Macro Exam 2

Assuming the interest rate is 5%, which of the following has the greatest present value? A. $240 paid in 3 years B. $225 paid in 2 years C. $219 paid in one year D. $200 paid today

A

On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions? A. a relatively simple way to increase growth rates permanently is to increase a country's saving rate B. growth is generally inhibited rather than promoted by policies like protective tariffs C. well-established property rights that are enforced by fair and efficient courts are important to economic growth D. countries with few domestic natural resources still have opportunities for economic growth

A

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant? A. substitution bias B. introduction of new goods C. unmeasured quality change D. income effect

A

The BRAC anti-poverty program in Bangladesh gave poor families training on how to raise livestock, a savings account, and help with their physical and mental health. These policies can potentially improve economic growth by increasing A. education, savings, and human capital B. physical capital, savings, and natural resources C. property rights, research and development, and human capital D. education, research and development, and natural resources

A

The real rate of economic growth: A. is underestimated using measures of income growth B. is overestimated using measures of income growth C. is underestimated using measures of technological growth D. is overestimated using measures of technological growth

A

What is the future value of $450 at an interest rate of 9% 2 years from today? A. $534.65 B. $546.35 C.$565.18 D.$574.13

A

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude: A. consumer prices sometimes rose and sometimes fell in the time frame represented on the graph B. consumer prices were always rising in the time frame represented on the graph C. the economy never experienced a recession in the time frame represented on the graph D. GDP was always increasing for the time frame represented on the graph

A

Which of the following are financial intermediaries? A. both banks and mutual funds B. banks but not mutual funds C. Mutual funds but not banks D. neither banks nor mutual funds

A

Which of the following would likely make the interest rate on a bond higher than otherwise? A. Both high credit risk and a long term B. high credit risk but not long term C. long term but not high risk D. Neither high risk nor long term

A

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following makes the interest rate on this bond lower than otherwise? A. Both Atlas' sound finances and the long term of the bond B. Atlas' sound finances but not the long term of the bond C. The long term of the bond but not Atlas' sound finances D. Neither Atlas' sound finances nor the long term of the bond

B

During a certain year, the nominal interest rate was 7%, the real interest rate was 4%, and the CPI was 198.3 at the end of the year. The CPI at the beginning of the year was: A. 204.2 B. 192.5 C. 178.6 D. 220.1

B

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant? A. substitution bias B. unmeasured quality change C. introduction of new goods D. income bias

B

Suppose the parents of a child born in the year 2000 had invested $5,000 at a 10% interest rate to be paid out to the child when she turns 21 years old. Approximately how many times will the investment double by the time it is paid out to the child> A. 2 times B. 3 times C. 4 times D. 8 times

B

The foal of the consumer price index is to measure chaos in the A. Costs of production B. Cost of living C. Relative prices of consumer goods D. Production of consumer goods

B

Tonya put $250 into an account three years ago. The first year he earned 6% interest, the second year 7%, and the third year 8%. About how much does Tonya have in her account now? A. $302.50 B. $306.23 C. $308.67 D.$309.39

B

Which of the following is the correct formula for calculating the consumer price index? A. [(CPI in Year 1- CPI in year 2)/ CPI in year 2] x 100 B. [(price of goods and services in current year- price of basket in base year)/ price of basket in base year] x 100 C. [(price of basket of goods and services in current year-price of basket in base year) / price of basket in base year] x 100 D. [(price of basket of goods and services in base year/ price of basket in current year)] x 100

B

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? A. The real interest rate is the nominal interest rate x the rate of inflation B. The real interest rate is the nominal interest rate - the rate of inflation C. The real interest rate is the nominal interest rate + the rate of inflation D. The real interest rate is the nominal interest rate / the rate of inflation

B

Which of the following statements is correct? A. A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money B. A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that people are expecting low corporate profits C. A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past D. Expectations about the business cycle have had no impact on stock prices

B

Which of the following statements is correct? A. Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange B. Most buyers of stocks and bonds prefer those issued by large and familiar companies C. Banks charge borrowers a slightly lower interest rate than they pay to depositors D. None of the above

B

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds: A. is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. B. is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. C. is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. D. is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

B

If the nominal interest rate is 8 percent and the rate of inflation is 5.5 percent, then the real interest rate is A. -2.5% B. 0.45% C. 2.5% D. 13.5%

C

In the U.S., each additional year of schooling has historically raised a person's wage on average by about: A. 2% B. 5% C. 10% D. 15%

C

Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity A. decreased by 2.33% B. increased by 2.33% C. increased by 3.75% D. increased by 24.5%

C

Other things the same, as the maturity of a bond becomes longer, the bond will pay A. a lower interest rate because it has less risk B. a lower interest rate because it has more risk C. a higher interest rate because it has more risk D. the same interest rate, because there is no relationship between term and risk

C

Robert put $15,000 into an account with a fixed interest rate two years ago and now the account balance is $16,917.66. What rate of interest did Robert earn? A. 4.5 % B. 5.4% C. 6.2% D. 8%

C

The consumer price index is subject to substitution bias because A. some pairs of goods are complements rather than substitutes B. some goods are inferior rather than normal C. the law of demand applies to most, if not all, goods D. the index does not take into account the likelihood that consumers substitute newly-introduced foods for more established goods

C

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $500 for ten years, you will have about $983.58. If your accountant is correct, what is the current rate of interest? A. 5% B. 6% C. 7% D. 8%

C

At the broadest level, the financial system moves the economy's scarce resources from: A. the rich to the poor B. financial institutions to business and firms and government C. Households to financial institutions D. savers to borrowers

D

Country A has twice as many workers as Country B. Country A also has twice as much physical capital, twice as much human capital, and access to twice as many natural resources as Country B. Assuming constant-returns to scale, which of the following is higher in Country A? A. both output per worker and productivity B. output per worker but not productivity C. productivity but not output per worker D. neither productivity not output per worker

D

GDP= $5 trillion; consumption=$3.1 trillion; government purchase=$0.7 trillion; taxes=$0.9 trillion Refer to the Scenario above. For this economy, investment amounts to A. $0.4 trillion B. $2.1 trillion C. $1.7 trillion D. $1.2 trillion

D

In 1979 and 1980, A. the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S. B. the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising prices of goods exported by the U.S. C. the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices D. the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices

D

In national income accounting, we use which of the following pairs of terms interchangeably? A. "investment" and "private saving" B. "investment" and "purchases of stocks and bonds" C. "saving" and "national saving" D. "public saving" and "government tax revenue minus government spending"

D

In the base year, the GDP deflator is always: A. -1 B. 0 C. 1 D. 100

D

In the calculation of the CPI, tea is given greater weight than beer if A. the price of tea is higher than the price of beer B. it costs more to produce tea than it costs to produce beer C. te is more readily available than beer to the typical consumer D. consumers buy more tea than beer

D

Suppose that congress were to repeal an investment tax credit. What would happen in the market for loanable funds? A. the demand and the supply of loanable funds would shift right B. the demand and the supply of loanable funds would shift left C. The supply of loanable funds would shift right D. The demand for loanable funds would shift left

D

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct? A. The CPI involves a base year; the GDP deflator does not involve a base year B. The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate C. The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers D. The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services

D

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006? A. 4% B. 11% C. 19.6% D. 24.4%

D

Which of the following is included in the investment component of GDP? A. Households' purchases of newly constructed homes B. Net additions to firms' inventories C. Firms' purchases of capital equipment D. All of the above are correct

D

Which of the following will increase a county's real GDP per person? A. imposing restrictions on foreign trade and foreign investment B. imposing restrictions on foreign trade and reducing restrictions on foreign investment C. reducing restrictions on foreign trade and imposing restrictions on foreign investment D. reducing restrictions on foreign trade and foreign investment

D

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because A. the quality of these items is not high enough to contribute value to GDP B. measuring them is so difficult C. the government wants to discourage the production and consumption of these items D. these items are not reported on income tax forms

b