Macro Chapter 3-4

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A) 3 B) 4 C) 9 D) 11

A

Money that has no value other than as money is called ______ money. A) fiat B) intrinsic C) commodity D) government

A

The equation = C ( - ) + I (r) + may be solved for the equilibrium level of: A) income. B) consumption. C) government purchases. D) the interest rate.

D

The home that would have the highest mortgage payment on a 30-year fixed-rate mortgage would be a home with a mortgage of: A) $200,000 at 8 percent. B) $100,000 at 12 percent. C) $100,000 at 8 percent. D) $200,000 at 12 percent.

D

The property of diminishing marginal product means that, after a point, when additional quantities of: A) a factor are added, output diminishes. B) both labor and capital are added, output diminishes. C) both labor and capital are added, the marginal product of labor diminishes. D) a factor are added when another factor remains fixed, the marginal product of that factor diminishes.

D

The real wage is the return to labor measured in: A) dollars. B) units of output. C) units of labor. D) units of capital.

B

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent. A) 1 B) 3 C) 4 D) 7

D

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6 (Y - T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate in percent. In this case, the equilibrium real interest rate is: A) 5 percent. B) 8 percent. C) 10 percent. D) 13 percent.

D

A country that is on a gold standard primarily uses: A) commodity money. B) fiat money. C) credit money. D) the barter system.

A

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a: A) store of value. B) unit of account. C) medium of exchange. D) flow of value.

B

According to the classical theory of money, inflation does not make workers poorer because wages increase: A) faster than the overall price level. B) more slowly than the overall price level. C) in proportion to the increase in the overall price level. D) in real terms during periods of inflation.

C

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. A) 0.2 B) 2 C) 5 D) 10

C

The demand for output in a closed economy is the sum of: A) public saving and private saving. B) the quantity of capital and labor and production technology. C) consumption, investment, and government spending. D) government purchases and transfer payments minus tax receipts.

C

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K0.5L0.5, where K = 100. If L increases from 100 to 144, then consumption increases by: A) 560. B) 840. C) 1,120. D) 2,120.

A

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1000.

A

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to: A) 300. B) 500. C) 700. D) 1,000.

A

If output is described by the production function Y = AK 0.2L0.8, then the production function has: A) constant returns to scale. B) diminishing returns to scale. C) increasing returns to scale. D) a degree of returns to scale that cannot be determined from the information given.

A

In a Cobb-Douglas production function the marginal product of capital will increase if: A) the quantity of labor increases. B) the quantity of capital increases. C) labor's share of output increases. D) average capital productivity decreases.

A

In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget surplus or deficit. D) rate of economic and accounting profit.

A

When a person purchases a 90-day Treasury bill, he or she cannot know the: A) ex post real interest rate. B) ex ante real interest rate. C) nominal interest rate. D) expected rate of inflation.

A

A rate of inflation that exceeds 50 percent per month is typically referred to as a(n): A) inflation. B) hyperinflation. C) deflation. D) disinflation.

B

According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the: A) inflation rate. B) expected inflation rate. C) ex ante real interest rate. D) ex post real interest rate.

B

All of the following are considered major functions of money except as a: A) medium of exchange. B) way to display wealth. C) unit of account. D) store of value.

B

Open-market operations are: A) Commerce Department efforts to open foreign markets to international trade. B) Federal Reserve purchases and sales of government bonds. C) Securities and Exchange Commission rules requiring open disclosure of market trades. D) Treasury Department purchases and sales of the U.S. gold stock.

B

The marginal product of labor is: output divided by labor input. additional output produced when one additional unit of labor is added. additional output produced when one additional unit of labor and one additional unit of capital are added. value of additional output when one dollar's worth of additional labor is added.

B

A production function is a technological relationship between: factor prices and the marginal product of factors. factors of production and factor prices. factors of production and the quantity of output produced. factor prices and the quantity of output produced.

C

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be: A) 6 percent. B) 12 percent. C) 18 percent. D) 30 percent.

bB

Money market mutual fund shares are included in: A) M1only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

B

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: A) increasing. B) decreasing. C) 7 percent. D) constant.

A

All of the following are costs of fully expected inflation except that expected inflation: A) causes lower real wages. B) leads to shoeleather costs. C) increases menu costs. D) leads to taxing of nominal capital gains that are not real.

A

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given income. This shift, in a neoclassical economy, will: A) lower investment and raise the interest rate. B) raise investment and lower the interest rate. C) lower both investment and the interest rate. D) raise both investment and the interest rate.

A

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. No government exists. In this case, equilibrium investment is: A) 1,500. B) 2,000. C) 2,500. D) 3,000.

A

Assume that the consumption function is given by C = 150 + 0.85(Y - T) and the tax function is given by T = t0+ t1Y. If t0 increases by 1 unit, then consumption: A) decreases by 0.85 unit. B) decreases by 0.15 unit. C) increases by 0.15 unit. D) increases by 0.85 unit.

A

Consider the money demand function that takes the form (M/P)d=Y/4i, where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy? A) i B) 4i C) 1/4i D) 0.25

B

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. A) positively; positively B) positively; negatively C) negatively; negatively D) negatively; positively

B

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, private saving is: A) 300. B) 500. C) 1,000. D) 1,300.

B

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal: A) 10. B) 20,000. C) 200,000. D) 2,000,000.

B

If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then savings: A) decreases by 0.85 unit. B) decreases by 0.15 unit. C) increases by 0.15 unit. D) increases by 0.85 unit.

B

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals: A) 2,500. B) 2,800. C) 3,500. D) 4,200.

B

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labor: A) is 25 percent. B) is 75 percent. C) depends on the quantities of labor and capital. D) depends on the state of technology.

B

In a Cobb-Douglas production function the marginal product of labor will increase if: A) the quantity of labor increases. B) the quantity of capital increases. C) capital's share of output increases. D) average labor productivity decreases.

B

Assume that equilibrium GDP (Y) is 5,000. Consumption 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: A) 600. B) 1,100. C) 1,500. D) 2,200.

C

Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be: A) 240. B) 700. C) 760. D) 970.

C

Assume that the production function is Cobb-Douglas with parameter = 0.3. If factors are paid their marginal products, capital and labor, respectively, receive the shares of income: A) 0.3 and 0.3. B) 0.7 and 0.7. C) 0.3 and 0.7. D) 0.7 and 0.3.

C

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except: A) shoeleather costs increase. B) menu costs become larger. C) relative prices do a better job of reflecting true scarcity. D) tax distortions increase.

C

Demand deposits are funds held in: A) currency. B) certificates of deposit. C) checking accounts. D) money markets.

C

If inflation is 6 percent and a worker receives a 4 percent wage increase, then the worker's real wage: A) increased 4 percent. B) increased 2 percent. C) decreased 2 percent. D) decreased 6 percent.

C

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by: A) 0.15 unit. B) 0.5 unit. C) 0.85 unit. D) 1 unit.

C

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then savings: A) decreases by 0.85 unit. B) decreases by 0.15 unit. C) increases by 0.15 unit. D) increases by 0.85 unit.

C

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals: A) 1,000. B) 2,500. C) 3,000. D) 5,000.

C

If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

C

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is: A) 1 percent. B) 6 percent. C) -4 percent. D) -5 percent.

C

Suppose that GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. Government spending (G) is 1,000 and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r: A) I rises by 1,000 and r rises by 10 percentage points. B) I rises by 1,000 and r is unchanged. C) I is unchanged and r rises by 10 percentage points. D) I is unchanged and r rises by 15 percentage points.

C

The quantity of money in the United States is essentially controlled by the: A) president of the United States. B) Department of the Treasury. C) Federal Reserve. D) system of commercial banks.

C

The real interest rate is equal to the: A) amount of interest that a lender actually receives when making a loan. B) nominal interest rate plus the inflation rate. C) nominal interest rate minus the inflation rate. D) nominal interest rate.

C

According to Euler's theorem, if 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: A) total investment. B) total saving. C) total profits. D) total output.

D

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed: A) only to the labor used in production. B) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. C) equally between the labor and capital used in production. D) between the labor and capital used in production, according to their marginal productivities.

D

If the Fed announces that it will raise the money supply in the future but does not change the money supply today: A) both the nominal interest rate and the current price level will decrease. B) the nominal interest rate will increase and the current price level will decrease. C) the nominal interest rate will decrease and the current price level will increase. D) both the nominal interest rate and the current price level will increase.

D

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale? A) the relative quantity of labor to capital B) the interest rate C) the ratio of public saving to private saving D) the marginal productivity of labor relative to the marginal productivity of capital

D

With a Cobb-Douglas production function, the share of output going to labor: A) decreases as the amount of labor increases. B) increases as the amount of labor increases. C) increases as the amount of capital increases. D) is independent of the amount of labor.

D