Intermediate Macro homework questions

Inflation 1. is characterizes as a persistent rise in the govt debt 2. is a measure of how rapidly the overall price level rises 3. is good for consumers, businesses, and government 4. was low and stable from the late 1960s and 1980s

B

Suppose an economy has total income of $10 trillion where total labor income equals 6.50 tril and capital income equals 3.50 tril. What is the value of the exponent on labor using the cobb douglas function? capital ?

.65 .35

A fast food restaurant pays its workers %9 per hour, which is the equilibrium wage rate, but finds that its most productive workers are always leaving for other jobs. After experimenting with paying workers $11 per hour, the firm finds that it is able to keep the most productive workers. In fact, the workers are so productive that keeping them around ( and paying them higher wages) results in higher profits. If all firms do this, however, firms end up hiring fewer workers and some workers cant get work. this is an example of 1. structural 2. cyclical 3. seasonal 4. frictional

1

Based on the Solow models conclusions about population growth, the effects of additional immigration (ceteris paribus) will cause a country's 1, aggregate output level to increase while decreasing the countrys capital labor ratio 2, aggregate output level to decrease while decreasing the countrys capital labor ratio 3, aggregate output level to decrease while increasing the countrys capital labor ratio 4, aggregate output level to increase while increasing the countrys capital labor ratio

1

Is it correct to assume that total income equals total expenditure for a household? 1. No, because households may be able to borrow and thus spend more than they earn 2. uncertain, because it depends on legal regulations about purchasing and supplying goods 3. yes, because this relationship is an identity and must always be true 4. yes, because households cannot spend income they do not earn

1

Suppose a country has a population of 2000 people, 1800 of them are non institutionalized civilian adults. Of these, 1500 are employed and 100 are unemployed. Which of the following is correct. 1. the unemployment rate is 6.25% 2. the labor force participation rate is 83.3% 3. the unemployment rate is 6.67% 4. the labor force participation rate is

1

What if the effect of an increase in domestic saving on the trade valance and net capital outflow 1. if domestic savings increases, net capital outflow will rise and net exports will increase 2. if domestic savings increases, net capital outflow will rise and net exports will decrease 3. if domestic savings increases, net capital outflow will fall and net exports will increase 4. if domestic savings increases, net capital outflow will fall and net exports will decrease

1

Which of the following does not represent national savings 1. Y - C - I - G 2. Y - C - G 3. private savings + government savings 4. Y - T - C + T - G

1

the significance of the national income identity is that 1. any of the three approaches should give the same answer when computing GDP 2. since these measures do not account for substitution and quality changes, they are inaccurate 3. real GDP is a better measure of production than nominal GDP 4. income and production measures are different from each other and thus will not sum to the same thing.

1

which of the following is a flow variable? 1. the amount of groceries purchased per week at the supermarket 2. the amount of money in your wallet that you can spend on groceries 3. the amount of money you have spent purchasing music downloads instead of groceries 4. the amount of groceries in your refrigerator

1

which of the following is not a reason to be concerned about excessive government budget deficit? 1. monetary policymakers can always raise taxes to reduce the deficit 2. they may push government to go broke 3. they represent a burden to future tax payers 4. they may push the govt to print money to pay off the deficit

1

Suppose Japan has a GDP of $1 trillion, and that its national savings rate is 16% Japans national savings is ______ If private savings is 112 billion, japans govt saving is ______

160 bil 48 bil

If autonomous consumption rises 1. the savings curves will shift to the right 2. the savings curve will shift to the left 3. the savings curve could shift to the left, to the right, or stay the same 4. the investment curve will shift to the left

2

Suppose that an economy's production function is Y =F(K,L) 10K.25L.75. If K = 4 and L = 64, the price level of P = 1.25 and the economy is perfectly competitive ( as we assumed in class (what is the real wage of labor) 1. 320 2. 3.75 units of output 3. 3 units of output 4. 160 unites of output

2

The difference between savings and investment 1. is equal to imports minus exports 2. is zero in a closed economy 3. is referred to as the twin deficit 4. is fixed in the long run

2

Which of the following is a flow variable? 1. the amount of money in your wallet that you can spend on groceries 2. the amount of groceries purchased per week at the supermarket 3. the amount of groceries in your fridge 4. the amount of money you have spent purchasing music downloads instead of groceries

2

Why does the per worker production function have its particular shape and slope? 1. as capital per worker rises, each worker produces less; however, the decrease in production experiences increases returns. 2. as capital per worker rises, each worker produces more; however, the rise in production experiences diminishing returns. 3. as capital per worker rises, each worker produces less; however, the rise in production experiences remains constant. 4. as capital per worker rises, each worker produces less; consequently, the rise in production experiences increases returns.

2

the four categories of expenditure are 1. durables, inventories, government purchases, and taxes 2. consumption, investment, government purchases, and net exports 3. consumption, investment, government debt, and exports 4. credit, investment, government purchases, and imports

2

2014 gruel mattresses p = 1 100 q = 1000 10 2015 p = 2 130 q = 1500 20 The economy of Notmuchtodo produces two goods, nutritious gruel and lump mattresses, according to the table above. What is nominal GDP in 2014? Again referring to the table above, what is the GDP Deflator for 2015, assuming is a base year? 1. 160 2. 62.5 3. 100 4. 320

2000 1

It is correct to assume, that total income equals total expenditure for the whole economy 1. no, income and expenditure measures are different from each other and thus will not sum to the same thing 2. uncertain, the economy as a whole is too large and complex for accurate comparisons of income and expenditure 3. yes, because there is a buyer and seller for every good or service produced in the economy 4. no, because the economy is able to borrow and thus spend more than it earns

3

Suppose an economys production function is given by F(K,L) - 20K.5L.5. If the price level is P = $2, Labor = 150, capital = 10, which of the following is true: 1. the real return to capital is 80 2. depreciation is less than the rate of population growth 3. the nominal wage is 5 4. output is Y = 400

3

What determines whether a small open economy will have a trade surplus or a trade deficit 1. the size of the government spending 2. the difference between savings and expenditures 3. the value of the domestic real interest rate versus the world real interest rate 4. the amount of factors of production relative to the production function

3

Which of the following is not a cost of inflation 1. unexpected or unpredictable inflation can cause people to use resources to shift their assets in an effort to shield themselves from future inflation. 2. because some goods have more flexible prices than others, relative prices may be distorted, resulting in a misallocation of resources 3. goods and services get more expensive (in nominal terms) over time 4. updating menus and other price lists is costly, and a higher inflation rate makes this cost rise

3

real wage growth can be explained primarily by 1. minimum wage laws 2. labor contracts 3. labor productivity growth 4. labor union demands

3

which of the following is true about inflation? 1. inflation was very low from the 1960s to the earth 1980s in the United States 2. The inflation rate tends to be about the same in most countries at any given time 3. hyperinflation refers to periods of especially high and destructive inflation 4. inflation was quite low in the United States in World War 1 and then increased markedly until World War 2

3. hyperinflation refers to periods of especially high and destructive inflation

Beginning from a steady state in the solow growth model, which of the following does not occur when there is an increase in the savings rate? 1. if the saving rate increases, a larger portion of the present output per worker will be invested in new capital 2. in the new steady state, investment will equal depreciation and no additional rise in capital per worker will occur 3. the level of output per worker will increase from its current level 4. an increase in the saving rate will cause a permanent increase in the growth rate of capital

4

Suppose the world real interest rate decreases. In a small open economy, this would 1. increase net exports 2. decrease desired investment 3. increased desired investment 4. decrease net capital outflows

4

The ______ is the rate that equates desired world savings and desired world investment and thus achieves goods and market equilibrium for the world as a whole 1. world nominal interest rate 2. domestic nominal interest rate 3. domestic real interest rate 4. world real interest rate

4

which of the following is not one of the methods of GDP accounting? 1. expenditure approach 2. income approach 3. production approach 4. market value approach

4

which of the following would be counted into 2011 GDP 1. you agree to mow your neighbors lawn during the summer 2011 in exchange for the neighbor painting your house 2. the purchase of an existing house in July 2011 3. the purchase of a used car in oct 2011 4. the production of a car in February 2011; that is, not sold during 2011.

4

why must the domestic and real interest rate be the same as the world rate? 1. if domestic rates were below the world rate, domestic leaders would only lend to borrowers from abroad at higher rates. 2. even if the rates were not the same, capital mobility would move the domestic rate to equal the world rate. 3. if domestic rates were above the world rate, domestic borrowers would only borrow from abroad at lower costs 4. all of the above

4

Assume that the output per worker production function is y = 2k.5 the saving and depreciation rates at .1 and .03 respectively. calculate the steady state capital labor ratio for this economy. calculate the steady state consumption per worker for this economy

44.444 12

How is GDP defined in the production approach to measuring economic activity? 1. national income = wages + corporate profits + other profits + rent + interest 2. Y = C + I + G + NX 3. total production = total expenditure = total income 4. private disposible income = GDP + NET FACTOR INCOME + TRANSFER PAYMENTS + INTEREST ON GOVT DEBTS - taxes 5. GDP = ( prices of apples x q ) + ( prices of oranges x q)

5

What is the fundamental identity of national income identity 1. national income = wages+ corporate profits + other profits + rent + interest 2. private disposable income = GDP + net factor income + transfer payments + interests on govt debt -taxes 3. Y = C + I + G + NX 4. GDP = (price of apples x q) + (price of oranges x q) 5. total production = total expenditure = total income

5

An economic model 1. is a simplified representation of economic phenomenon 2. can take a mathematical or graphical form 3. is of little use, since it is difficult to predict recessions 4. both A and B

D

during a typical recession 1. the unemployment rate rises 2. economic activity declines 3. real GDP per person rises 4. both A and B

D

the production of intermediate goods and services _________

are included in the value of final market goods

the production of goods and services that are not sold in the markets _____

are not included in GDP

the purchase of used goods and imported goods and services _____

are not included in GDP

Flow variables are variables that represent _______ while stock variables measure ____

changes in levels the accumulation of values over time

Sciences other than economics also design models to explain the behavior of endogenous variables based on assumptions about the environment and changes in exogenous variables. Suppose you have to do design a model that links child obesity and diabeties. In this study, _______ would be the exogenous variable and _______ would be the endogenous variable

childhood obesity, diabetes

a decrease in the overall price level

deflation

GDP is a ____ measure

flow

Suppose that the following production function represents the economy of chile Y = F(K,L) = AK.4L.6 Assuming chile's national income equals 170$ what is the real labor income and capital?

i = 102 bil c = 68

An increase in the overall price level

inflation

The economy of the small island nation of crusoe is characterized by the following national income account values Y = G C = 3 G = 0 X = 0 M = 0 T = 0 The national savings is 2 t or f investment is 2 t or f public savings is 0 t or f crusoe is an open economy t or false ( or if its an open economy, no one wants to buy anything from it , and Crusoe doesnt want to buy anything from anyone else) If M rises from 0 to 1, net capital outflow will fall from 0 to -1

t t t f f

The data can best be described as exhibiting a ___________. In other words, over 2007 - 2009, real GDPs growth rate in Spain _________. Based on the data shown, the current recession began in 1. the third quarter of 2009 2. the fourth quarter of 2008 3. the second quarter of 2007 4. the first quarter of 2009

the first quarter of 2009. ( where it drops below 0)