Zandvakili Macro Exam Module 2

Use the following table to answer the next question. The base year is 2007. Hot Dogs Baseballs Bottles of Soda Year Price Quantity Price Quantity Price Quantity 2005 $2.00 100 $5.00 50 $2.00 100 2006 4.00 100 5.00 100 2.00 150 2007 6.00 100 5.00 100 2.00 200 2008 8.00 150 8.00 200 4.00 200 2009 10.00 200 10.00 200 4.00 250 Real GDP (constant dollars) for 2009 equals

$2,700.

Use the following table to answer the next question. Per capita GDP was about

$303 in year 3 in Zorn.

One year nominal GDP was $286 billion and the price index was 88. Real GDP that year was

$325 billion.

Answer the next question based on the following data. All figures are in billions of dollars. Gross investment $18 Net exports 2 Residential fixed investment 5 Inventory investment 3 Net investment 13 Consumption (depreciation) of fixed capital is

$5

If the marginal propensity to consume equals 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption.

$75

A nation's capital stock was valued at $500 billion at the start of the year and $575 billion at the end. Consumption of private fixed capital in the year was $35 billion. Assuming stable prices, net investment was

$75 billion.

Real Income

(nominal income/CPI) x 100

Use the following list of factors that are related to the aggregate demand curve to answer the next question. (1) Real-Balances Effect (2) Household Expectations (3) Interest-Rate Effect (4) Personal Income Tax Rates (5) Profit Expectations (6) National Income Abroad (7) Government Spending (8) Foreign Purchases Effect (9) Exchange Rates (10) Degree of Excess Capacity Which of the above factors best explain the downward slope of aggregate demand curve?

1,3, and 8

If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about

11%

A nation's average annual real GDP growth rate is 5%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is

14.4 years.

A nation's average annual real GDP growth rate is 3%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is

24 years.

Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is

25%

If the MPC is 0.75, the expenditure multiplier will be

4

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately

5.9 percent.

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Aggregate expenditure equals

900 + 0.80Y.

Consumer Price Index (CPI) Formula

= (current cost of market basket/base year cost of market basket) x 100

Inflation Rate Formula

CPI Year 2 - CPI Year 1/ CPI Year 1 x 100

The total volume of business sales in our economy is several times larger than GDP because

GDP excludes intermediate transactions

Which of the following does not correctly characterize modern economic growth?

It has not affected the average lifespan of human beings.

Marketopia's real GDP was $520 billion in 2014 and $550 billion in 2015. Its population was 150 million in 2014 and 155 million in 2015. On the other hand, Econland's real GDP was $200 billion in 2014 and $210 billion in 2015; and its population was 53 million in 2014 and 55 million in 2015. Which of the following statements is true?

Marketopia's and Econland's GDP per capita both increased from 2014 to 2015.

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

a change in real value of consumer wealth.

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would

add $10 billion to other elements of investment in calculating total investment.

Use the following diagram to answer the next question. The most likely cause for a shift in the production possibilities frontier from AB to CD is

an increase in the quantity and quality of labor resources.

Which of the following effects best explains the downward slope of the aggregate demand curve?

an interest-rate effect

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure.

autonomous

Given the annual rate of economic growth, the "rule of 72" allows one to

calculate the number of years required for real GDP to double.

Real GDP per capita

can grow either more slowly or more rapidly than real GDP.

If an economy maintains a small rate of growth for a long period of time, then the size of the economy

can increase by a large amount.

The MPC can be defined as the

change in consumption divided by the change in income.

If the economy's real GDP doubles in 18 years, we can

conclude that its average annual rate of growth is 4%.

If the economy's real GDP doubles in 9 years, we can

conclude that its average annual rate of growth is 8%.

Currently, the largest component of aggregate spending in the United States is

consumption

The largest component of aggregate expenditure is

consumption

In calculating the unemployment rate, part-time workers are

counted as employed because they are receiving payment for work.

The cost of a higher living standard in the future is giving up

current consumption

Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because

cycles imply regularity while fluctuations do not.

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

decrease in the real rate of interest will tend to increase the level of investment.

As disposable income decreases, consumption

decreases

When housing prices decrease, household wealth _____ and consumption _____.

decreases; decreases

The consumption schedule shows the relationship of household consumption to the level of

disposable income.

The number of years required for real GDP to double can be found by

dividing 72 by the annual growth rate.

One could argue that GDP is not a good measure of the standard of living in a nation because it

does not account for the size of the population.

A movement upward along a given aggregate demand curve is equivalent to a(n)

downward shift in the aggregate expenditures schedule.

Human capital refers to the

education, training, and skills of workers.

Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as

employed.

In the expansion phase of a business cycle

employment and output increase.

The value of corporate stocks and bonds traded in a given year is

excluded from the calculation of GDP because it does not represent new production

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are

excluded from the labor force.

Government purchases include spending on

government purchases of final goods and government salaries

In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a decrease in

government spending or an increase in taxes.

In an inflationary expenditure gap, the equilibrium level of real GDP is

greater than full-employment real GDP.

Which of the following is a major category for the Consumer Price Index?

housing

Net exports are negative when

imports exceed exports.

An increase in expected future income will

increase aggregate demand.

Use the figure below to answer the next question. The most likely cause of a shift from AB to CD would be a(n)

increase in productivity.

The interest rate effect on aggregate demand indicates that a(n)

increase in the price level will decrease the demand for money, reduce interest rates, and decrease consumption and investment spending.

Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ______ in Alpha compared to Beta, holding other factors constant.

increase output less

Providing a constant number of workers with additional capital with which to work will ______ labor productivity at a(n) ______ rate.

increase; decreasing

If gross investment for a year was $120 billion and net investment was $65 billion, then in that year the country's capital stock

increased by $65 billion.

If a person's nominal income increases by 5 percent while the price level increases by 2 percent, then that person's real income

increases by 3 percent.

Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy?

increases in real GDP

Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living?

increases in real GDP per capita

If the real interest rate falls, then the

investment schedule will shift upward.

Gordon is a person who sells narcotics "on the street." This type of illegal activity

is excluded from GDP figures.

Computation of GDP by the expenditures method would include the purchase of

land by the U.S. Department of Interior

Growth is advantageous to a nation because it

lessens the burden of scarcity.

If real GDP declines in a given year, nominal GDP

may either rise or fall.

Use the figure below to answer the next question. Economic growth is best represented by a

move from X on AB to Y on CD.

The unemployment rate of full employment is also called the

natural rate of unemployment.

The sale of a used automobile would not be included in GDP of the current year because it is

not current production

Nominal Income

number of dollars received as wages, rent, interest, or profit

Unemployment Rate Formula

number of unemployed/labor force x 100

Cyclically Unemployed

people lose their jobs because of a temporary downturn in the economy

Frictionally Unemployed

people who are unemployed for a short time in the transition to an equal or better job

Structurally Unemployed

people who lose their jobs because of a change in the economy that makes their particular skill obsolete

When a firm builds a new factory, this is an example of an investment in

physical capital

A GDP price index of 130 in year 2 means that

prices in year 2 are on average 30 percent higher than in the base year.

Nominal GDP differs from real GDP because

real GDP results from adjusting for changes in the price level.

The expenditure line in the aggregate expenditures diagram represents the

relationship between expenditure and output.

If a family's MPC is 0.7, it means that the family is

spending seven-tenths of any increment to its income.

Suppose that inventories were $80 billion in 2012 and $70 billion in 2013. In 2013, national income accountants would

subtract $10 billion from other elements of investment in calculating total investment.

Use the following diagram to answer the next question. The most likely cause of a shift of a production possibilities frontier of an economy AB to CD is

technological progress.

The multiplier can be calculated by dividing

the change in real GDP by the initial change in spending.

A decrease in a country's capital stock occurs when

the consumption of fixed capital exceeds gross domestic investment.

The expenditure multiplier leads to greater than one-for-one changes in output when autonomous expenditure changes because

the direct changes in expenditure change the income of households, which leads to additional changes in expenditure.

At the economy's natural rate of unemployment

the economy is fully employed.

Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model?

the investment schedule

The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the

the less an additional unit of capital adds to production.

In 1933, net private domestic investment was negative $6.0 billion. This means that

the production of 1933's GDP used up more capital goods than were produced in that year.

Which of the following is not a component of gross investment?

the purchase of 100 shares of AT&T by a retired business executive

Nominal GDP is

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

Use the following diagram to answer the next question. If CD is the economy's current production possibilities frontier, what is the most likely reason for operating at point X?

unemployment and inefficient allocation of resources

In the aggregate demand-aggregate supply model, the economy's price level is assumed to be

variable, unlike in the aggregate expenditures model.

GDP understates the amount of economic production in the United States because it excludes

work performed by households for their own benefit.