ECON 3311 Final Exam Review (CH 1-12)

The CPI is a:

Laspeyres price index.

Which of the panels illustrates the impact of contractionary fiscal policies at home on the real exchange rate?

(Graph A in the image)

If total investment measured in billions of current dollars equals $741, business fixed investment is $524, and residential fixed investment is $222, then inventory investment is:

-$5

If income is 4,800, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, public saving is:

-200

Assume that equilibrium GDP ( Y) is 5,000. Consumption ( C) is given by the equation C = 500 + 0.6( Y - T). Taxes ( T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

1,500

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent.

2

If the consumption function is given by C = 500 + 0.5( Y - T), and Y is 6,000 and T is given by T = 200 + 0.2 Y, then C equals:

2,800.

If 5 Swiss francs trade for $1, the U.S. price level equals $1 for a good, and the Swiss price level equals 2 francs for the same good, then the real exchange rate between Swiss goods and U.S. goods is ______ Swiss good(s) per U.S. good.

2.5

The Golden Rule level of steady-state investment per worker is:

BC.

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow.

deficit; negative

The unemployment rate:

has never been zero in the United States.

According to Olivier Blanchard, Europeans are more likely to use increases in real wages resulting from technological progress to increase ______, and Americans are more likely to use these increases in real wages to increase ______.

hours of leisure; consumption of goods and services

An increase in taxes lowers income:

in the short run but leaves it unchanged in the long run, while lowering consumption and increasing investment.

According to the IS- LM model, when the government increases taxes and government purchases by equal amounts:

income and the interest rate rise, whereas consumption and investment fall.

In the classical model with fixed income, if households want to save more than firms want to invest, then:

the interest rate falls.

If an increasing proportion of the adult population is retired, then the laborforce participation rate:

will decrease

Assume that equilibrium GDP ( Y) is 5,000. Consumption ( C) is given by the equation C = 500 + 0.6 Y. Investment ( I) is given by the equation I = 2,000 - 100 r, 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 percent

If MPC = 0.6 (and there are no income taxes) when G increases by 200, then the IS curve for any given interest rate shifts to the right by:

500

The index of leading indicators compiled by the Conference Board includes 10 data series that are used to forecast economic activity about ______ in advance.

6 to 9 months

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

7 percent

Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the longterm unemployed?

9 percent

Open-market operations are:

Federal Reserve purchases and sales of government bonds.

In a system with fractional-reserve banking:

all banks must hold reserves equal to a fraction of their deposits.

Real money balances equal the:

amount of money expressed in terms of the quantity of goods and services it can purchase.

In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:

capital equals the depreciation rate.

In the Keynesian-cross model, fiscal policy has a multiplying effect on income because fiscal policy:

changes income, which changes consumption, which further changes income.

If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

both Central Bank A and Central Bank B should increase the quantity of money.

The reserve-deposit ratio is determined by:

business policies of banks and the laws regulating banks.

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would:

crowd out between zero and $10 billion of investment.

If the production function is Y = AK 2/3 L 1/3 in the land of Antegria, and the labor force increases by 5 percent while capital is constant, labor productivity, measured by Y / L, will:

decrease by 3.33 percent.

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

capital

Unlike the real world, the classical model with fixed output assumes that:

capital and labor are fully utilized.

If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP ______ by ______ percent.

increased; 2

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.

An IS curve shows combinations of:

interest rates and income that bring equilibrium in the market for goods and services.

The currency-deposit ratio is determined by:

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

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would:

raise taxes and cut spending.

If the demand function for money is M / P = 0.2 Y - 200 r, and if M / P increases by 100, then the LM curve for any given interest rate shifts to the:

right by 500

Economists call the changes in the composition of demand among industries and regions:

sectoral shifts.

In the IS- LM model when the Federal Reserve decreases the money supply, the public ______ bonds, and the interest rate ______, leading to a(n) ______ in investment and income. This is called the monetary transmission mechanism.

sell; rises; decrease

In a steady-state economy with a saving rate s, population growth n, depreciation rate δ, and labor-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker ( k*), in terms of output per effective worker ( f ( k*)), is

sf (k) / (δ + n + g).

Policies to substantially reduce the natural rate of unemployment should be targeted at:

the long-term unemployed.

Suppose that GDP ( Y) is 5,000. Consumption ( C) is given by the equation C= 500 + 0.5( Y - T). Investment ( I) is given by the equation I = 2,000 - 100 r, where r is the real interest rate, in percent. Government spending ( G) is 1,000, and taxes ( T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100 r:

/ is unchanged and r rises by 10 percentage points.

Assume that an economy described by the Solow model is in a steady state with output and capital growing at 3 percent and labor growing at 1 percent. The capital share is 0.3. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are:

0.9 percent, 0.7 percent, and 1.4 percent, respectively.

Assume that the money demand function is ( M / P)^d = 2,200 - 200 r, where r is the interest rate in percent. If the price level is fixed at P=2, and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at:

1,600.

Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2004 prices. Given these data, a Laspeyres price index of 2009 prices using 2004 as the base year would be:

1.50

Assume that equilibrium GDP ( Y) is 5,000. Consumption ( C) 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 - 100 r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is:

13 percent

If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is:

17.5 percent.

If Y = K 0.3 L 0.7, then the per-worker production function is:

Y / L = (K / L)^0.3

If consumption is given by C = 200 + 0.75( Y - T) and investment is given by I = 200 - 25 r, then the formula for the IS curve is:

Y = 1,600 - 3T - 100r + 4G.

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate, then:

a rise in money growth leads to a fall in consumption and a rise in investment.

Assume that a war breaks out abroad, and foreign investors choose to invest more in a large safe country, the United States. Then, the U.S. real interest rate:

and net exports will both fall.

Assume that the money demand function is ( M / P)^d = 2,200 - 200 r, where r is the interest rate in percent. The money supply M is 2,000, and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

drop by 2 percent.

In a small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate:

falls, and net exports rise.

In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate:

falls, while the real exchange rate rises and net exports fall.

Differences in factor accumulation and/or differences in production efficiency must account for all international differences in:

income per person.

If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed.

increase

If the nominal interest rates in the United States and Canada are 8 percent and 12 percent, respectively, the real interest rates are the same, and the real exchange rate is fixed, then the market's expectation about the number of Canadian dollars to be received for a U.S. dollar a year from now will be that it will:

increase by 4 percent.

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in:

inflation of 1 percent and the nominal interest rate of 1 percent.

A small open economy with perfect capital mobility is characterized by all of the following except that:

its domestic interest rate always exceeds the world interest rate.

With a per-worker production function y = k^1/2, the steady-state capital stock per worker ( k*) as a function of the saving rate ( s) is given by:

k* = (s / δ)2.

A given increase in taxes shifts the IS curve more to the left the:

larger the marginal propensity to consume.

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

low; falls short of

If an economy moves from a steady state with positive population growth to a zero population growth rate, then in the new steady state, total output growth will be ______, and growth of output per person will be ______.

lower; the same as it was before

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:

make loans to foreigners.

If a country has a high rate of inflation relative to the United States (holding the real exchange rate fixed), the dollar will buy:

more of the foreign currency over time.

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's:

need to generate revenue to pay for spending.

Credit card balances are included in:

neither M1 nor M2.

The type of legal system and the level of corruption in a country have been found to be:

significant determinants of the rate of economic growth in a country.

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

there is a conflict between where spending on infrastructure would benefit employment and where infrastructure is most needed.