Macroeconomics Exam 2

When we examine data from different countries, higher money growth has consistently been associated with:

higher inflation.

When an economic system changes from using a collective property rights system to something closer to private property rights, the immediate effect is:

to increase investment, work effort, and productivity.

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction?

$15,000

If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years?

$200,000

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. If 2008 prices are used in the calculation of real GDP, then nominal GDP in 2009 is _____ and real GDP in 2009 is _____.

$34,310; $33,700

If U.S. per capita GDP is $50,000 and grows at 3% per year, what will U.S. per capita GDP be in 70 years?

$400,000

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country?

$7,200

(Table: iPhones) This table shows data for a country producing only iPhones. Its nominal GDP in 2010 is:

$9,900.

If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be:

-1%

(Table: iPhones) This table shows data for a country producing only iPhones. The growth rate of real GDP between 2000 and 2010 (in 2000 dollars) is:

-10%.

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2009 prices are used in the calculation of real GDP?

-2.94%

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will:

. cause more unemployment among restaurant workers than hotel workers.

f you received a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000?

10 years

(Table: iPhones) This table shows data for a country producing only iPhones. Based on the GDP deflator, the increase in prices between 2000 and 2010 was:

10%.

If the average annual growth rate of a country increases from 2% to 3%, how much faster will its GDP double?

11 2/3 years faster

(Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 2005?

2.9%

GDP in the United States was $14,119 billion in 2009, and grew to $14,660.4 billion in 2010. This represents an annual growth rate of:

3.8%.

(Figure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of:

4%

A bank lends money for a year at an interest rate of 9% and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?

4%

(Table: Employment, Unemployment, and Labor Force Participation) Refer to the table. What is the unemployment rate of the country in 2010?

5%

Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period?

7%

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be:

8.33%.

Roughly what percent of the world's population live in countries with per capita GDP lower than the average world per capita GDP?

80%

Imagine that a government starts out with the budget surplus. If in the next period the government temporarily runs a budget deficit, what would you expect to happen to aggregate demand?

AD would increase.

How might changes in the money supply be non-neutral in the short run?

As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels.

Which of these transactions occurring in 2011 would contribute to GDP for 2011?

Boeing sells a 787 aircraft produced in 2011 to a Korean airline.

If the GDP of country X is 4 times the GDP of country Y and if the GDP of country X remains constant while GDP of country Y grows at a rate of 7% per year, which of the following statements is true?

Country Y's GDP will be equal to country X's GDP in 20 years

If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years?

$1.6 million

Which of the following is true of the natural unemployment rate?

It is higher if structural or frictional unemployment is higher.

Which of the following is a problem with deflation?

It raises the real cost of debt repayment

Which statement best describes the economic growth patterns in the world since World War II?

Japan and South Korea experienced rapid growth while Argentina and Nigeria experienced slow growth.

Which two nations have a high percentage of older workers participating in the labor force?

Japan and the United States

Which of the following activities is counted as part of U.S. GDP?

Jeff stays in a hotel in Colorado while on a skiing trip

Which of the following is considered unemployed?

John, on temporary layoff from his work, awaits recall.

As a result of an increase in expected inflation, the:

SRAS curve shifts up and to the left.

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator?

The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy.

Which of the following best describes the effects of a major labor union that maintains a union wage above the market wage?

The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases.

Which of the following is a case of frictional unemployment?

Timothy is looking for a job where he can apply his expertise in computer programming

Which of the following would be included in GDP for the United States?

Toyota, a Japanese car company, producing cars in the United States.

Why is the SRAS curve steeper above its intersection with the long-run aggregate supply curve?

Wages are less sticky in the upward direction.

A set of tires installed on a vehicle in an automobile factory is counted as:

an intermediate good and its market price is not part of GDP.

From an initial equilibrium in the AD -AS model, an increase in consumption growth will initially cause inflation:

and real growth to increase.

If the money supply, the velocity of money, and the price level are fixed, then increases in real GDP:

are impossible because real GDP must also be fixed.

In the basic model that includes the AD and LRAS curves only, aggregate demand shocks caused by changes in the growth of money supply:

are neutral in both the short run and long run

(Table: Unemployment Statistics for Country X) Using the data in the table, Country X is likely to be in a recession in:

both 1995 and 2005.

(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience disinflation?

both 2007 and 2009

The main reason(s) for the slope of SRAS is:

both sticky prices and sticky wages.

An unexpected increase in money growth leads to increased inflation in:

both the short run and the long run.

The real business cycle (RBC) model implies that:

business cycles are driven by real shocks to the economy.

Which is NOT likely an ultimate cause of economic growth around the world?

communal resources

Because of money illusion, inflation usually confuses:

consumers, workers, and firms.

Which type of unemployment is likely to be higher when real GDP growth is lower?

cyclical unemployment

Decreases in the level of political stability in a country tend to:

decrease per capita GDP.

Higher implicit tax rates tend to cause labor force participation rates to:

decrease.

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005.

decreased

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:

disinflation.

When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _____.

exceed; lenders and harm borrowers

If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

falling; 2%

Gross domestic product is the market value of all:

final goods and services produced within a country in a year.

To avoid double accounting, the value of:

final goods only are included in GDP.

The AD-AS model is most useful for explaining what causes:

fluctuations in GDP growth around its trend rate.

Several years ago, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the work force?

frictional unemployment

Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would:

increase by $10,000.

According to the quantity theory of money, an increase in the money supply will cause the price level to:

increase by about the same percentage as the money supply.

Sticky wages and prices:

increase the impact of positive shocks.

In the AD -AS model, an unexpected increase in the growth rate of the money supply:

increases both the inflation and real growth rates in the short run.

The quantity theory of money is a theory of:

inflation

Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead:

lenders on existing fixed rate loans will gain while borrowers will lose.

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be:

less than the equilibrium rate.

Which is NOT an example of an institution that creates incentives aligning self-interest with the interest of society?

low inflation

If the median wage is $9 in country X and $8 in country Y and both countries have similar elasticities of labor supply and demand, then a minimum wage of $4 in both countries will tend to:

make unemployment higher in country Y than in country X.

(Figure: Two SRAS Curves) The figure shows the AD -AS model with two SRAS curves. If the economy is initially at Point A and expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by:

moving along SRAS1 to Point B.

Using the national spending approach to measuring GDP, the social security checks the government sends retirees each month get included in GDP as part of:

nothing; they are not included as part of GDP.

A temporary positive shock to spending growth will lead to an increase in:

output and prices in the short run, but no change in either in the long run.

The value of a country's GDP exceeds that of the country's GNP if the value of the:

output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries.

Which is considered an immediate cause of economic growth?

physical capital

Higher levels of unemployment benefits and employment protection:

raise structural unemployment.

For a tax system in which higher income earners pay a larger share of their incomes in taxes, a higher inflation rate:

raises the tax burden of taxpayers.

Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused:

real growth to increase and inflation to decrease

When the expected rate of inflation is higher than the actual rate of inflation, wealth is:

redistributed from borrowers to lenders.

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:

remained the same

When workers lose their jobs and become officially unemployed, the number of people in the labor force:

remains constant.

The key reason for China's growth miracle beginning in the late 1970s was:

the assignment of private property rights.

Orrin mines iron ore, which he sells to Thorin, who turns iron ore into steel. The steel is sold to Gorin, who turns the steel into battle axes. The battle axes are sold by a merchant in the city to adventurers. Which of the following would be considered a final good?

the battle axes sold to the adventurers

Which of the following elements reduces structural unemployment?

the enhancement of worker retraining programs

The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of:

the government monetizing its debt.

The text states, "inflation is a type of tax." This tax refers to _____ when inflation occurs.

the lower purchasing power of money

In the quantity theory of money, growth of _____ is the cause of inflation.

the money supply

The quantity theory of money predicts that the main cause of inflation is increases in:

the money supply.

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with:

the quantity theory of money.

(Table: iPhones) This table shows data for a country producing only iPhones. If 2000 prices are used in the calculation of real GDP, the GDP deflator for 2010 is:

110.

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the country's GDP deflator for 2008 (using 2005 prices for the calculation of real GDP) is:

142.

Which of the following statements is TRUE about GDP?

GDP does not account for the distribution of income in a country.

In nations that have large underground, or illegal, sectors:

GDP will underestimate total production in the economy.

Which of the following is a case of cyclical unemployment?

Garrett lost his job after the company closed during last year's recession.

Which of the following is the best example of frictional unemployment?

Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.

Which of the following would be most effective in reducing "free riding" in a communal farming system?

assigning property rights

Inflation refers to an increase in the:

average level of prices

Around the world, about one _____ people have incomes of less than $2 per day.

billion

To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:

calculate real wages in both 1950 and today.

In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore:

changes in GDP overstate the true increase in production over the past 100 years.

The most promising idea for creating a growth miracle in a country is:

changing the institutions in the country.

GDP is calculated by:

multiplying the quantity of all goods and services by their prices and adding together the results.

The quantity theory of money implies that the money supply times the velocity of money equals:

nominal GDP.

Why do we use the "real" prices of goods to measure how expensive things have become?

to see whether there have been any changes in our purchasing power

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between:

too low a rate of growth or too high a rate of inflation.

The presence of discouraged workers causes the measured unemployment rate to be:

understated.

An unexpected outward shift of the economy's AD curve will cause real GDP growth to increase in:

the short run only.

An increase in the rate of expected inflation causes:

the short-run aggregate supply curve to shift up.

The long-run aggregate supply curve is represented by a vertical line at the Solow growth rate because:

there is an underlying assumption of long-run money neutrality

Institutions and incentives are _____ causes, and factors of productions are _____ causes of the wealth of nations.

ultimate; immediate

Which of the following is NOT considered a government purchase?

unemployment checks

In the AD -AS model, money is not neutral in the short run if:

wages and prices are sticky.

History has shown that when collective property rights are converted to private property rights:

work effort, investment, and productivity all increase.

Which of the following correctly represents deflation?

π < 0

A minimum wage is:

a labor market price floor.

Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's Day Care?

$100,000

(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. What is the GDP in this country?

$7,700

Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000?

1985

(Figure: Labor Market) Refer to the figure. If this market is initially in equilibrium when a $10 minimum wage is imposed, the quantity of labor employed will fall by:

20.

(Table: Labor Data) According to the accompanying labor data, the unemployment rate is:

7.5%.

Which statement is TRUE about economic growth?

A country can grow and become wealthy, never grow, or grow and then begin to stagnate.

If the actual rate of inflation turns out to be higher than the expected rate of inflation, what happens to the growth rate of output before expectations are updated?

The growth rate is higher than the Solow growth rate.

Why did so many Chinese farmers and workers starve under "The Great Leap Forward"?

The incentive to work hard was low since the rewards were so minimal.

Why could very high rates of inflation cause velocity to increase?

The more money loses its value, the faster people try to spend it.

Which of the following is NOT true regarding the natural rate of unemployment?

The natural rate of unemployment correlates positively with the level of GDP growth in an economy.

(Table: Small-Town GDP) Which of the four towns in this table has the highest standard of living?

Town B

High and volatile inflation:

destroys the ability of market prices to send signals about the value of resources and opportunities.

If π < π e:

firms will reduce their output.

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to:

increase

If a national government improves its unemployment benefits, its unemployment rate will most likely:

increase.

Which would be most effective in ensuring sustained long-term economic growth?

increasing technological knowledge

Debt monetization means that a government pays off its debt by:

increasing the money supply.

Which of the following is (are) NOT an institution of economic growth?

labor unions

Property rights are important institutions for encouraging investment because:

people won't invest if they feel their property is at risk and that they may not realize a return on their investment.

For most of recorded human history, real GDP per capita has:

remained about the same.

If spending grows by 3% while real growth is 1% and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

rising; 2%

Property rights encourage:

saving and investment in both physical and human capital.

Money illusion occurs when people:

see changes in nominal prices and mistake them for changes in real prices.

The lowering of the growth rate of the money supply is represented graphically by a:

shift to the left of the AD curve.

Which of the following is a negative real shock that occurred during the Great Depression?

Widespread bank failures led to a reduction in the productivity of financial intermediation.

Which of the following is an example of money illusion assuming that inflation is 5%?

You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.

In the basic model that includes the AD and LRAS curves only, increased spending growth causes:

a higher inflation rate, but no change in the real growth rate.

Which scenario has the greatest potential for free riding?

a system in which work effort and pay are not connected

Growth in nominal GDP over time can be caused by:

an increase in both prices and production over time.

Deflation can cause the economy's aggregate demand curve to shift inward because debt contracts are:

not adjusted for inflation.

The value of volunteer services is:

not included in GDP, but should be because a service is produced.

A positive real shock causes the aggregate demand curve to:

not shift at all

A decrease in spending growth will cause the economy's aggregate demand curve to:

shift to the left.

During the Great Depression, the long-run aggregate supply curve:

shifted inward.

Sticky wages and prices are incorporated in the AD -AS model by the:

short-run aggregate supply curve.

A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____.

slow; of uncertainty due to an unstable political system

Which is NOT an important institution for growth?

strong regulation of religious belief

The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in:

structural unemployment

Which are immediate causes of the wealth of nations?

technical knowledge and human capital

(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2008 prices are used in the calculation of real GDP?

-3.71%

A developing country could buy (or be given) _____ and _____ more easily than _____.

. technological knowledge; physical capital; human capital

If a country's real GDP per capita in 1950 was $10,000, and it grew to $20,000 by year 2000, then the country's annual growth rate during this period would have been approximately:

1.4%.

In 2010, real GDP was $13.2 trillion (using 2005 prices) and nominal GDP was $14.6 trillion. Based on the GDP deflator, prices in 2010 were about _____ than prices in 2005.

10.6% higher

(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after one year. Which year did lenders gain relative to borrowers?

2003

Real GDP for the year 2000 (measured in 2005 dollars) is equal to

2005 prices × 2000 quantities.

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is:

27%

For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is:

4%.

If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be:

4.00

(Figure: Labor Supply and Demand) Refer to the figure. What is the unemployment rate caused by the labor union's action to increase its wage demands to $11 an hour?

40%

If GDP was $10 billion in 2010 and $11 billion in 2011 and the population grew 5% between 2010 and 2011, the growth rate of GDP per capita between 2010 and 2011 was:

5%.

(Figure: Labor Market) Refer to the figure. What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage?

50%

If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000?

56 years

Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1% per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5%. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A?

56 years

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's underemployment rate?

60%

A country has a population of 160 million. Thirty million of its people are under the age of 16 and 10% of the population is either in the military or institutionalized. Seventy million people have jobs, and five million are looking for work. What is the labor force participation rate in this country?

66%

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's labor force participation rate?

66.7%

(Figure: Labor Supply and Demand) Refer to the figure. How much will the quantity of labor employed decline as a result of the labor union's action to increase its wage demands to $11 an hour?

700

On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money supply is 2%, then the velocity of money must be growing at:

8%

(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is:

8.3%

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's unemployment rate is:

9.1%.

In a country where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case?

A large percentage of the population is aging and thus has retired.

Consider countries A and B. In country A the minimum wage is 30% of the median wage, and in country B the minimum wage is 60% of the median wage. As a result, the minimum wage will affect more workers in country _____ and create more unemployment in country _____.

B; B

Structural unemployment is more persistent in France than in the United States because:

French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher

Which of the following is TRUE in the calculation of GDP?

GDP does not include goods and services produced privately inside the home.

Which of the following is an ultimate cause of economic growth among countries around the world?

History, culture, and geography are all ultimate causes of growth.

How might changes in marginal tax rates on married couples affect labor force participation rates?

Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.

(Figure: Oil Market Diagrams) Consider the world oil market diagrams presented in the figure. Which of the panels correctly depicts the cause of rises in the price of oil in the early 2000s?

Panel D

Which of the following is NOT consistent with points along the long-run aggregate supply curve?

Real output growth is negatively related to inflation.

A country's total civilian noninstitutionalized adult population is 1 million, and 500,000 people in this country are working, with another 20,000 people looking for work. Which of the following statements about the labor force statistics in this country is accurate?

The employment rate is 96.15% and the labor force participation rate is 52%

Which of the following causes a shift of the AD curve to the right?

an increase in consumer confidence

If wages are not as flexible as prices in the AD -AS model, an increase in money growth will lead to:

an increase in inflation and in the profits of firms.

According to the textbook, one major reason for the increase in the female labor force participation rate after World War II was:

an increase in the incentive to work

The disinflation experiment reduced inflation in the United States, but at the cost of:

an increase in the long-run growth rate of the economy.

GDP includes the:

current market value of government purchases of goods and services.

If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____ real GDP in 2010.

greater than

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $4 in both markets will:

have no effect in either market.

Countries that have high per capita GDP tend to have:

high levels of all three factors of production.

The implicit tax on working is less than 1% in the United States and over 2% in Belgium. Given this, we would expect:

higher labor force participation in the United States.

High-income economies generally have _____ that incentivize individuals' self-interest by using _____.

institutions; profit-seeking motives

If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____.

less; lenders to borrowers

Money illusion is a condition in which people:

mistakenly confuse changes in nominal prices for changes in real prices.

Which is NOT an example of physical capital?

money

According to the quantity theory, what causes inflation in the long run?

money supply growth