ECON320 Final

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According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase. a. greater; increase b. smaller; increase c. smaller; decrease d. greater; decrease

a. greater; increase

In this graph, the capital-labor ratio that represents the steady-state capital-labor ratio is: Select one: a. k2. b. k0. c. k3. d. k1.

a. k2.

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. Select one: a. 7 b. 4.9 c. 3.5 d. 4.7

d. 4.7

Assume that the adult population of the United States is 191.6 million, total employment is 117.6 million, and 9.4 million are unemployed. Then the unemployment rate, as normally computed, is approximately ______ percent. Select one: a. 9.4 b. 7.9 c. 4.9 d. 7.4

d. 7.4

In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______. Select one: a. A; D b. D; A c. B; C d. C; B

d. C; B

Cost-push inflation is the result of: Select one: a. high aggregate demand. b. favorable supply shocks. c. low aggregate demand. d. adverse supply shocks.

d. adverse supply shocks

If the real exchange rate is high, foreign goods: Select one: a. and domestic goods are both relatively cheap. b. are relatively expensive and domestic goods are relatively cheap. c. and domestic goods are both relatively expensive. d. are relatively cheap and domestic goods are relatively expensive.

d. are relatively cheap and domestic goods are relatively expensive.

The Golden Rule level of capital accumulation is the steady state with the highest level of: Select one: a. output per worker. b. savings per worker. c. capital per worker. d. consumption per worker.

d. consumption per worker.

Private saving is: Select one: a. taxes minus government spending. b. disposable income minus government spending. c. income minus consumption minus government spending. d. disposable income minus consumption.

d. disposable income minus consumption.

According to the model developed in Chapter 3, when government spending increases but taxes are not raised, interest rates: Select one: a. decrease. b. can vary. c. are unchanged. d. increase.

d. increase.

Assume that the economy is initially at point A with aggregate demand given by AD2. A shift in the aggregate demand curve to AD0 could be the result of either a(n) ______ in the money supply or a(n) ______ in velocity. Select one: a. increase; decrease b. decrease; increase c. decrease; decrease d. increase; increase

d. increase; increase

In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: a. $25 billion. b. -$10 billion. c. $10 billion. d. -$25 billion.

b. -$10 billion.

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent. Select one: a. 3 b. 2 c. 5 d. 8

b. 2

If the number of dollars per yen rises, this is called a(n): Select one: a. increase in the terms of trade. b. appreciation of the yen. c. appreciation of the dollar. d. decrease in the terms of trade.

b. appreciation of the yen.

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of: Select one: a. labor equals the marginal product of capital. b. capital equals the depreciation rate. c. capital equals zero. d. labor equals the depreciation rate.

b. capital equals the depreciation rate.

Starting from the natural level of output, an unexpected monetary contraction will cause output and the price level to ______ in the short run, and in the long run the expected price level will ______, causing the level of output to return to the natural level. Select one: a. increase; decrease b. decrease; decrease c. decrease; increase d. increase; increase

b. decrease; decrease

In this graph, capital-labor ratio k2 is not the steady-state capital-labor ratio because: Select one: a. the investment ratio is too high. b. depreciation is greater than gross investment. c. gross investment is greater than depreciation. d. the saving rate is too high.

b. depreciation is greater than gross investment.

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift: Select one: a. upward and to the right. b. downward and to the left. c. upward and to the left. d. downward and to the right.

b. downward and to the left.

If an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, using the quantity theory of money as a theory of aggregate demand, this curve slopes ______ to the right and gets ______ as it moves farther to the right. Select one: a. upward; steeper b. downward; flatter c. downward; steeper d. upward; flatter

b. downward; flatter

Unlike the GDP deflator, the CPI includes the prices of: Select one: a. exported goods. b. imported goods. c. goods purchased by firms. d. goods purchased by governments.

b. imported goods.

Use the model developed in Chapter 3, but assume that consumption decreases, other things being equal, when the interest rate rises. If there is a technological advance that leads to an increase in investment demand: Select one: a. investment is unchanged and the interest rate rises. b. investment increases and the interest rate rises. c. investment decreases and the interest rate rises. d. investment and the interest rate are both unchanged.

b. investment increases and the interest rate rises.

Okun's law is the ______ relationship between real GDP and the ______. Select one: a. positive; inflation rate b. negative; unemployment rate c. positive; unemployment rate d. negative; inflation rate

b. negative; unemployment rate

The sacrifice ratio measures the: Select one: a. number of percentage points of the money supply that must be reduced to reduce inflation by 1 percentage point. b. percentage of a year's real gross domestic product (GDP) that must be foregone to reduce inflation by 1 percentage point. c. extra taxes that must be paid to balance the budget. d. number of months of real gross domestic product (GDP) that must be foregone to reduce the inflation rate by 1 percentage point.

b. percentage of a year's real gross domestic product (GDP) that must be foregone to reduce inflation by 1 percentage point.

If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect: Select one: a. level of output but not prices. b. prices but not level of output. c. neither prices nor level of output. d. both prices and level of output.

b. prices but not level of output.

Starting from long-run equilibrium, without policy intervention, the long-run impact of an adverse supply shock is that prices will: Select one: a. be permanently higher and output will be restored to the natural rate. b. return to the old level and output will be restored to the natural rate. c. be permanently higher and output will be permanently lower. d. return to the old level, but output will be permanently lower.

b. return to the old level and output will be restored to the natural rate.

The natural rate of unemployment is: Select one: a. about 10 percent of the labor force. b. the average rate of unemployment around which the economy fluctuates. c. the transition of individuals between employment and unemployment. d. a rate that never changes.

b. the average rate of unemployment around which the economy fluctuates.

If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are ______ . a. negative; positive b. positive; positive c. positive; negative d. negative; negative

d. negative; negative

The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the: Select one: a. level of output. b. capital elasticity in the production function. c. labor force. d. saving rate.

d. saving rate.

1.00 points out of 1.00 Flag question Question text Each of the models of short-run aggregate supply is based on some market imperfection. In the sticky-price model, the imperfection is that: Select one: a. contracts and arrangements may prevent nominal wages from adjusting rapidly to changing economic conditions. b. the real wage adjusts to bring labor supply and labor demand into equilibrium. c. firms confuse changes in the overall level of prices with changes in relative prices. d. some firms do not adjust their prices instantly to changes in demand.

d. some firms do not adjust their prices instantly to changes in demand.

If saving exceeds investment demand, and consumption is not a function of the interest rate: Select one: a. the demand for loans exceeds the supply of loans. b. saving will fall. c. the interest rate will rise. d. the interest rate will fall.

d. the interest rate will fall.

The natural level of output is: Select one: a. the level of output at which the unemployment rate is zero. b. affected by aggregate demand. c. permanent and unchangeable. d. the level of output at which the unemployment rate is at its natural level.

d. the level of output at which the unemployment rate is at its natural level.

All of the following are reasons for frictional unemployment except: Select one: a. geographic mobility takes time. b. workers have different preferences and abilities. c. the flow of information is imperfect. d. unemployed workers accept the first job offer that they receive.

d. unemployed workers accept the first job offer that they receive.

The tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so that expected inflation: Select one: a. equals the inflation rate. b. exceeds the inflation rate. c. is below the inflation rate. d. equals the inflation rate of the previous year.

a. equals the inflation rate.

All the models of upward sloping aggregate supply imply that if the price level is higher than expected, then output ______ natural rate of output. Select one: a. exceeds the b. equals the c. falls below the d. moves to a different

a. exceeds the

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P. Select one: a. higher; lower b. lower; higher c. higher; higher d. lower; lower

a. higher; lower

National saving refers to: Select one: a. income minus consumption minus government spending. b. disposable income minus consumption. c. income minus investment. d. taxes minus government spending.

a. income minus consumption minus government spending.

It is a national income accounting rule that all expenditure on purchases of products in the economy is necessarily equal to: Select one: a. income of the producers of the products in the economy. b. profits of firms. c. income of employees. d. wages of employees.

a. income of the producers of the products in the economy.

Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will: Select one: a. increase until the new steady state is reached. b. decrease and continue to decrease unabated. c. decrease until the new steady state is reached. d. increase and continue to increase unabated.

a. increase until the new steady state is reached.

When there is structural unemployment, the real wage is: Select one: a. rigid at a level above the market-clearing level. b. flexible. c. rigid at a level below the market-clearing level. d. rigid at the market-clearing level.

a. rigid at a level above the market-clearing level.

An increase in the price of imported goods will show up in: Select one: a. the CPI but not in the GDP deflator. b. neither the CPI nor the GDP deflator. c. both the CPI and the GDP deflator. d. the GDP deflator but not in the CPI.

a. the CPI but not in the GDP deflator.

Frictional unemployment is unemployment caused by: Select one: a. the time it takes workers to search for a job. b. minimum-wage legislation. c. wage rigidity. d. clashes between the motives of insiders and outsiders.

a. the time it takes workers to search for a job.

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real GDP (in 2002 prices) in 2009 was: Select one: a. $6.50. b. $9.50. c. $11. d. $5.

a. $6.50.

Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: Select one: a. $7. b. 10 pieces of fruit. c. $10. d. $8.

a. $7.

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be: Select one: a. 0.08. b. 0.125. c. 0.435. d. 0.22.

a. 0.08.

If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 2 francs per good, then the real exchange rate between Swiss goods and U.S. goods is ______ Swiss goods per U.S. good. Select one: a. 2.5 b. 10 c. 0.5 d. 5

a. 2.5

The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government raises taxes, holding other factors constant? Select one: a. Point B b. Point A c. Point C d. Point D

a. Point B

The assumption of adaptive expectations for inflation means that people will form their expectations of inflation by: Select one: a. basing their opinions on recently observed inflation. b. flipping a coin. c. taking all information into account using the best economic model available. d. asking the opinions of experts.

a. basing their opinions on recently observed inflation.

The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: Select one: a. c* = f(k*) - dk*. b. c* = k* - df(k)*. c. c* = f(k*) + dk*. d. c* = f(k*) dk*.

a. c* = f(k*) - dk*.

In examining the impact of fiscal policy, it is assumed that: Select one: a. consumption, investment, and the interest rate are endogenous variables. b. government purchases, taxes, and interest rates are exogenous variables. c. government purchases, taxes, and interest rates are endogenous variables. d. consumption, investment, and the interest rate are exogenous variables.

a. consumption, investment, and the interest rate are endogenous variables.

The real wage is countercyclical if it ______ when output increases. Select one: a. decreases b. does not change c. increases d. first increases, then decreases

a. decreases

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, national saving is equal to: Select one: a. 1,000. b. 500. c. 300. d. 700.

c. 300.

In this graph, initially the economy is at point E, with the price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD2. The economy moves first to point ______ and then, in the long run, to point ______. Select one: a. A; B b. B; A c. A; D d. D; A

c. A; D

In a small open economy if the world interest rate is r3, then the economy has: Select one: a. balanced trade. b. positive capital outflows. c. a trade deficit. d. a trade surplus.

c. a trade deficit.

An increase in the trade deficit of a small open economy could be the result of: Select one: a. an increase in the world interest rate. b. the expiration of an investment tax-credit provision. c. an increase in government spending. d. an increase in taxes.

c. an increase in government spending.

In the Solow growth model, the steady-state occurs when: Select one: a. the saving rate equals the depreciation rate. b. output per worker equals consumption per worker. c. capital per worker is constant. d. consumption per worker is maximized.

c. capital per worker is constant.

According to the model developed in Chapter 3, when taxes decrease without a change in government spending: Select one: a. consumption and investment both decrease. b. consumption and investment both increase. c. consumption increases and investment decreases. d. consumption decreases and investment increases.

c. consumption increases and investment decreases.

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would: Select one: a. still crowd out exactly $10 billion of investment. b. crowd out more than $10 billion of investment. c. crowd out between zero and $10 billion of investment. d. not crowd out any investment.

c. crowd out between zero and $10 billion of investment.

In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will: Select one: a. increase. b. remain unchanged. c. decrease. d. either increase or decrease, depending on whether consumption is greater or less than investment.

c. decrease.

According to the imperfect-information model, when the price level falls but the producer did not expect it to fall, the producer: Select one: a. does not change production. b. hires more workers. c. decreases production. d. increases production.

c. decreases production.

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____ , the amount of investment spending depends on _____, and the amount of government spending is determined _____. Select one: a. the real wage; the real rental price of capital; by factor prices b. labor's share of output; capital's share of output; by the interest rate c. disposable income; the interest rate; exogenously d. the interest rate; disposable income; by tax revenue

c. disposable income; the interest rate; exogenously

In a country with a small open economy, the real interest rate will always be: Select one: a. equal to the world nominal interest rate. b. below the world real interest rate. c. equal to the world real interest rate. d. above the world real interest rate.

c. equal to the world real interest rate.

All of the following are measures of GDP except the total: Select one: a. income from all production in the economy. b. expenditures on all final goods and services produced. c. expenditures of all businesses in the economy. d. value of all final production.

c. expenditures of all businesses in the economy.

The basic aggregate supply equation implies that output exceeds natural output when the price level is: Select one: a. less than the expected price level. b. high. c. greater than the expected price level. d. low.

c. greater than the expected price level.

If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______ and U.S. imports ______. a. decrease; decrease b. increase; increase c. increase; decrease d. decrease; increase

c. increase; decrease

The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports. a. more; greater b. more; smaller c. less; smaller d. less; greater

d. less; greater

The relationship between short-run aggregate supply curves and Phillips curves is that there: Select one: a. is no relationship between short-run aggregate supply curves and Phillips curves. b. are several Phillips curves for each short-run aggregate supply curve. c. is exactly one Phillips curve corresponding to each short-run aggregate supply curve. d. are several short-run aggregate supply curves for each Phillips curves.

c. is exactly one Phillips curve corresponding to each short-run aggregate supply curve.

In the Solow growth model, the economy ends up with a steady-state level of capital: Select one: a. only if it starts from a steady-state level of capital. b. only if it starts from a level of capital below the steady-state level. c. regardless of the starting level of capital. d. only if it starts from a level of capital above the steady-state level.

c. regardless of the starting level of capital.

In a small open economy, when the government reduces national saving, the equilibrium real exchange rate: a. rises and net exports rise. b. falls and net exports rise. c. rises and net exports fall. d. falls and net exports fall.

c. rises and net exports fall.

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, investment: Select one: a. rises by $100 billion. b. falls by $100 billion. c. rises by $60 billion. d. falls by $60 billion.

c. rises by $60 billion.

The steady-state level of capital occurs when the change in the capital stock (Dk) equals: Select one: a. the depreciation rate. b. the saving rate. c. the population growth rate. d. 0.

d. 0.

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is: Select one: a. 600. b. 1,100. c. 2,200. d. 1,500.

d. 1,500.

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? Select one: a. 0.79 b. 1.30 c. 1.03 d. 1.27

d. 1.27

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow. Select one: a. surplus; negative b. deficit; positive c. surplus; positive d. deficit; negative

d. deficit; negative

Crowding out occurs when an increase in government spending ______ the interest rate and investment ______. Select one: a. increases; increases b. decreases; decreases c. decreases; increases d. increases; decreases

d. increases; decreases

Along a short-run aggregate supply curve, output is related to unexpected movements in the ______. Along a Phillips curve, unemployment is related to unexpected movements in the ______. Select one: a. price level; level of output b. unemployment rate; price level c. price level; inflation rate d. inflation rate; price level

d. inflation rate; price level


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