Macroeconomics Exam #2

The largest component of GDP is: -net exports. -government spending. -gross private domestic investment. -consumption expenditure.

consumption expenditure

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income: increases by $10 billion. decreases by $5 billion. increases by $2.5 billion. decreases by $10 billion.

decreases by $10 billion

The classical form of the production function states that: -Output = f(L/K) -Output = f(L, K) -Output = f(N/K) -Output = f(N, K)

Output = f(L, K)

After the acceptance of Keynesian analysis, the government: turned to communism as the only solution to the Great Depression. reduced its role in the operation of the economy. actions toward macroeconomic policy grew significantly. played a role in setting the interest rate only.

actions toward macroeconomics policy grew significantly

The recent global financial instability: -slowed down economic growth. -harmed standards of living. -All of the answers are correct. -caused severe credit crunches.

all of these answers are correct

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%: -debtors gain at the expense of creditors. -people on a fixed income see the purchasing power of their incomes rising. -there is a redistribution of income from creditors to debtors. -creditors gain at the expense of debtors.

creditors gain at the expense of debtors

Simon Kuznets: -set up the National Bureau of Economic Research -invented the hair net -devised the gross national product as a way of measuring a nation's economic output -was the Secretary of Treasury during World War II

devised the gross national product as a way of measuring a nation's economic output

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as: -temporary workers. -discouraged workers. -the invisible unemployed. -the disgruntled unemployed.

discouraged workers

_____ is a reduction in the rate of inflation. -Hyperinflation -Deflation -The price level -Disinflation

disinflation

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____. -disposable income; consumption -saving; consumption -saving; investment -disposable income; saving

disposable income; consumption

The ability to use physical resources in creative ways to produce goods and services is known as: -labor. -entrepreneurial ability, technology, and ideas. -natural resources. -physical capital.

entrepreneurial ability, technology, and ideas

U.S. business cycles since 1950 have shown: -expansions to be just as lengthy as recessions. -expansions to be shorter than recessions. -expansions to be longer than recessions. -stable unemployment rates.

expansions to be longer than recessions.

Core inflation is found by removing _____ from the consumer price index. -producer prices -medical care -housing -food and energy

food and energy

the four types of spending in GDP are personal consumer spending, ________ private domestic investment, government spending, and _______. -net; net imports -net; net exports -gross; net imports -gross; net exports

gross; net exports

Which of the following items is NOT included in the GDP deflator? -fire engines -turbines -imported mangoes -bubble gum

imported mangoes

In the Keynesian model, the principal determinant of saving is: tax rates. interest rates. investment. income.

income

The twin perils of the modern macro economy are said to be: -inflation and unemployment. -government and the trade deficit. -unemployment and the trade surplus. -inflation and the trade deficit.

inflation and unemployment

The value of cars that the Ford Motor Company produces in a German plant: -is not a part of German GDP. -is a part of U.S. GDP. -is a part of German GNP. -is a part of U.S. GNP.

is a part of U.S. GNP

Which of the following describes the informal economy? -It is largely unmeasured. -It does not include income earned by undocumented residents. -It does not include transactions dealing with illegal goods and services. -It accounts for 20% of U.S. GDP.

it is largely measured

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce: less, lowering employment and raising income. more, raising both employment and income. less, lowering both employment and income. more, raising employment and lowering income.

less, lowering both employment and income

Developed nations tend to have: -limited labor supplies but lots of capital. -low capital-to-labor ratios. -limited amounts of both labor and capital. -large amounts of both labor and capital.

limited labor supplies but lots of capital

We are most likely to see a recession if interest rates on long term bonds are: -rising -higher than interest rates on short term bonds -the same as interest rates on short term bonds -lower than interest rates on short term bonds

lower than interest rates on short term bonds

_____ is the change in consumption associated with a change in income. -The average propensity to consume The marginal propensity to consume The average propensity to save The marginal propensity to save

marginal propensity to consume

People who are considered unemployed include: -those who are doing temporary work. -None of those listed is considered unemployed. -those who are unpaid family workers. -those who do not have a job and are not actively seeking employment.

non of those listed is considered unemployment

Over the past century, when worker productivity rose: -capital fell. -nominal prices rose. -real wages rose. -fewer public goods were available.

real wages rose

A production function: -shows the most desired production method for a given level of output. -shows the output that is produced using different combinations of technology combined with existing inputs. -shows the output that is produced using different combinations of inputs combined with existing technology. -shows the output that is most highly valued by consumers.

shows the output that is produced using different combinations of inputs combined with existing technology.

What is the primary explanation for the rapid growth of the U.S. economy over the last century? -increases in government spending for infrastructure -increases in human capital -technological progress -increases in the number of immigrants

technological progress

What event was a major influence on the development of macroeconomics? -the Great Depression -Employment Act of 1946 -the U.S. entry into World War II -the establishment of the Federal Reserve System in the United States

the Great Depression

Which organization determines the beginning and end dates of a recession? -the National Bureau of Economic Research -the U.S. Treasury Department -the Federal Reserve Board of Governors -the Council of Economic Advisers

the National Bureau of Economic Research

A business cycle is: -identical to the consumption life cycle. -the periodic fluctuation of economic activity. -a period lasting about 50 years. -the engine of economic growth.

the periodic fluctuation of economic activity.

If a country's population increases at a higher rate than the growth in its real GDP: -GDP per capita has increased. -average output per person remains constant. -the country's rate of inflation has increased. -the standard of living in the country has declined.

the standard of living in the country has declined

Which one of the following would NOT lead to higher prices? -higher gas prices -an increase in the supply of money -an increase in the supply of food -strong consumer demand

an increase in the supply of food

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing: -disinflation. -deflation. -inflation. -hyperinflation.

deflation

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living: -rose by 2%. -fell by 3%. -fell by 1%. -rose by 1%.

fell by 1%

The U.S. gross domestic product is equal to the total market value of all: -intermediate goods and services produced by resources in the United States. -final goods and services produced by resources in the United States. -final goods and services produced by U.S. citizens in the United States. -intermediate goods and services produced by citizens in the United States.

final goods and services produced by resources in the United States.

According to the classical model, which of the following developments does NOT contribute to economic growth? -more capital -technological change -higher interest rates -labor productivity

higher interest rates

The GDP deflator is an index that includes prices of all of the following EXCEPT: -consumer goods. -government goods and services. -investment goods. -imports.

imports

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is: $0.05 trillion. $0.2 trillion. $0.1 trillion. -$0.2 trillion.

$0.1 trillion

If your salary was $50,000 last year, and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be this year assuming the CPI has risen from 110 to 114? -$50,300 -$49,114 -$50,114 -$51,818

$51,818

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? -1.2 -2.5 -0.6 -0.4

0.6

If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was: -2.5%. -.625%. -10%. -7.5%.

0.625%

The slope of the saving schedule is: 1 minus the marginal propensity to consume. the average propensity to consume. the marginal propensity to consume. the average propensity to save. Score: 1 of 1

1 minus the marginal propensity to consumer

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: -150. -110. -125. -80.

125

If the current year's consumer price index is 214 and last year's consumer price index was 209, then the rate of inflation is: -5%. -2.8%. -2.4%. -3%.

2.4%

If an economy's GDP will double in 25 years, then its growth rate must be about: -2.8%. -25%. -28%. -2.5%.

2.8%

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output. $5,000 $1,000 $8,000 $800

5000

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be: 0.15. 5.1. 6.67. 1.17.

6.67

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase? $900 $11,000 $100

900

The 45-degree line in the Keynesian model represents: AE = Y. AE = G. AE = C. AE = I.

AE=Y

Which of the following illustrates the paradox of thrift? The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lowers equilibrium income and causes production to fall; savings decreases because income is lower. Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower. As businesses save more, interest rates fall, thus reducing household savings. Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production falls; savings decrease because income is lower.

Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP? -GDP at first rises but then falls. -GDP rises as a result of this change. -GDP is unaffected by this change. -GDP falls as a result of this change.

GDP falls as a result of this change.

According to Malthus, a fixed quantity of land and a growing human population will eventually produce: -a stationary state in which growth will cease. -continuous yet variable economic growth. -a stationary state in which the economy grows but at a fixed rate. -accelerating economic growth.

a stationary state in which growth will cease

Which of the following factors is NOT generally viewed by economists as critical to economic growth? -access to large amounts of natural resources -strong and fair legal system -economic freedom -stable monetary system

access to large amounts of natural resources

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the: -increasing returns to capital effect. -catch-up effect. -productivity effect. -copycat effect.

catch up effect

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the: -supply and demand model. -production possibilities frontier. -circular flow diagram. -classical model.

circular flow diagram

The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by: -enhancing physical and human capital. -ensuring a stable and secure financial system. -promoting free and competitive markets. -ensuring a stable legal system.

enhancing physical and human capital

If actual unemployment is at its natural rate: -inflation is very low. -there is deflation. -the unemployment rate is zero. -interest rates are rising.

inflation is very low

Which of the following items would be included in the GDP accounts? -paying $50 consultation fee over the phone with a psychic adviser -personal time spent learning how to use accounting software -caring for your aged grandmother at home -personally rotating the tires on your neighbor's car

paying $50 consultation fee over the phone with a psychic adviser

The relationship between economic freedom and per capita GDP is: -negative. -positive. -negative for advanced economies and positive for developing economies. -positive for advanced economies and negative for developing economies.

positive

Which of the following is NOT included in gross private domestic investment? -an increase in business inventories -purchases of common stock by investors -new equipment purchased by businesses -construction of residential housing

purchase of common stock by investors

GDP can be found either by adding up all of the _____ or all of the _____ in the economy. -investment; income -spending; income -spending; taxes -net interest payments; taxes

spending; income

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing: -cyclical unemployment. -structural unemployment. -frictional unemployment. -full unemployment.

structural unemployment

Which of the following would promote long-run economic growth? -firms hiring unemployed workers -renting unoccupied office space to new businesses -converting idle land into farm land -technological advancement

technological advancement

Which of the following did classical economists believe would happen if the economy experienced a downturn? -Prices would rise. -Interest rates would rise. -The economy would self-correct. -The government would fix the inefficiencies.

the economy would self correct

If a government always balances its budget: the effect of an increase in government spending on aggregate expenditures is weakened. the economy can never fall into a recession. economic growth is spurred by showing businesses that budgets can be balanced. raising taxes has no net effect on total spending.

the effect of an increase in government spending on aggregate expenditures is weakened

Firms decide how much to invest by comparing the rate of return on their projects with: the productivity of the workers assigned to the projects. the interest rate. the before-tax rate of return. their total profit.

the interest rate

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle. -expansion -trough -contraction -recovery

trough

Which is NOT an example of infrastructure? -the federal highway system -Walmart stores -airports -the Hoover Dam

walmart stores