EC Summer exam 1 chapter1-4

The first pair of Jordans worn by Michael Jordan in the early days of his career was auctioned off 10 years later and sold for $1000. How much does this sale adds to current GDP?

$0

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion

The unemployment rate in Hopeland in 2019 was 12%, and during that same year the labor force was 9000. In 2020, the labor force decreased to 7500, and the Labor Bureau reported total employed at 6800. What is the change in unemployment rate from 2019 to 2020?

-2.7%

Open-market operations are:

Federal Reserve purchases and sales of government bonds.

Consider an economy that only produces cars. Let denote the current price of cars and the amount that is currently produced, and let denote the base price of cars used in calculating GDP. From the information above, the GDP deflator can be represented by

P/Pb

The marginal product of capital is:

additional output produced when one additional unit of capital is added.

An increased in the number of employed (everything else equal) causes

an increase in the labor force and labor force participation rate

Economists use the term money to refer to:

assets used for transactions.

A bank balance sheet consists of only these items: Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?

+$1,000

Which is the BEST example of a flexible price?

. the price of gasoline at a service station

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G = 0. In this case, equilibrium investment is:

1,500

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

1.27

In 2010 women made up 20% of the labor force in Hopeland, at that time the labor force was 5000. The number of women in the labor force increased by 10% when the labor statistics were reported in 2011. How many women were a part of the labor force during 2011?

1100

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5

The government ministers of Hopeland are concerned that you are using the GDP deflator to measure the country's price level and so they recommend that you switched to CPI. Data available to you were that the typical consumer basket consist of 200 hot dogs and 300 hamburgers. Where 200 hot dogs were sold at a price of $10 each and 300 hamburgers at $5 each in 2015, and 250 hot dogs were sold at $15 each and 400 hamburgers at $20 each in 2020. Using 2015 as the base year, what is the CPI of Hopeland in 2020?

2.6

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to

300

If real gross domestic product (GDP) grew by 6 percent and population grew by 2 percent, then real GDP per person grew by approximately _____ percent.

4

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. In addition, assume that G = 0. In this case, the equilibrium real interest rate is:

5%

The labor force of Hopland in 2020 was 4000 and the number of unemployed people were 1500. What is the unemployment rate of Hopeland in 2020?

62.5%

The total population in Hopelnad in 2018 was 8000, of which 56% were adults, and 40% were a part of the labor force. With the information provided, what was the labor force participation rate in Hopeland in 2018?

71%

In the United States, monetary policy is conducted by the:

Federal Reserve

Which of the following describes the difference between PCE and the GDP deflator

PCE is calculated like the GDP deflator, but rather than reflecting all of GDP, it is based on just the consumption component.

Which of following describes the difference between the GDP deflator and the CPI?

The GDP deflator measures the prices of all goods and services produced, whereas the CPI measures the prices of only the goods and services bought by consumers.

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

a decrease in the quantity of investment goods demanded.

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

amount of gold

Compared with real gross domestic product (GDP) during a recession, real GDP during a depression: a. increases more rapidly

decreases more severely.

In the classical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _____ and private saving _____.

decreases; increases

When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a _____ real interest rate and _____ in the quantity of investment

higher; an increase

In the classical model with fixed income, if the interest rate is too low, then investment is too _____, and the demand for output _____ the supply

high; exceeds

People use money as a store of value when they:

hold money to transfer purchasing power into the future

A measure of how fast the general level of prices is rising is called the:

inflation rate

When bread is baked but put away for later sale, this is called:

investment in inventory

The demand for the economy's output:

is equal to consumption, investment, and government purchases

The ability of macroeconomists to predict the future course of economic events

is no better than a meteorologist's ability to predict the next month's weather.

In the United States, the money supply is determined:

jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.

The use of borrowed funds to supplement existing funds for purposes of investment is called:

leverage

To increase the money multiplier, the Fed can:

lower the interest rate paid on reserves.

Macroeconomic models:

make different assumptions to explain different aspects of the macroeconomy.

In a fractional-reserve banking system, banks create money when they:

make loans

In computing the total value of goods and services in the economy, what prices do the national income accounts use?

market prices

High-powered money is another name for:

monetary base

All of these assets are included in M1 EXCEPT:

money market deposit accounts.

A student who studies full-time is considered as

not a part of the labor force

Two striking features of a graph of U.S. real gross domestic product (GDP) per capita over the twentieth century are the:

overall upward trend interrupted by a large downturn due to the economic depression in the 1930s

The inflation rate is a measure of how fast

the general level of prices in the economy is rising.

In the classical model with fixed output, the supply and demand for goods and services are balanced by: a. government spending

the interest rate

f the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

In the classical model, what adjusts to eliminate any unemployment of labor in the economy?

the real wage

The value of a bank's owners' equity is called bank:

capital.

Demand deposits are funds held in:

checking accounts.

A country that is on a gold standard uses:

commodity money.

If an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts that:

the real wage will fall and the real rental price of capital will rise.

If increased immigration raises the labor force, the neoclassical theory of distribution predicts that:

the real wage will fall and the real rental price of capital will rise.

The money supply consists of

currency plus demand deposits

. One of President Trump's first major economic policy initiative after taking office in 2017 was a(n):

decrease in taxes levied on corporations.

Currency equals:

the sum of coins and paper money.

GDP as a statistic can be viewed as the total income of everyone in the economy, which is the same as

the total expenditure on the economy's output

Nominal GDP is not a good measure of economic well-being and this is mainly because

this measure does not accurately reflect how well the economy can satisfy the quantity of goods demanded for households, firms, and the government.

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

unit of account

People use money as a unit of account when they:

use money as a measure of economic transactions.

People use money as a medium of exchange when they:

use money to buy goods and services.

All of these are considered major functions of money EXCEPT as a:

way to display wealth.

Macroeconomics does NOT try to answer the question of:

why some countries experience rapid growth.

Variables that a model tries to explain are called:

endogenous.

Gross domestic product (GDP) is the market value of all _____ goods and services produced within an economy in a given period of time.

final

Real gross domestic product (GDP) _____ over time, and the growth rate of real GDP _____.

grows; fluctuates

The unemployment rate:

has never been zero in the United States.

A typical trend during a recession is that:

incomes fall.

When the Fed increases the interest rate paid on reserves, it leads to:

increases in the reserve-deposit ratio (rr).

In a closed economy, Y - C - G equals:

national saving.

In equilibrium, total investment equals:

national saving.

The real interest rate is the:

nominal interest rate minus the rate of inflation.

The total income of everyone in the economy adjusted for the level of base year prices is called:

real gross domestic product (GDP).

Since 1960, the U.S. ratio of labor income to total income has:

remained relatively steady.

A firm's economic profit is:

revenue minus costs.

The ratio of the money supply to the monetary base is called:

the money multiplier

Which is the BEST example of a sticky price?

the price of a soda in a vending machine

In a simple model of the supply and demand for pizza, the endogenous variables are:

the price of pizza and the quantity of pizza sold

The country of Hopeland produced 100 bananas which are sold at a market price of $12 each, 80 iPhones which are sold at a market price of $900 each, and 2000 electric cars which are sold at a market price of $8000 each. What is the nominal GDP in this economy?

$16,073,200

Consider an economy that produces 18 batteries in 2019 at $13, 90 batteries at $20 each in 2020, 70 batteries at $15 each in 2021 , 100 oranges at $10 each in 2019, 120 oranges in 2020 at $17 each, and 140 oranges at $20 each in 2021. Using 2019 as the base-year, what is real GDP in this economy in 2021?

$2310

James and Co. sells a pound of silk for $10 which is purchased by Blake's Fashion Blazers, who then uses the silk to produce garments. A garment is then sold for $30 by Blake's Fashion Blazers. How much is added to GDP from this transaction?

$30

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real gross domestic product (GDP) (in 2002 prices) in 2009 was:

$6.50

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$600 billion.

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

$800 billion.

The country of Hopland consumed on aggregate $3000 of goods produce during 2020. In that same year investment was $4000, government spending was $5000, imports totaled $6000, and exports $2000. What is the gross domestic product of Hopeland?

$8000

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

(cr + 1)/(cr + rr)

Assets of banks include:

loans to customers

The marginal product of labor is:

additional output produced when one additional unit of labor is added

The company James and Co. expected a rise in demand for its silk material. Therefore, it hired additional workers to increase production, but unforeseen circumstances caused the company to sell fewer silks than expected. The excess silk was kept in storage to be sold later. In this situation, James and Co.

are assumed to have "purchased" silk for the company's inventory, and the company's profit is not reduced by the additional wages it has paid.

The assumption of continuous market clearing means that:

at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement.

capital

The two MOST important factors of production are:

capital and labor.

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 money supply will decrease if the:

currency-deposit ratio increases.

In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will:

decrease

Hopeland spending on aggregate consumption decreased from $8000 to $2000 between 2017 and 2018, and investment spending increased from $7000 to $10,000 over the same period, while all other components of GDP remained constant. As a result GDP

decreased by $3000.

A period of falling prices is called:

deflation

Liabilities of banks include:

demand deposits.

Bank reserves equal:

deposits that banks have received but have not lent out

A severe recession is called a(n):

depression

Exogenous variables are:

determined outside the model.

Endogenous variables are:

determined within the model

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____, the amount of investment spending depends on _____, and the amount of government spending is determined _____.

disposable income; the interest rate; exogenously

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

downward; more

In a fractional-reserve banking system, banks create money because:

each dollar of reserves generates many dollars of demand deposits

Homeowners in an economy often are unaware what contributions they are making towards GDP simply by owning a house. However, the Department of Commerce recognized their contribution by

estimating what the market rent for a house would be, if it were rented and includes that imputed rent as part of GDP.

In an economic model:

exogenous variables affect endogenous variables.

. Macroeconomic models are used to explain how _____ variables influence _____ variables

exogenous; endogenous

In the long run, the level of national income in an economy is determined by its:

factors of production and production function.

A production function is a mathematical relationship between:

factors of production and the quantity of output produced

The government purchases component of GDP includes all of these EXCEPT:

federal spending on transfer payments.

When there is a fixed supply of loanable funds, an increase in investment demand results in a(n):

higher real interest rate.

If government purchases exceed taxes minus transfer payments, then the government budget is:

in deficit

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:

in the long run.

National saving refers to:

income minus consumption minus government purchases.

In the classical model with fixed income, if the demand for goods and services is greater than the supply, the interest rate will:

increase

In the classical model with fixed income, an increase in the real interest rate could be the result of a(n):

increase in government spending.

Between the years of 2019 and 2020, imports in Hopeland decreased by 56%, while all other components of GDP experienced no change, as a result GDP is expected to?

increased by less than 56% over the same period

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza _____ and the quantity purchased _____

increases; decreases

In a simple model of the supply and demand for pizza, when buyers' income increases, the price of pizza _____ and the quantity purchased _____.

increases; increases

The currency-deposit ratio is determined by:

preferences of households about the form of money they wish to hold.

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

price of output multiplied by the marginal product of labor equals the wage.

The nominal interest rate is the:

rate of interest that investors pay to borrow money.

To reduce the money supply, the Federal Reserve typically:

sells government bonds.

The assumption that the factor's supply is fixed will imply that the factor's:

supply curve is vertical