ECON 3312 midterm

. 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: a. $5. b. $6.50. c. $9.50. d. $11.

$6.50.

Which of the panels illustrates the impact of an increase in investment demand on the real exchange rate? a. (A) b. (B) c. (C) d. (D)

(C)

Which of the panels illustrates the impact of protectionist trade policies on the real exchange rate? a. (A) b. (B) c. (C) d. (D)

(D)

. In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: a. −$25 billion. b. -$10 billion. c. $10 billion. d. $25 billion.

-$10 billion.

Assume that the production function is Cobb-Douglas with parameter a = 0.3. If capital and labor are paid their marginal products, they receive the shares of income: a. 0.3 and 0.3. b. 0.7 and 0.7. c. 0.3 and 0.7. d. 0.7 and 0.3.

0.3 and 0.7.

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by: a. 0.15 units. b. 0.5 units. c. 0.85 units. d. 1 unit.

0.85 units.

Bank Balance Sheet Assets Liabilities and Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Based on the table, what is the reserve-deposit ratio at the bank? a. 3 percent b. 5 percent c. 10 percent d. 15 percent

10 percent

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 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is: a. 5 percent. b. 8 percent. c. 10 percent. d. 13 percent.

13 percent.

38. If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals _____ percent. a. 50 b. 58 c. 60 d. 67

60

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real gross domestic product (GDP) must be _____ percent. a. 3 b. 4 c. 9 d. 11

3

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K= 100 and L = 100, then C equals: a. 1,000. b. 2,500. c. 3,000. d. 5,000.

3,000.

Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to: a. 0 percent. b. 3.5 percent. c. 5 percent. d. 7.5 percent.

3.5 percent.

Bank Balance Sheet Assets Liabilities and Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Based on the table, what is the leverage ratio at the bank? a. 3 b. 4.67 c. 5 d. 10

5

39. In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by: a. borrowing from abroad. b. borrowing from domestic banks. c. the domestic government. d. the World Bank.

a. borrowing from abroad.

. 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. a. deficit; negative b. surplus; positive c. deficit; positive d. surplus; negative

a. deficit; negative

48. Variables that a model tries to explain are called: a. endogenous. b. exogenous. c. market clearing. d. fixed.

a. endogenous.

The marginal propensity to consume is: a. expected to be between zero and one. b. equal to disposable income divided by consumption. c. the amount by which consumption changes when wealth increases by one dollar. d. normally assumed to increase as taxes increase.

a. expected to be between zero and one.

49. Skill-biased technological change _____ the demand for high-skilled workers, while a slowdown in the pace of educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _____ wages for skilled workers. a. increases; higher b. increases; lower c. decreases; higher d. decreases; lower

a. increases; higher

In a large open economy, the real interest rate is determined by: a. national saving, the domestic investment function, and the net capital outflow function. b. national saving, the domestic investment function, and the net exports function. c. the domestic investment function, the net capital outflow function, and the net exports function. d. national saving, the domestic investment function, the net capital outflow function, and the net exports function.

a. national saving, the domestic investment function, and the net capital outflow function

46. In a closed economy, Y - C - G equals: a. national saving. b. private saving. c. public saving. d. financial saving.

a. national saving.

Which of the panels illustrates the impact of an increase in household saving on the real exchange rate? a. (A) b. (B) c. (C) d. (D)

a. (A)

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is _____ the equilibrium rate, and in the next period it will move _____ the equilibrium rate. a. above; toward b.above; away from c. below; toward d. below; away from

a. above; toward

In examining the impact of fiscal policy, it is assumed that: a. consumption, investment, and the interest rate are endogenous variables. b. consumption, investment, and the interest rate are exogenous variables. c. government purchases, taxes, and interest rates are endogenous variables. d. government purchases, taxes, and interest rates are exogenous variables.

a. consumption, investment, and the interest rate are endogenous variables.

Assume that the consumption function is given by C = 150 + 0.85 (Y - T) and the tax function is given by T = t0 + t1Y. If t0 increases by 1 unit, then consumption: a. decreases by 0.85 units. b. decreases by 0.15 units. c. increases by 0.15 units. d. increases by 0.85 units.

a. decreases by 0.85 units.

In the long run, the level of national income in an economy is determined by its: a. factors of production and production function. b. real and nominal interest rate. c. government budget surplus or deficit. d. rate of economic and accounting profit.

a. factors of production and production function.

Real gross domestic product (GDP) _____ over time, and the growth rate of real GDP _____. a. grows; fluctuates b. is steady; is steady c. grows; is steady d. is steady; fluctuates

a. grows; fluctuates

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the _____ interest rate tends to be _____. a. nominal; high b. nominal; low c. real; high d. real; low a. nominal; high b. nominal; low c. real; high d. real; low

a. nominal; high

All of these are types of macroeconomics data EXCEPT the: a. price of a computer. b. growth rate of real gross domestic product (GDP). c. inflation rate. d. unemployment rate.

a. price of a computer.

Which of these is a stock variable? a. wealth b. consumption c. investment d. income

a. wealth

42. If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is _____ the equilibrium rate, and in the next period it will move _____ the equilibrium rate. a. above; toward b. above; away from c. below; toward d. below; away from

above; toward

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

actual rate of inflation is less than the expected rate of inflation.

100. The price received by each factor of production is determined by demand: a. for output and supply of factors. b. for factors and supply of output. c. and supply of output. d. and supply of factors.

and supply of factors.

Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to: a. 0 percent. b. 3.5 percent. c. 5 percent. d. 7.5 percent

b. 3.5 percent.

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: a. constant marginal product of labor. b. increasing marginal product of labor. c. constant returns to scale. d. increasing returns to scale.

c. constant returns to scale.

Starting from a small open economy with balanced trade, if large foreign countries increase their domestic government purchases, this policy will tend to increase: a. investment in the small open economy. b. saving in the small open economy. c. exports by the small open economy. d. imports by the small open economy.

c. exports by the small open economy.

The demand for real money balances is generally assumed to: a. be exogenous. b. be constant. c. increase as real income increases. d. decrease as real income increases.

c. increase as real income increases.

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when: a. real interest rates are high. b. real interest rates are low. c. labor productivity is growing rapidly. d. capital's share of income is growing rapidly.

c. labor productivity is growing rapidly.

Over the last five decades, the wage of _____ workers has grown relative to the wage of _____ workers. a. essential; non-essential b. non-essential; essential c. skilled; unskilled d. unskilled; skilled

c. skilled; unskilled

The inflation rate is a measure of how fast: a. the total income of the economy is growing. b. unemployment in the economy is increasing c. the general level of prices in the economy is rising. d. the number of jobs in the economy is expanding.

c. the general level of prices in the economy is rising.

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect _____ to increase. a. reserve requirements b. the discount rate c. the money supply d. the reserve-deposit ratio

c. the money supply

Examples of "active" labor-market policies include all of these EXCEPT: a. job-search assistance. b. subsidized employment. c. unemployment insurance. d. job-training programs.

c. unemployment insurance.

Unlike the real world, the classical model with fixed output assumes that: a. capital and labor are fully utilized. b. all capital is fully utilized, but some labor is unemployed. c. all labor is fully employed, but some capital lies idle. d. some capital lies idle, and some labor is unemployed.

capital and labor are fully utilized.

81. To increase the monetary base, the Fed can: a. conduct open-market purchases. b. conduct open-market sales. c. raise the interest rate paid on reserves. d. lower the required reserve ratio.

conduct open-market purchases.

The economic statistic used to measure the level of prices is: a. gross domestic product (GDP). b. consumer price index (CPI). c. gross national product (GNP). d. real GDP.

consumer price index (CPI).

94. In the national income accounts, the purchases of durables, nondurables, and services by households are classified as: a. consumption. b. investment. c. government purchases. d. net exports.

consumption

30. Nominal gross domestic product (GDP) means the value of goods and services is measured in _____ prices. a. current b. real c. constant d. average

current

59. The earned income tax credit: a. increases the government's tax revenue. b. reduces the incomes of poor working families. c. does not raise labor costs. d. is not an alternative to raising the minimum wage.

does not raise labor costs.

43. The investment function slopes _____ because there are _____ investment projects that are profitable as the interest rate decreases. a. upward; fewer b. upward; more c. downward; fewer d. downward; more

downward; more

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

is a theory of how national income is divided among the factors of production.

Disposable personal income: a. is computed by subtracting personal tax from personal income. b. is generally greater than personal income. c. includes corporate profits but not dividends. d. does not include government transfers to individuals.

is computed by subtracting personal tax from personal income.

The world interest rate: a. is equal to the domestic interest rate. b. makes domestic saving equal to domestic investment. c. is the interest rate charged on loans by the World Bank. d. is the interest rate prevailing in world financial markets.

is the interest rate prevailing in world financial markets.

Transitions into and out of the labor force: a. rarely occur. b. do not affect unemployment statistics. c. make the interpretation of unemployment statistics complicated. d. reduce the amount of frictional unemployment.

make the interpretation of unemployment statistics complicated.

26. Money's liquidity refers to the ease with which: a. coins can be melted down. b. illegally obtained money can be laundered. c. loans can be floated. d. money can be converted into goods and services.

money can be converted into goods and services.

15. An example of a nominal variable is the: a. money supply. b. quantity of goods produced in a year. c. relative price of bread. d. real wage.

money supply.

97. Data on unemployment in the United States show that: a. most spells of unemployment are long. b. most weeks of unemployment are attributable to the long-term unemployed. c. members of the labor force over age 55 have the highest unemployment rates. d. the duration of unemployment falls during recessions.

most weeks of unemployment are attributable to the long-term unemployed.

60. In equilibrium, total investment equals: a. private saving. b. public saving. c. national saving. d. household saving.

national saving.

The annual inflation rate in the United States averaged: a. nearly zero between 1900 and 1950. b. nearly zero between 1950 and 2000. c. about 10 percent between 1900 and 1950. d. about 10 percent between 1950 and 2000.

nearly zero between 1900 and 1950.

The real exchange rate is determined by the equality of: a. saving and the demand for net exports. b. investment and the demand for net exports. c. net capital outflow and the demand for net exports. d. the negative value of net capital outflow and the demand for net exports.

net capital outflow and the demand for net exports.

79. In the national income accounts, consumption expenditures include all of these EXCEPT household purchases of: a. durable goods. b. nondurable goods. c. new residential housing. d. services.

new residential housing.

58. An expansionary fiscal policy leads to _____ in investment spending for a small open economy, while it leads to _____ in investment spending for a large open economy. a. a decrease; no change b. no change; decrease c. a decrease; an increase d. a decrease; a decrease

no change; decrease

. If purchasing-power parity holds, then changes in domestic saving will _____ the real exchange rate. a. increase b. decrease c. not change d. either increase or decrease

not change

82. The labor force equals the: a. adult population. b. number of employed individuals. c. number of unemployed individuals. d. number of employed and unemployed individuals.

number of employed and unemployed individuals.

72. 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 _____. a. efficiency wages; sectoral shifts b. sectoral shifts; efficiency wages c. insiders; outsiders d. outsiders; insiders

outsiders; insiders

44. Exhibit: Saving, Investment, and the Interest Rate 2 ​ ​ The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods? a. point A b. point B c. point C d. point D

point B

. Wage rigidity: a. forces labor demand to equal labor supply. b. is caused by sectoral shifts. c. prevents labor demand and labor supply from reaching the equilibrium level. d. increases the rate of job finding.

prevents labor demand and labor supply from reaching the equilibrium level.

. National saving is: a. private saving. b. public saving. c. private saving plus public saving. d. private saving minus public saving.

private saving plus public saving.

. When the Federal Reserve conducts an open-market purchase, it buys bonds from the: a. public. b. U.S. Treasury. c. Internal Revenue Service. d. International Monetary Fund.

public.

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

quantity of goods produced in a year.

. Permitting a lower minimum wage for teenagers would likely: a. raise teenage unemployment. b. raise teenage wages overall. c. prevent teenagers from getting job experience. d. raise unemployment among unskilled adults.

raise unemployment among unskilled adults.

5. In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply: a. increases by $100. b. decreases by $100. c. increases by more than $100. d. remains the same.

remains the same.

18. The generosity of unemployment insurance benefits is measured by the: a. replacement rate and the duration of benefits. b. median wage and the unemployment rate. c. price level and duration of unemployment. d. job-finding rate and the job-separation rate.

replacement rate and the duration of benefits.

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, public saving: a. rises by $100 billion. b. rises by $60 billion. c. falls by $60 billion. d. falls by $100 billion.

rises by $100 billion.

91. Over the last five decades, the wage of _____ workers has grown relative to the wage of _____ workers. a. essential; non-essential b. non-essential; essential c. skilled; unskilled d. unskilled; skilled

skilled; unskilled

96. The costs of unexpected inflation, but not of expected inflation, are: a. menu costs. b. the arbitrary redistribution of wealth between debtors and creditors. c. unintended distortions of individual tax liabilities. d. the costs of relative price variability.

the arbitrary redistribution of wealth between debtors and creditors.

33. The theoretical separation of real and monetary variables is called: a. the classical dichotomy. b. monetary neutrality. c. the Fisher effect. d. the quantity theory of money.

the classical dichotomy.

84. In the national income accounts, government purchases are goods and services purchased by: a. the federal government. b. the federal and state governments. c. the state and local governments. d. the federal, state, and local governments.

the federal, state, and local governments.

71. The inflation rate is a measure of how fast: a. the total income of the economy is growing. b. unemployment in the economy is increasing. c. the general level of prices in the economy is rising. d. the number of jobs in the economy is expanding.

the general level of prices in the economy is rising.

All of these are stock variables EXCEPT: a. a consumer's wealth. b. the government budget deficit. c. the number of unemployed people. d. the amount of capital in the economy.

the government budget deficit.

70. If 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: a. it cannot be determined whether the money supply increases or decreases. b. the money supply increases. c. the money supply decreases. d. the money supply does not change.

the money supply decreases.

78. When the unemployment rate is at a steady state: a. no hiring or firings are occurring. b. the number of people finding jobs equals the number of people losing jobs. c. the number of people finding jobs exceeds the number of people losing jobs. d. the number of people losing jobs exceeds the number of people finding jobs.

the number of people finding jobs equals the number of people losing jobs.

57. According to the classical dichotomy, when the money supply decreases, _____ will decrease. a. real gross domestic product (GDP) b. consumption spending c. the price level d. investment spending

the price level

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

the productive capability of the economy; the money supply

In a Cobb-Douglas production function, the marginal product of capital will increase if: a. the quantity of labor increases. b. the quantity of capital increases. c. labor's share of output increases. d. average capital productivity decreases.

the quantity of labor increases.

69. When the real wage is above the level that equilibrates supply and demand: a. the quantity of labor supplied exceeds the quantity demanded. b. the quantity of labor demanded exceeds the quantity supplied. c. there is no unemployment. d. the labor market clears.

the quantity of labor supplied exceeds the quantity demanded.

85. If saving exceeds investment demand, then: a. the demand for loans exceeds the supply of loans. b. the real interest rate will fall. c. the real interest rate will rise. d. saving will fall.

the real interest rate will fall.

4. Frictional unemployment is unemployment caused by: a. wage rigidity. b. minimum-wage legislation. c. the time it takes workers to search for a job. d. clashes between the motives of insiders and outsiders.

the time it takes workers to search for a job.

If net capital outflow is positive, then: a. imports must be positive. b. exports must be negative. c. the trade balance must be positive. d. the trade balance must be negative.

the trade balance must be positive.

Discouraged workers are individuals who: a. have jobs that do not match their skills (for example, a Ph.D. driving a taxi cab). b. have been unemployed for more than 26 weeks. c. call themselves unemployed but are not seriously looking for a job. d. want a job but have given up looking for one.

want a job but have given up looking for one.

Prices of items included in the consumer price index (CPI) are: a. averaged, with the price of every item weighted equally. b. weighted according to the amount of the item produced in gross domestic product (GDP). c. weighted according to the quantity of the item purchased by the typical household. d. chained to the base year by the year-to-year growth rate of the item.

weighted according to the quantity of the item purchased by the typical household.

28. Assume that some large foreign countries decide to subsidize investment by instituting an investment tax credit. Then a small country's real exchange rate: a. will fall, and its net exports will rise. b. will rise, and its net exports will fall. c. and net exports will both fall. d. and net exports will both rise.

will fall, and its net exports will rise.

83. Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be: a. 240. b. 700. c. 760. d. 970.

700.

In the United States, monetary policy is conducted by the: a. president. b. Congress. c. Federal Reserve. d. Treasury Department.

Federal Reserve.

99. The consumer price index (CPI) is a: a. Laspeyres price index. b. Paasche price index. c. Laspeyres quantity index. d. Paasche quantity index.

Laspeyres price index.

80. 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: a. January, February, and March. b. April, May, and June. c. July, August, and September. d. October, November, and December.

October, November, and December.

Which of these would decrease the real exchange rate in a small open economy? a. a personal income tax cut b. a reduction in government spending c. a tariff on imports d. an increase in investment

a reduction in government spending

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: a. inflation of 1 percent and the nominal interest rate of less than 1 percent. b. inflation of 1 percent and the nominal interest rate of 1 percent. c. inflation of 1 percent and the nominal interest rate of more than 1 percent. d. both inflation and the nominal interest rate of less than 1 percent.

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

44. A firm's economic profit is: a. the price of output minus the wage minus the rental price of capital. b. revenue minus costs. c. revenue plus capital costs. d. the price of output minus labor costs.

b. revenue minus costs.

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. a. 3.5 b. 4.7 c. 4.9 d. 7

b. 4.7

Banks create money in: a. a 100-percent-reserve banking system but not in a fractional-reserve banking system. b. a fractional-reserve banking system but not in a 100-percent-reserve banking system. c. both a 100-percent-reserve banking system and a fractional-reserve banking system. d. neither a 100-percent-reserve banking system nor a fractional-reserve banking system.

b. a fractional-reserve banking system but not in a 100-percent-reserve banking system.

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the labor market were always in equilibrium and labor supply is constant, this would lead to: a. a lower real wage and a rise in unemployment. b. a lower real wage and no change in unemployment. c. a lower real wage and less unemployment. d. no change in real wage or in unemployment.

b. a lower real wage and no change in unemployment.

if the underground economy is larger in Europe than in the United States, then the difference in the _____ number of hours worked between Europe and the United States may be smaller than the difference in the _____ numbers of hours worked. a. measured; actual b. actual; measured c. annual; monthly d. monthly; annual

b. actual; measured

If the number of dollars per yen rises, this is called a(n): a. appreciation of the dollar. b. appreciation of the yen. c. increase in the terms of trade. d. decrease in the terms of trade.

b. appreciation of the yen.

Macroeconomic models are used to explain how _____ variables influence _____ variables. a. endogenous; exogenous b. exogenous; endogenous c. microeconomic; macroeconomic d. macroeconomic; microeconomic

b. exogenous; endogenous

The statistic economists use to measure the value of economic output is: a. the consumer price index (CPI). b. gross domestic product (GDP). c. the GDP deflator. d. the unemployment rate.

b. gross domestic product (GDP).

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. a. higher; no change b. higher; an increase c. lower; no change d. lower; an increase

b. higher; an increase

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

b. positively; negatively

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would: a. create additional money. b. raise taxes and cut spending. c. lower taxes and increase spending. d. lower interest rates.

b. raise taxes and cut spending.

An increase in the price of goods bought by firms and the government will show up in: a. the consumer price index (CPI) but not in the gross domestic product (GDP) deflator. b. the GDP deflator but not in the CPI. c. both the CPI and the GDP deflator. d. neither the CPI nor the GDP deflator.

b. the GDP deflator but not in the CPI.

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a: a. store of value. b. unit of account. c. medium of exchange. d. flow of value.

b. unit of account.

In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by: a. borrowing from abroad. b. borrowing from domestic banks. c. the domestic government. d. the World Bank.

borrowing from abroad.

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

c. 5

45. Checking account balances that are linked to debit cards are included in: a. M1. b. M2 only. c. both M1 and M2. d. neither M1 nor M2.

c. both M1 and M2.

47. A production function is a mathematical relationship between: a. factor prices and the marginal product of factors. b. factors of production and factor prices. c. factors of production and the quantity of output produced. d. factor prices and the quantity of output produced.

c. factors of production and the quantity of output produced.

. High-powered money is another name for: a. currency. b. demand deposits. c. the monetary base. d. M2.

c. the monetary base.

According to the quantity equation, if the transactions velocity of money remains constant while the quantity of money doubles, the: a. price of the average transaction must double. b. number of transactions must remain constant. c. price of the average transaction multiplied by the number of transactions must remain constant. d. price of the average transaction multiplied by the number of transactions must double.

d. price of the average transaction multiplied by the number of transactions must double.

ccording to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal a. 1; 5 b. 5; 1 c. 1; 1 d. 5; 5

d. 5; 5

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed: a. only to the labor used in production. b. partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. c. equally between the labor and capital used in production. d. between the labor and capital used in production, according to their marginal productivities.

d. between the labor and capital used in production, according to their marginal productivities.

In a 100-percent-reserve banking system, banks: a. can increase the money supply. b. can decrease the money supply. c. can either increase or decrease the money supply. d. cannot affect the money supply.

d. cannot affect the money supply.

Net capital outflow is equal to the amount that: a. foreign investors lend here. b. domestic investors lend abroad. c. foreign investors lend here minus the amount domestic investors lend abroad. d. domestic investors lend abroad minus the amount that foreign investors lend here.

d. domestic investors lend abroad minus the amount that foreign investors lend here.

1. In a small open economy, if the introduction of automatic teller machines reduces the demand for money, then net exports: a. fall, and the real exchange rate falls. b. fall, but the real exchange rate remains unchanged. c. remain unchanged, but the real exchange rate falls. d. increase, and the real exchange rate remains unchanged.

d. increase, and the real exchange rate remains unchanged.

When people want to hold _____ money, the income velocity of money increases, and the money demand parameter k_____. a. more; increases b. less; increases c. more; decreases d. less; decreases

d. less; decreases

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government raises taxes, holding other factors constant? a. point A b. point B c. point C d. point D

d. point D

An assumption of _____ is more plausible for studying the short-run behavior of the economy, while an assumption of _____ is more plausible for studying the long-run, equilibrium behavior of the economy. a. deflation; inflation b. inflation; deflation c. flexible prices; sticky prices d. sticky prices; flexible prices

d. sticky prices; flexible prices

One of President Trump's first major economic policy initiative after taking office in 2017 was a(n): a. increase in the government spending on defense. b. decrease in government spending on defense. c. increase in the taxes levied on corporations. d. decrease in taxes levied on corporations.

decrease in taxes levied on corporations.

. An increase in the supply of capital will: a. increase the real rental price of capital. b. decrease the real rental price of capital. c. increase the productivity of capital. d. increase the marginal product of capital

decrease the real rental price of capital.

. If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage: a. increased 4 percent. b. increased 2 percent. c. decreased 2 percent. d. decreased 6 percent.

decreased 2 percent.

. Assume that the consumption function is given by C = 150 + 0.85 (Y - T) and the tax function is given by T = t0 + t1Y. Ift0 increases by 1 unit, then consumption: a. decreases by 0.85 units. b. decreases by 0.15 units. c. increases by 0.15 units. d. increases by 0.85 units.

decreases by 0.85 units.

Compared with real gross domestic product (GDP) during a recession, real GDP during a depression: a. increases more rapidly. b. increases at approximately the same rate. c. decreases at approximately the same rate. d. decreases more severely.

decreases more severely.

When the Fed makes an open-market sale, it: a. increases the money multiplier (m). b. increases the currency-deposit ratio (cr). c. increases the monetary base (B). d. decreases the monetary base (B).

decreases the monetary base (B).

39. Bank reserves equal: a. gold kept in bank vaults. b. gold kept at the central bank. c. currency plus demand deposits. d. deposits that banks have received but have not lent out.

deposits that banks have received but have not lent out.

98. The U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with high inflation rates relative to the United States has tended to _____, and the U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with low inflation rates relative to the United States has tended to _____. a. appreciate; appreciate b. appreciate; depreciate c. depreciate; depreciate d. depreciate; appreciate

depreciate; appreciate

53. Exogenous variables are: a. determined outside the model. b. determined within the model. c. the outputs of the model. d. explained by the model.

determined outside the model.

86. With a Cobb-Douglas production function, the share of output going to labor: a. decreases as the amount of labor increases. b. increases as the amount of labor increases. c. increases as the amount of capital increases. d. does not depend on the amount of labor in the economy.

does not depend on the amount of labor in the economy.

64. In a fractional-reserve banking system, banks create money because: a. each dollar of reserves generates many dollars of demand deposits. b. banks have the legal authority to issue new currency. c. funds are transferred from households wishing to save to firms wishing to borrow. d. the wealth of the economy expands when borrowers undertake new debt obligations.

each dollar of reserves generates many dollars of demand deposits.

Macroeconomics is the study of the: a. activities of individual units of the economy. b. decision making by households and firms. c. economy as a whole. d. interaction of firms and households in the marketplace.

economy as a whole.

89. Important characteristics of macroeconomic models include all of these EXCEPT: a. simplifying assumptions. b. functional relationships based on randomized control trials. c. endogenous and exogenous variables. d. implicit or explicit consistency with microeconomic foundations.

functional relationships based on randomized control trials.

10. Public policy to increase the job finding rate includes _____, and public policy to decrease the job separation rate includes _____. a. government employment agencies; higher unemployment insurance benefits b. government employment agencies; 100 percent experience-rated unemployment insurance c. higher minimum wage laws; payment of unemployment benefits for longer periods d. higher efficiency wages; partially experience-rated unemployment insurance

government employment agencies; 100 percent experience-rated unemployment insurance

23. Public saving is: a. income minus consumption minus government spending. b. disposable income minus consumption. c. disposable income minus government spending. d. government revenue minus government spending.

government revenue minus government spending.

The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply. a. smaller; smaller b. smaller; greater c. greater; greater d. greater; smaller

greater; greater

92. Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have _____ rates of inflation and decades of low money growth tended to have _____ rates of inflation. a. high; high b. high; low c. low; low d. low; high

high; low

For a small open economy with perfect capital mobility, when net capital outflow is measured along the horizontal axis and the real interest rate is measured along the vertical axis, net capital outflow is drawn as a: a. vertical line at 0. b. horizontal line at the world real interest rate. c. line that slopes up and to the right. d. line that slopes down and to the right.

horizontal line at the world real interest rate.

. An example of an imputed value in the gross domestic product (GDP) is the: a. value added of meals cooked at home. b. housing services enjoyed by homeowners. c. rental services of automobiles to their owners. d. value of illegal drugs sold.

housing services enjoyed by homeowners.

. If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will _____ the number unemployed. a. increase b. decrease c. not change d. possibly increase, decrease, or leave unchanged

increase

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

increase in taxes.

32. An effective policy to reduce a trade deficit in a small open economy would be to: a. increase tariffs on imports. b. impose stricter quotas on imported goods. c. increase government spending. d. increase taxes.

increase taxes.

93. If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports _____, and U.S. imports _____. a. increase; increase b. decrease; decrease c. increase; decrease d. decrease; increase

increase; decrease

. In the classical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving _____ and private saving _____. a. increases; increases b. increases; does not change c. decreases; increases d. decreases; does not change

increases; does not change

. Which of these is NOT a probable explanation for the increasing wage gap between skilled and unskilled workers? a. assortative mating between individuals with above average earnings b. altered relative demand of skilled and unskilled labor resulting from globalization c. slower supply of skilled workforce compared to demand d. increasing automation that has increased the share of capital in national income

increasing automation that has increased the share of capital in national income

90. A measure of how fast the general level of prices is rising is called the: a. growth rate of real gross domestic product (GDP). b. inflation rate. c. unemployment rate. d. market-clearing rate.

inflation rate.

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

investment decreases.