Macroeconomics Exam 2

Which of the following is an example of gross private domestic investment? a household purchase of shares of Google stock. a change in business inventories. the sale of an existing home. highway construction by a government contractor.

a change in business inventories.

From 1999 to 2002, the Japanese inflation rates were, respectively, -0.3%, -0.6%, -0.7%, and -0.7%. During this time, the Japanese economy underwent: hyperinflation. inflation. a rise in its price level. deflation.

deflation.

Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP: decreases by $600 billion. increases by $300 billion. increases by $600 billion. does not change.

does not change.

Which one of the following helps determine consumption and saving in the Keynesian model? imports technology government regulations wealth

wealth

The mortgage crisis caused a lot of consumers to stop spending money. The decrease in spending led to a decrease in production. Which type of unemployment resulted? cyclical frictional structural statistical

cyclical

If the marginal propensity to consume is 0.8, full-employment output is $14 trillion, and current output is $13.5 trillion, then investment spending must _____ to reach full-employment output. increase by $0.5 trillion increase by $0.4 trillion decrease by $0.5 trillion increase by $0.1 trillion

increase by $0.1 trillion

Investment in human capital is important because: humans need capital. it increases labor productivity. it lowers the total wage bill. it improves morale.

it increases labor productivity.

Investment spending: tends to be volatile. is limited to the stock and bond markets. is not sensitive to interest rates. is the largest component of total spending.

tends to be volatile.

In the United States, our principal measure of inflation is: the Leading Economic Index. gross domestic product. the producer price index. the consumer price index.

the consumer price index.

What is the formula for determining GDP?

C+I+G+(X-M) (Personal Consumption Expenditures) (Investments) (Government Spending) (Net Imports)

What is the formula for national income?

Wages, salaries and benefits, profits, rental income, and interest

The largest component of national income is:

compensation of employees (more than half)

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is: not in the labor force. a discouraged worker. employed. unemployed.

employed.

Excessive inflation or deflation: interferes with the price mechanism that brings a market to equilibrium. has a negative effect on the economy only if traders are aware of it. has a neutral effect on the market. can be beneficial in the long run.

interferes with the price mechanism that brings a market to equilibrium.

If a country has a low capital-to-labor ratio, then it tends to have: low labor productivity and low wages. high labor productivity but low wages. low labor productivity but high wages. high labor productivity and high wages.

low labor productivity and low wages.

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent? $200 $1,000 $40 $160

$1,000

Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is: $40,000. $50,000. $10,000. impossible to compute because there is negative profit.

$40,000.

Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI). Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is: $40,110. $40,100. $50,000. $44,000.

$44,000.

Last year, Megan's salary was $65,000 while the consumer price index increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be? $61,553 $68,578 $67,564 $61,320

$68,578

Rocky Gap Furniture hires ten employees working eight hours each to produce 100 rocking chairs. What is the productivity of these workers? 2.5 chairs per hour 1.25 chairs per hour 50 chairs 100 chairs

1.25 chairs per hour

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is the size of Marketstan's labor force? 10 million 5 million 16 million 15 million

10 million

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: 80. 125. 110. 150.

125.

The following table shows data for four countries. Country Workers Capital Stock A 100 $4000 B 50 $500 C 200 $1000 D 150 $150 The table shows that the country with the most productive workers is: C. B. D. A.

A

When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend. historical; accelerating; slower than historical; slowing; faster than slow; accelerating; equal to rapid; slowing; equal to

historical; slowing; faster than

Which of the following groups benefit from an unanticipated rise in the inflation rate? workers on contracts without escalator clauses creditors or lenders homeowners with fixed-rate mortgages elderly people living on a fixed income

homeowners with fixed-rate mortgages

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce: more, raising employment and lowering income. less, lowering both employment and income. less, lowering employment and raising income. more, raising both employment and income.

less, lowering both employment and income.

If your income is $35,000 and the average propensity to save is 0.46, what is consumption? $15,500 $16,100 $19,500 $18,900

$18,900

A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The change in GDP would be: $180. zero, because wool suits are worthless. $30. $270.

$180

Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income was _____, her disposable personal income was _____, and her consumption spending was _____. $20,000; $18,000; $13,000 $23,000; $21,000; $18,000 $25,000; $18,000; $13,000 $25,000; $23,000; $18,000

$25,000; $23,000; $18,000

Economic growth typically results in longer life expectancies. False True

True

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is: $0.05 trillion. $0.1 trillion. -$0.2 trillion. $0.2 trillion.

$0.1 trillion.

What is real GDP in 2014 dollars if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100? $14,010 billion $9, 100 billion $16, 500 billion $13,636 billion

$13,636 billion

If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output. $4,000 $750 $1,000 $7,500

$4,000

The following table shows data on consumption at various levels of income. Income: Consumption: $0 $200 $1000 $1000 $2000 $1800 $3000 $2,600 $4000 $3,400 $5000 $4,200 $6000 $5,000 Investment spending is $600. If there is no government spending or net exports, the equilibrium income level is: $1,000. $4,000. $2,000. $3,000.

$4,000.

If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is: 0.25. 0.75. There is not enough information to answer this question. 0.2.

0.25.

When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save? Disposable Income: Consumption: $1000 $1,200 $1,200 $1,300 $1,400 $1,400 $1,600 $1,500 $1,800 $1,600 -1.5 1.5 0.5 -0.5

0.5

The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is: Income: Consumption: $0 $250 $500 $700 $1000 $1,150 $1500 $1,600 $2000 $2,050 $2500 $2,500 0.75. 0.9. 0.8. 0.25.

0.9.

According to the table, what is the unemployment rate of this economy? population-500 employed-300 unemployed-50 14.3% 16.67% 25% 10%

14.3%

If an economy's GDP will double in 25 years, then its growth rate must be about: 2.5%. 2.8%. 28%. 25%.

2.8%.

According to the table, if 50 discouraged workers suddenly decide to start actively seeking employment again, what will be the unemployment rate of this economy? population-500 employed-300 unemployed-50 14.3% 16.67% 25% 10%

25%

If the growth rate in an economy is 2%, its GDP will double in about: 28 years. 70 years. 140 years. 35 years.

35 years.

If output equals A × (5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100? 500,000 12,000 120,000 50,000

500,000

Which of the following is a source of increases in productivity? improvements in labor quality capital investment All of the answers are correct. research and development

All of the answers are correct.

What is an example of a final good? Bacon purchased at a grocery store. Rubber purchased by a bicycle company. Tartar sauce purchased by a fish restaurant. Corn purchased by a hog farmer.

Bacon purchased at a grocery store.

Small differences in growth rates do not lead to large overall differences in income over time. False True

False

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true? Jennifer's purchasing power will rise by 2%. Jennifer is losing purchasing power by 2%. Jennifer's purchasing power will rise by 7%. Inflation has no impact on purchasing power.

Jennifer is losing purchasing power by 2%.

We are most likely to see a recession if interest rates on long-term bonds are: The same as interest rates on short-term bonds. Higher than interest rates on short-term bonds. Lower than interest rates on short-term bonds. Rising.

Lower than interest rates on short-term bonds.

Total spending in an economy is the sum of: Imports minus exports. Durable goods plus non durable goods plus services. Food consumption plus housing expenditures plus business expenditures plus government spending. Personal consumption plus gross private investment plus government spending plus net exports.

Personal consumption plus gross private investment plus government spending plus net exports.

Robert lost his job and now takes care of his children while his wife works. Robert has decided he likes his daddy duties. Robert would take a job similar to the one he lost if it was offered, but he is not actively seeking work. How is Robert categorized in the unemployment figures? Robert is not part of the labor force. Robert is employed because he is providing a useful service. Robert is underemployed. Robert is unemployed.

Robert is not part of the labor force.

Whispering Valley Furniture hires five employees working eight hours each to produce 80 rocking chairs. Rocky Gap Furniture hires ten employees working eight hours each to produce 160 rocking chairs. Which company's workers are more productive? Whispering Valley Furniture's workers are more productive. It is not possible to determine which workers are more productive. The two companies' workers are equally productive. Rocky Gap Furniture's workers are more productive.

The two companies' workers are equally productive.

Free trade refers to the ability to buy and sell products with other countries without significant barriers, such as tariffs or quotas. True False

True

John Maynard Keynes devised the framework for developing policies to avoid future severe macroeconomic downturns. True False

True

Keynes emphasized income as the main determinant of consumption and savings. False True

True

Technological innovations in consumer products make it difficult to compare market baskets over time. False True

True

The 45-degree line represents the set of points where aggregate expenditures is equal to disposable income. True False

True

To solve the double counting problem, economists include only final goods and services in the summing of gross domestic product. True False

True

To sustain growth beyond the small fluctuations common in the business cycle, an economy's ability to produce must increase. False True

True

Use of the GDP deflator allows economists to estimate the real rate of growth of the economy. False True

True

Equilibrium in the full Keynesian model requires that: all injections (I + G + X) must equal all withdrawals (S + T + M). income exceed expenditures. the government budget be in balance. expenditures exceed income.

all injections (I + G + X) must equal all withdrawals (S + T + M).

If the marginal propensity to consume (MPC) rises, the multiplier: stays the same. also rises. falls. rises or falls, depending on the size of the increase in the MPC.

also rises.

The largest component of GDP is: government spending. net exports. gross private domestic investment. consumption expenditure.

consumption expenditure.

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%: there is a redistribution of income from creditors to debtors. debtors gain at the expense of creditors. people on a fixed income see the purchasing power of their incomes rising. creditors gain at the expense of debtors.

creditors gain at the expense of debtors.

Assume that the economy is at equilibrium at $10 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.5 trillion and imports increase by $0.7 trillion, equilibrium income will: fall by $0.2 trillion. rise by $2 trillion. not change. fall by $0.8 trillion.

fall by $0.8 trillion.

Gross domestic product is the total market value of all: final goods and services sold in the United States. final goods and services produced in the United States by labor and property. intermediate goods produced in the United States by labor and property. final and intermediate goods and services produced in the United States by labor and property.

final goods and services produced in the United States by labor and property.

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered: structurally unemployed. frictionally unemployed. cyclically unemployed. not in the labor force.

frictionally unemployed.

Dave brags to his dad that his $45,000 starting salary as a computer programmer is much higher than his dad's $28,000 starting salary some years ago. If the consumer price index the year Dave begins work is 180.5 while the consumer price index the year his dad started work was 110.8, Dave is: incorrect; adjusting for price changes, his salary is less than his dad's salary. incorrect; adjusting for quantity changes, his salary is less than his dad's salary. correct; adjusting for quantity changes, his salary is more than his dad's salary. correct; adjusting for price changes, his salary is more than his dad's salary.

incorrect; adjusting for price changes, his salary is less than his dad's salary.

In the absence of copyright and patent laws: the quality of goods and services consumed by purchasers improves. the profits of writers and inventors rise. innovators can invent more, because they do not have to spend resources navigating the legal system. it is difficult for innovators to profit from their efforts.

it is difficult for innovators to profit from their efforts.

A legal system that enforces property rights is important to economic growth because: strong laws demonstrate commitment by legislators to economic growth. the legal system can help the government with tax collection. legal protection of ideas and technologies gives people who innovate the ability to protect their work. bankruptcy laws encourage lending.

legal protection of ideas and technologies gives people who innovate the ability to protect their work.

Physical capital includes: the physical talents of people. manufactured products that are used to produce other goods and services. land and raw resources that come from land. the ability to take physical resources and use them in creative ways to produce goods and services.

manufactured products that are used to produce other goods and services.

GNP includes output produced _____ but it does not include output produced _____. outside the United States by U.S. citizens; inside the United States by foreign citizens outside the United States by U.S. citizens; inside the United States by U.S. citizens inside the United States by foreign citizens; outside the United States by U.S. citizens The GNP only includes output (goods and services) produced by U.S. citizens within the United States.

outside the United States by U.S. citizens; inside the United States by foreign citizens

A(n) _____ in the business cycle usually means the economy is operating at its capacity. upward trend recession recovery peak

peak

Which of the following is NOT an investment in human capital? researching automated production techniques. starting a job-training program. putting more money into the education system. launching an employee physical fitness campaign.

researching automated production techniques.

Holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP: falls by $30 billion. rises by $10 billion. falls by $10 billion. rises by $30 billion.

rises by $10 billion.

In the simple Keynesian model, the economy will be in equilibrium when: savings is greater than income. savings is greater than investment. savings is equal to investment. investment is equal to income.

savings is equal to investment.

Human capital refers to: skills, knowledge, and quality of workers. funds firms raise by selling stocks and bonds. infrastructure of a nation. equipment, buildings, and inventories.

skills, knowledge, and quality of workers.

The classical form of the production function states that output is determined by: population growth. the government. some function of available labor or capital. some function of the money supply.

some function of available labor or capital.

Firms decide how much to invest by comparing the rate of return on their projects with: the before-tax rate of return. the productivity of the workers assigned to the projects. the interest rate. their total profit.

the interest rate.

Zach has been laid off from his job as an aircraft worker . He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is: unemployed. not in the labor force. a discouraged worker. employed.

unemployed.

During a typical economic recovery: incomes fall. unemployment decreases. people become pessimistic. inflation declines.

unemployment decreases.