Macro Exam 2
Answer the next question based on the following data. All figures are in billions of dollars. Gross investment: $18 Net exports: 2 Residential fixed investment: 5 Inventory investment: 3 Net investment: 13 Consumption (depreciation) of fixed capital is A. $5 B. $16. C. $13. D. $15.
A. $5
A nation's average annual real GDP growth rate is 5%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is A. 14.4 years. B. 12.5 years. C. 16.2 years. D. 10 years.
A. 14.4 years.
In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in equilibrium output. A. a greater than $1 billion increase B. no change C. a $1 billion decrease D. a $1 billion increase
A. a greater than $1 billion increase
Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would A. add $10 billion to other elements of investment in calculating total investment. B. subtract $10 billion from other elements of investment in calculating total investment. C. add $45 billion (= $90/2) to other elements of investment in calculating total investment. D. subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.
A. add $10 billion to other elements of investment in calculating total investment.
Government purchases include spending on A. government purchases of final goods and government salaries. B. government purchases of final goods only. C. government salaries only. D government purchases of final goods, government salaries, and transfer payments.
A. government purchases of final goods and government salaries.
In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a decrease in A. government spending or an increase in taxes. B. taxes or an increase in government spending. C. interest rates or a decrease in taxes. D. saving or an increase in government spending.
A. government spending or an increase in taxes.
If the real interest rate falls, then the A. investment schedule will shift upward. B. investment schedule will shift downward. C. point moves along the investment schedule to the right. D. consumption schedule will shift downward.
A. investment schedule will shift upward.
When a firm builds a new factory, this is an example of an investment in A. physical capital. B. the market. C. human capital. rD. esearch and development.
A. physical capital.
One year nominal GDP was $286 billion and the price index was 88. Real GDP that year was A. $252 billion. B. $325 billion. C.$308 billion. D. $262 billion.
B. $325 billion.
In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Aggregate expenditure equals A. 990 + 0.20Y. B. 900 + 0.80Y. C. 940 + 0.80Y. D. 990 + 0.80Y.
B. 900 + 0.80Y.
The total volume of business sales in our economy is several times larger than GDP because A. GDP does not take taxes into account. B. GDP excludes intermediate transactions. C. GDP grossly understates the value of our annual output. D. Total sales are in money terms and GDP is always stated in real terms.
B. GDP excludes intermediate transactions.
Nominal GDP is A. the sum of all monetary transactions that occur in the economy in a year. B. The sum of all monetary transactions involving final goods and services that occur in the economy in a year. C. the amount of production that occurs when the economy is operating at full employment. D. money GDP adjusted for inflation.
B. The sum of all monetary transactions involving final goods and services that occur in the economy in a year.
The portion of planned aggregate expenditure that is independent of output is called ______ expenditure. A. potential B. autonomous C. planned D. actual
B. autonomous
If the economy's real GDP doubles in 9 years, we can A. not say anything about the average annual rate of growth. B. conclude that its average annual rate of growth is 8% C. conclude that its average annual rate of growth is 12%. D. conclude that its average annual rate of growth is 4%.
B. conclude that its average annual rate of growth is 8%
The largest component of aggregate expenditure is A. investment. B. consumption. C. government purchases. D. exports.
B. consumption.
Given the expected rate of return on all possible investment opportunities in the economy, a(n) A. increase in the real rate of interest will tend to increase the level of investment. B. decrease in the real rate of interest will tend to increase the level of investment. C. decrease in the real rate of interest will tend to decrease the level of investment. D. change in the real interest rate will have no impact on the level of investment.
B. decrease in the real rate of interest will tend to increase the level of investment.
The value of corporate stocks and bonds traded in a given year is A.included in the calculation of GDP because it is a component of gross investment. B. excluded from the calculation of GDP because it does not represent new production. C. included in the calculation of net private domestic investment. D. Included in the calculation of gross private domestic investment.
B. excluded from the calculation of GDP because it does not represent new production.
If gross investment for a year was $120 billion and net investment was $65 billion, then in that year the country's capital stock A. may have either increased or decreased. B. increased by $65 billion. C. increased by $55 billion. D. decreased by $55 billion.
B. increased by $65 billion.
Computation of GDP by the expenditures method would include the purchase of A. fertilizer by a farmer. b. cement by a construction company. B. land by the U.S. Department of Interior. C. government bonds by a commercial bank.
B. land by the U.S. Department of Interior.
Growth is advantageous to a nation because it A. promotes faster population growth. B. lessens the burden of scarcity. C. eliminates the economizing problem. D. slows the growth of wants.
B. lessens the burden of scarcity.
The sale of a used automobile would not be included in GDP of the current year because it is A. not a market transaction. B. not current production. C. a purely financial transaction. D. a private transfer payment.
B. not current production.
The expenditure line in the aggregate expenditures diagram represents the A. equilibrium condition that Y = AE. B. relationship between expenditure and output. C. relationship between consumption and disposable income. D. equilibrium condition that Y = Y*.
B. relationship between expenditure and output.
If a family's MPC is 0.7, it means that the family is A. operating at the break-even point. B. spending seven-tenths of any increment to its income. C. necessarily dissaving. D. Spending 70% of its disposable income.
B. spending seven-tenths of any increment to its income.
Suppose that inventories were $80 billion in 2012 and $70 billion in 2013. In 2013, national income accountants would A. add $10 billion to other elements of investment in calculating total investment. B. subtract $10 billion from other elements of investment in calculating total investment. C. add $75 billion (= $150/2) to other elements of investment in calculating total investment. D. subtract $75 billion (= $150/2) from other elements of investment in calculating total investment.
B. subtract $10 billion from other elements of investment in calculating total investment.
The multiplier can be calculated by dividing A. the initial change in spending by the change in real GDP. B. the change in real GDP by the initial change in spending. C. one by one minus the marginal propensity to save. D. one by one minus the marginal propensity to invest.
B. the change in real GDP by the initial change in spending.
The expenditure multiplier leads to greater than one-for-one changes in output when autonomous expenditure changes because A. multiple deposits are generated when new reserves are produced through fractional reserve banking. B. the direct changes in expenditure change the income of households, which leads to additional changes in expenditure. C. autonomous expenditure supports more output than induced spending. D. changes in inventories signal producers to adjust the level of output.
B. the direct changes in expenditure change the income of households, which leads to additional changes in expenditure.
Which of the following is graphed as a horizontal line across levels of real GDP in the aggregate expenditures model? A. the saving schedule B. the investment schedule C. the consumption schedule D. the investment demand curve
B. the investment schedule
Which of the following is not a component of gross investment? A. the purchase of a new drill press by the Ajax Manufacturing Company B. the purchase of 100 shares of AT&T by a retired business executive C. construction of a suburban housing project D. the piling up of inventories on a grocer's shelf
B. the purchase of 100 shares of AT&T by a retired business executive
Which of the following is not a component of GDP in the expenditures approach? A. government purchases B. workers' wages and other compensation C. gross private domestic investment D. the difference between exports and imports
B. workers' wages and other compensation
Which of the following is not a component of GDP in the expenditures approach? a. government purchases B. workers' wages and other compensation C. gross private domestic investment D. the difference between exports and imports
B. workers' wages and other compensation
If the marginal propensity to consume equals 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption. A. $13.33 B. $25 C. $75 D. $133
C. $75
A nation's average annual real GDP growth rate is 3%. Based on the "rule of 72," the approximate number of years that it would take for this nation's real GDP to double is A. 175 years. B. 40 years. C. 24 years. D. 17.5 years.
C. 24 years.
Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is A. 11%. B. 20%. C. 25%. D. 80%.
C. 25%.
Given the annual rate of economic growth, the "rule of 72" allows one to A. determine the accompanying rate of inflation. B. calculate the size of the GDP gap. C. calculate the number of years required for real GDP to double. D. determine the growth rate of per capita GDP.
C. calculate the number of years required for real GDP to double.
When housing prices decrease, household wealth _____ and consumption _____. A. decreases; increases B. increases; decreases C. decreases; decreases D. increases; increases
C. decreases; decreases
The consumption schedule shows the relationship of household consumption to the level of A. saving. B. investment. C. disposable income. D. the marginal propensity to consume.
C. disposable income.
The number of years required for real GDP to double can be found by A. dividing the annual growth rate by .072. B. multiplying the annual growth rate by 72. C. dividing 72 by the annual growth rate. D. adding 72 to annual growth rate.
C. dividing 72 by the annual growth rate.
One could argue that GDP is not a good measure of the standard of living in a nation because it A. includes the cost of health insurance. B. excludes payments for pollution control equipment. C. does not account for the size of the population. D. does not account for the cost of police protection.
C. does not account for the size of the population.
In an inflationary expenditure gap, the equilibrium level of real GDP is A. greater than planned investment. B. equal to full-employment real GDP. C. greater than full-employment real GDP. D. less than full-employment real GDP.
C. greater than full-employment real GDP.
Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ______ in Alpha compared to Beta, holding other factors constant. A. Increase output more B. increase output by the same amount C. increase output less D. have no effect on output
C. increase output less
Providing a constant number of workers with additional capital with which to work will ______ labor productivity at a(n) ______ rate. A. increase; increasing B. Increase; constant C. increase; decreasing D. decrease; decreasing
C. increase; decreasing
Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living? A. growth in nominal GDP B. decreases in the rate of unemployment C. increases in real GDP per capita D. increases in real GDP
C. increases in real GDP per capita
Gordon is a person who sells narcotics "on the street." This type of illegal activity A. would be considered double counting in calculating GDP B. Is estimated and included in GDP figures. C. is excluded from GDP figures. D. causes GDP to be overstated.
C. is excluded from GDP figures.
If real GDP declines in a given year, nominal GDP A. must also be declining. B. must also be increasing. C. may either rise or fall. D. is likely to remain constant.
C. may either rise or fall.
A GDP price index of 130 in year 2 means that A. prices in year 2 are on average 130 percent higher than in the base year. B. prices in year 2 are on average 13 times that in the base year. C. prices in year 2 are on average 30 percent higher than in the base year. D. nominal GDP is 130 percent higher than real GDP in year 2.
C. prices in year 2 are on average 30 percent higher than in the base year.
Nominal GDP differs from real GDP because A. nominal GDP is based on constant prices. B. real GDP is based on current prices. C. real GDP results from adjusting for changes in the price level. D. nominal GDP results from adjusting for changes in the price level.
C. real GDP results from adjusting for changes in the price level.
The most likely cause of a shift of a production possibilities frontier of an economy From inside PPF to outside PPF A. a decrease in the price level. B. allocative efficiency. C. technological progress. D. full employment of resources.
C. technological progress.
In 1933, net private domestic investment was negative $6.0 billion. This means that A. gross private domestic investment exceeded depreciation by $6.0 billion. B. the economy was expanding in that year. C. the production of 1933's GDP used up more capital goods than were produced in that year. D. the economy produced no capital goods at all in 1933.
C. the production of 1933's GDP used up more capital goods than were produced in that year.
Marketopia's real GDP was $520 billion in 2014 and $550 billion in 2015. Its population was 150 million in 2014 and 155 million in 2015. On the other hand, Econland's real GDP was $200 billion in 2014 and $210 billion in 2015; and its population was 53 million in 2014 and 55 million in 2015. Which of the following statements is true? A. Marketopia's GDP per capita increased from 2014 to 2015, while Econland's decreased. B. Econland's GDP per capita increased from 2014 to 2015, while Marketopia's decreased. C. Marketopia's and Econland's GDP per capita both decreased from 2014 to 2015. D, Marketopia's and Econland's GDP per capita both increased from 2014 to 2015.
D, Marketopia's and Econland's GDP per capita both increased from 2014 to 2015.
A nation's capital stock was valued at $500 billion at the start of the year and $575 billion at the end. Consumption of private fixed capital in the year was $35 billion. Assuming stable prices, net investment was A. $35 billion. B. $40 billion. C. $45 billion. D. $75 billion.
D. $75 billion.
If the MPC is 0.75, the expenditure multiplier will be A. 2 B. 3 C. 3.5 D. 4
D. 4.
Which of the following does not correctly characterize modern economic growth? A. It spread slowly across the globe, with some societies not having experienced it yet. B. It has occurred only in the last 200 or so years. C. It drastically alters the culture and politics of society. D. It has not affected the average lifespan of human beings.
D. It has not affected the average li
The most likely cause for a shift in the production possibilities frontier from inside PPF to outside PPF A. the use of the economy's resources in a less efficient way. B. an increase in the spending of business and consumers. C. an increase in government purchase of the economy's output. D. an increase in the quantity and quality of labor resources.
D. an increase in the quantity and quality of labor resources.
Real GDP per capita A. cannot grow more rapidly than real GDP. B. cannot grow more slowly than real GDP. C. necessarily grows more rapidly than real GDP. D. can grow either more slowly or more rapidly than real GDP.
D. can grow either more slowly or more rapidly than real GDP.
If the economy's real GDP doubles in 18 years, we can A. not say anything about the average annual rate of growth. B. conclude that its average annual rate of growth is 8%. C. conclude that its average annual rate of growth is 12%. D. conclude that its average annual rate of growth is 4%.
D. conclude that its average annual rate of growth is 4%.
As disposable income decreases, consumption A. may either increase or decrease depending on the MPC B.may either increase or decrease. C. increases. D. decreases.
D. decreases.
Human capital refers to the A. tools and equipment available to workers. B. amount of financing available to start-up firms. C. number of workers available in the economy. D. education, training, and skills of workers.
D. education, training, and skills of workers.
Net exports are negative when A. net exports exceed imports. B. depreciation exceeds exports. D. exports exceed imports. D. imports exceed exports.
D. imports exceed exports.
Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy? A. growth in nominal GDP B. decreases in the rate of unemployment C. increases in real GDP per capita D. increases in real GDP
D. increases in real GDP
A decrease in a country's capital stock occurs when A. businesses sell machinery and equipment to one another. B. the prices of investment goods rise faster than the prices of consumer goods. C. businesses have larger inventories at the end of the year than they had at the start. D. the consumption of fixed capital exceeds gross domestic investment.
D. the consumption of fixed capital exceeds gross domestic investment.
The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the A. less production is wasted. B. less is produced. C. the more an additional unit of capital adds to production. D. the less an additional unit of capital adds to production.
D. the less an additional unit of capital adds to production.
GDP understates the amount of economic production in the United States because it excludes A.spending for the U.S. military. B. transfer payments. C. purchases of stocks and bonds. D. work performed by people for their own benefit.
D. work performed by people for their own benefit.
Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7 percent. If the current number of unemployed people is 2 million people, what can we conclude about Canada's economy? a. The unemployment rate is above the natural rate of unemployment. b. There is no cyclical unemployment present in the economy. c. The unemployment rate is below the natural rate of unemployment. d. There is no frictional unemployment present in the economy.
a. The unemployment rate is above the natural rate of unemployment.
The MPC can be defined as the a. change in consumption divided by the change in income. B. change in income divided by the change in consumption. C. ratio of income to saving. D. ratio of saving to consumption.
a. change in consumption divided by the change in income.
In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are a. excluded from the labor force. b. included as part of the unemployed. c. treated the same as part-time workers. d. used to determine the size of the labor force.
a. excluded from the labor force.
If a person's nominal income increases by 5 percent while the price level increases by 2 percent, then that person's real income a. increases by 3 percent. b. increases by 5 percent. c. decreases by 7 percent. d. decreases by 2 percent.
a. increases by 3 percent.
At the economy's natural rate of unemployment a. the economy is fully employed. b. there is only a relatively small amount of cyclical unemployment. c. only frictional unemployment exists. d. only structural unemployment exists.
a. the economy is fully employed.
Answer the next question on the basis of the following information about a hypothetical economy. Full-time employed = 80 Part-time employed = 25 Unemployed = 15 Discouraged workers = 5 Members of underground economy = 6 Consumer price index = 110 The unemployment rate is a. 18.8 percent. b. 12.5 percent. C. 6.7 percent. d. 25 percent.
b. 12.5 percent.
If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately a. 5.5 percent. b. 5.9 percent. C. 6.3 percent. d. 7.2 percent.
b. 5.9 percent.
Use the following information to answer the next question. The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is cyclically unemployed? a. Mollie b. George c.Jeanette d. Ricardo
b. George
Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7 percent. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy? a. The unemployment rate is above the natural rate of unemployment. b. There is no cyclical unemployment present in the economy. c. The unemployment rate is below the natural rate of unemployment. d. There is cyclical unemployment present in the economy.
b. There is no cyclical unemployment present in the economy.
In calculating the unemployment rate, part-time workers are a. counted as unemployed because they are not working full time. b. counted as employed because they are receiving payment for work. C. used to determine the size of the labor force, but not the unemployment rate. d. treated the same as "discouraged" workers who are not actively seeking employment.
b. counted as employed because they are receiving payment for work.
Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because a. cycles include a trough phase while fluctuations do not. b. cycles imply regularity while fluctuations do not. C. fluctuations include an expansion phase while cycles do not. d. fluctuations are relatively predictable events.
b. cycles imply regularity while fluctuations do not.
Which of the following is a major category for the Consumer Price Index? a. capital goods b. housing c. intermediate goods d. unsold goods
b. housing
If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about a. 9 percent. b. 10 percent. c. 11 percent. d. 12 percent.
c. 11 percent.
If the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, then the unemployment rate would be a. 4 percent. b. 6 percent. c. 8 percent. d. 10 percent.
c. 8 percent.
Use the following information to answer the next question. The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is structurally unemployed? a. Mollie .b. George c. Jeanette d. Ricardo
c. Jeanette
Use the following information to answer the next question. The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual(s) would be included in the calculation of the natural unemployment rate? a. Mollie only b. George only c. Mollie and Jeanette d. George and Ricardo
c. Mollie and Jeanette
If an economy maintains a small rate of growth for a long period of time, then the size of the economy a. can only increase by a small amount. b. can never double. c. can increase by a large amount. d. will stay nearly constant.
c. can increase by a large amount.
The cost of a higher living standard in the future is giving up a. current investment. b. future investment. c. current consumption. d. future consumption.
c. current consumption.
Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is a. cyclically unemployed. b. structurally unemployed. c. frictionally unemployed. d. not a member of the labor force.
c. frictionally unemployed.
Currently, the largest component of aggregate spending in the United States is A. Net exports. b. government purchases. c. investment. d. consumption.
d. consumption.
Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as a. structurally unemployed. b. frictionally unemployed. c. not in the labor force. d. employed.
d. employed
In the expansion phase of a business cycle a. the inflation rate decreases, but productive capacity increases. b. the inflation rate and productive capacity decrease. c. employment increases, but output decreases. d. employment and output increase.
d. employment and output increase.
The unemployment rate of full employment is also called the a. potential rate of unemployment. b. cyclical rate of unemployment. c. frictional rate of unemployment. d. natural rate of unemployment.
d. natural rate of unemployment.
If the outer line PPF is the economy's current production possibilities frontier, what is the most likely reason for operating at point a little further back a. technological progress and industrial change b. increases in the quantity and the quality of resources c. improvement in labor productivity and the number of work-hours d. unemployment and inefficient allocation of resources
d. unemployment and inefficient allocation of resources
cyclically unemployed
people lose their jobs because of a temporary downturn in the economy
structurally unemployed
people who lose their jobs because of a change in the economy that makes their particular skill obsolete
A worker would be hurt least by inflation when the a. worker anticipates inflation and increases savings at the bank. b, worker is protected by a cost-of-living adjustment clause in an employment contract. c. worker is protected by fixed annual increases in wages and benefits in an employment contract. d. government increases the level of social security retirement benefits to correct for the effects of expected inflation.
worker is protected by a cost-of-living adjustment clause in an employment contract.
Use the following table to answer the next question. The following national income data for an economy is in billions of dollars. Consumption: $5,100 Investment: 1,100 Transfer payments: 1,050 Government purchases: 1,400 Exports: 850 Imports: 950 Net foreign factor income: 20 What are the net exports for this economy? −$100 billion $100 billion $850 billion $950 billion
−$100 billion
