ECO 202H Midterm #1
If nominal gross domestic product (GDP) in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?
1.27
If Y = AK^0.5L^0.5 and A, K, and L are all 100, the marginal product of capital is:
50
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:
October, November, and December.
If gross domestic product (GDP) measured in billions of current dollars is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are:
$704
If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by:
0.85 units.
If the consumption function is given by C = 500 + 0.5 (Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:
2,800
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:
760 * we know that the real interest rate equation is: nominal interest rate - rate of inflation * plug in the values listed above into ^^ 10 percent - 2 percent = 8 percent *now plug in 8 into r to find I (not 0.08) I = 1000 - 3(8) = 760.
An example of decreasing returns to scale is when capital and labor inputs:
both increase 10 percent and output increases 5 percent.
An example of increasing returns to scale is when capital and labor inputs:
both increase 5 percent and output increases 10 percent.
Private investment goods as measured in GDP are purchased by:
business firms and households.
Gross national product (GNP) equals gross domestic product (GDP) _____ income earned domestically by foreigners _____ income that nationals earn abroad.
minus; plus
In the national income accounts, consumption expenditures include all of these EXCEPT household purchases of: services. nondurable goods. durable goods. new residential housing.
new residential housing.
The real interest rate is the:
nominal interest rate minus the rate of inflation.
The labor force equals the:
number of employed and unemployed individuals.
A fixed-weight price index like the consumer price index (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.
overestimates; does not
In the national income accounts, all of these are classified as government purchases EXCEPT: payments made to Social Security recipients. purchases of military hardware. services provided by U.S. senators. services provided by police officers.
payments made to Social Security recipients.
The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in
performing an experiment in an economic system.
Consumption depends _____ on disposable income, and investment depends _____ on the real interest rate.
positively; negatively
A competitive, profit-maximizing firm hires labor until the:
price of output multiplied by the marginal product of labor equals the wage.
The nominal interest rate is the:
rate of interest that investors pay to borrow money.
An increase in the price of goods bought by firms and the government will show up in:
the GDP deflator but not in the CPI.
An increase in the price of imported goods will show up in:
the consumer price index (CPI) but not in the gross domestic product (GDP) deflator.
The consumer price index (CPI) is determined by computing:
the price of a fixed basket of goods and services, relative to the price of the same basket in a base year.
In a simple model of the supply and demand for pizza, the endogenous variables are:
the price of pizza and the quantity of pizza sold.
The gross domestic product (GDP) deflator is equal to:
the ratio of nominal GDP to real GDP.
The largest component of national income is:
compensation of employees.
Exogenous variables
determined outside the model.
Endogenous variables
determined within the model
A consumption function shows the relationship between consumption and:
disposable income.
According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they:
do not have a job but have looked for work in the past four weeks.
The assumption that the factor's supply is fixed will imply that the factor's:
supply curve is vertical.
Disposable personal income is defined as income after the payment of all:
taxes
The real wage is the return to labor measured in:
units of output.
Prices of items included in the consumer price index (CPI) are:
weighted according to the quantity of the item purchased by the typical household.
If the number of employed increases while the number of unemployed does not change, the unemployment rate:
will decrease
If an increasing proportion of the adult population is retired, then the labor-force participation rate:
will decrease.
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:
constant returns to scale.
A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage:
decreases GDP by $60,000.
Real gross domestic product (GDP) is a better measure of economic well-being than nominal GDP because real GDP:
measures changes in the quantity of goods and services produced by holding prices constant.
The real wage will increase if the:
productivity of labor increases.
If the unemployment rate is 6 percent and the number of employed is 188 million, then the labor force equals _____ million.
200 (HOW TO SOLVE): * set # of unemployment equal to x * set other side of the equation equal to 6% (x / (x + 188 million)) = 0.06 * solve normally 12 = x * add 12 million (x) to 188 million (number of employed) to find labor force =200 million!
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.
4.7 % (unemployed/unemployed + employed) (7 million / 7 million + 143 million)
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.
60 % ( unemployed + employed / adult population) ( 145 million + 5 million / 250 million)
Suppose an economist develops a theory that higher food prices arise from higher gas prices. According to the scientific method, which of the following is the economist's next step?
Collect and analyze data
Which statement about economic models is TRUE? -Economists use different models to address different economic phenomena. -The purpose of economic models is to show how endogenous variables -affect exogenous variables. -All economic models are based on the same assumptions. -There is only one correct economic model.
Economists use different models to address different economic phenomena.
True or False: Economic models can help us understand reality only when they include all details of the economy.
False
Which of the following statements is correct about the roles of economists? -In trying to explain the world, economists are policy advisers; in trying to improve the world, they are scientists. -Economists are best viewed as policy advisers. -Economists are best viewed as scientists. -In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.
In trying to explain the world, economists are scientists; in trying to improve the world, they are policy advisers.
what is the rate of return on education
Macroeconomics does NOT try to answer the question of: what causes recessions and depressions. what is the rate of return on education. why some countries have high rates of inflation. why some countries experience rapid growth.
Which of the following statements about models is correct? -Models cannot be used to explain how the economy functions. -Models cannot be used to make predictions. -The more details a model includes, the better the model. -Models assume away irrelevant details.
Models assume away irrelevant details.
Which of the following is an example of a positive, as opposed to a normative, statement? -Welfare payments should be increased because they lead to a better world for everyone. -When public policies are evaluated, the benefits to the economy of improved equality should be considered more important than the costs of reduced efficiency. -Decreasing inflation should be a top priority since inflation is more harmful to the economy than unemployment. -Prices rise when the government prints too much money.
Prices rise when the government prints too much money.
Macroeconomics
The study of the economy as a whole is called
the value of a firm's output less the value of the intermediate goods that the firm purchases.
The value added of an item produced
How are economists not like mathematicians, physicists, and biologists?
They cannot run lab experiments in the same way that other scientists can.
True or False: Assumptions can simplify the complex world and make it easier to understand.
True
True or False: Economic models are most often composed of diagrams and equations.
True
True or False: Economic models omit many details to allow us to see what is truly important.
True
True or False: Economists may disagree about the validity of alternative positive theories about how the world works.
True
True or False: The scientific method can be applied to the study of economics.
True
Other things equal, an increase in the interest rate leads to:
a decrease in the quantity of investment goods demanded.
A trade in a barter economy requires:
a double coincidence of wants.
An increase in the supply of capital will:
decrease the real rental price of capital.
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:
decreases by 0.85 units.
The core inflation rate:
excludes food and energy prices.
In an economic model:
exogenous variables affect endogenous variables.
Macroeconomic models are used to explain how _____ variables influence _____ variables.
exogenous; endogenous
The marginal propensity to consume is:
expected to be between zero and one.
The total income of everyone in the economy is exactly equal to the total:
expenditure on the economy's output of goods and services.
A production function is a mathematical relationship between:
factors of production and the quantity of output produced.
Gross domestic product (GDP) is the market value of all _____ goods and services produced within an economy in a given period of time.
final
Economists make assumptions to
focus their thinking on the essence of the problem at hand.
Important characteristics of macroeconomic models include all of these EXCEPT: -functional relationships based on randomized control trials. -simplifying assumptions. -endogenous and exogenous variables. -implicit or explicit consistency with microeconomic foundations.
functional relationships based on randomized control trials.
Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation,
gives a better measure of ongoing, sustained price changes.
The statistic economists use to measure the value of economic output is:
gross domestic product (GDP)
The production function feature called "constant returns to scale" means that if we:
increase capital and labor by 10 percent each, we increase output by 10 percent.
If nominal gross domestic product (GDP) increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP _____ by _____ percent.
increased; 2
In the national income accounts, goods bought for future use are classified as which type of expenditure?
investment
According to the definition used by the U.S. Bureau of Labor Statistics, a person is not in the labor force if that person:
is going to school full time.
When a firm sells a product out of inventory, gross domestic product (GDP):
is not changed.
Positive statements are
claims about how the world is.
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 5 in 2009, then the gross domestic product (GDP) deflator in 2009, using a base year of 2002, was approximately:
1.7.
Assume that the consumption function is given by C = 200 + 0.7 (Y - T), the tax function is given by T = 100 + t1Y, and Y = 50K^0.5L^0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:
175
The marginal product of labor is:
additional output produced when one additional unit of labor is added.
The labor-force participation rate is the percentage of the:
adult population that is in the labor force.
The price received by each factor of production is determined by demand and what else?
and supply of factors.
Economists use the term money to refer to:
assets used for transactions.
The two MOST important factors of production are:
capital and labor.
Macroeconomists are like scientists in that they both:
collect data, develop hypotheses, and analyze the results.
Real gross domestic product (GDP) means the value of goods and services is measured in _____ prices.
constant
If output is described by the production function Y = AK^0.2L^0.8, then the production function has:
constant returns to scale.
In a closed economy, the components of GDP are:
consumption, investment, and government purchases.
Nominal gross domestic product (GDP) means the value of goods and services is measured in _____ prices.
current