macroeconomics Test2
ECON 2803 Spring 2010
Test 2
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has
a. caused measured GDP to fall.
b. not caused any change in measured GDP.
c. caused measured GDP to rise.
d. probably changed measured GDP, but in an uncertain direction; the direction of the
change depends on the difference in the quality of the cleaning that has resulted.
____ 2. Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale, are
a. included in current GDP because GDP measures the value of all goods and services sold
in the current year.
b. included in current GDP but valued at their original prices.
c. not included in current GDP because GDP only measures the value of goods and services
produced in the current year.
d. not included in current GDP because these items have no current valu
e.
____ 3. Transfer payments are
a. included in GDP because they represent income to individuals.
b. included in GDP because they eventually will be spent on consumption.
c. not included in GDP because they are not payments for currently produced goods or
services.
d. not included in GDP because taxes will have to be raised to pay for them.
____ 4. Real GDP is the yearly production of final goods and services valued at
a. current prices.
b. constant prices.
c. expected future prices.
d. the ratio of current prices to constant prices.
____ 5. Changes in nominal GDP reflect
a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produce
d.
d. neither changes in prices nor changes in the amounts being produced.
The table below contains data for the country of Dachsland, which produces only pretzels and books. The
base year is 2005.
____ 6. Refer to Table 23-4. In 2005, Dachsland’s
a. nominal GDP was greater than real GDP, and the GDP deflator was greater than 100.
b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.
c. nominal GDP was less than real GDP, and the GDP deflator was less than 100.
d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
____ 7. Refer to Table 23-4. In 2006, Dachsland’s
a. nominal GDP was $585, real GDP was $660, and the GDP deflator was 88.6.
b. nominal GDP was $585, real GDP was $670, and the GDP deflator was 87.3.
c. nominal GDP was $760, real GDP was $660, and the GDP deflator was 115.2.
d. nominal GDP was $760, real GDP was $670, and the GDP deflator was 113.4.
____ 8. GDP does not reflect
a. the value of leisure.
b. the value of goods and services produced at home.
c. the quality of the environment.
d. All of the above are correct.
____ 9. The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
a. the CPI is easier to measure.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the GDP deflator cannot be used to gauge inflation.
____ 10. When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?
a. the quantities of the goods and services purchased
b. the prices of the goods and services
c. the goods and services making up the basket
d. All of the above are correct.
____ 11. The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate?
a. 5.7 percent
b. 6.0 percent
c. 7.2 percent
d. 27.2 percent
The table below pertains to Iowan, an economy in which the typical consumer’s basket consists of 3 pounds
____ 12. Refer to Table 24-2. If 2008 is the base year, then the CPI for 2008 was
a. 73.5.
b. 100.
c. 108.
d. 136.1.
____ 13. Refer to Table 24-2. If 2008 is the base year, then the CPI for 2009 was
a. 73.5.
b. 100.
c. 136.1.
d. 147.
____ 14. One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have
become relatively more expensive. This problem is called
a. price-change neglect.
b. unmeasured quality change.
c. substitution bias.
d. relative bias.
____ 15. The CPI differs from the GDP deflator in that
a. the CPI is an inflation index, while the GDP deflator is a price index.
b. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
c. increases in the prices of foreign produced goods that are sold to U.S. consumers show up
in the GDP deflator but not in the CPI.
d. increases in the prices of domestically produced goods that are sold to the U.S.
government show up in the GDP deflator but not in the CPI.
____ 16. If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as
a. $4.75 purchased in 1955.
b. $20.00 purchased in 1955.
c. $95.00 purchased in 1955.
d. $500 purchased in 1955.
____ 17. The equipment and structures available to produce goods and services are called
a. physical capital.
b. human capital.
c. the production function.
d. technology.
____ 18. An understanding of the best ways to produce goods and services is called
a. human capital.
b. physical capital.
c. technology.
d. productivity.
____ 19. “When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount.” This statement
a. is an assertion that production functions have the property of constant returns to scale.
b. is consistent with the view that capital is subject to diminishing returns.
c. is inconsistent with the view that it is easier for a country to grow fast if it starts out
relatively poor.
d. All of the above are correct.
____ 20. In countries that experience political instability, standards of living tend to be low because of
a. violations of diminishing returns.
b. excessive levels of caloric intake.
c. lack of respect for property rights.
d. attempts by government officials to thwart the catch-up effect.
____ 21. It has been suggested that a possible benefit of rapid population growth is the likelihood that when there are more people, then there are more
a. teachers, and so students acquire more knowledge and skills.
b. people to discover things, and so technological progress is rapid.
c. savers, and so capital per worker tends to increase over time.
d. consumers, and so economic growth is more rapid.
____ 22. In the long run, a higher saving rate
a. cannot increase the capital stock.
b. means that people must consume less in the future.
c. increases the level of productivity.
d. None of the above is correct.
____ 23. The primary economic function of the financial system is to
a. keep interest rates low.
b. provide expert advice to savers and investors.
c. match one person’s consumption expenditures with another person’s capital expenditures.
d. match one person’s saving with another person’s investment.
____ 24. Financial intermediaries are
a. the same as financial markets.
b. individuals who make profits by buying a stock low and selling it high.
c. a more general name for financial assets such as stocks, bonds, and checking accounts.
d. financial institutions through which savers can indirectly provide funds to borrowers.
____ 25. In a closed economy, what does (Y - T - C) represent?
a. national saving
b. government tax revenue
c. public saving
d. private saving
____ 26. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?
a. 1,500, 1,000, and 500, respectively
b. 1,000, 500, and 1,500, respectively
c. 500, 1,500, and 1,000, respectively
d. None of the above is correct.
____ 27. The source of the supply of loanable funds
a. is saving and the source of demand for loanable funds is investment.
b. is investment and the source of demand for loanable funds is saving.
c. and the demand for loanable funds is saving.
d. and the demand for loanable funds is investment.
____ 28. If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is
a. 14 percent.
b. 6 percent.
c. 2.5 percent.
d. .4 percent.
____ 29. If the government institutes policies that increase incentives to save, then in the loanable funds market
a. the demand for loanable funds shifts right.
b. the demand for loanable funds shifts left.
c. the supply of loanable funds shifts right.
d. the supply of loanable funds shifts left.
____ 30. A larger budget deficit
a. raises the interest rate and investment.
b. reduces the interest rate and investment.
c. raises the interest rate and reduces investment.
d. reduces the interest rate and raises investment.
Table 28-1
Labor Data for Wrexington
____ 31. Refer to Table 28-1.The unemployment rate of Wrexington in 2004 was
a. 10%.
b. 12.5%.
c. 14.3%.
d. 80%.
____ 32. Refer to Table 28-1.The labor-force participation rate of Wrexington in 2006 was
a. 50%.
b. 53.3%.
c. 56.25%.
d. 88.9%.
____ 33. Which of the following is not a cause of the decline in the U.S. men’s labor-force participation rate over the past several decades?
a. young men now stay in school longer than their fathers and grandfathers did
b. older men now retire earlier and live longer
c. with more women employed, there are fewer jobs now available to men
d. more fathers now stay at home to raise their children
____ 34. John is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. Curtis has looked for work as an accountant for some
time. While the demand for accountants doesn’t appear to be falling, there seems to be more people
applying than jobs available.
a. John and Curtis are both frictionally unemployed.
b. John and Curtis are both structurally unemployed.
c. John is frictionally unemployed, and Curtis is structurally unemploye
d.
d. John is structurally unemployed, and Curtis is frictionally unemployed.
____ 35. Efficiency-wage theory suggests that paying
a. low wages might be profitable because they raise the efficiency of a firm’s workers.
b. low wages might be profitable because they lower the efficiency of a firm’s workers.
c. high wages might be profitable because they raise the efficiency of a firm’s workers.
d. high wages might be profitable because they lower the efficiency of a firm’s workers.
____ 36. When we want to measure and record economic value, we use money as the
a. liquid asset.
b. medium of exchange.
c. unit of account.
d. store of valu
e.
____ 37. Currently, U.S. currency is
a. fiat money with intrinsic value.
b. fiat money with no intrinsic value.
c. commodity money with intrinsic value.
d. commodity money with no intrinsic valu
e.
____ 38. Credit card limits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
____ 39. Who was appointed chairman of the Board of Governors in 2005 by President George W. Bush?
a. Alan Greenspan
b. Bennett McCallum
c. R. Glenn Hubbard
d. Ben Bernanke
____ 40. Which tool of monetary policy does the Federal Reserve use most often?
a. adjustments to long-term interest rates
b. open-market operations
c. changes in reserve requirements
d. changes in the discount rate
____ 41. If the reserve ratio for all banks is 5 percent, then $2,500 of additional reserves can create up to
a. $62,500 of new money.
b. $50,000 of new money.
c. $45,600 of new money.
d. $37,500 of new money.
____ 42. Which of the following lists two things that both increase the money supply?
a. make open market purchases, raise the reserve requirement
b. make open market purchases, lower the reserve requirement
c. make open market sales, raise the reserve requirement
d. make open market sales, lower the reserve requirement
____ 43. If P denotes the price of goods and services measured in terms of money, then
a. 1/P represents the value of money measured in terms of goods and services.
b. P can be interpreted as the inflation rate.
c. the supply of money influences the value of P, but the demand for money does not.
d. All of the above are correct.
____ 44. If M = 3,000, P = 2, and Y = 12,000, what is velocity?
a. 1/2
b. 2
c. 4
d. 8
____ 45. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply
a. increases the price level and increases the value of money.
b. increases the price level and decreases the value of money.
c. decreases the price level and increases the value of money.
d. decreases the price level and decreases the value of money.
____ 46. The principle of monetary neutrality implies that an increase in the money supply will
a. increase real GDP and the price level.
b. increase real GDP, but not the price level.
c. increase the price level, but not real GDP.
d. increase neither the price level nor real GDP.
____ 47. The inflation tax
a. transfers wealth from the government to households.
b. is the increase in income taxes due to lack of indexation.
c. is a tax on everyone who holds money.
d. All of the above are correct.
____ 48. The shoeleather cost of inflation refers to
a. the redistributional effects of unexpected inflation.
b. the time spent searching for low prices when inflation rises.
c. the waste of resources used to maintain lower money holdings.
d. the increased cost to the government of printing more money.
____ 49. In the U.S., taxes on capital gains are computed using
a. nominal gains. This is one way by which higher inflation discourages saving.
b. nominal gains. This is one way by which higher inflation encourages saving.
c. real gains. This is one way by which higher inflation discourages saving.
d. real gains. This is one way by which higher inflation encourages saving.
____ 50. If the economy unexpectedly went from inflation to deflation,
a. both debtors and creditors would have reduced real wealth.
b. both debtors and creditors would have increased real wealth.
c. debtors would gain at the expense of creditors.
d. creditors would gain at the expense of debtors.
____ 51. In the blog post “Deficit Neutrality,” where did the Friend want to go?
a. Europe c. Bermuda
b. Mexico d. Australia
____ 52. Americans now spend how much more time in retirement than they did a generation or two ago.
a. The same amount of time c. Four times as long
b. Twice as long d. The times now is actually shorter
____ 53. Pigouvian taxes try to correct for negative externalities and are favored by a majority of economists, while sin taxes try to correct for what as deemed by a social planner?
a. good behavior c. lack of sleep
b. bad behavior d. I have no idea since I did not read the
blog.
Test 2 – Spring 2010
Answer Section
MULTIPLE CHOICE
1. ANS: C PTS: 1 DIF: 2 REF: 23-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: GDP MSC: Applicative
2. ANS: C PTS: 1 DIF: 2 REF: 23-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: GDP MSC: Applicative
3. ANS: C PTS: 1 DIF: 2 REF: 23-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Transfer payments MSC: Interpretive
4. ANS: B PTS: 1 DIF: 1 REF: 23-4
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Real GDP MSC: Definitional
5. ANS: C PTS: 1 DIF: 2 REF: 23-4
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Nominal GDP MSC: Interpretive
6. ANS: D PTS: 1 DIF: 2 REF: 23-4
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Nominal GDP | Real GDP | GDP deflator MSC: Applicative
7. ANS: D PTS: 1 DIF: 2 REF: 23-4
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Nominal GDP | Real GDP | GDP deflator MSC: Applicative
8. ANS: D PTS: 1 DIF: 2 REF: 23-5
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: GDP MSC: Interpretive
9. ANS: C PTS: 1 DIF: 2 REF: 24-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | GDP deflator MSC: Interpretive
10. ANS: B PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Interpretive
11. ANS: B PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: Unemployment and inflation TOP: Inflation rate
MSC: Applicative
12. ANS: B PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Applicative
13. ANS: C PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI MSC: Applicative
14. ANS: C PTS: 1 DIF: 1 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | Substitution bias MSC: Definitional
15. ANS: D PTS: 1 DIF: 2 REF: 24-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: CPI | GDP deflator MSC: Interpretive
16. ANS: B PTS: 1 DIF: 2 REF: 24-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Comparing dollar figures MSC: Applicative
17. ANS: A PTS: 1 DIF: 1 REF: 25-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Physical capital MSC: Definitional
18. ANS: C PTS: 1 DIF: 1 REF: 25-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Technology MSC: Definitional
19. ANS: B PTS: 1 DIF: 2 REF: 25-3
NAT: Analytic LOC: Productivity and growth TOP: Diminishing returns
MSC: Interpretive
20. ANS: C PTS: 1 DIF: 2 REF: 25-3
NAT: Analytic LOC: Productivity and growth TOP: Property rights | Standard of living MSC: Interpretive
21. ANS: B PTS: 1 DIF: 2 REF: 25-3
NAT: Analytic LOC: Productivity and growth TOP: Population growth
MSC: Interpretive
22. ANS: C PTS: 1 DIF: 2 REF: 25-3
NAT: Analytic LOC: Productivity and growth TOP: Saving
MSC: Interpretive
23. ANS: D PTS: 1 DIF: 2 REF: 26-0
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Financial system MSC: Interpretive
24. ANS: D PTS: 1 DIF: 1 REF: 26-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Financial intermediaries MSC: Definitional
25. ANS: D PTS: 1 DIF: 1 REF: 26-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private saving MSC: Definitional
26. ANS: B PTS: 1 DIF: 3 REF: 26-2
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Private saving | Public saving | National saving MSC: Applicative
27. ANS: A PTS: 1 DIF: 1 REF: 26-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Market for loanable funds MSC: Definitional
28. ANS: B PTS: 1 DIF: 1 REF: 26-3
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Nominal interest rate | Real interest rate MSC: Definitional
29. ANS: C PTS: 1 DIF: 2 REF: 26-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Saving | Market for loanable funds MSC: Analytical
30. ANS: C PTS: 1 DIF: 2 REF: 26-3
NAT: Analytic LOC: Understanding and applying economic models
TOP: Budget surpluses MSC: Interpretive
31. ANS: B PTS: 1 DIF: 2 REF: 28-1
NAT: Analytic LOC: Unemployment and inflation TOP: Unemployment rate
32. ANS: C PTS: 1 DIF: 2 REF: 28-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Labor-force participation rate MSC: Applicative
33. ANS: C PTS: 1 DIF: 2 REF: 28-1
NAT: Analytic LOC: The study of economics and definitions in economics
TOP: Labor-force participation rate MSC: Interpretive
34. ANS: C PTS: 1 DIF: 2 REF: 28-1
NAT: Analytic LOC: Unemployment and inflation
TOP: Frictional unemployment | Structural unemployment MSC: Interpretive
35. ANS: C PTS: 1 DIF: 2 REF: 28-5
NAT: Analytic LOC: Labor markets TOP: Efficiency wages
MSC: Interpretive
36. ANS: C PTS: 1 DIF: 1 REF: 29-1
NAT: Analytic LOC: The role of money TOP: Money
MSC: Definitional
37. ANS: B PTS: 1 DIF: 1 REF: 29-1
NAT: Analytic LOC: The role of money TOP: Commodity money | Money MSC: Definitional
38. ANS: D PTS: 1 DIF: 1 REF: 29-1
NAT: Analytic LOC: The role of money TOP: Money supply
MSC: Definitional
39. ANS: D PTS: 1 DIF: 1 REF: 29-2
NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System MSC: Definitional
40. ANS: B PTS: 1 DIF: 1 REF: 29-3
NAT: Analytic LOC: Monetary and fiscal policy TOP: Monetary policy
MSC: Applicative
41. ANS: B PTS: 1 DIF: 1 REF: 29-3
NAT: Analytic LOC: Monetary and fiscal policy TOP: Money multiplier
MSC: Applicative
42. ANS: B PTS: 1 DIF: 2 REF: 29-3
NAT: Analytic LOC: Monetary and fiscal policy
TOP: Money supply | Open-market operations | Reserve requirements
MSC: Definitional
43. ANS: A PTS: 1 DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Price level | Value
MSC: Interpretive
44. ANS: D PTS: 1 DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Quantity equation
MSC: Applicative
45. ANS: B PTS: 1 DIF: 2 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Money market
MSC: Applicative
46. ANS: C PTS: 1 DIF: 1 REF: 30-1
NAT: Analytic LOC: The role of money TOP: Monetary neutrality
MSC: Definitional
47. ANS: C PTS: 1 DIF: 1 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Inflation tax
48. ANS: C PTS: 1 DIF: 1 REF: 30-2
NAT: Analytic LOC: Unemployment and inflation TOP: Shoeleather costs of inflation MSC: Definitional
49. ANS: A PTS: 1 DIF: 2 REF: 30-2
NAT: Analytic LOC: Unemployment and inflation TOP: Taxes | Inflation | Capital gains MSC: Definitional
50. ANS: D PTS: 1 DIF: 2 REF: 30-2
NAT: Analytic LOC: The role of money TOP: Wealth redistribution | Inflation MSC: Analytical
51. ANS: C PTS: 1
52. ANS: B PTS: 1
53. ANS: B PTS: 1