Macro Exam 1

51. Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G = 0. In this case, equilibrium investment is: a. 1,500 b. 2,000 c. 2,500 d. 3,000

A. $1,500 (Y=C+I+G)

16. If gross domestic product (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. $2,977 b. $1,910 c. −$843 d. $1,067

A. $2,977 (Y=C+I+G+Nx)

29. In the national income accounts, all of these are classified as government purchases EXCEPT: a. payments made to Social Security recipients b. services provided by police officers c. purchases of military hardware d. services provided by U.S. senators

A. Payments made to Social Security recipients (Avoid Double Counting)

26. The gross domestic product (GDP) deflator is equal to: a. the ratio of nominal GDP to real GDP b. the ratio of real GDP to nominal GDP c. real GDP minus national GDP d. nominal GDP minus real GDP

A. The ratio of nominal GDP to real GDP

47. If the consumption function is given by C = 500 + 0.5 (Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals: a. 2,500 b. 2,800 c. 3,500 d. 4,200

B. $2,800 (Plug-In)

46. 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. 500 c. 1,000 d. 1,300

B. $500 (Private Savings=Y-T-C)

38. 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: a. $5 b. $6.50 c. $9.50 d. $11

B. $6.50

36. 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: a. 10 pieces of fruit b. $7 c. $8 d. $10

B. $7

28. 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 5 in 2009, then the gross domestic product (GDP) deflator in 2009, using a base year of 2002, was approximately: a. 1.5 b. 1.7 c. 1.9 d. 2.0

B. 1.7 (Deflator=Nominal/Real)

20. If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately _____ percent. a. 3.5 b. 4.7 c. 4.9 d. 7

B. 4.7% (U/E+U)

59. 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

37. The economic statistic used to measure the level of prices is: a. gross domestic product (GDP) b. consumer price index (CPI) c. gross national product (GNP) d. real GDP

B. Consumer price index (CPI)

65. Private saving is: a. income minus consumption minus government spending b. disposable income minus consumption c. disposable income minus government spending d. taxes minus government spending

B. Disposable income minus consumption

10. Variables that a model takes as given are called: a. endogenous b. exogenous c. market clearing d. macroeconomic

B. Exogenous

23. The market value of all final goods and services produced within an economy in a given period of time is called: a. industrial production b. gross domestic product c. the gross domestic product (GDP) deflator d. general durable purchases

B. Gross Domestic Product

60. If government purchases exceed taxes minus transfer payments, then the government budget is: a. balanced b. in deficit c. in surplus d. endogenous

B. In Deficit

2. A measure of how fast the general level of prices is rising is called the: a. growth rate of real gross domestic product (GDP) b. inflation rate c. unemployment rate d. market-clearing rate

B. Inflation Rate

63. Exhibit: Saving, Investment, and the Interest Rate The economy begins in equilibrium at point E, representing the real interest rate r1 at which savings equals desired investment. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods? a. point A (Shift Down) b. point B (Shift Up) c. point C (Shift Left) d. point D (Shift Right)

B. Point B (Shift Up)

57. Consumption depends _____ on disposable income, and investment depends _____ on the real interest rate. a. positively; positively b. positively; negatively c. negatively; negatively d. negatively; positively

B. Positively; Negatively

45. The assumption that the factor's supply is fixed will imply that the factor's: a. supply curve is horizontal b. supply curve is vertical c. supply curve slopes up to the right d. demand curve slopes up to the right

B. Supply curve is vertical

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

B. The price of gasoline

41. Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6 (Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is: a. 600 b. 1,100 c. 1,500 d. 2,200

C. $1,500

35. 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, gross domestic product (GDP) increases by: a. $0.50 b. $1 c. $2 d. $3

C. $2

32. If gross domestic product (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: a. $673 b. −$673 c. $704 d. −$704

C. $704 (Y=C+I+G+Nx)

64. 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 Real Interest Rate (r)=Nominal (i)-Inflation Rate(π)

48. An example of increasing returns to scale is when capital and labor inputs: a. both increase 10 percent and output increases 5 percent b. both increase 10 percent and output increases 10 percent c. both increase 5 percent and output increases 10 percent d. do not change and output decreases 5 percent

C. Both increase 5 percent and output increases 10 percent

56. If an increase of an equal percentage in all factors of production increases output of the same percentage, then a production function has the property called: a. constant marginal product of labor b. increasing marginal product of labor c. constant returns to scale d. increasing returns to scale

C. Constant returns to scale

55. The demand for output in a closed economy is the sum of: a. public saving and private saving b. the quantity of capital and labor and production technology c. consumption, investment, and government purchases d. government purchases and transfer payments minus tax receipts

C. Consumption, Investment, and Government Purchases

52. A consumption function shows the relationship between consumption and: a. income b. personal income c. disposable income d. taxes

C. Disposable Income

33. 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 four 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 four weeks

42. The government purchases component of GDP includes all of these EXCEPT: a. federal spending on goods b. state and local spending on goods c. federal spending on transfer payments d. federal spending on services

C. Federal spending on transfer payments

9. The assumption of flexible prices is a more plausible assumption when applied to price changes that occur: a. from minute to minute b. from year to year c. in the long run d. in the short run

C. In the long run.

15. When a firm sells a product out of inventory, gross domestic product (GDP): a. increases b. decreases c. is not changed d. increases or decreases, depending on the year the product was produced

C. Is not changed

19. Real gross domestic product (GDP) is a better measure of economic well-being than nominal GDP because real GDP: a. excludes the value of goods and services exported aboard b. includes the value of government transfer payments c. measures changes in the quantity of goods and services produced by holding prices constant d. adjusts the value of goods and services produced for changes in the foreign exchange rate

C. Measures changes in the quantity of goods and services produced by holding prices constant

53. In equilibrium, total investment equals: a. private saving b. public saving c. national saving d. household saving

C. National Saving

61. The supply and demand for loanable funds determine the: a. real wage b. real rental price of capital c. real interest rate d. nominal interest rate

C. Real Interest Rate

12. The inflation rate is a measure of how fast: a. the total income of the economy is growing b. unemployment in the economy is increasing c. the general level of prices in the economy is rising d. the number of jobs in the economy is expanding

C. The general level of prices in the economy is rising

27. 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: a. $131 b. −$131 c. $31 d. −$31

D. -$31 (Y=C+I+G+Nx)

18. If the unemployment rate is 6 percent and the number of employed is 188 million, then the labor force equals _____ million. a. 11.28 b. 176.72 c. 188 d. 200

D. 200 Million (U/LF or U/E+U is equal to .06)

62. Public saving: a. is always positive b. is the overall level of household wealth held in government bonds c. is decided by the Federal Reserve d. depends on the government's tax collections relative to its expenditures

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

6. In an economic model: a. exogenous variables and endogenous variables are both determined outside the model b. endogenous variables and exogenous variables are both determined within the model c. endogenous variables affect exogenous variables d. exogenous variables affect endogenous variables

D. Exogenous variables affect endogenous variables

40. Public saving is: a. income minus consumption minus government spending b. disposable income minus consumption c. disposable income minus government spending d. government revenue minus government spending

D. Government revenue minus government spending (Public Savings=T-G)

49. The demand for loanable funds is equivalent to: a. national saving b. private saving c. public saving d. investment

D. Investment

7. The study of the economy as a whole is called: a. household economics b. business economics c. microeconomics d. macroeconomics

D. Macroeconomics.

50. The real interest rate is the: a. rate of interest actually paid by consumers b. rate of interest actually paid by banks c. rate of inflation minus the nominal interest rate d. nominal interest rate minus the rate of inflation

D. Nominal interest rate minus the rate of inflation

31. The labor force equals the: a. adult population b. number of employed individuals c. number of unemployed individuals d. number of employed and unemployed individuals

D. Number of employed and unemployed individuals

1. 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. a. deflation; inflation b. inflation; deflation c. flexible prices; sticky prices d. sticky prices; flexible prices

D. Sticky Prices; Flexible Prices

5. 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. a. inflation; unemployment b. unemployment; inflation c. flexible prices; sticky prices d. sticky prices; flexible prices

D. Sticky Prices; Flexible Prices

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

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

24. An economy's _____ equals its _____. a. consumption; income b. consumption; expenditure on goods and services c. expenditure on goods; expenditures on services d. total income; total expenditure on goods and services

D. Total income; Total expenditure on goods and services

17. Assume that a tire company sells four tires to an automobile company for $400, another company sells a navigation system for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in gross domestic product (GDP) is: a. $20,000 b. $20,000 less the automobile company's profit on the car c. $20,900 d. $20,900 less the profits of all three companies on the items that they sold

A. $20,000

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

A. $300 National Savings=Y-C-G

13. The production function for an economy can be expressed as Y = F(K,L), where Y is real GDP, K is the quantity of capital in the economy, and L is the quantity of labor in the economy. a. If F( ) = 100 + 3K + 9L, what is real GDP if the quantity of capital is 200 and the quantity of labor is 500? b. What is/are the endogenous variable(s) in this model? c. What is/are the exogenous variable(s) in this model?

A. 5200 (Plug-In) B. Endogenous: GDP C. Exogenous: Capital and Labor

67. Assume that GDP (Y) is 6,000. Consumption (C) is given by the equation C = 600 + 0.6 (Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real rate of interest, in percent. Taxes (T) are 500, and government spending (G) is also 500. a. What are the equilibrium values of C, I, and r? b. What are the values of private saving, public saving, and national saving? c. If government spending rises to 1,000, what are the new equilibrium values of C, I, and r? d. What are the new equilibrium values of private saving, public saving, and national saving?

A. C=$3,900 I=$1,600 r=4% B. Private=$1,600 Public=$0 National=$1,600 C. C=$3,900 I=$1,100 r=9% D. Private=$1,600 Public=-$500 National=$1,100 (In a Closed Economy, National Savings=I)

43. Unlike the real world, the classical model with fixed output assumes that: a. capital and labor are fully utilized b. all capital is fully utilized, but some labor is unemployed c. all labor is fully employed, but some capital lies idle d. some capital lies idle, and some labor is unemployed

A. Capital and labor are fully utilized

25. In the national income accounts, the purchases of durables, nondurables, and services by households are classified as: a. consumption b. investment c. government purchases d. net exports

A. Consumption

22. Nominal gross domestic product (GDP) means the value of goods and services is measured in _____ prices. a. current b. real c. constant d. average

A. Current

54. Other things equal, an increase in the interest rate leads to: a. a decrease in the quantity of investment goods demanded b. no change in the quantity of investment goods demanded c. an increase in the quantity of investment goods demanded d. sometimes an increase and sometimes a decrease in the quantity of investment goods demanded

A. Decrease in the quantity of investment goods demanded

3. A period of falling prices is called: a. deflation b. inflation c. a depression d. a recession

A. Deflation

11. Exogenous variables are: a. determined outside the model b. determined within the model c. the outputs of the model d. explained by the model

A. Determined outside the model

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

A. Endogenous.

34. The total income of everyone in the economy is exactly equal to the total: a. expenditure on the economy's output of goods and services b. consumption expenditures of everyone in the economy c. expenditures of all businesses in the economy d. government expenditures

A. Expenditure on the economy's output of goods and services

44. In the long run, the level of national income in an economy is determined by its: a. factors of production and production function b. real and nominal interest rate c. government budget surplus or deficit d. rate of economic and accounting profit

A. Factors of production and production function

21. To avoid double counting in the computation of gross domestic product (GDP), GDP includes only the value of _____ goods. a. final b. used c. intermediate d. investment

A. Final

58. When there is a fixed supply of loanable funds, an increase in investment demand results in a(n): a. higher real interest rate. b. lower real interest rate. c. increase in investment. d. decrease in investment.

A. Higher real interest rate

66. In a closed economy, Y - C - G equals: a. national saving b. private saving c. public saving d. financial saving

A. National Saving

14. Assume that the equation for demand for bread at a small bakery is Qd = 60 − 10Pb + 3Y, where Qd is the quantity of bread demanded in loaves, Pb is the price of bread in dollars per loaf, and Y is the average income in the town in thousands of dollars. Assume also that the equation for supply of bread is Qs = 30 + 20Pb − 30Pf, where Qs is the quantity supplied and Pf is the price of flour in dollars per pound. Assume finally that markets clear, so that Qd = Qs. a. If Y is 10 and Pf is $1, solve mathematically for equilibrium Q and Pb. b. If the average income in the town increases to 15, solve for the new equilibrium Q and Pb.

Qd=Qs Where Pb=$3, Q=60 Where Pb=$3.50, Q=70