Econ 320 Casanova Final
If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is: Select one: a. 1 percent. b. 6 percent. c. -4 percent. d. -5 percent.
-4 percent.
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: Select one: a. 0.08. b. 0.125. c. 0.22. d. 0.435.
.08
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: Select one: a. 0.02. b. 0.08. c. 0.10. d. 0.18.
.18
Assume that the production function is Cobb-Douglas with parameter α = 0.3. If factors are paid their marginal products, capital and labor, respectively, receive the shares of income: a. 0.3 and 0.3. b. 0.7 and 0.7. c. 0.3 and 0.7. d. 0.7 and 0.3.
0.3 and 0.7.
According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by: Select one: a. 0. b. 100. c. 150. d. 250.
100
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals: Select one: a. $50 billion. b. $100 billion. c. $150 billion. d. $600 billion.
$150 billion.
If GDP (measured in billions of current dollars) is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are: Select one: a. $673. b. -$673. c. $704. d. -$704.
$704
If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals: Select one: a. $200 billion. b. $400 billion. c. $800 billion. d. $1,000 billion.
$800 billion.
If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. Select one: a. 0.2 b. 2 c. 5 d. 10
5
According to the quantity theory and the Fisher equation, if the money growth increases by 3 percent and the real interest rate equals 2 percent, then the nominal interest rate will increase: Select one: a. 2 percent. b. 3 percent. c. 5 percent. d. 6 percent.
5 percent.
According to the quantity theory a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation a 5 percent increase in the rate of inflation increases the nominal interest rate by _____. Select one: a. 1; 5 b. 5; 1 c. 1; 1 d. 5; 5
5; 5
In the Keynesian-cross analysis, if the consumption function is given by C = 100 + 0.6(Y - T), and planned investment is 100, G is 100, and T is 100, then equilibrium Y is: Select one: a. 350. b. 400. c. 600. d. 750
600
The marginal product of capital is: Select one: a. output divided by capital input. b. additional output produced when one additional unit of capital is added. c. additional output produced when one additional unit of capital and one additional unit of labor are added. d. value of additional output when one dollar's worth of additional capital is added.
additional output produced when one additional unit of capital is added.
If all prices are stuck at a predetermined level, then when a short-run aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve: Select one: a. is horizontal. b. is vertical. c. slopes upward and to the right. d. slopes downward and to the right.
is horizontal.
Over the business cycle, investment spending ______ consumption spending. Select one: a. is inversely correlated with b. is more volatile than c. has about the same volatility as d. is less volatile than
is more volatile than
The world interest rate: Select one: a. is equal to the domestic interest rate. b. makes domestic saving equal to domestic investment. c. is the interest rate charged on loans by the World Bank. d. is the interest rate prevailing in world financial markets.
is the interest rate prevailing in world financial markets.
The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports. a. more; greater b. more; smaller c. less; greater d. less; smaller
less; greater
According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises. Select one: a. more; larger b. more; smaller c. less; larger d. less; smaller
less; smaller
If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect: Select one: a. level of output but not prices. b. prices but not level of output. c. both prices and level of output. d. neither prices nor level of output.
level of output but not prices.
In a fractional-reserve banking system, banks create money when they: Select one: a. accept deposits. b. make loans. c. hold reserves. d. exchange currency for deposits.
make loans.
Real GDP is a better measure of economic well-being than nominal GDP, because real GDP: Select one: a. excludes the value of goods and services exported aboard. b. includes the value of government transfer payments. c. measures changes in the quantity of goods and services produced by holding prices constant. d. adjusts the value of goods and services produced for changes in the foreign exchange rate.
measures changes in the quantity of goods and services produced by holding prices constant.
The costs of reprinting catalogs and price lists because of inflation are called: Select one: a. menu costs. b. shoeleather costs. c. variable yardstick costs. d. fixed costs.
menu costs.
An example of a nominal variable is the: Select one: a. money supply. b. quantity of goods produced in a year. c. relative price of bread. d. real wage.
money supply.
If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. a. more; increase b. more; decrease c. fewer; increase d. fewer; decrease
more; decrease
In equilibrium, total investment equals: a. private saving. b. public saving. c. national saving. d. household saving.
national saving.
The definition of the transactions velocity of money is: Select one: a. money multiplied by prices divided by transactions. b. transactions divided by prices multiplied by money. c. money divided by prices multiplied by transactions. d. prices multiplied by transactions divided by money.
prices multiplied by transactions divided by money.
A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. Select one: a. output; output b. prices; prices c. prices; output d. output; prices
prices; output
An example of a real variable is the: Select one: a. dollar wage a person earns. b. quantity of goods produced in a year. c. price level. d. nominal interest rate.
quantity of goods produced in a year.
To end a hyperinflation, a government trying to reduce its reliance on seigniorage would: Select one: a. print more money. b. raise taxes and cut spending. c. lower taxes and increase spending. d. lower interest rates.
raise taxes and cut spending.
Variables expressed in terms of physical units or quantities are called ______ variables. Select one: a. real b. nominal c. endogenous d. exogenous
real
Holding other factors constant, legislation to cut taxes in an open economy will: Select one: a. increase national saving and lead to a trade surplus. b. increase national saving and lead to a trade deficit. c. reduce national saving and lead to a trade surplus. d. reduce national saving and lead to a trade deficit.
reduce national saving and lead to a trade deficit.
In the small open economy in equilibrium: Select one: a. saving is fixed, and investment is determined by the investment function and the world interest rate. b. investment is fixed, and saving is determined by the saving function and the world interest rate. c. saving is fixed, and investment is determined by the trade balance. d. investment is fixed, and saving is determined by the trade balance.
saving is fixed, and investment is determined by the investment function and the world interest rate.
To reduce the money supply, the Federal Reserve: Select one: a. buys government bonds. b. sells government bonds. c. creates demand deposits. d. destroys demand deposits.
sells government bonds.
According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: Select one: a. the Organization of Petroleum Exporting Countries (OPEC). b. the U.S. Treasury. c. the Federal Reserve. d. private citizens.
the Federal Reserve.
The value of net exports is also the value of: Select one: a. net investment. b. net saving. c. national saving. d. the excess of national saving over domestic investment.
the excess of national saving over domestic investment.
Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: Select one: a. government spending increases the MPC more than tax cuts. b. the government-spending multiplier is larger than the tax multiplier. c. government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. d. increases in government spending increase planned spending, but tax cuts reduce planned spending.
the government-spending multiplier is larger than the tax multiplier
The natural level of output is: Select one: a. affected by aggregate demand. b. the level of output at which the unemployment rate is zero. c. the level of output at which the unemployment rate is at its natural level. d. permanent and unchangeable.
the level of output at which the unemployment rate is at its natural level.
In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where a. aggregate demand equals long-run aggregate supply. b. aggregate demand equals short-run aggregate supply. c. aggregate demand equals short-run and long-run aggregate supply. d. short-run aggregate supply equals long-run aggregate supply.
aggregate demand equals short-run aggregate supply.
When planned expenditure is drawn on a graph as a function of income, the slope of the line is: Select one: a. zero. b. between zero and one. c. one. d. greater than one.
between zero and one.
Along any given IS curve: Select one: a. tax rates are fixed, but government spending varies. b. government spending is fixed, but tax rates vary. c. both government spending and tax rates vary. d. both government spending and tax rates are fixed.
both government spending and tax rates are fixed.
The inflation tax is paid: Select one: a. only by the central bank. b. by all holders of money. c. only by government bond holders. d. equally by every household.
by all holders of money.
If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then: Select one: a. it cannot be determined whether the money supply increases or decreases. b. the money supply increases. c. the money supply decreases. d. the money supply does not change.
the money supply decreases.
According to the model developed in Chapter 3, when taxes decrease without a change in government spending: Select one: a. consumption and equilibrium investment both increase. b. consumption and equilibrium investment both decrease. c. consumption increases and equilibrium investment decreases. d. consumption decreases and equilibrium investment increases.
consumption increases and equilibrium investment decreases.
The demand for output in a closed economy is the sum of: Select one: a. public saving and private saving. b. the quantity of capital and labor and production technology. c. consumption, investment, and government spending. d. government purchases and transfer payments minus tax receipts.
consumption, investment, and government spending.
The monetary base consists of: Select one: a. currency held by the public, plus reserves held by banks. b. all outstanding currency, plus reserves held by banks. c. all outstanding currency, plus demand deposits. d. all bank reserves.
currency held by the public, plus reserves held by banks.
The money supply consists of: Select one: a. currency plus reserves. b. currency plus the monetary base. c. currency plus demand deposits. d. the monetary base plus demand deposits.
currency plus demand deposits.
The money supply will decrease if the: Select one: a. monetary base increases. b. currency-deposit ratio increases. c. discount rate decreases. d. reserve-deposit ratio decreases.
currency-deposit ratio increases.
If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______ and net capital outflows ______. Select one: a. increase; increase b. decrease; decrease c. do not change; do not change d. do not change; increase
do not change; do not change
A "small" economy is one in which the: Select one: a. level of output is fixed. b. price level is fixed. c. domestic interest rate equals the world interest rate. d. domestic saving is less than domestic investment.
domestic interest rate equals the world interest rate.
When exports exceed imports, all of the following are true except: Select one: a. net capital outflows are positive. b. net exports are positive. c. domestic investment exceeds domestic saving. d. domestic output exceeds domestic spending.
domestic investment exceeds domestic saving.
In a small, open economy if net exports are negative, then: Select one: a. domestic spending is greater than output. b. saving is greater than investment. c. net capital outflows are positive. d. imports are less than exports.
domestic spending is greater than output.
If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______ and output will ______. Select one: a. increase; increase b. decrease; decrease c. increase; decrease d. decrease; increase
increase; decrease
In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income. a. increases; increases b. increases; decreases c. decreases; decreases d. decreases; increases
increases; increases
According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: Select one: a. increasing. b. decreasing. c. 7 percent. d. constant.
increasing
According to the classical dichotomy, when the money supply decreases, _____ will decrease. Select one: a. real GDP b. consumption spending c. the price level d. investment spending
the price level
In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion decrease in taxes increases planned expenditures by ______ and increases the equilibrium level of income by ______. Select one: a. $1 billion; more than $1 billion b. $0.75 billion; more than $0.75 billion c. $0.75 billion; $0.75 billion d. $1 billion; $1 billion
$0.75 billion; more than $0.75 billion
In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by ______ and increases the equilibrium level of income by ______. a. $1 billion; more than $1 billion b. $0.75 billion; more than $0.75 billion c. $0.75 billion; $0.75 billion d. $1 billion; $1 billion
$1 billion; more than $1 billion
If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 2 francs per good, then the real exchange rate between Swiss goods and U.S. goods is ______ Swiss good(s) per U.S. good. Select one: a. 0.5 b. 2.5 c. 5 d. 10
2.5
If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: Select one: a. 0.6. b. 1.67. c. 2.0. d. 2.5.
2.5.
The central bank in the United States is the: Select one: a. Bank of America. b. U.S. Treasury. c. U.S. National Bank. d. Federal Reserve
Federal Reserve.
A country's exports may be written as equal to: Select one: a. GDP minus consumption minus investment minus government spending. b. GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services. c. imports. d. GDP minus imports.
GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services.
Which of the following would most likely be called a hyperinflation? Select one: a. Price increases averaged 300 percent per year. b. The inflation rate was 10 percent per year. c. Real GDP grew at a rate of 12 percent over a year. d. A stock market index rose by 1,000 points over a year.
Price increases averaged 300 percent per year.
All of the following actions are investments in the sense of the term used by macroeconomists except: Select one: a. IBM's building a new factory. b. corner candy store's buying a new computer. c. John Smith's buying a newly constructed home. d. Sandra Santiago's buying 100 shares of IBM stock.
Sandra Santiago's buying 100 shares of IBM stock.
Banks create money in: Select one: a. a 100-percent-reserve banking system but not in a fractional-reserve banking system. b. a fractional-reserve banking system but not in a 100-percent-reserve banking system. c. both a 100-percent-reserve banking system and a fractional-reserve banking system. d. neither a 100-percent-reserve banking system nor a fractional-reserve banking system.
a fractional-reserve banking system but not in a 100-percent-reserve banking system.
In the aggregate demand-aggregate supply model, long-run equilibrium occurs at the combination of output and prices where: Select one: a. aggregate demand is greater than long-run aggregate supply. b. aggregate demand equals short-run aggregate supply. c. aggregate demand equals short-run and long-run aggregate supply. d. short-run aggregate supply equals long-run aggregate supply.
aggregate demand equals short-run and long-run aggregate supply.
An increase in the trade deficit of a small open economy could be the result of: Select one: a. an increase in taxes b. an increase in government spending. c. an increase in the world interest rate. d. the expiration of an investment tax-credit provision.
an increase in government spending.
If the number of dollars per yen rises, this is called a(n): Select one: a. appreciation of the dollar. b. appreciation of the yen. c. increase in the terms of trade. d. decrease in the terms of trade.
appreciation of the yen.
"Inflation tax" means that: Select one: a. as the price level rises, taxpayers are pushed into higher tax brackets. b. as the price level rises, the real value of money held by the public decreases. CorrectCorrect c. as taxes increase, the rate of inflation also increases. d. in a hyperinflation, the chief source of tax revenue is often the printing of money.
as the price level rises, the real value of money held by the public decreases.
According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of ΔT will: Select one: a. decrease equilibrium income by ΔT. b. decrease equilibrium income by ΔT/(1 - MPC). c. decrease equilibrium income by (ΔT)(MPC)/(1 - MPC). d. not affect equilibrium income at all.
decrease equilibrium income by (ΔT)(MPC)/(1 - MPC).
If the Federal Reserve wishes to increase the money supply, it should: Select one: a. decrease the discount rate. b. increase interest paid on reserves. c. sell government bonds. d. decrease the monetary base.
decrease the discount rate.
An increase in the supply of capital will:a. increase the real rental price of capital. b. decrease the real rental price of capital a. increase the real rental price of capital. b. decrease the real rental price of capital
decrease the real rental price of capital.
If a U.S. corporation purchases a product made in Europe and the European producer uses the proceeds to purchase a U.S. government bond, then U.S. net exports ______ and net capital outflows ______. Select one: a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease
decrease; decrease
If inflation is 6 percent and a worker receives a 4 percent nominal wage increase, then the worker's real wage: Select one: a. increased 4 percent. b. increased 2 percent. c. decreased 2 percent. d. decreased 6 percent.
decreased 2 percent
If inflation is 6 percent and a worker receives a 4 percent nominal wage increase, then the worker's real wage: Select one: a. increased 4 percent. b. increased 2 percent. c. decreased 2 percent. d. decreased 6 percent.
decreased 2 percent.
In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow. Select one: a. deficit; negative b. surplus; negative c. deficit; positive d. surplus; positive
deficit; negative
A difference between the economic long run and the short run is that: Select one: a. the classical dichotomy holds in the short run but not in the long run. b. monetary and fiscal policy affect output only in the long run. c. demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. d. prices and wages are sticky in the long run only.
demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.
A consumption function shows the relationship between consumption and: Select one: a. income. b. personal income. c. disposable income. d. taxes.
disposable income.
According to the model developed in Chapter 3, when government spending increases without a change in taxes: Select one: a. consumption increases. b. consumption decreases. c. equilibrium investment increases. d. equilibrium investment decreases
equilibrium investment decreases.
All of the following are measures of GDP except the total: a. expenditures of all businesses in the economy. b. income from all production in the economy. c. expenditures on all final goods and services produced. d. value of all final production.
expenditures of all businesses in the economy.
When the real exchange rate rises: Select one: a. exports will decrease but imports will be unaffected. b. imports will decrease but exports will be unaffected. c. exports will increase and imports will decrease. d. exports will decrease and imports will increase.
exports will decrease and imports will increase.
To avoid double counting in the computation of GDP, only the value of ______ goods are included. a. final b. used c. intermediate d. investment
final
Using decade-long data across countries from 2000-2010, countries with high money growth tend to have _____ inflation. Select one: a. high b. low c. constant d. decreasing
high
If domestic saving is less than domestic investment, then net exports are ______ and net capital outflows are ______. Select one: a. positive; positive b. positive; negative c. negative; negative d. negative; positive
negative; negative
Okun's law is the ______ relationship between real GDP and the ______. Select one: a. negative; unemployment rate b. negative; inflation rate c. positive; unemployment rate d. positive; inflation rate
negative; unemployment rate
In a system with 100-percent-reserve banking: Select one: a. all banks must hold reserves equal to 100 percent of their loans. b. no banks can make loans. c. the banking system completely controls the size of the money supply. d. no banks can accept deposits.
no banks can make loans.
Variables expressed in terms of money are called ______ variables. Select one: a. real b. nominal c. endogenous d. exogenous
nominal
The rate of inflation is the: Select one: a. median level of prices. b. average level of prices. c. percentage change in the level of prices. d. measure of the overall level of prices.
percentage change in the level of prices.
For the purposes of the Keynesian cross, planned expenditure consists of: Select one: a. planned investment. b. planned government spending. c. planned investment and government spending. d. planned investment, government spending, and consumption expenditures.
planned investment, government spending, and consumption expenditures.
Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate. Select one: a. positively; positively b. positively; negatively c. negatively; negatively d. negatively; positively
positively; negatively
Aggregate supply is the relationship between the quantity of goods and services supplied and the: Select one: a. money supply. b. unemployment rate. c. interest rate. d. price level
price level.
If the transactions velocity of money remains constant while the quantity of money doubles, the: Select one: a. price of the average transaction must double. b. number of transactions must remain constant. c. price of the average transaction multiplied by the number of transactions must remain constant. d. price of the average transaction multiplied by the number of transactions must double
price of the average transaction multiplied by the number of transactions must double.
If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect: Select one: a. neither prices nor level of output. b. both prices and level of output. c. level of output but not prices. d. prices but not level of output
prices but not level of output.
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. Select one: 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
the productive capability of the economy; the money supply
An "open" economy is one in which: Select one: a. the level of output is fixed. b. government spending exceeds revenues. c. the national interest rate equals the world interest rate. d. there is trade in goods and services with the rest of the world.
there is trade in goods and services with the rest of the world.
An economy's ______ equals its ______. Select one: a. consumption; income b. consumption; expenditure on goods and services c. expenditure on goods; expenditures on services d. total income; total expenditure on goods and services
total income; total expenditure on goods and services
According to the analysis underlying the Keynesian cross, when planned expenditure exceeds income: Select one: a. income falls. b. planned expenditure falls. c. unplanned inventory investment is negative. d. prices rise.
unplanned inventory investment is negative.
A policy that decreases the job separation rate _____ the natural rate of unemployment. Select one: a. will increase b. will decrease c. will not change d. could either increase or decrease
will decrease
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
will decrease
