ECON Midterm 1

The expected inflation rate is 8%. The nominal interest rate is 6%. The real interest rate is 2% 0.75% 1.33% -2%

-2%

The nominal interest rate is 10%, the expected inflation rate is 5%, and the combined state-federal tax rate is 35%. The expected real after-tax interest rate is 1.50%. 3.25%. 5.00%. 6.50%.

1.50%.

Suppose that Freedonia has GDP equal to 2000 million, the capital stock is 1700 million, and the number of employees equals 70 million. The production function is Y = AK0.25N0.75. Total factor productivity of the economy is approximately equal to 0.09. 2.61. 4.19. 12.87.

12.87

Suppose the marginal product of labor is MPN = 200 - 0.5Nwhere N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N), by how much does employment increase? 0 4 8 16

16

Suppose the economy's production function is Y = AK0.3N0.7. When K = 1000, N = 50, and A = 15, what is Y? 1842 6106 750,000 123

1842

Suppose the marginal product of labor is MPN = 200 - 0.5Nwhere N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N), by how much does the real wage increase? 1 2 3 4

2

Suppose the marginal product of labor is MPN = 200 - 0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. What is the equilibrium quantity of employment? 12 190 380 760

380

The nominal wage is $600 and the price of umbrellas is $15. The real wage is $40 40 umbrellas $585 40

40 umbrellas

f(x,y) = 5x + 7y The partial derivative with respect to x is 5x 12 5 5 + 7y

5

Suppose the marginal product of labor is MPN = 200 - 0.5Nwhere N is aggregate employment. The aggregate quantity of labor supplied is 100 + 4w, where w is the real wage. The government imposes a minimum wage of 60. How much unemployment will this create among unskilled labor? 0 60 80 100

60

A supply shock that reduces total factor productivity directly affects which term in the production function Y = AF(K, N)? A F K N

A

A tremendous flood along the Mississippi River destroys thousands of factories, reducing the nation's capital stock by 5%. What happens to current employment and the real wage rate? Both employment and the real wage rate would increase. Both employment and the real wage rate would decrease. Employment would increase and the real wage would decrease. Employment would decrease and the real wage would increase.

Both employment and the real wage rate would decrease.

Which of the factors listed below might cause the Ricardian equivalence proposition to be violated? There may be international capital inflows and outflows. Consumers may not understand that an increase in government borrowing today is likely to lead to higher future taxes. There may be constraints on the level of government spending. There may be constraints on the level of government taxation.

Consumers may not understand that an increase in government borrowing today is likely to lead to higher future taxes.

The government announces a tax increase on workers' wages to take effect in the future. What happens to current employment and the real wage rate? Both employment and the real wage rate would increase. Both employment and the real wage rate would decrease. Employment would increase and the real wage would decrease. Employment would decrease and the real wage would increase.

Employment would increase and the real wage would decrease.

The cost function is C = 4x2 The marginal cost function is MC = 4x MC = 8x MC = 8 MC = 8x2

MC = 8x

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts was true? The crash had been preceded by a large run-up in the price of stocks. Most stocks were owned by insurance companies. Most stocks were owned by pension funds that invested in the market. Many individuals had invested in the stock market immediately prior to the crash.

Many individuals had invested in the stock market immediately prior to the crash.

Units Produced Total Cost 5 $40 6 $45 7 $55 The marginal cost is increasing The marginal cost is decreasing The marginal cost is constant

The marginal cost is increasing

If the first derivative of a cost function is positive and the second derivative is positive The marginal cost is positive and increasing The marginal cost is positive and decreasing The marginal cost is negative and increasing The marginal cost is negative and decreasing

The marginal cost is positive and increasing

Desired national saving would increase unambiguously if there were an increase in both current output and expected future output. an increase in both expected future output and government purchases. an increase in both expected future output and the expected real interest rate. a fall in both government purchases and expected future output.

a fall in both government purchases and expected future output.

Government purchases are A flow variable A stock variable

a flow variable

The M2 money supply is A real variable A nominal variable

a nominal variable

A decrease in the number of workers hired by a firm could result from an increase in the marginal product of labor. an increase in the marginal revenue product of labor. an increase in the real wage. a decrease in the real wage.

an increase in the real wage.

A curve that connects all the consumption combinations that yield the same level of utility is known as an isoquant. a yield curve. a budget line. an indifference curve.

an indifference curve.

Three factors that cause interest rates among different financial instruments to vary are default risk, expected inflation, and taxability. default risk, current inflation, and taxability. default risk, maturity, and taxability. default risk, expected inflation, and maturity.

default risk, maturity, and taxability.

If the substitution effect of the real interest rate on saving is larger than the income effect of the real interest rate on saving, then a rise in the real interest rate leads to a ________ in consumption and a ________ in saving, for someone who's a lender. fall; fall fall; rise rise; rise rise; fall

fall; rise

If Jeff's wage rate rises, he decides to work more hours. From this, we can infer that for Jeff, the substitution effect is greater than the income effect. for Jeff, the substitution effect is equal to the income effect. for Jeff, the substitution effect is less than the income effect. Jeff is confused.

for Jeff, the substitution effect is greater than the income effect.

Suppose the government provides a tax cut today that is matched by a tax increase in the future that's equal in present value to the tax cut. This causes a consumer's saving to decrease. increase. remain unchanged. increase if the person was a lender and decrease if the person was a borrower.

increase.

If a carpenter buys a handsaw, the transaction is recorded in the national accounts as: consumer spending investment spending government purchases net exports

investment spending

The real wage is the nominal wage divided by the price level. automatically increases with the cost of living. is the price level divided by the nominal wage. is the nominal wage multiplied by the price level.

is the nominal wage divided by the price level.

The two main characteristics of the production function are it slopes downward from left to right, and the slope becomes flatter as the input increases. it slopes upward from left to right, and the slope becomes steeper as the input increases. it slopes upward from left to right, and the slope becomes flatter as the input increases. it slopes downward from left to right, and the slope becomes steeper as the input increases.

it slopes upward from left to right, and the slope becomes flatter as the input increases.

A permanent increase in the real wage rate has a ________ income effect on labor supply than a temporary increase in the real wage, so labor supply is ________ with a permanent wage increase than for a temporary wage increase. larger; more larger; less smaller; more smaller; less

larger; less

For a borrower, an increase in the real interest rate will lead to higher current consumption and less borrowing. higher current consumption and less saving. lower current consumption and less borrowing. lower current consumption and less saving.

lower current consumption and less borrowing.

The additional cost from producing one more unit is called: Average cost Marginal cost Fixed cost

marginal cost

A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold. You would expect this breakthrough to shift the marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage. marginal product of labor curve down and to the left, reducing the quantity of labor demanded at any given real wage. labor supply curve up, reducing the quantity of labor demanded at any given real wage. labor supply curve down, raising the quantity of labor demanded at any given real wage.

marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage.

An increase in the real wage would result in a movement along the labor demand curve, causing an increase in the number of workers hired by the firm. shift of the labor demand curve, causing an increase in the number of workers hired by the firm. movement along the labor demand curve, causing a decrease in the number of workers hired by the firm. shift of the labor demand curve, causing a decrease in the number of workers hired by the firm.

movement along the labor demand curve, causing a decrease in the number of workers hired by the firm.

The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied. homogeneous labor supply effect negative correlation effect income effect substitution effect

substitution effect

The aggregate supply of labor is the total amount of time a person works over his or her lifetime. total amount of time a person spends in the labor force over his or her lifetime. unemployment rate. sum of the labor supplied by everyone in the economy.

sum of the labor supplied by everyone in the economy.

In forecasting consumer spending using surveys of consumer confidence, research suggests that the forecasts are improved when using consumer confidence measures. the forecasts are not improved when using consumer confidence measures. the forecasts are improved when using consumer confidence measures for forecasts made during recessions, but not expansions. the forecasts are not improved when using consumer confidence measures for forecasts made during expansions, but not recessions.

the forecasts are not improved when using consumer confidence measures.

The fact that the production function relating output to capital becomes flatter as we move from left to right means that the marginal product of labor is positive. the marginal product of capital is positive. there is diminishing marginal productivity of labor. there is diminishing marginal productivity of capital.

there is diminishing marginal productivity of capital.