question
According to the quantity equation, if the transactions velocity of money remains constant while the quantity of money doubles, the:
a. price of the average transaction must double.
b. number of transactions must remain constant.
c. price of the average transaction multiplied by the number of transactions must remain constant.
d. price of the average transaction multiplied by the number of transactions must double.
a. price of the average transaction must double.
b. number of transactions must remain constant.
c. price of the average transaction multiplied by the number of transactions must remain constant.
d. price of the average transaction multiplied by the number of transactions must double.
answer
d. price of the average transaction multiplied by the number of transactions must double.
question
High-powered money is another name for:
a. currency.
b. demand deposits.
c. the monetary base.
d. M2.
a. currency.
b. demand deposits.
c. the monetary base.
d. M2.
answer
c. the monetary base.
question
The real exchange rate is determined by the equality of:
a. saving and the demand for net exports.
b. investment and the demand for net exports.
c. net capital outflow and the demand for net exports.
d. the negative value of net capital outflow and the demand for net exports.
a. saving and the demand for net exports.
b. investment and the demand for net exports.
c. net capital outflow and the demand for net exports.
d. the negative value of net capital outflow and the demand for net exports.
answer
c. net capital outflow and the demand for net exports.
question
Frictional unemployment is unemployment caused by:
a. wage rigidity.
b. minimum-wage legislation.
c. the time it takes workers to search for a job.
d. clashes between the motives of insiders and outsiders.
a. wage rigidity.
b. minimum-wage legislation.
c. the time it takes workers to search for a job.
d. clashes between the motives of insiders and outsiders.
answer
c. the time it takes workers to search for a job.
question
In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:
a. increases by $100.
b. decreases by $100.
c. increases by more than $100.
d. remains the same.
a. increases by $100.
b. decreases by $100.
c. increases by more than $100.
d. remains the same.
answer
d. remains the same.
question
The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply.
a. smaller; smaller
b. smaller; greater
c. greater; greater
d. greater; smaller
a. smaller; smaller
b. smaller; greater
c. greater; greater
d. greater; smaller
answer
c. greater; greater
question
The economic statistic used to measure the level of prices is:
a. gross domestic product (GDP).
b. consumer price index (CPI).
c. gross national product (GNP).
d. real GDP.
a. gross domestic product (GDP).
b. consumer price index (CPI).
c. gross national product (GNP).
d. real GDP.
answer
b. consumer price index (CPI).
question
If net capital outflow is positive, then:
a. imports must be positive.
b. exports must be negative.
c. the trade balance must be positive.
d. the trade balance must be negative.
a. imports must be positive.
b. exports must be negative.
c. the trade balance must be positive.
d. the trade balance must be negative.
answer
c. the trade balance must be positive.
question
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:
a. $5.
b. $6.50.
c. $9.50.
d. $11.
a. $5.
b. $6.50.
c. $9.50.
d. $11.
answer
b. $6.50.
question
Public policy to increase the job finding rate includes _____, and public policy to decrease the job separation rate includes _____.
a. government employment agencies; higher unemployment insurance benefits
b. government employment agencies; 100 percent experience-rated unemployment insurance
c. higher minimum wage laws; payment of unemployment benefits for longer periods
d. higher efficiency wages; partially experience-rated unemployment insurance
a. government employment agencies; higher unemployment insurance benefits
b. government employment agencies; 100 percent experience-rated unemployment insurance
c. higher minimum wage laws; payment of unemployment benefits for longer periods
d. higher efficiency wages; partially experience-rated unemployment insurance
answer
b. government employment agencies; 100 percent experience-rated unemployment insurance
question
When the Federal Reserve conducts an open-market purchase, it buys bonds from the:
a. public.
b. U.S. Treasury.
c. Internal Revenue Service.
d. International Monetary Fund.
a. public.
b. U.S. Treasury.
c. Internal Revenue Service.
d. International Monetary Fund.
answer
a. public.
question
Which of these would decrease the real exchange rate in a small open economy?
a. a personal income tax cut
b. a reduction in government spending
c. a tariff on imports
d. an increase in investment
a. a personal income tax cut
b. a reduction in government spending
c. a tariff on imports
d. an increase in investment
answer
b. a reduction in government spending
question
If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by:
a. 0.15 units.
b. 0.5 units.
c. 0.85 units.
d. 1 unit.
a. 0.15 units.
b. 0.5 units.
c. 0.85 units.
d. 1 unit.
answer
c. 0.85 units.
question
If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage:
a. increased 4 percent.
b. increased 2 percent.
c. decreased 2 percent.
d. decreased 6 percent.
a. increased 4 percent.
b. increased 2 percent.
c. decreased 2 percent.
d. decreased 6 percent.
answer
c. decreased 2 percent.
question
An example of a nominal variable is the:
a. money supply.
b. quantity of goods produced in a year.
c. relative price of bread.
d. real wage.
a. money supply.
b. quantity of goods produced in a year.
c. relative price of bread.
d. real wage.
answer
a. money supply.
question
The ex post real interest rate will be greater than the ex ante real interest rate when the:
a. rate of inflation is increasing.
b. rate of inflation is decreasing.
c. actual rate of inflation is greater than the expected rate of inflation.
d. actual rate of inflation is less than the expected rate of inflation.
a. rate of inflation is increasing.
b. rate of inflation is decreasing.
c. actual rate of inflation is greater than the expected rate of inflation.
d. actual rate of inflation is less than the expected rate of inflation.
answer
d. actual rate of inflation is less than the expected rate of inflation.
question
Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to:
a. 0 percent.
b. 3.5 percent.
c. 5 percent.
d. 7.5 percent.
a. 0 percent.
b. 3.5 percent.
c. 5 percent.
d. 7.5 percent.
answer
b. 3.5 percent.
question
The generosity of unemployment insurance benefits is measured by the:
a. replacement rate and the duration of benefits.
b. median wage and the unemployment rate.
c. price level and duration of unemployment.
d. job-finding rate and the job-separation rate.
a. replacement rate and the duration of benefits.
b. median wage and the unemployment rate.
c. price level and duration of unemployment.
d. job-finding rate and the job-separation rate.
answer
a. replacement rate and the duration of benefits.
question
Permitting a lower minimum wage for teenagers would likely:
a. raise teenage unemployment.
b. raise teenage wages overall.
c. prevent teenagers from getting job experience.
d. raise unemployment among unskilled adults.
a. raise teenage unemployment.
b. raise teenage wages overall.
c. prevent teenagers from getting job experience.
d. raise unemployment among unskilled adults.
answer
d. raise unemployment among unskilled adults.
question
Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6 (Y - T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is:
a. 5 percent.
b. 8 percent.
c. 10 percent.
d. 13 percent.
a. 5 percent.
b. 8 percent.
c. 10 percent.
d. 13 percent.
answer
d. 13 percent.
question
When the Fed makes an open-market sale, it:
a. increases the money multiplier (m).
b. increases the currency-deposit ratio (cr).
c. increases the monetary base (B). d. decreases the monetary base (B).
a. increases the money multiplier (m).
b. increases the currency-deposit ratio (cr).
c. increases the monetary base (B). d. decreases the monetary base (B).
answer
d. decreases the monetary base (B).
question
Macroeconomics is the study of the:
a. activities of individual units of the economy.
b. decision making by households and firms.
c. economy as a whole.
d. interaction of firms and households in the marketplace.
a. activities of individual units of the economy.
b. decision making by households and firms.
c. economy as a whole.
d. interaction of firms and households in the marketplace.
answer
c. economy as a whole.
question
Public saving is:
a. income minus consumption minus government spending.
b. disposable income minus consumption.
c. disposable income minus government spending.
d. government revenue minus government spending.
a. income minus consumption minus government spending.
b. disposable income minus consumption.
c. disposable income minus government spending.
d. government revenue minus government spending.
answer
d. government revenue minus government spending.
question
In the classical model with fixed income, a decrease in the real interest rate could be the result of a(n):
a. increase in government spending.
b. increase in desired investment.
c. increase in taxes.
d. decrease in taxes.
a. increase in government spending.
b. increase in desired investment.
c. increase in taxes.
d. decrease in taxes.
answer
c. increase in taxes.
question
If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will _____ the number unemployed.
a. increase
b. decrease
c. not change
d. possibly increase, decrease, or leave unchanged
a. increase
b. decrease
c. not change
d. possibly increase, decrease, or leave unchanged
answer
a. increase
question
Money's liquidity refers to the ease with which:
a. coins can be melted down.
b. illegally obtained money can be laundered.
c. loans can be floated.
d. money can be converted into goods and services.
a. coins can be melted down.
b. illegally obtained money can be laundered.
c. loans can be floated.
d. money can be converted into goods and services.
answer
d. money can be converted into goods and services.
question
Assume that the production function is Cobb-Douglas with parameter a = 0.3. If capital and labor are paid their marginal products, they receive the shares of income:
a. 0.3 and 0.3.
b. 0.7 and 0.7.
c. 0.3 and 0.7.
d. 0.7 and 0.3.
a. 0.3 and 0.3.
b. 0.7 and 0.7.
c. 0.3 and 0.7.
d. 0.7 and 0.3.
answer
c. 0.3 and 0.7.
question
Assume that some large foreign countries decide to subsidize investment by instituting an investment tax credit. Then a small country's real exchange rate:
a. will fall, and its net exports will rise.
b. will rise, and its net exports will fall.
c. and net exports will both fall.
d. and net exports will both rise.
a. will fall, and its net exports will rise.
b. will rise, and its net exports will fall.
c. and net exports will both fall.
d. and net exports will both rise.
answer
a. will fall, and its net exports will rise.
question
In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _____ determines real gross domestic product (GDP) and _____ determines nominal GDP.
a. the productive capability of the economy; the money supply
b. the money supply; the productive capability of the economy
c. velocity; the money supply
d. the money supply; velocity
a. the productive capability of the economy; the money supply
b. the money supply; the productive capability of the economy
c. velocity; the money supply
d. the money supply; velocity
answer
a. the productive capability of the economy; the money supply
question
Nominal gross domestic product (GDP) means the value of goods and services is measured in _____ prices.
a. current
b. real
c. constant
d. average
a. current
b. real
c. constant
d. average
answer
a. current
question
Exhibit: Policies Influence Real Exchange Rate
Which of the panels illustrates the impact of protectionist trade policies on the real exchange rate?
GRAPH SHOWN ON MIDTERM 1 (2ND PT) - Q 31
a. (A)
b. (B)
c. (C)
d. (D)
Which of the panels illustrates the impact of protectionist trade policies on the real exchange rate?
GRAPH SHOWN ON MIDTERM 1 (2ND PT) - Q 31
a. (A)
b. (B)
c. (C)
d. (D)
answer
d. (D)
question
An effective policy to reduce a trade deficit in a small open economy would be to:
a. increase tariffs on imports.
b. impose stricter quotas on imported goods.
c. increase government spending.
d. increase taxes.
a. increase tariffs on imports.
b. impose stricter quotas on imported goods.
c. increase government spending.
d. increase taxes.
answer
d. increase taxes.
question
The theoretical separation of real and monetary variables is called:
a. the classical dichotomy.
b. monetary neutrality.
c. the Fisher effect.
d. the quantity theory of money.
a. the classical dichotomy.
b. monetary neutrality.
c. the Fisher effect.
d. the quantity theory of money.
answer
a. the classical dichotomy.
question
In a Cobb-Douglas production function, the marginal product of capital will increase if:
a. the quantity of labor increases.
b. the quantity of capital increases.
c. labor's share of output increases.
d. average capital productivity decreases.
a. the quantity of labor increases.
b. the quantity of capital increases.
c. labor's share of output increases.
d. average capital productivity decreases.
answer
a. the quantity of labor increases.
question
In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by:
a. borrowing from abroad.
b. borrowing from domestic banks.
c. the domestic government.
d. the World Bank.
a. borrowing from abroad.
b. borrowing from domestic banks.
c. the domestic government.
d. the World Bank.
answer
a. borrowing from abroad.
question
If purchasing-power parity holds, then changes in domestic saving will _____ the real exchange rate.
a. increase
b. decrease
c. not change
d. either increase or decrease
a. increase
b. decrease
c. not change
d. either increase or decrease
answer
c. not change
question
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:
a. −$25 billion.
b. -$10 billion.
c. $10 billion.
d. $25 billion.
a. −$25 billion.
b. -$10 billion.
c. $10 billion.
d. $25 billion.
answer
b. -$10 billion.
question
If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals _____ percent.
a. 50
b. 58
c. 60
d. 67
a. 50
b. 58
c. 60
d. 67
answer
c. 60
question
Bank reserves equal:
a. gold kept in bank vaults.
b. gold kept at the central bank.
c. currency plus demand deposits.
d. deposits that banks have received but have not lent out.
a. gold kept in bank vaults.
b. gold kept at the central bank.
c. currency plus demand deposits.
d. deposits that banks have received but have not lent out.
answer
d. deposits that banks have received but have not lent out.
question
In the United States, monetary policy is conducted by the:
a. president.
b. Congress.
c. Federal Reserve.
d. Treasury Department.
a. president.
b. Congress.
c. Federal Reserve.
d. Treasury Department.
answer
c. Federal Reserve.
question
According to the model developed in Chapter 3, when government spending increases without a change in taxes:
a. consumption increases.
b. consumption decreases.
c. investment increases.
d. investment decreases.
a. consumption increases.
b. consumption decreases.
c. investment increases.
d. investment decreases.
answer
d. investment decreases.
question
If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is _____ the equilibrium rate, and in the next period it will move _____ the equilibrium rate.
a. above; toward
b. above; away from
c. below; toward
d. below; away from
a. above; toward
b. above; away from
c. below; toward
d. below; away from
answer
a. above; toward
question
The investment function slopes _____ because there are _____ investment projects that are profitable as the interest rate decreases.
a. upward; fewer
b. upward; more
c. downward; fewer
d. downward; more
a. upward; fewer
b. upward; more
c. downward; fewer
d. downward; more
answer
d. downward; more
question
Exhibit: Saving, Investment, and the Interest Rate 2
The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a
GRAPH SHOWN ON MIDTERM 1(2ND PT) - Q 44
technological innovation that increases the demand for investment goods?
a. point A
b. point B
c. point C
d. point D
The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a
GRAPH SHOWN ON MIDTERM 1(2ND PT) - Q 44
technological innovation that increases the demand for investment goods?
a. point A
b. point B
c. point C
d. point D
answer
b. point B
question
Disposable personal income:
a. is computed by subtracting personal tax from personal income.
b. is generally greater than personal income.
c. includes corporate profits but not dividends.
d. does not include government transfers to individuals.
a. is computed by subtracting personal tax from personal income.
b. is generally greater than personal income.
c. includes corporate profits but not dividends.
d. does not include government transfers to individuals.
answer
a. is computed by subtracting personal tax from personal income.
question
The annual inflation rate in the United States averaged:
a. nearly zero between 1900 and 1950.
b. nearly zero between 1950 and 2000.
c. about 10 percent between 1900 and 1950.
d. about 10 percent between 1950 and 2000.
a. nearly zero between 1900 and 1950.
b. nearly zero between 1950 and 2000.
c. about 10 percent between 1900 and 1950.
d. about 10 percent between 1950 and 2000.
answer
a. nearly zero between 1900 and 1950.
question
BALANCE SHEET
Assets -
- Reserves: $10,000
- Loans: 100,000
- Securities: 40,000
Liabilities and Net Worth-
- Deposits: $100,000
- Debt: 20,000
- Equity: 30,000
Based on the table, what is the reserve-deposit ratio at the bank?
a. 3 percent
b. 5 percent
c. 10 percent
d. 15 percent
Assets -
- Reserves: $10,000
- Loans: 100,000
- Securities: 40,000
Liabilities and Net Worth-
- Deposits: $100,000
- Debt: 20,000
- Equity: 30,000
Based on the table, what is the reserve-deposit ratio at the bank?
a. 3 percent
b. 5 percent
c. 10 percent
d. 15 percent
answer
c. 10 percent
question
Assume that the consumption function is given by C = 150 + 0.85 (Y - T) and the tax function is given by T = t0 + t1Y. If t0 increases by 1 unit, then consumption:
a. decreases by 0.85 units.
b. decreases by 0.15 units.
c. increases by 0.15 units.
d. increases by 0.85 units.
a. decreases by 0.85 units.
b. decreases by 0.15 units.
c. increases by 0.15 units.
d. increases by 0.85 units.
answer
a. decreases by 0.85 units.
question
Wage rigidity:
a. forces labor demand to equal labor supply.
b. is caused by sectoral shifts.
c. prevents labor demand and labor supply from reaching the equilibrium level.
d. increases the rate of job finding.
a. forces labor demand to equal labor supply.
b. is caused by sectoral shifts.
c. prevents labor demand and labor supply from reaching the equilibrium level.
d. increases the rate of job finding.
answer
c. prevents labor demand and labor supply from reaching the equilibrium level.
question
National saving is:
a. private saving.
b. public saving.
c. private saving plus public saving.
d. private saving minus public saving.
a. private saving.
b. public saving.
c. private saving plus public saving.
d. private saving minus public saving.
answer
c. private saving plus public saving.
question
For a small open economy with perfect capital mobility, when net capital outflow is measured along the horizontal axis and the real interest rate is measured along the vertical axis, net capital outflow is drawn as a:
a. vertical line at 0.
b. horizontal line at the world real interest rate.
c. line that slopes up and to the right.
d. line that slopes down and to the right.
a. vertical line at 0.
b. horizontal line at the world real interest rate.
c. line that slopes up and to the right.
d. line that slopes down and to the right.
answer
b. horizontal line at the world real interest rate.
question
The world interest rate:
a. is equal to the domestic interest rate.
b. makes domestic saving equal to domestic investment.
c. is the interest rate charged on loans by the World Bank.
d. is the interest rate prevailing in world financial markets.
a. is equal to the domestic interest rate.
b. makes domestic saving equal to domestic investment.
c. is the interest rate charged on loans by the World Bank.
d. is the interest rate prevailing in world financial markets.
answer
d. is the interest rate prevailing in world financial markets.
question
Exogenous variables are:
a. determined outside the model.
b. determined within the model.
c. the outputs of the model.
d. explained by the model.
a. determined outside the model.
b. determined within the model.
c. the outputs of the model.
d. explained by the model.
answer
a. determined outside the model.
question
Discouraged workers are individuals who:
a. have jobs that do not match their skills (for example, a Ph.D. driving a taxi cab).
b. have been unemployed for more than 26 weeks.
c. call themselves unemployed but are not seriously looking for a job.
d. want a job but have given up looking for one.
a. have jobs that do not match their skills (for example, a Ph.D. driving a taxi cab).
b. have been unemployed for more than 26 weeks.
c. call themselves unemployed but are not seriously looking for a job.
d. want a job but have given up looking for one.
answer
d. want a job but have given up looking for one.
question
In the classical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving _____ and private saving _____.
a. increases; increases
b. increases; does not change
c. decreases; increases
d. decreases; does not change
a. increases; increases
b. increases; does not change
c. decreases; increases
d. decreases; does not change
answer
b. increases; does not change
question
If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals:
a. 1,000.
b. 2,500.
c. 3,000.
d. 5,000.
a. 1,000.
b. 2,500.
c. 3,000.
d. 5,000.
answer
c. 3,000.
question
According to the classical dichotomy, when the money supply decreases, _____ will decrease.
a. real gross domestic product (GDP)
b. consumption spending
c. the price level
d. investment spending
a. real gross domestic product (GDP)
b. consumption spending
c. the price level
d. investment spending
answer
c. the price level
question
An expansionary fiscal policy leads to _____ in investment spending for a small open economy, while it leads to _____ in investment spending for a large open economy.
a. a decrease; no change
b. no change; decrease
c. a decrease; an increase
d. a decrease; a decrease
a. a decrease; no change
b. no change; decrease
c. a decrease; an increase
d. a decrease; a decrease
answer
b. no change; decrease
question
The earned income tax credit:
a. increases the government's tax revenue.
b. reduces the incomes of poor working families.
c. does not raise labor costs.
d. is not an alternative to raising the minimum wage.
a. increases the government's tax revenue.
b. reduces the incomes of poor working families.
c. does not raise labor costs.
d. is not an alternative to raising the minimum wage.
answer
c. does not raise labor costs.
question
In equilibrium, total investment equals:
a. private saving.
b. public saving.
c. national saving.
d. household saving.
a. private saving.
b. public saving.
c. national saving.
d. household saving.
answer
c. national saving.
question
If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real gross domestic product (GDP) must be _____ percent.
a. 3
b. 4
c. 9
d. 11
a. 3
b. 4
c. 9
d. 11
answer
a. 3
question
Prices of items included in the consumer price index (CPI) are:
a. averaged, with the price of every item weighted equally.
b. weighted according to the amount of the item produced in gross domestic product (GDP).
c. weighted according to the quantity of the item purchased by the typical household.
d. chained to the base year by the year-to-year growth rate of the item.
a. averaged, with the price of every item weighted equally.
b. weighted according to the amount of the item produced in gross domestic product (GDP).
c. weighted according to the quantity of the item purchased by the typical household.
d. chained to the base year by the year-to-year growth rate of the item.
answer
c. weighted according to the quantity of the item purchased by the typical household.
question
The neoclassical theory of distribution:
a. was developed by Karl Marx.
b. is rejected by most economists today.
c. shows that the national income of an economy is not equal to total output.
d. is a theory of how national income is divided among the factors of production.
a. was developed by Karl Marx.
b. is rejected by most economists today.
c. shows that the national income of an economy is not equal to total output.
d. is a theory of how national income is divided among the factors of production.
answer
d. is a theory of how national income is divided among the factors of production.
question
In a fractional-reserve banking system, banks create money because:
a. each dollar of reserves generates many dollars of demand deposits.
b. banks have the legal authority to issue new currency.
c. funds are transferred from households wishing to save to firms wishing to borrow.
d. the wealth of the economy expands when borrowers undertake new debt obligations.
a. each dollar of reserves generates many dollars of demand deposits.
b. banks have the legal authority to issue new currency.
c. funds are transferred from households wishing to save to firms wishing to borrow.
d. the wealth of the economy expands when borrowers undertake new debt obligations.
answer
a. each dollar of reserves generates many dollars of demand deposits.
question
Unlike the real world, the classical model with fixed output assumes that:
a. capital and labor are fully utilized.
b. all capital is fully utilized, but some labor is unemployed.
c. all labor is fully employed, but some capital lies idle.
d. some capital lies idle, and some labor is unemployed.
a. capital and labor are fully utilized.
b. all capital is fully utilized, but some labor is unemployed.
c. all labor is fully employed, but some capital lies idle.
d. some capital lies idle, and some labor is unemployed.
answer
a. capital and labor are fully utilized.
question
One of President Trump's first major economic policy initiative after taking office in 2017 was a(n): a. increase in the government spending on defense.
b. decrease in government spending on defense.
c. increase in the taxes levied on corporations.
d. decrease in taxes levied on corporations.
b. decrease in government spending on defense.
c. increase in the taxes levied on corporations.
d. decrease in taxes levied on corporations.
answer
d. decrease in taxes levied on corporations.
question
Compared with real gross domestic product (GDP) during a recession, real GDP during a depression:
a. increases more rapidly.
b. increases at approximately the same rate.
c. decreases at approximately the same rate.
d. decreases more severely.
a. increases more rapidly.
b. increases at approximately the same rate.
c. decreases at approximately the same rate.
d. decreases more severely.
answer
d. decreases more severely.
question
All of these are stock variables EXCEPT:
a. a consumer's wealth.
b. the government budget deficit.
c. the number of unemployed people.
d. the amount of capital in the economy.
a. a consumer's wealth.
b. the government budget deficit.
c. the number of unemployed people.
d. the amount of capital in the economy.
answer
b. the government budget deficit.
question
When the real wage is above the level that equilibrates supply and demand:
a. the quantity of labor supplied exceeds the quantity demanded.
b. the quantity of labor demanded exceeds the quantity supplied.
c. there is no unemployment.
d. the labor market clears.
a. the quantity of labor supplied exceeds the quantity demanded.
b. the quantity of labor demanded exceeds the quantity supplied.
c. there is no unemployment.
d. the labor market clears.
answer
a. the quantity of labor supplied exceeds the quantity demanded.
question
If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then:
a. it cannot be determined whether the money supply increases or decreases.
b. the money supply increases.
c. the money supply decreases.
d. the money supply does not change.
a. it cannot be determined whether the money supply increases or decreases.
b. the money supply increases.
c. the money supply decreases.
d. the money supply does not change.
answer
c. the money supply decreases.
question
The inflation rate is a measure of how fast:
a. the total income of the economy is growing.
b. unemployment in the economy is increasing.
c. the general level of prices in the economy is rising.
d. the number of jobs in the economy is expanding.
a. the total income of the economy is growing.
b. unemployment in the economy is increasing.
c. the general level of prices in the economy is rising.
d. the number of jobs in the economy is expanding.
answer
c. the general level of prices in the economy is rising.
question
Centralized union wage bargaining with government intervention in Sweden gives relatively more influence to _____, while firm-level union wage bargaining in the United States gives relatively more influence to _____.
a. efficiency wages; sectoral shifts
b. sectoral shifts; efficiency wages
c. insiders; outsiders
d. outsiders; insiders
a. efficiency wages; sectoral shifts
b. sectoral shifts; efficiency wages
c. insiders; outsiders
d. outsiders; insiders
answer
d. outsiders; insiders
question
Transitions into and out of the labor force:
a. rarely occur.
b. do not affect unemployment statistics.
c. make the interpretation of unemployment statistics complicated.
d. reduce the amount of frictional unemployment.
a. rarely occur.
b. do not affect unemployment statistics.
c. make the interpretation of unemployment statistics complicated.
d. reduce the amount of frictional unemployment.
answer
c. make the interpretation of unemployment statistics complicated.
question
BANK BALANCE SHEET:
Assets -
- Reserves: $10,000
- Loans: 100,000
- Securities: 40,000
Liabilities and Net Worth -
- Deposits: $100,000
- Debt: 20,000
- Equity: 30,000
Based on the table, what is the leverage ratio at the bank?
a. 3
b. 4.67
c. 5
d. 10
Assets -
- Reserves: $10,000
- Loans: 100,000
- Securities: 40,000
Liabilities and Net Worth -
- Deposits: $100,000
- Debt: 20,000
- Equity: 30,000
Based on the table, what is the leverage ratio at the bank?
a. 3
b. 4.67
c. 5
d. 10
answer
c. 5
question
An increase in the supply of capital will:
a. increase the real rental price of capital.
b. decrease the real rental price of capital.
c. increase the productivity of capital.
d. increase the marginal product of capital
a. increase the real rental price of capital.
b. decrease the real rental price of capital.
c. increase the productivity of capital.
d. increase the marginal product of capital
answer
b. decrease the real rental price of capital.
question
An example of an imputed value in the gross domestic product (GDP) is the:
a. value added of meals cooked at home.
b. housing services enjoyed by homeowners.
c. rental services of automobiles to their owners.
d. value of illegal drugs sold.
a. value added of meals cooked at home.
b. housing services enjoyed by homeowners.
c. rental services of automobiles to their owners.
d. value of illegal drugs sold.
answer
b. housing services enjoyed by homeowners.
question
Which of these is NOT a probable explanation for the increasing wage gap between skilled and unskilled workers?
a. assortative mating between individuals with above average earnings
b. altered relative demand of skilled and unskilled labor resulting from globalization
c. slower supply of skilled workforce compared to demand
d. increasing automation that has increased the share of capital in national income
a. assortative mating between individuals with above average earnings
b. altered relative demand of skilled and unskilled labor resulting from globalization
c. slower supply of skilled workforce compared to demand
d. increasing automation that has increased the share of capital in national income
answer
d. increasing automation that has increased the share of capital in national income
question
When the unemployment rate is at a steady state:
a. no hiring or firings are occurring.
b. the number of people finding jobs equals the number of people losing jobs.
c. the number of people finding jobs exceeds the number of people losing jobs.
d. the number of people losing jobs exceeds the number of people finding jobs.
a. no hiring or firings are occurring.
b. the number of people finding jobs equals the number of people losing jobs.
c. the number of people finding jobs exceeds the number of people losing jobs.
d. the number of people losing jobs exceeds the number of people finding jobs.
answer
b. the number of people finding jobs equals the number of people losing jobs.
question
In the national income accounts, consumption expenditures include all of these EXCEPT household purchases of:
a. durable goods.
b. nondurable goods.
c. new residential housing.
d. services.
a. durable goods.
b. nondurable goods.
c. new residential housing.
d. services.
answer
c. new residential housing.
question
According to the usual seasonal pattern of the U.S. economy, gross domestic product (GDP) is highest in the quarter of the year that includes:
a. January, February, and March.
b. April, May, and June.
c. July, August, and September.
d. October, November, and December.
a. January, February, and March.
b. April, May, and June.
c. July, August, and September.
d. October, November, and December.
answer
d. October, November, and December.
question
To increase the monetary base, the Fed can:
a. conduct open-market purchases.
b. conduct open-market sales.
c. raise the interest rate paid on reserves.
d. lower the required reserve ratio.
a. conduct open-market purchases.
b. conduct open-market sales.
c. raise the interest rate paid on reserves.
d. lower the required reserve ratio.
answer
a. conduct open-market purchases.
question
The labor force equals the:
a. adult population.
b. number of employed individuals.
c. number of unemployed individuals.
d. number of employed and unemployed individuals.
a. adult population.
b. number of employed individuals.
c. number of unemployed individuals.
d. number of employed and unemployed individuals.
answer
d. number of employed and unemployed individuals.
question
Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be:
a. 240.
b. 700.
c. 760.
d. 970.
a. 240.
b. 700.
c. 760.
d. 970.
answer
c. 760.
question
In the national income accounts, government purchases are goods and services purchased by:
a. the federal government.
b. the federal and state governments.
c. the state and local governments.
d. the federal, state, and local governments.
a. the federal government.
b. the federal and state governments.
c. the state and local governments.
d. the federal, state, and local governments.
answer
d. the federal, state, and local governments.
question
If saving exceeds investment demand, then:
a. the demand for loans exceeds the supply of loans.
b. the real interest rate will fall.
c. the real interest rate will rise.
d. saving will fall.
a. the demand for loans exceeds the supply of loans.
b. the real interest rate will fall.
c. the real interest rate will rise.
d. saving will fall.
answer
b. the real interest rate will fall.
question
With a Cobb-Douglas production function, the share of output going to labor:
a. decreases as the amount of labor increases.
b. increases as the amount of labor increases.
c. increases as the amount of capital increases.
d. does not depend on the amount of labor in the economy.
a. decreases as the amount of labor increases.
b. increases as the amount of labor increases.
c. increases as the amount of capital increases.
d. does not depend on the amount of labor in the economy.
answer
d. does not depend on the amount of labor in the economy.
question
Exhibit: Policies Influence Real Exchange Rate
GRAPH SHOWN ON MIDTERM 1(PT. 2) - Q 87
Which of the panels illustrates the impact of an increase in investment demand on the real exchange rate?
a. (A)
b. (B)
c. (C)
d. (D)
GRAPH SHOWN ON MIDTERM 1(PT. 2) - Q 87
Which of the panels illustrates the impact of an increase in investment demand on the real exchange rate?
a. (A)
b. (B)
c. (C)
d. (D)
answer
c. (C)
question
The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, public saving:
a. rises by $100 billion.
b. rises by $60 billion.
c. falls by $60 billion.
d. falls by $100 billion.
a. rises by $100 billion.
b. rises by $60 billion.
c. falls by $60 billion.
d. falls by $100 billion.
answer
a. rises by $100 billion.
question
Important characteristics of macroeconomic models include all of these EXCEPT:
a. simplifying assumptions.
b. functional relationships based on randomized control trials.
c. endogenous and exogenous variables.
d. implicit or explicit consistency with microeconomic foundations.
a. simplifying assumptions.
b. functional relationships based on randomized control trials.
c. endogenous and exogenous variables.
d. implicit or explicit consistency with microeconomic foundations.
answer
b. functional relationships based on randomized control trials.
question
A measure of how fast the general level of prices is rising is called the:
a. growth rate of real gross domestic product (GDP).
b. inflation rate.
c. unemployment rate.
d. market-clearing rate.
a. growth rate of real gross domestic product (GDP).
b. inflation rate.
c. unemployment rate.
d. market-clearing rate.
answer
b. inflation rate.
question
Over the last five decades, the wage of _____ workers has grown relative to the wage of _____ workers.
a. essential; non-essential
b. non-essential; essential
c. skilled; unskilled
d. unskilled; skilled
a. essential; non-essential
b. non-essential; essential
c. skilled; unskilled
d. unskilled; skilled
answer
c. skilled; unskilled
question
Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have _____ rates of inflation and decades of low money growth tended to have _____ rates of inflation.
a. high; high
b. high; low
c. low; low
d. low; high
a. high; high
b. high; low
c. low; low
d. low; high
answer
b. high; low
question
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 _____. a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
answer
c. increase; decrease
question
In the national income accounts, the purchases of durables, nondurables, and services by households are classified as:
a. consumption.
b. investment.
c. government purchases.
d. net exports.
a. consumption.
b. investment.
c. government purchases.
d. net exports.
answer
a. consumption.
question
An example of a real variable is the:
a. dollar wage a person earns.
b. quantity of goods produced in a year.
c. price level.
d. nominal interest rate.
a. dollar wage a person earns.
b. quantity of goods produced in a year.
c. price level.
d. nominal interest rate.
answer
b. quantity of goods produced in a year.
question
The costs of unexpected inflation, but not of expected inflation, are: a. menu costs.
b. the arbitrary redistribution of wealth between debtors and creditors.
c. unintended distortions of individual tax liabilities.
d. the costs of relative price variability.
b. the arbitrary redistribution of wealth between debtors and creditors.
c. unintended distortions of individual tax liabilities.
d. the costs of relative price variability.
answer
b. the arbitrary redistribution of wealth between debtors and creditors.
question
Data on unemployment in the United States show that:
a. most spells of unemployment are long.
b. most weeks of unemployment are attributable to the long-term unemployed.
c. members of the labor force over age 55 have the highest unemployment rates.
d. the duration of unemployment falls during recessions.
a. most spells of unemployment are long.
b. most weeks of unemployment are attributable to the long-term unemployed.
c. members of the labor force over age 55 have the highest unemployment rates.
d. the duration of unemployment falls during recessions.
answer
b. most weeks of unemployment are attributable to the long-term unemployed.
question
The U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with high inflation rates relative to the United States has tended to _____, and the U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with low inflation rates relative to the United States has tended to _____.
a. appreciate; appreciate
b. appreciate; depreciate
c. depreciate; depreciate
d. depreciate; appreciate
a. appreciate; appreciate
b. appreciate; depreciate
c. depreciate; depreciate
d. depreciate; appreciate
answer
d. depreciate; appreciate
question
The consumer price index (CPI) is a:
a. Laspeyres price index.
b. Paasche price index.
c. Laspeyres quantity index.
d. Paasche quantity index.
a. Laspeyres price index.
b. Paasche price index.
c. Laspeyres quantity index.
d. Paasche quantity index.
answer
a. Laspeyres price index.
question
The price received by each factor of production is determined by demand:
a. for output and supply of factors. b. for factors and supply of output.
c. and supply of output.
d. and supply of factors.
a. for output and supply of factors. b. for factors and supply of output.
c. and supply of output.
d. and supply of factors.
answer
d. and supply of factors.
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