Mac Economics Exam 1

Macroeconomics

" The study of the workings and operations of the economy as a whole" ( The Aggregate ) - Explain economic events. - Devise policies to improve economic performance.

If disposable income is 4,000 consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to:

300

Banks create money in:

A fractional - reserve banking system but not in a 100 - percent - reserve banking system.

Checking account balances that are linked to debit cards are included in:

Both M1 and M2.

Unlike the real world, the classical model with fixed outputs assume that.

Capital and labor are full utilized.

According to the model developed in Chapter 3, when taxes are increased but government spending in unchanged, interest rates:

Decrease

In a fractional - reserve banking system, banks create money because.

Each dollar of reserves generates many dollars of demand deposits.

In the long run, the level of national income in an economy is determined by its.

Factors of production and production factor.

People use money as a store of value when they:

Hold money to transfer purchasing power into the future.

The demand for loanable funds is equivalent to:

Investment

When the demand for loanable funds exceeds the supply of loanable funds, households want to save ____ than firms want to invest, and the interest rate ____ .

Less ; Rises

Assets of banks include:

Loans to customers.

In equilibrium, total investment equals:

National savings.

The most frequently used tool of monetary policy is:

Open - Market operations.

Consumption depends _________ on disposable income, and investment depends ________ on the real interest rate.

Positively ; Negatively

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

Both increase 10 percent and out put increases 5 percent

To increase the money supply, the Federal Reserve:

Buys government bonds.

The two most important factors of production are.

Capital and labor.

Microeconomics

The study of the individual behavior, Individual firms, and how the two interact in the markets. Specifically goods and services.

Currency equals:

The sum of coins and paper money.

According to Euler's theorem, if the competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal.

Total output.

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

Unit of account.

The real rental price of capital is the price per unit of capital measured in:

Units of output.

People use money as a unit of account when they:

Use money as a measure of economic transactions.

Is Economics science ?

Yes, it follows scientific method. ( Its propositions are "falsifiable" ) Observe ---> Develop a hypothesis ---> Test the theory ---> Observe some more

A competitive firm choose the:

Quantity of labor and capital to employ

To reduce the money supply, the Federal Reserve:

Sells government bonds.

Excess reserves are reserves that banks keep:

Above the legally required amount.

The marginal product of capital is:

Additional output produced when one additional unit of capital is added.

The marginal product of labor is:

Additional output produced when one additional unit of labor is added.

Assuming that all firms maximize profits, economic profit is zero if:

All factors are paid their marginal products, and there are constant returns to scale.

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income int he economy is distributed.

Between the labor and capital used in production, according to their marginal productivities.

Demand deposits are funds held in:

Checking accounts.

If an increase of an equal percentage in all factors of production increase output of the same percentage, than a production function has the property called.

Constants returns to scale.

In closed economy, the components of GDP are:

Consumption, Investment, and Government purchases.

The price received by each factors of production is determined by:

Demand and Supply of factors.

Liabilities of banks include:

Demand deposits.

Public Saving:

Depends on the government's tax collection relative to its expenditures.

A Consumption Function shows the relationship between consumption and:

Disposable income

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

Downwards ; More

Open - Market operations are:

Federal Reserve purchases and sales of government bonds.

If the ration reserve to deposits (rr) increase, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

The money supply decreases.

According to the model developed in Chapter 3, when government spending increases without a change in taxes:

Investment Decreases

If the production function describing an economy is Y =100k ^.25 x L^.75, then the share of output going to labor.

Is 75 percent.

When the Fed increases the Discount rate, it:

Is likely to decrease the monetary base (B).

Gross Domestic Product (GDP)

Is the market value in $Dollars of all final economic activity in certain country, in a given period of time. - Consumer / Households - Firms - Governments *Measures total income *Measure total spending / expenditures

In the United States, the money supply is determined:

Jointly by the Fed and by the behaviors of individuals who hold money and of banks of which money is held.

According to the neoclassical theory of distribution, in an economy described by a Cobb - Douglas production function, workers should experience high rates of real wage growth when.

Labor productivity is growing rapidly.

In the classical model with fixed income, a reduction in the government budget deficit will lead to a:

Lower real interest rate.

To increase the money multiplier, the Fed can:

Lower the interest rate paid on reserves.

In a fractional - reserve banking system, banks create money when they:

Make loans.

All of the following assets are included in M1 except:

Money market deposit accounts.

An economy's factor of production and its production function determine the economy's.

Output of goods and services.

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

The quantity of labor increase.

If the economy's stock doubles, the share of total income paid to the owners of capital will?

Stay the Same

The assumption that the factor's supply is fixed will imply that the factor's.

Supply curve is vertical.

Endogenous

Variables which we are trying to explain.

Exogenous

Variables which we take as a fixed, I.E. they are determined from outside of the model.

In the United States, bank reserves consists of:

Vault cash and deposits at the Fed Reserve.

If bread is produced using a constant return to scale production function, then if the.

amount of equipment and workers are both doubled, twice as much bread will be produced.