Intermediate Macroeconomics

Which of the following would decrease the real exchange rate in a small open economy in the long run? Select one: 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

Exhibit: Supply Shock Reference: Ref 10-2 (Exhibit: Supply Shock) Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point: Select one: a. A. b. B. c. C. d. D.

a. A

A period of falling prices is called: a.deflation. b.inflation. c.a depression. d.a recession.

a. Deflation

The Solow residual measures the portion of output growth that cannot be explained by growth in: Select one: a. capital and labor. b. technology. c. the money supply. d. the saving rate.

a. capital and labor.

Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which: Select one: a. capital is relatively scarce. b. capital is relatively abundant. c. technological production capabilities are inferior. d. labor is relatively scarce.

a. capital is relatively scarce.

The total income of everyone in the economy is exactly equal to the total: Select one: a.expenditure on the economy's output of goods and services. b.consumption expenditures of everyone in the economy. c.expenditures of all businesses in the economy. d.government expenditures.

a. expenditure on the economy's output of goods and services.

To avoid double counting in the computation of GDP, only the value of ______ goods are included. Select one: a.final b.used c.intermediate d.investment

a. final

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P. Select one: a. higher; lower b. lower; higher c. higher; higher d. lower; lower

a. higher; lower

Changes that can increase measured total factor productivity include: Select one: a. increased expenditures on education. b. regulations requiring reductions in pollution. c. regulations requiring increases in worker safety. d. increases in the capital-labor ratio.

a. increased expenditures on education.

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

a. national saving

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

a. nearly zero between 1900 and 1950

Okun's law is the ______ relationship between real GDP and the ______. Select one: a. negative; unemployment rate b. negative; inflation rate c. positive; unemployment rate d. positive; inflation rate

a. negative; unemployment rate

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to: Select one: a. no change in the real wage and a rise in unemployment. b. no change in the real wage and no change in unemployment. c. no change in the real wage and a fall in unemployment. d. a decrease in the real wage.

a. no change in the real wage and a rise in unemployment.

Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: Select one: a.$10,000. b.$12,000. c.$20,000. d.$22,000.

b. $12,000.

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is: Select one: a.$1. b.$2. c.$3. d.$6

b. $2

Assume that the adult population of the United States is 191.6 million, total employment is 117.6 million, and 9.4 million are unemployed. Then the unemployment rate, as normally computed, is approximately ______ percent. Select one: a.4.9 b.7.4 c.7.9 d.9.4

b. 7.4

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

b. Inflation Rate

Macroeconomics does not try to answer the question of: a.why do some countries experience rapid growth. b.what is the rate of return on education. c.why do some countries have high rates of inflation. d.what causes recessions and depressions.

b. What is the rate of return on education.

Endogenous variables are: a.fixed at the moment they enter the model. b.determined within the model. c.the inputs of the model. d.from outside the model.

b. determined within the model.

Variables that a model takes as given are called: Select one: a.endogenous. b.exogenous. c.market clearing. d.macroeconomic.

b. exogenous

Important characteristics of macroeconomic models include all of the following except: a.simplifying assumptions. b.functional relationships based on controlled experiments. c.endogenous and exogenous variables. d.implicit or explicit consistency with microeconomic foundations.

b. functional relationships based on controlled experiments.

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. Select one: a.high; exceeds b.high; falls short of c.low; exceeds d.low; falls short of

b. high; falls short of

Most economists believe that the classical dichotomy: Select one: a. holds approximately in both the short run and the long run. b. holds approximately in the long run but not in the short run. c. holds approximately in the short run but not in the long run. d. does not hold even approximately in either the long run or the short run.

b. holds approximately in the long run but not in the short run.

Across countries of Europe, greater spending on unemployment insurance tends to _____ unemployment and more flexible labor-market policies tend to _____ unemployment. Select one: a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase

b. increase; decrease

In 2013, the GDP of the United States totaled about: Select one: a.$16.8 billion. b.$168 billion. c.$16.8 trillion. d.$168 trillion.

c. $16.8 trillion

If real GDP grew by 6 percent and population grew by 2 percent, then real GDP per person grew by approximately ______ percent. Select one: a.2 b.3 c.4 d.8

c. 4

Which of the following is the best example of structural unemployment? Select one: a. Tim is looking for a job with flexible hours but has not been offered one yet. b. Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. c. Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. d. Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has 2 months of unemployment insurance benefits left.

c. Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

Which statement below best illustrates the "art," rather than the "science" of macroeconomics? Select one: a.Macroeconomic data provides the motivation for new macroeconomic theory. b.Macroeconomic relationships can be expressed using symbols and equations. c.Macroeconomists must determine which simplifying assumptions clarify our thinking and which mislead us. d.Graphs and charts can be used to illustrate the history of macroeconomic variables.

c. Macroeconomists must determine which simplifying assumptions clarify our thinking and which mislead us.

If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called: Select one: 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.

Nominal GDP measures the value of goods and services in ______ prices, while real GDP measures the value of goods and services in ______ prices. Select one: a.foreign; domestic b.domestic; foreign c.current; constant d.constant; current

c. current; constant

Recessions are periods when real GDP: a.increases slowly. b.increases rapidly. c.decreases mildly. d.decreases severely.

c. decrease mildly

The demand for loanable funds is equivalent to: Select one: a.national saving. b.private saving. c.public saving. d.investment.

d. Investment

If the real exchange rate is high, foreign goods: Select one: a. and domestic goods are both relatively expensive. b. and domestic goods are both relatively cheap. Incorrect c. are relatively expensive and domestic goods are relatively cheap. d. are relatively cheap and domestic goods are relatively expensive.

d. are relatively cheap and domestic goods are relatively expensive.

Compared with 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.

d. decreases more severely.

In an economic model: a.exogenous variables and endogenous variables are both fixed when they enter the model. b.endogenous variables and exogenous variables are both determined within the model. c.endogenous variables affect exogenous variables. d.exogenous variables affect endogenous variables.

d. exogenous variables affect endogenous variables.

The minimum wage: Select one: a. is usually about 75 percent of the average wage earned in manufacturing. b. raises the wages of highly skilled workers. c. encourages master workers to take on apprentices. d. has its greatest impact on teenage unemployment.

d. has its greatest impact on teenage unemployment.

Business cycles are: Select one: a. regular and predictable. b. irregular but predictable. c. regular but unpredictable. d. irregular and unpredictable.

d. irregular and unpredictable.

In the relationship expressed in functional form, Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ): a.is the growth rate of real GDP when the amount of capital and labor in the economy is fixed. b.indicates that the variables inside the parentheses are endogenous variables in the model. c.is the symbol that stands for government input into the production process. d.is the function telling how the variables in the parentheses determine real GDP.

d. is the function telling how the variables in the parentheses determine real GDP.

Sectoral shifts: Select one: a. lead to wage rigidity. b. explain the payment of efficiency wages. c. depend on the level of the minimum wage. d. make frictional employment inevitable.

d. make frictional employment inevitable.

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

According to the Solow model, persistently rising living standards can only be explained by: Select one: a. population growth. b. capital accumulation. c. saving rates. d. technological progress.

d. technological progress.

The equation may be solved for the equilibrium level of: Select one: a.income. b.consumption. c.government purchases. d.the interest rate.

d. the interest rate.

According to the usual seasonal pattern of the U.S. economy, GDP is highest in the quarter of the year that includes: Select one: a.January, February, and March. b.April, May, and June. c.July, August, and September. d.October, November, and December.

d.October, November, and December.

In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes: Select one: a.output per worker. b.output per effective worker. c.consumption per worker. d.consumption per effective worker.

d.consumption per effective worker.

The difference between banks and other financial intermediaries is that only banks have the legal authority to: Select one: a.transfer funds from savers to borrowers. b.pay interest on debt obligations. c.manage portfolios of assets. d.create assets that are part of the money supply.

d.create assets that are part of the money supply.

Bank reserves equal: Select one: 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.

d.deposits that banks have received but have not lent out.

Government transfer payments: Select one: a.are included as part of government purchases, G. b.can be viewed as negative tax payments, T. c.are received as payment for inputs in the factor market. d.do not affect the level of public or private saving.

d.do not affect the level of public or private saving.

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

d.government revenue minus government spending.

The neoclassical theory of distribution: Select one: 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.

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

A fixed-weight price index like the CPI ______ the change in the cost of living because it ______ take into account that people can substitute less expensive goods for ones that have become more expensive. Select one: a.underestimates; does not b.overestimates; does c.accurately estimates; does d.overestimates; does not

d.overestimates; does not

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale? Select one: a.the relative quantity of labor to capital b.the interest rate c.the ratio of public saving to private saving d.the marginal productivity of labor relative to the marginal productivity of capital

d.the marginal productivity of labor relative to the marginal productivity of capital

An economy's ______ equals its ______. Select one: a.consumption; income b.consumption; expenditure on goods and services c.expenditure on goods; expenditures on services d.total income; total expenditure on goods and services

d.total income; total expenditure on goods and services

Two striking features of a graph of U.S. real GDP per capita over the twentieth century are the: Select one: a.overall upward trend interrupted by a large downturn due to the economic depression in the 1930s. b.nearly constant level with a large downturn in the 1930s. c.downward trend in the first half of the century followed by the upward trend in the second half. d.constant level in the first half of the century followed by the upward trend in the second half.

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

In the national income accounts, all of the following are classified as government purchases except: Select one: a.payments made to Social Security recipients. b.services provided by police officers. c.purchases of military hardware. d.services provided by U.S. senators.

a. payments made to Social Security recipients

If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______. Select one: a. positive; positive b. positive; negative c. negative; negative d. negative; positive

a. positive; positive

All of the following are types of macroeconomics data except the: a.price of an IBM computer. b.growth rate of real GDP. c.inflation rate. d.unemployment rate.

a. price of an IBM computer.

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

a. public

The investment component of GDP includes all of the following except: Select one: a.purchases of corporate stock. b.spending on new plants and equipment. c.purchases of new housing by households. d.changes in business inventories.

a. purchases of corporate stock

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally: a.the supply curve slopes upward and to the right. b.the demand curve slopes upward and to the right. c.the supply curve slopes downward and to the right. d.at the equilibrium price, the supply of pizza exceeds the demand for pizza.

a. the supply curve slopes upward and to the right.

An example of decreasing returns to scale is when capital and labor inputs: Select one: a.both increase 10 percent and output increases 5 percent. b.both increase 10 percent and output increases 10 percent. c.both increase 5 percent and output increases 10 percent. d.do not change and output increases 5 percent.

a.both increase 10 percent and output increases 5 percent.

GDP is all of the following except the total: Select one: a.expenditure of everyone in the economy. b.income of everyone in the economy. c.expenditure on the economy's output of goods and services. d.output of the economy.

a.expenditure of everyone in the economy.

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

If many banks fail, this is likely to: Select one: a.increase the ratio of currency to deposits. b.decrease the ratio of currency to deposits. c.have no effect on the ratio of currency to deposits. d.decrease the amount of currency in circulation, if the Fed takes no action.

a.increase the ratio of currency to deposits.

Disposable personal income: Select one: 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.

a.is computed by subtracting personal tax from personal income.

The marginal propensity to consume is: Select one: a.normally expected to be between zero and one. b.equal to consumption divided by disposable income. c.equal to disposable income minus consumption. d.normally assumed to increase as disposable income increases.

a.normally expected to be between zero and one.

The most frequently used tool of monetary policy is: Select one: a.open-market operations. b.changes in the discount rate. c.changes in reserve requirements. d.changes in interest rate paid on reserves

a.open-market operations.

The nominal interest rate is the: Select one: a.rate of interest that investors pay to borrow money. b.same as the real interest rate. c.rate of inflation minus the real rate of interest. d.real rate of interest minus the rate of inflation.

a.rate of interest that investors pay to borrow money.

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

a.the quantity of labor increases.

Earlier retirement in Europe than in the United States contributes to: Select one: a. higher employment-to-population ratios in Europe than in the United States. b. lower employment-to-population ratios in Europe than in the United States. c. more hours worked per year by the average employed person in Europe than the average employed person in the United States. d. fewer hours worked per year by the average employed person in Europe than the average employed person in the United States.

b. lower employment-to-population ratios in Europe than in the United States.

Discouraged workers are counted as: Select one: a. part of the labor force. b. out of the labor force. c. employed. d. unemployed.

b. out of the labor force.

Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run. Select one: a. prices; output b. output; prices c. output; output d. prices; prices

b. output; prices

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

b. positively; negatively

Which of the following is the best example of a flexible price? Select one: a.the price of a cup of coffee in a coffee shop b.the price of gasoline at a service station c.the price of a ticket at a movie theater d.the price of a book in a bookstore

b. the price of gasoline at a service station

A policy that decreases the job separation rate _____ the natural rate of unemployment. Select one: a. will increase b. will decrease c. will not change d. could either increase or decrease

b. will decrease

If an increasing proportion of the adult population is retired, then the labor force participation rate: Select one: a.will increase. b.will decrease. c.will remain constant. d.may increase, decrease, or remain constant.

b. will decrease

Open-market operations are: Select one: a.Commerce Department efforts to open foreign markets to international trade. b.Federal Reserve purchases and sales of government bonds. c.Securities and Exchange Commission rules requiring open disclosure of market trades. d.Treasury Department purchases and sales of the U.S. gold stock.

b.Federal Reserve purchases and sales of government bonds.

Banks create money in: Select one: 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.

The marginal product of labor is: Select one: a.output divided by labor input. b.additional output produced when one additional unit of labor is added. c.additional output produced when one additional unit of labor and one additional unit of capital are added. d.value of additional output when one dollar's worth of additional labor is added.

b.additional output produced when one additional unit of labor is added.

A worker with two jobs is counted: Select one: a.once in both the household and the establishment surveys. b.once in the household survey, but twice in the establishment survey. c.once in the establishment survey, but twice in the household survey. d.twice in both the household and the establishment surveys.

b.once in the household survey, but twice in the establishment survey.

The type of legal system and the level of corruption in a country have been found to be: Select one: a.unrelated to the rate of economic growth in a country. b.significant determinants of the rate of economic growth in a country. c.important topics for political discussion, but not economic explanations of growth. d.important variables explaining the Golden Rule level of capital.

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

A graph of the rate of inflation in the United States over the twentieth century shows: a.an overall upward trend interrupted by a large downturn in the 1930s. b.some periods of deflation in the first half of the century, but only positive rates of inflation in the second half of the century. c.a relatively steady, positive level throughout the century except for deflation in the 1930s. d.a constant rate of inflation in the first half of the century followed by an upward trend in the second half.

b.some periods of deflation in the first half of the century, but only positive rates of inflation in the second half of the century.

The rate of labor-augmenting technological progress (g) is the growth rate of: Select one: a.labor. b.the efficiency of labor. c.capital. d.output.

b.the efficiency of labor.

Paying efficiency wages helps firms reduce the problem of moral hazard by: Select one: a. generating additional profits that can be used to improve working conditions. b. matching the wages each worker is paid to the number of units of output each worker produces. c. encouraging unsupervised workers to maintain a high level of productivity. d. providing an incentive for the best-qualified workers to remain with the firm.

c. encouraging unsupervised workers to maintain a high level of productivity.

Which of the following hypotheses is consistent with fewer hours worked per year in Europe than in the United States? Select one: a. fewer mandated holidays in Europe than in the United States b. higher employment-to-population ratios in Europe than in the United States c. higher tax rates in Europe than in the United States d. a smaller underground economy in Europe than in the United States

c. higher tax rates in Europe than in the United States

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur: a.from minute to minute. b.from year to year. c.in the long run. d.in the short run.

c. in the long run

When a firm sells a product out of inventory, GDP: Select one: a.increases. b.decreases. c.is not changed. d.increases or decreases, depending on the year the product was produced.

c. is not changed

GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad. Select one: a.plus; plus b.minus; minus c.minus; plus d.plus; minus

c. minus; plus

In the national income accounts, consumption expenditures include all of the following except household purchases of: Select one: a.durable goods. b.nondurable goods. c.new residential housing. d.services.

c. new residential housing.

Deflation occurs when: a.real GDP decreases. b.the unemployment rate decreases. c.prices fall. d.prices increase, but at a slower rate.

c. prices fall.

The Solow model predicts that two economies will converge if the economies start with the same: Select one: a.capital stocks. b.populations. c.steady states. d.production functions.

c. steady states

In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on: Select one: a. the rate of population growth. b. the saving rate. c. the rate of technological progress. d. the rate of population growth plus the rate of technological progress.

c. the rate of technological progress.

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 - 100r, 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 - 100r: Select one: a.I rises by 1,000 and r rises by 10 percentage points. b.I rises by 1,000 and r is unchanged. c.I is unchanged and r rises by 10 percentage points. d.I is unchanged and r rises by 15 percentage points.

c.I is unchanged and r rises by 10 percentage points.

In a country on a gold standard, the quantity of money is determined by the: Select one: a.government. b.central bank. c.amount of gold. d.buying and selling of government securities.

c.amount of gold.

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

c.decreases; increases

The number of effective workers takes into account the number of workers and the: Select one: a.amount of capital available to each worker. b.rate of growth of the number of workers. c.efficiency of each worker. d.saving rate of each worker.

c.efficiency of each worker.

The government spending component of GDP includes all of the following except: Select one: a.federal spending on goods. b.state and local spending on goods. c.federal spending on transfer payments. d.federal spending on services.

c.federal spending on transfer payments.

In the United States, the money supply is determined: Select one: a.only by the Fed. b.only by the behavior of individuals who hold money and of banks in which money is held. c.jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. d.according to a constant-growth-rate rule.

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

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

c.private saving plus public saving.

The fraction of capital that banks are required to hold depends on the: Select one: a.amount of deposits held at a bank. b.riskiness of the bank's assets. c.reserve requirements set by the Fed. d.level of deposit insurance coverage.

c.reserve requirements set by the Fed.

If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock: Select one: a.will be at a lower level than in the steady state of the high capital economy. b.will be at a higher level than in the steady state of the high capital economy. c.will be at the same level as in the steady state of the high capital economy. d.will be proportional to the ratio of the capital stocks in the two economies.

c.will be at the same level as in the steady state of the high capital economy.