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Interm Econ Midterm 1 > Midterm 1 > Flashcards

Midterm 1 Flashcards

Chapters 1-7

1
Q

Exogenous variables are:

A

fixed at the moment they enter the model.

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2
Q

The assumption of continuous market clearing means that:

A

at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

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3
Q

GDP is all of the following except the total:

A

expenditure of everyone in the economy.

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4
Q

The total income of everyone in the economy is exactly equal to the total:

A

expenditure on the economy’s output of goods and services.

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5
Q

Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is:

A

$7.

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6
Q

When a firm sells a product out of inventory, GDP:

A

is not changed.

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7
Q

Assume that a tire company sells 4 tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is:

A

$20,000.

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8
Q

To avoid double counting in the computation of GDP, only the value of ______ goods are included.

A

final

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9
Q

Imputed values included in GDP are the:

A

estimated value of goods and services that are not sold in the marketplace.

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10
Q

Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation,

A

gives a better measure of ongoing, sustained price changes.

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11
Q

According to the definition used by the U.S. Bureau of Labor Statistics, a person is not in the labor force if that person:

A

is going to school full time.

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12
Q

If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately ______ percent.

A

4.7

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13
Q

If an increasing proportion of the adult population is retired, then the labor force participation rate:

A

will decrease.

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14
Q

In the long run, the level of national income in an economy is determined by its:

A

factors of production and production function.

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15
Q

Unlike the real world, the classical model with fixed output assumes that:

A

all factors of production are fully utilized.

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16
Q

A competitive firm chooses the:

A

quantity of labor and capital to employ.

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17
Q

The property of diminishing marginal product means that, after a point, when additional quantities of:

A

a factor is added when another factor remains fixed, the marginal product of that factor diminishes.

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18
Q

An increase in the supply of capital will:

A

decrease the real rental price of capital.

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19
Q

Economic profit is zero if:

A

all factors are paid their marginal products and there are constant returns to scale.

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20
Q

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labor:

A

is 75 percent.

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21
Q

In a Cobb–Douglas production function the marginal product of capital will increase if:

A

the quantity of labor increases.

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22
Q

If the consumption function is given by C = 500 + 0.5(Y – T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:

A

2,800.

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23
Q

Assume that the consumption function is given by C = 200 + 0.7(Y – T), the tax function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:

A

175

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24
Q

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 – 100r, where r is the real interest rate in percent. No government exists. In this case, the equilibrium real interest rate is:

A

5 percent.

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25
Q

According to the model developed in Chapter 3, when taxes decrease without a change in government spending:

A

consumption increases and investment decreases.

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26
Q

If the demand for real money balances is proportional to real income, velocity will:

A

remain constant.

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27
Q

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

A

7 percent

28
Q

The quantity equation for money, by itself:

A

may be thought of as a definition for velocity of money.

29
Q

The inflation tax is paid:

A

by all holders of money.

30
Q

The one-to-one relation between the inflation rate and the nominal interest rate, the Fisher effect, assumes that the:

A

real interest rate is constant.

31
Q

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______.

A

nominal; high

32
Q

The ex ante real interest rate is equal to the nominal interest rate:

A

minus the expected inflation rate.

33
Q

The opportunity cost of holding money is the:

A

nominal interest rate.

34
Q

If the Fed announces that it will raise the rate of growth of the money supply in the future but does not change the money supply today,

A

both the nominal interest rate and the current price level will increase.

35
Q

Which of the following is NOT an effect of expected inflation?

A

causes lower real wages.

36
Q

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

A

shoeleather costs.

37
Q

One possible benefit of moderate inflation is:

A

better functioning labor markets.

38
Q

If you hear in the news that the Federal Reserve conducted open-market operations, then you should expect ______ to change.

A

the monetary base.

39
Q

Which of the following will increase the monetary base?

A

The Fed’s purchase of securities from a bank.

40
Q

Which of the following is most likely to cause a jump up in the price level P?

A

An increase in autonomous consumption.

41
Q

Which of the following is most likely to cause a jump up in the rate of velocity V?

A

An increase in autonomous consumption.

42
Q

Which of the following was partially responsible for a drop in the money multiplier after the Great Recession of 2008-09?

A

The payment of interest on bank reserves.

43
Q

Currency in the hands of the public (C) is

A

Part of the money supply (M) and part of the monetary base (B).

44
Q

Reserve balance accounts held by commercial banks at their regional Federal Reserve Banks are

A

Not part of the money supply (M) but part of the monetary base (B).

45
Q

“Financial repression” can occur when a government with ________ inflation imposes a cap on _________ interest rates.

A

high; nominal.

46
Q

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

–$10 billion.

47
Q

In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by:

A

borrowing from abroad.

48
Q

A trade deficit can be financed in all of the following ways except by:

A

borrowing from domestic lenders.

49
Q

If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______ and net capital outflows ______.

A

do not change; do not change

50
Q

Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _____ and net exports will _____.

A

increase; decrease

51
Q

According to our discussion in class, two reasons why capital may not flow to poor countries are that the poorer countries may:

A

have inferior production capabilities (such as a low value of A in the production function) and not enforce property rights (so that investments in the poor countries might be expropriated by the governments there).

52
Q

The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports.

A

less; greater

53
Q

In a small open economy with perfect capital mobility, a reduction in the government’s budget deficit ______ net exports and the real exchange rate ______.

A

increases; depreciates

54
Q

In a small open economy, if the world interest rate increases, then the supply of domestic currency on the foreign exchange market will _____ and the real exchange rate will _____, holding all else constant.

A

increase; decrease

55
Q

An effective policy to reduce a trade deficit in a small open economy would be to:

A

increase taxes.

56
Q

If 5 Swiss francs trade for $1, the U.S. price level equals $1 per good, and the Swiss price level equals 2 francs per good, then the real exchange rate between Swiss goods and U.S. goods is ______ Swiss good(s) per U.S. good.

A

2.5

57
Q

A statement that is generally true about capital in a large open economy is that it is:

A

not perfectly mobile, but the country influences world financial markets.

58
Q

In a large open economy, the real interest rate is determined by:

A

national saving, the domestic investment function, and the net capital outflow function.

59
Q

In a large open economy, an increase in “animal spirits” for investment raises the real interest rate, ______ the trade balance, and ______ net capital outflow.

A

decreases; decreases

60
Q

In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate:

A

falls, while the real exchange rate rises and net exports fall.

61
Q

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:

A

s/(s + f).

62
Q

In a steady state:

A

the number of people finding jobs equals the number of people losing jobs.

63
Q

A Beveridge Curve plot shows the empirical relationship between what two labor-market variables?

A

Unemployment and vacancies.

64
Q

Assume that the job finding rate has fallen because of a decline in matching efficiency. What is also likely to have happened?

A

The Beveridge Curve shifted out.

65
Q

According to our discussion in class, which of the following shifts the Beveridge Curve?

A

An increase in mismatch or some other factor that causes a decline in matching efficiency.

Interm Econ Midterm 1 (2 decks)

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