Exam 2

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today? a. $924.56 b. $931.44 c. $937.87 d. none of the above

a. $924.56

In the equation for the production function N/L represents a. Natural resources per worker b. Human capital per worker c. Output per worker d. Physical capital per worker

a. Natural resources per worker

Which of the following is not one of the categories into which the bureau of labor statistics places each adult of each surveyed household? a. employed b. unemployed c. underemployed d. not in the labor force

c. underemployed

Supposes that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government purchases equal 4,000 and taxes equal 3,000. What are private saving, public saving, and national saving? a. -2,000, 1,000, and 2,000, respectively b. 1,000, 2,000, and 3,000, respectively c. 2,000, -1,000, and 1,000, respectively d. 2,000, 1,000, and 2,000 respectively

c. 2,000, -1,000, and 1,000, respectively

If Cara's utility falls more by losing $600 than it rises by gaining $600, she has a. increasing marginal utility of wealth and is risk averse b. increasing marginal utility of wealth but is not risk averse c. decreasing marginal utility of wealth and is risk averse d. decreasing marginal utility of wealth but is not risk averse

c. decreasing marginal utility of wealth and is risk averse

In June 2009 the Bureau of Labor Statistics reported an adult population of 234,9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the labor-force participation rate was a. 154/234.9 b. 141.6/234/9 c. 141.6/154 d. none of the above

a. 154/234.9

As long as prices are rising over time, then a. The nominal interest rate exceeds the real interest rate b. The real interest rate exceeds the nominal interest rate c. The real interest rate is positive d. The nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time

a. The nominal interest rate exceeds the real interest rate

Which of the following is correct? a. in a closed economy, equilibrium in the market for loanable funds occurs where saving=investing b. investment is the source of the supply of loanable funds c. if there is a surplus in the market for loanable funds, the interest rate rises d. all of the above are correct

a. in a closed economy, equilibrium in the market for loanable funds occurs where saving=investing

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should a. lend support to the invisible hand by maintaining property rights and political stability b. limit foreign investment to industries that don't already exist in the country c. impose trade restrictions to protect the interests of domestic producers and consumers d. subsidize key industries

a. lend support to the invisible hand by maintaining property rights and political stability

Lucretia puts $400 into an account when the interest rate is 10%. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance? a. 5 b. 6 c. 7 d. 8

b. 6

For a given year, productivity in a particular country is most closely matched with that country's a. Level of real GDP over that year b. Level of real GDP divided by hours worked over that year c. Growth rate of real GDP divided by hours worked over that year d. Growth rate of real GDP per person over that year

b. Level of real GDP divided by hours worked over that year

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? a. The real interest rate is the nominal interest rate times the rate of inflation b. The real interest rate is the nominal interest rate minus the rate of inflation c. The real interest rate is the nominal interest rate plus the rate of inflation d. The real interest rate is the nominal interest rate divided by the rate of inflation.

b. The real interest rate is the nominal interest rate minus the rate of inflation

Indexation refers to a. A process of adjusting the nominal interest rate so that it is equal to the real interest rate b. Using a law or contract to automatically correct a dollar amount for the effects of inflation c. Using a price index to deflate dollar value d. An adjustment made by the Bureau of Labor Stastistics to the CPI so that the index is in line with the GDP deflator

b. Using a law or contract to automatically correct a dollar amount for the effects of inflation

Which of the following actions best illustrates adverse selection? a. a person adds risky stock to his portfolio b. a person who has narrowly avoided many accidents applies for automobile insurance c. a person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10 d. a person purchases homeowners insurance and then checks his smoke detector batteries less frequently

b. a person who has narrowly avoided many accidents applies for automobile insurance

Some people claim that stocks follow a random walk. What does this mean? a. the price of stock one day is about what it was on the previous day b. changes in the stock prices cannot be predicted from available information c. stock prices are not determined by market fundamentals such as supply and demand d. prices of stocks of different firms in the same industry show no or little tendency to move together

b. changes in the stock prices cannot be predicted from available information

When public saving falls by $2b and private saving falls by $1b in a closed economy a. investment falls by $1b b. investment falls by $3b c. investment increases by $1b d. investment falls by $2b

b. investment falls by $3b

An economy's production form takes the form Y=AxF(L,K,H,N). If the production function has the constant-returns-to-scale property, then if we know the values of A, L/L, H/L, and N/L, we also know the value of a. output b. labor productivity c. A d. all of the above are correct

b. labor productivity

For an imaginary closed economy, T=$5,000; S=$11,000; C=$48,000; and the government is running a budget surplus of $1,000. Then a. private saving=$10,000 and GDP=$55,000 b. private saving=$10,000 and GDP=$63,000 c. private saving=$12,000 and GDP=$67,000 d. private saving=$12,000 and GDP=$69,000

b. private saving=$10,000 and GDP=$63,000

Ralph is a plumber. Which of the following are included in his human capital? a. the knowledge he learned on the job, and the tools he uses b. the knowledge he learned on the job, but not the tools he uses c. the tools he uses, but not the knowledge he learned on the job d. neither the knowledge he learned on the job nor the tools he uses

b. the knowledge he learned on the job, but not the tools he uses

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is a. $43,849.05 b. $61,263.43 c. $63,195.34 d. $93,655.50

c. $63,195.34

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is a. 3% b. 4% c. 5% d. none of the above

c. 5%

Which of the following is an example of physical capital? a. The available knowledge on how to make semiconductors b. A taxi-cab driver's knowledge of the fastest routes to take c. Bulldozers, backhoes and other construction equipment d. All of the above are correct

c. Bulldozers, backhoes and other construction equipment

Other things, equal, relatively poor countries tend to grow a. slower than relatively rich countries; this is called the poverty trap b. slower than relatively rich countries; this is called the fall-behind effect c. faster than relatively rich countries; this is called the catch-up effect d. faster than relatively rich countries; this is called the constant-returns-to-scale effect

c. faster than relatively rich countries; this is called the catch-up effect

Satchel loses his job and immediately begins looking for another. Other things the same, the unemployment rate a. increases, and the labor-force participation rate decreases b. and the labor-force participation rate both increases c. increases, and the labor-force participation rate is unaffected d. is unaffected, and the labor-force participation rate decreases

c. increases, and the labor-force participation rate is unaffected

Other things the same, when the interest rate falls a. people would want to borrow more, making the demand for loanable funds increase b. people would want to borrow less, making the demand for loable funds decrease c. people would want to borrow more, making the quantity of loanable funds demanded increase d. people would want to borrow less, making the quantity of loanable funds demanded decrease

c. people would want to borrow more, making the quantity of loanable funds demanded increase

The performance of index funds a. Usually falls short of the performance of actively-managed funds b. provides evidence in support of the notion that stock prices do not depend upon supply and demand c. provides evidence in support of the efficient markets hypothesis d. provides evidence in support of the notion that stock-market participants are irrational

c. provides evidence in support of the efficient markets hypothesis

Which of the following is correct? a. risk-averse people will not gold stock b. diversification cannot reduce firm-specific risk c. the larger the percentage of stock in a a portfolio, the greater the risk, but the greater the average return d. stock prices are determined by fundamental analysis rather than by supply and demand

c. the larger the percentage of stock in a a portfolio, the greater the risk, but the greater the average return

Fundamental analysis is a. the study of the relation between risk and return of stock portfolios b. the determination of the allocation of savings between stocks and bonds based on a person's degree of risk aversion c. the study of a company's accounting statements and future prospects to determine its value d. a method used to determine how adding stocks to a portfolio will change the risk of the portfolio

c. the study of a company's accounting statements and future prospects to determine its value

In order for the standard of living within a country to be enhanced over time, which of the following is essential? a. The role of the country's government in the economy must become larger b. The population of the country must increase c. More domestic natural resources must be discovered and used d. The level of productivity

d. The level of productivity

The financial system a. involves bank accounts, mortgages, stock prices, and many other items b. involves decisions and actions undertaken by people at a point in time that affect their lives in the future c. coordinates the economy's saving and investment d. all of the above are correct

d. all of the above are correct

At the broadest level, the financial system moves the economy's scarce resources from a. the rich and the poor b. financial institutions to business firms and government c. households to financial institutions d. savers to borrowers

d. savers to borrowers

Other things the same, an increase in the budget deficit a. shifts the demand for loanable funds right so the interest rate falls b. Shifts the demand for loanable funds left, so the interest rate falls c. shifts the supply of loanable funds right, so the interest rate falls d. shifts the supply of loanable funds left, so the interest rate rise

d. shifts the supply of loanable funds left, so the interest rate rise