Macroeconomics Midterm Prep

Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, gross domestic product (GDP) increases by:

$2

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:

$20,000

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ____ multiplied by B

(cr+1)/(cr+rr)

A Gini coefficient of ____ represents perfect income equality, while a Gini coefficient of ______ represents perfect income inequality.

0; 1

If nominal gross domestic product (GDP) in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?

1.27

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

12 percent

All of these transactions that took place in 2009 would be included in the gross domestic product (GDP) for 2009 EXCEPT the purchase of a:

2001 Jeep Cherokee

Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to:

3.5%

If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately ___ percent

4.7

Assume that the consumption function is given by C=150+0.85(Y-T), T=t0+t1Y gives the tax function, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by:

425

If Y=AK0.5L0.5 and A, K and L are all 100, the marginal product of capital is:

50

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ____ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ perecent

5; 5

In the national income accounts, government purchases are goods and services purchased by:

the federal, state, and local governments.

The inflation rate is a measure of how fast:

the general level of prices in the economy is rising.

Economists can calculate the U.S. unemployment rate by using:

the household survey but not the establishment survey.

The factor that makes national saving equal investment, in equilibrium, is:

the interest rate.

In a Cobb-Douglas production function, the marginal product of capital will increase if:

the quantity of labor increases

The employment statistics computed from the establishment survey do NOT include:

those who are self-employed.

Two equivalent ways to view gross domestic product (GDP) are as the:

total income of everyone in the economy or the total expenditure on the economy's output of goods and services.

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

unit of account

Using a market-clearing model to analyze the labor market is___ because wages usually change _____.

unrealistic; infrequently

The quantity theory of money assumes that

velocity is constant

According to the quantity equation, the percentage change in P is approximately equal to the percentage change in:

M minus the percentage change in Y plus the percentage change in velocity.

According to the usual seasonal pattern of the U.S. economy, gross domestic product (GDP) is highest in the quarter of the year that includes:

October, November, and December.

Which of these combinations is NOT a U.S. president and an important economic issue of his administration?

President Clinton; inflation

Which of these would be called hyperinflation?

Price increases averaged 1% per day

According to the quantity theory of money ultimate control over the rate of inflation in the United States is exercised by:

The Federal Reserve

The national income accounts identity for an open economy is:

Y=C+I+G+NX

When banks borrow through the Term Auction Facility, the price of borrowing is determined by:

a competitive bidding process.

Other things equal, an increase in the interest rate leads to:

a decrease in the quantity of investment goods demanded.

Excess reserves are reserves that banks keep:

above the legally required amount.

If nominal wages cannot be cut, then the only way to reduce real wages is by:

adjustments via inflation

In a system with fractional-reserve banking:

all banks must hold reserves equal to a fraction of their deposits

In a country on a gold standard, the quantity of money is determined by the:

amount of gold.

Economists use the term money to refer to:

assets used for transactions.

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on:

both the current and expected future money supply.

the reserve-deposit ratio is determined by:

business policies of banks and the laws regulating banks.

To increase the monetary base, the Fed can:

conduct open-market purchases.

Real gross domestic product (GDP) means the value of goods and services is measured in ____ prices.

constant

If an increase of an equal percentage in all factors of production increases output of the same percentage, then a production function has the property called:

constant returns to scale.

The circular flow model shows that households use income for

consumption, taxes, and saving.

Payment is deferred by using _____, but immediate access to funds occurs when using ____.

credit cards; debit cards

The money supply will decrease if the:

currency-deposit ratio increases

When the Fed decreases the interest rate paid on reserves, it:

decreases the reserve-deposit ratio (rr).

Public saving:

depends on the government's tax collections relative to its expenditures.

Endogenous variables are:

determined within the model

The investment function slopes ____ because there are ____ investment projects that are profitable as the interest rate decreases.

downward; more

Accounting profit is:

economic profit plus the return to capital.

When a person purchases a 90-day Treasury bill, he or she cannot know the:

ex post real interest rate.

In an economic model:

exogenous variables affect endogenous variables.

The total income of everyone in the economy is exactly equal to the total:

expenditure on the economy's output of goods and services.

Important characteristics of macroeconomic models include all of these EXCEPT:

functional relationships based on randomized control trials

All of these are flow variables EXCEPT:

government debt

People use money as a store of value when they:

hold money to transfer purchasing power into the future.

A typical trend during a recession is that:

incomes fall.

If many banks fail, this is likely to:

increase the ratio of currency to deposits.

Assume that the production function is Cobb-Douglas with parameter a=0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:

increases by about 7 percent.

Which of these is NOT a probable explanation for the increasing wage gap between skilled and unskilled workers?

increasing automation that has increased the share of capital in national income.

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ____ each year and give workers ____ raises.

less; smaller

Assets of banks include:

loans to customers.

Macroeconomic models:

make difficult assumptions to explain different aspects of the macroeconomy.

The expected real return on holding money is

minus the expected inflation rate

All of these assets are included in M1 Except:

money market deposit accounts

Variables expressed in terms of money are called ____ variables.

nominal

The opportunity cost of holding money is the

nominal interest rate

The real interest rate is equal to the:

nominal interest rate minus the inflation rate.

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase:

nominal interest rates

An economy's factors of production and its production function determine the economy's:

output of goods and services.

The rate of inflation is the:

percentage change in the overall level of prices.

A competitive, profit-maximizing firm hires labor until the:

price of output multiplied by the marginal product of labor equals the wage.

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would:

raise taxes and cut spending

In principle, the gross domestic product (GDP) accountants should-but do not-have an imputation for:

rental services of automobiles driven by owners.

To reduce the money supply, the Federal Reserve:

sells government bonds.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoeleather costs

An assumption of ____ is more plausible for studying the short-run behavior of the economy, while an assumption of ___ is more plausible for studying the long-run, equilibrium behavior of the economy.

sticky prices; flexible prices

An increase in the price of goods brought by firms and the government will show up in:

the GDP deflator but not in the CPI

The theoretical separation of real and monetary variables is called:

the classical dichotomy

An example of increasing returns to scale is when capital and labor inputs:

both increase 5 percent and output increases 10 percent.