capital. b. decrease the real rental price of capital. c. increase the productivity of capital. d. increase the marginal product of capital.
b
3. When a firm sells a product out of inventory, investment expenditures _____, and consumption expenditures _____. a. increase; decrease b. decrease; increase c. decrease; remain unchanged d. remain unchanged; increase
b
4. 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 5 in 2009, then the gross domestic product (GDP) deflator in 2009, using a base year of 2002, was approximately: a. 1.5. b. 1.7. c. 1.9. d. 2.0.
b
5. "Inflation tax" means that: a. as the price level rises, taxpayers are pushed into higher tax brackets. b. as the price level rises, the real value of money held by the public decreases. c. as taxes increase, the rate of inflation also increases. d. in a hyperinflation, the chief source of tax revenue is often the printing of money.
b
5. 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
7. In a closed economy, private saving equals: a. Y - C - G. b. Y - T - C. c. Y - I - C. d. Y - T.
b
7. When prices of different goods are increasing by different amounts and households substitute away from more expensive goods, the price index that will rise the fastest is: a. the PCE index. b. the consumer price index (CPI). c. the gross domestic product (GDP) deflator. d. a Paasche index.
b
8. A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is: a. $1. b. $2. c. $3. d. $6.
b
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 the government cuts spending, holding other factors constant? a. point A b. point B c. point C d. point D
b
2. 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
3. The money supply will increase if the: a. currency-deposit ratio increases. b. reserve-deposit ratio increases. c. monetary base increases. d. discount rate increases.
c
