Macroeconomics Test 3 Review

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is ...?

$0.70

The investment demand curve will shift to the right as a result of ...?

-businesses are becoming more optimistic about future business conditions -technological progress -higher expected rates of return on investment

What happens is aggregate supply and aggregate demand increases?

-increase domestic output -growth -an expansion of output at a stable price

A shift of the demand curve to the left would be caused by...?

-lower expected rates of return on investment -an increase in the excess production capacity available in industry

Other things equal, a decrease in the real interest rate will...?

-move the economy downward along its existing investment demand curve -expand investment and shift AD curve to the right

The consumer price index was 177.1 in 2001 and 179.9 in 2002 therefore the inflation in 2002 was about ...?

1.58% 179.9-177.1=2.8 2.8/177.1=.0158

What is the labor force in Scoob? Unemployed...7 Total Population...145 Employed...95 Discouraged Workers...3

102

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is...?

11%

If the nominal interest rate is 18% and the real interest rate is 6%, the inflation rate is ...?

12%

Potential Read GDP= $200 billion Natural Rate of Unemployment= 6% Actual Rate of Unemployment= 12% Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The size of the negative GDP gap as a percentage of potential GDP for the economy is ...?

12%

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is...?

12% 18-6-12

The unemployment rate is ...? Full time employment...80 Part time employment...25 Unemployment...15 Discouraged workers...5 Members of the underground economy...6 Consumer Price Index...110

12.5% (15/120)

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is ...?

15%

If the real domestic output is 20 units, quantity inputs is 10, and the price is $4 for each input is ...?

2 (4*10)/2

If the inflation rate is 10% and the real interest rate is 12% the nominal interest rate is ...?

22%

Potential Read GDP= $200 billion Natural Rate of Unemployment= 6% Actual Rate of Unemployment= 12% Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The amount of output being forgone by the economy is ...?

24 billion 200 billion (.12)= 24 billion (12%-6%)(2)=12%

If the nominal interest rate is 5% and the real interest rate is 2%, then the inflation premium is...?

3%

If actual GDP is 340 billion and there is a positive GDP gap of 20 billion, the potential GDP is ...?

320 billion

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The level of productivity in this economy is...?

40

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is...?

6%

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of...?

7%

In the short run of aggregate supply, output prices are ____ and input prices are ____.

Flexible; inflexible

What would portray the effects of a substantial reduction in government spending?

a decrease in aggregate demand

An increase in aggregate supply could be caused by...?

a decrease in the prices of domestic resources

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced...?

a deflation of 3.33%

The phrase of the business cycle in which real GDP declines is called...?

a recession

GDP gap measures the difference between...?

actual and potential GDP

If the aggregate supply curve shifted left and the aggregate demand curve remained the same, we could say...?

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased

If aggregate demand increased for the price level to stay constant...?

aggregate supply would have to increase (shift right)

An increase in foreign spending on U.S. products would cause...?

an increase in aggregate demand

An increase in aggregate demand could be caused by...?

an increase in productivity

Given the expected rate of return on all possible investment opportunities in the economy...?

an increase in the real rate of interest will reduce the level of investment

Most economist agree that the immediate cause of most business cycle variation is ...?

an unexpected change in the level of total spending

The immediate-short-run aggregate supply curve represents circumstances where...?

both input and output prices are fixed

Reoccurring upswings and downswings in an economy's real GDP over time are called...?

business cycle

The investment curve will shift to the right as a result of ...?

businesses becoming more optimistic about future business conditions

Inflation initiated by increases in wages or other resource prices is labeled...?

cost-push inflation

Inflation initiated by increases in wages or other resource prices is labeled..?

cost-push inflation

The table contains information about the hypothetical economy of Scoob. All figures are in millions. If the natural rate of unemployment in Scoob is 5%, then ...? Unemployment ...7 Total Population ...145 Employed ...95 Discouraged Workers ...3

cyclical unemployment is about 2%

If the unemployment rate is 9% and the natural rate of unemployment is 5%, then the...?

cyclical unemployment rate is 4%

A decline in net exports caused by a change in income abroad is shown by a...?

decrease in aggregate demand

Cost-push inflation is shown by a ...?

decrease in aggregate supply

The investment demand slopes downward and to the right because lower real interest rates...?

enable more investment projects to be undertaken profitably

The immediate determinants of investment spending are the ...?

expected rate of return on capital goods and the real interest rate

The immediate determinants of investment spending are the...?

expected rate of return on capital goods and the real interest rate

The determinants of aggregate demand...?

explain shifts in the aggregate demand curve

A college graduate using the summer following graduation to search for a job would best be classified as...?

frictionally unemployment

A high rate of inflation is likely to cause a...?

high nominal interest rate.

An increase in aggregate demand could be caused by ...?

higher expected rates of return on investment

Growth, price stability, and full employment is shown by an...?

increase in aggregate supply and an increase in aggregate demand

A decline in the real interest rate will...?

increase the amount of investment spending.

Demand pull inflation...?

occurs when total spending is excessive

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

prices are sticky in the short run

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. If the firm finds it can borrow funds at an interest rate of 10 percent, the firm should...?

purchase the machine because the expected rate of return exceeds the interest rate

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then more investment will be forthcoming when...?

r is greater than i

A recession is defined as a period in which...?

real domestic output falls

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will...?

rise by about 15%

Other things equal, a 10% decrease in corporate income taxes will...?

shift the investment demand curve to the right

Machine useful life of only one year cost $2,000 additional revenue from the output of this machine is expected to be $2,300. If the firm finds it can borrow funds at an interest rate of 10% the firm should...?

should purchase the investment because r<i 15%>10%

The investment demand curve portrays an inverse (negative) relationship between...?

the real interest rate and investment

Annual percentage terms investment spending are more___ than real GDP in the US.

variable

Demand-Pull Inflation occurs...?

when total spending exceeds the economy's ability to provide output at the existing price level

Where is the equilibrium point?

where real domestic output demanded equals real domestic output supplied

The real-balances, interest-rate, and foreign purchases effects all help explain...?

why the aggregate demand curve is downsloping