Macro Economy Midterm 1 Part 2

183. A person who spends time looking for work is: A) engaged in job search. B) counted as employed. C) counted as out of the labor force. D) usually counted as a discouraged worker.

A

135. If your professor wins the lottery: A) GDP goes up. B) GDP goes down. C) GDP is not affected. D) the economy will clearly be better off

C

153. The aggregate price level is: A) the average price of shares on the stock market. B) the average price of commodities. C) the overall level of prices in the economy. D) the average rate of inflation.

C

141. Real GDP is nominal GDP adjusted for: A) double counting. B) changes in prices. C) population. D) imports.

B

120. In the circular-flow model, households: A) receive transfer payments from the government. B) buy resources in the factor markets. C) sell products in the market for goods and services. D) issue stocks and bonds to raise capital.

A

122. Investment spending represents spending on: A) productive physical capital. B) stocks. C) mutual funds. D) corporate bonds.

A

131. The Boeing Company buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model of aircraft at $10 million. The value added by Boeing is equal to: A) $3.5 million. B) $16.5 million. C) $13 million. D) $15.5 million.

A

154. Inflation is: A) a rising aggregate price level. B) an expansion of output. C) a rise in wages. D) a rise in the unemployment rate.

A

156. In a market basket of goods: A) the quantities stay constant and the prices may change. B) the quantities may change and the prices are held constant. C) both the prices and the quantities are held constant. D) both the prices and the quantities may change.

A

159. If the CPI changes from 120 to 125 between December 2009 and December 2010, the: A) inflation rate for 2010 is 4.2%. B) inflation rate for 2010 is 5%. C) deflation rate for 2010 is 5%. D) deflation rate for 2010 is 4.2%

A

163. The CPI reflects: A) changes in the prices of goods and services typically purchased by consumers. B) the level of prices for intermediate goods and services purchased by business. C) the level of prices for raw materials. D) the prices of all goods and services computed from the ratio of nominal GDP to real GDP.

A

172. Private saving by households is: A) the portion of disposable income not spent on goods and services. B) the portion of income coming from transfer payments. C) often larger than consumption spending. D) not related to consumption spending.

A

181. Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is: A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) counted as employed, since she is likely to receive a job offer soon.

A

182. Unemployment that is due to the time workers spend in job search is considered: A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) natural unemployment.

A

185. Efficiency wages are: A) above equilibrium to encourage better performance. B) below equilibrium to encourage better performance to get a raise. C) responsible for all structural unemployment. D) above equilibrium to encourage better performance and are responsible for all structural unemployment.

A

188. Cyclical unemployment: A) rises during a recession. B) falls during a recession. C) rises during an expansion. D) is a part of natural unemployment

A

203. Unanticipated inflation: A) reduces the value of money. B) increases the value of future obligations. C) increases certainty about the future. D) helps lenders

A

217. High rates of inflation often result in people spending inordinate amounts of time trying to make transactions and finding ways to keep the real value of their money from decreasing. This is an example of _______ costs. A) shoe-leather B) menu C) efficiency wage D) unit-of-account

A

220. The ______________in an economy whose aggregate real output is growing faster than the total population. A) real GDP per capita is rising B) standard of living is declining C) national income is falling D) nominal GDP per capita is rising

A

225. If real GDP doubles in 12 years, its average annual growth rate is approximately: A) 6%. B) 5%. C) 4%. D) 3%

A

229. Long-run economic growth depends almost entirely on: A) labor productivity growth. B) population growth. C) agricultural production growth. D) the number of hours worked.

A

230. Productivity is equal to: A) real GDP divided by the number of workers. B) real GDP divided by the population. C) the number of workers per machine. D) the total output produced

A

234. If technology advances, then: A) more output can be obtained from the same inputs. B) more inputs are needed to produce the same output. C) less output can be obtained from the same inputs. D) less output can be produced even with more inputs

A

236. Diminishing returns to physical capital means that when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to: A) a smaller increase in the marginal product of labor. B) a decrease in the total amount of output produced. C) negative marginal product . D) a constant amount of total output

A

121. The market(s) that channel the excess savings of households into investment spending by firms is(are) known as: A) the stock market. B) financial markets. C) the international market. D) the bond market.

B

123. If we add up the consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's: A) disposable income. B) gross domestic product. C) trade deficit. D) value added.

B

124. Which one of the following is an example of consumption expenditure? A) Samantha bought an oven for her cooking show on Food Network. B) Stephanie bought a laptop for her brother. C) Jim purchased 200 shares of Google stock. D) Mr. Smith spent $1,500 to buy a used car for his son.

B

126. A laptop computer that is purchased by an accounting firm is considered to be: A) consumption spending. B) investment spending. C) private saving. D) a pretax dividend.

B

133. The total volume of business sales in the economy is much larger than GDP because: A) GDP understates the value of total output. B) the output approach to measuring GDP excludes intermediate transactions. C) GDP includes transfer payments. D) GDP excludes exports.

B

138. Suppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following would be true about the reported official GDP the following year? A) It would rise. B) It would fall. C) It would stay the same. D) There is not enough information to evaluate the impact that it would have on GDP.

B

146. Real GDP is the same as: A) current-dollar GDP. B) inflation-adjusted GDP. C) nominal GDP. D) value-added GDP.

B

160. If the CPI is 180 in year 1 and 190 in year 2, the inflation rate between year 1 and year 2 is about: A) 5.26%. B) 5.56%. C) 6.5%. D) 10%.

B

162. The ______ is the most widely used measure of inflation in the United States. A) producer price index B) CPI C) GDP deflator D) national income account

B

171. The instrument by which a household makes a loan to a firm and the firm pays interest to the household is known as: A) a stock. B) a bond. C) a transfer payment. D) disposable income.

B

173. Within the circular-flow diagram, the value of household income, the sum of wages, dividends, interest, and rent plus transfer payments equals the sum of: A) the value of household tax payments. B) consumer spending, private saving, and the value of household tax payments. C) the money supply. D) transfer payments and household tax payments.

B

174. Transfer payments: A) are a means by which government raises funds. B) are a redistribution of funds from one individual to another individual in the economy. C) are counted in GDP. D) is another term for government taxation.

B

175. An economy's gross domestic product is made up of: A) consumption, saving, investment, and government spending. B) consumption, investment, government spending, and net exports. C) consumption, saving, inventories, financial markets, and government spending. D) consumption and saving.

B

187. The rate of unemployment that exists when the economy is at full employment is: A) zero. B) the natural rate of unemployment. C) the structural rate of unemployment. D) less than full employment rate of unemployment

B

189. When the economy is at full employment: A) there is no unemployment. B) cyclical unemployment is zero. C) frictional unemployment is zero. D) the natural rate of unemployment is zero

B

193. Recent declines in union membership are likely to cause the natural rate of unemployment to: A) increase. B) decrease. C) be unaffected. D) be unpredictable

B

194. Which of the following is an example of a cyclically unemployed worker? A) Julio, a statistician, lost his job in a forecasting firm and now does consulting work part time. B) Jennifer, an accountant, spends her days at home reading The New York Times and mailing out her résumé. C) Ana Maria, a business major, received a job offer during her senior year but has yet to start working. D) Ulysses, a high school dropout, joined the army

B

195. If deflation occurs and your income is fixed, your real income: A) will fall. B) will go up. C) will still be equal to your nominal income. D) is constant

B

196. If money income remains the same while the average price level doubles, then: A) nominal income will fall. B) real income will fall. C) interest rates will fall. D) purchasing power will increase

B

198. Shoe-leather costs refer to the: A) effect of inflation on the prices of food, clothes, and other necessities. B) increased cost of transactions due to inflation. C) high price of leather goods. D) effect of inflation on transportation costs

B

199. The invention of ATMs reduced the: A) menu costs of inflation. B) shoe-leather costs of inflation. C) unit-of-account costs of inflation. D) seignorage

B

204. Which of the following is true? A) Unexpected inflation benefits lenders and hurts borrowers. B) Unexpected inflation benefits borrowers and hurts lenders. C) Unexpected inflation benefits borrowers but does not affect lenders. D) Unexpected deflation benefits lenders but does not affect borrowers

B

205. Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is equal to: A) 3%. B) 4%. C) 10%. D) 7%

B

212. Radhika just graduated from college. She recently quit her part time job to focus on finding a full time job that better uses the skills she has acquired in college. Radhika is considered to be: A) structurally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) employed since she is focusing on finding a full time job

B

213. Structural unemployment occurs when: A) new workers enter the work force. B) there is a surplus of labor at the current wage rate. C) there is an expansion in the economy. D) there is cyclical unemployment

B

214. In a particular labor market, the demand for labor is given by W = 20 - (1/100)L and the supply of labor is given by W = 4 + (1/100)L where W is the wage rate, and L is the number of workers. What is the equilibrium wage and number of workers in this market? A) The equilibrium wage is $10, and the equilibrium number of workers is 1000. B) The equilibrium wage is $12, and the equilibrium number of workers is 800. C) The equilibrium wage is $8, and the equilibrium number of workers is 1200. D) The equilibrium wage is $20, and the equilibrium number of workers is 1000

B

218. A key statistic to measure economic growth is: A) the size of the government's budget. B) real GDP per capita. C) life expectancy. D) the Dow Jones stock market index

B

219. If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5 million, then its GDP per capita is: A) $500. B) $5,000. C) $50,000. D) $5 million

B

222. The rule of 70 indicates that a 6% annual increase in the potential level of real GDP would lead to the potential output doubling in _______ years. A) 6 B) 12 C) 24 D) 30

B

232. The skills, training, and education possessed by workers that contribute to economic growth are known as: A) saving. B) human capital. C) natural resources. D) output of labor.

B

237. Growth accounting enables us to: A) calculate how long it takes the economy to grow. B) calculate the effects of technological progress on economic growth. C) compare growth rates across countries. D) better calculate real GDP per capita.

B

125. Which of the following is NOT included in investment spending in the national income accounts? A) new residential construction B) the purchase of machinery and other productive physical capital C) the purchase of stocks and bonds by a business D) spending on inventories

C

127. If we add up all of the values added at every stage of production for a good, we will get: A) the total cost of the labor used to produce the good. B) the prices of the factors of production used to produce the good. C) the final value of the good. D) the intermediate value of the good.

C

139. Suppose a consumer buys a frozen cheese pizza at the grocery store for $10. The frozen pizza company sold the pizza to the store for $5. The frozen pizza company purchased the pizza dough and tomato sauce from a food processing company at a price of $2 and bought the cheese from a dairy at a price of $1. How much has GDP increased? A) $2 B) $5 C) $10 D) $18

C

145. Nominal GDP is: A) the inflation-adjusted GDP. B) the real GDP minus depreciation. C) the current-dollar GDP. D) the constant-dollar GDP.

C

148. Assume that the real GDP of the United States is approximately $12 trillion and the population of the United States is approximately 300 million. What is per capita real GDP? A) $4,000 B) $36,000 C) $40,000 D) Real per capita GDP can't be determined without more information.

C

161. You read in the newspaper that the CPI in 2011 was 120. You conclude that a typical market basket in 2011 would have cost: A) 20 percent more than the same market basket purchased in 2010. B) 120 percent more than the same market basket purchased in 2010. C) 20 percent more than the same market basket purchased in the base year. D) 120 percent more than the same market basket purchased in the base year.

C

170. In the circular-flow diagram, government purchases of goods and services are financed by: A) tax revenues. B) tax revenues net of transfer payments. C) tax revenues net of transfer payments plus government borrowing from financial markets. D) tax revenues plus government borrowing from financial markets.

C

176. Suppose only two countries existed in the world. Country A imported $200 million worth of goods and services from country B. Country B imported $100 million worth of goods and services from country A. Net exports for: A) country A equal $200 million. B) country B equal $200 million. C) country A equal -$100 million. D) country B equal -$100 million

C

186. The natural rate of unemployment is: A) the rate of unemployment that exists during recessions. B) equal to the sum of frictional and cyclical unemployment. C) equal to the sum of frictional and structural unemployment. D) cyclical unemployment less frictional unemployment.

C

192. The natural rate of unemployment would: A) increase if a larger percentage of the labor force were over 25 years old. B) increase if union membership fell. C) increase if unemployment benefits were increased. D) always remain fixed

C

197. Increases in the average level of prices are called: A) depreciation. B) deflation. C) inflation. D) expectations

C

201. Menu costs of inflation are the: A) costs associated with money being a less reliable unit of measurement. B) costs of transactions associated with avoiding the inflation tax. C) costs associated with businesses changing prices. D) revenue the government gets from printing money

C

202. Menu costs refer to the increased cost: A) of food in a time of inflation. B) eating out when inflation increases. C) of changing listed prices. D) the minimum wage

C

206. The nominal interest rate equals the: A) real interest rate times the rate of inflation. B) real interest rate minus the rate of inflation. C) real interest rate plus the rate of inflation. D) real interest rate when inflation is correctly anticipated

C

211. Sally works twenty hours a week for an accounting firm. She would like to work full time and expects that she will in the future. Sally is a(n): A) discouraged worker B) unemployed worker C) underemployed worker D) full time worker

C

215. In a particular labor market, the demand for labor is given by W = 20 - (1/100)L and the supply of labor is given by W = 4 + (1/100)L where W is the wage rate, and L is the number of workers. Suppose government decides to impose a minimum wage of $15 in this market. What effect will this minimum wage have on the market? A) The wage will have no impact since it is below the equilibrium wage. B) The wage will create a shortage of workers since it is above the equilibrium wage. C) The wage will create surplus of workers since it is above the equilibrium wage. D) The wage will result in increases in wages for workers who were employed at the equilibrium wage only

C

216. The natural rate of unemployment changes when: A) the cyclical unemployment changes. B) actual rate of unemployment changes. C) there are changes in labor market institutions. D) government policies remain the same

C

224. If real GDP grows at an average rate of 3% per year, it will double in approximately _______ years. A) less than 10 B) 20 C) 23 D) 36

C

231. The term human capital describes: A) improvement made possible by better machines and the equipment available. B) improvement in the technology available to the work force. C) improvement in a worker's skills made possible by education, training and knowledge. D) improvement in the robotics technology that can substitute for a human worker

C

233. Technological progress allows workers to produce more: A) because it increases the amount of physical capital available. B) because it increases the amount of human capital available. C) even when the amount of physical capital and human capital do not change. D) only if the amount of physical capital grows at the same rate.

C

235. To acquire human capital a person would: A) save to buy a printing press. B) purchase a printing press rather than use his or her money on consumption. C) learn to use a printing press. D) sell the books that the printing press produces.

C

242. Economic growth will likely involve: A) a reduction in investment. B) a decrease in the capital stock. C) higher saving. D) lower saving

C

143. If nominal GDP increases from one year to the next: A) prices must have risen from one year to the next. B) real GDP must have risen from one year to the next. C) prices and real GDP must have risen from one year to the next. D) either output or prices or both must have risen from one year to the next

D

128. Gross domestic product is defined as: A) consumer spending+government purchases+financial spending+exports-imports. B) consumer spending + government transfers + investment spending + exports - imports. C) disposable income + taxes + investment spending + exports + imports. D) consumer spending + government purchases + investment spending + exports - imports.

D

129. Which of the following is false? Gross domestic product: A) is aggregate output. B) is the total production of final goods and services. C) grows during an expansion. D) is the total production of all final and intermediate goods and services.

D

132. Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new work truck C) the hiring of a new police officer D) your purchase of your neighbor's 2001 Toyota

D

134. Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new hybrid truck C) the hiring of a new school teacher D) your purchase of your neighbor's house, which was built in 1994

D

136. Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each. How much do these transactions add to GDP? A) $86,000 B) $36,000 C) $31,000 D) $50,000

D

137. Which of the following is included in GDP? A) the purchase of 100 shares of Microsoft stock B) the purchase of a 1965 Ford Mustang C) Social Security payments from the U.S. government to retired people D) the purchase of a ticket to a Lady Gaga concert

D

140. The inflation-adjusted measure of aggregate output typically used by economists is called: A) aggregated output. B) nominal gross national product. C) net domestic product. D) real gross domestic product.

D

144. If nominal GDP decreases from one year to the next: A) prices must have fallen from one year to the next. B) real GDP must have fallen from one year to the next. C) prices and real GDP must have fallen from one year to the next. D) either output or prices or both must have fallen from one year to the next.

D

147. A country's living standard is best measured by the: A) per capita nominal GDP. B) real GDP. C) nominal GDP. D) per capita real GDP

D

155. A price index: A) always includes a base year. B) measures the cost of purchasing a market basket of output across different years. C) is normalized to 100 for the base year. D) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

D

166. The major difference between the CPI and the producer price index is that: A) the producer price index is based on retail prices and CPI is based on wholesale prices. B) the producer price index measures the cost of living of self-employed workers and the CPI measures the cost of living of salaried workers. C) the producer price index generally registers a higher rate of inflation than the CPI. D) the producer price index is based on the cost of a basket typically purchased by producers, while the CPI is based on the cost of a basket typically purchased by consumers.

D

167. The purpose of indexing Social Security payments to the CPI is to: A) increase corporate profits. B) justify continued government funding of the Bureau of Labor Statistics. C) avoid the privatization of Social Security. D) maintain the purchasing power of retirees.

D

184. A binding minimum wage does all of the following EXCEPT: A) decrease the quantity of labor demanded. B) increase unemployment. C) increase the amount of labor supplied. D) decrease the amount of labor supplied.

D

190. Generous unemployment benefits are likely to have which of the following consequences? A) an increase in the employment level B) a reduction in job search time C) a decrease in the unemployment rate D) an increase in the unemployment rate

D

191. Suppose that immigration laws are relaxed and many workers from other nations enter the U.S. labor force. How will this affect the U.S. labor market? A) The demand for labor will increase. B) The demand for labor will decrease. C) The supply of labor will decrease. D) The supply of labor will increase

D

200. Suppose that a country has a progressive income tax code, where taxable income is calculated in nominal terms but the schedule of income tax rates is NOT indexed to inflation. An individual whose income keeps up with inflation will find that over time he or she she will pay: A) the alternative minimum tax. B) a lower percentage of income in taxes over time. C) the same percentage of income in taxes over time. D) a higher percentage of income in taxes over time

D

221. China has much higher rate of growth than the United States, but the average Chinese household is: A) as well off as a typical U.S. household, because China's real GDP per capita is catching up with that of the United States. B) richer than a typical U.S. household, because China's real GDP per capita is much higher than that of the United States. C) still a bit poorer than a typical U.S. household, but China's real GDP per capita is growing faster to equal that of the United States in a matter of few years. D) still far poorer than a typical U.S. household, because China's real GDP per capita is much lower than that of the United States

D

223. The rule of 70 states that a variable's approximate doubling time equals: A) 70 times the growth rate. B) the growth rate divided by 70. C) 70 divided by the doubling time. D) 70 divided by the growth rate

D

238. An increase in capital stock would: A) shift the production function upward. B) shift the production function inward. C) shift the production function downward. D) cause a movement to the right along a stationary production function

D

239. Which of the following countries would NOT be characterized by abundant farmland and mineral deposits? A) United States B) Canada C) Argentina D) Japan

D

240. In 1798, the English economist Thomas Malthus predicted that: A) countries with a large supply of natural resources would always enjoy economic growth. B) the recently independent American colonies would rejoin the British empire out of economic necessity. C) the French Revolution would improve the economies of most European countries. D) rising population growth would cause productivity to fall

D

241. Computers started to become more common in the 1970s in America. From this time until the mid-1990s: A) the economy started to grow rapidly. B) real GDP per person increased quickly and then slowed down. C) nominal GDP per person increased quickly. D) very little happened to productivity

D