Exam 1

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 total output consists of four apples and six oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of gross domestic product (GDP) is:

$7.

Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to:

3.5 percent.

Consider the money demand function that takes the form ( M / P ) d = Y /(4 i ), where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy?

4 i

Assume that equilibrium GDP ( Y ) is 5,000. Consumption ( C ) is given by the equation C = 500 + 0.6 Y . Investment ( I ) is given by the equation I = 2,000 - 100 r , where r is the real interest rate, in percent. In addition, assume that G = 0. In this case, the equilibrium real interest rate is:

5 percent.

If Y = AK 0.5 L 0.5 and A , K , and L are all 100, the marginal product of capital is:

50

If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals _____ percent.

60

Consider the money demand function that takes the form ( M / P) d = kY , where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

7 percent

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

Sandra Santiago buying 100 shares of Apple stock.

If bread is produced using a constant returns to scale production function, then if the:

amounts of equipment and workers are both doubled, twice as much bread will be produced.

The assumption of continuous market clearing means that:

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

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on:

both the current and expected future money supply.

One of President Trump's first major economic policy initiative after taking office in 2017 was a(n):

decrease in taxes levied on corporations.

If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage:

decreased 2 percent.

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.

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

expected; actual

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

final

Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation,

gives a better measure of ongoing, sustained price changes.

The unemployment rate:

has never been zero in the United States.

A small country might want to use the money of a large country rather than create its own money if the small country:

is likely to be unstable, whereas the large country is likely to be stable.

When people want to hold _____ money, the income velocity of money increases, and the money demand parameter k_____ .

less; decreases

When the demand for loanable funds exceeds the supply of loanable funds, households and the government want to save _____ than firms want to invest, and the interest rate _____.

less; rises

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

low; falls short of

The characteristic of the classical model that the money supply does not affect real variables is called:

monetary neutrality

Two striking features of a graph of U.S. real gross domestic product (GDP) per capita over the twentieth century are the:

overall upward trend interrupted by a large downturn due to the economic depression in the 1930s.

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.

In a closed economy with fixed output, when government spending increases: public saving increases. private saving decreases. public saving decreases. private saving increases.

public saving decreases.

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

real gross domestic product (GDP).

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.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoeleather costs.

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.

sticky prices; flexible prices

All of these are stock variables EXCEPT : the number of unemployed people. the government budget deficit. the amount of capital in the economy. a consumer's wealth.

the government budget deficit.

In the classical model with fixed output, the supply and demand for goods and services are balanced by:

the interest rate.

According to the classical dichotomy, when the money supply decreases, _____ will decrease. the price level real gross domestic product (GDP) investment spending consumption spending

the price level

Which is the BEST example of a sticky price? the price of a share of stock the price of a barrel of oil the price of a soda in a vending machine the price of the U.S. dollar in terms of euros

the price of a soda in a vending machine

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

the price of gasoline at a service station

In a simple model of the supply and demand for pizza, the endogenous variables are:

the price of pizza and the quantity of pizza sold.

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _____ determines real gross domestic product (GDP) and _____ determines nominal GDP.

the productive capability of the economy; the money supply

Two equivalent ways to view gross domestic product (GDP) are as the:

total income of everyone in the economy or the total expenditure on the economy's output of goods and services.

Macroeconomics does NOT try to answer the question of: why some countries experience rapid growth. why some countries have high rates of inflation. what is the rate of return on education. what causes recessions and depressions.

what is the rate of return on education.

If an increasing proportion of the adult population is retired, then the labor-force participation rate:

will decrease.

If gross domestic product (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:

−$31.

If nominal gross domestic product (GDP) grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately _____ percent.

2

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

between the labor and capital used in production, according to their marginal productivities.

Unlike the real world, the classical model with fixed output assumes that:

capital and labor are fully utilized.

In the case of an unanticipated increase in inflation:

creditors with an unindexed contract are hurt because they get less than they expected in real terms.