Macroeconomics - Exam 2

1. Over the past century, the growth rate of real GDP in the United States has averaged approximately a. 1 percent. b. 3 percent. c. 6 percent. d. 10 percent.

3 percent

From 1999 to 2002, the Japanese inflation rates were, respectively, -0.3%, -0.6%, -0.7%, and -0.7%. During this time, the Japanese economy experienced:

deflation

1. A positive level of net exports contributes directly to a. demand in the resources market. b. supply in the loanable funds market. c. demand in the loanable funds market. demand in the goods and services market.

demand in the goods and services market

The twin perils of the modern macro economy are said to be:

inflation and unemployment

the producer price index contains

information from the consumer expenditure survey

which of the following would NOT be included in the GDP of a country a. price of new office building b. salary of soldier in country's army c. supplemental income paid by government to a person with disability d. value of an increase in unsold inventory of a company

supplemental income paid by the government to a person with a disability

which event has significantly influenced the development of macroeconomic ideas?

the Great Depression

what does NOT describe a problem in measuring the Consumer Price Index (CPI)

the cpi includes new products in its baskets

As the general price level in an economy rises, the aggregate quantity demanded for goods and services falls because A. the prices of domestic goods have risen relative to foreign goods, causing exports to fall and imports to rise. B. higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. C. the value of money will fall, reducing the real wealth and, thus, the consumption of persons holding money balances. D. all of the above are correct.

All of the above are correct

1. U.S. GDP and U.S. GNP are related as follows: a. GNP = GDP − Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. b. GNP = GDP + Income earned by foreigners in the U.S. − Income earned by U.S. citizens abroad. c. GNP = GDP + Value of exported goods − Value of imported goods. d. GNP = GDP − Value of exported goods + Value of imported goods.

GNP = GDP - income earned by foreigners in the US + Income earned by US citizens abroad

1. Saving is a. the sum of the funds people hold in their checking accounts. b. after-tax income that is not spent on consumption. c. always equal to consumption. equal to disposable income plus consumption.

after-tax income that is not spent on consumption

Long-run equilibrium in the goods and services market requires that a. aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices. b. the unemployment rate is zero. c. prices are neither increasing nor decreasing. d. aggregate supply be larger than aggregate demand.

aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices

26. Which of the following is true for the economy depicted in Figure 9-2? a. Output equals potential real GDP. b. The actual rate of unemployment equals the natural rate of unemployment. c. The output is sustainable in the long run. d. All of the above statements are true.

all of the above statements are true

1. Who among the following is most likely to favor an appreciation of the U.S. dollar? a. a German professor visiting Chicago b. an American farmer who depends on exports c. an American professor on a tour of Austrian universities d. Disney World in Orlando, Florida, a popular destination for foreign tourists

an American professor on a tour of Austrian universities

which of these is included in GDP investment a. highway construction by a government contractor b. the purchase of a new tv by a household c. purchases of common stock by investors d. an increase in business inventories

an increase in business inventories

which person would NOT be considered employed a. person working 10 hours a week for pay b. a unionized worker on strike c. an unpaid family employee working 10 hours a week d. a full time worker on vacation

an unpaid family employee working 10 hours a week

1. The salary of the president of the United States in 2000 was $400,000. In 1940, the president's salary was $75,000. If the Consumer Price Index was 8.1 in 1940 and 100 in 2000, the 1940 presidential salary measured in terms of the purchasing power of the dollar in 2000 would be a. less than $75,000. b. less than $400,000. c. approximately $668,850. d. approximately $750,000. e. approximately $926,000.

approximately $926,000

1. Last year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long distance call to your girlfriend in California was $4. This year your cafeteria job pays $9.90 per hour and the ten-minute phone call now costs $4.10. You are clearly a. worse off because of inflation. b. worse off because the phone call is now relatively more expensive. c. better off because your wage rate went up. d. better off because the phone call now costs less work.

better off because the phone call now costs less work

1. When the expenditure approach is used to measure GDP, the major components of GDP are a. consumption, investment, indirect business taxes, and depreciation. b. employee compensation, rents, interest, self-employment income, and corporate profits. c. employee compensation, corporate profits, depreciation, and indirect business taxes. consumption, investment, government consumption and gross investment, and net exports.

consumption, investment, government consumption and gross investment, and net exports

5. At the beginning of a year, decision makers expect the general level of prices to increase at a 6 percent annual rate. The CPI increases from 150 to 154.5 during the year; this indicates that a. decision makers underestimated the rate of inflation during the year. b. decision makers overestimated the rate of inflation during the year. c. decision makers accurately forecast the rate of inflation during the year. d. the rate of inflation during the year was 4.5 percent.

decision makers overestimated the rate of inflation during the year

If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has a. appreciated, and Americans will find English goods cheaper. b. appreciated, and Americans will find English goods more expensive. c. depreciated, and Americans will find English goods cheaper. d. depreciated, and Americans will find English goods more expensive.

depreciated, and Americans will find English goods cheaper

1. If the quantity supplied of euro were greater than the quantity demanded, then the price of the a. euro would rise. b. euro would fall. c. dollar would fall. euro would be in equilibrium.

euro would fall

when a recession gets under way

firms start to lay off workers to reduce costs

5. Ashley was being treated unfairly by her boss, so she stormed off the job and two days later found another position. For two days, Ashley experienced a. cyclical unemployment. b. structural unemployment. c. seasonal unemployment. d. frictional unemployment. e. being out of the labor force.

frictional unemployment

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered:

frictionally unemployed

Other things constant, if the cost of labor goes down, the profits of firms will a. increase, and short-run aggregate supply will shift to the right. b. fall, and short-run aggregate supply will shift to the left. c. increase, and long-run aggregate supply will shift to the right. d. fall, and long-run aggregate supply will shift to the left

increase, and short-run aggregate supply will shift to the right

The resource market is important from a macroeconomic perspective because a. it coordinates the allocation of productive resources and determines the costs of production. b. it determines the interest rates faced by borrowers and lenders. c. inflation rates are set in the resource market by the government. d. resource prices determine the position of the long-run aggregate supply curve.

it coordinates the allocation of productive resources and determines the cost of production

The international substitution effect exists because a a. higher price level will reduce interest rates and stimulate foreign investment. b. lower price level will make domestically produced goods less expensive relative to foreign goods. c. higher price level will reduce the purchasing power of money. lower price level will encourage Americans to import more foreign goods

lower price level will make domestically produced goods less expensive relative to foreign goods

1. If the actual price level exceeds the expected price level reflected in long-term contracts, a. many firms will find production more profitable than they had expected and will increase the quantity of output supplied. b. many firms will find production less profitable than they had expected and will decrease the quantity of output supplied. c. many firms will find production more profitable than they had expected and will decrease the quantity of output supplied. d. many firms will find production less profitable than they had expected and will increase the quantity of output supplied.

many firms will find production more profitable than they had expected and will increase the quantity of output supplied

As the dollar depreciates, which of the following is most likely to occur? a. More Americans will travel abroad. b. American imports will rise. c. More foreigners will visit the United States. d. American firms will increase their investments abroad.

more foreigners will visit the United States

If an economy's capital stock is greater at the end of the year than at the beginning of the year, over this period, a. net investment has been positive. b. depreciation has exceeded net investment. c. depreciation has exceeded gross investment. d. net investment has exceeded gross investment.

net investment has been positive

GNP includes output produced _____, but it does NOT include output produced _____.

outside the united states by US citizens; inside the US by foreign citizen

which of these would be included in the consumer price index a. payment made to doctor by medicare b. payment made by patient to doctor c. payment made to doctor by employer-provided insurance co. d. payment made to doctor by medicaid

payment made by patient to dr

the high point of a business cycle is called the

peak

1. Which one of the following would count as investment in the national income accounts? a. purchase of a new airplane by an airline b. purchase of a U.S. government bond c. purchase of 100 shares of Wal-Mart stock d. purchase of an existing house

purchase of a new airplane by an airline

1. The primary value of real GDP is its ability to measure year to year changes in a. real output. b. income inequality. c. real social welfare. d. the general level of prices.

real output

5. Higher unemployment insurance benefits tend to increase unemployment because they a. reduce the opportunity cost of job search and, hence, increase the search time. b. increase the opportunity cost of job search and, hence, increase the search time. c. reduce the opportunity cost of job search and, hence, decrease the search time. d. increase the opportunity cost of job search and, hence, decrease the search time.

reduce the opportunity cost of job search and, hence, increase the search tim

1. In the context of aggregate supply, the short run is defined as the period during which a. some prices are set by contracts and cannot be adjusted. b. prices can change, but neither aggregate supply nor aggregate demand can shift. c. individuals have sufficient time to modify their behavior in response to price changes. quantity changes cannot occur in response to changes in relative prices.

some prices are set by contracts and cannot be adjusted

A benefit of using GDP per capita instead of GDP is that it:

takes into account the size of the population

which assumption is NOT A PROBLEM related to using the consumer price index to accurately state the rate of inflation? a. the cpi assumes that people do not substitute goods b. the cpi does not account for quality changes c. the cpi does not include new products d. the cpi does not deal with producer prices

the cpi does not deal with producer prices

1. Which of the following provides the most accurate description of monetary policy? a. the deliberate control of the money supply to achieve macroeconomic goals b. the use of the government's regulatory powers to improve economic efficiency c. the government provision of goods to improve economic efficiency d. the use of government taxation and expenditures to achieve macroeconomic goals

the deliberate control of the money supply to achieve macroeconomic goals

1. If national income accountants fail to make an adequate adjustment for increases in the quality of goods and services over time, a. real GDP will overstate the growth rate of real output. b. the GDP deflator will underestimate inflation. c. the GDP deflator will overestimate inflation. d. real GDP will overstate the growth of real output, and the GDP deflator will understate inflation.

the gdp deflator will overestimate inflation

a business cycle is

the periodic fluctuation of economic activity

5. If an economy is at its potential output level, which of the following is not true? a. The economy is at its full-employment output level. b. Unemployment is at the natural level. c. The price level is zero. d. The output level being produced can be sustained indefinitely given the economy's resources and technology. e. The only unemployment is frictional or structural.

the price level is zero

1. The exchange rate is a. another term for "interest rate." b. another term for "growth rate." c. the rate at which goods trade for one another across international borders. d. the price of one currency in terms of another currency.

the price of one currency in terms of another currency

1. If for some reason Americans wished to purchase more foreign assets, then other things the same a. both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall. b. both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise. c. the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall. the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.

the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise

1. When the economy is in macro equilibrium, a. the sum of savings plus investment must equal the sum of imports plus exports. b. the sum of savings plus imports plus taxes must equal the sum of investment plus government purchases plus exports. c. the sum of savings plus government purchases must equal exports minus imports. the government's budget must be in balance.

the sum of savings plus imports plus taxes must equal the sum of investment plus government purchases plus exports

1. Suppose there was a country with an adult (age 16 and over) population of 1,000, of which 100 were unemployed and 700 were employed. Which of the following is true? a. The employment population ratio is 87.5 percent. b. The labor force participation rate is 70 percent. c. The unemployment rate is 12.5 percent. d. There are 700 individuals in this country's labor force.

the unemployment rate is 12.5 percent

compensation of employees in the income approach to calculating GDP includes many benefits, such as employers' contributions to unemployment compensation

true

*Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According the the Bureau of Labor Statistics, Zach is: a.) employed b.) unemployed c.) a discouraged worker d.) not in the labor force

unemployed

5. Older Americans living on a pension and therefore on a fixed income, tend to be made a. better off when prices rise. b. better off when the inflation rate rises. c. worse off when prices rise. d. worse off when prices fall.

worse off when prices rise

what is real gdp in 2010 dollars if nominal gdp in 2014 is $15,000 billion; the GDP deflator in 2014 is 110; and the GDP deflator in 2010 is 100

13636 billion

*If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: a.) $160. b.) $180. c.) $150. d.) $140.

140

Suppose in 2010 the cost of purchasing a basket of goods was $100. That same basket cost $150 in 2011. If 2010 is the base year, the consumer price index for 2011 is:

150

Over the past 150 years, the US economy has endured a recession on average about

4-5 years

5. Suppose that the consumer price index at year-end 2008 was 140 and by year-end 2009 had risen to 150. What was the inflation rate during 2009? a. 7.1 percent b. 10 percent c. 14.2 percent d. 50 percent

7.1 percent

joyce is an accountant. sarah, her hair stylist, cuts and perms her hair in exchange for having her taxes done. this is an example of an economic transaction that is not included in the national income and product accounts. T/F?

False

Which of the following is a correct statement A. Fiscal policy is the use of tax and spending policies by Congress and the president B. Fiscal policy involves the control of the money supply by the Federal Reserve Bank C. Monetary policy involves the control of the money supply by Congress and the president D.Monetary policy is the use of tax and spending policies by the Federal Reserve Bank

Fiscal Policy is the use of tax and spending policies by Congress and the president

When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP? a.) GDP is unaffected by this change. b.) GDP falls as a result of this change. c.) GDP at first rises but then falls. d.) GDP rises as a result of this change.

GDP falls as a result of this change

1. Madison, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included a. in U.S. GDP, but it is not included in German GDP. b. in German GDP, but it is not included in U.S. GDP. c. in both German GDP and U.S. GDP. d. in neither German GDP nor U.S. GDP.

In German GDP, But it is not included in US GDP

1. A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result, a. U.S. investment and GDP increase, but German GDP is unaffected. b. U.S. investment and German GDP increase, but U.S. GDP is unaffected. c. U.S. investment, U.S. GDP, and German GDP are unaffected, because tractors are intermediate goods. d. U.S. investment, U.S. GDP, and German GDP all increase.

US investment and GDP increase, but German GDP is unaffected

1. Americans needing foreign currencies get those currencies from a bank. The ultimate source of these currencies is a. U.S. investments abroad. b. U.S. sales to foreign countries. c. U.S. purchases of foreign goods, services, and assets. d. the International Monetary Fund.

US sales to foreign countries

1. The GDP deflator is designed to a. adjust nominal GDP for changes in the unemployment rate. b. adjust nominal GDP so as to include the problem of externalities. c. adjust nominal GDP for changes in the price level. d. calculate changes in the price of food and other consumer goods.

adjust nominal gdp for changes in the price level

1. A vertical long-run aggregate supply curve indicates that a. an increase in the price level will not expand an economy's output capacity in the long run. b. outputs greater than the long-run supply constraint cannot be achieved. c. an increase in the price level will permit the economy to achieve a higher level of output. an increase in the price level will promote technological change and more rapid economic growth.

an increase in the price level will not expand an economy's output capacity in the long run

the largest component of national income is

compensation of employees

when the economy is operating at full employment ___ unemployment is zero

cyclical

in a simple circular flow diagram, total spending on goods and services in the product market

equals the total income earned in the resource market

1. The potential output of an economy is the level of output produced when the a. real wage equals the nominal wage. b. price level is constant. c. expected real wage equals the inflation rate. d. expected price level equals the unemployment rate. e. expected price level equals the actual price level.

expected price level equals the actual price level

The four key markets that coordinate the circular flow of income are

goods and services, resources, loanable funds, and foreign exchange

When equilibrium is present in the foreign exchange market, which of the following will tend to be in balance?

imports plus capital outflow and exports plus capital inflow

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true?

jennifer's purchasing power will decline by 2%

what component of US GDP is usually negative in boom years

net exports

If the price level in the current period is higher than what buyers and sellers anticipated...

profit margins will be attractive and firms will expand out

1. If the price level in the current period is lower than what buyers and sellers anticipated, a. profit margins will be unattractive, and firms will expand output. b. profit margins will be unattractive, and firms will reduce output. c. profit margins will be attractive, and firms will expand output. d. profit margins will be attractive, and firms will reduce output.

profit margins will be unattractive, and firms will reduce output

If the real interest rate in the domestic loanable funds market increases

the net inflow of foreign capital will tend to increase

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left it. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water:

the standard of living of the citizens of pittsburgh has increased, even though the improvement in the environment was not reflected in its gdp

1. Which of the following would be included in this year's GDP? a. the value of a used car, at its sale price b. the value of a new domestic automobile, at its sale price c. a sale of Microsoft stock from one individual to another the face value of a life insurance policy paid to a woman at the death of her husband

the value of a new domestic automobile, at its sale price

1. If the actual price level exceeds the expected price level reflected in long-term contracts, a. firms will find production more profitable than they had expected and will decrease the quantity of output supplied b. firms will find production less profitable than they had expected and will decrease the quantity of output supplied c. firms will find production less profitable than they had expected and will increase the quantity of output supplied d. unemployment will decrease

unemployment will decrease

Resource cost-income approach

value of profit and wages, as well as indirect business taxes, depreciation, and the net income of foreigners

5. Which of the following is true of high and variable rates of inflation? a. When such rates are present, it will be difficult for people to accurately forecast next year's rate of inflation. b. Inflation of this type will help promote economic growth and the efficient use of resources. c. People will respond to such rates by spending more time producing and less time trying to protect their wealth and income from the uncertainty created by the inflation. d. Inflation of this type will improve the information content delivered by market prices.

when such rates are present, it will be difficult for people to accurately forecast next year's rate of inflation