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Quiz I Topics in Macroeconomics 2 Econ 2004 You have 35 min to complete the quiz. Please write the letter of your answer choice in the space provided on this COLOURED FRONT SHEET!. Clearly write your name and student ID number in the space provided! Name ___________________________________ Stduent ID ___________________________________ Your Answers: 1)________ 11)________ 21)________ 31)________ 2)________ 12)________ 22)________ 32)________ 3)________ 13)________ 23)________ 33)________ 4)________ 14)________ 24)________ 34)________ 5)________ 15)________ 25)________ 35)________ 6)________ 16)________ 26)________ 36)________ 7)________ 17)________ 27)________ 37)________ 8)________ 18)________ 28)________ 38)________ 9)________ 19)________ 29)________ 39)________ 10)________ 20)________ 30)________ 40)________ University of Southampton code: B MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. For the following questions, suppose an economy produces only food and clothing, and that price and quantity data are given in the table below. Good Food Clothing Year 1 Quantity 20 10 Price $6 $8 Good Food Clothing Year 2 Quantity 25 20 Price $10 $7 1) Year 1 nominal GDP is A) $310. B) $270. C) $390. D) $200. 1) 2) Year 2 nominal GDP is A) $200. B) $310. C) $390. D) $270. 3) Suppose that Year 1 is the base year. Year 2 real GDP is A) $200. B) $270. C) $310. D) $390. 4) Suppose that Year 2 is the base year. Year 1 real GDP is A) $200. B) $270. C) $390. D) $310. 5) Suppose that Year 1 is the base year. What is the growth rate of GDP? A) 70% B) 35% C) 110% D) 55% 2) 3) 4) 5) 6) Suppose that Year 2 is the base year. What is the growth rate of GDP? A) 67.5% B) 58% C) 120% D) 44.4% 7) Suppose that Year 1 is the base year. The CPI for Year 2 is approximately A) 170.0. B) 240.0. C) 100.0. D) 135.0. 8) Suppose that Year 2 is the base year. The CPI for Year 1 is approximately A) 120.0. B) 100.0. C) 80.0. D) 90.0. 9) Look at the production schedule of the Widget Company below: Number of workers 0 1 2 3 4 Number of widgets 0 12 22 30 36 6) 7) 8) 9) 5 40 If the real wage is 7, how many workers should Widget Company hire? A) 3 B) none C) 4 D) 2 10) Here is what we know about a household: wages $25,000, unemployment insurance benefits $3,000, dividend income $4,000, income tax $5,000. What is the contribution to GDP of this household following the expenditure approach? A) $24,000 B) $29,000 C) $25,000 D) $28,000 2 10) 11) The production function is concave in labor because 11) A) the marginal product of capital is decreasing. MULTIPLE CHOICE. Choose the one that best completes the statement or answers the question. B) the marginal product ofalternative labor is increasing. C) the contribution to production of each additional unit of labor decreases. For the following questions, suppose an economy produces only food and clothing, and that price and quantity data are D) the labor demand is downward sloping. given in the table below. 12) Negative Year 1correlation between x and y implies that A) when x is Price high, y is high. B) x/y < 0. Good Quantity C) xy D) when x is high, y is low. Food 20 < 0. $6 Clothing 10 $8 13) Which of the following is wrong with respect to an increase in total factor productivity? A)Year The2real wage is down. B) Output is up. Good Quantity Priceis up. C) Consumption D) Households are better off. Food 25 $10 Clothing 20 $7 14) A competitive equilibrium may fail to be Pareto optimal due to all of the following except A) externalities. C) non-price-taking firms. 12) 13) 14) B) distorting taxes. D) inequality. 15) The construct of a representative firm is most helpful in describing the behavior of all of the firms in the economy when A) there are decreasing returns to scale. B) there are constant returns to scale. C) the marginal product of labor is increasing in the amount of labor input. D) there are increasing returns to scale. 15) 16) Predicting business cycles is difficult because A) statistics lie. C) their frequency is irregular. 16) B) they are very persistent. D) the weather changes unpredictably. 17) An increase in government spending A) decreases consumption and output. C) decreases consumption, increases output. B) increases consumption and output. D) increases consumption, decreases output. 17) 18) The presence of a distorting tax on wage income can result in A) MPN < w. B) MRTl,C < MRSl,C. C) MRSl,C < MPN. 18) D) MPN < MRTl,C . 19) Business cycle persistence refers to the property that A) business cycles are persistently hard to predict. B) booms and recessions last a long time. C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend. D) real GDP is rarely exactly at trend. 19) 20) The second fundamental theorem of welfare economics states that A) under certain conditions, a Pareto optimum is a competitive equilibrium. B) under certain conditions, a competitive equilibrium is Pareto optimal. C) a competitive equilibrium is always Pareto optimal. D) a Pareto optimum is always a competitive equilibrium. 20) 3 D) a Pareto optimum is always a competitive equilibrium. 21) The frequency of the business cycle refers to A) how long a cycle lasts. C) how much it leads or lags. 21) B) how large the deviations from trend are. D) how variable it is. 22) The vertical intercept of the consumer's budget line is equal to (π - T) A) wh + π - T. B) π - T. C) h + . w 22) D) c + w(l - h). 23) You are a baker. You paid $150K in wages, $50K for dough, $20K for power, $5K in interest for a business loan, $25K in taxes, and made a profit of $10K. How much did you contribution to GDP using the product approach? A) $190K B) $85K C) $260K D) $80K 23) 24) An increase in government spending shifts the PPF A) downward, but does not change its slope. C) upward, and also changes its slope. 24) B) upward, but does not change its slope. D) downward, and also changes its slope. 25) The fact that indifference curves are downward sloping A) follows from the fact that more is preferred to less. B) follows from the property that consumption and leisure are normal goods. C) is not true. D) follows from the property that the consumer likes diversity in his or her consumption bundle. 25) 26) The principle that consumers and firms optimize A) only applies to perfectly competitive markets. B) is helpful because it allows us to analyze how economic agents respond to changes in their environment. C) is not helpful because some economic agents may behave irrationally. D) is helpful because it determines the available technology. 26) 27) Employment tends to be A) countercyclical and more variable than real GDP. B) procyclical and less variable than real GDP. C) procyclical and more variable than real GDP. D) countercyclical and less variable than real GDP. 27) 28) The real wage denotes A) the number of units of leisure time that can be exchanged for one unit of labor time. B) the number of units of labor time that can be exchanged for one unit of consumption goods. C) the number of units of consumption goods that can be exchanged for one unit of labor time. D) the number of units of labor time that can be exchanged for one unit of leisure time. 28) 29) A lagging variable can be recognized by the fact that A) its persistence is larger than that of GDP. B) its persistence is smaller than that of GDP. C) its turning points happen before the turning points of GDP. D) the turning points of GDP happen before its turning points. 29) 4 30) The property of diminishing marginal rate of substitution follows from the property that the indifference curve is A) bowed out from the origin. B) upward sloping. C) bowed in toward the origin. D) downward sloping. 30) 31) In a general equilibrium model A) all markets but one clear. C) all prices are endogenous. 31) B) there are no fluctuations. D) all prices are exogenous. 32) Changes in total factor productivity are plausible causes of business cycles because A) of the welfare theorems. B) prices are countercyclical. C) the U.S. government is following supply-side economic policy. D) the model matches many stylized facts. 32) 33) In response to an increase in total factor productivity A) both the substitution effect and the income effect suggest that hours worked should decrease. B) the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease. C) both the substitution effect and the income effect suggest that hours worked should increase. D) the substitution effect suggests that hours worked should decrease, while the income effect suggests that hours worked should increase. 33) 34) The fact that indifference curves are bowed in toward the origin A) is not true. B) follows from the property that consumption and leisure are normal goods. C) follows from the fact that more is preferred to less. D) follows from the property that the consumer likes diversity in his or her consumption bundle. 34) 35) When a macroeconomic aggregate is procyclical A) it grows faster than GDP. B) its deviations from trend generally change more that the deviations from trend in GDP. C) its deviations from trend are more often of the same sign as the deviations from trend in GDP. D) its deviations from trend generally change before the deviations from trend in GDP do. 35) 36) If the government replaces a lump sum tax with a proportional labor income tax, then A) employment and output decrease. B) employment increases and output decreases. C) employment and output increase. D) employment decreases and output increases. 36) 37) When consumption and leisure are both normal goods, after an increase in real dividend income minus taxation, the rational consumer A) reduces consumption and reduces leisure. B) increases consumption and increases leisure. C) reduces consumption and increases leisure. D) increases consumption and reduces leisure. 37) 5 38) A turning point is A) a change in policy. C) a boom or a recession. 38) B) a peak or a trough. D) a zero deviation from trend. 39) If a macroeconomic variable tends to aid in predicting the future path of real GDP, it is said to be a A) lagging variable. B) coincident variable. C) leading variable. D) convenient variable. 39) 40) Real consumption tends to be A) countercyclical and more variable than real GDP. B) procyclical and more variable than real GDP. C) procyclical and less variable than real GDP. D) countercyclical and less variable than real GDP. 40) 6 Answer Key Testname: QUIZ1G 1) D 2) C 3) C 4) B 5) D 6) D 7) A 8) C 9) A 10) D 11) C 12) D 13) A 14) D 15) B 16) C 17) C 18) C 19) C 20) A 21) A 22) A 23) A 24) A 25) A 26) B 27) B 28) C 29) D 30) C 31) C 32) D 33) B 34) D 35) C 36) A 37) B 38) B 39) C 40) C 7