Econ 313 Final Exam

If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are:

-$31

Assume that the adult population of the United States is 191.6 million, total employment is 117.6 million, and 9.4 million are unemployed. Then the unemployment rate, as normally computed, is approximately ______ percent.

7.4

An increase in the supply of capital will:

decrease the real rental price of capital.

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

decrease; increase

If inflation is 6 percent and a worker receives a 4 percent nominal wage increase, then the worker's real wage:

decreased by 6 percent.

Recessions are periods when real GDP:

decreases mildly.

Compared with a recession, real GDP during a depression:

decreases more severely.

Devoting resources to avoiding the costs of expected inflation leads to:

economic inefficiency.

Variables that a model tries to explain are called:

endogenous.

To avoid double counting in the computation of GDP, only the value of _____ goods are included.

final

Exogenous variables are:

fixed at the moment they enter the model.

To compute the value of GDP:

goods and services are valued at market prices.

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:

grows stale and is thrown away.

Real GDP______ over time and the growth rate of real GDP_____.

grows; fluctuates

The unemployment rate:

has never been zero in the United States.

Unlike the GDP deflator, the CPI includes the prices of:

imported goods.

National saving refers to:

income minus consumption minus government spending.

A typical trend during a recession is that:

incomes fall.

The demand for real money balances is generally assumed to:

increase as real income increases.

The production function feature called "constant returns to scale" means that if we:

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

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then savings:

increases by 0.15 units

A measure of how fast the general level of prices is rising is called the:

inflation rate.

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. By doing so:

investment rises and the interest rate falls.

The demand for loanable funds is equivalent to:

investment.

Disposable personal income:

is computed by subtracting personal tax from personal income.

At any particular point in time, the output of the economy:

is fixed because the supplies of capital and labor and the technology are fixed.

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises.

less; smaller

In the classical model with fixed income, a reduction in the government budget deficit will lead to a:

lower real interest rate.

The study of the economy as a whole is called:

macroeconomics

In a fractional-reserve banking system, banks create money when they:

make loans.

The quantity equation for money, by itself:

may be thought of as a definition for velocity of money.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoe leather costs.

Which of the following is the best example of a sticky price?

the price of a soda in a vending machine.

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.

the productive capability of the economy; the money supply.

The real wage will increase if:

the productivity of labor increases.

In the classical model, what adjusts to eliminate any unemployment of labor in the economy?

the real wage

Currency equals:

the same of coins and paper money.

In computing GDP,

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

If the consumption function is given by C=500+0.5(Y-T) ,and Y is 6,000 and T is given by T=200+ 0.2Y, then C equals:

2,800

If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:

20,000

If the unemployment rate is 6 percent and number of employed is 188 million, then the labor force equals _____ million.

200

If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor force participation rate equals _____ percent.

60

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

7

Endogenous variables are:

determined within the model.

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they:

do not have a job, but have looked for a work in the past 4 weeks.

The investment function slopes ______ because there are ______ investment projects that are profitable as the interest rate decreases.

downward; more

In an economic model:

exogenous variables affect endogenous variables.

If many banks fail, this is likely to:

increase the ratio of currency to deposits.

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then:

the price level is proportional to the money supply.

The CPI is determined by computing:

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

All of the following are types of macroeconomics except:

the price of an IBM computer.

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

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 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:

$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:

$7

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by:

0.85 units

All of the following transactions that took place in 2009 would be included in the GDP for 2009 except the purchase of a:

2001 Jeep Cherokee

According to the quantity theory and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase:

5 percent

According to the quantity theory 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 _____.

5; 5

The economic statistic used to measure the level of price is:

CPI(Consumer Price Index)

Open-market operations are:

Federal Reserve purchases and sales of government bonds.

How does the distinction between flexible and sticky prices impact the study of macroeconomics?

Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run.

The statistic used by economists to measure the value of economic output is:

GDP.

The property of diminishing marginal product means that, after a point, when additional quantities of:

a factor is added when another factor remains fixed, the marginal product of that factor diminishes.

Banks create money in:

a fractional-reserve banking system but not in a 100-percent-reserve banking system

Real money balances equal the:

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

If bread is produced by using a constant returns to scale production function, then if the:

amounts of equipment and workers are both doubled, twice as much bread will be produced.

"Inflation tax" means that:

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 and profits; for goods and services.

The assumption of continuous market clearing means that:

at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

An increase in the price of imported goods will show up in:

both the CPI and the GDP deflator.

If the Fed announces that it will raise the money supply in the future but does not change the money supply today,

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

Investment goods as measured in the GDP are purchased by:

business firms and households.

To increase the money supply, the Federal Reserve:

buys government bonds.

The demand for output in a closed economy is the sum of

consumption, investment, and government spending.

In examining the impact of fiscal policy, it is assumed that:

consumption, investment, and the interest rate are endogenous variables.

Nominal GDP means the value of goods and services is measured in _____ prices.

current

A consumption function shows the relationship between consumption and:

disposable income

Variables that a model takes as given are called:

exogenous.

GDP is all of the following except the total:

expenditure of everyone in the economy.

The total income of everyone in the economy is exactly equal to the total:

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

A production function is a technological relationship between:

factors of production and the quantity of output produced

The government spending component of GDP includes all of the following except:

federal spending on transfer payments.

Money that has no value other than as money is called ______ money.

fiat

According to the classical theory of money, inflation does not make workers poorer because wages increase:

in proportion to the increase in the overall price level.

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:

in the long run.

In the classical model with fixed income, an increase in the real interest rate could be the result of a(n):

increase in government spending

The marginal propensity to consume is:

normally expect to be between zero and one.

The labor force equals the:

number of employed and unemployed individuals.

The most frequently used tool of monetary policy is:

open-market operations.

An economy's factors of production and its production function determine the economy's:

output of goods and services

In the national income accounts, all of the following are classified as government purchases except:

payments made to Social Security recipients.

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would:

raise taxes and cut spending.

The total income of everyone in the economy adjusted for the level of base year prices is called:

real GDP.

The one-to-one relation between the inflation rate and the nominal interest rate, the Fisher effect, assumes that the:

real interest rate is constant.

The supply and demand for loanable funds determines the:

real interest rate.

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

the Federal Reserve

The size of monetary base is determined by:

the Federal Reserve

An increase in the price of goods bought by firms and the government will show up in:

the GDP deflator but not in the CPI

If the nominal interest increases, then:

the demand for money decreases

The factor that makes national saving equal investment, in equilibrium, is:

the interest rate

In the long run, what determines the level of total production of goods and services in an economy?

the quantity of capital, quantity of labor, and production technology.

All of the following statements about sticky prices are true except:

the sticky-price model describes the equilibrium toward which the economy slowly gravitates.

Macroeconomists cannot conduct controlled experiments, such as testing various tax and expenditure policies, because:

they must make use of the data history gives them.

A variable rate of inflation is undesirable because:

variable inflation leads to greater uncertainty and risk as compared to constant inflation.

In the United States, bank reserves consist of:

vault cash and deposits at the Federal Reserve.

The quantity theory of money assumes that:

velocity is constant.

All of the following are considered major functions of money except as a:

way to display wealth.

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $0.50 in 2009. If 10 apples and 5 oranges were purchased in 2002, and 5 apples and 10 oranges were purchased in 2009, the CPI for 2009, using 2002 as the base year, is:

1.25

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?

1.27

Other things equal, an increase in the interest rate leads to:

a decrease in the quantity of investment goods demanded

The marginal product of labor is:

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

The labor-force participation rate is the percentage of the:

adult population that is in the labor force.

In a 100-percent-reserve banking system, banks:

cannot affect the money supply.

Demand deposits are funds held in:

checking accounts

Real GDP means the value of goods and services is measured in _____ prices.

constant

If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called:

constant returns to scale

The costs of reprinting catalogs and price lists because of inflation are called:

menu costs

The ex ante real interest rate is equal to the nominal interest rate:

minus the expected inflation rate.

The money supply will increase if the:

monetary base increases.

Money's liquidity refers to the ease with which:

money can be converted into goods and services.

An example of a nominal variable is the:

money supply

The supply of loanable funds is equivalent to:

national saving.

Credit card balances are included in:

neither M1 not M2.

In the national income accounts, consumption expenditures include all of the following except household purchases of:

new residential housing

The real interest rate is equal to the:

nominal interest rate minus the inflation rate.

The general demand function for real balances depends on the level of income and the:

nominal interest rate.

The opportunity cost of holding money is the:

nominal interest rate.

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

positively; negatively

A competitive, profit-maximizing firm hires labor until the:

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

The right of seigniorage is the right to:

print money.

National saving is:

private saving plus public saving.

An example of a real variable is the:

quantity of goods produced in a year.

The best measure of the economic satisfaction of the members of a society is:

real GDP.

The central bank in the United States is the:

Federal Reserve

The money supply consists of:

currency plus demand deposits.

To make a trade in a barter economy requires:

a double coincidence of wants

When a firm sells a product out of inventory, GDP:

is not changed

The classical dichotomy:

is said to hold when the values of real variable can be determined without any reference to nominal variables or the existence of money

In the relationship expressed in the functional form, Y=G(K,L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ):

is the function telling how the variables in the parentheses determine real GDP.

In the United States, the money supply is determined:

jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.