Exam 1 Study Questions (M/C)

Assume that a tire company sells 4 tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is: a.) $20,000 b.) $20,000 less the automobile company's profit on the car c.) $20,900 d.) $19,100

a.) $20,000

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by: a.) 0.85 units b.) 1 unit c.) 0.5 units d.) 0.15 units

a.) 0.85

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. a.) high; exceeds b.) high; falls short of c.) low; exceeds d.) low, falls short of

a.) high; exceeds

Real GDP means the value of goods and services is measured in _____________ prices. a.) current b.) actual c.) constant d.) average

c.) constant

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, the value included in GDP should be: a.) $1 b.) $3 c.) $0.50 d.) $2

d.) $2

If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are: a.) $131 b.) -$131 c.) $31 d.) -$31

d.) -$31 Y = C + I + G + NX 5,465 = 3,657 + 741 + 1,098 5,465 = 5,496 = -31 (trade deficit)

If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is: a.) 300 b.) 1,000 c.) 1,300 d.) 500

d.) 500 Private = Y - T - C 4,800 - 800 - 3,500 = 500

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.) structural; frictional

Assume two economies are identical in every way except that one has a higher population growth rate. According to the Solow Growth Model, in the steady state the country with the higher population growth rate will have a ____________ level of output per person and _____________ rate of growth of output per worker as/than the country with the lower population growth rate. a.) lower; the same b.) higher; the same c.) lower; a lower d.) higher; a higher

a.) lower; the same

The investment component of GDP includes all of the following except: a.) purchases of corporate stock b.) spending on new plants and equipment c.) purchases of new housing by households d.) changes in business inventories

a.) purchases of corporate stock

Crowding out occurs when an increase in government spending ________________ the interest rate and investment ________________. a.) increases; decreases b.) increases; increases c.) decreases; decreases d.) decreases; increases

a.) increases; decreases

In the classical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _____________ and private saving _____________. a.) increases; increases b.) increases; decreases c.) decreases; increases d.) decreases; does not change

c.) decreases; increases

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they: a.) are out of a job, but not looking for work b.) retired from the labor force before age 65 c.) do not have a job, but have looked for work in the past 4 weeks d.) are absent from work because of bad weather or illness

c.) do not have a job, but have looked for work in the past 4 weeks

National savings refers to: a.) disposable income minus consumption b.) taxes minus government spending c.) income minus consumption minus government spending d.) income minus investment

c.) income minus consumption minus government spending Y - C - G

In the classical model with fixed income, an increase in the real interest rate could be the result of a(n): a.) increase in taxes b.) decrease in desired investment c.) increase in government spending d.) decrease in government spending

c.) increase in government spending

In the classical model with fixed income, a decrease in the real interest rate could be the result of a(n): a.) increase in government spending b.) increased in desired investment c.) increase in taxes d.) decrease in taxes

c.) increase in taxes

When there is structural employment, the real wage is: a.) rigid at the market-clearing level b.) flexible c.) rigid at a level above the market-clearing level d.) rigid at a level below the market-clearing level

c.) rigid at a level above the market-clearing level

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then: 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 doesn't change

c.) the money supply decreases

People use money as a medium of exchange when they: a.) hold money to transfer purchasing power into the future b.) use money as a measure of economic transactions c.) use money to buy goods and services d.) hold money to gain power and esteem

c.) use money to buy goods and services

In the Solow Growth Model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: a.) sy b.) y + sy c.) y - sy d.) y - sy - i

c.) y - sy

In a Solow Model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, output per (actual) worker grows at a __________ percent rate. a.) 2 b.) 3 c.) 5 d.) 0

d.) 0

Deflation occurs when: a.) the unemployment rate decreases b.) prices increase, but at a slower rate c.) real GDP decreases d.) prices fall

d.) prices fall

Frictional unemployment is unemployment caused by: a.) minimum-wage legislation b.) clashes between the motives of insiders and outsiders c.) wage rigidity d.) the time it takes workers to search for a job

d.) the time it takes workers to search for a job

Frictional unemployment is unemployment caused by: a.) wage rigidity b.) clashes between the motives of insiders and outsiders c.) minimum-wage legislation d.) the time it takes workers to search for a job

d.) the time it takes workers to search for a job

If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? a.) $12 trillion b.) $12.5 trillion c.) $15 trillion d.) $18.75 trillion

a.) $12 trillion

The ex ante interest rate is equal to the nominal interest rate: a.) minus the expected inflation rate b.) minus the inflation rate c.) plus the expected inflation rate d.) plus the inflation rate

a.) minus the expected inflation rate

If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and net exports are -$1,910, then government purchases are: a.) -$843 b.) $2,977 c.) $1,067 d.) $1,910

b.) $2,977

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ____________ divided by _______________ multiplied by B. a.) (rr + 1); (rr + cr) b.) (cr + 1); (cr + rr) c.) (rr + cr); (rr + 1) d.) (rr + cr); (cr + 1)

b.) (cr + 1); (cr + rr)

If the price of apples is $2/apple and the price of bananas is $4/banana, then the relative price of apples in terms of bananas is: a.) 4 apples/banana b.) 1/2 banana/apple c.) 1/2 apple/banana d.) 2 bananas/apple

b.) 1/2 banana/apple 1 apple = 2 bananas 1/2 = 2/2 .5 = 1 =1/2

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and taxes are 800, national saving is equal to: a.) 1,000 b.) 300 c.) 500 d.) 700

b.) 300 4,000-3,500 = 500 500 - 200 = 300

People use money as a unit of account when they: a.) hold money to transfer purchasing power into the future b.) use money as a measure of economic transactions c.) use money to buy goods and services d.) hold money to gain power and esteem

b.) use money as a measure of economic transactions

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

a.) Sandra Santiago's buying 100 shares of IBM stock

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.) buys government bonds

Real GDP is measured in ____________ dollars _____________ time. a.) constant; per unit of b.) current; at a point in c.) current; per unit of d.) constant; at a point in

a.) constant; per unit of

The Golden Rule level of capital accumulation is the steady state with the highest level of: a.) consumption per worker b.) output per worker c.) capital per worker d.) savings per worker

a.) consumption per worker

Variables that a model tries to explain are called: a.) endogenous b.) exogenous c.) market clearing d.) fixed

a.) endogenous

The ex ante real interest rate is based on ________ inflation, while the ex post real interest rate is based on ___________ inflation. a.) expected; actual b.) core; actual c.) actual; expected d.) expected; core

a.) expected; actual

According to the Classical Model with fixed income, when taxes are DECREASED but government spending is unchanged, interest rates: a.) increase b.) are unchanged c.) decrease d.) can vary wildly

a.) increase

Assume that the adult population of the United States is 191.6 million, total employment is 117.6 million, and 9.4 million are unemployed. Then the unemployment rate, as normally computed, is approximately ________ percent. a.) 4.9 b.) 7.4 c.) 7.9 d.) 9.4

b.) 7.4 117.6 + 9.4 = 127M 9.4 / 127 = 7.4%

The marginal product of labor is: a.) output divided by labor input b.) additional output produced when one additional unit of labor is added c.) additional output produced when one additional unit of labor and one additional unit of capital are added d.) value of additional output when one dollar's worth of additional labor is added

b.) additional output produced when one additional unit of labor is added

If the consumption function is given by C = 150 + 0.85(Y-T) and T increases by 1 unit, then household savings: a.) decreases by 0.85 units b.) decreases by 0.15 units c.) increases by 0.15 units d.) increases by 0.85 units

b.) decreases by 0.15 units C = 150 + 0.85(Y-T) mpc = 0.85 mps = 1 - mpc = 0.15

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

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

In the classical model with fixed income, what determines the level of total production of goods and services in an economy? a.) the interest rate and the amount of national saving b.) the quantity of capital, quantity of labor, and production technology c.) consumption, investment, and government spending d.) the marginal products of capital and labor, constant returns to scale, and competition

b.) the quantity of capital, quantity of labor, and production technology

If the per-worker production function is given by y = k^1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: a.) 1 b.) 2 c.) 4 d.) 9

c.) 4 (0.2/0.1)^2 = 4

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. a.) 0.2 b.) 2 c.) 5 d.) 10

c.) 5 200(x) = 100(10) 200x = 1,000 x = 5

Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 12 percent and the inflation rate is 2 percent. According to the investment function, investment will be: a.) 580 b.) 640 c.) 700 d.) 940

c.) 700

Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be: a.) 240 b.) 700 c.) 760 d.) 970

c.) 760 10% - 2% = 8% 8% x 30 = 240 1,000 - 240 =760

The ex post real interest rate will be less than the ex ante real interest rate when the: a.) rate of inflation is increasing b.) rate of inflation is decreasing c.) actual rate of inflation is greater than the expected rate of inflation d.) actual rate of inflation is less than the expected rate of inflation

c.) actual rate of inflation is greater than the expected rate of inflation

According to the classical model with fixed income, when taxes decrease without a change in government spending: a.) consumption and investment both increase b.) consumption and investment both decrease c.) consumption increases and investment decreases d.) consumption decreases and investment increases

c.) consumption increases and investment decreases

According to the classical model with fixed income, when taxes are INCREASED but government spending is unchanged, interest rates: a.) increase b.) are unchanged c.) decrease d.) can vary wildly

c.) decrease