Macroeconomics Practice Exam

If Y = AK0.5. L0.5 and A, K, and L are all 100, the marginal product of capital is:

50

If income in a closed is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is:

500

Quantity Theory: If the money supply increases 10 percent, velocity increases 4 percent, and real gross domestic product (GDP) increases by 8 percent, the price level increases by _____ percent

6%

The market value of all final goods and services produced within an economy in a given period of time is called:

gross domestic product

If the real interest rate increases by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation:

increases by 3 percent

If in a competitive economy, Y = AKa L1-a where A>0 and 0

increases for an increase in K

All of these are stock variables EXCEPT

the government budget deficit.

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:

$6.50

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5

Suppose an economy produces with Y = K0.5L0.5. K=100 and the labor force is 30. There is a (real) minimum wage of 1 introduced to this otherwise competitive economy. Then employment L= _____.

25

To increase the monetary base, the Fed can:

conduct open-market purchases.

Suppose the economy is originally at a steady state where the marginal product of capital is equal to the depreciation rate. If the saving rate of the economy increases, then at the new steady state:

consumption per worker will be lower compared to the original steady state.

Assume that two countries have the same per-worker production function y = k1/2, neither has population growth nor technological progress, depreciation is 5 percent of capital in both countries, and country A saves 10 percent of output whereas country B saves 20 percent. If country A starts out with a capital-labor ratio of 4 and country B starts out with a capital-labor ratio of 2, in the long run:

country A's capital-labor ratio will be 4, whereas country B's will be 16

When an economy's capital is below the Golden Rule level, reaching the Golden Rule level:

requires initially reducing consumption to increase consumption in the future.

In a small open economy, if government spending increases, then the real exchange rate (foreign goods per domestic good):

rises, and net exports fall.

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately:

s/(s + f)

Assume M/P = kY, when the demand for money parameter, k, is large, the velocity of money is _____, and money is changing hands ____

small; infrequently

Prices of items included in the consumer price index (CPI) are:

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