Macroeconomics - Final Review

An economy produces shirts and fish. In 2010, 1 pound of fish cost $1, and a shirt cost $1. The economy produced 10 pounds of fish and 10 shirts. In 2011, 1 pound of fish cost $2, and a shirt cost $0.50. The economy produced 5 pounds of fish and 20 shirts. If real GDP is measured in 2011 prices, then real GDP in 2010 was $25, and real GDP in 2011 was _____. This implies a real GDP growth rate of _____ percent.

$20; −20

A firm is considering a number of investment projects with different rates of return. Project A would cost $10,000 and earn a rate of return of 5 percent; Project B would cost $8,000 and earn 3 percent; and Project C would cost $6,000 and earns 7 percent. If the real interest rate were to decrease from 6 percent to 2 percent during the firm's planning stage, then its planned investment would increase from:

$6,000 to $24,000.

Bill sells his car to a used car dealer for $4,000, which then sells it to another household for $5,000. Together, these transactions add _____ dollars to the GDP.

1000

Suppose that consumers purchase lettuce and computer chips. In 2010, 1 pound of lettuce cost $1, a computer chip cost $1, and the typical consumer bought 10 pounds of lettuce and 10 computer chips. In 2011, 1 pound of lettuce cost $2, a computer chip cost $0.50, and the typical consumer bought 5 pounds of lettuce and 20 computer chips. In 2012, 1 pound of lettuce cost $2.10, a computer chip cost $0.90, and the typical consumer bought 12 pounds of lettuce and 20 computer chips. Using 2010 as the base year, the inflation rate between 2011 and 2012 is _____ percent.

20

Suppose that nominal GDP increases by 5 percent in a year when the inflation rate, as measured by the percentage change in the GDP deflator, is 2 percent. This means that the real GDP growth rate is approximately _____ percent in that year.

3

Suppose that nominal GDP increases by 6 percent in a year when real GDP increases by 3 percent. This means that the inflation rate, as measured by the percentage change in the GDP deflator, is approximately _____ percent in that year.

3

Which list includes only examples of government transfer payments?

A government check for housing assistance to a person in New York; a Social Security check sent to Estella's grandparents; unemployment insurance compensation paid to an unemployed automobile worker

The marginal product of labor measures the additional output produced by hiring an additional unit of labor, and _____ labor productivity is Y divided by L.

Average

According to the text, the inflation rate measured by the percentage change in the CPI usually exceeds the inflation rate measured by the percentage change in the PCE deflator. This is MOST likely because the:

CPI may overstate the inflation rate.

The core inflation rate measures the increase in price of a consumer basket that excludes:

Food and energy products.

An increase in the overall level of prices is called:

Inflation

According to the neoclassical theory of distribution, the labor share of output is MPL × (_____ ÷ Y).

L

Adjustment of the CPI to reflect the measurement problems that currently result in the overstatement of price increases will:

Reduce government spending

Expenditures counted in GDP include all of these EXCEPT:

Social Security payments.

Which statement regarding the CPI and the GDP deflator is TRUE?

The GDP deflator is a Paasche index and accounts for substitution of goods when prices change.

In microeconomics, individuals make decisions in order to maximize their satisfaction, also known as:

Utility

When a competitive firm hires an additional worker:

W is constant, P is constant, and MPL changes.

If a household's marginal propensity to consume falls as its disposable income rises, then the consumption function for the household has a shape similar to:

a production function.

Other things constant, the unemployment rate can fall because of:

an increase in the number of discouraged workers.

Economic models:

are simplified explanations of relationships among economic variables.

All of these statements are true regarding nominal GDP EXCEPT that it:

cannot increase.

Real GDP calculations are sensitive to the choice of the base year and might generate vastly different conclusions regarding the real GDP growth rate, depending on the base year chosen. The _____ measures of real GDP avoid this problem by using the _____ of prices in two base years.

chain-weighted; average

The PCE deflator is the ratio of nominal _____ spending to real _____ spending.

consumer; consumer

According to the text, the two largest income categories in the United States in 2016 were compensation of employees and:

corporate profits.

A person with two paying jobs is _____ in the establishment survey.

counted twice

When investment spending decreases in response to an increase in government purchases, this is called:

crowding out.

An economy produces wind turbines, pizza, automobiles, and haircuts. Consumers only purchase pizza and haircuts, whereas firms purchase wind turbines, and the government purchases automobiles. A decrease in the price of wind turbines will:

decrease the implicit price deflator.

Other things equal, when the real interest rate rises, a number of investment projects become unprofitable, and investment spending in the economy:

decreases.

C + I + G is the _____ for the economy's output, and F(K, L) is the _____ of the economy's output.

demand; supply

Who is NOT counted as part of the labor force in most statistical surveys?

discouraged workers

In the supply-and-demand model, the equilibrium price and the equilibrium quantity are:

endogenous variables.

In the supply-and-demand model for pizzas, the prices of inputs such as tomatoes and pepperoni are examples of _____ variables and are determined _____ the model.

exogenous; outside

Suppose that unemployed workers decide to retire rather than continue to seek employment. All else equal, this phenomenon would cause the unemployment rate to:

fall

Gross domestic product (GDP) is the market value of all _____ produced within an economy in a given period of time.

final goods and services

In microeconomics, when economists state that households and firms "optimize," they mean that:

firms make production decisions to maximize their profits and households maximize their utility.

Crowding out occurs when a(n):

increase in government purchases decreases investment.

Between 2000 and 2015, the number of cell phones in use in the United States increased dramatically, while the price of using a cell phone fell. This can be explained by a(n):

increased supply of cell phones.

When _____, the _____ rate tends to decrease.

inflation increases; unemployment

Since the early 1980s, inflation in the United States has been relatively _____ and _____.

low and stable

All of these are economic actors in a realistic version of the circular flow diagram of dollars through the economy EXCEPT:

markets for goods and services.

Gross domestic product (GDP):

measures an economy's total income as well as the total expenditure on the output of the economy.

All else equal, a reduction in taxes would increase consumption by the marginal propensity to consume _____ the amount of the reduction in taxes.

multiplied by

The demand for factors of production is _____ to factor prices, while the supply of factors of production is not related to factor prices.

negatively related

The demand for goods and services in a closed economy is the sum of all of these EXCEPT:

net exports.

Real GDP is often plotted using a logarithmic scale. On such a scale, equal distances represent equal _____ changes.

percentage

An economy produces wind turbines, pizza, automobiles, and haircuts. Consumers purchase pizza and haircuts, as well as T-shirts made in another country. Firms purchase wind turbines, as well as x-ray machines made in another country. The government purchases automobiles. An increase in the price of x-ray machines will increase the _____ price index. An increase in the price of T-shirts will increase the _____ price index.

producer; consumer

A fall in government purchases, with taxes held constant, will _____ national saving, _____ the interest rate.

raise, lowering

In the simple circular flow diagram in the text, households:

receive all the income because households are the owners of the firms.

The price of a good is observed to rise at the same time that the quantity purchased rises. This can be explained by a _____ the good.

rise in demand for

The price of a good is observed to fall at the same time that the quantity purchased rises. This can be explained by a _____ the good.

rise in supply of

An increase in government purchases, with taxes unchanged, will cause the equilibrium real interest rate to _____ and investment to _____.

rise, fall

A company is considering purchasing a solar generator. This generator costs $50,000, does not depreciate, and reduces energy cost by $2,500 each year. If the real cost of borrowing is currently r = 4 percent, this firm _____ the solar generator if profit is the only consideration.

should purchase

Disposable income is income after:

the payment of all taxes.