ECON 3080 Midterm 1 Practice
The island of Bensalem requires its banks to hold 10 percent of deposits as reserves. If a customer deposits $100 into his checking account, the bank will keep _____ and will lend out _____.
$10; $90
If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009?
$12 trillion
If GDP measured in billions of current dollars is $5,465, consumption is $3,657, investment is $741, and net exports are -$1,910, then government purchases are:
$2,977.
If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:
$800 billion
If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:
.08
Assume that three countries—the Netherlands, Belgium, and Italy—trade with one another. Italy exports 500 euros worth of wine to Belgium, Belgium exports 300 euros worth of chocolate to the Netherlands, and the Netherlands exports 700 euros worth of tulips to Italy. Adding the trade balances of all three countries adds up to _____ euros.
0 -NX=Net Capital Outflow
The steady-state level of capital occurs when the change in the capital stock per worker (Δk) equals:
0.
For the production function Y = K^0.5 L^0.5, output is 100 when K = L = 100. In this case, the marginal product of labor is:
0.5
When the labor force consists of 180 million people and 162 million people are employed, the unemployment rate is _____ percent.
10
Suppose that the pizza demand function is D(P, Y) = 60 − 10P + 2Y, and the pizza supply function is S(P, Pm) = 20P − 20Pm, where P is the price of pizza, Y is aggregate income, and Pm is the price of materials. If Y = 70 and Pm = 5, then the equilibrium quantity is:
100
A small open economy has exports valued at 8,000 million pesetas, imports valued at 7,000 million pesetas, and investment valued at 5,000 million pesetas. In this case, net capital outflow is _____ million pesetas.
1000
In the nation of Erewhon, 10 million workers are unemployed, and 140 million workers are employed. The total population is 300 million, and the population that is aged 16 and older is 200 million. The labor force of Erewhon is _____ million workers.
150
Suppose that the money supply is $100 billion and the government is facing a $20 billion budget deficit that it intends to finance fully through seigniorage. If there is no change in the real gross domestic product (GDP) and the velocity, then there will MOST likely be a _____ percent rise in the price level.
20
In the country of Beluxia, the job-finding rate is 0.49, and the natural rate of unemployment is 12.5 percent. The job-separation rate is about _____ percent (rounded to the nearest integer).
7
At a minimum wage of $7.25 per hour, a person working 40 hours per week would have to work for about _____ (nearest integer) weeks to earn $23,850, the 2014 official poverty level of a family of four in the United States.
82
The growth rate of a labor force is 0.03, and in 2020, 80 million people are working. At this rate, in 2021, _____ million people will be working.
82.4
Compared to inflation, in which ways will hyperinflation MOST likely affect menu costs and shoeleather costs?
Both will increase.
When wages simultaneously function as the price for labor services and a motivation device to elicit more effort from workers, the labor market is not perfectly competitive. This deviation from the competitive benchmark arises because of:
asymmetric information.
Assume that a war reduces a country's labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will ______, and output per worker will ______ as it returns to the steady state.
decline; decrease
From 2001 to 2003, the establishment survey showed a(n) _____ in employment, and the household survey showed a(n) _____ in employment.
decline; increase
Net capital outflow in a large country:
declines as the domestic interest rate rises.
If the monetary base doubles but the money supply stays the same, the money multiplier will:
decrease by half.
Using the quantity equation and the Fisher equation, a 1 percent decrease in the rate of growth of the money supply MOST likely will cause a 1 percent:
decrease in the inflation rate and the nominal interest rate.
If the Federal Reserve wanted to use the Term Auction Facility (TAF) to _____ the money supply, it would _____ the funds available in the TAF.
decrease; decrease
Other things equal, when domestic inflation is higher than foreign inflation, the nominal exchange rate MOST likely will _____, which implies that the domestic currency will _____.
decrease; depreciate -Higher inflation leads to a depreciating currency, which means a lower exchange rate.
Between 2007 and 2017, the U.S. labor-force participation rate:
decreased markedly
When government borrowing increases, then national savings will fall and the real interest increases; this MOST likely _____ the quantity demanded of investment.
decreases
Other things equal, when the real interest rate rises, a number of investment projects become unprofitable, and investment spending in the economy:
decreases.
The price received by each factor of production is determined by:
demand and supply of factors.
The marginal propensity to consume is the increase in consumption when:
disposable income increases by one dollar.
Net capital outflow is equal to the amount that:
domestic investors lend abroad minus the amount that foreign investors lend here.
Economists skeptical of Edward Prescott's conclusion that the large differences between the U.S. labor supply and those of Germany and France are explained by differences in tax systems argue that to explain the difference in hours worked by tax rates alone requires an implausibly large:
elasticity of labor supply
Suppose that a country has the money demand function (M / P)^d = Y / (5i). With constant real gross domestic product of 1,000, the demand for real balances would _____ if the nominal interest rate rose from 2 percent to 2.5 percent. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices
fall by 20 -The demand for real balances would fall if the nominal interest rate rose from 2 percent to 2.5 percent.
The price of a good is observed to rise at the same time that the quantity purchased falls. This can be explained by a _____ the good.
fall in supply of
The government purchases component of GDP includes all of the following except:
federal spending on transfer payments.
GDP is the market value of all ______ goods and services produced within an economy in a given period of time.
final
In microeconomics, when economists state that households and firms "optimize," they mean that:
firms make production decisions to maximize their profits and households maximize their utility.
Changes in the level of G and/or T made by the government are called _____ policy.
fiscal
Exchange rates, or the price of one currency relative to another currency, adjust continuously in order to clear the market. Exchange rates are considered _____ prices.
flexible
In the circular flow diagram, firms receive revenue from the _____ market, which is used to purchase inputs in the _____ market.
goods; factor
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
From 2007 to 2014, the U.S. monetary base increased about 400 percent but M1 increased by only about 100 percent. This occurred because banks wanted to:
hold more reserves during the financial crisis and economic downturn of this period.
The formulation of the quantity equation that is more commonly used is the one that uses the:
income velocity of money.
Suppose that the average individual argues that his or her wage increase is greatly diminished by inflation. According to the text, this person is probably _____ because the nominal value of his or her raise would have been _____.
incorrect; smaller if there had been no inflation -The assumption that the individual makes is that if there were no inflation, then he or she would receive the same raise and be able to buy more goods; according to the text, this is a fallacy.
During recessions, the average duration of unemployment tends to:
increase
Bill's Widgets pays wages that are above the market equilibrium level and succeeds in substantially reducing turnover and increasing effort among its workforce. These higher wages are MOST likely to:
increase firm profit, so firms do not have an incentive to lower wages, and structural unemployment will persist.
Firms pay workers a wage above the market equilibrium for all of the following reasons EXCEPT to:
increase labor turnover to keep morale high.
A policy of increasing the age at which workers can collect retirement payments through a social security system MOST likely would _____ in a country.
increase the total number of hours worked
An increase in the number of bank failures will MOST likely cause the currency-deposit ratio to:
increase.
A Brazilian company exports 5 million reais (Brazilian currency) worth of granite to the Arizona Tile company in the United States. The Brazilian company is paid in reais that the Arizona Tile company bought from a U.S. bank. In this case, Brazilian net exports increase, Brazilian net capital outflows _____, U.S. net exports _____, and U.S. net capital outflows decrease.
increase; decrease
Across countries of Europe, greater spending on unemployment insurance tends to _____ unemployment, and more "active" labor-market policies tend to _____ unemployment.
increase; decrease
The advent of Internet job sites that match employers and employees MOST likely will _____the rate of job finding and _____the steady-state rate of unemployment.
increase; decrease
As the economy recovered following the economic downturn of 2007-2008, some observers were concerned that banks would reduce their holdings of excess reserves by making loans. In response to this problem, the Federal Reserve decided to _____ the interest paid on reserves in order to _____ bank lending.
increase; discourage
Other things constant, a nominal appreciation of the domestic currency will _____ the real exchange rate and lead to _____ net exports.
increase; fewer -A lower real exchange rate implies cheaper domestic goods, which will lead to more purchases of domestic goods by foreign countries.
Expansionary fiscal policies in foreign countries will cause the world interest rate to _____ and the trade balance in the small open economy to _____.
increase; increase -Either tax cuts or increases in government purchases abroad will reduce world savings.
Assume that the production function is Cobb-Douglas with parameter = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:
increases by about 7 percent.
Deposit insurance promote a financial system's stability because it prevents large:
increases or decreases in the currency-deposit ratio.
Government policies that reduce frictional unemployment include:
increasing the level of experience rating of unemployment insurance.
National saving represents the amount of output that has not been claimed by consumers and the government. In equilibrium, in the closed economy, national saving must equal:
investment.
When the real interest rate changes, demand for goods and services is affected because of changes in:
investment.
In a closed economy, an increase in domestic government purchases tends to decrease _____; in a small open economy, an increase in domestic government purchases tends to decrease _____.
investment; net exports -In a small open economy, the reduction in saving caused by the rise in government purchases reduces net exports.
If the expected inflation rate is 5 percent and the nominal interest rate is 8 percent, then the ex ante real interest rate:
is 3 percent.
If the expected inflation rate is 4 percent and the nominal interest rate is 9 percent, then the ex ante real interest rate:
is 5 percent.
One reason for unemployment is that:
it takes time to match workers and jobs.
In a 100-percent-reserve banking system, banks:
keep all deposits as reserves.
The _____ is the percentage of the adult population that is in the labor force.
labor-force participation rate
Expectations of higher inflation in the future will MOST likely:
lead to a higher price level today.
If the production function is y = k^1/2, s = 0.4, and δ = 0.05, then the steady-state level of capital per worker is _____ the Golden Rule level.
less than
If the production function is y = k^1/2, s = 0.4, n = 0.02, and δ = 0.08, then the steady-state level of capital per worker is _____ the Golden Rule level.
less than
The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports.
less; greater
Since the early 1980s, inflation in the United States has been relatively _____ and relatively _____.
low; stable
If two countries, Enlad and Flora, have identical production functions and saving rates but Enlad has a higher rate of depreciation than Flora, then Enlad will have _____ per worker in steady state.
lower saving
In the United States, real GDP per person:
measures the income of the average person in the economy adjusted for changes in the level of prices.
The percentage change of a ratio of two variables is approximately the percentage change in the numerator _____ the percentage change in the denominator.
minus
The real return on holding money is
minus the inflation rate.
Macroeconomists call assets used to make transactions:
money.
Thomas Malthus anticipated that:
more than 1 billion people in the world might live on less than 1 dollar a day in 2006 and that 2.7 billion (the equivalent of the entire population of the world in 1955) would struggle to survive on less than 2 dollars per day.
In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital in the steady state grows at rate ______, and output grows at rate ______ in the steady state.
n;n
All else equal, a _____ in taxes would _____ by the marginal propensity to consume multiplied times the amount of the reduction in taxes.
reduction; increase consumption
In a small open economy, if consumers shift their preference toward Japanese cars, then net exports:
remain unchanged, but the real exchange rate falls.
The price of a good is observed to fall at the same time that the quantity purchased rises. This can be explained by a _____ the good.
rise in supply of
The price of a good is observed to fall at the same time that the quantity purchased rises. This can be explained by a _____ the good.
rise in the supply of
A country that experiences hyperinflation often has a large budget deficit and is usually financing them with:
seigniorage.
When the capital stock per worker is greater than the steady-state capital stock per worker, the capital stock per worker will:
shrink because depreciation exceeds investment.
The consumption decisions made by households are _____ in macroeconomics.
studied more in microeconomics than
The percentage change of a product of two variables is approximately the _____ of the percentage changes in each of the variables.
sum
Which item would be MOST likely to be characterized as fiat money?
the US half-dollar coin
A Brazilian company exports 5 million reais (Brazilian currency) worth of granite to the Arizona Tile company in the United States. The Brazilian company is paid in U.S. dollars, with which Brazil purchases U.S. Treasury bonds. As a result:
the United States experiences a capital inflow.
According to the text, _____ is an example of a setting in which trade deficits were MOST likely caused by low public savings.
the United States in the 1980s
According to the text, one suggested solution to the different employment measures in the household survey and the establishment survey is to use:
the average of both surveys.
One possible reasons for the rise in income inequality in the United States since the early 1970s is:
the increased gap between the earnings of skilled and unskilled workers.
One efficiency-wage theory implies that firms pay high wages because:
the more a firm pays its workers, the greater their incentive to stay with the firm.
The ratio of labor income to total income in the United States has been approximately constant at about 2/3 since 1960. This means that all of the following are true EXCEPT that:
the personal income distribution in the United States has not changed.
Inflation ______ the variability of relative prices and ______ the efficiency of the allocation of resources.
Increases;decreases
According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their:
Marginal productivities
Macroeconomists call assets used to make transactions:
Money
According to the quantity theory of money, which will cause a 10 percent inflation?
Money supply increases by 5 percent, real GDP contracts by 5 percent, and velocity is constant.
Variables expressed in terms of money are called ______ variables.
Nominal
_____ variables are variables expressed in terms of money; they include the price level, the inflation rate, and the dollar wage that a person earns.
Nominal
Which is an example of commodity money?
Salt
Which are included in M2 but not included in M1?
Saving deposits are included in M2 but not in M1.
_____ unemployment exists when there are more people seeking jobs in a labor market than there are jobs available at the current wage.
Structural
Based on these balance sheets, bank regulators would consider _____ to be safer and less likely to be a victim of a bank run.
The bank with less loans dispersed
Suppose that a new technology, such as payment using telephones instead of money, has just been introduced and is gaining popularity. How will this affect the money demand variable k and the money velocity V?
The money demand parameter will decrease, and the velocity will increase. -The introduction of payments via telephone instead of money would cause people to decrease their average money holdings, implying an increase in velocity V = 1 / k.
_____ predicted that the pressures of an increasing population would cause extended poverty.
Thomas Malthus
When a foreign corporation produces automobiles in Alabama and employs foreign engineers, the compensation paid to these engineers is part of _____ GDP and _____ GNP.
U.S.; the foreign
When a competitive firm hires an additional worker:
W is constant, P is constant, and MPL changes.
Suppose that the Federal Reserve announces a higher money supply in the future but does not change the money supply today. This means that, MOST likely, the price level:
Will increase today
Which question would MOST likely be studied by macroeconomists?
Will more government spending reduce the unemployment rate?
Identify the production function that does NOT exhibit constant returns to scale.
Y = K^0.3 L^0.8
The effect of a 3 percent nominal wage cut (with no inflation) on real wages is the same as receiving:
a 4 percent wage increase during times of 7 percent inflation.
An important factor in the evolution of commodity money to fiat money is:
a desire to reduce transaction costs.
Banks create money in:
a fractional-reserve banking system but not in a 100-percent-reserve banking system.
The ex post real interest rate will be greater than the ex ante real interest rate when the:
actual rate of inflation is less than the expected rate of inflation.
The changes in the price level of _____ are studied in macroeconomics.
all countries
If bread is produced using a constant returns to scale production function, then if the:
amounts of equipment and workers are both doubled, twice as much bread will be produced.
The adoption of an investment tax credit in a small open economy is likely to lead to:
an increase in domestic investment but no change in domestic saving.
The members of the U.S. Federal Reserve Board of Governors are:
appointed by the president of the United States and confirmed by Congress.
In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:
Remains the same
Transitions into and out of the labor force:
make the interpretation of unemployment statistics complicated.
When _____, the _____ rate tends to decrease.
inflation increases; unemployment
A bank "creates" money by:
taking deposits and making loans.
When S > I for a country,
this country is running a trade surplus.
The money supply consists of:
Currency plus demand deposits
Which of the following is an example of frictional unemployment?
Dave searches for a new job after voluntarily moving to San Diego.
According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:
Decrease
Some countries experiencing hyperinflation choose to print money rather than finance their deficits by issuing debt because:
a government may be unable to borrow even if it wants to because the government is deemed a credit risk. -Once the hyperinflation is under way, fiscal problems become even more severe; because of the delay in collecting tax payments, real tax revenue falls as inflation rises, and so the government's need to rely on seigniorage becomes self-reinforcing.
An increase in the saving rate will have:
a level effect but no growth effect.
If two countries, Cheli and Dunland, have identical production functions and saving rates, but Cheli has a higher rate of depreciation than Dunland, then Cheli will have _____ in the steady state.
a lower capital per worker ratio
Credit cards are:
a method of deferring payment.
Exogenous variables are variables that:
a model takes as given.
All of the following are possible reasons for the rise in income inequality in the United States since the early 1970s EXCEPT
a slowdown in the pace of technological progress.
Which is/are considered currency?
both coins and paper bills.
Economists can calculate the U.S. unemployment rate by using:
both the household survey and the establishment survey.
The amount of investment that keeps the stock of capital per worker constant is called _____ investment.
break-even
To increase the money supply, the Federal Reserve:
buys government bonds
Unlike the real world, the classical model with fixed output assumes that:
capital and labor are fully utilized.
Collective bargaining agreements can be made at the firm level, the industry level, and the national level. These different types of bargaining differ with respect to the role that outsiders play in the bargaining process. The greater the role of outsiders, the more likely the wage is close to the equilibrium wage. In Sweden, negotiated wages are MOST likely to be _____ equilibrium wages.
close to
The Solow growth model assumes that the production function has _____ returns to scale.
constant
The Solow growth model assumes a production function with
constant returns to scale and a diminishing marginal product of capital
The PCE deflator is based on only the _____ component of GDP.
consumption
A person with two paying jobs is _____ in the household survey.
counted once
The "Free Silver" movement in the United States in the late nineteenth century proposed that the:
country adopt a monetary system that used both gold and silver as money.
A decrease in the confidence of consumers in the banking system caused by bank failures would cause the _____ ratio to increase and the money multiplier to _____.
currency-deposit; decrease
The GDP deflator measures _____ prices relative to _____ prices. Please choose the correct answer from the following choices, and then select the submit answer button.
current; base-year
Money is a perfect store of value when the economy is experiencing:
neither inflation nor deflation.
In a system with 100-percent-reserve banking:
no banks can make loans using deposits made at their institutions.
A small open economy can be described by ε = 4, NX = 1,000 − 100ε, and S − I = 500. This economy is _____ equilibrium, and the real exchange rate will _____.
not in; adjust
The production function in Figure 8-1 in the text, y = f(k), implies that as k increases:
output per worker increases at a decreasing rate.
Centralized union wage bargaining with government intervention in Sweden gives relatively more influence to ______, while firm-level union wage bargaining in the United States gives relatively more influence to ______.
outsiders; insiders
In the United States, most state unemployment insurance systems were _____ experience rated in 2015.
partially
Data for the United States indicate that real wage growth is _____ the growth in labor productivity.
positively correlated with
The economist Olivier Blanchard has suggested that that the large differences between the U.S. labor supply and those of Germany and France are explained by differences in:
preferences for leisure. -Edward Prescott believed that "virtually all of the large differences between U.S. labor supply and those of Germany and France are due to differences in tax systems."
The definition of the transactions velocity of money is:
prices multiplied by transactions divided by money.
The right of seigniorage is the right to:
print money
Y − C − T is _____ saving, while T − G is _____ saving.
private; public
If a household has a lower marginal propensity to consume the higher its disposable income, then the consumption function for the household has a shape similar to that of the:
production function.
Economic growth since 2009 has been lower than normal because:
the recovery from the Great Recession have been very slow.
Since 2009 the unemployment rate has generally been higher than normal because:
the recovery from the Great Recession have been very slow.
According to the text, economists generally do not support restrictive trade policies because:
those policies reduce the volume of trade, which reduces the possible gains from trade.
Since 2013, in the national income accounts, spending on the acquisition of intellectual capital is:
treated as investment.
When a person knows that three one-dollar bills can buy a gallon of gasoline when the price of a gallon of gasoline is $3.00, then that person understands that money can serve as a:
unit of account.
According to the text, capital moves from poor countries with low capital-labor ratios to rich countries with high capital-labor ratios for all of the following reasons EXCEPT:
wealthy bankers in rich countries are unlikely to care about making money in poor countries.
According to the text, capital moves from poor countries with low capital-labor ratios to rich countries with high capital-labor ratios for all of the following reasons EXCEPT:
wealthy bankers in rich countries are unlikely to care about making money in poor countries. -According to the text, a person who lives in a poor nation and is lucky enough to have some wealth to invest might decide that putting it in a safe country like the United States is his or her best option, even if capital is less valuable there than in the home country.