Macroeconomics Harry Ledbetter Exam 2
If you purchased a newly issued 30-year bond from Google with a face value of $3,000 and a coupon payment of 6 percent, Google would pay you
$180 per year for 30 years plus $3,000 at the end of the 30th year.
assuming the interest rate is 5 percent, which of the following has the greatest present value?
$240 paid in three years
Refer to the above table. Real GDP for year 2007 was
$4617.3 billion.
Suppose that for the economy of Springfield, we have the following information for 2013: consumption expenditures = $4,000; wages = $3,500; gross private domestic investment = $1,300; government expenditures = $2,000; exports = $900; imports = $1,100. Using the expenditure approach what would the Gross Domestic Product (GDP) be for Springfield in 2013?
$7,100
Suppose that in 2013, the total value of all final services produced in a nation was $300 billion; the total value of all final goods produced in that nation was $400 billion; and the total value of all final goods and services produced by that nation's firms in other countries was $200 billion. Gross domestic product was
$700 billion.
Refer to Table 20-1. The labor force participation rate for this simple economy equals
(1,100/15,000) × 100.
In calculating the GDP national income accountants:
add increases in inventories or subtract decreases in inventories.
Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in April 2017 would have ________ compared to the measured unemployment rate.
almost doubled
If the employment-population ratio in 2017 was at the same level as it was in 2006,
an additional 8 million people would have been working in 2017 than actually were.
National income accounting is
an approach to measuring an economy's aggregate performance.
In a typical year, new small firms create ________ jobs.
3.3 million
A farmer buys seed for 15 cents that is used to grow wheat. The farmer sells the wheat to the miller for 30 cents, who makes flour. The flour is sold to the baker for 60 cents and the baker makes bread, which is sold to the grocer for 90 cents. The grocer sells the bread for $1.25. What is the value added for the grocer?
35 cents
If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is
5%
In the United States, ________ percent of all firms are sole proprietorships.
72
If the number employed is 190 million, the number unemployed is 10 million, and the working-age population is 250 million, then the labor force participation rate is
80%.
Which of the following are examples of the gross private domestic investment component of Gross Domestic Product (GDP)? I. The purchase of production machinery II. An increase in finished goods inventory
Both I and II
Which of the following spending components makes up the largest percentage of Gross Domestic Product (GDP)?
Consumption expenditures
Which of the following statements is true about the U.S. economy?
Each year, many new jobs are created and many existing jobs are destroyed.
Which of the following explains why many European countries have unemployment rates that are higher than in the United States?
European countries offer higher unemployment benefits than the United States.
Which of the following is a main limitation of GDP?
GDP is not a good measure of a nation's overall welfare.
in dollar terms, which company paid the highest dividend per share?
Gen Mills BECAUSE... high yield= high dividend. dividend yield= dividend per share/ value per share
What does unlimited liability mean?
The owners of the business are personally responsible for paying expenses incurred by the business.
Of the following, which country has the highest annual real GDP per capita according to the International Monetary Fund and World Bank?
United States
In the modern U.S. economy, the typical unemployed person stays unemployed for
a relatively short time, less than six months.
An example of a seasonally unemployed worker would be
a ski lift operator who loses his job when the snow melts in the spring.
Examples of nondurable consumer goods include all of the following EXCEPT
a stereo system.
A bond is a financial security that represents a promise to repay
a yearly interest payment and a principal payment.
which of these events would cause the consumer price index to overstate the increase in the cost of living?
a) car makers benefit from a new technology that allows them to sell higher-quality cars to consumer with no increase in price b) energy prices decreases, and consumers respond by buying more gas and electricity c) a new good is introduced that renders cellular telephones inferior and obsolete
A nation's gross domestic product (GDP):
can be found by summing C + Ig + G + Xn.
Dividing the dividend payment by the stock's ________ determines the dividend yield.
closing market price
Due to lowering its prices to compete with its rivals, increased competition from Airbus, and cuts to military spending, Boeing announced it would ________ the number of persons it employed in 2017 and this would ________ the total number of persons unemployed in the economy.
decrease; increase
Since 1948, the labor force participation rate for adult men has ________ and for adult women has ________.
decreased; increased
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?
discouraged workers
When an economy's production capacity is expanding:
domestic investment exceeds depreciation.
The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill.
employed
The labor force equals the number of people
employed plus unemployed.
The labor force is the sum of
employed workers and unemployed workers.
The two principle methods of measuring Gross Domestic Product are the
expenditures approach and the income approach.
Bonds ________ and stocks ________.
have a fixed number of interest payments; may pay dividends forever
An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment.
increase; frictional
Refer to the above table. Between 2009 and 2010 real GDP
increased by $87.6 billion.
Mutual funds sell shares to investors and use the funds to
invest in a portfolio of financial assets.
the rate of real economic growth
is underestimated using measures of income growth BECAUSE... the income measure ignore economic growth due to technological advances, thus it underestimates rate of economic growth
The typical firm in many industries has become ________ over the past 100 years, and efficiently organizing production has become ________.
larger; more difficult
Subprime mortgages are
mortgages issued to borrowers with flawed credit histories.
If firms pay what are called "efficiency wages," they pay wages that
motivate workers to increase their productivity.
Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as
not in the labor force.
Juliana, Gabrielle, and Marcela want to start a business they are the only owners and the company does not issue stock. The type of business they want to start is a
partnership.
The owner or owners control the day-to-day activities of which of the following types of business?
partnerships and sole proprietorships
Traditionally, Wall Street investment banks had been organized as ________, but by 2000 they had converted to being ________.
partnerships; publicly-traded companies
When an investor buys a corporate bond, the ________ is a loan to the corporation.
principal of the bond
In a simple circular flow diagram, firms
purchase resources from households BECAUSE...
Measuring total aggregate production in constant dollars uses which of the following measures?
real gross domestic product
Because of its effect on the amount of capital per worker, in the short term an increase in the working population is likely to
reduce productivity. other things the same, this decrease will be larger in a poor country
Damian wants to start a business where he is the only owner and the company does not issue stock. The type of business Damian wants to start is a
sole proprietorship.
By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce
structural unemployment.
What are the three main types of unemployment?
structural, frictional, and cyclical
Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?
substitution bias
The value of U.S. imports is:
subtracted from exports when calculating GDP because imports do not constitute production in the United States.
Other things being constant being constant, when a firm sells new shares of stock, the
supply of the stock increases and the price decreases
GDP does NOT include intermediate goods because
that would count the value of intermediate goods twice.
If intermediate goods and services were included in GDP:
the GDP would be overstated.
Which of the following is the most important of the over-the-counter markets?
the NASDAQ Composite Index
Value added is
the amount of dollar value contributed to a product at each stage of its production.
The labor force participation rate is defined as
the percentage of the working-age population in the labor force.
If the minimum wage is set above the market wage
unemployment will rise.
Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?
unmeasured quality change
In 2006, before the start of the recession, the employment-population ratio was 63.4 percent. In April 2017, more than six years after the end of the recession, the ratio
was still only 60.2 percent.
Which of the following would likely make the interest rate on a bond higher than otherwise?
both high credit risk and long term BECAUSE... the longer the term, the higher the interest rate and the high credit risk results in a higher interest rate as well
When mortgage loans are securitized, they are
bundled together by financial institutions and sold to investors.
Assume that the nominal GDP for a given year is equal to $12,400 billion and the GDP deflator equals 112. Real GDP for that year is approximately
$11,071.4 billion.
According to the above table, Gross Domestic Product (GDP) is
$2,465.
Which of the following is an example of a worker experiencing frictional unemployment?
A worker quits his job at the U.S. Post Office to find more interesting work.
Refer to the above table. The value of the GDP deflator in 2009 is
A) 121.2.
The National Income and GDP Accounts help economists and policymakers to:
Accomplish all of the above.
Which of the following policies would reduce structural unemployment?
a job retraining program
The natural rate of unemployment is made up of
frictional and structural unemployment.
Real GDP is
nominal GDP adjusted for price changes.
in national income accounting we use which of the following pair of terms interchangeably?
"public saving" and "government tax revenue minus government spending" BECAUSE... the governments money= public and the tax revenue - spending is how much the government has in savings
the price tag on a gold ball in 1975 and read $0..20, and the price tag on a golf ball in 2005 read $2. The CPI in 1975 was 52.3 and the CPI in 2005 was 191.3
$0.73
GDP= $5 trillion; consumption= $3.1 trillion; government purchases= $0.7 trillion; and taxes= $0.9 trillion. For this economy, investment amounts to
$1.2 trillion BECAUSE... GDP=C+I+G+NX since net exports aren't given we can forget about the NX, so... 5= 3.1 + I + 0.7 5- 3.8= I I= 1.2
Felix deposited $500 into an account two years ago. the first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?
$540.75 BECAUSE... FV=PV*(1+i)(1+i) FV= 500* (1+.3)(1+.5) FV= 500* (1.3)(1.5)= 540.75
Robert put $15000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.99. what rate of interest did Robert earn?
6.2 percent
the table below pertains to napandsack, and economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. if the base year is 2010, then the consumer price index was
83.33 in 2009, 100 in 2010, and 96.67 in 2011
in 1979 and 1980
The U.S inflation rate as measure by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices BECAUSE... the oil prices in the 1980s were rising and that caused the CPI to increase, making it higher than the GDP deflator
The legislation passed in 2010 that was intended to reform regulation of the financial system was the
Wall Street Reform and Consumer Protection Act.
which of the following changes would decrease the present value of a future payment?
all of the above are correct
Garrison is the chief financial officer (CFO) of the Colorado Drone manufacturing company and is also on the company's board of directors. Garrison is considered ________ of the company.
an inside director
in the calculation of the CPI, tea is given greater weight than beer if
consumers buy more tea than beer
In an economy where net exports are zero, if saving rises in some period, then in that period
consumption falls and investment rises BECAUSE...
In the United States, ________ profits are taxed at both the corporate level and when investors receive dividends.
corporate
Of the different types of businesses, a ________ has the most government rules and the most government regulations affecting it.
corporation
Arturo wants to start a business where he is the chief executive officer and the company does issue stock. The type of business Arturo wants to start is a
corporation.
Limited personal liability is an advantage for
corporations.
Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity
increased by 3.75%
Some corporate governance experts believe that serving on a company's board of directors for an extended length of time ________that member's independence from the company's CEO. If this is true, it would tend to ________ the principal-agent problem.
diminishes; increase
In August 2011, Standard & Poor's (S&P) changed its rating on U.S. Treasury bonds from "AAA" to "AA+" based on the state of the federal government's budget deficit. This was the ________ a rating agency had given Treasury bonds less than a rating of "AAA."
fifth time in history
the consumer price index is subject to substitution bias because
the law of demand applies to most, if not all, goods
which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?
the real interest rate is the nominal interest rate minus the rate of inflation BECAUSE... it's just the formula
One of the most widely followed stock indexes in the United States is the S&P 500. This index represents
the stock prices of 500 large U.S. firms.
Who selects the board of directors of a corporation?
the stockholders
you accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest?
6 percent
How do a partnership and a corporation differ?
All of these are differences between the two types of businesses.
Which of the following takes place in the direct finance market?
Loans to corporations are made from the sale of corporate bonds.
________ of people work at firms that have 50 or more employees.
More than 70 percent
on the basis of theory and empirical evidence, economists have reached several conclusions about economic growth.
a relatively simple way to increase growth rates permanently is to increase a country's saving rate
Diversitfication
reduces the likely fluctuation in a portfolio's return. Thus, the likely standard deviation of the portfolio's return is lower BECAUSE
The Sarbanes-Oxley Act of 2002
requires that CEOs personally certify the accuracy of financial statements.
Profits that are reinvested in a firm rather than paid to the firm's owners are called
retained earnings.
Owners of a corporation ________ through dividend payments on shares of that firm's stock.
share in the profits of the firm
in response to accounting scandals in 2002, the federal government passed legislation requiring, among other things, that auditors disclose any potential conflicts of interest. What is the name of this legislation?
the Sarbanes-Oxley Act
The CEO of Dynadyne corporation has been more concerned with enhancing his lifestyle by having the company pay for expensive corporate retreats than he has been with increasing the value of the company's stock. In this situation, the CEO is ________ and the stockholders are ________.
the agent; the principals
in the base year, the GDP deflator is always
100
which of the following is the correct formula for calculating the consumer price index?
[(price of a basket of goods and services in current year/price of basket in base year)]*100 BECAUSE... CPI=price in current year/price in base year *100 just makes it a percentage instead of a decimal
Anything owed by a person or a firm is
a liability.
What is an outside director?
a member of the board of directors who does not have a direct management role in the firm
Country A has twice as many workers as Country B. Country A also has twice as much physical capital, twice as much human capital, and access to twice as many natural resources as Country B. Assuming constant-returns to scale, which of the following is higher in Country A?
neither productivity nor output per worker BECAUSE... the amount of people doesn't affect the quality of work from each person, nor does it determine the amount of productivity
in the economy of talikastan in 2015, consumption was $600, exports were $1300, government purchases were $250, and investment was $300. what were talikastan's imports in 2015?
$150
in 1986, ken bought a ford mustang for $8000. if the price index was 122 in 1986 and the price and the price index was 280 in 2011, then what is the price of the mustang in 2011 dollar?
$18,360.66
You are considering buying a house share of stock in ABC. At the end of years 1, 2, and 3 the stock will pay you a dividend of $10. In addition, at the end of the third year you expect to sell the share of stock for $200. If the interest rate is 5%, how much is the share of ABC stock worth to you today?
$200 BECAUSE... present value of stock= annual dividend (P/A,i,n)+ sale value (P/F,i,n) where P/A= Present Worth Factor i= interest rate (5%) n= time period (3) P/F= compound amount factor Therefore... PV= 10 (P/A, 5%, 3)+ 200 (P/F, 5%, 3) where... P/A= (1+i)^n-1/ i( i+1)^n >> (1+.05)^3/ .05(.05+1)^3 = 2.723 P/F= (1+i)^n >> (1+.05)^3 = 0.8683 therefore... PV= (10 * 2.723) + (200 * 0.87) PV= 200
Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been
$246
using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?
$3,200 BECAUSE... the rule of 70 says that the worth doubles every (70/interest rate) years. When you divide 70 by the interest rate of 7 it equals 10, so every 10 years the price doubles. This means: 0 years= 100 10 year= 200 20 years= 400 30 years= 800 40 years= 1600 50 years= 3200
Tonya put $250 into an account three years ago. the first year he earned 6 percent interest, the second year 7 percent, and the third year 8 percent. About how about much does Tonya have in her account now?
$306.23
what is the future value of %450 at an interest rate of 9 percent two years from today
$534.65
In the United States, ________ percent of all firms are partnerships.
10
in the U.S each additional year of schooling has historically raised a person's wage on average by about
10 percent
In the United States, ________ percent of all firms are corporations.
18
During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the CPO was 198.3 at the end of the year. The CPI at the beginning of the year was
192.5 BECAUSE... rate of inflation= Nominal interest rate- real interest rate nominal= 7 percent real= 4 percent 7-4= 3 percent The rate of inflation is then = to (end of year CPI- beginning CPI) *100 / beginning CPI Therefore... 3%=(198.3- beginning CPI)*100/ beginning CPI 3%*beginning CPI= 19830 -100 beginning CPI= 19830/ 103 19830/103= 192.5
If a corporate bond with a face value of $20,000 pays yearly coupon payments of $500, what is the coupon rate?
2.5%
The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?
24.4 percent
When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude
Consumer prices sometimes rose and sometimes fell in the time frame represented on the graph BECAUSE... the rising and falling of the two lines on a graph are the only reasons that they would cross multiple times instead of just at the base year
The BRAC anti-poverty program in Bangladesh gave poor families training on how to raise livestock, a savings account, and help with their physical and mental health. These policies can potentially improve economic growth by increasing...
Education, savings, and human capital respectively BECAUSE... training = education savings account = savings physical and mental health = human capital
in the 1800s Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engages in
Foreign portfolio investment BECAUSE... they were from a different country (foreign) and they didn't have their own company but rather invested in other companies by buying stocks
Two years ago Lenny put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Lenny deposit into his account two years ago?
about $890
A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
bond
When the coupon rate on newly issued bonds ________ relative to older, outstanding bonds, the market price of the older bond ________.
decreases; falls in the secondary market
the nominal interest rate is the
interest rate as usually reported by banks BECAUSE... nominal interest rates apply to loans which banks deal with
which of the following is a true statement?
international data indicate that measures on the distribution of income are closely associated with GDP per person
you hold bonds issued by the city of Sacramento, California. the interest you earn each year on these bonds
is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the US government
GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because
measuring them is so difficult
The GDP is the:
monetary value of all final goods and services produced within a nation in a particular year.
The purchase of a share of stock is excluded in the calculation of Gross Domestic Product (GDP) because it
only represents the transfer of ownership rights.
Small savers who only have enough money to buy a few individual financial assets can use ________ to diversify.
mutual funds
other things the same, bonds are likely to have higher interest rates if they have
no tax exemptions and long terms BECAUSE... duration is measure of sensitivity of prices. bond is likely to have higher interest rates if there are no tax exemptions and bond is long term
suppose an economy only produces only burgers and bags of fries. in 2010, 4000 burgers are sold at $3 each and 6000 bags of fries are sold at $1.50 each. in 2008, the base year burgers sold for $2.50 each and bags of fries sold for $2 each
nominal GDP is $21,000, real GDP is $22,000 and the GDP deflator is 95.45
National income accountants can avoid multiple counting by:
only counting final goods
Dividends are
payments by a corporation to its shareholders.
The ________ a corporation keeps to finance future expansion are known as retained earnings.
profits