Macro Final Practice Test
A country has $50 million of domestic investment and net capital outflow of $15 million. What is saving? a. $65 million. b. -$65 million. c. $35 million. d. -$35 million.
A. $65 million
In a certain economy in 2005, GDP amounted to $5,000; consumption amounted to $3,000; government purchases were equal to investment; and the value of exports exceeded the value of imports by $200. It follows that government purchases amounted to a. $900. b. $1,100. c. $1,250. d. $1,325.
A. $900
If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be interpreted as the inflation rate. c. the supply of money influences the value of P, but the demand for money does not. d. All of the above are correct.
A. 1/P represents the value of money measured in terms of goods and services
Cedar Valley Furniture uses 5 workers working 8 hours to produce 80 rocking chairs. What is the productivity of these workers? a. 2 chairs per hour. b. 1 hour per chair. c. 80 chairs. d. None of the above are correct.
A. 2 chairs per hour
In the production possibilities frontier shown, what is the opportunity cost to society of the movement from point A to point B? *picture a. 50 baseballs b. 100 baseballs c. 100 bananas d. 300 bananas
A. 50 baseballs (gain bananas, lose baseballs)
On the production possibilities frontier shown, which point or points are efficient? *picture a. A, D b. A, C, D c. C d. B
A. A,D (the points on the line)
According to the graph, which of the following is true for Cliff and Paul? *picture a. Paul has an absolute advantage in both wheat and corn. b. Paul has an absolute advantage in wheat and Cliff has an absolute advantage in corn. c. Cliff has an absolute advantage in wheat and Paul has an absolute advantage in corn. d. Cliff has an absolute advantage in both wheat and corn.
A. Paul has an absolute advantage in both wheat and corn
Which of the following is not included in either M1 or M2? a. U.S. Treasury bills b. small time deposits c. demand deposits d. money market mutual funds
A. U.S. Treasury bills
Paying efficiency wages means that wages are a. above equilibrium, and profits are higher than otherwise. b. above equilibrium, and profits are lower than otherwise. c. below equilibrium, and profits are higher than otherwise. d. below equilibrium, and profits are lower than otherwise.
A. above equilibrium, and profits are higher than otherwise
Other things the same, when the government spends more, the initial effect is that a. aggregate demand shifts right. b. aggregate demand shifts left. c. aggregate supply shifts right. d. aggregate supply shifts left.
A. aggregate demand shifts right
If a good is normal, then an increase in income will result in a. an increase in the demand for the good. b. a decrease in the demand for the good. c. a movement down and to the right along the demand curve for the good. d. a movement up and to the left along the demand curve for the good.
A. an increase in the demand for the good
According to the graphs, Ben has a comparative advantage in *picture a. cones and Jerry has a comparative advantage in ice cream. b. ice cream and Jerry has a comparative advantage in cones. c. neither good and Jerry has a comparative advantage in both goods. d. both goods and Jerry has a comparative advantage in neither good.
A. cones and Jerry has a comparative advantage in ice cream
If the government of India made policy changes that increased national saving, the real exchange rate of the rupee would a. depreciate and Indian net exports would rise. b. depreciate and Indian net exports would fall. c. appreciate and Indian net exports would rise. d. appreciate and Indian net exports would fall.
A. depreciate and Indian net exports would rise
Which of the following is included in U.S. GDP? a. goods produced by foreign citizens working in the United States b. the difference in the price of the sale of an existing home and its original purchase price c. known illegal activities d. None of the above are correct.
A. goods produced by foreign citizens working in the United States
Suppose P rises, but Y and r are unchanged. What happens to money demand? a. increases, i.e. shifts right b. decreases, i.e. shifts right c. increases, i.e. shifts left d. decreases, i.e. shifts left
A. increases; i.e. shifts right
The variable that links the market for loanable funds and the foreign-currency exchange market is a. net capital outflow. b. national saving. c. exports. d. domestic investment.
A. net capital outflow
If the government started with a budget deficit and moved to a surplus, domestic investment would a. rise and the trade balance would move towards surplus. b. rise and the trade balance would move towards deficit. c. fall and the trade balance would move towards surplus. d. fall and the trade balance would move towards deficit.
A. rise and the trade balance would move towards surplus
The value of money falls as the price level a. rises, because the number of dollars needed to buy a representative basket of goods rises. b.rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of dollars needed to buy a representative basket of goods rises. d. falls, because the number of dollars needed to buy a representative basket of goods falls.
A. rises, because the number of dollars needed to buy a representative basket of good rises
Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has been increased 15 percent, so she decides to buy some peppermint tea instead. Which problem in the construction of the CPI is this situation most relevant to? a. substitution bias b. introduction of new goods c. unmeasured quality change d. income effect
A. substitution bias
At a price of $15, *picture a. there would be a shortage of 400 units. b. there would be a surplus of 400 units. c. there would be a shortage of 200 units. d. there would be an excess demand of 200 units.
A. there would be a shortage of 400 units
Because it is difficult for economists to use experiments to generate data, they generally must a. use whatever data the world gives them. b. do without data. c. select a committee of economists to make up data for all economists to use. d. use hypothetical, computer-generated data
A. use whatever data the world gives them
*picture The labor force of Aridia in 2010 was a. 1,400. b. 1,600. c. 1,800. d. 2,000.
B. 1,600
Consider the following table for the country of Ophir: *picture From this information we can conclude that real GDP was higher in a. 2002 than in 2001, and real GDP in 2001 was higher than in 2000. b. 2001 than in 2000, and real GDP in 2000 was higher than in 2002. c. 2000 than in 2001, and real GDP in 2001 was higher than in 2002. d. 2000 than in 2002, and real GDP in 2000 was higher than in 2001.
B. 2001 than in 2000, and real GDP in 2000 was higher than in 2002
58. Suppose the nominal exchange rate between the yen and the U.S. dollar is 120 yen per U.S. dollar, and that the nominal exchange rate between the Canadian dollar and the U.S. dollar is 1.60 Canadian dollars per U.S. dollar. How many yen would it take to buy a Canadian dollar? a. 133 b. 75 c. 0.75 d. 0.13
B. 75
Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds? a. $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. b. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars. c. $40. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars. d. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold fewer dollars.
B. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings she needs to hold more dollars
A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. None of the above is correct.
B. It has $800 in reserves and $9,200 in loans
On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars *picture Which of the following events could explain a shift of the demand-for-loanable funds curve from D1 to D2 (shift right)? a. The tax code is reformed to encourage greater saving. b. The tax code is reformed to encourage greater investment. c. The government starts running a budget deficit. d. The government starts running a budget surplus.
B. The tax code is reformed to encourage greater investment
Which of the following changes would NOT shift the demand curve for a good or service? a. a change in income b. a change in the price of the good or service c. a change in expectations about the future price of the good or service d. a change in the price of a related good or service
B. a change in the price of the good or service (Demand Curve Shifters: # of buyers, tastes/preferences, change in income, expectations, price of related goods)
Which of the following correctly explains the crowding-out effect? a. An increase in government expenditures decreases the interest rate and so increases investment spending. b. An increase in government expenditures increases the interest rate and so reduces investment spending. c. A decrease in government expenditures increases the interest rate and so increases investment spending. d. A decrease in government expenditures decreases the interest rate and so reduces investment spending.
B. an increase in government expenditures increases the interest rate and so reduces investment spending
The deviation of unemployment from its natural rate is called a. the economic rate of unemployment. b. cyclical unemployment. c. frictional unemployment. d. structural unemployment.
B. cyclical unemployment
Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will a. demand funds from the financial system by buying bonds. b. demand funds from the financial system by selling bonds. c. supply funds to the financial system by buying bonds. d. supply funds to the financial system by selling bonds.
B. demand funds from the financial system by buying bonds
People who are unemployed because they are in search of a job that suits their skills are included within a. structural unemployment. b. frictional unemployment. c. cyclical unemployment. d. marginal unemployment.
B. frictional unemployment
When scientists make good assumptions, they a. can leave out necessary variables that may result in incorrect answers. b. greatly simplify the problem without substantially affecting the answer. c. further complicate an already complicated subject. d. may not be able to reach an appropriate conclusion.
B. greatly simplify the problem without substantially affecting the answer
An open-market purchase a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.
B. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public
If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same a. its output would stay the same and so would its productivity. b. its output and productivity would increase, but less than double. c. its output and productivity would increase by more than double. d. None of the above are correct.
B. its output and productivity would increase, but less than double
A lower real interest rate decreases the quantity of a. loanable funds demanded. b. loanable funds supplied. c. domestic investment. d. net capital outflow.
B. loanable funds supplied
The consumer price index is used to a. track changes in the level of wholesale prices in the economy. b. monitor changes in the cost of living. c. monitor changes in the level of real GDP. d. track changes in the stock market.
B. monitor changes in the cost of living
In an open economy the supply of loanable funds comes from a. national saving. Demand comes from only domestic investment. b. national saving. Demand comes from domestic investment and net capital outflow. c. Only net capital outflow. Demand for loanable funds comes from national saving. d. domestic investment and net capital outflow. Demand for loanable funds comes from national saving.
B. national saving. Demand comes from domestic investment and net capital outflow
Consider a small economy in which consumers buy only two goods -- apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that a. the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year. b. neither the number of apples bought by the typical consumer, nor the number of pears bought by the typical consumer, changes from year to year. c. the percentage change in the price of applies is equal to the percentage change in the price of pears from year to year. d. All of the above are correct
B. neither the number of apples bought by the typical consumer, nor the number of pears bought by the typical consumer, changes from year to year
According to the table, the Farmer has an absolute advantage in *picture a. meat, and the Rancher has an absolute advantage in potatoes. b. potatoes, and the Rancher has an absolute advantage in meat. c. meat, and the Rancher has an absolute advantage in meat. d. neither good, and the Rancher has an absolute advantage in both goods.
B. potatoes, and the Rancher has an absolute advantage in meat
When a country's central bank decreases the money supply, its a. price level rises and its currency appreciates relative to other currencies in the world. b. price level falls and its currency appreciates relative to other currencies in the world. c. price level rises and its currency depreciates relative to other currencies in the world. d. price level falls and its currency depreciates relative to other currencies in the world.
B. price level falls and its currency appreciates relative to other currencies in the world
In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the a. supply of loanable funds shifted to the right. b. supply of loanable funds shifted to the left. c. demand for loanable funds shifted to the right. d. demand for loanable funds shifted to the left.
B. supply of loanable funds shifted to the left
A dress manufacturer recently has come to expect higher prices for dresses in the near future. We would expect a. the dress manufacturer to supply more dresses now than it was supplying previously. b. the dress manufacturer to supply fewer dresses now than it was supplying previously. c. the demand for this manufacturer's dresses to fall. d. no change in the dress manufacturer's current supply; instead, future supply will be affected.
B. the dress manufacturer to supply fewer dresses now than it was supplying previously (Supply Shifters: # of sellers, price of resources, technology, expectations, price of other goods)
Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing beyond its capacity, and inflation will occur. b. the nation is not using all available resources or is using inferior technology or both. c. the nation is producing an efficient combination of goods. d. there will be a large opportunity cost if the nation tries to increase production of any good.
B. the nation is not using all available resources or is using inferior technology or both
The long-run aggregate supply curve shifts left if a. the capital stock increases. b. there is a hurricane, which destroyed some capital stock. c. the government removes some environmental regulations that limit production methods. d. None of the above is correct.
B. there is a hurricane, which destroys some capital stock
In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving? a. $5 billion and $45 billion b. -$5 billion and $45 billion c. $5 billion and $50 billion d. -$5 billion and $50 billion
C. $5 billion and $50 billion
Alex earned a salary of $50,000 in 2001 and $78,000 in 2006. The consumer price index was 177 for 2001 and 265.5 for 2006. Alex's 2001 salary in 2006 dollars is a. $33,333.33. b. $56,666.67. c. $75,000.00. d. $105,000.00.
C. $750,000
If the nominal interest rate is 6 percent and the rate of CPI inflation is 9.5 percent, then the real interest rate, adjusted for the bias in CPI, is a. 15.5 percent. b. 3 percent. c. -3 percent. d. -4 percent.
C. -3 percent
Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $1.50 U.S., and a gallon of Canadian gas costs $3.90 Canadian. What is the nominal exchange rate? a. .385 Canadian dollars per U.S. dollar b. .65 Canadian dollars per U.S. dollar c. 1.30 Canadian dollars per U.S. dollar d. None of the above is correct.
C. 1.30 Canadian dollars per U.S. dollar
Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of corn. What is the consumer price index for 2004 if the base year is 2003? *picture a. 100 b. 105 c. 110 d. 120
C. 110
If the MPC = 4/5, then the government purchases multiplier is a. 5/3. b. 5/2. c. 5. d. 15.
C. 5
Which of the following demonstrates the law of demand? a. Relative to last month, Jon buys more pretzels at $1.50 per pretzel since he got a raise at work this month. b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other things equal. c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal. d. Kendra buys fewer Snickers at $0.60 per Snickers since the price of Milky Ways fell to $0.50 per Milky Way.
C. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things equal (Law of Demand = as the price rises, demand falls; price falls, demand rises)
One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP? a. GDP increases by $1.50. b. GDP increases by $3.50. c. GDP increases by $6.00. d. GDP increases by $7.50.
C. GDP increases by $6.00
Which of the following equations is always correct in an open economy? a. I=Y-C b. I=S c. I=S-NCO d. I=S+NX
C. I = S - NCO
Currently you purchase 6 packages of hot dogs a month. You will be graduating in December and will start you new job January 2nd. You have no plans to purchase hot dogs in January. For you, hot dogs are a. a "college-only" good. b. a normal good. c. an inferior good. d. a consumer good.
C. an inferior good
Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices a. and output are higher than in the original long-run equilibrium. b. and output are lower than in the original long-run equilibrium. c. are higher and output is the same as the original long-run equilibrium. d. are the same and output is lower than in the original long-run equilibrium.
C. are higher and output is the same as the original long-run equilibrium
Other things the same, an increase in the interest rate would tend to reduce a. domestic investment, but not net capital outflow. b. net capital outflow, but not domestic investment. c. both domestic investment and net capital outflow. d. neither domestic investment nor not capital outflow.
C. both domestic investment and net capital outflow
Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to a. decrease consumption, shown as a movement to the left along a given aggregate demand curve. b. increase consumption, shown as a movement to the right along a given aggregate demand curve. c. decrease consumption, shifting the aggregate demand curve to the left. d. increase consumption, shifting the aggregate demand curve to the right.
C. decrease consumption, shifting the aggregate demand curve to the left
When the interest rate decreases, the opportunity cost of holding money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded increases. d. decreases, so the quantity of money demanded decreases.
C. decreases, so the quantity of money demanded increases
An economic contraction caused by a shift in aggregate demand (AD) causes prices to a. rise in the short run and rise even more in the long run. b. rise in the short run, and fall back to their original level in the long run. c. fall in the short run, and fall even more in the long run. d. fall in the short run, and rise back to their original level in the long run.
C. fall in the short run, and fall even more in the long run
Suppose a small economy produces only cheese and fish. In 2005, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2004, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. For 2005, a. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160. b. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160. c. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5. d. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5.
C. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5
If a bank has a reserve ratio of 8 percent, then a. government regulation requires the bank to use at least 8 percent of its deposits to make loans. b. the bank's ratio of loans to deposits is 8 percent. c. the bank keeps 8 percent of its deposits as reserves and loans out the rest. d. the bank keeps 8 percent of its assets as reserves and loans out the rest.
C. the bank keeps 8 percent of its deposits as reserves and loans out the rest
According to the graph, at a price of $35, *picture a. there would be a shortage of 400 units. b. there would be a surplus of 200 units. c. there would be a surplus of 400 units. d. the market would be in equilibrium.
C. there would be a surplus of 400 units
A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $300. Taken together, these two transactions contribute a. $100 to GDP. b. $200 to GDP. c. between $200 and $300 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle. d. $300 to GDP.
D. $300 to GDP
From 1960 to 1998, real GDP per capita grew by a factor of 2.5 in the United States and by a factor of 10 in Korea. Which of the following best explains why Korea experienced faster growth than the United States? a. Korea protected domestic companies by making international trade illegal. b. Prices in Korea increased much more rapidly than in the United States. c. The population of Korea increased at a faster rate than in the United States. d. At the start of the comparison, 1960, Korea was much poorer than the United States.
D. At the start of the comparison, 1960, Korea was much poorer than the United States
An example of substitute goods would be a. hamburger and Pepsi. b. lawnmowers and automobiles. c. hamburgers and fries. d. Coke and Pepsi.
D. Coke and Pepsi
Which is an example of a valid constant return to scale production function? a.Y = A∙L1/2K3/2 b.Y = A∙L1/3K-1/6H5/6 c. Y = A∙L1/2K1/3H1/4 d. Y = A∙L1/3K1/6H1/2
D. Y = A∙L1/3K1/6H1/2
On the graph to the right, the movement from D to D1 (movement to the left) could be caused by *picture a. an increase in price b. a decrease in the price of a complement c. an increase in technology d. a decrease in the price of a substitute
D. a decrease in the price of a substitute
The long-run aggregate supply curve shifts right if a. immigration from abroad increases. b. the capital stock increases. c. technology advances. d. All of the above are correct.
D. all of the above are correct
Which of the following is considered human capital? a. knowledge acquired from early childhood education programs b. knowledge acquired from grade school c. knowledge acquired from on-the-job training d. All of the above are correct.
D. all of the above are correct
If labor in Mexico is less productive than labor in the United States in all areas of production, a. neither nation can benefit from trade. b. Mexico can benefit from trade but the United States cannot. c. the United States will have a comparative advantage relative to Mexico in the production of all goods. d. both Mexico and the United States still can benefit from trade.
D. both Mexico and the United States still can benefit from trade
In 2001, the United States had negative net exports; therefore, it a. sold more abroad than it purchased abroad and has a trade surplus. b. sold more abroad than it purchased abroad and has a trade deficit. c. bought more abroad than it sold abroad and had a trade surplus. d. bought more abroad than it sold abroad and had a trade deficit.
D. bought more abroad than it sold abroad and had a trade deficit
Changes in the price level affect which components of aggregate demand? a. only consumption and investment b. only consumption and net exports c. only investment d. consumption, investment, and net exports
D. consumption, investment, and net exports
In the open-economy macroeconomic model, if a country's interest rate increases, its net capital outflow a. and the real exchange rate increase. b. and the real exchange rate decrease. c. increases and the real exchange rate decreases. d. decreases and the real exchange rate increases.
D. decreases and the real exchange rate increases
Assume that the MPC is 0.75. Assuming only the multiplier effect matters, an increase in government purchases of $100 billion will shift the aggregate demand curve a. left by $150 billion. b. left by $200 billion. c. right by $800 billion. d. None of the above are correct.
D. none of the above are correct
Oceania buys $100 of wine from Escudia and Escudia buys $40 of wool from Oceania. What are the net exports of Oceania and Escudia in that order? a. $140 and $140 b. $100 and $40 c. $60 and -$60 d. None of the above is correct.
D. none of the above is correct
The model of aggregate demand and aggregate supply explains the relationship between a. the price and quantity of a particular good. b. unemployment and output. c. wages and employment. d. real GDP and the average price level in economy.
D. real GDP and the average price level in economy
*picture If the money supply is MS2 and the value of money is 2, then there is an excess a. demand for money that is represented by the distance between points A and C. b. demand for money that is represented by the distance between points A and B. c. supply of money that is represented by the distance between points A and C. d. supply of money that is represented by the distance between points A and B.
D. supply of money that is represented by the distance between points A and B
If the prices of Australian-made shoes imported into the United States increase, then, as a result, a. both the GDP deflator and the consumer price index increase b. neither the GDP deflator nor the consumer price index increases c. the GDP deflator increases but the consumer price index does not increase d. the consumer price index will increase, but the GDP deflator will not increase
D. the consumer price index will increase, but the GDP deflator will not increase
In the open-economy macroeconomic model, the demand for loanable funds comes from a. domestic investment. b. net exports. c. net capital outflow d. the sum of net capital outflow and domestic investment.
D. the sum of net capital outflow and domestic investment
