macro

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because: A. the direct changes in spending change the income of producers which leads to additional changes in spending. B. multiple deposits are generated when new reserves are produced through fractional reserve banking. C. autonomous spending supports more output than induced spending. D. planned changes in inventories signal producers to adjust the level of output.

A

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: Name of company: revenues: cost of purchased input: fulton family farm $0.50 0 delux popcorn co $2.50 $0.50 friendly groceries $4.00 $2.50 What is the total contribution of the above to GDP? A. $ [0.50 + 2.50 + 0.50 + 4.00 + 2.50] = $10 B. $ [0.50 + 2.50 + 4.00] = $7 C. $ [(0.50 - 0) + (2.50 - 0.50) + (4.00 - 2.50)] = $4 D. $ [(0.50 x 0) + (2.50 x 0.50) + (4.00 x 2.50)] = $11.25

C

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: name of company revenues cost of purchased inputs citrus growers inc $0.70 0 florida jam company $2.00 $0.75 the corner store $2.50 $2.00 What is the value added of Citrus Growers Inc.? A. $0.00 B. $0.50 C. $0.75 D. $1.25

C

Sydney purchases a newly-issued, two-year government bond with a principal amount of $10,000 and a coupon rate of 6% paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if the prevailing interest rate is 5%? A. $9,524 B. $10,000 C. $10,095 D. $10,600

C

The Federal Reserve can: A. simultaneously set any money supply and any nominal interest rate target. B. set the target money supply and target nominal interest rate independently. C. only set a money supply target that is consistent with the target nominal interest rate. D. only target the money supply, not the nominal interest rate.

C

The current price of a stock increases when: A. expected future dividends decrease. B. the expected future price of the stock decreases. C. interest rates decrease. D. the perceived riskiness of the stock increases.

C

The rise in average living standards experienced by most industrialized countries: A. has been continuous over the course of human history. B. was more rapid before 1870 than after 1870. C. has been more rapid since 1950 than before 1950. D. has resulted primarily from an increase in population worldwide.

C

When recessions are the result of slowing growth in potential output, the government's best response is a policy to: A. increase aggregate demand. B. decrease aggregate demand. C. promote saving and investment. D. reduce government spending.

C

To close a recessionary gap, the Fed ____ interest rates which ______ planned aggregate spending and _____ short-run equilibrium output. A. lowers; increases; increases B. raises; decreases; increases C. raises; decreases; decreases D. lowers; increases; decreases

A

Two possible explanations for the decline in the natural rate of unemployment in the United States over the past twenty years are: A. the changing age structure of the population and more efficient labor markets. B. advances in computer technology and globalization. C. increasing wage inequality and skill-biased technological change. D. greater quantities of human capital and increased average labor productivity.

A

When actual investment is greater than planned investment: A. firms sold less output than expected. B. firms sold more output than expected. C. the quantity of output sold is the amount the firm expected to sell. D. the economy produces short-run equilibrium output.

A

3. The opportunity cost of an activity includes the value of: A. all of the alternatives that must be forgone. B. the nextbest alternative that must be foregone. C. the leastbest alternative that must be foregone. D. the chosen activity minus the value of the nextbest alternative.

B

5. In the year 2006, Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. He also pays a one percent commission to the auction house that sold the painting. What is the contribution of this transaction to GDP in the year 2006? A. $0 B. $200,000 C. $20 million D. $20.2 million.

B

6. You are given the following information about the economy: consution 8000 investment 1000 gov purchases 1000 net exports 0 gov transfers and interest payments 500 gov tax collections 1,700 Private saving is _____; public saving is ________; and national saving is ______. A. 800; 200; 600 B. 800; 200; 1,000 C. 1,000; 800; 1,000 D. 1,500; 700; 2,700

B

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for: A. the decline in the natural rate of unemployment. B. short-term economic fluctuations. C. increasing wage inequality. D. skill-biased technological change.

B

Economic activity moves from a period of expansion to a _______ and then moves into a period of _______ until it reaches a _____. A. peak; expansion; trough B. peak, recession; trough C. trough; expansion; peak D. trough; recession; peak

B

Federal Reserve actions that increase nominal interest rates and decrease the money supply A. close a recessionary gap. B. close an expansionary gap. C. raise the monetary policy rule. D. raise bond prices.

B

For an economy starting from potential output, a decrease in planned investment in the short run results in a(n): A. expansionary output gap. B. recessionary output gap. C. increase in potential output. D. decrease in potential output.

B

If planned aggregate expenditure (PAE) in an economy equals 2,000 + .8Y and potential output (Y*) equals 11,000, then this economy has: A. an expansionary gap. B. a recessionary gap. C. no output gap. D. no autonomous expenditure.

B

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment? A. 0.02 B. 0.03 C. 0.04 D. 0.05

B

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ________ to eliminate any output gap. A. increase by 10 B. decrease by 100 C. increase by 1000 D. decrease by 1000

B

If the actual rate of unemployment equals the natural rate of unemployment, then: A. potential output is greater than real GDP. B. potential output equals real GDP. C. potential output is less than real GDP. D. there is a recessionary gap.

B

If the output gap equals -$200 million, then A. cyclical unemployment equals the sum of structural and frictional unemployment. B. there is a recessionary gap. C. there is no cyclical unemployment. D. potential GDP is less than actual GDP.

B

In 1998, average labor productivity in the U.S. was $66,381 per worker and 48.9% of the population was employed. What is the per capita GDP in 1998? A. $33,921. B. $32,460. C. $66,381. D. cannot be determined.

B

In an economy where planned aggregate spending is given by PAE = 5,500 + .6Y - 20,000 r, the central bank is currently setting the interest rate at 0.06 (6 percent). If potential output equals 11,250, the central bank must ____ the interest rate to close the __________ gap. A. lower; expansionary B. lower; recessionary C. raise; recessionary D. raise; expansionary

B

Inflation in the health-care sector apparently is overstated because the CPI does not adequately adjust for _____ changes. A. price B. quality C. volume D. quantity

B

Two reasons savers keep deposits at banks are to: A. secure mortgages and to purchase stocks. B. earn a return on their savings and to facilitate making payments. C. lower interest rates and to increase the money supply. D. equalize loan supply and demand and to earn interest.

B

Which of the following transactions would be included in the GDP of the United States? A. Coca Cola produces soft drinks in England. B. Honda produces cars in Ohio. C. McDonalds sells hamburgers in Russia. D. Ford Motor Company produces cars in Mexico.

B

Changes in consumption and planned investment spending resulting from changes in the real interest rate alter: A. the money supply. B. money demand. C. autonomous expenditures. D. induced expenditures.

C

14. If the frictional rate of unemployment equals 3 percent, the structural rate of unemployment equals 4 percent, and the cyclical rate of unemployment equals -2 percent, then the natural rate of unemployment equals: A. -2%. B. 0%. C. 2%. D. 7%.

D

2. Which of the following is an example of investing in physical capital? A. A firm trains workers to operate new machinery. B. A firm pays for workers to take college classes. C. A chemical firm employs chemists to develop new chemicals. D. A firm purchases new equipment for a manufacturing process.

D

3. Based on the table below, if the production process described below is subject to diminishing returns to capital, then total packages wrapped when a fourth machine is installed must be less than _____ packages. # of machines total packages wrapped 1 5,000 2 9,000 3 12,000 A. 3,000 B. 4,000 C. 12,000 D. 15,000

D

8. If Alex uses $800 from her checking account to pay her credit card balance, her wealth: A. increases by $800. B. decreases by $800. C. increases by $1,600. D. does not change.

D

8. The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2000, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2005, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2005 on Planet Econ equals: A. 1.00 B. 1.08 C. 1.15 D. 1.25

D

The costs of economic growth include current consumption sacrificed for: A. physical capital formation. B. acquiring new human capital. C. research and development into new technologies. D. all of the above.

D

Velocity is determined by: A. the Federal Reserve. B. the size of the government budget deficit. C. average labor productivity times the population growth rate. D. payments methods and technology.

D

If the money supply exceeds money demand, people will ____ bonds which will cause bond prices to ____ and the nominal interest rate to _____ until money demand equals money supply. A. buy; rise; fall B. sell; fall; fall C. sell; rise; fall D. buy; fall; rise

A

In Macroland, a country that operates according to Okun's law, potential GDP equals $10 trillion, the actual rate of unemployment is 8 percent, and the natural unemployment rate is 6 percent. What is real GDP in Macroland? A. $9.6 trillion B. $9.8 trillion C. $10 trillion D. $10.2 trillion

A

In the long-run, the real interest rate is determined by ______, and in the short-run, the Federal Reserve can control the real interest rate by setting the nominal interest rate if inflation adjusts _____. A. saving and investment; slowly B. saving and investment; quickly C. the Federal Reserve; quickly D. the Federal Reserve; slowly

A

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of _____ indicators of economic activity. A. coincident B. preceding C. lagged D. real

A

Prior to January 2000, the demand for money increased as people anticipated Y2K problems. If the Fed took no actions to offset this increase in money demand and assuming that the anticipated Y2K problems did not change money supply, then nominal interest rates would _____. A. increase B. decrease C. remain constant D. equal the real interest rates

A

13. If the output gap equals $200 million, then A. cyclical unemployment equals the sum of structural and frictional unemployment. B. there is an expansionary gap. C. there is no cyclical unemployment. D. potential GDP is less than actual GDP.

B

11. If all prices, including the price of beef, increase by 3%, then the relative price of beef ____ and there _____ inflation. A. increased; is B. increased; is no C. remained constant; is D. remained constant; is no

C

According to Okun's Law, each extra percentage point of ___ unemployment is associated with a ____ percentage point increase in the output gap, measured in relation to potential output. A. frictional; 2 B. frictional; 4 C. cyclical; 2 D. cyclical; 4

C

Dave's Mirror Company produces $1,250,000 worth of mirrors this year. They expect to sell $1,000,000 worth of mirrors over the year. The company purchases $300,000 of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave's Mirror Company equals _____ and planned investment equals _______. A. $250,000; $150,000 B. $300,000; $200,000 C. $550,000; $450,000 D. $650,000; $550,000

D

If firms maintain preset prices in the short run, then the primary cause of outputs gaps is changes in: A. potential output. B. prices. C. capital and technology. D. economywide spending.

D

If the income-expenditure multiplier equals 4 and a 1 percentage point increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by _____ the real interest rate by _____ percentage points. A. increasing; 10 B. increasing; 4 C. increasing; 2.5 D. decreasing; 2.5

D

In Macroland autonomous consumption equals 100, the marginal propensity to consume equals .75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Planned Aggregate Expenditure equals _______ and the short run equilibrium output equals _______ A. .25Y; $290. B. 320 + .25Y; $1,600. C. .75Y; $290. D. 290 + .75Y; $1160.

D

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals _____ and the slope of the expenditure line equals _____. A. induced expenditures; autonomous expenditures B. autonomous expenditures; induced expenditures C. planned spending; unplanned spending D. autonomous expenditures; the mpc.

D

In the Keynesian model deviations of output from potential are caused by: A. fluctuations in average labor productivity. B. random output shocks. C. changing asset prices. D. fluctuations in aggregate spending

D

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be: A. increased by $10 billion. B. decreased by $10 billion. C. increased by more than $10 billion. D. decreased by less than $10 billion.

D

In Macroland the government prints $1,000 out and transfers to people who tend to hold the half of income in their wallet and deposit the rest of income into a bank. The bank maintains 10% of reserves-deposit ratio to respond to a withdrawal. (a) Describe the bank's balance sheet with reserves, loan, and deposit. Find out money supply of Macroland and explain why the money supply is greater than the printed money, $1,000.

Since people hold the half of printed money, $500 in their pocket, the rest $500 is deposited in the bank. The creation of money supply will end when the $500 deposit is maintained as reserves. So in the bank balance sheet the reserve is $500 and the deposit is $5,000 because reserves/deposit=0.1. The loan is $4,500 in order to make the total assets be equal to the total liabilities of the bank. Then money supply is $5,500 which is the sum of currency held by people, $500 and deposits, $5,000.

11. Which of the turning points are peaks? turning point date real gdp(1996 $ billions) (a) jul 1953 1992.2 (b) may 1954 1941.0 (c) april 1957 2182.7 (d) april 1958 2117.4 (e) april 1960 2391.0 A. (A), (B), and (C) B. (C), (D), and (E) C. (A), (C), and (E) D. (B) and (D)

C

13. Based on the following information, what is the unemployment rate? population 16 and older 1,000,000 participation rate 80% employed workers 720,000 A. 7.2% B. 8.0% C. 10.0% D. 28.0%

C

3. Which of the following would increase the investment component of U.S. GDP? A. You purchase a vacation at Disney World in Florida. B. You purchase shares of Disney stock. C. Disney World purchases tires for the monorail from a firm in Ohio. D. A French man purchases a vacation at a Disney theme park in France.

C

5. Due to the fact that Curly used his frequent flyer miles to fly to visit Moe, Curly told Moe that it didn't cost him anything to visit. Is Curly correct? A. Yes, because Curly's frequent flyer miles made the trip free. B. Yes, because Curly could stay at Moe's house for free. C. No, because Curly could have used his frequent flyer miles to go somewhere else instead. D. No, because Curly had to pay for earlier trips in order to earn the frequent flyer miles.

C

6. As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called: A. the income effect. B. the change in equilibrium. C. the substitution effect. D. a shift in the demand curve.

C

7. Countries A and B are identical in all respects except that there is more air and water pollution in A that in B. Then the level of GDP (calculated using the same method as we do here in the US) A. will be higher in the country A than B. B. will be higher in the country B than A. C. will be the same in both countries. D. will be greater than the level of economic well-being in each country.

C

10. Suppose that the CPI does indeed overstate the rate of inflation. When the CPI increases by 5% and household incomes increase by 5%, we should conclude that the real incomes of households actually: A. increased. B. stayed constant. C. decreased. D. increased more slowly than inflation.

A

12. Which of the following periods was a recession? turning point date real gdp(1996 $ billions) (a) jul 1953 1992.2 (b) may 1954 1941.0 (c) april 1957 2182.7 (d) april 1958 2117.4 (e) april 1960 2391.0 A. July 1953 through May 1954 B. May 1954 through A C. July 1953 through April 1957 D. May 1954 through April 1958

A

5. Which of the following is an example of the life-cycle motive for saving? A. Pat puts $400 per month in his 401(k) retirement account. B. Jordan sets aside $200 per month in case she has to pay for a new roof for her house. C. Gerry and Terry put $2,000,000 in a trust fund that will go to their children when they die. D. Chris keeps $15,000 in a money market account to pay expenses in case she loses her job.

A

9. What might cause a demand function to shift to the right? A. An increase in the price of a substitute. B. An increase in the product's own price. C. An increase in the price of a complement. D. A decrease in the price of a substitute.

A

A consumer expenditure survey reports the following information on entertainment spending: 2005 2006 movies $7, 5 quantity $8, 7 quantity concerts $30, 2 quantity $35, 2 quantity cd's $16, 7 quantity $15, 10 quantity Using 2005 as the base year, by how much does a "cost of entertainment" index increase between 2005 and 2006? A. 3.86% B. 8.65% C. 13.43% D. 29.41%

A

A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $3000 in 2015 when the CPI equaled 1.68. The real cost of tuition between 1972 and 2015: A. increased. B. decreased. C. remained constant. D. may have either increased or decreased.

A

Ex-post (in an accounting sense), Savings _____ equals Investment. However, ex-ante, ______ savings may very well be different from _______ investment. It is the ______ which adjusts to make desired savings equal to desired investment. A. sometimes; public; private; inflation rate B. always; desired; desired; real interest rate C. always; actual; actual; nominal interest rate D. never; actual; actual; real interest rate

B

Fred purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the first, second, and third years and pays $10,400 upon its maturity at the end of four years. The principal amount of this bond is ___, the coupon rate is ____, and the term of this bond is _____. A. $400; 40%; four years B. $10,000; 4%; four years C. $10,000; $400; 4% D. $10,400; 4%; four years

B

If a bank's desired reserve/deposit ratio is .33 and it has deposit liabilities of $100 million and reserves of $50 million, it: A. has too few reserves and will reduce its lending. B. has too many reserves and will increase its lending. C. has the correct amount of reserves and outstanding loans. D. should increase the amount of its reserves.

B

If the Consumer Price Index increased from 1.52 to 1.65, then it must be the case that _____ relative to prices in the base year. A. all prices rose B. the weighted average level of prices rose C. all prices fell D. some prices rose and some prices fell

B

If the money supply grows by 5 percent per year, velocity grows by 1 percent per year, and real GDP grows by 3 percent per year, then the rate of inflation is approximately _______ percent per year. A. 1 B. 3 C. 5 D. 7

B

In Macroland there is $1,000,000 in currency that can either be held by the public or used by banks as reserves. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______. A. increase. B. decrease. C. remain the same. D. either increase or decrease.

B

Jordan has the following assets and liabilities: two cars $10,000 house $200,000 mortgage $100,000 cash $1000 car loans $3000 checking account $2000 credit card balance $1000 Jordan's wealth is _____, the value of Jordan's assets is _____ and the value of Jordan's liability is _____. A. $107,000; $213,000; $100,000 B. $109,000; $213,000; $104,000 C. $111,000; $213,000; $100,000 D. $213,000; $317,000; $104,000

B

Mike and Tom debone chicken breasts for Ted's Chicken Co. Mike is new and can only debone 30 chicken breasts per hour by hand, while Tom's experience allows him to debone 60 chicken breasts per hour by hand. Ted buys one new machine that can debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per week, but one of them is assigned to operate the machine instead of deboning the chicken breasts by hand. To obtain maximum average hourly productivity, ____ is assigned to use the machine and their combined average hourly productivity as a team is ____ chicken breasts A. Mike; 65 B. Mike; 80 C. Tom; 65 D. Tom; 100

B

National defense services provided by the military are: A. included in GDP at market prices. B. included in GDP at cost. C. excluded from GDP because they are not sold in markets. D. excluded from GDP because they are intermediate goods.

B

On January 1, 2014, Anna invested $5,000 at 5% interest for one year. The CPI on January 1, 2014 stood at 1.60. On January 1, 2015, the CPI was 1.68. The real rate of interest earned by Anna was ____ percent. A. -5 B. 0 C. 5 D. 8

B

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: name of company revenues cost of purchased inputs citrus growers inc $0.70 0 florida jam company $2.00 $0.75 the corner store $2.50 $2.00 7. What is the sum of the value added of all the firms? A. $2.00 B. $2.50 C. $2.75 D. $4.50

B

The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was ____ percent. A. -13.3 B. -11.8 C. 1.5 D. 13.3

B

Which of the following is an example of investing in human capital? A. A firm replaces manually controlled production with a computer controlled procedure. B. A firm pays for workers to take college classes. C. A chemical firm supports research to develop new chemicals. D. A firm purchases new equipment for a manufacturing process.

B

You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 8% return? A. $60 B. $62 C. $67 D. $70

B

1. Economics is best defined as the study of: A. inflation, interest rates and the stock market. B. supply and demand. C. how people make choices in the face of scarcity and the implications of those choices for society as a whole. D. the financial concerns of businesses and individuals.

C

4. Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two preschoolaged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than: A. $37,000 per year. B. $25,000 per year. C. $13,000 per year. D. $12,000 per year.

C

Empirical studies indicate that the maximum amount of air pollution occurs _______ levels of real GDP per person. ' A. at the highest B. at the lowest C. at intermediate D. equally at all

C

Governments contribute to increased average labor productivity in each of the following ways EXCEPT by: A. establishing well-defined property rights. B. maintaining political stability. C. imposing taxes on wages. D. allowing the free and open exchange of ideas.

C

Holding other factors constant, a decrease in the tax rate on the revenue generated by capital will: A. shift the savings graph to the right; reduce the equilibrium real rate of interest and increase national saving in equilibrium. B. shift the savings graph to the left; raise the equilibrium real rate of interest and decrease national saving in equilibrium. C. shift the investment graph to the right; raise the equilibrium real rate of interest and increase investment in equilibrium. D. shift the investment graph to the left; reduce the equilibrium real rate of interest and decrease investment in equilibrium.

C

If the annual real rate of return on a 10-year inflation-protected bond equals 1.5 percent and the annual nominal rate of return on a 10-year bond without inflation protection is 4.2 percent, what average rate of inflation over the ten years would make holders of inflation-protected bonds and holders of bonds without inflation protection equally well off? A. 0% B. 1.5% C. 2.7% D. 4.2%

C

In the base year, real GDP ______ nominal GDP. A. is greater than B. is less than C. is equal to D. could be greater than or less than

C

Most economists agree that ______ is/are the single most important source of productivity improvements. A. increases in human capital B. increases in physical capital C. technological advances D. discoveries of natural resources

C

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: name of company revenues cost of purchased inputs citrus growers inc $0.70 0 florida jam company $2.00 $0.75 the corner store $2.50 $2.00 If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2015? A. $0.00 B. $0.75 C. $2.00 D. $2.50

C

The supply of saving equals desired (or, ex-ante) _____ and the demand for saving equals desired (or, ex ante) _____. A. investment; national saving B. investment; public saving C. national saving; investment D. national saving; capital

C

When economists use market values to aggregate output, they sum the: A. number of items produced. B. quantity of items produced. C. price times the quantity of each item produced. D. inputs of each item produced.

C

1. GDP and CPI (10 + 10 + 10) = 30 points If the cost of building a Navy submarine rises, is the CPI or the GDP deflator affected more? Why?

CPI will not change at all, since CPI does not include the cost of Navy submarine in the consumer's fixed basket. But GDP includes it as one of the government spending, so GDP defle as the cost of ator will risbuilding a navy submarine rises.

1. If average labor productivity increases, real GDP per person: A. increases. B. decreases. C. remains constant. D. may increase or decrease depending on the change in the share of population employed.

D

10. Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data? supply constant. A. An increase in demand with stant. B. An increase in demand coupled with a decrease in supply. C. An increase in demand coupled with an increase in supply. D. A decrease in demand with supply con

D

14. Two groups of workers not counted as unemployed in the official unemployment statistics are _______ workers. A. chronically unemployed and short-term unemployed B. chronically-unemployed and discouraged C. chronically unemployed and involuntary part-time D. discouraged and involuntary part-time

D

9. A labor contract provides for a first-year wage of $15 per hour, and specifies that the real wage will rise by 2 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.09 in the second year. What dollar wage must be paid in the second year? A. $15.00 B. $15.30 C. $16.09 D. $16.68

D

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year? A. $10.00 B. $10.61 C. $11.15 D. $12.20

D

Chris earns $1,500 per week and spends $1,000 per week on living expenses, puts $200 in a savings account, and buys $300 worth of shares in a stock mutual fund. Chris's saving is ____ and Chris's saving rate is _____. A. $200; 13.3% B. $200; 20% C. $300; 20% D. $500; 33.3%

D

Comparisons of economic activity over time should be made using: A. nominal GDP adjusted for unemployment. B. nominal GDP per capita. C. current-dollar GDP. D. real GDP.

D

Entrepreneurs contribute to increased average labor productivity in each of the following ways EXCEPT by: A. introducing new production methods. B. implementing new technological processes. C. developing new products. D. assigning workers to jobs.

D

Growth in the share of population employed in the United States is likely to decline in the future because: A. increasing female labor force participation is predicted. B. increasing male labor force participation is predicted. C. population growth is expected to increase. D. an increasing proportion of those currently employed will be retiring.

D

Cost of Inflation (5 + 10 + 10) = 25 points "The shoe leather cost of inflation may be lower nowadays since people tend to use credit cards more frequently." Explain in detail.

Since people use credit cards as their transaction methods, they do not have to drop by the bank to withdraw money so that the shoe leather cost decreases.

Crowding out is the tendency for increased government deficits to: A. reduce investment spending. B. increase investment spending. C. reduce consumption spending. D. increase consumption spending.

A

Fred and Wilma just had a baby girl and want to make sure they save enough in the future to send her to college. This is an example of the ____ motive for saving. A. life-cycle B. bequest C. private D. precautionary

A

If the price of motel rooms increases by 10% while the prices of other goods and services increase by 5 % on average, the relative price of motel rooms has: A. increased. B. decreased by 5%. C. increased by 2%. D. remained constant.

A

If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living: A. increased by 14 percent. B. decreased by 12.5 percent. C. decreased by 14 percent. D. increased by 12.5 percent.

A

If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government interest payments equal $10 billion, then net taxes equal: A. $115 billion. B. $125 billion. C. $190 billion. D. $275 billion.

A

In the year, 2015 Janice Quinn sells a five-year-old car to Used Car, Inc. for $3,000. In the same year, Used Car, Inc. resells the car to Ima Goner for $3,500. What is the contribution of this transaction to GDP in the year 2015? A. $0 B. $500 C. $3,000 D. $6,500

A

The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming the values of the currency held by the public and the desired reserve/deposit ratio do not change, if the Central Bank of Macroland wishes to increase the money supply to 3,000, then it should conduct an open-market ____ government bonds to/from the public. A. purchase of 50 B. purchase of 250 C. purchase of 500 D. sale of 50

A

When Federal Reserve actions cause interest rates on newly issued bonds to decrease from 6% to 5%, the prices of existing bonds: A. increase. B. decrease. C. remain unchanged. D. decrease only if the coupon rate is less than 5%.

A

Which of the following is a flow? A. Saving B. Consumption C. Income D. All of the above

A

Cost of Inflation (5 + 10 + 10) = 25 points The figure below shows mortgage interest rates and inflation rates during 1990-2005 in the country of Econland. When would home mortgages have been especially attractive and why?

Around year 1995 is a good time to purchase house by using mortgages. One reason is that the mortgage rate is relatively low at that time so that we can save money for paying interest. The other reason is that the borrower can have a benefit when the inflation rate is high, because they can pay back less amount of real values than before.

1. If GDP is calculated by adding up the market value of goods and services produced, then more expensive items: A. receive the same weighting as cheaper items. B. receive a higher weighting than cheaper items. C. receive a smaller weighting than cheaper items. D. are double counted.

B

10. Two countries, Alpha and Beta, are otherwise identical except that each dollar in Alpha is used more frequently than each dollar in Beta. For this to be true it must be the case that __________ in Alpha than in Beta, holding other factors equal. (hint: the two countries have the same nominal GDP, real GDP and price levels). A. real GDP is greater B. the money stock is smaller C. the price level is greater D. velocity is less

B

12. If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower _____ and the lender ______. A. gains; gains B. gains; loses C. is not affected; gains D. loses; gains

B

15. Arthur is an unskilled worker, who is currently unemployed. He has been offered a minimum wage job paying $40 a day, but he is currently receiving unemployment insurance benefits of $50 a day, so he chooses not to accept the minimum wage job and to continue looking for a better job. Arthur is ______ unemployed. A. frictionally B. structurally C. cyclically D. not

B

15. The increasing availability of temporary job placement agencies and online job services has ______ the efficiency of matching workers and jobs and ____ the natural rate of unemployment in the United States. A. increased; increased; B. increased; reduced C. had no impact on; reduced D. decreased; increased

B

2. Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the CostBenefit Principle Tim should: A. drink a third glass of soda. B. drink a third glass of soda if the extra benefit of doing so is positive. C. drink a third glass of soda if his total benefit from drinking soda is positive. D. not drink a third glass of soda.

B

2. The value of intermediate goods are excluded from the measurement of GDP in order to: A. adjust for inflation. B. avoid double counting. C. index economic activity. D. measure GDP in constant prices

B

4. Educational services provided by public schools are: A. included in GDP at market prices by comparing the tuition rates at similarly placed private schools. B. included in GDP at cost. C. excluded from GDP because these services are not sold in markets. D. excluded from GDP because they are intermediate services.

B

4. Where Y is GDP, C is consumption, I is investment, T is net taxes, and G is government spending, if there is no trade, then private saving equals: A. C + I + G - T. B. Y - T - C. C. Y - T - G. D. Y - C - I.

B

7. You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger has increased from $2.50 to $2.99. You decide to have just one double cheeseburger for lunch. This is best described as a(n): A. substitution effect. B. income effect. C. buyer's reservation price effect. D. seller's reservation price effect.

B

8. Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that: A. people don't like to live in your neighborhood anymore. B. when housing prices rose, they started to exceed some of your neighbors' reservation prices. C. the demand curve for housing in your town has shifted to the left while supply remained constant. D. the supply curve for housing in your town has shifted to the right while demand has remained constant.

B

9. If banks' desired reserve ratio increases from .10 to .15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will: A. increase. B. decrease. C. not change. D. either increase or decrease.

B

Joy's Java Café needs $4,000 cash per day for customer transactions. Joy has a choice between going to the bank first thing on Monday morning to withdraw $20,000 - enough cash for the whole week - or going to the bank first thing every morning for $4,000 each time. Joy puts the cost of going to the bank at $3 per trip. Assume that funds left in the bank earn precisely enough interest to keep their purchasing power unaffected by inflation. Joy's Java Cafe is open 5 days a week for 50 weeks each year. When the inflation rate is 10% Joy goes to the bank everyday instead of once a week. Joy's annual shoe leather costs of inflation equal _____. A. $ 3 B. $150 C. $600 D. $750

D

Which of the following is an example of a final good? A. New computer software sold to a computer manufacturer for installation in new computers B. The services provided by lawyers to a computer manufacturer C. Computer chips sold to a computer manufacturer for installation in new computers D. A new computer sold to a business firm.

D

In Macroland the government prints $1,000 out and transfers to people who tend to hold the half of income in their wallet and deposit the rest of income into a bank. The bank maintains 10% of reserves-deposit ratio to respond to a withdrawal. (c) During the Christmas shopping season people in the Macroland typically hold larger amounts of cash to meet their shopping needs. What effect, if any, will this change in behavior have on the Macroland money supply? Explain your answer in detail.

If people hold larger amount in their wallet then the reserve in the bank decreases and so does the deposit. Money supply is reduced since the decrease in deposit is greater than the increase in the currency holdings of people.

Define private and public savings, respectively. Derive the Savings-Investment identity from the GDP equation with consumption, investment, government and international trade. Explain your steps and assumptions carefully and show that the sum of private, public and foreign sector's savings is equal to investment.

The definition of saving is income minus taxes and expenditure for current consumptions. So private saving is Y-T-C and public saving is T-G. So national saving S = (Y-T-C)+(T-G)=Y-C-G. We know that GDP identity equation, Y=C+I+G+NX, always hold. By plugging GDP equation, we have S=I+NX. Note that net export, NX, is same as net capital outflow, NCO, because net export represents net foreign asset holdings that we have. So S=I+NCO. Since net capital outflow= - net capital inflow, we can rewrite S+NCI=I where NCI is the amount that foreign countries invest in the U.S. assets. Thus private saving plus public saving plus foreign sector's saving are equal to investment.

1. GDP and CPI (10 + 10 + 10) = 30 points "A significant part of the increase in measured GDP associated with increased labor force participation by married women probably overstates the actual increase in economic activity". Explain why in detail.

The labor force participation of married women will increase in the GDP as they produce some value added in the economy. But this effect may over-estimate the actual economic activity because married women have already produced services at home before, although this work at home was not measured in GDP.

In Macroland the government prints $1,000 out and transfers to people who tend to hold the half of income in their wallet and deposit the rest of income into a bank. The bank maintains 10% of reserves-deposit ratio to respond to a withdrawal. (b) Nominal GDP of Macroland is $11,000 this year. How many times the money supply is used for transactions in average?

The quantity of theory tells us velocity V = Nominal GDP, PY / Money supply, M. In average, $5,500 of money supply will be used twice to make $11,000 value of transactions in Macroland. So velocity is 2.

Cost of Inflation (5 + 10 + 10) = 25 points One of main costs of inflation is the shoe leather cost. Describe the shoe leather cost.

To transact with cash, people need to withdraw money from the bank first. So there exists a cost to drop by the bank. If inflation rate is high then people may visit the bank more frequently. It is because they want to earn nominal interests from the bank as much as they can have. Thus the shoe leather cost increases as the inflation rate increases.

1. GDP and CPI (10 + 10 + 10) = 30 points. We know that Social Security Benefits are indexed to the CPI and most economists agree that the CPI overstates actual inflation. Assuming that the elderly consume the same market basket as other people, does Social Security provide the elderly with an improvement in their standard of living every year? Explain your answer.

Yes. As CPI overstates actual inflation, their Social Security Benefits indexed to the CPI will provide more nominal income to the elderly than the amount with the true inflation rate. So their living standard improves since they can purchase more goods and services with it.