Macroeconomics Test #2

Assume an open economy in which GDP is $12 trillion. If consumption is $8 trillion, government spending is $2 trillion, taxes are $0.5 trillion, exports are $1 trillion, and imports are $3 trillion, what is the net capital inflow? $1 trillion $2 trillion $3 trillion $4 trillion

$2 trillion

Considering 2018 as the base year, real GDP between 2018 and 2019 grew at a rate of: 53.19%. 39.47%. -39.47%. -58.67%.

-39.47%.

The approximate rate of inflation in year 3 is: 5% 10% 19% 20%

5%

If the consumer price index is 180 in year 1 and 190 in year 2, the inflation rate between year 1 and year 2 is about: 5.26%. 5.56%. 6.5%. 10%.

5.56%.

The equilibrium interest rate and total quantity of lending are: 8% and $4 trillion, respectively. 2% and $10 trillion, respectively. 10% and $2 trillion, respectively. 6% and $6 trillion, respectively.

6% and $6 trillion, respectively.

The employment to population ratio is _________. 69.8% 4.3% 84.4% 80.7%

80.7%

The labor force participation rate is _________. 69.8% 4.3% 84.4% 80.7%

84.4%

When inflation rises unexpectedly, borrowers will _____, and lenders will _____. be hurt; benefit benefit; be hurt be hurt; be hurt benefit; benefit

benefit; be hurt

If money income remains constant while the price level doubles: nominal income will fall. real income will fall. interest rates will fall. purchasing power will increase.

real income will fall.

Unanticipated inflation: increases the value of money. decreases uncertainty about the future. reduces the real value of debt. helps lenders.

reduces the real value of debt.

Which item would NOT be included in this year's GDP? the production of a television show the purchase of a new hybrid truck the hiring of a new school teacher the purchase of your neighbor's house, which was built in 2010

the purchase of your neighbor's house, which was built in 2010

Capital inflows equal: GDP plus exports minus imports. the growth of the capital stock minus investment spending. foreign direct investment. the total inflow of foreign funds minus the total outflow of domestic funds.

the total inflow of foreign funds minus the total outflow of domestic funds.

GDP is the: total market value of all final goods and services produced in an economy in one year. total accumulated wealth of an economy. volume of all dollar transactions made in an economy in one year. dollar amount of all sales made in the economy in one year.

total market value of all final goods and services produced in an economy in one year.

Consider an economy that produces only smartphones and laptops. Last year, 10 smartphones were sold at $800 each, and 5 laptops were sold at $1,000 each, while this year, 15 smartphones were sold at $900 each, and 10 laptops were sold at $1,100 each. Real GDP this year, using last year as a base year, is: $22,000 $24,500 $11,000 $13,500

$22,000

The value of national savings is: $14 trillion. $3 trillion. $3.5 trillion. -$0.5 trillion.

$3 trillion.

Assume an open economy in which GDP is $12 trillion. If consumption is $8 trillion, government spending is $2 trillion, taxes are $0.5 trillion, exports are $1 trillion, and imports are $3 trillion, what is investment spending? $2 trillion $3 trillion $3.5 trillion $4 trillion

$4 trillion

Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. What is the value of the market basket in 2017? $3 $40 $42 $44.50

$40

​Nominal GDP in 2018 was: $200 $400 $450 $525

$400

Government purchases of goods and services are: $50 billion. $1,085 billion. $300 billion. $400 billion

$400 billion

If, during 2019, the Republic of Sildavia recorded a GDP of $75 billion, interest payments of $15 billion, imports of $13 billion, profits of $7 billion, exports of $15 billion, and rent of $7 billion, wages during 2019 in Sildavia were: $46 billion. $36 billion. $26 billion. $16 billion.

$46 billion.

Which of the following is TRUE of an open economy? GDP = C + I + G + X - IM GDP = C + I + G GDP = T - TR - G GDP = SPrivate + SGovernment

GDP = C + I + G + X - IM

Assume a closed economy in which GDP is $20 trillion. If consumption is $14 trillion, government spending is $3 trillion, taxes are $1 trillion, and government transfers are $0, what is national savings? $4 trillion $3 trillion $1 trillion $2 trillion

$3 trillion

Suppose a market basket consists of the following goods: 50 pens, 25 notepads, and 25 paperclips. Also assume that the unit prices of these goods are as follows for the years noted and that 2018 is the base year. What is the value of the price index in 2018? 100 111 90 0

100

If the cost of the market basket in the base year is $5,000, and the cost of the market basket in the current year is $5,100, the price index for the current year is ___. 102 1.02 0.98 98

102

Calculate the GDP deflator for 2019. 111 104 90 96

104

Suppose a market basket consists of the following goods: 50 pens, 25 notepads, and 25 paperclips. Also assume that the unit prices of these goods are as follows for the years noted and that 2018 is the base year. What is the rate of inflation between 2018 and 2019? -10% 11% 32% 0%

11%

Suppose that there are 70 million people in the labor force, of whom 60 million are employed. The unemployment rate is: 7%. 10.0%. 14.3%. 4.2%.

14.3%.

The total population is _____ million. 394 162 232 169

232

A price index: always includes a base year. is used to measure the cost of a market basket across different years is normalized so that it equals 100 in the base year. All of the above are true

All of the above are true

Assume a closed economy in which GDP is $20 trillion. If consumption is $14 trillion, government spending is $3 trillion, taxes are $1 trillion, and government transfers are $0, what is the government budget balance? a surplus of $2 trillion a deficit of $2 trillion a surplus of $3 trillion a deficit of $3 trillion

a deficit of $2 trillion

The price measure MOST widely used to determine the inflation rate in the United States is the _____. producer price index consumer price index GDP deflator national income account

consumer price index

A decrease in the demand for loanable funds would MOST likely be caused by a(n): decrease in the inflation rate. increase in the budget deficit. decrease in perceived business opportunities. increase in perceived business opportunities.

decrease in perceived business opportunities.

Deflation is a: decrease in unemployment. decreasing aggregate price level. decline in wages. recession.

decreasing aggregate price level.

A drop in the inflation rate is called: disinflation. deflation. stagflation. hyperinflation.

disinflation

A drop in the inflation rate is called: disinflation. deflation. stagflation. hyperinflation.

disinflation.

Private savings equals: disposable income minus consumption. taxes minus government spending on goods and services. the total amount of savings accounts plus stocks plus bonds owned by households. income plus investment.

disposable income minus consumption.

Shoe-leather costs are the: effect of inflation on the prices of food, clothing, and other necessities. extra effort people must expend to reduce their holdings of money when inflation is high. high price of leather goods. effect of inflation on transportation costs.

extra effort people must expend to reduce their holdings of money when inflation is high.

In general, the expansion phase of the business cycle is characterized by: increasing unemployment. falling unemployment. decreasing employment. constant employment.

falling unemployment.

If the interest rate is high, households are willing to ____ current consumption and save ____, compared to when the interest rate is low, all else equal. forgo; more increase;less increase; more forgo; less

forgo; more

Since 1960, in the United States, the price level has: fluctuated randomly by large amounts. remained the same. decreased. generally increased.

generally increased.

New investment spending occurs when the expected rate of return on a project is: positive. higher than the equilibrium interest rate. equal to the equilibrium interest rate. less than the equilibrium interest rate.

higher than the equilibrium interest rate.

Capital inflows into a country are associated with: imports exceeding exports. a small amount of funds available for domestic investment. imports equaling exports. exports exceeding imports.​

imports exceeding exports.

A nation's exports minus its imports: equals its private investment. is net exports is always a positive number is equal to net transfer payments

is net exports

If an economy is closed and wishes to increase its investment spending: its only source of funding is domestic saving. its sources of funding are domestic and foreign saving. the government will have to increase its spending to provide for this. the government will increase taxes to provide for this.

its only source of funding is domestic saving.

The unemployment rate is the: percent of the labor force that is unemployed. number of people unemployed. the labor force minus the number of people unemployed. average length of time someone is unemployed.

percent of the labor force that is unemployed.

The inflation rate is the: price level in the current year minus the price level in the previous year. price level in the current year plus the price level in the previous year. percentage change in the price level from one year to the next. price level in the current year multiplied by the price level in the previous year.

percentage change in the price level from one year to the next.

The producer price index is often regarded as a warning sign of inflation because: prices of inputs will ultimately be reflected in prices of final products. producers are likely to have monopoly control over prices. consumers have to pay the prices charged. commodity producers can sell whatever they want at higher prices.

prices of inputs will ultimately be reflected in prices of final products.

Assume a closed economy in which GDP is $20 trillion. If government spending is $3 trillion, taxes are $2 trillion, government transfers are $0, consumption is $13 trillion, and investment spending is $4 trillion: private savings is $3 trillion. the government's budget balance is a surplus of $1 trillion. there are no net savings. private savings is $5 trillion.

private savings is $5 trillion.

Income divided by the price level is _____ income. personal real disposable national

real

Real per capita GDP is: real GDP divided by the population. real GDP divided by the amount of capital available in the economy. not a useful measure of human welfare. rarely used as a tool to compare countries' possible resources.

real GDP divided by the population.

Anong's credit union charges a fee for transferring funds from her money market account to her checking account. The rate of inflation has been 12% lately, so Anong has transferred funds from her money market account to her checking account more often than usual. This cost is an example of the _____ costs of high inflation. unit-of-account menu shoe-leather redistributive

shoe-leather

Other things equal, an increase in taxes on savings would shift _____ to the _____ and _____ the interest rate. demand; right; increase demand; left; decrease supply; right; decrease supply; left; increase​

supply; left; increase​

The budget balance is zero when: taxes minus government spending and transfers equals zero. government transfers minus government spending equals zero. taxes plus government spending equals zero. savings plus taxes equals zero.

taxes minus government spending and transfers equals zero.

The budget balance equals: taxes minus government spending. transfers minus government spending. taxes plus government spending. savings plus taxes.

taxes minus government spending.

The government can increase national savings by: taxing more than it spends. spending more than it taxes. increasing inflation. increasing the deficit.

taxing more than it spends.

The government can increase national savings by: taxing more than it spends. spending more than it taxes. increasing inflation. increasing the deficit.​

taxing more than it spends.

The inflation or deflation rate is: the change in a price index divided by the initial value of the index. the change in a price index divided by the new index number. the difference between the initial price index number and the new price index number. computed by dividing the old price index number by the new price index number.

the change in a price index divided by the initial value of the index.

The price index in the current year is the cost of the market basket in ____ year divided by the cost of the market basket in ____ year times 100. the base; the current the current; the base a past; a future a future; a past

the current; the base

Which item would NOT be part of GDP? used car sales new residential construction a new truck purchased by a building contractor cable TV service purchased for a home

used car sales

If the market interest rate is 9.5%, the amount of planned investment spending is: $1,800. $2,000. $4,000. $5,500.

$5,500.

Assume that the real GDP of the United States is approximately $21 trillion and that the population of the United States is approximately 350 million. What is real GDP per capita? $35,000 $40,000 $60,000 Real per capita GDP can't be determined without more information

$60,000

Per capita real GDP in 2016 was: $600. $400. $300. $30.

$600.

A survey reveals that, on a small island, 1,000 people have jobs, 250 people are unemployed and looking for jobs, and 450 people are neither working nor looking for work. The unemployment rate on the island is _____%. 20 25 45 15.6

20

Suppose the labor force participation rate is 70%. The number of unemployed adults is _____ million. 27 95 46.5 105

27

The unemployment rate is ______. 3.9% 10.0% 4.6 % 6.75%

3.9%

Suppose a project that costs $100,000 is expected to return $105,000 in a year. At which of the following interest rates would the company be willing to take out a loan to pay for the project? 6.5 6 5.5 4.5

4.5

Suppose that banks are making personal loans at 9% and they expect inflation to be 3%. The nominal interest rate on these loans is _____%, and the real interest rate is _____%. 6; 9 9; 6 9; 3 6; 12

9; 6

Which transaction is included in the nation's gross domestic product? A college student buys a used textbook from his roommate. A construction company purchases lumber to build a new house. A college student buys a pizza and has it delivered to her dorm room. A group of college students volunteer to rake leaves at an assisted living facility for senior citizens.

A college student buys a pizza and has it delivered to her dorm room.

Which equation breaks GDP down into the four sources of aggregate spending? GDP = C + I + G + X + IM. GDP = C + I + G - X - IM. GDP = C - I - G - X + IM. GDP = C + I + G + X - IM.

GDP = C + I + G + X - IM.

Investment spending in a closed economy must equal _____. GDP minus consumption minus government spending GDP minus consumption plus government spending GDP plus consumption plus government spending GDP plus consumption plus government spending

GDP minus consumption minus government spending

Suppose that a bank wishes to earn a 5% real rate of return on a one-year loan and expects inflation over the course of the loan to be roughly 3%. Which statement is TRUE? As long as the bank charges a nominal interest rate of at least 5%, it will earn its expected real return. If the bank charges a nominal interest rate of 8% or higher, it will earn the expected real return no matter what the inflation rate is. If the bank charges 8%, and the inflation rate is less than 3%, then the bank will have earned a higher real rate of return than expected. If the bank charges 8%, and the inflation rate is greater than 3%, then the bank will have earned a higher real rate of return than expected.

If the bank charges 8%, and the inflation rate is less than 3%, then the bank will have earned a higher real rate of return than expected.

Suppose that a bank wishes to earn a 5% real rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which statement is TRUE? As long as the bank charges a nominal interest rate of at least 5%, it will earn its expected real return. If the bank charges an interest rate of 8% or higher, it will earn the expected real return. If the bank charges 8%, and the inflation rate is less than 3%, then the bank will have earned a higher real rate of return than expected. If the bank charges 8%, and the inflation rate is greater than 3%, then the bank will have earned a higher rate of return than expected.

If the bank charges 8%, and the inflation rate is less than 3%, then the bank will have earned a higher real rate of return than expected.

Which scenario might produce a new equilibrium interest rate of 5% and a new equilibrium quantity of loanable funds of $75 billion? The expected profitability of business investment declines. Capital inflows from foreign citizens decline. The federal government runs a budget deficit rather than a budget surplus. The government eliminates taxes on income from interest earned.

The expected profitability of business investment declines.

Which statement is TRUE? Someone is counted as unemployed if they are not working but have looked for work sometime during the past year. The labor force is the total number of people employed plus those who are unemployed. The unemployment rate is the number of people unemployed expressed as a percentage of the population. The labor force is the same as the population.

The labor force is the total number of people employed plus those who are unemployed.

Which transaction would NOT be counted in GDP? Nike builds a retail store. Your mother buys a pound of Washington-grown apples. Your mother buys 100 shares of Nike stock. The Indiana state government pays for the repair of a damaged bridge over the Wabash River.

Your mother buys 100 shares of Nike stock.

Real GDP per capita is: a perfect measure of a country's standard of living. the only way to measure living standards across different countries. an incomplete measure of a country's standard of living. used only by the United Nations to compare nations in terms of well-being.

an incomplete measure of a country's standard of living.

GDP may be calculated as the sum of: consumer spending, investment spending, government purchases of goods and services, and exports minus imports. consumer spending, investment spending, government transfer payments, and exports minus imports. consumer spending, investment spending, government purchases of goods and services, and exports. exports and imports only.

consumer spending, investment spending, government purchases of goods and services, and exports minus imports.

Menu costs of inflation are the: costs associated with money becoming a less reliable unit of measurement. costs of transactions associated with avoiding the inflation tax. costs associated with businesses changing prices. revenue the government gets from printing money.

costs associated with businesses changing prices.

Unit-of-account costs of inflation are the: costs associated with money becoming a less reliable unit of measurement. costs of transactions associated with avoiding the inflation tax. costs associated with businesses changing prices. transfers the government gets from printing money.

costs associated with money becoming a less reliable unit of measurement.

In official unemployment statistics, discouraged workers are: counted as employed. included in the labor force. not included in the labor force. counted as underemployed.

not included in the labor force.

One difference between a closed economy and an open economy is that: in the latter, foreign savings complement domestic savings in financing investment spending. in the latter, the government is more open to the idea of financing investment spending than in the former. in the former, foreign savings complement domestic savings in financing investment spending. in the former, foreign savings finance more investment spending than in the latter.​

in the latter, foreign savings complement domestic savings in financing investment spending.

Disposable income equals: income plus government transfers minus taxes. income plus government spending minus taxes. income minus taxes plus government spending. income minus taxes minus government transfers.

income plus government transfers minus taxes.

If the demand for loanable funds increases, and the supply of loanable funds does not change, the result will be a(n) _____ in the interest rate and a(n) _____ in the amount of borrowing in the funds market. increase; increase increase; decrease decrease; decrease decrease; increase​

increase; increase

An increase in the overall price level is called: depreciation. deflation. inflation. expectations.

inflation.

An INCREASE in the number of discouraged workers tends to: raise the official unemployment rate. lower the official unemployment rate. lower the number of people who are frictionally unemployed. increase the number of people who are structurally unemployed.

lower the official unemployment rate.

The real interest rate is the nominal interest rate _____. minus the rate of inflation divided by the rate of inflation multiplied by the rate of inflation plus the rate of inflation

minus the rate of inflation

The real interest rate is the nominal interest rate _____. less the rate of inflation divided by the rate of inflation multiplied by the rate of inflation plus the rate of inflation

multiplied by the rate of inflation

In an open economy, total investment equals: national savings plus capital inflows. private savings plus national savings plus capital inflows. private savings plus capital inflows. national savings minus private savings minus capital inflows.

national savings minus private savings plus capital inflows.

If a country has a trade surplus, we can conclude that it also has a: budget surplus. net capital outflow. net capital inflow. budget deficit.

net capital outflow.

The only spending category in GDP that can be negative is _____. consumer spending investment spending government purchases of goods and services net exports

net exports

An example of investment spending is the purchase of a: bond by a banker. loaf of bread by your aunt. new tractor by a farmer ticket to a football game by a student

new tractor by a farmer

Employment is the total: labor force. population of working age. number of people actively working, either full time or part time. number of people not unemployed.

number of people actively working, either full time or part time.

When the price level increases and incomes remain constant, _____. everyone becomes wealthier real income decreases real wealth increases lenders are better off

real income decreases

If the price level and nominal GDP both doubled, then real GDP would: also double. increase by half. remain unchanged. decrease by half.

remain unchanged.

Suppose the government in a closed economy is running a budget balance of zero when it increases defense spending by $200 billion. If it finances this spending by selling bonds (i.e. borrowing), the equilibrium interest rate will: fall to 12%. rise to 16.5%. rise to 18%. rise to 21%.

rise to 18%.

If real GDP falls while nominal GDP rises, then prices on average have: risen. fallen. stayed the same. Real GDP cannot rise when nominal GDP falls.

risen

A survey reveals that, on a small island, initially, 1,000 people have jobs, 200 people are unemployed but are looking for jobs, and 200 people are neither working nor looking for work. Suppose that 100 of the 200 people who weren't looking for work now begin looking for work and that half of the new entrants find a job. The unemployment rate: rises to 19.2%. rises to 21.4%. rises to 28.6%. Nothing happens to the unemployment rate.

rises to 19.2%.

The crowding-out effect is _____. the negative effect of government budget deficits on private investment spending the positive effect of government budget deficits on private investment spending what happens when a company employs too many workers the positive effect of government budget deficits on private saving

the negative effect of government budget deficits on private investment spending​

The unemployment rate equals the number _____ divided by the number _____ times 100. unemployed; employed unemployed; in the population employed; in the labor force unemployed; in the labor force

unemployed; in the labor force