Econ exam 1

Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, gross domestic product (GDP) increases by:

$2

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

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

If nominal gross domestic product (GDP) in 2009 equals $14 trillion and real GDP in 2009 equal $11 trillion, what is the value of the GDP?

1.27

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 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is:

13%

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to:

300

If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately _____ percent.

4.7

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, public saving:

rises by $100 billion

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, investment:

rises by $60 billion

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, national saving:

rises by $60 billion

Suppose that each factor of production increases by 10 percent and output subsequently increases by 10 percent. Which phrase describes this situation?

Constant returns to scale

An assumption of _____ is more plausible for studying the short-run behavior of the economy, while an assumption of _____ is more plausible for studying the long-run, equilibrium behavior of the economy.

sticky prices; flexible prices

3 Major functions of wealth

store of value, medium of exchange, unit of account

An increase in the price of goods bought by firms and the government will show up in:

the GDP deflator but not in the CPI

All of these are stock variables EXCEPT:

the government budget deficit

Economists can calculate the U.S. unemployment rate by using:

the household survey but not the establishment

Which is the BEST example of a sticky price?

the price of a soda in a vending

Which is the BEST example of a flexible price?

the price of gasoline at a service station

In the classical model with fixed income, if households and the government want to save more than firms want to invest, then:

the real interest rate falls.

The value added of an item produced refers to:

the value of a firm's output less the value of the intermediate goods that the firm purchases

An economy's _____ equals its _____.

total income; total expenditure on goods and services

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

unit of account

the central bank in the U.S. is the :

Federal Reserve

Money market mutual fund shares are included in:

M2 only

An important factor in the evolution of commodity money to fiat money is:

a desire to reduce transaction costs

Economists use the term money to refer to:

assets used for transactions

In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will:

decrease

A period of falling prices is called:

deflation

public saving:

depends on the government's tax collections relative to its expenditures.

A severe recession is called a

depression

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they:

do not have a job but have looked for work in the past four weeks.

In an economic model:

exogenous variables affect endogenous variables

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

All of these actions increase government purchases of goods and services EXCEPT the:

federal government sending a Social Security check to a retired firefighter.

Open-market operations are:

federal reserve purchases and sales of government bonds.

To avoid double counting in the computation of gross domestic product (GDP), GDP includes only the value of _____ goods.

final

The unemployment rate:

has never been zero in the United States

The consumer price index (CPI) is determined by computing:

he price of a fixed basket of goods and services, relative to the price of the same basket in a base year.

In the classical model with fixed income, if the interest rate is too low, then investment is too _____, and the demand for output _____ the supply.

high; exceeds

If government purchases exceed taxes minus transfer payments, then the government budget is:

in deficit

A typical trend during a recession is that:

incomes fall

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza _____ and the quantity purchased _____.

increases; decreases

In a simple model of the supply and demand for pizza, when buyers' income increases, the price of pizza _____ and the quantity purchased _____.

increases; increases

The production function F(K,L)=K^0.34 L^0.66 has?

increasing returns to scale

A measure of how fast the general level of prices is rising is called the:

inflation rate

In the national income accounts, goods bought for future use are classified as which type of expenditure?

investment

In the relationship expressed in functional form Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ):

is the function telling how the variables in the parentheses determine real GDP

The study of the economy as a whole is called:

macroeconomics

Real gross domestic product (GDP) is a better measure of economic well-being than nominal GDP because real GDP:

measures changes in the quantity of goods and services produced by holding prices constant.

In equilibrium, total investment equals:

national saving

credit card balances are included in:

neither M1 nor M2

A fixed-weight price index like the consumer price index (CPI) _____ the change in the cost of living because it _____ take into account that people can substitute less expensive goods for ones that have become more expensive.

overestimates; does not

In the national income accounts, all of these are classified as government purchases EXCEPT:

payments made to Social Security recipients

A graph of the rate of inflation in the United States over the twentieth century shows:

periods of deflation mixed with positive rates of inflation before 1955 but only positive rates of inflation after 1955.

The total income of everyone in the economy adjusted for the level of base year prices is called:

Real gross domestic product (GDP)

All of these actions are investments in the sense of the term used by macroeconomists EXCEPT:

Sandra Santiago buying 100 shares of Apple stock.

The national income accounts identity for an open economy is:

Y = C + I + G + NX

In a closed economy, private saving equals:

Y-T-C