Chapter 3&4 Macro

A consumption function shows the relationship between consumption and: a. disposable income. b. pretax income. c. taxes. d. income.

A

According to the model developed in Chapter 3, when taxes decrease without a change in government spending: a. consumption increases and investment decreases. b. consumption decreases and investment increases. c. consumption and investment both increase. d. consumption and investment both decrease.

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. leads to taxing of nominal interest income and capital gains that are not real. d. increases menu costs.

A

An economy's factors of production and its production function determine the economy's: a. output of goods and services. b. labour force participation rate. c. budget surplus or deficit. d. population growth rate.

A

An example of a real variable is the: a. quantity of goods produced in a year. b. nominal interest rate. c. dollar wage a person earns. d. price level.

A

An example of decreasing returns to scale is when capital and labour inputs: a. both increase 10 percent and output increases 5 percent. b. both increase 10 percent and output increases 10 percent. c. do not change and output increases 5 percent. d. both increase 5 percent and output increases 10 percent.

A

Economists use the term money to refer to: a. assets used for transactions. b. profits. c. income. d. earnings from labour.

A

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is: a. 50. b. 200. c. 1,000. d. 100.

A

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, private saving is: a. 500. b. 1,000. c. 300. d. 1,300.

A

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then savings: a. increases by 0.15 unit. b. increases by 0.85 unit. c. decreases by 0.85 unit. d. decreases by 0.15 unit.

A

In a closed economy with fixed output, when government spending increases: a. public saving decreases. b. private saving decreases. c. public saving increases. d. private saving increases.

A

People use money as a medium of exchange when they: a. use money to buy goods and services. b. hold money to gain power and esteem. c. use money as a measure of economic transactions. d. hold money to transfer purchasing power into the future

A

The government spending component of GDP includes all of the following except: a. federal spending on transfer payments. b. federal spending on goods. c. provincial and municipal spending on goods. d. federal spending on services.

A

The rate of inflation is the: a. percentage change in the level of prices. b. measure of the overall level of prices. c. median level of prices. d. average level of prices.

A

To increase the money supply, the Bank of Canada: a. buys government bonds. b. sells corporate stocks. c. buys corporate stocks. d. sells government bonds.

A

When a person purchases a 90-day Treasury bill, he or she cannot know the: a. ex post real interest rate. b. nominal interest rate. c. expected rate of inflation. d. ex ante real interest rate.

A

A rate of inflation that exceeds 50 percent per month is typically referred to as a: a. disinflation. b. hyperinflation. c. inflation. d. deflation.

B

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. a. negatively; positively b. positively; negatively c. positively; positively d. negatively; negatively

B

Credit cards: a. are part of the M2 money supply. b. may affect the demand for money c. are part of the M1 money supply. d. are part of both the M1 and M2 money supply.

B

If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is: a. 1 percent. b. -4 percent. c. -5 percent. d. 6 percent.

B

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, the transactions velocity is ______ times per year. a. 2 b. 5 c. 10 d. 0.2

B

In practice, in order to stop a hyperinflation, in addition to stopping monetary growth, the government must: a. change from one kind of currency to another. b. raise taxes and reduce government spending. c. call for a new election. d. lower taxes and raise government spending.

B

Money that has no value other than as money is called ______ money. a. commodity b. fiat c. intrinsic d. government

B

The ex post real interest rate will be greater than the ex ante real interest rate when the: a. rate of inflation is decreasing. b. actual rate of inflation is less than the expected rate of inflation. c. rate of inflation is increasing. d. actual rate of inflation is greater than the expected rate of inflation.

B

The neoclassical theory of distribution: a. shows that the national income of an economy is not equal to total output. b. is a theory of how national income is divided among the factors of production. c. is rejected by most economists today. d. was developed by Karl Marx.

B

The real wage is the return to labour measured in: a. dollars. b. units of output. c. units of capital. d. units of labour.

B

"Inflation tax" means that: a. as taxes increase, the rate of inflation also increases. b. as the price level rises, taxpayers are pushed into higher tax brackets. c. as the price level rises, the real value of money held by the public decreases. d. in a hyperinflation, the chief source of tax revenue is often the printing of money.

C

A competitive firm chooses the: a. wage to pay labour. b. rental price to pay capital. c. quantity of labour and capital to employ. d. price at which to sell the product produced.

C

According to the classical theory of money, inflation does not make workers poorer because wages increase: a. faster than the overall price level. b. in real terms during periods of inflation. c. in proportion to the increase in the overall price level. d. more slowly than the overall price level.

C

According to the quantity theory of money, ultimate control over the rate of inflation in Canada is exercised by: a. the Federal Department of Finance. b. private citizens. c. the Bank of Canada. d. the Organization of Petroleum Exporting Countries (OPEC).

C

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. 10 percent. b. 5 percent. c. 13 percent. d. 8 percent.

C

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M. a. income b. transactions c. nominal GDP d. prices

C

In a closed economy, the components of GDP are: a. consumption, investment, government purchases, and exports. b. consumption, investment, government purchases, and net exports. c. consumption, investment, and government purchases. d. consumption and investment.

C

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will: a. not change. b. rise $60 billion. c. rise $40 billion. d. rise $100 billion.

C

In the classical model with fixed income, a decrease in the real interest rate could be the result of a: a. increase in government spending. b. decrease in taxes. c. increase in taxes. d. increase in desired investment.

C

Other things equal, an increase in the interest rate leads to: a. an increase in the quantity of investment goods demanded. b. sometimes an increase and sometimes a decrease in the quantity of investment goods demanded. c. a decrease in the quantity of investment goods demanded. d. no change in the quantity of investment goods demanded

C

The concept of monetary neutrality in the classical model means that an increase in the money supply will increase: a. real GDP. b. real interest rates. c. nominal interest rates. d. both saving and investment by the same amount.

C

The opportunity cost of holding money is the: a. real interest rate. b. prevailing Treasury bill rate. c. nominal interest rate. d. rate of inflation.

C

Variables expressed in terms of money are called ______ variables. a. endogenous b. real c. nominal d. exogenous

C

When government spending increases and taxes are increased by an equal amount, interest rates: a. remain the same. b. can vary wildly. c. increase. d. decrease.

C

All of the following actions increase government purchases of goods and services except the: a. federal government's sending a pay cheque to the Prime Minister of Canada. b. city of Saskatoon's buying a library book. c. federal government's buying a helicopter for the military. d. federal government's sending a Canada Pension cheque to Sara Jones.

D

Consider a 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. 0.25 b. 1/4i c. i d. 4i

D

If inflation is 6 percent and a worker receives a 4 percent wage increase, then the worker's real wage: a. decreased 6 percent. b. increased 4 percent. c. increased 2 percent. d. decreased 2 percent.

D

If nominal wages cannot be cut, then the only way to cut real wages is by: a. legislation. b. productivity increases. c. unions. d. inflation.

D

In the classical model with fixed output, the supply and demand for goods and services are balanced by: a. government spending. b. taxes. c. fiscal policy. d. the interest rate.

D

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP. a. the money supply; velocity b. velocity; the money supply c. the money supply; the productive capability of the economy d. the productive capability of the economy; the money supply

D

The demand for output in a closed economy is the sum of: a. public saving and private saving. b. the quantity of capital and labour and production technology. c. government purchases and transfer payments minus tax receipts. d. consumption, investment, and government spending.

D

To reduce the money supply, the Bank of Canada: a. creates demand deposits. b. destroys demand deposits. c. buys government bonds. d. sells government bonds.

D

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when there is a technological advance that leads to an increase in investment demand: a. investment increases and the interest rate falls. b. investment increases and the interest rate rises. c. investment and the interest rate are both unchanged. d. investment is unchanged and the interest rate rises.

D