Midterm Flashcards
(140 cards)
1
Q
If Production Remains The Same and all prices double then real GDP
A
is constant and real GDP double
2
Q
Real GDP =
A
Nominal GDP/GDP Deflator
3
Q
If production remains the same and all prices double relative to the base year then GDP deflator is
A
2
4
Q
Consider the following table:
<>APPLES/ ORANGES /> /> /> /> /»
Year Apple Production/Price Orange Production/Price
1995 20/ $0.50 10/$1.00
2000 10/ $1.00 10/$0.50
If 1995 is the base year, what is the GDP deflator for 2000?
A
1
5
Q
To obtain the net national product (NNP), start with GNP and subtract
A
Depreciation
6
Q
The investment component of GDP includes all of the following except:
- spending on new plants and equipment
- purchases of corporate stock.
- purchases of new housing by households
- changes in business inventories.
A
Purchases of stock
7
Q
CPI measures
A
the price of a fixed basket of goods and services
8
Q
Suppose that the typical consumer buys one apple and one orange everymonth. In the base year 1986, the price for each was $1. In 1996, theprice of apples rises to $2, and the price of oranges remains at $1.Assuming that the CPI for 1986 is equal to 1, the CPI for 1996 wouldbe equal to
A
1.5
9
Q
Which of the following is not a stock variable?
Government debt
The labor force
The amount of money held by the public
Inventory investment
A
Inventory Investment
10
Q
Which of the following statements about the CPI and the GDP deflator is true?
- The CPI measures the price level; the GDP deflator measures the production of an economy.
- The CPI refers to a base year; the GDP deflator always refers to the current year.
- The weights given to prices are not the same.
- The GDP deflator takes the price of imported goods into account; the CPI does not.
A
The weights given to prices are not the same.
11
Q
All other things equal, if the price of foreign-made cars rises, then the GDP deflator
A
will remain the same and CPI will rise
12
Q
General Motors increases the price of a model car produced exclusively for export to Europe. Which U.S. price index is affected?
- The CPI
- The GDP deflator
- Both the CPI and the GDP deflator
- Neither the CPI nor the GDP deflator
A
The GDP Deflator
13
Q
Which of the following events will cause the unemployment rate to increase?
-An increase in population, with no change in the size of the labor force
-A proportionally equal increase in the labor force and the number of unemployed workers
Correct!
-An increase in the labor force with no change in the number of employed workers
-An increase in the number of employed workers with no change in the number of unemployed workers
A
An increase in the labor force with no change in the number of employed workers
14
Q
An example of a person who is counted as unemployed is a
- retired worker below the mandatory retirement age.
- part-time worker who would like to work full-time.
- senator who resigns her job to run for president.
- student going to school full-time.
A
senator who resigns her job to run for president.
15
Q
Suppose that a factory worker turns 62 years old and retires from her job. Which statistic is not affected?
- Number of unemployed
- Unemployment rate
- Labor force
- Labor-force participation rate
A
Number of unemployed
16
Q
Suppose that the size of the labor force is 100 million and that theunemployment rate is 5 percent. Which of the following actions would reduce the unemployment rate the most?
- 1 million unemployed people get jobs.
- 2 million unemployed people leave the labor force.
- 3 million people join the labor force and they all get jobs.
- 10 million people join the labor force and half of them get jobs.
A
2 million unemployed people leave the labor force.
17
Q
Okun’s law expresses a relationship between a change in
A
real GDP and a change in the unemployment rate.
18
Q
Suppose that a Canadian citizen crosses the border each day towork in the United States. Her income from this job would becounted in
A
U.S. GNP and Canadian GDP.
19
Q
Suppose that an Italian working in the United States renounceshis Italian citizenship and is granted U.S. citizenship. Whichof the following will happen?
A
Italian GNP will fall; U.S. GDP will rise
20
Q
GDP is
- a stock.
- a flow.
- both a stock and a flow.
- neither a stock nor a flow.
A
A flow
21
Q
GDP measures
- expenditure on all final goods and services.
- total income of everyone in the economy.
- total value-added by all firms in the economy.
- all of the above.
A
all of the above.
22
Q
Suppose that a farmer grows wheat and sells it to a baker for $1,the baker makes bread and sells it to a store for $2, and the store sells it to the customer for $3. This transaction increases GDP by
A
$3
23
Q
In which case is total expenditure in an economy not equal to total income?
- if total saving is larger than total investment
- if net exports are not zero
- if inventory investment is negative
- none of the above–they are always equal
A
none of the above–they are always equal
24
Q
All other things equal, GDP will rise if
- imports rise.
- exports fall.
- durable goods consumption rises.
- military spending falls.
A
durable goods consumption rises.
25
Which of the following statements describes the difference between nominal and real GDP?
-Real GDP includes only goods; nominal GDP includes goods and services.
- Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.
- Real GDP is equal to nominal GDP less the depreciation of the capital stock.
- Real GDP is equal to nominal GDP multiplied by the CPI.
Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.
26
A competitive firm hires labor until the marginal product of labor equals the
real wage
27
Economic profit is the same as accounting profit minus
the return to capital.
28
Suppose that a major natural disaster destroys a large part of a country's capital stock but miraculously does not cause anybody bodily harm. What will happen to the real wage rate?
It will fall
29
In a closed economy, the supply of goods and services must be equal to:
- consumption.
- consumption + investment.
- consumption + investment + government purchases.
- consumption + investment + government purchases - taxes.
consumption + investment + government purchases
30
Suppose that a consumer has a marginal propensity to consume of 0.7. If this consumer earns an extra $2, her consumption spending would be expected to increase by
1.4
31
Suppose that a consumer has a marginal propensity to consume of 0.8. If this consumer receives and extra $2 of disposable income, her saving would be expected to increase by
.4
32
Which of the following operations is not considered investment?
- A family builds a house in which it plans to live.
- A car dealer stores some of this year's models for next year.
- An individual purchases several pieces of antique furniture.
- A firm buys a computer for word processing.
An individual purchases several pieces of antique furniture.
33
If a production function has two inputs and exhibits constant returns to scale, then doubling both inputs will cause the output to
double
34
If the real interest rate rises, the quantity of investment demanded
will fall
35
The real interest rate is equal to the nominal interest rate minus
inflation
36
```
Choose the pair of words that best completes this sentence: Investment depends on the ________ interest rate because higher inflation will ________ the value of the dollars with which the firm will repay the loan.
real, increase
nominal, increase
real, decrease
nominal, decrease
```
real, decrease
37
In a closed economy that is in equilibrium, investment is equal to
private saving plus public saving.
38
The government is running a budget deficit if
government spending is greater than tax revenue.
39
Private saving is equal to
income - consumption - taxes.
40
The supply of loanable funds, or "national saving," is equal to
income - consumption - government spending - taxes.
41
In a closed economy, with total output and taxes fixed, if government spending rises
investment falls.
42
In a closed economy with total income fixed, a reduction in taxes will cause consumption
to rise and investment to fall.
43
If the supplies of capital and labor are fixed and technology is unchanging, then real output is
fixed
44
Suppose that there is a positive shock to investment demand: that is, at every interest rate, the desired amount of investment rises. In a closed economy with the national saving fixed, the real interest rate will
rise
45
According to the simple macroeconomic model presented in Chapter 3, which of the following will not be caused by an increase in government spending?
- Increase in interest rate
- Decrease in consumption
- Decrease in investment
- Increase in government debt
Decrease in consumption
46
In a closed economy with fixed output, an increase in government spending without any change in taxes will lead to a(n)
- increase in the real interest rate and a decrease in private saving.
- decrease in the real interest rate and an increase in private saving.
- decrease in the real interest rate and no change in private saving.
- increase in the real interest rate and no change in private saving.
increase in the real interest rate and no change in private saving.
47
In the simple macroeconomic model of Chapter 3, a decrease in taxes will shift the
savings curve to the left.
48
A leftward shift of the savings curve cannot be caused by a(n)
- positive shock to consumption.
- increase in the government budget deficit.
- reduction in taxes.
- increase in the real interest rate.
increase in the real interest rate.
49
In the full model of the economy presented in chapter 3, the variable that adjusts to equilibrate the supply and demand for goods and services is
- government spending.
- consumption.
- taxes.
- the real interest rate.
the real interest rate.
50
Consider the following production table:
```
Labor Capital Output
1 2 3
2 2 6
3 2 8
By how much does the marginal product of labor decrease as labor input increases from 1 to 2 and from 2 to 3?
```
1
51
To reduce the money supply, the Federal Reserve:
sells government bonds
52
The definition of the transactions velocity of money is:
prices multiplied by transactions divided by money.
53
If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year.
5
54
If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal:
20000
55
When the demand for money parameter, k, is large, the velocity of money is ______ and money is changing hands ______
- large; frequently
- large; infrequently
- small; frequently
- small; infrequently
small; infrequently
56
The income velocity of money increases and the money demand parameter k ______ when people want to hold ______ money.
- increases; more
- increases; less
- decreases; more
- decreases; less
decreases; less
57
If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M.
nominal GDP
58
If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then:
- the price level is proportional to the money supply.
- real GDP is proportional to the money supply.
- the price level is fixed.
- nominal GDP is fixed.
the price level is proportional to the money supply.
59
According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:
The Fed
60
If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.
3
61
Percentage change in P is approximately equal to the percentage change in :
- M.
- M minus percentage change in Y.
- M minus percentage change in Y plus percentage change in velocity.
- M minus percentage change in Y minus percentage change in velocity.
M minus percentage change in Y plus percentage change in velocity.
62
The right of seigniorage is the right to:
Print Money
63
“Inflation tax” means that:
as the price level rises, the real value of money held by the public decreases.
64
If the nominal interest rate is 1 percent and the inflation rate is 5 percent, the real interest rate is:
–4 percent.
65
If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate must:
increase by 1 percent
66
The one-to-one relation between the inflation rate and the nominal interest rate, the Fisher effect, assumes that the:
velocity is constant
67
When a person purchases a 90-day Treasury bill, he or she cannot know the:
ex post interest rate
68
Equilibrium in the market for goods and services determines the ______ interest rate and the expected rate of inflation determines the ______ interest rate.
ex ante real; ex ante nominal
69
The ex post real interest rate will be greater than the ex ante real interest rate when the:
actual rate of inflation is less than the expected rate of inflation.
70
If inflation is 6 percent and a worker receives a 4 percent wage increase, then the worker's real wage:
decreased 2 percent.
71
If nominal wages cannot be cut, then the only way to cut real wages is by:
inflation.
72
To end a hyperinflation, a government trying to reduce its reliance on seigniorage would:
raise taxes and cut spending.
73
Variables expressed in terms of physical units or quantities are called ______ variables.
real
74
The concept of monetary neutrality in the classical model means that an increase in the money supply will increase:
nominal interest rates.
75
The inconvenience associated with reducing money holdings to avoid the inflation tax is called:
shoeleather costs.
76
A country's exports may be written as equal to:
GDP minus consumption of domestic goods and services minus investment of domestic goods and services minus government purchases of domestic goods and services.
77
If domestic spending exceeds output, we ______ the difference—net exports are ______.
import; negative
78
If net capital outflow is positive, then:
the trade balance must be positive.
79
If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______ .
positive; positive
80
When exports exceed imports, all of the following are true except:
- net capital outflows are positive.
- net exports are positive.
- domestic investment exceeds domestic saving.
- domestic output exceeds spending.
domestic investment exceeds domestic saving.
81
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals:
-10 billion
82
In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:
make loans to foreigners
83
A trade deficit can be financed in all of the following methods except by:
- borrowing from foreigners.
- selling domestic assets to foreigners.
- selling foreign assets owned by domestic residents to foreigners.
- borrowing from domestic lenders.
borrowing from domestic lenders.
84
In a country with a small open economy, the real interest rate will always be:
equal to the world real interest rate
85
In a small open economy, if the world real interest rate is above the rate at which national saving exceeds domestic investment, then there will be a trade ______ and ______ net capital outflow.
surplus; positive
86
An increase in the trade deficit of a small open economy could be the result of:
- an increase in taxes.
- an increase in government spending.
- a decrease in the world interest rate.
- the expiration of an investment tax-credit provision.
an increase in government spending.
87
Holding other factors constant, legislation to cut taxes in an open economy will:
reduce national saving and lead to a trade deficit.
88
The adoption of an investment tax credit in a small open economy is likely to lead to:
an increase in domestic investment but no change in domestic saving in the small open economy.
89
```
In an open economy:
a trade deficit is always good.
a trade deficit is always bad.
a trade deficit may be good or bad.
a trade surplus is always bad.
```
a trade deficit may be good or bad.
90
The nominal exchange rate between the U.S. dollar and the Japanese yen is the:
number of yen you can get for one dollar.
91
If the real exchange rate is high, foreign goods:
are relatively cheap and domestic goods are relatively expensive.
92
When the real exchange rate rises:
exports will decrease and imports will increase.
93
If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______ and U.S. imports ______.
increase; decrease
94
In a small open economy, when the government reduces national saving, the equilibrium real exchange rate:
- rises and net exports fall.
- rises and net exports rise.
- falls and net exports fall.
- falls and net exports rise.
rises and net exports fall.
95
In a small open economy, if the government encourages investment, say through an investment tax credit, investment:
- increases and is financed through an increase in national saving.
- increases and is financed through an increase in exports.
- increases and is financed through an inflow of foreign capital.
- does not increase; the interest rate rises instead.
increases and is financed through an inflow of foreign capital.
96
If the information technology boom increases investment demand in a small open economy, then net exports ______ and the real exchange rate ______.
decrease; appreciates
97
In a small open economy, if the government adopts a policy that lowers imports, then that policy:
- raises the real exchange rate and increases net exports.
- raises the real exchange rate and does not change net exports.
- raises the real exchange rate and decreases net exports.
- lowers the real exchange rate.
raises the real exchange rate and does not change net exports.
98
Which of the following would decrease the real exchange rate in a small open economy in the long run?
- a personal income tax cut
- a reduction in government spending
- a tariff on imports
- an increase in investment
a reduction in government spending
99
If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall:
12 percent
100
If the purchasing-power parity theory is true, then:
- the net exports schedule is very steep.
- all changes in the real exchange rate result from changes in price levels.
- all changes in the nominal exchange rate result from changes in price levels.
- changes in saving or investment influence only the real exchange rate.
all changes in the nominal exchange rate result from changes in price levels.
101
If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent).
9
102
In a steady state:
- no hiring or firings are occurring.
- the number of people finding jobs equals the number of people losing jobs.
- the number of people finding jobs exceeds the number of people losing jobs.
- the number of people losing jobs exceeds the number of people finding jobs.
the number of people finding jobs equals the number of people losing jobs.
103
In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month.
unemployed, employed
104
If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately:
s/(s + f).
105
If the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:
10 percent
106
If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be:
0.18
107
If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:
0.08
108
Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding.
reduce;increase
109
One reason for unemployment is that:
- it takes time to match workers and jobs.
- all jobs are identical.
- the labor market is always in equilibrium.
- a laid-off worker can immediately find a new job at the market wage.
it takes time to match workers and jobs.
110
All of the following are reasons for frictional unemployment except:
- workers have different preferences and abilities.
- unemployed workers accept the first job offer that they receive.
- the flow of information is imperfect.
- geographic mobility takes time.
unemployed workers accept the first job offer that they receive.
111
Frictional unemployment is unemployment caused by:
- wage rigidity.
- minimum-wage legislation.
- the time it takes workers to search for a job.
- clashes between the motives of insiders and outsiders.
the time it takes workers to search for a job
112
Sectoral shifts:
- lead to wage rigidity.
- explain the payment of efficiency wages.
- depend on the level of the minimum wage.
- make frictional employment inevitable.
make frictional employment inevitable.
113
Unemployment insurance increases the amount of frictional unemployment by:
softening the economic hardship of unemployment.
114
All of the following policies were adopted by government in an attempt to reduce the natural rate of unemployment except:
- unemployment insurance.
- government employment agencies.
- public retraining programs.
- the Illinois bonus program for unemployment insurance claimants who found jobs quickly.
unemployment insurance.
115
The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment.
structural; frictional
116
When there is structural unemployment, the real wage is:
- rigid at a level below the market-clearing level.
- rigid at the market-clearing level.
- rigid at a level above the market-clearing level.
- flexible.
rigid at a level above the market-clearing level.
117
Workers unemployed as a result of wage rigidity are:
- actively searching for a job to match their skills.
- not eligible to receive unemployment insurance benefits.
- waiting for a job to become available.
- relocating to another part of the country as a result of sectoral shifts.
waiting for a job to become available.
118
All of the following are causes of structural unemployment except:
- minimum-wage laws.
- the monopoly power of unions.
- unemployment insurance.
- efficiency wages.
unemployment insurance.
119
If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will ______ the number unemployed.
decrease
120
Unions contribute to structural unemployment when collective bargaining results in wages:
above the equilibrium level.
121
In the case of unions, the conflict of interest between different groups of workers results in insiders wanting ______, while outsiders want ______.
high wages; more hirings
122
One efficiency-wage theory implies that firms pay high wages because:
the more a firm pays its workers, the greater their incentive to stay with the firm.
123
Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to:
- reduce labor turnover.
- improve the quality of the firm's labor force.
- increase worker effort.
- reduce the firm's wage bill.
reduce the firm's wage bill.
124
By paying efficiency wages, firms contribute to higher wait unemployment because they:
keep the wage above the equilibrium level.
125
When Henry Ford paid his workers $5 per day when the prevailing wage was between $2 and $3 a day:
- it greatly increased his company's costs.
- workers reduced their work efforts because they felt they “had it made.”
- Ford proved the efficiency-wage theory was wrong.
- it raised the efficiency of his workers.
it raised the efficiency of his workers.
126
In the Solow growth model of Chapter 7, the demand for goods equals investment:
plus consumption
127
In the Solow growth model, the assumption of constant returns to scale means that:
the number of workers in an economy does not affect the relationship between output per worker and capital per worker.
128
The production function y = f(k) means:
output per worker is a function of capital per worker.
129
Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:
- more in Highland.
- more in Lowland.
- by the same amount in Highland and Lowland.
- in Highland, but not in Lowland.
more in Lowland.
130
In the Solow growth model of Chapter 7, for any given capital stock, the ______ determines how much output the economy produces and the ______ determines the allocation of output between consumption and investment.
production function; saving rate
131
The change in capital stock per worker (Δk) may be expressed as a function of s—the saving ratio, f(k)—output per worker, k—capital per worker, and δ—the depreciation rate, by the equation:
Δk = sf(k) – δk.
132
In the steady state, the capital stock does not change because investment equals:
depreciation
133
In the Solow growth model, if investment is less than depreciation, the capital stock will ______ and output will ______ until the steady state is attained.
decrease; decrease
134
If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach:
the same output level as before.
135
Starting from a steady-state situation, if the saving rate increases, the rate of growth of capital per worker will:
increase until the new steady state is reached.
136
The Solow model shows that a key determinant of the steady-state ratio of capital to labor is the:
- level of output.
- labor force.
- saving rate.
- capital elasticity in the production function.
saving rate.
137
Assume two economies are identical in every way except that one has a higher saving rate. ______ According to the Solow growth model, in the steady state the country with the higher saving rate will have ______ level of total output and ______ rate of growth of output per worker as/than the country with the lower saving rate.
a higher; the same
138
The Golden Rule level of capital accumulation is the steady state with the highest level of:
consumption per worker.
139
In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of:
capital equals the depreciation rate.
140
A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state.
decrease
