ECO119 Midterm 1

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates: can vary wildly increase decrease are unchanged

decrease

An increase in the supply of capital will: increase the productivity of capital increase the real rental price of capital increase the marginal product of capital decrease the real rental price of capital

decrease the real rental price of capital

When a firm sells a product out of inventory, investment expenditures ______ and consumption expenditures ______. increase; decrease decrease; increase decrease; remain unchanged remain unchanged; increase

decrease; increase

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: increases GDP by more than $60,000 increases GDP by $60,000 decreases GDP by $60,000 does not change GDP

decreases GDP by $60,000

The investment function slopes ________ because there are __________ investment projects that are profitable as the interest rate decreases upward; more downward; more upward; fewer downward; fewer

downward; more

In the long run, the level of national income in an economy is determined by its: government budget surplus or deficit real and nominal interest rate rate of economic and accounting profit factors of productions and production function

factors of productions and production function

The neoclassical theory of distribution explains the allocation of: output among consumption, investment, and government spending income between saving and investment output between goods and services income among factors of production

income among factors of production

The demand for loanable funds is equivalent to: investment public saving national saving private saving

investment

According to the model developed in Chapter 3, when government spending increases without a change in taxes: consumption increases investment decreases consumption decreases investment increases

investment decreases

When bread is baked but put away later for sale, this is called: waste fixed investment saving investment in inventory

investment in inventory

When a firm sells a product out of inventory, GDP: increases is not changed increases or decreases, depending on the year the product was produced decreases

is not changed

When the demand for loanable funds exceeds the supply of loanable funds, households want to save ________ than firms want to invest, and the interest rate __________ more; falls more; rises less; falls less; rises

less; rises

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given level of disposable income. This shift, ina. neoclassical economy, will: lower both investment and the interest rate lower investment and raise the interest rate raise investment and lower the interest rate raise both investment and the interest rate

lower investment and raise the interest rate

In the classical model with fixed income, a reduction in the government budget deficit will lead to a: higher real interest rate higher level of output lower level of output lower real interest rate

lower real interest rate

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their: supply marginal productivities relative political power equilibrium growth rates

marginal productivities

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. overestimates; does not underestimates; does not overestimates; does accurately estimates; does

overestimates; does not

In the classical model, what adjusts to eliminate any unemployment of labor in the economy? the real wage the real rental price of capital the interest rate the average price level

the real wage

in computing GDP: the value of intermediate goods is included in the market price of the final goods the production added to inventories is excluded expenditures on used goods are included the amount of production in the underground economy is imputed

the value of intermediate goods is included in the market price of the final goods

A farmer grows a bushel of wheat and sells it to a miller for $1. The miller turns the wheat into flour and then sells the flour to a baker for $3. The baker uses the flour to make bread and sells the bread to an engineer for $6. When the engineer eats the bread, what is the value added by each person? What is the bread's contribution to GDP? The farmer's added value is $ The miller's added value is $ The baker's added value is $ The bread's contribution to GDP is $

1 2 3 6

Exhibit: Saving, Investment, and the interest rate 1The economy begins in equilibrium at point E, representing the real interest r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts taxes, holding al other factors constant? (look at chapter 3 question 17 for picture)

Point A

If the productivity of farmers has risen substantially over time because of technological progress, and workers can move freely between being farmers and barbers, the neoclassical theory of distribution predicts that the real wages of: both barbers and farmers should have remained constant over time barbers should have risen while the real wage of farmers should have remained constant both barber and farmers should have risen over time farmers should have risen while the real wage of barbers should have remained constant

both barber and farmers should have risen over time

Unlike the real world, the classical model with fixed output assumes that: capital and labor are fully utilized all capital is fully utilized, but some labor is unemployed some capital lies idle, and some labor is unemployed all labor is fully employed, but some capital lies idle

capital and labor are fully utilized

Real GDP is a better measure of economic well-being than nominal because real GDP: excludes the value of goods and services exported abroad includes the value of government transfer payments adjusts the value of goods and services produced for changes in the foreign exchange rate measures changes in the quantity of goods and services produced by holding prices constant

measures change in the quantity of goods and services produced by holding prices constant

(Exhibit: Saving, investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)? (look at other quizlet with picture) https://quizlet.com/491402418/eco-119-exam-1-flash-cards/

point A

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. positively; positively negatively; negatively negatively; positively positively; negatively

positively; negatively

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, national saving: falls by $100 billion falls by $60 billion rises by $100 billion rises by $60 billion

rises by $60 billion

Two equivalent ways to view GDP are as the: total expenditures on all goods produced in the economy or the total income earned from producing all services in the economy total payments made to all workers in the economy or the total profits of all firms and businesses in the economy. total profits of all firms and businesses in the economy or the total consumption of goods and services by all households in the economy total income of everyone in the economy or the total expenditure on the economy's output of goods and services

total income of everyone in the economy or the total expenditure on the economy's output of goods and services