IMEMOUW

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is:

$2

If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator?

1.27

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

inflation rate.

The demand for loanable funds is equivalent to:

investment.

Assets of banks include:

loans to customers.

In the classical model with fixed income, a reduction in the government budget deficit will lead to a:

lower real interest rate.

In equilibrium, total investment equals:

national saving.

An increase in the _____ interest rate causes investment to _____

real; decrease.

Assume an economy has the Cobb-Douglas production function Y=10K1/3L1/3. If the economy's stock of capital doubles, the share of total income paid to the owners of capital will:

stay the same.

The CPI is determined by computing:

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

Which of the following is the best example of a flexible price?

the price of gasoline at a service station

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

the price of pizza and the quantity of pizza sold.

All of the following statements about sticky prices are true except:

the sticky-price model describes the equilibrium toward which the economy slowly gravitates.

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.

In computing GDP:

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

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, 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 GDP (in 2002 prices) in 2009 was:

$6.50.

If GDP measured in billions of current dollars is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are:

$704

Macroeconomic models are used to explain how _____ variables influence _____ variables.

exogenous; endogenous

The total income of everyone in the economy is exactly equal to the total:

expenditure on the economy's output of goods and services.

The government purchases component of GDP includes all of the following except:

federal spending on transfer payments.

To avoid double counting in the computation of GDP, GDP includes only the value of _____ goods.

final

Market-clearing models assume that prices are _____ and are best applied to understand the economy in the _____.

flexible; long run

The unemployment rate:

has never been zero in the United States.

Which of the following is a flow variable?

income

To increase the money supply, the Federal Reserve:

buys government bonds.

The largest component of GDP is

consumption.

Public saving:

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

Bank reserves equal:

deposits that banks have received but not yet lent out.

Exogenous variables are:

determined outside the model.

Endogenous variables are:

determined within the model.

In a fractional-reserve banking system, banks create money because:

each dollar of reserves generates many dollars of demand deposits.

Skill biased technological change _____ the demand for high-skilled workers, while a slowdown in the pace of the educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _____ wages for skilled workers:

increases; higher.

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

When the Fed increases the discount rate, it:

is likely to decrease the monetary base (B).

When a firm sells a product out of inventory, GDP:

is not changed.

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

less; rises.

To increase the money multiplier, the Fed can:

lower the interest rate paid on reserves.

Macroeconomic models:

make different assumptions to explain different aspects of the macroeconomy.

Real 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.

Open-market operations change the ____; changes in interest rate paid on reserves change the _____' and changes in the discount rate change the _____.

monetary base; money multiplier; monetary base.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier:

more; decrease.

Credit card balances are included in:

neither M1 nor M2.

In a system with 100-percent reserve banking:

no banks can make loans using deposits made at their institutions.

The labor force equals:

number of employed and unemployed individuals.

In the national income accounts, all of the following are classified as government purchases except:

payments made to Social Security recipients.

Deflation occurs when:

prices fall

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

real GDP

If nominal GDP and real GDP both rise by 10 percent, then the GDP deflator

remains unchanged.

The amount of capital that banks are required to hold depends on the:

riskiness of the bank's assets.

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

The amount of capital in an economy is a(n) _____, and the amount of investment is a(n) _____.

stock; flow

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.

The inflation rate is a measure of how fast:

the general level of prices in the economy is rising.

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

the interest rate falls.

The ratio of the money supply to the monetary base is called:

the money multiplier.

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:

the money supply decreases.

The statistic economists use to measure the value of economic output is:

GDP.

Which of the following events would affect the CPI but not the GDP deflator?

Volvo, the Swedish auto maker, raises the prices of the cars it sells in the United States.

Assume that the production function is Cobb-Douglas with parameter a=0.3. If capital and labor are paid their marginal products, they receive the shares of income:

0.3 and 0.7.

During the period between 1900 and 2000, the unemployment rate in the United States was the highest in the:

1930s.

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent.

2

Assume an economy has a national income of 1200. Consumption is 600, taxes are 200, and government purchases are 300. In this economy, national saving is:

300.

If disposable income is 4000, consumption is 3500, government purchases is 1000, and taxes minus transfers is 800, national saving is equal to:

300.

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

Open-market operations are:

Federal Reserve purchases and sales of government bonds.

Other things equal, an increase in the interest rate leads to:

a decrease in the quantity of investment goods demanded.

Assume a person quits his job to become a stay-at-home parent. Please complete the statement below.

The labor-force participation rate falls, and the unemployment rate rises.

The Ford Motor Company makes a car in 2020 and sells it to the Jones family in 2021. Use this information to complete the statement below.

This event increases consumption in 2021 and increases GDP in 2020

An example of decreasing returns to scale is when capital and labor inputs:

both increase 10 percent and output increases 5 percent.

The preferences of households determines the:

currency-deposit ratio.

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

decrease.

When a firm sells a product out of inventory, investment expenditures _____, and consumption expenditures _____.

decrease; increase

A decrease in government purchases of goods and services, holding taxes constant, will _____ the equilibrium real interest rate and _____ investment

decrease; increase.

When the Fed decreases the interest rate paid on reserves, it:

decreases the reserve-deposit ratio (rr).

GDP is all of the following except:

the total expenditure of everyone in the economy.

Prices of items included in the CPI are:

weighted according to quantity of the item purchased by the typical household.

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

will decrease.

If the number of employed increases while the number of unemployed does not change, the unemployment rate:

will decrease.