Macroeconomics Exam 2

Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $100 million to $200 million between one year and the next. If the price of gold had not changed, what would have been the change in value of Glitter Gulch's real output? $____ million

100

Zion's nominal income will go up by 10 percent next year. Inflation is expected to be -2 percent next year. By approximately how much will Zion's real income change next year? -(-2 percent) -10 percent -8 percent -12 percent

12 percent

Businesses in the nation of Islandia have been accumulating cash because they have a pessimistic outlook of the national economy. Due to recent changes in the economic outlook of Islandia, business leaders have started investing some of their accumulated cash. Suppose that the recent economic outlook in the country of Mountainia has been the opposite. Businesses are instead accumulating cash and postponing planned investments. If business leaders postpone $5 billion of planned investment spending, what is the maximum expected change in GDP if Mountainia's marginal propensity to save is 0.2? $____ billion

-25

Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $100 million to $200 million between one year and the next. Assuming that the price of gold increased by 100 percent over the same period, by what percentage did Glitter Gulch's real output change? ____ percent

0

Suppose an economy's real GDP is $30,000 in year 1 and $31,200 in year 2. Assume that the population is 100 in year 1 and 102 in year 2. What is the growth rate of real GDP per capita? ____ percent

1.96 ($305.88 - $300)/300)

Businesses in the nation of Islandia have been accumulating cash because they have a pessimistic outlook of the national economy. Due to recent changes in the economic outlook of Islandia, business leaders have started investing some of their accumulated cash. If buiness leaders invest a total of $10 billion of accumulated cash, what is the maximum expected change in GDP if Islandia's marginal propensity to consume is 0.6? $____ billion

25

If GDP is $15 trillion, how many years will it take for GDP to increase to $30 trillion if annual growth is 2 percent? ____ years

35 (70/2)

Suppose an economy's real GDP is $30,000 in year 1 and $31,200 in year 2. What is the growth rate of its real GDP? ____ percent

4 $31,200 - $30,000)/$30,000)

If a catalog company finds its inventory of sweaters rising, and given that the company cannot change the price of sweaters, consider the number of sweaters it orders each month from the company that makes its sweaters. If inventories become very high, will the catalog company increase orders, decrease orders, or keep orders the same? -Decrease orders. -Increase orders. -Keep orders the same.

Decrease orders.

Which of the following statements is true? -Deflation means that the inflation rate is falling, whereas with inflation overall prices are rising. -Deflation means that the price level is falling, whereas with inflation overall prices are rising. -Deflation means that the price level is falling, whereas with inflation the inflation rate is rising. -Deflation means that the inflation rate is falling, whereas with inflation the inflation rate is rising.

Deflation means that the price level is falling, whereas with inflation overall prices are rising.

If a catalog company finds its inventory of sweaters rising, what does that tell you about the demand for sweaters? -Demand was unexpectedly high. -Demand was as expected. -Demand was unexpectedly low.

Demand was unexpectedly low.

True or False. Lenders are helped by unanticipated inflation.

False

True or False: Immigration has slowed economic growth in the United States.

False

If a catalog company finds its inventory of sweaters rising, and if the company could change the price of sweaters, would it raise the price, lower the price, or keep the price the same? -Lower the price. -Keep the price the same. -Raise the price.

Lower the price.

"Free" products make the calculation of GDP ____ difficult because: -it is easy to calculate the contribution that free products make to GDP. -statisticians must indirectly estimate the value that free products provide to their users. -statisticians simply ignore free products when calculating GDP.

More statisticians must indirectly estimate the value that free products provide to their users.

Real GDP equals _________ times _________. -average hours of work; allocative efficiency -natural resources; improvements in technology -average hours of work; quantity of capital -labor input; labor productivity

labor input; labor productivity

Suppose that Alpha and Omega have identically sized working-age populations but that total annual hours of work are much greater in Alpha than in Omega. What are two possible reasons for this difference? -More of Omega's labor force is unemployed, or workers in Omega place a lower value on leisure than those in Alpha. -More of Alpha's labor force is unemployed, or workers in Omega place a lower value on leisure than those in Alpha. -Alpha's labor force is underemployed, or workers in Omega place a higher value on leisure than those in Alpha. -Omega's labor force is underemployed, or workers in Omega place a higher value on leisure than those in Alpha.

Omega's labor force is underemployed, or workers in Omega place a higher value on leisure than those in Alpha.

Rearrange the following contributors to the growth of productivity in descending order of their quantitative importance: economies of scale, quantity of capital per worker, improved resource allocation, education and training, and technological advance. -Technological advance, quantity of capital, education and training, economies of scale, and improved resource allocation. -Improved resource allocation, technological advance, education and training, economies of scale, and quantity of capital. -Education and training, technological advance, quantity of capital, economies of scale, and improved resource allocation. -Technological advance, education and training, quantity of capital, improved resource allocation, and economies of scale.

Technological advance, quantity of capital, education and training, economies of scale, and improved resource allocation.

Who measures the labor force, and how is it defined? -The U.S. Labor Commission (USLC) measures the labor force as people over 18 years of age who are employed and those who are actively seeking work. -The U.S. Bureau of Employment (USBE) measures the labor force as people over 16 years of age who are employed and those who are actively seeking work. -The U.S. Bureau of Labor Statistics (BLS) measures the labor force as people over 18 years of age who are employed and those who are actively seeking work. -The U.S. Bureau of Labor Statistics (BLS) measures the labor force as people over 16 years of age who are employed and those who are actively seeking work.

The U.S. Bureau of Labor Statistics (BLS) measures the labor force as people over 16 years of age who are employed and those who are actively seeking work.

True or False. Larger MPCs imply larger multipliers.

True

True or False: Many public capital goods are complementary to private capital goods.

True

True or False: Technological advance is destined to play a more important role in the future.

True

Hedonic adjustments are used to: -calculate the value of free products when estimating GDP. -influence consumer behavior in their purchasing decisions. -account for improvements in product quality when estimating GDP and inflation.

account for improvements in product quality when estimating GDP and inflation.

The sum of the MPC and the MPS must equal 1 because -when the MPC and the MPS equal 1, the economy is in equilibrium. -total income must be spent or saved. -all additional income must be spent or saved. -these values are determined by macroeconomic policy makers.

all additional income must be spent or saved.

Macroeconomists focus on just a few key statistics when trying to understand the health and trajectory of an economy because -there is insufficient information to do anything else. -this is the positive approach, which is shown to be more effective. -this is the normative approach, which is shown to be more effective. -it is too difficult to process all of the information in each market or for every good or service in the economy.

it is too difficult to process all of the information in each market or for every good or service in the economy.

The Consumer Price Index (CPI) is determined each month by -comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in cities around the country. -averaging all the prices of goods and services in the economy. -estimating the prices of goods and services in the economy at the same rate as the cost of living increases. -comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year.

comparing the value of a market basket of goods that consumers typically purchase to the value of the basket in a base year.

Use the concepts of gross investment and net investment to distinguish between an economy that has a rising capital stock and one that has a falling capital stock. Evaluate: "Though net investment can be positive, negative, or zero, it is impossible for gross investment to be less than zero.". This statement is: -correct, because depreciation cannot exceed gross investment. -correct, because depreciation cannot be less than zero. -incorrect, because net investment is sometimes greater than gross investment. -incorrect, because depreciation cannot exceed gross investment.

correct, because depreciation cannot be less than zero.

If there is an increase in the unemployment rate, the size of the labor force -could increase or decrease. -must decrease. -will not change. -must increase.

could increase or decrease.

A recession causes a local factory to lay off 30 workers. This is an example of: -frictional unemployment -structural unemployment -cyclical unemployment.

cyclical unemployment.

Given what the catalog company does with its orders and that its inventory of sweaters is rising, what is likely to happen to employment and output at the sweater manufacturer? Employment will ____ stay the same rise fall and output will ___ fall stay the same rise.

fall, fall

Tim just graduated from college and is looking for a job. This is an example of: -frictional unemployment -structural unemployment -cyclical unemployment.

frictional unemployment

Suppose that this year's nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level 5 years ago. Using that index, we find that this year's real GDP is $15 trillion. Given those numbers, we can conclude that the current value of the index is: -still 100. -lower than 100. -higher than 100.

higher than 100.

Use the concepts of gross investment and net investment to distinguish between an economy that has a rising capital stock and one that has a falling capital stock. Evaluate: "In 1933 net private domestic investment was negative $6 billion. This means that in that particular year the economy produced no capital goods at all.". This statement is: -incorrect, because gross investment must have exceeded depreciation. -incorrect, because negative net investment does not mean the economy produced no new capital goods in that year. -correct, because negative net investment means the economy produced no new capital goods in that year. -correct, because gross investment must have exceeded depreciation.

incorrect, because negative net investment does not mean the economy produced no new capital goods in that year.

If an economy has sticky prices, and demand unexpectedly increases, you would expect the economy's real GDP to: -increase. -decrease. -remain the same.

increase

The nominal interest rate -minus nominal income is the inflation rate. -minus the inflation rate is the real interest rate. -plus the real interest rate is the inflation rate. -plus the inflation rate is the real interest rate.

minus the inflation rate is the real interest rate.

Inflation tends to be __________ if quality improvements are not accounted for. -overstated -understated -accurately stated

overstated

The 1995-2010 increase in the trend rate of productivity growth has been -positively influenced by global competition, which has expanded market possibilities for both consumers and producers. -negatively influenced by global competition, which has expanded market possibilities for both consumers and producers. -positively influenced by global competition, which has limited market possibilities for both consumers and producers. -negatively influenced by global competition, which has limited market possibilities for both consumers and producers.

positively influenced by global competition, which has expanded market possibilities for both consumers and producers.

The 1995-2010 increase in the trend rate of productivity growth has been -negatively influenced by information economies of scale because it has required security to protect information systems. -negatively influenced by information economies of scale because it has increased the costs for firms needing technology. -positively influenced by information economies of scale because expanding production has a very low marginal cost. -positively influenced by information economies of scale because it has enabled us to encourage mergers.

positively influenced by information economies of scale because expanding production has a very low marginal cost.

he 1995-2010 increase in the trend rate of productivity growth has been -positively influenced by information technology because it has enabled us to install cameras everywhere. -positively influenced by information technology because it connects information in all parts of the world with information seekers. -negatively influenced by information technology because it has required security to protect information systems. -negatively influenced by information technology because it has increased the costs for firms needing technology.

positively influenced by information technology because it connects information in all parts of the world with information seekers.

The 1995-2010 increase in the trend rate of productivity growth has been -negatively influenced by network effects, which is a type of scale economy. -positively influenced by network effects, which is a type of scale diseconomy. -positively influenced by network effects, which is a type of scale economy. -negatively influenced by network effects, which is a type of scale diseconomy.

positively influenced by network effects, which is a type of scale economy.

Since at least 1995, the majority of increases in U.S. real GDP are from -labor growth. -technological change. -capital growth. -productivity growth.

productivity growth.

An increase in __________ GDP guarantees that more goods and services are being produced by an economy. -nominal -real

real

Inflation -reduces the purchasing power of the dollar. -increases the purchasing power of the dollar. -lowers interest rates. -reduces the export power of the dollar.

reduces the purchasing power of the dollar.

Cost-push inflation occurs in the presence of __________. -excess demand for goods and services -a trade deficit -rising per-unit production costs -excess inventory

rising per-unit production costs

More labor inputs can explain _________ in real GDP over the last 65 years or so. -some of the increases -most of the increases -all of the increases -none of the increases

some of the increases

Hundreds of New York legal jobs permanently disappear when a lot of legal work gets outsourced to lawyers in India. This is an example of: -frictional unemployment -structural unemployment -cyclical unemployment.

structural unemployment

Thousands of bus and truck drivers permanently lose their jobs to self-driving vehicles. This is an example of: -frictional unemployment -structural unemployment -cyclical unemployment.

structural unemployment

The Bureau of Labor Statistics (BLS) calculates the inflation rate from one year to the next by -adding the CPI of the previous year to the CPI of the most recent year, and then dividing by 2. -subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the most recent year. -adding the CPI of the previous year to the CPI of the most recent year, and then dividing by the average of both years. -subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year.

subtracting the CPI of the previous year from the CPI of the most recent year, and then dividing by the CPI of the previous year.

The difference between the MPC and the APC is that -the MPC is the change in income divided by the change in consumption, whereas the APC is total income divided by total consumption. -the MPC is total consumption divided by total income, whereas the APC is the change in consumption divided by the change in income. -the MPC is total income divided by total consumption, whereas the APC is the change in income divided by the change in consumption. -the MPC is the change in consumption divided by the change in income, whereas the APC is total consumption divided by total income.

the MPC is the change in consumption divided by the change in income, whereas the APC is total consumption divided by total income.

Most economists agree that the immediate cause of most cyclical changes in real output and employment is an unexpected change in __________. -the unemployment rate -the value of the stock market -the value of the trade deficit -the level of total spending

the level of total spending

The unemployment rate is defined as -the number of unemployed persons divided by the labor force. -the ratio of the number of adults who are working divided by the adult population. -the proportion of the adult population looking for work. -the number of adults divided by the labor force.

the number of unemployed persons divided by the labor force.

A downshift of the consumption schedule typically involves an equal upshift of the saving schedule. The exception to this relationship occurs when -there is a decrease in personal taxes, then consumption shifts upward and saving shifts downward. -there is an increase in personal taxes, then consumption and saving both shift upward. -there is an increase in personal taxes, then consumption and saving both shift downward. -there is a decrease in personal taxes, then consumption and saving both shift downward.

there is an increase in personal taxes, then consumption and saving both shift downward.

A positive unemployment rate—more than zero percent—is fully compatible with full employment because at full employment, -unemployment includes frictional unemployment, which is always positive because people are transitioning to new jobs -there is usually some unemployment due to the business cycle. -unemployment includes seasonal unemployment, which is usually positive because people are transitioning to new jobs. -the economy is producing at capacity.

unemployment includes frictional unemployment, which is always positive because people are transitioning to new jobs