EC 308 Exam 1

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $400 billion, then the money supply equals: $100 billion. $150 billion. $500 billion. $550 billion.

$500 Billion

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 4 in 2009, then real GDP (in 2002 prices) in 2009 was: $5 $6.50 $9.50 $11

$6.50

Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: 10 pieces of fruit. $7. $8. $10.

$7

If rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money multiplier is equal to. (rr + 1)/ (rr+ cr) (cr + 1)/ (cr+ rr) (rr + cr)/ (rr + 1) (rr + cr)/ (cr + 1)

(cr + 1)/ (cr+ rr)

If the nominal interest rate is 3 percent and the inflation rate is 5 percent, the real interest rate is: 1 percent. 2 percent. -2 percent. -3 percent.

-2 percent.

All of the following transactions that took place in 2009 would be included in GDP for 2009 except the purchase of a: book titled The Year 3000 that was printed in 2009. 2001 Jeep Cherokee. year 2010 calendar printed in 2009. ticket to see the movie 2001.

2001 Jeep Cherokee.

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. 3.5 4.7 4.9 7

4.7

If the real return on government bonds is 2 percent and the expected rate of inflation is 3 percent, then the cost of holding money is ______ percent. 1 3 4 5

5

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent. 1; 5 5; 1 1; 1 5; 5

5; 5

Percentage change in Pis approximately equal to the percentage change in: M. M minus the percentage change in Y. M minus the percentage change in Y plus the percentage change in velocity. M minus the percentage change in Y minus the percentage change in velocity.

M minus the percentage change in Y plus the percentage change in velocity.

"Inflation tax" means that: A) as the price level rises, taxpayers are pushed into higher tax brackets. B) as the price level rises, the real value of money held by the public decreases. C) as taxes increase, the rate of inflation also increases. D) in a hyperinflation, the chief source of tax revenue is often the printing of money.

as the price level rises, the real value of money held by the public decreases.

In the circular flow model, the flow of dollars from firms to households is paid _____, and the flow of dollars from households to firms is paid _____. as wages, capital income, and profits; for goods and services. for value added; as imputed values. in current dollars; in constant dollars. as interest and dividends; for depreciation and taxes.

as wages, capital income, and profits; for goods and services.

The two most important factors of production are: Answers: goods and services. labor and energy. capital and labor. saving and investment.

capital and labor.

In a closed economy, the components of GDP are: consumption, investment, government purchases, and exports. consumption, investment, government purchases, and net exports. consumption, investment, and government purchases. consumption and investment.

consumption, investment, and government purchases.

The money supply consists of: currency plus reserves. currency plus the monetary base. currency plus demand deposits. the monetary base plus demand deposits.

currency plus demand deposits.

Nominal GDP means the value of goods and services is measured in ______ prices. current real constant average

current

If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level. increase; increase increase; decrease decrease; increase decrease; decrease

decrease; increase

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they: A) are out of a job but not looking for work. B) retired from the labor force before age 65. C) do not have a job but have looked for work in the past four weeks. D) are absent from work because of bad weather or illness.

do not have a job but have looked for work in the past four weeks.

With a Cobb-Douglas production function, the share of output going to labor: decreases as the amount of labor increases. increases as the amount of labor increases. increases as the amount of capital increases. does not depend on the amount of labor in the economy.

does not depend on the amount of labor in the economy.

The marginal propensity to consume is: expected to be between zero and one. equal to disposable income divided by consumption. the amount by which consumption changes when wealth increases by one dollar. normally assumed to increase as taxes increase.

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. consumption expenditures of everyone in the economy. expenditures of all businesses in the economy. government expenditures.

expenditure on the economy's output of goods and services.

A production function is a mathematical relationship between: factor prices and the marginal product of factors. factors of production and factor prices. factors of production and the quantity of output produced. factor prices and the quantity of output produced.

factors of production and the quantity of output produced.

The government purchases component of GDP includes all of the following except: federal spending on goods. state and local spending on goods. federal spending on transfer payments. federal spending on services.

federal spending on transfer payments.

Assume that a bakery hires more workers and pays them wages and that the workers produce more bread. GDP increases in all of the following cases except when the bread: is sold to households. is stored away for later sale. grows stale and is thrown away. is sold to other firms.

grows stale and is thrown away.

National saving refers to: disposable income minus consumption. taxes minus government spending. income minus consumption minus government purchases. income minus investment.

income minus consumption minus government purchases.

The production function feature called "constant returns to scale" means that if we: A) multiply capital by z1and labor by z2, we multiply output by z3. B) increase capital and labor by 10 percent each, we increase output by 10 percent. C) increase capital and labor by 5 percent each, we increase output by 10 percent. D) increase capital by 10 percent and increase labor by 5 percent, we increase output by 7.5 percent.

increase capital and labor by 10 percent each, we increase output by 10 percent.

According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: increasing. decreasing. 7 percent. constant.

increasing

The most frequently used tool of monetary policy is: open-market operations. changes in the discount rate. changes in reserve requirements. changes in interest rate paid on reserves.

open-market operations.

An economy's factors of production and its production function determine the economy's: labor-force participation rate. budget surplus or deficit. population growth rate. output of goods and services.

output of goods and services.

A competitive, profit-maximizing firm hires labor until the: A) marginal product of labor equals the wage. B) price of output multiplied by the marginal product of labor equals the wage. C) real wage equals the real rental price of capital. D) wage equals the rental price of capital.

price of output multiplied by the marginal product of labor equals the wage.

An increase in the price of imported goods will show up in: the CPI but not in the GDP deflator. the GDP deflator but not in the CPI. both the CPI and the GDP deflator. neither the CPI nor the GDP deflator.

the CPI but not in the GDP deflator.

In the United States, monetary policy is conducted by: the president. the Congress. the Federal Reserve. the Treasury Department.

the Federal Reserve.

The CPI is determined by computing: A) an average of prices of all goods and services. B) the price of a basket of goods and services that changes every year, relative to the same basket in a base year. C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. D) nominal GDP relative to real GDP.

the price of a fixed basket of goods and services, relative to the price of the same basket in a base year.

Two equivalent ways to view GDP are as the: A) total payments made to all workers in the economy or the total profits of all firms and businesses in the economy. B) total expenditures on all goods produced in the economy or the total income earned from producing all services in the economy. C) total profits of all firms and businesses in the economy or the total consumption of goods and services by all households in the economy. D) 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.

The real rental price of capital is the price per unit of capital measured in: dollars. units of output. units of labor. units of capital.

units of output.

The quantity theory of money assumes that: income is constant. velocity is constant. prices are constant. the money supply is constant.

velocity is constant.

All of the following are considered major functions of money except as a: medium of exchange. way to display wealth. unit of account. store of value.

way to display wealth.

If the number of employed increases while the number of unemployed does not change, the unemployment rate: will increase will decrease will not change may either increase or decrease

will decrease

The labor-force participation rate is the percentage of the: working age population that is employed. working age population that is in the labor force. labor force that is employed. labor force that is unemployed.

working age population that is in the labor force.

If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? $12 trillion $12.5 trillion $15 trillion $18.75 trillion

$12 trillion

Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: $10,000. $12,000. $20,000. $22,000.

$12,000

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 25K0.5L0.5, where K= 100 and L = 100, then C equals: 1,000. 1,500. 1,750. 2,000.

1,750

If disposable income is 5,000, consumption is 3,000, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to: Answers: 1300. 1500. 1700. 1,800.

1,800

Table: Bank Balance SheetBased on the table, what is the reserve-deposit ratio at the bank? Reserves: $10,000 Deposits: $100,000 3 percent 5 percent 10 percent 15 percent

10 percent

Total investment in the United States averages about ______ percent of GDP. 10 15 20 25

15

The economic statistic used to measure the level of prices is: GDP CPI GNP real GDP

CPI

The statistic economists use to measure the value of economic output is: the CPI. GDP. the GDP deflator. the unemployment rate.

GDP

All of the following actions are investments in the sense of the term used by macroeconomists except: A) Apple's building a new factory. B) a corner candy store's buying a new computer. C) John Smith's buying a newly constructed home. D) Sandra Santiago's buying 100 shares of Apple stock.

Sandra Santiago's buying 100 shares of Apple stock.

The national income accounts identity for an open economy is: Y = C + I + G - NX Y = C + I + G + NX Y = C + I + G Y = C + I - G

Y = C + I + G + NX

Other things equal, an increase in the interest rate leads to: a decrease in the quantity of investment goods demanded. no change in the quantity of investment goods demanded. an increase in the quantity of investment goods demanded. sometimes an increase and sometimes a decrease in the quantity of investment goods demanded.

a decrease in the quantity of investment goods demanded.

When there is a fixed supply of loanable funds, an increase in investment demand results in: a higher interest rate. a lower interest rate. an increase in investment. a decrease in investment.

a higher interest rate.

The marginal product of labor is: A) output divided by labor input. B) additional output produced when one additional unit of labor is added. C) additional output produced when one additional unit of labor and one additional unit of capital are added. D) value of additional output when one dollar's worth of additional labor is added.

additional output produced when one additional unit of labor is added.

In a system with fractional-reserve banking: A) all banks must hold reserves equal to a fraction of their loans. B) no banks can make loans. C) the banking system completely controls the size of the money supply. D) all banks must hold reserves equal to a fraction of their deposits.

all banks must hold reserves equal to a fraction of their deposits.

Real money balances equal the: A) sum of coin, currency, and balances in checking accounts. B) amount of money expressed in terms of the quantity of goods and services it can purchase. C) number of dollars used as a medium of exchange. D) quantity of money created by the Federal Reserve.

amount of money expressed in terms of the quantity of goods and services it can purchase.

According to Goldin and Katz, the increasing income inequality of recent decades is the result of: A) increases in the rates of skill-biased technological advancement and educational attainment. B) decreases in the rates of skill-biased technological advancement and educational attainment. C) an increase in the rate of skill-biased technological advancement and a slowdown in educational advancement. D) a decrease in the rate of skill-biased technological advancement and an increase in the rate of educational advancement.

an increase in the rate of skill-biased technological advancement and a slowdown in educational advancement.

If the Fed announces that it will raise the money supply in the future but does not change the money supply today, A)both the nominal interest rate and the current price level will decrease. B) the nominal interest rate will increase and the current price level will decrease. C) the nominal interest rate will decrease and the current price level will increase. D) both the nominal interest rate and the current price level will increase.

both the nominal interest rate and the current price level will increase.

Private investment goods as measured in GDP are purchased by: business firms alone. households alone. business firms and households. business firms, households, and governments.

business firms and households.

To increase the money supply, the Federal Reserve: buys government bonds. sells government bonds. buys corporate stocks. sells corporate stocks.

buys government bonds.

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when: real interest rates are high. real interest rates are low. labor productivity is growing rapidly. capital's share of income is growing rapidly.

labor productivity is growing rapidly.

The opportunity cost of holding money is the: nominal interest rate. real interest rate. federal funds rate. prevailing Treasury bill rate.

nominal interest rate.