Macroeconomics HW 5

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?

$12.20

An economy produces 1,000,000 computers valued at $2,000 each. Households purchase 200,000 computers, of which 100,000 are imported. Businesses purchase 300,000 domestically produced computers, the government purchases 300,000 domestically produced computers, and 100,000 domestically produced computers are sold abroad. At the end of the year, the computer manufacturers hold the unsold computers in inventory. What is the value of GDP?

$2.0 billion

If total government tax collections equal $550 billion, transfer payments equal $325 billion, and government interest payments equal $25 billion, then net taxes equal

$200 billion

In Econoland in 2005, people with incomes between $20,000 and $30,000 paid 12 percent of their income in taxes and people with incomes between $30,001 and $40,000 paid 15 percent. In 2005, the CPI in Econoland equaled 1.20, and it increased to 1.26 in 2006. If the government of Econoland wants to keep households with a given real income from being pushed up into a higher tax bracket by inflation, the $20,000-to-$30,000 bracket will be changed in 2006 to

$21,000 to $31,500

Suppose that the total expenditures for a typical household in 2018 equaled $2,750 per month, while the cost of purchasing exactly the same items in 2020 was $3,250. If 2020 is the base year, the CPI for 2018 equals

0.85

An investor purchasing an inflation-protected bond with a fixed annual real return of 1.75 percent will earn a nominal annual return of ______ percent if the actual inflation rate turns out to be 3.25 percent.

5 percent

One year before maturity, the price of a bond with principal amount of $1000 and a coupon rate of 5 percent paid annually fell to $981. The one-year interest rate must be

7 percent

Private savings equal _____; public savings equals ________; national savings equals ________

800; 200; 1,000

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals

Y-T-C

When a U.S. oil company purchases oil from Saudi Arabia and the Saudi Arabian firm uses the proceeds from the sale to buy transportation services from the U.S., U.S. net exports _________ and the capital inflow to the United States _________.

are unchanged; is unchanged

When the Chinese government buys U.S. government bonds, from the perspective of the United States this is a

capital inflow

When a Peruvian buys a U.S. government bond, from the perspective of Peru this is a

capital outflow

When the coupon rate on newly issued bonds increases from 5 percent to 6 percent, the prices of existing bonds

decrease

Holding other factors constant, an increase in the tax rate on revenue generated by capital will

decrease investment

In an open economy with a given level of real interest rates and risk, an increase in real interest rates abroad will ________ net capital inflows and _________ the equilibrium domestic real interest rate

decrease; increase

In an open economy, a decrease in the government's budget deficit will _____ the domestic real interest rate and ______ the level of capital investment in the country, holding other factors constant

decrease; increase

In an open economy, if domestic citizens decide to save more, then the domestic real interest rate will _______ and the level of capital investment in the country will ________, holding other factors constant

decrease; increase

A factory worker earned $10 an hour in 1980. The CPI was 0.82 in 1980. The same factory worker was earning $15 an hour in 1990 when the CPI was 1.31. From 1980 to 1990, the factory worker's hourly real wage

decreased from $12.20 to $11.45

For a given nominal interest rate, and unexpectedly high inflation rate ______ the real interest rate

decreases

In an open economy, an increase in capital inflows _______ the equilibrium domestic real interest rate and _________ the quantity of domestic investment

decreases; increases

The sum of national saving and capital inflows from abroad must equal

domestic investment in new capital goods

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital _________ the United States

imports increase; inflow to

Holding other factors constant, a higher relative price of a firm's output will

increase investment

In an open economy, and increase in the government's budget deficit will ________ the domestic real interest rate and _______ the level of capital investment in the country, holding other factors constant

increase; decrease

Holding other factors constant, if Congress passes a 5% investment tax credit under which a firm receives $5 in tax refunds from the government for every $100 it spends on new capital equipment, then the real interest rate will ______ and the equilibrium quantity of national savings and investment will __________

increase; increase

A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $8,000 in 2018 when the CPI equaled 2.40. The real cost of tuition between 1972 and 2018

increased

One family earned an income of $28,000 in 1995. Over the next five years, their income increased by 15 percent, while the CPI increased by 15 percent. After five years, this family's nominal income ______, and their real income ______.

increased; did not change

In an open economy, a decrease in capital inflows _____ the equilibrium domestic real interest rate and ______ the quantity of domestic investment

increases; decreases

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2016 found a job paying $35,000. The CPI was 2.40 in 2016. The 1972 graduate's job paid ______ in nominal terms and ______ in real terms than the 2016 graduate's job.

less; more

The coupon rate on newly issued bonds is usually _______ for bonds with favorable tax treatment, such as municipal bonds, and _________ for bonds that are very risky, such as junk bonds

lower; higher

If the United States has a $300 billion trade deficit, then there must be

net capital inflows of $300 billion

Total taxes minus transfer payments minus government interests payments is called

net taxes

Deflating a nominal quantity is the process of dividing a ____ quantity by a ______ in order to express the quantity in ______ terms.

nominal; price index; real

The principal amount of a bond is the amount

originally lent

Joe's Taco Hut can purchase a reliever truck for $20,000 and Joe estimates it will generate a net income (after taxes, maintenance and operation costs) of $2000 per year. He has no other opportunities. He should

purchase the truck if the real interest rate is less than 10 percent

If all prices, including the price of beef, increase by 3 percent, then the relative price of beef has ______ and inflation _____.

remained constant; has occurred

The value of exports minus the value of imports in a period is called the

trade balance

When imports exceed exports there is a

trade deficit

If the United States has a $300 billion net capital inflow, then there must be a

trade deficit of $300 billion

Social Security benefits, welfare payments, and farm support payments are examples of

transfer payments