MACRO FINAL 1-5

Assume that a rancher sells McDonald's a quarter-pound of meat of $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, GDP increases by:

$2

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ration of currency to deposits, then the money supply is equal to ___ multiplied by B.

(cr+1)/(cr+rr)

A bank balance sheet consists of only these items: Deposits=$1000; Reserves=$100; Securities=$400; Bonds Issued=$500; Loans=$2000 What is the value of bank capital?

+$1,000

A Gini coefficient of ___ represents perfect income equality, while a Gini coefficient of ___ represents perfect income inequality.

0; 1

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?

1.27

Based on the table, what is the reserve-deposit ratio at the bank?

10 percent

Assume that a firm want 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 the investment would be:

12 percent

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:

20,000

All of these transactions that took place in 2009 would be included in GDP for 209 EXCEPT the purchase of a:

2001 Jeep Cherokee

Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to:

3.5 percent

If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately ___ percent.

4.7

Assume that the consumption function is given by C=150+0.85(Y-T), the tax function is given by T=t0+t1Y, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by:

425

Consider the money demand function that takes the form (M/P)d=4Y/(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?

4i

If Y=AK^(0.5)L^(0.5) and A, K, and L are all 100, the marginal product of capital is:

50

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases nominal interest rate by ____ percent.

5; 5

When banks borrow through the Term Auction Facility, the price of borrowing is determined by:

A competitive bidding process

Other things equal, an increase in the interest rate leads to:

A decrease in the quantity of investment goods demanded

To increase the monetary base, the Fed can:

Conduct open-market purchases

Real GDP means the value of goods and services is measured in ___ prices.

Constant

If an increase of an equal percentage in all factors of production increases output of the same percentage, then a production function has the property called:

Constant returns to scale

The circular flow model shows that households use income for:

Consumption, taxes, and saving

Payment is deferred by using ___, but immediate access to funds occurs when using ___.

Credit cards; debit cards

The money supply will decrease if the:

Currency-deposit ration increases

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

Downwards; more

Accounting profit is:

Economic profit plus the return to capital

When a person purchases a 90-day Treasury bill, he or she cannot know the:

Ex post real interest rate

In an economic model:

Exogenous variables affect endogenous variables

The total income of everyone in the economy is exactly equal to the total:

Expenditure on the economy's output of goods and services

Important characteristics of macroeconomic models include all of these EXCEPT:

Functional relationships based on randomized control trials

People use money as a store of value when they:

Hold money to transfer purchasing power into the future

A typical trend during a recession is that:

Incomes fall

According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:

Increase

If many banks fail, this is likely to:

Increase the ration of currency to deposits

Assume that the production function is Cobb-Douglas with parameter a=0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:

Increases by about 7 percent

Which of these is NOT a probable explanation for the increasing wage gap between skilled and unskilled workers?

Increasing automation that has increased the share of capital in national income

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ____ each year and give workers ___ raises.

Less; smaller

Assets of banks include:

Loans to customers

According to the quantity equation, the percentage change in P is approximately equal to the percentage change in:

M minus the percentage change in Y plus the percentage change in velocity

Macroeconomic models:

Make different assumptions to explain different aspects of the macroeconomy

The expected real return on holding money is:

Minus the expected inflation rate

All of these assets are included in M1 EXCEPT:

Money market deposit accounts

Variables expressed in terms of money are called ___ variables.

Nominal

The opportunity cost of holding money is the:

Nominal interest rate

The real interest rate is equal to the:

Nominal interest rate minus the inflation rate

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase:

Nominal interest rates

According to the usual seasonal pattern of the U.S. economy, GDP is highest in the quarter of the year that included:

October, November, December

An economy's factors of production and its production function determine the economy's:

Output of goods and services

The rate of inflation is the:

Percentage change in the overall level of prices

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. WHat will be the new equilibrium combination of real interest rate, saving, and investment if the governmnet cuts taxes, holding other factors constant?

Point A

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will the new equilibrium combination of real interest rate, saving, and investment if there is a tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)?

Point A

Which of these combinations is NOT a U.S. president and an important economic issue of his administration?

President Clinton; inflation

Which of these would be called a hyperinflation?

Price increases averaged 1% per day

A competitive, profit-maximizing firm hires labor until the:

Price of output multiplied by the marginal product of labor equals the wage

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would:

Raise taxes and cut spending

In principle, the GDP accounts should-but do not-have an imputation for:

Rental services of automobiles driven by owners

To reduce the money supply, the Federal Reserve:

Sells government bonds

The inconvenience associated with reducing money holdings to avoid a=the inflation tax is called:

Shoeleather costs

An assumption of ____ is more plausible for studying the short-run behavior of the economy, while an assumption of _____ is more plausible for studying the long-run, equilibrium behavior of the economy.

Sticky prices; flexible prices

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

The Federal Reserve

An increase in the price of goods bought by firms and the government will show up in:

The GDP deflator but not in the CPI

The theoretical separation of real and monetary variables is called:

The classical dichotomy

In the national income accounts, government purchases are goods and services purchased by:

The federal, state, and local governments

The inflation rate is a measure of how fast:

The general level of prices in the economy is rising

All of these are flow variables EXCEPT:

The government debt

The factor that makes national saving equal investment, in equilibrium, is:

The interest rate

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

The quantity of labor increases

Two equivalent ways to view GDP are as the:

Total income of everyone in the economy or the total expenditure or the economy's output of goods and services

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

Unit of account

Using a market-clearing model to analyze the labor market is _____ because wages usually change _____.

Unrealistic; infrequently

The quantity theory of money assumes that:

Velocity is constant

The national income accounts identity for an open economy is:

Y=C+I+G+NX

If nominal wage cannot be cut, then the only way to reduce real wages is by:

Adjustments via inflation

In a system with fractional reserve banking:

All banks must hold reserves equal to a fraction of their deposits

In a country on a gold standard, the quantity of money is determined by the:

Amount of gold

Economists use the term money to refer to:

Assets used for transactions

Excess reserves are reserves that banks keep:

Above the legally required amount

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on:

Both current and expected future money supply

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

Both increase 5 percent and output increases 10 percent

The reserve-deposit ratio is determined by:

Business policies of banks and the laws regulating banks

Endogenous variables are:

Determined within the model

When the Fed decreases the interest rate paid on reserves, it:

Decreases the reserve-deposit ratio (rr)

Public saving;

Depends on the government's tax collections relative to its expenditures