EXAM1

Question 1

During recessions, the unemployment rate _________ and output _________.

Answer 1

A) rises; falls

Question 2

Which of the following transactions is NOT viewed as investment (I) according to the GDP measure?

Answer 2

B) Mr. Cook purchases 10,000 shares of Apple Inc. stock.

Question 3

The difference between GDP and GNP is:

Answer 3

C) GNP accounts for production by citizens (or firms) in a foreign country; GDP does not account for production by citizens (or firms) in a foreign country.

Question 4

If the cost of the fixed basket of goods purchased by a typical urban household in 2014 is $1000 and if the cost of the same fixed basket of goods in 1993 (the base year) was $250, then the CPI in 2014 is

Answer 4

B) 400

Question 5

An increase in the price of a bottle of French wine typically purchased by urban households will be reflected in:

Answer 5

A) the CPI but not in the GDP deflator.

Question 6

Other things being equal, an increase in the real interest rate (r) will result in

Answer 6

A) a decrease in the level of investment

Question 7

Consumption is positively related with ________ .

Answer 7

A) disposable income

Question 8

According to Euler’s Theorem, the sum of the payment to labor and the payment to capital owners will equal

Answer 8

B) total output

Question 9

In the neoclassical closed economy model, the equilibrium real interest rate would fall if

Answer 9

E) None of the above is correct.

Question 10

30 year U.S. Treasury bonds are included in

Answer 10

D) neither M1 nor M2

Question 11

People use money as a store of value if

Answer 11

A) it is used to transfer purchasing power into the future.

Question 12

The quantity of money in the United States is essentially controlled by the:

Answer 12

C) The Federal Reserve

Question 13

Bank assets include:

Answer 13

A) loans to customers

Question 14

If you hear news that the Federal Reserve conducted an open market purchase, then you should expect _______ to increase.

Answer 14

C) the money supply

Question 15

If currency held by the public equals $$250 billion, reserves held by banks equal $150 billion, and bank deposits equal $400 billion, then the monetary base equals:

Answer 15

C) $400 billion

Question 16

If velocity is constant, and, in addition, the real GDP is assumed constant due to fixed factors of production, then:

Answer 16

C) the price level will be directly proportional to money supply.

Question 17

During the 16th century, Spain used gold and silver as money. What would have been the long-run effect of vast discoveries of silver and gold in Mexico and Peru by Spanish explorers? (Assume the classical dichotomy holds).

Answer 17

C) an increase in the nominal interest rate in Spain

Question 18

According to the Fisher effect when the inflation rate is high, the _______ interest rate tends to be _______.

Answer 18

A) nominal; high

Question 19

In the case of an unanticipated inflation:

Answer 19

A) creditors are hurt because they get less than they expected in real terms.

Question 20

The notion that changes in the money supply do not affect real variables in the long run is called:

Answer 20

D) the classical dichotomy