UNL ECON 311B Test 1

Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent.According to the investment function, investment will be:

760

When government spending increases and taxes are increased by an equal amount, interest rates:

Increase

The marginal product of capital is:

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

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

decreases by 0.15 units.

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

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

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, private saving:

falls by $40 billion

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will:

increase by more than $1 million.

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.

Assets of banks include:

loans to customers.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier.

more; decrease

The MOST frequently used tool of monetary policy is:

open-market operations.

According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal total:

output

Compared to typical open-market operations, when engaging in quantitative easing operations conducted by the Federal Reserve between 2007 and 2011, Federal Reserve purchases tended to be _____ securities.

riskier and longer-term

The amount of capital that banks are required to hold depends on the:

riskiness of the bank's assets.

Assuming that goods and factor markets are perfectly competitive, which one of these explains the increasing share of capital in national income?

technological advancement that has decreased the role of labor and increased the role of capital in production

If gross domestic product (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.

If gross domestic product (GDP) measured in billions of current dollars is $5,465, consumption is $3,657, investment is $741, and net exports are −$1,910, then government purchases are:

$2,977

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 gross domestic product (GDP) (in 2002 prices) in 2009 was:

$6.50

The consumer price index (CPI) is a:

Laspeyres price index.

Bank reserves equal:

deposits that banks have received but have not lent out.

When the demand for loanable funds exceeds the supply of loanable funds, households and the government want to save _____ than firms want to invest, and the interest rate _____.

less; rises

The use of borrowed funds to supplement existing funds for purposes of investment is called:

leverage.

The size of the monetary base is determined by:

the Federal Reserve.

In the national income accounts, government purchases are goods and services purchased by:

the federal, state, and local governments

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

the interest rate.

In a Cobb-Douglas production function, the marginal product of capital will increase if:

the quantity of labor increases.

Assume that the consumption function is given by C = 150 + 0.85 (Y - T) and the tax function is given by T =t0 + t1Y. If t0 increases by 1 unit, then consumption:

decreases by 0.85 units.

When the Fed decreases the interest rate paid on reserves, it:

decreases the reserve-deposit ratio (rr).

In the classical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving _____ and private saving _____.

increases; does not change

Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____percent.

20

Assume that the production function is Cobb-Douglas with parameter a = 0.3. If capital and labor are paid their marginal products, they receive the shares of income:

0.3 and 0.7.

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6 (Y - T).Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

1,500

Assume that the consumption function is given by C = 200 + 0.7 (Y - T), the tax function is given by T = 100+ t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:

175

If nominal gross domestic product (GDP) grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately _____ percent.

2

Government transfer payments:

can be viewed as negative tax payments, T.

The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called:

crowding out.

The money supply consists of:

currency plus demand deposits.

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y =50K0.5L0.5, where K = 100 and L = 100, then C equals:

3,000.

A competitive firm chooses the:

quantity of labor and capital to employ.