Intermediate Macroeconomics Exam 1

Front 1

A typical trend during a recession is that:
A) the unemployment rate falls.
B) the popularity of the incumbent president rises.
C) incomes fall.
D) the inflation rate rises.

Back 1

C) incomes fall.

Front 2

Macroeconomics is the study of the:
A) activities of individual units of the economy.
B) decisionmaking by households and firms.
C) economy as a whole.
D) interaction of firms and households in the marketplace.

Back 2

C) economy as a whole.

Front 3

Which of the following is <i>not</i> the correct combination for a U.S. president and an important economic issue of his administration?
A) President Carter, inflation
B) President Reagan, budget deficits
C) President G.H.W. Bush, budget deficits
D) President Clinton, inflation

Back 3

D) President Clinton, inflation

Front 4

<i>All</i> of the following are types of macroeconomic date <i>except</i> the:
A) price of an IBM computer.
B) growth rate of read GDP.
C) inflation rate.
D) unemployment rate.

Back 4

A) price of an IBM computer.

Front 5

<i>All</i> of the following are important macroeconomic variables <i>except</i>:
A) real GDP
B) the unemployment rate.
C) the marginal rate of substitution.
D) the inflation rate.

Back 5

C) the marginal rate of substitution.

Front 6

The total income of everyone in the economy adjusted for the level of prices is called:
A) a recession.
B) an inflation
C) unemployment rate.
D) market-clearing rate.

Back 6

B) inflation rate.

Front 7

Real GDP ____ over time and the growth rate of real GDP ____.
A) grows; fluctuates
B) is steady; is steady
C) grows; is steady
D) is steady; fluctuates

Back 7

A) grows; fluctuates

Front 8

Two striking features of a graph of U.S. read GDP per capita over the twentieth century are the:
A) overall upward trend interrupted by a large downturn in the 1930s.
B) nearly constant level with a large downturn in the 1930s.
C) downward trend in the first half of the century followed by the upward trend in the second half.
D) constant level in the first half of the century followed by the upward trend in the second half.

Back 8

A) overall upward trend interrupted by a large downturn in the 1930s.

Front 9

Recessions are periods when real GDP:
A) increases slowly.
B) increases rapidly.
C) decreases mildly.
D) decreases severely.

Back 9

C) decreases mildly

Front 10

A severe recession is called a(n):
A) depression.
B) deflation.
C) exogenous event.
D) market-clearing assumption.

Back 10

A) depression.

Front 11

Deflation occurs when:
A) a real GDP decreases.
B) the unemployment rate decreases.
C) prices fall.
D) prices increase, but at a slower rate.

Back 11

C) prices fall.

Front 12

A graph of the unemployment rate of the United States over the twentieth century shows:
A) an overall upward trend in the unemployment rate interrupted by a large upturn in the 1930s.
B) an overall downward trend in the unemployement rate interrupted by a large upturn in the 1930s.
C) rates of unemployment always greater than zero with substantial variations from year to year.
D) alternating periods of positive and negative rates of unemployment.

Back 12

C) rates of unemployment always greater than zero with substantial variation form year to year.

Front 13

Exogenous variables are:
A) fixed at the moment they enter the model.
B) determined within the model.
C) the outputs of the model.
D) explained by the model.

Back 13

A) fixed at the moment they enter the model.

Front 14

Endogenous variables are:
A) fixed at the moment they enter the model.
B) determined within the model.
C) the inputs of the model.
D) from the outside of the model.

Back 14

B) determined within the model.

Front 15

In an economic model:
A) exogenous variables and endogenous variables are both fixed when they enter the model.
B) endogenous variables and exogenous variables are both determined within the model.
C) endogenous variables affect exogenous variables.
D) exogenous variables affect endogenous variables.

Back 15

D) exogenous variables affect endogenous variables.

Front 16

Variables that a model tries to explain are called:
A) endogenous.
B) exogenous.
C) market clearing.
D) fixed.

Back 16

A) endogenous.

Front 17

Variables that a model takes as given are called:
A) endogenous
B) exdogenous.
C) market clearing.
D) macroeconomic.

Back 17

B) exogenous.

Front 18

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measure horizontally:
A) the supply curve slopes upward and to the right.
B) the demand curve slopes upward and to the right.
C) the supply curve slopes downard and to the right.
D) at the equilibrium price, the supply of pizza exceeds the demand for pizza.

Back 18

A) the supply curve slopes upward and to the right.

Front 19

The assumption of flexible prices is a more plausible assumption when applied to prices changes that occur:
A) from minute to minute.
B) from year to year.
C) in the long run.
D) in the short run.

Back 19

C) in the long run.

Front 20

The economic statistic used to measure the level of prices is:
A) GDP.
B) CPL.
C) GNP.
D) real GDP.

Back 20

B) CPL.

Front 21

The statistic used by economists to measure the value of economic outup is:
A) the CPI.
B) GDP.
C) the GDP deflator.
D) the unemployment rate.

Back 21

B) GDP.

Front 22

An economy's ____ equals its ____.
A) consumption; income
B) consumption; expenditure on good and services
C) expenditure on goods; expenditures on services
D) income; expenditure on goods and services

Back 22

D) income; expenditure on goods and services

Front 23

Which of the following is a flow variable?
A) wealth
B) the number unemployed
C) government debt
D) income

Back 23

D) income

Front 24

Which of the following is a stock variable?
A) wealth
B) consumption
C) investment
D) income

Back 24

A) wealth

Front 25

The amount of capital in an economy is a ____ and the amount of investment is a ____.
A) flow; stock
B) stock; flow
C) final good; intermediate good
D) intermediate good; final good

Back 25

A) flow; stock

Front 26

The market value of all final good and services produced within an economy in a give period of time is called:
A) industrial production.
B) gross domestic product.
C) the GDP deflator.
D) general durable purchases.

Back 26

B) gross domestic product.

Front 27

Since GDP includes only the addition to income, not transfers of assets, ___ are not included in the computation of GDP.
A) final goods
B) used goods
C) consumption goods
D) goods produced for inventory.

Back 27

B) used goods

Front 28

Assume that a bakery hire more workers and pays them wages and that the workers produce more bread. GDP increases in <i>all</i> of the following cases <i>except</i> when the bread:
A) is sold to households.
B) is stored away for later sales.
C) grows stale and is thrown away.
D) is sold to other firms.

Back 28

C) grows stale and is thrown away.

Front 29

Assume a rancher sells a quarter-pound of meat to McDonald's for $1 and that McDonald's sells you a hamburger made from the meat for $2. In this case, the value included in the GDP should be:
A) $0.50.
B) $1.
C) $2.
D) $3.

Back 29

C) $2.

Front 30

The value added of an item produced refers to:
A) a firm's profits on the item sold.
B) the value of the labor input in the production of an item.
C) the value of a firm's output less the value of its costs.
D) the value of a firm's ouput less the value of the intermediate goods that the firm purchases.

Back 30

D) the value of a firm's output less less the value of the intermediate goods that the firm purchases.

Front 31

To avoid double counting in the computation of GDP, only the value of ___ goods are included.
A) final
B) used
C) intermediate
D) investment

Back 31

A) final

Front 32

The underground economy:
A) is included in the latest GDP accounts.
B) includes only illegal activities.
C) includes domestic workers for whom Social Security tax is not collected.
D) excludes the illegal drug trade.

Back 32

C) includes domestic workers for whom Social Security tax is not collected.

Front 33

Nominal GDP means the value of goods and services is measured in ___ prices.
A) current
B) real
C) constant
D) average
C

Back 33

A) current

Front 34

Real GDP means the value of goods and services is measured in ___ prices.
A) current
B) actual
C) constant
D) average

Back 34

C) constant

Front 35

The GDP deflator is equal to:
A) the ratio of nominal GDP to real GDP.
B) the ratio of real GDP to nominal GDP.
C) real GDP minus nominal GDP.
D) nominal GDP minus real GDP.

Back 35

A) the ratio of nominal GDP to real GDP.

Front 36

Chain-weighted measures of real GDP make use of prices from:
A) an unchanging base year.
B) a continuously changing base year.
C) a base year that is changed approximately every 5 years.
D) a base year that is changed approximately every 10 years.

Back 36

B) a continuously changing base year.

Front 37

The national income accounts identity, for an open economy, is:
A) Y = C + I + G - NX.
B) Y = C + I + G + NX.
C) Y = C + I + G.
D) Y = C + I - G.

Back 37

B) Y = C + I + G + NX.

Front 38

GNP equal GDP ____ income earned domestically by foreigners ____ income that nationals earn abroad.
A) plus; plus
B) minus; minus
C) minus; plus
D) plus; minus

Back 38

C) minus; plus

Front 39

The two most important factors of production are:
A) goods and services.
B) labor and energy.
C) capital and labor.
D) saving and investment.

Back 39

C) capital and labor.

Front 40

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.

Back 40

D) is a theory of how national income is divided among the factors of production.

Front 41

The firm's economic profit is:
A) the price of output minus the wage minus the rental price of capital.
B) revenues minus cost.
C) revenus plus capital costs.
D) the price of output minus labor costs.

Back 41

B) revenues minus cost.

Front 42

The marginal product of labor is:
A) output divided by labor input.
B) additonal output produced when one additional unit of labor is added.
C) additional output produced when on additional unit of labor and one additional unit of capital are added.
D) value of additional output when one dollar's worth of additional labor is added.

Back 42

B) additonal output produced when one additional unit of labor is added.

Front 43

The property of diminishing marginal product means that, after a point, when additional quantities of:
A) a factor are added, output diminishes.
B) both labor and capital are added, output diminishes.
C) both labor and capital are added, the marginal product of labor diminshes.
D) a factor are added when another factor remains fixed, the marginal product of that factor diminishes.

Back 43

D) a factor are added when another factor remains fixed, the marginal product of that factor diminishes.

Front 44

A competitive, profit-maximizing firm hires labor until the:
A) marginal product of labor equals wage.
B) price of the output multiplied by the marginal product of labor equals the wage.
C) real wage equals the real rental price of capital.
D) wage equals the rental price of capital.

Back 44

B) price of the output multiplied by the marginal product of labor equals the wage.

Front 45

The marginal product of capital is:
A) output divided by capital input.
B) additional output produced when one additional unit of capital is added.
C) additional output produced when one additional unit of capital and one additional unit of labor are addded.
D) value of additional output when one dollar's worth of additional capital is added.

Back 45

B) additional output produced when one additional unit of capital is added.

Front 46

Accounting profit is:
A) economic profit minus the return to capital.
B) equal to economic profit.
C) economic profit plus the return to capital.
D) equal to economic return to capital.

Back 46

C) economic profit plus the return to capital.

Front 47

The demand for output in a closed economy is the sum of:
A) public saving and private saving.
B) the quantity of capital and labor and production technology.
C) consumption, investment, and government spending.
D) government purchases and transfer payments minus tax receipts.

Back 47

C) consumption, investment, and government spending.

Front 48

When economists speak of "the" interest rate, they mean:
A) the rate on 90-day Treasury bills.
B) the rate on 30-year government bonds.
C) the "prime" rate on loans.
D) no particular interest rate, since it is assumed that various interest rates tend to move up and down together.

Back 48

D) no particular interest rate, since it is assumed that various interest rates tend to move up and down together.

Front 49

The rate of inflation is the:
A) median level of prices.
B) average level of prices.
C) percentage change in the level of prices.
D) measure of the overall level of prices.

Back 49

C) percentage change in the level of prices.

Front 50

In the United States, monetary policy is controlled by the:
A) president.
B) congress.
C) Federal Reserve.
D) Treasury Department.

Back 50

C) Federal Reserve.

Front 51

To reduce the money supply, the Federal Reserve:
A) buys government bonds.
B) sells government bonds.
C) creates demand deposits.
D) destroys demand deposits.

Back 51

B) sells government bonds.

Front 52

Open-market operations are:
A) Commerce Department efforts to open foreign markets to international trade.
B) Federal Reserve purchases and sales of government bonds.
C) Securities and Exchange Commission rules requiring open disclosure of market trades.
D) Treasury Department purchases and sales of the U.S. gold stock.

Back 52

B) Federal Reserve purchases and sales of government bonds.

Front 53

The income velocity of money:
A) is defined in the identity MV = PY.
B) is defined in the identity MV = PT.
C) is the same things as the transactions velocity of money.
D) will be smaller than the transactions velocity of money if the quantity of transactions is greater than income.

Back 53

A) is defined in the identity MV = PY.

Front 54

In the long run according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ____ determines real GDP and ____ determines nominal GDP.
A) the productive capability of the economy; the money supply.
B) the money supply; the productive capibility of the economy.
C) velocity; the money supply.
D) the money supply; velocity.

Back 54

A) the productive capability of the economy; the money supply.

Front 55

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:
A) the Organization of Petroleum Exporting Countries (OPEC).
B) the U.S. Treasury.
C) the Federal Reserve.
D) private citizens.

Back 55

the Federal Reserve.

Front 56

"Inflation tax" means that:
A) as the price level rises, taxpayers are pushed into higher tax brackets.
B) as the price level rises, the real value of money held by the public decreases.
B) as the price level rises, the real value of money held by the public decreases.
C) as taxes increase, the rate of inflation also increases.
D) in a hyperinflation, the chief source of tax revenue is often the printing of money.

Back 56

B) as the price level rises, the real value of money held by the public decreases.

Front 57

An "open" economy is one in which:
A) the level of output is fixed.
B) government spending exceeds revenues.
C) the national interest rate equals the world interest rate.
D) there is trade in goods and services with the rest of the world.

Back 57

D) there is trade in goods and services with the rest of the world.

Front 58

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 changed on loans by the World Bank.
D) is the interest rate prevailing in world financial markets.

Back 58

D) is the interest rate prevailing in world financial markets.

Front 59

In an open economy:
A) a trade deficit is always good.
B) a trade deficit is always bad.
C) a trade deficit may be good or bad.
D) a trade surplus is always bad.

Back 59

C) a trade deficit may be good or bad.

Front 60

Two reasons why capital may <i>not</i> flow to poor countries are that the poorer countries may:
A) have economies unlike those described by a Cobb-Douglas production function and not be subject to diminishing returns to capital.
B) have already accumulated high levels of capital relative to labor and may already have access to advanced technologies.
C) legally prevent the inflow of foreign capital and provide strong legal protection of private property.
D) have inferior production capabilities and not enforce property rights.

Back 60

D) have inferior production capabilities and not enforce property rights.

Front 61

Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies where:
A) capital is relatively scarce.
B) capital is relatively abundant.
C) technological capabilities are inferior.
D) labor is relatively scarce.

Back 61

A) capital is relatively scarce.

Front 62

The nominal exchange rate between the U.S. dollar and the Japanese yen is the:
A) number of yen you can get for lending one dollar in Japan for one year.
B) number of yen you can get for one dollar.
C) price of U.S. goods divided by the price of Japanese goods.
D) price of Japanese goods divided by the price of U.S. goods.

Back 62

B) number of yen you can get for one dollar.

Front 63

When the real exchange rate rises:
A) exports will decrease but imports will be unaffected.
B) imports will decrease but exports will be unaffected.
C) exports will increase and imports will decrease.
D) exports will decrease and imports will increase.

Back 63

D) exports will decrease and imports will increase.

Front 64

The currencies of countries with high inflation rates relative to the United States have tended to ____, and the currencies of countries with low inflation rates relative to the United States have tended to _____.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; depreciate
D) depreciate; appreciate

Back 64

D) depreciate; appreciate

Front 65

If the purchasing-power parity theory is true, then:
A) the next exports schedule is very steep.
B) all changes in the real exchange rate result from changes in price levels.
C) all changes in the nominal exchange rate result from changes in price levels.
D) changes in saving or investment influence only the real exchange rate.

Back 65

C) all changes in the nominal exchange rate result from changes in price levels.

Front 66

Assume that a war breaks out abroad, and foreign investors choose to invest in more in a large safe country, the United States. Then, the U.S. real interest rate:
A) and net exports will both fall.
B) will fall and net exports will rise.
C) will rise and next exports will fall.
D) and net exports will both rise.

Back 66

D) and net exports will both will both rise.