Macroeconomic Exam 1

What must be TRUE if domestic saving is $100 and domestic investment is $110? A. The net capital outflow is $10 B. The net capital inflow is $10 C. There is a trade surplus of $10 D. GDP must be less than $210

B. The net capital inflow is $10

Say e is the nominal exchange rate between Merkan dollars and Furland krone, P is the price level in Merka, and P* is the price level in Furnland. What is the real exchange rate, ε? A. ε = e x P*/P B. ε = e P/P* C. ε = P/eP* D. ε = P/P*

B. ε = e x P*/P

In a supply-and-demand model, which variables are exogenous & which are endogenous? A. Price & income exogenous, cost of materials & quantity endogenous B. Price & quantity exogenous, income and cost of materials endogenous C. Price & quantity endogenous, income & cost of materials exogenous D. Price & income are endogenous, cost of materials & quantity exogenous

C. Price & quantity endogenous, income & cost of materials exogenous

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: A. constant marginal product of labor (MPL) B. increasing MPL C. constant returns to scale D. increasing returns to scale

C. constant returns to scale

Technological advances typically have a _________ impact on investment. A. negative B. negligible C. volatile D. positive

D. D. positive

The GDP deglator enables economists to make adjustments for changes in: A. Quality B. Output C. Population D. Prices

D. Prices

The national income identity for an open economy is expressed as: A. Output = income B. S = I (savings = investment) C. NX = exports - imports D. Y = C + I + G + NX

D. Y = C + I + G + NX (GDP equation)

The investment function slopes _______ because there are _________ investment projects that are profitable as the interest rate decreases. A. upward; fewer B. upward; more C. downward; fewer D. downward; more

D. downward; more

Which is most likely TRUE about how prices behave? Prices are: A. sticky in the long run & flexible in the short run B. flexible regardless of time frame C. typically sticky regardless of time frame D. sticky in the short run & flexible in the long run

D. sticky in the short run & flexible in the long run

The value of net exports is also the value of: A. net investment B. net saving C. national saving D. the difference of national saving and domestic investment.

D. the difference of national saving and domestic investment.

A farmer grows a bushel of wheat and sells it to a miller for $1. The miller turns the wheat into flour and then sells the flour to a baker for $3. The baker uses the flour to make bread and sells the bread to an engineer for $6. When the engineer eats the bread, what is the value added by each person? What is the bread's contribution to GDP? a. The farmer's added value is: b. The miller's added value is: c. The baker's added value is: d. The bread's contribution to GDP is:

a. 1 b. 2 c. 3 d. 6 Explanation: a, b, c: Each added value is equal to the profit made. d. Contribution to GDP can be arrived at by summing all profits, or the end-consumer of the finished product (i.e., the bread eaten by the engineer)

In Year 1, an economy produces & consumes 2 apples & 2 oranges, each of which sell for $4 ($4 for one apple & $4 for one orange). In Year 2, it produces & consumes 4 apples, which still sell for $4 ($4 for one apple), and 1 orange, which sells for $12 ($12 for one orange). Year 1 is the base year & the time when the basket for the CPI is set. a. In Year 1, CPI is _______ b. In Year 2, CPI is ________ c. What was the inflation rate (the percentage increase in the price level) between Year 1 & 2, according to the CPI?

a. 100 b. 175 c. 75% Explanation: CPI = (cost of basket in current year/cost of basket in base year) x 100 a. Year 1: Cost of basket = (2 x $4) + (2 x $4) = $16 CPI = ($16 / $16) x 100 = 100 b. Year 2: Cost of basket = (4 x $4) + (1 x $12) = $28 CPI = ($28 / $16) x 100 = 175 c. Inflation rate = (CPI current year - CPI base year) / CPI base year x 100 --OR-- Current - Base (then just make it a percent) = (175 - 100) / 100 x 100 --OR-- 175 - 100 = 75%

Use the model of the small open economy to predict what would happen to the trade balance, the real exchange rate, and the nominal exchange rate in response to each of the following events: a. A fall in consumer confidence about the future induces consumers to spend less and save more. i. The trade balance _______. ii. The real exchange rate ______. b. A tax reform increases the incentive for businesses to build new factories. i. The trade balance _______. ii. The real exchange rate _______.

a. increase; decrease b. decrease; increase

How do competitive, profit-maximizing firms determine the optimal level of a factor? A. The firm demands each factor of production until that factor's marginal product product equals its real factor price B. The firm demands each factor of production until that factor's marginal product equals zero. C. The firm demands each factor of production until that factor's marginal product equals all other factors' marginal products. D. The firm demands each factor of production until that factor's marginal product equals its nominal factor price

A. The firm demands each factor of production until that factor's marginal product product equals its real factor price

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and _______ net capital outflow. A. deficit; negative B. surplus; negative C. deficit; positive D. surplus; positive

A. deficit; negative

The total income of everyone in the economy is exactly to the total: A. expenditure on the economy's output of goods & services B. investment expenditures of everyone in the economy C. expenditures of all businesses in the economy D. government expenditures

A. expenditure on the economy's output of goods & services

The market basket used to measure price changes is: A. fixed in CPI, but changing in GDP deflator B. fixed in GDP deglator, but changing in CPI C. fixed in both GDP deflator & CPI D. changing in both GDP deflator & CPI

A. fixed in CPI, but changing in GDP deflator

If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal? A. increasing taxes B. increasing government spending C. increasing investment tax credits D. imposing protectionist trade policies

A. increasing taxes

Which best describes changes in the economy? Real GDP: A. rises over time, but its growth is not steady B. is constant; only nominal GDP changes C. grows at a constant rate over time D. falls in about as many years as it rises

A. rises over time, but its growth is not steady