Exam 1

Disposable personal income: a. is computed by subtracting personal tax from personal income. b. does not include government transfers to individuals. c. includes corporate profits but not dividends. d. is generally greater than personal income.

A

Assume immigration increases the labor force in an economy described by a Cobb-Douglas production function. Please complete the following statement. The wage (decreases or increases) _____ and the rental price of capital (decreases or increases) ______

decreases increases

An increase in the (real or nominal) ______ interest rate (decreases or increases) ________ investment.

real decreases

Related to the graph of Unemployment Rate since 1960. In January 2020, the unemployment rate was_____ percent. Recessions are shown here as shaded areas. There have been two big recessions during this period. The first was in 1981-1982 when the unemployment rate reached a peak of ______ percent. The second was in 2008-2009 when the unemployment rate reached a peak of _____ percent.

3.5 10.8 10

c. This means that labor receives _____ of total income, and capital receives _____ of total income.

70 percent 30 percent

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: $200 billion. $400 billion. $800 billion. $1,000 billion.

800 billion

c. A hurricane destroys the grape crop, driving up the price of grape jelly, a complement to peanut butter in peanut butter and jelly sandwiches.

Demand curve shifts to the left

d. A pandemic in the cow population drives up the price of cheese, a key ingredient of grilled cheese sandwiches, a substitute for peanut butter and jelly sandwiches.

Demand curve shifts to the right.

If there is a tax cut, what happens to desired investment and interest rate?

Desired investment decreases and interest rates goes up.

b. A drought drives up the price of peanuts, an ingredient of peanut butter.

Supply curve shifts to the left (upward)

Use the model of supply and demand to show how each of the following events affects the equilibrium price and quantity of peanut butter. For each scenario, shift the appropriate curve (supply and/or demand) in the accompanying graph. a. The invention of a new peanut grinding machine reduces the cost of producing peanut butter.

Supply curve shifts to the right (downward)

The labor force equals the: a. number of employed and unemployed individuals. b. adult population. c. number of employed individuals. d. number of unemployed individuals.

a

Real gross domestic product (GDP) _____ over time, and the growth rate of real GDP _____. a) grows; fluctuates b) is steady; is steady c) grows; is steady d) is steady; fluctuates

a) grows; fluctuates

An economy has 100 people working full-time, 20 people working half-time, 40 people looking for work, and 20 people who would like to work but have given up looking for a job after an unsuccessful search, 20 retirees, and 30 children. Calculate the following labor statistics. a. number of employed b. number of unemployed c. size of labor force d. unemployment rate e. labor-force participation rate

a. 120 b. 40 c. 160 d. 25 e. 80

Which of the following events would affect the CPI but not the GDP deflator? a. Kellogg's, the American cereal maker, cuts the price of a box of corn flakes. b. Boeing, the American airplane manufacturer, raises the price it charges the U.S. Air Force for fighter jets. c. Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States. d. Barbers around the country raise the prices they charge for haircuts.

c

Using a market-clearing model to analyze the labor market is _____ because wages usually change _____. a) realistic; frequently b) realistic; infrequently c) unrealistic; frequently d) unrealistic; infrequently

d) unrealistic; infrequently

Other things equal, an increase in the interest rate leads to: a. no change in the quantity of investment goods demanded. b. an increase in the quantity of investment goods demanded. c. sometimes an increase and sometimes a decrease in the quantity of investment goods demanded. d. a decrease in the quantity of investment goods demanded.

d. a decrease in the quantity of investment goods demanded.

When the Fed makes an open-market sale, it: a. increases the currency-deposit ratio (cr). b. increases the monetary base (B). c. increases the money multiplier (m). d. decreases the monetary base (B).

d. decreases the monetary base (B).

e. In this model of the peanut butter market, the price of peanut butter is an ______ variable, and the price of cheese is an ______ variable.

endogenous, exogenous

d. Suppose that immigration increases the labour force by 10 percent. As a result, total output will ______ percent, the rental price of capital will increase by _____, and the real wage will decrease by ______

increase by 6.9 percent increase by 6.9 percent decrease by 2.8 percent

In a country on a gold standard, the quantity of money is determined by the: a. central bank. b. government. c. amount of gold. d. buying and selling of government securities.

c

In a competitive economy, firms pay a real wage (W/P) equal to the marginal product of labor (MPL) and a real rental rate (R/P) equal to the marginal product of capital (MPK). Note that labor's share of total income (Y) in the economy is represented by the product of the real wage and the total quantity of labor employed. Likewise, capital's share is represented by the product of the real rental rate and the total quantity of capital employed. Use this information to answer the following questions. b. Labor's share of total income (Y) in the economy can be expressed as _____, and capital's share of total income can be expressed as _____

(1 − α)Y αY

The Cobb-Douglas production function has the form Y = AK^αL^(1 − α). That is, total output (Y) is a function of labor employed (L), capital employed (K), and the level of technology (A). Assume that α = 0.3. Use this information to answer the following questions. a. The marginal product of labor (MPL) can be expressed as ______ and the marginal product of capital (MPK) can be expressed as _____

(1-a) Y/L a Y/K

ASSETS: reserves 10,000 loans 100,000 securities 40,000 LIABILITIES AND NET WORTH deposits 100,000 debt 20,000 equity 30,000 Based on the table, what is the reserve-deposit ratio at the bank? 15 percent 5 percent 10 percent 3 percent

10 percent

Related to the graph for Consumer price index for all urban consumers. Here you can see data on the inflation rate, as measured by the consumer price index, a common measure of the cost of living. Inflation reached its highest level in _____ when it reached almost_____ percent per year. In the most recent decade, inflation has run about ______ percent per year.

1980 15 2

Consider whether each of the following events is likely to increase or decrease real GDP. In each case, do you think the well-being of the average person mentioned will increase, decrease, or not change? a. A hurricane in Florida forces Disney World to shut down for a month. b. The discovery of a new, easy-to-grow strain of wheat increases farm harvests. c. Increased hostility between unions and management sparks a rash of strikes. d. Firms throughout the economy experience falling demand, causing them to lay off workers. e. Congress passes new environmental laws that prohibit firms from using production methods that emit large quantities of pollution. f. Fathers around the country reduce their work weeks to spend more time with their children.

a. GDP decrease; well being of those in the area will decrease. b. increase; increase c. decrease; decrease d. decrease; decrease e. decrease; increase f. decrease; increase

Checking account balances that are linked to debit cards are included in: a. both M1 and M2. b. M2 only. c. neither M1 nor M2. d. M1

a. both M1 and M2.

Show on the graph how each of the following events changes the equilibrium interest rate by shifting the relevant curve(s). - (supply and demand curves. y-axis has interest rate and x-axis has loanable funds) a. The president signs a tax cut into law. b. An engineering advance induces many firms to upgrade their computer systems. c. Congress repeals an investment tax credit and uses the revenue to reduce other taxes. d. A flu pandemic induces consumers to stay at home rather than go shopping

a. supply shifts to the left (upward) b. demand curve shifts to the right. c. demand curve shifts to the left. d. supply curve shifts to the right (downward)

Gross national product (GNP) equals gross domestic product (GDP) _____ income earned domestically by foreigners _____ income that nationals earn abroad. a. plus; minus b. minus; plus c. minus; minus d. plus; plus

b

Exogenous variables are: a) the outputs of the model. b) determined outside the model. c) explained by the model. d) determined within the model.

b) determined outside the model.

Endogenous variables are: a) the inputs of the model. b) determined within the model. c) fixed at the moment they enter the model. d) from outside the model.

b) determined within the model.

In U.S. history, deflation a) is about as common as inflation. b) is rare now but has occurred at times in the past. c) has never occurred. d) is the norm.

b) is rare now but has occurred at times in the past.

In the classical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _____ and private saving _____. a. increases; decreases b. decreases; increases c. increases; increases d. decreases; does not change

b. decreases; increases

When the Fed increases the interest rate paid on reserves, it leads to: a. increases in the currency-deposit ratio (cu). b. increases in the reserve-deposit ratio (rr). c. decreases in the reserve-deposit ratio (rr). d. decreases in the currency-deposit ratio (cu).

b. increases in the reserve-deposit ratio (rr).

If the production function describing an economy is Y = 100 K^0.25L^0.75, then the share of output going to labor: a. depends on the state of technology. b. is 75 percent. c. is 25 percent. d. depends on the quantities of labor and capital.

b. is 75 percent.

The currency-deposit ratio is determined by: a. the Federal Deposit Insurance Corporation (FDIC). b. preferences of households about the form of money they wish to hold. c. the Federal Reserve. d. business policies of banks and the laws regulating banks.

b. preferences of households about the form of money they wish to hold.

In the relationship expressed in functional form Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ): a) indicates that the variables inside the parentheses are endogenous variables in the model. b) is the growth rate of real gross domestic product (GD when the amount of capital and labor in the economy is fixed. c) is the function telling how the variables in the parentheses determine real GDP. d) is the symbol that stands for government input into the production process.

c) is the function telling how the variables in the parentheses determine real GDP.

Macroeconomics does NOT try to answer the question of: a) what causes recessions and depressions. b) why some countries have high rates of inflation. c) what is the rate of return on education. d) why some countries experience rapid growth.

c) what is the rate of return on education.

The two MOST important factors of production are: a. saving and investment. b. goods and services. c. capital and labor. d. labor and energy.

c. capital and labor.

Liabilities of banks include: a. loans to customers. b. reserves. c. demand deposits. d. currency in the hands of the public.

c. demand deposits.

In the circular flow model, households receive income from the _____ market and save through the _____ market. a. goods; financial b. factor; goods c. factor; financial d. goods; factor

c. factor; financial

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will: a. increase by $1 million. b. decrease by $1 million. c. increase by more than $1 million. d. decrease by more than $1 million.

c. increase by more than $1 million.

If nominal GDP and real GDP both rise by 10 percent, then the GDP deflator a. also rises by 10 percent. b. falls by 10 percent. c. is unchanged. d. rises by about 20 percent.

c. is unchanged.

When Senator Robert Kennedy ran for president in 1968, he gave a speech in which he said the following about GDP: "It does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything about America except why we are proud that we are Americans." Was Robert Kennedy right? If so, why do we care about GDP and related measures? Robert Kennedy was mostly ________. (correct or incorrect). (real GDP, the unemployment rate, or the CPI) ________ is a summary measure of a nation's total incom

correct Real GDP cannot increases

The core inflation rate: a. measures the change in producer prices. b. includes the price of exports and includes the price of imports. c. is measured using a Paasche index. d. excludes food and energy prices.

d

To reduce the money supply, the Federal Reserve: a. creates demand deposits. b. buys government bonds. c. destroys demand deposits. d. sells government bonds.

d

According to the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the first quarter of 2018. This contrasts with the fourth quarter of 2017, when real GDP increased by 2.9 percent. According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) increased by 2.1 percent in 2017. This is the same as the rate of price inflation observed in 2016. The BLS also reports that the unemployment rate for April of 2018 fell to 3.9%, which is the lowest rate of unemployment since December of 2000. Use these data about the recent performance of the U.S. economy to classify each of the following statements as true or false. a) the prices for all domestic products and services rose in 2017 b) in early 2018, real output in the economy rose, while unemployment declines c) growth of real output slowed between the last quarter of 2017 and the first quar

true: b, c, d false: a