Macro Midterm 2

True

(T or F) - Binding minimum wages and union wages may cause structural unemployment.

True

(T or F) - Efficiency wages may lead to a higher unemployment rate.

False

(T or F) - When the price level increases, everyone becomes wealthier.

interest rate is higher than the rate of return on the project.

A firm does NOT want to borrow money for a project when the: a. interest rate is higher than the rate of return on the project. b. interest rate is lower than the rate of return on the project. c. interest rate is positive. d. rate of return on the project is positive.

the value of its accumulated savings.

A household's wealth is: a. what it earns each period. b. what it saves each period. c. the value of its accumulated savings. d. the value of its financial assets.

real GDP per capita

A key input for measuring economic growth is: a. the size of the government's budget. b. life expectancy. c. real GDP per capita. d. the Dow Jones stock market index.

a requirement to pay in the future.

A liability is: a. having wronged someone and being held responsible in court. b. a requirement to pay in the future. c. the inability to perform an agreed task. d. the requirement that banks offer insurance to depositors.

producer price index

A measure of the average price received by suppliers is the: a. consumer price index. b. producer price index c. GDP deflator. d. exchange rate.

is more sensitive to a loss than to a gain of an equal dollar amount.

A risk-averse (loss-averse) person: a. considers any risk unacceptable. b. would never buy a financial asset. c. is more sensitive to a loss than to a gain of an equal dollar amount. d. would never buy insurance.

hyperinflation

A very rapid increase in the price level (e.g. 100% per month) is called: a. deflation b. inflation c. hyperdeflation d. hyperinflation

increase in the demand

An expectation that perceived business opportunities will increase will generally cause a(n) _____ for loanable funds. a. shift to the left in the demand curve b. movement along the demand curve c. increase in the demand d. decrease in the demand

0.75

David receives a tax refund of $800. He spends $600 and saves $200. David's marginal propensity to consume is: a. 0.6. b. 0.75. c. 0.25. d. 0.20.

a smaller increase in

Diminishing returns to physical capital implies that when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to _____ productivity. a. a smaller increase in b. a larger increase in c. a decrease in d. negative

rising productivity.

Economists say that long-run economic growth is almost entirely due to: a. rising productivity. b. population growth. c. a democratically elected government. d. a balanced budget.

channel savings into investment.

From the standpoint of economic growth, banks are important to: a. fight inflation. b. keep interest rates low. c. channel savings into investment. d. channel investment into savings.

the education and knowledge embodied in the workforce.

Human capital refers to: a. output per worker. b. the education and knowledge embodied in the workforce. c. society's investment in capital goods. d. people working with capital goods.

6%

If real GDP doubles in 12 years, its average annual growth rate is approximately: a. 6%. b. 5%. c. 4%. d. 3%.

10

If the MPS = 0.1, then the multiplier equals: a. 1. b. 5. c. 9. d. 10.

additional demand for

If the government increases its borrowing, then at every interest rate there is a(n) _____ funds. a. additional supply of b. additional demand for c. decrease in the supply of d. increase in the supply of

lower the official unemployment rate

If there are more discouraged workers in the economy, then that will: a. lower the number of people who are frictionally unemployed. b. lower the official unemployment rate. c. raise the official unemployment rate. d. increase the number of people who are structurally unemployed.

adding to physical capital.

Investment spending (in macroeconomics) refers to: a. buying stocks. b. adding to physical capital. c. buying newly issued shares of stock. d. adding to one's retirement account.

changing listed prices

Menu costs refer to the increased cost of: a. eating out when inflation increases. b. food in a time of inflation. c. changing listed prices. d. the minimum wage.

see changes in nominal prices and mistake them for changes in real prices.

Money illusion occurs when people: a. see changes in real prices and mistake them for changes in nominal prices. b. track changes in real prices and spend accordingly. c. see changes in nominal prices and mistake them for changes in real prices.

less reliable indicators of productivity today than they were a century ago.

Natural resources are: a. more important determinants of productivity today than ever before. b. the reason behind the fast development of countries like Japan. c. the reason behind the slow development of countries like Nigeria. d. less reliable indicators of productivity today than they were a century ago.

underemployed

Olga has a degree in art history and worked as a tour guide at a museum.She lost her job two months ago when the museum faced a budget cut.Olga hasn't been able to find another job related to her degree, so she has taken a part-time job as a sales representative at a clothing store.The Bureau of Labor Statistics classifies Olga as: a. unemployed. b. a marginally attached worker. c. underemployed. d. a discouraged worker.

real GDP.

Planned investment spending does not depend on: a. the rate of interest. b. the expected level of real GDP. c. the productive capacity of the economy. d. real GDP.

sales are less than expected.

Positive unplanned inventory investment occurs when actual: a. depreciation is less than expected. b. sales are less than expected. c. depreciation is more than expected. d. sales are higher than expected.

8

Real GDP per capita in the United States increased almost _____ times between 1900 and 2010. a. 2 b. 3 c. 8 d. 10

infrastructure

Roads, telephone lines, power facilities, and schools are examples of a nation's: a. technostructure. b. infrastructure. c. physiostructure. d. sociostructure.

of the combination of rapid technological progress, high savings rates, and rapid improvement in human capital.

Since the 1960s, nations like South Korea have been a part of the so-called East Asian economic miracle because: a. high rates of human capital growth have offset slow savings rates. b. of high rates of national savings that offset the slower rate of technological progress. c. of high savings rates, greater quantities of physical capital per worker, and slower growth of human capital. d. of the combination of rapid technological progress, high savings rates, and rapid improvement in human capital.

4

Suppose that investment spending increases by $50 billion and as a result GDP increases by $200 billion. The (investment) multiplier is: a. 8. b. 10. c. 4. d. 0.25

expected real rate of interest is unaffected by the change in expected inflation.

The Fisher effect states that the: a. nominal rate of interest is unaffected by the change in expected inflation. b. nominal rate of interest is unaffected by the change in unexpected inflation. c. expected real rate of interest is unaffected by the change in expected inflation. d. expected real rate of interest increases by one percentage point for each percentage change in expected inflation.

relates disposable income to total consumer spending.

The aggregate consumption function: a. relates household consumption to interest rates. b. describes what people would like to buy. c. describes the relationship of spending to family wealth. d. relates disposable income to total consumer spending.

the amount of natural resources

The aggregate production function does NOT depend on: a. the quantity of physical capital per worker. b. human capital per worker. c. the state of technology. d. the amount of natural resources.

households expect an increase in the minimum wage.

The consumption function will shift up if: a. households expect an increase in the minimum wage. b. households expect a decrease in the minimum wage. c. the marginal propensity to consume decreases. d. the marginal propensity to save increases.

narrow

The convergence hypothesis states that international differences in real GDP per capita tend to _____ over time. a. diverge b. fluctuate c. remain constant d. narrow

downward; investors; increasing

The demand for loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds. a. downward; investors; increasing b. downward; savers; increasing c. upward; investors; decreasing d. upward; savers; decreasing

has a budget surplus.

The government saves when it: a. has a balanced budget. b. has a budget deficit. c. has a budget surplus. d. borrows by selling bonds.

oil; manufacturing

The main source of Kuwait's wealth is _____, while the main source of Germany's wealth is_____ . a. oil; manufacturing b. manufacturing; oil c. tourism; manufacturing d. information technology; tourism

disposable income.

The most important determinant of consumer spending is: a. the government budget deficit or surplus b. the price of oil. c. the trade deficit. d. disposable income.

real GDP per capita

The standard of living in a country can be best measured by: a. nominal GDP per capita. b. real GDP per capita. c. the productivity growth rate. d. the business cycles.

monthly

The statistics and data on unemployment are gathered and reported: a. weekly. b. daily. c. monthly. d. yearly.

upward; savers; decreasing

The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds. a. upward; savers; increasing b. upward; investors; decreasing c. upward; savers; decreasing d. downward; investors; increasing

not have a job and must have looked for work in the past four weeks.

To be officially unemployed, a person must: a. not have a job and must have looked for work in the past four weeks. b. be working fewer than 30 hours per week. c. be under 55 years old. d. be working fewer than 20 hours per week.

cyclical

When the economy is experiencing a downturn, we can expect ________ unemployment to be higher. a. frictional b. cyclical c. structural d. seasonal

a credit card company

Which item is NOT a financial intermediary? a. pension funds b. mutual funds c.a life insurance company d. a credit card company

GM builds a new plant.

Which statement is considered investment spending in macroeconomics? a. GM builds a new plant. b. You buy a GM stock. c. You buy GM bonds. d. All of these are considered investment spending in macroeconomics.