ECO 3311 Midterm part 1

32) Consider the following table: By how much has the real interest rate changed between year 1 and year 2? A. It has increased by 5 percentage points. B. It has decreased by 5 percentage points. C. It has increased by 10 percentage points. D. It has decreased by 10 percentage points.

A

A competitive firm hires labor until the marginal product of labor equals the: A. real wage. B. rental price of capital. C. price of output. D. capital/labor ratio.

A

A leftward shift of the savings curve CANNOT be caused by a(n): A. positive shock to consumption B. increase in the government budget deficit. C. reduction in taxes. D. increase in the real interest rate.

A

According to the book, which of the following equations represents the money multiplier? A. (cr + 1)/(cr + rr) B. (cr + 1) × (cr + rr) C. (cr + 1) + (cr + rr) D. (cr + 1) - (cr + rr)

A

Euler's theorem implies that if a production function exhibits constant returns to scale, then: A. economic profit is zero. B. accounting profit is zero. C. the marginal product of labor equals the real wage. D. the marginal product of capital equals the real interest rate.

A

If the real interest rate rises, the quantity of investment demanded: A. will fall. B. will not change. C. will rise. D. could rise or fall.

A

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be: A. 0.08. B. 0.125. C. 0.22. D. 0.435.

A

If the supplies of capital and labor are fixed and technology is unchanging, then real output is: A. fixed. B. determined by demand. C. uncertain. D. subject to wide fluctuations.

A

In a 100-percent reserve banking system, if a customer withdraws $500 from his checking account, the bank's deposits will _______________ while its reserves will _________________. A. decrease $500; stay the same B. decrease $500; decrease $500 C. decrease $500; increase $500 D. increase $500; increase $500

A

In a closed economy with a fixed total income, a reduction in taxes will cause consumption: A. to rise and investment to fall. B. and investment both to rise. C. to fall and investment to rise.

A

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. A. the productive capability of the economy; the money supply B. the money supply; the productive capability of the economy C. velocity; the money supply D. the money supply; velocity

A

In the quantity equation MV = PT, V is the: A. income velocity of money. B. transactions velocity of money. C. inflation rate. D. value of the money supply.

A

One purpose of money is to transfer purchasing power from the present into the future. This function of money is called? A. store of value. B. index of inflation. C. medium of exchange

A

One reason for unemployment is that: A. it takes time to match workers and jobs. B. all jobs are identical. C. the labor market is always in equilibrium. D. a laid-off worker can immediately find a new job at the market wage.

A

Suppose that a consumer has a marginal propensity to consume of 0.8. If this consumer receives an extra $2 of disposable income, her saving would be expected to increase by A. $0.40. B. $0.80. C. $1.20. D. $1.60.

A

The difference between the nominal interest rate and the real interest rate is: A. the inflation rate. B. taxes. C. seigniorage. D. hyperinflation.

A

The government is running a budget deficit if: A. government spending is greater than tax revenue. B. tax revenue is greater than government spending. C. tax revenue is greater than consumption spending. D. tax revenue is greater than investment spending

A

The natural rate of unemployment is: A. the average rate of unemployment around which the economy fluctuates. B. about 10 percent of the labor force. C. a rate that never changes. D. the transition of individuals between employment and unemployment

A

To increase the money supply, the Federal Reserve: A. buys government bonds. B. sells government bonds. C. buys corporate stocks. D. sells corporate stocks.

A

When the government raises revenue by printing money, it imposes an "inflation tax" because the: A. real value of money holdings falls. B. interest rate falls. C. difference between nominal and real interest rates becomes smaller. D. nominal value of money holdings falls.

A

When the real wage is above the level that equilibrates supply and demand: A. the quantity of labor supplied exceeds the quantity demanded. B. the quantity of labor demanded exceeds the quantity supplied. C. there is no unemployment. D. the labor market clears.

A

Which of the following is NOT a characteristic of the Cobb-Douglas production function? A. Capital and labor receive equal fractions of income. B. Economic profit is zero. C. Factor payments are a constant fraction of income. D. Constant returns to scale.

A

Which of the following is not a function of money? A. It is a means of production. B. It is a unit of account. C. It is a store of value. D. It is a medium of exchange.

A

5. (HW 1) Consider the following production table: Assuming that the production function displays constant returns to scale, what is the marginal product of labor when labor and capital are both equal to 1,000? A. 1 B. 5 C. 10 D. 20

B

6.(HW1)Consider the following production table: By how much does the marginal product of labor decrease as labor input increases from 1 to 2 and from 2 to 3? A. 0 B. 1 C. 2 D. 3

B

A competitive firm rents capital until the marginal product of capital equals the: A. real wage. B. real rental price of capital. C. price of output. D. capital/labor ratio.

B

A policy that increases the job-finding rate _____ the natural rate of unemployment. A. will increase B. will decrease C. will not change D. could either increase or decrease

B

According to the quantity equation, if M increases by 3 percent and V increases by 2 percent, then: A. real income increases by approximately 5 percent. B. the price level increases by approximately 5 percent. C. the nominal interest rate increases by approximately 5 percent. D. nominal income increases by approximately 5 percent.

B

According to the simple macroeconomic model presented in Chapter 3, which of the following will not be caused by an increase in government spending? A. an increase in interest rate B. a decrease in consumption C. a decrease in investment D. an increase in government debt

B

All of the following are reasons for frictional unemployment except: A. workers have different preferences and abilities. B. unemployed workers accept the first job offer that they receive. C. the flow of information is imperfect. D. geographic mobility takes time.

B

An increase in the expected rate of inflation will: A. lower the demand for real balances because the real interest rate will rise. B. lower demand for real balances because the nominal interest rate will rise. C. increase the demand for real balances because the real interest rate will fall. D. increase the demand for real balances because the nominal interest rate will rise.

B

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? A. 3 percent B. 7 percent C. 10 percent D. 13 percent

B

If a firm with a constant returns to scale production function pays all factors their marginal products, then: A. economic and accounting profits are both zero. B. economic profit is zero and accounting profit is positive. C. economic profit is positive and accounting profit is zero. D. economic and accounting profit are both positive

B

If an individual is to hold lower money balances on average, she must make more frequent trips to the bank to withdraw money. This inconvenience of reducing money holding is called: A. a menu cost. B. a shoeleather cost. C. an inflation tax. D. seigniorage.

B

If the quantity of real money balances is kY, where k is a constant, then velocity is: A. k. B. 1/k. C. kP. D. P/k.

B

In a closed economy with output fixed, an increase in government spending matched by an equal increase in taxes will: A. increase consumption. B. increase the interest rate. C. increase investment. D. leave all other variables unchanged.

B

In a steady state: A. no hiring or firings are occurring. B. the number of people finding jobs equals the number of people losing jobs. C. the number of people finding jobs exceeds the number of people losing jobs. D. the number of people losing jobs exceeds the number of people finding jobs.

B

In the Cobb-Douglas production function, Y = K^α L^(1-α)the fraction of income spent as payments to labor is: A. α B. 1 - α C. dependent on the amount of labor employed. D. dependent on the amount of capital employed.

B

Open-market operations are: A. Commerce Department efforts to open foreign markets to international trade. B. Federal Reserve purchases and sales of government bonds. C. Securities and Exchange Commission rules requiring open disclosure of market trades. D. Treasury Department purchases and sales of the U.S. gold stock

B

Private saving is equal to: A. income − consumption. B. income − consumption − taxes. C. income − consumption − government spending. D. income − consumption − government spending − taxes.

B

Public policy to increase the job finding rate include _____ and public policy to decrease the job separation rate include _____. A. government employment agencies; higher unemployment insurance benefits B. job training programs; 100 percent experience rated unemployment insurance C. higher minimum wage laws; payment of unemployment benefits for longer periods D. higher efficiency wages; partially experience rated unemployment insurance

B

Suppose the monetary base doubles and the money multiplier doubles as well. Consequently, the money supply A. remains the same. B. doubles. C. more than doubles. D. less than doubles.

B

The Fisher effect states that a 1 percent rise in the rate of inflation causes a 1 percent rise in the: A. real interest rate. B. nominal interest rate. C. money supply. D. number of transactions.

B

The central bank's control over the money supply is called: A. money market equilibrium. B. fiscal policy. C. monetary policy. D. interest rate policy

B

The quantity theory of money assumes that: A. income is constant. B. velocity is constant. C. prices are constant. D. the money supply is constant.

B

The returns to scale in the production function Y = K0.5L0.5 are: A. decreasing. B. constant. C. increasing. D. subject to wide fluctuations.

B

To reduce the money supply, the Federal Reserve: A. buys government bonds. B. sells government bonds. C. creates demand deposits. D. destroys demand deposits.

B

Which component of the quantity equation is assumed constant by the quantity theory of money? A. the money supply B. the velocity of money C. the level of income D. the price level

B

A general increase in the price level is called: A. hyperinflation. B. deflation. C. inflation. D. devaluation.

C

Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. A. reduce; reduce B. increase; increase C. reduce; increase D. increase; reduce

C

Consider an economy where the money supply is growing at 7 percent per year and velocity is constant. Which of the following statements about real GDP growth and the inflation rate could be TRUE if the Quantity Theory of Money holds? A. Real GDP is growing at 2 percent and inflation is 5 percent. B. Real GDP is growing at 7 percent and inflation is 7 percent. C. Real GDP is growing at 2 percent and inflation is 9 percent. D. Real GDP is growing at 9 percent and inflation is 2 percent

C

Consider an economy where the only goods traded are coconuts and pineapples. Last year, 100 coconuts were sold at $1 apiece, and 200 pineapples were sold at $2.50 apiece. If the money supply was $100, what was velocity? A. 30 B. 15 C. 6 D. 5

C

Demand deposits are funds held in: A. currency. B. certificates of deposit. C. checking accounts. D. money markets.

C

Economists use the term money to refer to: A. income. B. profits. C. assets used for transactions. D. earnings from labor.

C

Frictional unemployment is unemployment caused by: A. wage rigidity. B. minimum-wage legislation. C. the time it takes workers to search for a job. D. clashes between the motives of insiders and outsiders.

C

Hyperinflation usually starts when: A. people start spending too much money. B. firms demand higher and higher prices for their goods. C. governments are forced to print money to finance their spending. D. fiscal deficits are small.

C

If a production function has two inputs and exhibits constant returns to scale, then doubling both inputs will cause the output to: A. reduce by half. B. stay the same. C. double. D. quadruple.

C

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately: A. f/(f + s). B. (f + s)/f. C. s/(s + f). D. (s + f)/s.

C

In a closed economy that is in equilibrium, investment is equal to: A. private saving. B. public saving. C. private saving plus public saving. D. disposable income minus consumption.

C

In a closed economy, the supply of goods and services must be equal to: A. consumption. B. consumption + investment. C. consumption + investment + government purchases. D. consumption + investment + government purchases − taxes.

C

In the Supply and Demand of Loanable Funds model in Chapter 3, a decrease in taxes will shift the: A. investment demand curve to the left. B. investment demand curve to the right. C. savings curve to the left. D. savings curve to the right.

C

Investment depends on the ________ interest rate because higher inflation will ________ the value of the dollars with which the firm will repay the loan. A. real; increase B. nominal; increase C. real; decrease D. nominal; decrease

C

One possible benefit from inflation is: A. inflation causes restaurants to update their menus more often. B. inflation reduces distortions to relative prices. C. if nominal wages are fixed, inflation decreases real wages. D. if nominal wages are fixed, inflation increases real wages.

C

One purpose of money is to be the item we use to buy and sell things. This function of money is called: A. store of value. B. index of inflation. C. medium of exchange. D. unit of account.

C

Suppose that a consumer has a marginal propensity to consume of 0.7. If this consumer earns an extra $2, her consumption spending would be expected to increase by: A. $0.60. B. $0.70. C. $1.40. D. $1.70.

C

Suppose that a major natural disaster destroys a large part of a country's capital stock but miraculously does not cause anybody bodily harm. What will happen to the real wage rate? A. It will not change. B. It will rise. C. It will fall. D. It could rise or fall.

C

Suppose that there is a positive shock to investment demand: that is, at every interest rate, the desired amount of investment rises. In a closed economy with the national saving fixed, the real interest rate will: A. fall. B. remain constant. C. rise. D. first fall and then rise.

C

The demand for real money balances is generally assumed to: A. be exogenous. B. be constant. C. increase as real income increases. D. decrease as real income increases.

C

The revenue raised by printing money is called: A. interest rates. B. velocity. C. seigniorage. D. nominal income.

C

The supply of loanable funds, or "national saving," is equal to: A. income − consumption. B. income − consumption − taxes. C. income − consumption − government spending. D. income − consumption − government spending − taxes.

C

Wage rigidity: A. forces labor demand to equal labor supply. B. is caused by sectoral shifts. C. prevents labor demand and labor supply from reaching the equilibrium level. D. increases the rate of job finding.

C

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a: A. store of value. B. unit of account. C. medium of exchange. D. flow of value.

C

When the demand for money parameter, k, is large, the velocity of money is ______ and money is changing hands ______ A. large; frequently B. large; infrequently C. small; frequently D. small; infrequently

C

When there is structural unemployment, the real wage is: A. rigid at a level below the market-clearing level. B. rigid at the market-clearing level. C. rigid at a level above the market-clearing level. D. flexible.

C

Which of the following is a part of M1? A. currency B. demand deposits C. savings deposits D. currency and demand deposits

C

Bank reserves equal: A. gold kept in bank vaults. B. gold kept at the central bank. C. currency plus demand deposits. D. deposits that banks have received but have not lent out.

D

If a production function has the property of diminishing marginal product, then doubling: A. all of the inputs will less than double the output. B. all of the inputs will double the output. C. all of the inputs will more than double the output. D. one of the inputs will reduce its marginal product

D

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: A. 0.02. B. 0.08. C. 0.10. D. 0.18.

D

In a closed economy with fixed output, an increase in government spending without any change in taxes will lead to a(n): A. increase in the real interest rate and a decrease in private saving. B. decrease in the real interest rate and an increase in private saving. C. decrease in the real interest rate and no change in private saving. D. increase in the real interest rate and no change in private

D

In a closed economy, with total output and taxes fixed, if government spending rises: A. consumption falls. B. national saving rises. C. the real interest rate falls. D. investment falls.

D

In the Supply and Demand of Loanable Funds model presented in Chapter 3, the variable that adjusts to equilibrate the supply and demand for goods and services is: A. government spending. B. consumption. C. taxes. D. the real interest rate.

D

Money's liquidity refers to the ease with which: A. coins can be melted down. B. illegally obtained money can be laundered. C. loans can be floated. D. money can be converted into goods and services

D

One purpose of money is to provide the terms in which prices are quoted and debts are recorded. This function of money is called? A. store of value. B. index of inflation. C. medium of exchange. D. unit of account

D

Rank the following assets according to size, from smallest to largest: M2, M1, Paper bills, Currency. A. paper bills, currency M2, M1 B. currency, paper bills, M1, M2 C. paper bills, currency, M1, M2 D. M1, M2, currency, paper bills

D

The income velocity of money increases and the money demand parameter k ______ when people want to hold ______ money. A. increases; more B. increases; less C. decreases; more D. decreases; less

D

The real interest rate is equal to the nominal interest rate minus: A. accounting profit. B. economic profit. C. taxes. D. the inflation rate.

D

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment. A. efficiency; inefficiency B. efficiency; structural C. frictional; efficiency D. structural; frictional

D

Which of the following is NOT an example of fiat money? A. the U.S. dollar B. the Japanese yen C. the British pound D. gold coins

D