ECONmidterm1

In the U.S. economy today, real GDP per person, compared with its level in 1900, is about: 50 percent higher. three times as high. twice as high. eight times as high.

eight times as high.

More frequent holidays for workers in Europe than in the United States contribute to: lower employment-to-population ratios in Europe than in the United States. higher employment-to-population ratios in Europe than in the United States. fewer hours worked per year by the average employed person in Europe than the average employed person in the United States. more hours worked per year by the average employed person in Europe than the average employed person in the United States.

fewer hours worked per year by the average employed person in Europe than the average employed person in the United States.

Most economists believe that prices are: flexible in the long run but many are sticky in the short run. flexible in the short run but many are sticky in the long run. flexible in both the short and long runs. sticky in both the short and long runs.

flexible in the long run but many are sticky in the short run.

People use money as a store of value when they: hold money to gain power and esteem. use money to buy goods and services. hold money to transfer purchasing power into the future. use money as a measure of economic transactions.

hold money to transfer purchasing power into the future.

If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal? imposing protectionist trade policies increasing taxes increasing government spending increasing investment tax credits

increasing taxes

Differences in unemployment rates across demographic groups are most closely correlated with differences in: efficiency wage rates. job-finding rates. unionization rates. job-separation rates.

job-separation rates.

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect: prices but not level of output. neither prices nor level of output. level of output but not prices. both prices and level of output

level of output but not prices.

Sectoral shifts: depend on the level of the minimum wage. make frictional unemployment inevitable. lead to wage rigidity. explain the payment of efficiency wages.

make frictional unemployment inevitable.

Stabilization policy refers to policy actions aimed at: equalizing incomes of households in the economy. preventing increases in the poverty rate. reducing the severity of short-run economic fluctuations. maintaining constant shares of output going to labor and capital.

reducing the severity of short-run economic fluctuations.

The value added of an item produced refers to: the value of the labor inputs in the production of an item. the value of a firm's output less the value of the intermediate goods that the firm purchases. the value of a firm's output less the value of its costs. a firm's profits on the item sold.

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

The central bank in the United States is the: U.S. Treasury. U.S. National Bank. Bank of America. Federal Reserve

Federal Reserve

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

Federal Reserve purchases and sales of government bonds.

The CPI is a: Paasche quantity index. Paasche price index. Laspeyres quantity index. Laspeyres price index.

Laspeyres price index.

Which statement below best illustrates the "art," rather than the "science," of macroeconomics? Macroeconomists must determine which simplifying assumptions clarify our thinking and which ones mislead us. Macroeconomic relationships can be expressed using symbols and equations. Graphs and charts can be used to illustrate the history of macroeconomic variables. Macroeconomic data provide the motivation for new macroeconomic theory.

Macroeconomists must determine which simplifying assumptions clarify our thinking and which ones mislead us.

According to the usual seasonal pattern of the U.S. economy, GDP is highest in the quarter of the year that includes: April, May, and June. January, February, and March. October, November, and December. July, August, and September.

October, November, and December.

All of the following actions are investments in the sense of the term used by macroeconomists except: a corner candy store's buying a new computer. Sandra Santiago's buying 100 shares of Apple stock. Apple's building a new factory. John Smith's buying a newly constructed home.

Sandra Santiago's buying 100 shares of Apple stock.

Banks create money in: a fractional-reserve banking system but not in a 100-percent-reserve banking system. both a 100-percent-reserve banking system and a fractional-reserve banking system. a 100-percent-reserve banking system but not in a fractional-reserve banking system. 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.

When there is a fixed supply of loanable funds, an increase in investment demand results in: a lower interest rate. an increase in investment. a higher interest rate. a decrease in investment.

a higher interest rate.

In the aggregate demand-aggregate supply model, long-run equilibrium occurs at the combination of output and prices where: aggregate demand equals short-run aggregate supply. short-run aggregate supply equals long-run aggregate supply. aggregate demand equals short-run and long-run aggregate supply. aggregate demand is greater than long-run aggregate supply.

aggregate demand equals short-run and long-run aggregate supply.

In a system with fractional-reserve banking: all banks must hold reserves equal to a fraction of their deposits. all banks must hold reserves equal to a fraction of their loans. the banking system completely controls the size of the money supply. no banks can make loans.

all banks must hold reserves equal to a fraction of their deposits.

Assume that a war breaks out abroad, and foreign investors choose to invest more in a large safe country, the United States. Then, the U.S. real interest rate: will rise, and net exports will fall. will fall, and net exports will rise. and net exports will both rise. and net exports will both fall.

and net exports will both fall.

The assumption of continuous market clearing means that: sellers can sell all that they want at the going price. at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price. in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price. buyers can buy all that they want at the going price.

at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price

Checking account balances that are linked to debit cards are included in: neither M1 nor M2. both M1 and M2. M1. M2 only.

both M1 and M2.

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement. margin liquidity reserve capital

capital

Based on historical observations, if many banks fail, this is likely to: have no effect on the ratio of reserves to deposits in surviving banks. cause surviving banks to lower their ratios of reserves to deposits. cause surviving banks to hold less currency. cause surviving banks to raise their ratios of reserves to deposits.

cause surviving banks to raise their ratios of reserves to deposits.

The largest component of national income is: net interest. compensation of employees. proprietors' income. corporate profits.

compensation of employees.

In examining the impact of fiscal policy, it is assumed that: government purchases, taxes, and interest rates are endogenous variables. consumption, investment, and the interest rate are exogenous variables. government purchases, taxes, and interest rates are exogenous variables. consumption, investment, and the interest rate are endogenous variables.

consumption, investment, and the interest rate are endogenous variables.

The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called: a budget deficit. crowding out. the identification problem. fiscal policy.

crowding out.

If the Federal Reserve wishes to increase the money supply, it should: increase interest paid on reserves. decrease the discount rate. sell government bonds. decrease the monetary base.

decrease the discount rate.

Recessions are periods when real GDP: increases rapidly. increases slowly. decreases mildly. decreases severely.

decreases mildly.

Exogenous variables are: determined within the model. determined outside the model. the outputs of the model. explained by the model.

determined outside the model.

Endogenous variables are: from outside the model. determined within the model. fixed at the moment they enter the model. the inputs of the model.

determined within the model

In an economic model: endogenous variables and exogenous variables are both determined within the model. exogenous variables affect endogenous variables. endogenous variables affect exogenous variables. exogenous variables and endogenous variables are both determined outside the model.

exogenous variables affect endogenous variables.

The ex ante real interest rate is based on _____ inflation, while the ex post real interest rate is based on _____ inflation. actual; expected core; actual expected; core expected; actual

expected; actual

Real GDP ______ over time, and the growth rate of real GDP ______. grows; fluctuates grows; is steady is steady; is steady is steady; fluctuates

grows; fluctuates

What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale? the marginal productivity of labor relative to the marginal productivity of capital the interest rate the quantity of economic profits earned by firm owners the ratio of public saving to private saving

he marginal productivity of labor relative to the marginal productivity of capital

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent: in the long run but lead to unemployment in the short run. in the short run but lead to unemployment in the long run. in neither the short nor the long run. in both the short run and the long run.

in the long run but lead to unemployment in the short run.

Which of the following is a flow variable? wealth income government debt the number unemployed

income

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 ______.

increase:decrease

The neoclassical theory of distribution: is a theory of how national income is divided among the factors of production. shows that the national income of an economy is not equal to total output. is rejected by most economists today. was developed by Karl Marx.

is a theory of how national income is divided among the factors of production.

When economists speak of "the" interest rate, they mean: the "prime" rate on mortgage loans. the Fed Funds rate. the rate on 90-day Treasury bills. no particular interest rate; it's usually an innocuous assumption since real interest rates tend to move up and down together.

no particular interest rate; it's usually an innocuous assumption since real interest rates tend to move up and down together.

If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M. prices nominal GDP transactions real GDP

nominal GDP

The nominal exchange rate between the U.S. dollar and the Japanese yen (measured in $ / yen) is the: price of Japanese goods divided by the price of U.S. goods. number of yen you can get for lending one dollar in Japan for one year. number of yen you can get for one dollar. price of U.S. goods divided by the price of Japanese goods.

number of yen you can get for one dollar.

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate positively; negatively negatively; negatively negatively; positively positively; positively

positively; negatively

A competitive, profit-maximizing firm hires labor until the: wage equals the rental price of capital. real wage equals the real rental price of capital. price of output multiplied by the marginal product of labor equals the wage. marginal product of labor equals the wage.

price of output multiplied by the marginal product of labor equals the wage.

The definition of the transactions velocity of money is: transactions divided by prices multiplied by money. money divided by prices multiplied by transactions. prices multiplied by transactions divided by money. money multiplied by prices divided by transactions.

prices multiplied by transactions divided by money.

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. output; output prices; prices prices; output output; prices

prices; output

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases. productivity shirking turnover unionization

productivity

Holding other factors constant, legislation to cut taxes in an open economy will: reduce national saving and lead to a trade deficit. reduce national saving and lead to a trade surplus. increase national saving and lead to a trade surplus. increase national saving and lead to a trade deficit.

reduce national saving and lead to a trade deficit.

Since 1960, the U.S. ratio of labor income to total income has: been about 2.5 to 1. decreased steadily. increased steadily. remained relatively steady.

remained relatively steady.

A firm's economic profit is: the price of output minus the wage minus the rental price of capital. the price of output minus labor costs. revenue minus costs. revenue plus capital costs.

revenue minus costs.

If consumption depends positively on the level of real balances and real balances depend negatively on the nominal interest rate, then the nominal interest rate: rises less than 1 percent for each 1 percent rise in the money growth rate. rises 1 percent for each 1 percent rise in the money growth rate. is unchanged when the money growth rate rises. declines when the money growth rate rises.

rises less than 1 percent for each 1 percent rise in the money growth rate.

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. safer and shorter-term riskier and longer-term tax-favored and foreign smaller-denomination and higher-grade

riskier and longer-term

A graph of the rate of inflation in the United States over the twentieth century shows: a constant rate of inflation in the first half of the century followed by an upward trend in the second half. a relatively steady, positive level throughout the century except for deflation in the 1930s. an overall upward trend interrupted by a large downturn in the 1930s. some periods of deflation mixed with mostly positive rates of inflation before 1955 but only positive rates of inflation after 1955.

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

National income differs from net national product by an amount called:

statistical discrepancy

When studying the short-run behavior of the economy, an assumption of ______ is more plausible, whereas when studying the long-run equilibrium behavior of an economy, an assumption of ______ is more plausible. flexible prices; sticky prices sticky prices; flexible prices unemployment; inflation inflation; unemployment

sticky prices; flexible prices

Disposable personal income is defined as income after the payment of all: social insurance contributions. interest. loans. taxes.

taxes.

An increase in the price of imported goods will show up in: the CPI but not in the GDP deflator. both the CPI and the GDP deflator. the GDP deflator but not in the CPI. neither the CPI nor the GDP deflator.

the CPI but not in the GDP deflator.

An increase in the price of goods bought by firms and the government will show up in: both the CPI and the GDP deflator. the GDP deflator but not in the CPI. neither the CPI nor the GDP deflator. the CPI but not in the GDP deflator.

the GDP deflator but not in the CPI.

A depreciation of the real exchange rate in a small open economy could be the result of: an increase in government spending. a decrease in the world interest rate. the expiration of an investment tax-credit provision. a domestic tax cut.

the expiration of an investment tax-credit provision.

The natural level of output is: the level of output at which the unemployment rate is zero. the level of output at which the unemployment rate is at its natural level. permanent and unchangeable. affected by aggregate demand.

the level of output at which the unemployment rate is at its natural level.

High-powered money is another name for: currency. the monetary base. demand deposits. M2.

the monetary base.

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on: the money supply. technology. the supply of capital. the labor supply.

the money supply.

In the classical model, according to the quantity theory of money and the Fisher equation, an increase in money growth increases: the nominal interest rate. output. the real interest rate. velocity.

the nominal interest rate.

Which of the following is the best example of a flexible price? the price of gasoline at a service station the price of a book in a bookstore the price of a ticket at a movie theater the price of a cup of coffee in a coffee shop

the price of gasoline at a service station

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

the quantity of labor supplied exceeds the quantity demanded.

In computing GDP: expenditures on used goods are included. production added to inventories is excluded. the amount of production in the underground economy is imputed. the value of intermediate goods is included in the market price of the final goods.

the value of intermediate goods is included in the market price of the final goods.

The employment statistics computed from the establishment survey do not include: those who are self-employed. part-time workers on firms' payrolls. workers on firms' payrolls. workers with two jobs.

those who are self-employed.

Financial intermediation is the process of: converting from a barter economy to a money economy. transferring funds from savers to borrowers. advising corporations how to invest. settling disputes between borrowers and lenders.

transferring funds from savers to borrowers.

Using a market-clearing model to analyze the labor market is ______ because wages usually change ______. unrealistic; infrequently realistic; infrequently realistic; frequently unrealistic; frequently

unrealistic; infrequently

In the United States, bank reserves consist of: gold deposits at the Federal Reserve. the money supply. currency and demand deposits. vault cash and deposits at the Federal Reserve.

vault cash and deposits at the Federal Reserve.

For a closed economy, when net capital outflow is measured along the horizontal axis and the real interest rate is measured along the vertical axis, net capital outflow is drawn as a vertical line at 0. line that slopes down and to the right. horizontal line at the world real interest rate. line that slopes up and to the right.

vertical line at 0.