ECO3203 Exam 1 Quizzes

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

$2

If F (K, L) = AKaL1-a is an economy's production function, what is labor's share of output?

1 - a

If F(K, L) = AKαL 1−α is an economy's production function, what is labor's share of output?

1 - α

For each new model, you should keep track of:

1. its assumptions 2. which variables are endogenous and which are exogenous 3. the questions it an help us understand and those it cannot

If the currency-deposit ratio is 0.7 and the reserve-deposit ratio is 0.2, what is the money multiplier?

1.89

How many districts does the Federal Reserve have?

12

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 percent

How many units of labor will the firms hire if the real wage is 6? (using two graphs)

5

What type of money has intrinsic value?

Commodity money

Suppose that each factor of production increases by 10% and output subsequently increases by 10%. Which phase describes this situation?

Constant returns to scale

Which is a possible negative result of increased government spending?

Crowding out of investment

Which is an example of the Cobb-Douglas production function?

F (K, L) = AKaL1-a

Which equation describes the marginal product of a factor (MPi)?

F (j, i + 1) - F (j, i)

What enables money creation in addition to that directly created by the central bank?

Fractional-reserve banking

Consumers and firms interact through:

Goods and Services Market, Labor Markets, an Capital/Assets Markets

Which statement is TRUE about economists' models?

Macroeconomists employ a variety of models, each focused on a specific problem or set of problems

Which of the following statements best describes the difference between microeconomics and macroeconomics?

Microeconomics focuses on the behavior of individual markets and firms, while macroeconomics deals which national economic growth and stability

Money that banks hold as reserves in the Fed are considered part of the:

Monetary Base

_____________ measures the value of the economy's output at current prices and is a ________________

NGDP and flow

According to the usual seasonal pattern of the U.S. economy, gross domestic product (GDP) is highest in the quarter of the year that includes:

October, November, and December

In a supply-and-demand model, which variables are exogenous and which are endogenous?

Price and quantity are endogenous, income and the cost of materials are exogenous

What determines the total production?

Quantity of inputs and the ability of the economy to turn these into outputs

The Central Bank of the United States is:

The Federal Reserve

How do competitive, profit-maximizing firms determine the optimal level of a factor?

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

What is the money multiplier effect?

The increase in the money supply generated by the banks' ability to lend

Which statement is TRUE?

The system of fractional-reserve banking creates money but not wealth

Which of the following events would affect the CPI but not the GDP deflator?

Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States

The national income identity is expressed as

Y = C + I + G + NX

The larges component of GDP is

consumption

The Ford Motor Company makes a car in 2020 and sells it to the Jones family in 2021. This event increases _________________________

consumption in 2021 and GDP in 2020

Real gross domestic product (GDP) means the value of goods and services is measured in _______ prices

current prices

If nominal GDP and real GDP both rise by 10 percent, then the GDP deflator

is unchanged

A bank's total assets relative to the bank owners' equity is the:

leverage ratio

The use of borrowed funds to make investments is called:

leveraging

Why are models useful when studying economics?

models can hop us dispense with irrelevant details and focus on underlying connections

the public and private sector interacts through:

monetary and fiscal policy

An expansionary fiscal policy implies:

more deficit

Exogenous variables are determined

outside the model

An example of fiat money is

paper bills

The Fed sees that commercial banks hold adequate reserves by:

paying the banks interest on their reserves

Technological advances typically have a _______ impact on investment

positive

The GDP deflator enables economists to make adjustments for changes in

prices

The neoclassical theory of distribution combined with the Cobb-Douglas production function suggests a linkage between

productivity growth and real wages

The Fed's strategy of buying long-term, riskier assets in response to the Great Recession is known as:

quantitative easing

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 use of borrowed funds to make investments is called

the balance sheet

Real wage represents:

the compensation of workers in terms of goods and services

All of these are flow variables EXCEPT: - business expenditures on plant and equipment - the government debt - the number of new automobile purchases - the number of people losing their jobs

the government debt

The neoclassical theory of distribution suggests that factor demand is based on:

the marginal productivity of that factor

Which is NOT a variable determining the supply of money?

the marginal propensity to save

Which Is usually implicit in macroeconomic models?

the optimizing behavior of households and firms

If a person quits his job to become a stay-at-home parent, the labor-force participation rate _____________ and the unemployment rate ________________

the participation rate falls and the unemployment rate rises

Which variable adjusts to bring the market for goods and services into equilibrium?

the real interest rate

What does real GDP measure?

the total income of everyone in the economy in a given time period adjusted for price changes

What is the primary function of the Federal Open Market Committee (FOMC)

to make decisions about monetary policy

Which of the following examples illustrates the fallacy of composition?

Believing that what is true for a part is necessarily true for the whole, like assuming a loud music section means the entire orchestra is loud

The market basket used to measure price changes is:

fixed in the CPI but changing in the GDP deflator

Inflation and nominal interest rates are

highly positively related

How does fractional-reserve baking create money?

by lending more than the amount of reserves

Which is NOT a role money plays in the economy?

factor of production