Download 1. GDP is the market value of all a. final and household goods

Introduction to Macroeconomics (11f14) - Graded Homework - Chapter 6
9/23/14, 5:27 PM
1. GDP is the market value of all
a. final and household goods produced within a country in a year.
b. final goods and services produced by the permanent residents of a nation.
c. final and intermediate goods and services produced in a nation.
d. final goods and services produced within a country in a year.
2. Which of the following would be included in GDP for the United States?
a. a tire manufacturer making and selling tires to Ford to be used in their new cars
b. Jane's car being stolen so she is forced to purchase a used car as a replacement
c. Toyota, a Japanese car company, producing cars in the United States
d. a U. S. professor taking a year off to teach at the London School of Economics
3. Gross domestic product is the market value of
a. all intermediate goods and services produced within a country in a year.
b. all final goods and services produced within a country in a year.
c. all final goods and services produced within a country in two years.
d. all intermediate goods and services produced outside of a country in a year.
4. GNP measures
a. production by U.S. citizens wherever they work in the world.
b. the same things as GDP.
c. goods produced outside of U.S. borders.
d. the production of both intermediate and final goods.
5. GDP per capita is
a.
the market value of all final goods and services produced within a country in a year divided by
population.
b.
the market value of all final goods and services produced by a country's permanent residents,
wherever located, in a year.
c. the market value of all final goods and services produced within a country in a year.
d. a significant, widespread decline in real income and employment.
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6. Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both
places. How does his production get allocated between U.S. and Canadian GDP?
a. Half of the doctor's income counts toward U.S. GDP and half toward Canadian GDP.
b. It depends on whether the doctor is a permanent resident of the United States or Canada.
c.
The value of the services produced in the United States gets counted in U.S. GDP, and the value of the
services produced in Canada gets counted in Canadian GDP.
d. The full income gets counted in both U.S. and Canadian GDP.
7. Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000.
As a result, GDP in 2010 would
a. increase by $210,000.
b. increase by $200,000.
c. increase by $10,000.
d. not change.
8. GDP per capita is a country's GDP divided by its
a. capital stock.
b. money supply.
c. population.
d. labor force.
9. Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of her
output is included in
a. both U.S. and Japan's GNP.
b. U.S. GNP and Japan's GDP.
c. U.S. GDP and Japan's GNP.
d. both U.S. and Japan's GDP.
10. GDP in the United States was $14,119 billion in 2009, and grew to $14,660.4 billion in 2010. This
represents an annual growth rate of
a. 3.83 percent.
b. $541.4 billion.
c. 3.69 percent.
d. 1.04 percent.
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11. Real GDP for the year 2000 (measured in 2005 dollars) is equal to
a. 2005 prices × 2000 quantities.
b. 2005 prices × 2005 quantities.
c. 2000 prices × 2005 quantities.
d. 2000 prices × 2000 quantities.
12. If a country has 5 percent real GDP growth and 5 percent population growth, how much per capita real
GDP growth does it have?
a. 5 percent
b. 0 percent
c. 10 percent
d. 2.5 percent
13. Table: iPhones
Year
Units of iPhones produced Price of each iPhone
2000
100
$100
2010
90
110
Reference: Ref 6-2
(Table: iPhones) This table shows a country producing only iPhones. Its nominal GDP in 2010 is
a. $9,000.
b. $10,000.
c. $9,900.
d. $10,800.
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14. Table: iPhones
Year
Units of iPhones produced Price of each iPhone
2000
100
$100
2010
90
110
Reference: Ref 6-2
(Table: iPhones) This table shows a country producing only iPhones. Using 2000 as the base year, real
GDP in 2010 is
a. $10,800.
b. $10,000.
c. $9,000.
d. $9,900.
15. Table: iPhones
Year
Units of iPhones produced Price of each iPhone
2000
100
$100
2010
90
110
Reference: Ref 6-2
(Table: iPhones) This table shows a country producing only iPhones. The growth rate of real GDP between
2000 and 2010 is
a. 10 percent.
b. –10 percent.
c. 8 percent.
d. 0 percent.
16. The value of a car produced and sold in 2005 and sold again in 2011 is included in
a. Neither 2005's nor 2011's GDP.
b. 2011's GDP only.
c. 2005's GDP only.
d. both 2005's GDP and 2011's GDP.
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17. If in 2010 nominal GDP was $220 million and real GDP was $200 million, the GDP deflator in 2010 was
a. 88.
b. 110.
c. 91.
d. 100.
18. The national spending approach to calculating GDP states that GDP is equal to
a. wages + rent + interest + profit.
b. investment + profit.
c. investment + wages + rent + profit.
d. consumption + investment + government spending + net exports.
19. Table: GDP
Private investment
Government spending
Profits
Consumption spending
Wages
Exports
Imports
$1,640 billion
2,872 billion
1,565 billion
9,913 billion
3,574 billion
1,520 billion
1,890 billion
Reference: Ref 6-5
(Table: GDP) Use the data in this table to calculate GDP.
a. $19,519 billion
b. $11,171 billion
c. $14,055 billion
d. $15,945 billion
20. In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore,
a. there has been no change in production over the past 100 years.
b. changes in GDP understate the true increase in production over the past 100 years.
c. there has been no change in GDP over the past 100 years.
d. changes in GDP overstate the true increase in production over the past 100 years.
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1. There is
a. no correlation between per capital GDP and infant survival.
b. a weak negative correlation between per capita GDP and infant survival.
c. a weak positive correlation between per capita GDP and infant survival.
d. a strong positive correlation between per capita GDP and infant survival.
2. For most of recorded human history, real GDP per capita has
a. remained steady.
b. fallen at a modest rate.
c. increased at a rapid rate.
d. increased at a modest rate.
3. If real GDP per capita in a country was $14,000 in year 1 and $14,560 in year 2, then the economic
growth rate for this country from year 1 to year 2 was
a. 3 percent.
b. 1 percent.
c. 4 percent.
d. 2 percent.
4. Per capita GDP 2,000 years ago was about the same in all regions of the world, but today it is about
______ times as large in the richest countries as in the poorest countries.
a. 10
b. 20
c. 50
d. 5
5. At an average growth rate of 4 percent, how long would it take for an economy to double its GDP?
a. 70 years
b. 25 years
c. 50 years
d. 17.5 years
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6. At an annual growth rate of 1.4 percent, approximately how long does it take for real GDP per capita to
increase from $30,000 to $60,000 in a country?
a. 400 years
b. 100 years
c. 200 years
d. 50 years
7. Relative to Japan, Argentina was ______ in 1950 and ______ in 2000.
a. rich; poor
b. poor; poor
c. poor; rich
d. rich; rich
8. From 1950 to 1970 Japan's growth rate was
a. approximately zero.
b. negative.
c. high and positive.
d. low and positive.
9. Since 1974 Nigeria's growth rate has been
a. negative.
b. high and positive.
c. approximately zero.
d. low and positive.
10. Which of the following is NOT an example of physical capital?
a. cell phones
b. computers
c. money
d. tractors
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11. A typical worker in India works with ______ physical capital than a typical worker in the United
States.
a. many times more
b. slightly more
c. about the same amount of
d. much less
12. Human capital is the
a. stock of tools including machines, structures, and equipment.
b. growth rate of real GDP per capita.
c.
productive knowledge and skills that workers acquire through education, training, and
experience.
d. knowledge about how the world works that is used to produce goods and services.
13. In North Korea, workers are rewarded for
a. being loyal to the ruling Communist Party.
b. providing goods and services of value to consumers.
c. inventing new ideas for more efficient production.
d. investing in human and physical capital.
14. The ultimate cause for the different economic performance in North and South Korea is
a. better economic institutions in South Korea than in North Korea.
b. more foreign aid in South Korea than in North Korea.
c. more corruption in South Korea than in North Korea.
d. more abundant natural resources in South Korea than in North Korea.
15. The term economic institutions refers to the
a. amount of physical capital and infrastructure.
b. religious and social structure of a country.
c. rules of the game that promote economic incentives.
d. the presence of government intervention in markets.
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16. The key reason for the growth miracle of China to begin in the late 1970s is
a. pure luck.
b. the enforcement of communal property.
c. increases in foreign investment from developed countries.
d. the assignment of private property rights.
17. Communal property creates a
a. corruption problem.
b. self-selection problem.
c. free rider problem
d. stability problem.
18. The term economies of scale refers to
a. a system of well-defined property rights that leads to higher profits for entrepreneurs.
b. a rise in growth rates above average.
c. the value of small-scale production.
d. the decrease in average production costs when output rises.
19. The industrial revolution was centered in
a. France.
b. the United States.
c. the United Kingdom.
d. China.
20. Which of the following is the reason India uses its capital inefficiently?
a. International trade is restricted.
b. Small businesses are subsidized by the government.
c. Large-scale production is prohibited.
d. Technological knowledge is lacking.
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1. A Solow growth model features ______ returns to human capital, ceteris paribus.
a. increasing
b. constant
c. decreasing
d. zero
2. According to the text, the term “eL” in the production function refers to
a. technological advance.
b. physical capital.
c. the size of population.
d. workers adjusted for their skill levels.
3. The principle of diminishing returns in capital implies that a country that lost much of its capital during a
war will
a. never catch up with countries that never go to war.
b. grow more slowly than its enemy during the war.
c. keep it from being permanently rich.
d. experience a higher growth rate than before the war.
4. The level of capital stock increases when investment in capital is
a. greater than investment in human capital.
b. less than depreciation.
c. greater than personal consumption.
d. greater than depreciation.
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5. Figure: Depreciation and Investment
Reference: Ref 8-3
(Figure: Depreciation and Investment) According to this diagram of the Solow model, if the current capital
stock is 70, then economic growth will be
a. positive or negative, depending on the steady state.
b. zero.
c. positive.
d. negative.
6. Solow estimated that better ideas are responsible for about ______ of the U.S. standard of living.
a. one-half
b. one-fourth
c. all
d. three-fourths
7. The Solow production function can shift upward because of
a. higher depreciation.
b. an increase in investment.
c. better ideas.
d. an increase in capital stock.
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8. Conditional convergence refers to the condition that given similar steady states,
a. all countries grow at the same rate regardless of their initial output levels.
b. a country with a higher output level tends to grow more slowly.
c. a country with a higher output level tends to grow more rapidly.
whether one country's output converges to that of another country depends on their geographical
proximity.
d.
9. In the United States, approximately what percent of scientists and engineers work for private firms?
a. 30 percent
b. 70 percent
c. 10 percent
d. 50 percent
10. Ideas are not rivalrous, meaning that
a. only one person can benefit from an idea at a time.
b. most ideas are generated by the government.
c. many people can consume them at once.
d. no one can benefit from an idea.
11. Why might it be a good thing for the United States if more people in India and China start dying of cancer
and heart disease instead of malnutrition and preventable disease?
a. Companies will invest more in curing cancer and heart disease.
b. Companies will invest less in curing cancer and heart disease.
c. More people in the United States will die of malnutrition and preventable disease.
d. Companies will invest more in solving malnutrition and preventable disease.
12. Which of the following statements about the effects of patents is correct?
a.
Patents reduce the incentive to research and develop new products but increase monopoly power
once the products are created.
b.
Patents increase the incentive to research and develop new products and also increase competition on
the market.
c.
Patents increase the incentive to research and develop new products but also increase monopoly
power once the products are created.
d.
Patents reduce the incentive to research and develop new products but also reduce competition on
the market.
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13. Figure: Production Function 1
Reference: Ref 8-2
(Figure: Production Function 1) In this diagram of the Solow model, if output is 600, consumption equals
a. 200.
b. 50.
c. 600.
d. 400.
14. Countries are on the catching-up growth path primarily through
a. creation of new technological knowledge.
b. adoption of simple ideas.
c. idea generation.
d. development of advanced productivity.
15. In the Solow model production function, Y = F(A, K, eL), K stands for
a. Keynes.
b. consumption.
c. capital.
d. kurtosis.
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16. With labor held constant, Y = F(K) =
, 400 units of capital, the fraction of output invested in new
capital at γ = 0.2, and a depreciation rate of δ = .05, how much total capital will there be in the next period?
a. 400
b. 404
c. 380
d. 384
17. Marginal product of capital is ______ in China relative to marginal product of capital in developed
economies.
a. low
b. moderate
c. zero
d. high
18. A country's production function (Prod Function1) is shown below. At the end of last year its combination of
physical capital and output was at point A on the production function. This year it is experiencing a
massive increase in private investment leading to a substantial accumulation of capital stock.
Graphically demonstrate the impact of such an increase in private investment on the country's production
function by the end of this current year. Assume that technology and education levels remain unchanged. If
you think the country's production function shifts, use the 3-point curve tool to draw the new production
function and label the new curve Prod Function2. If you think the country moves to a new combination of
physical capital and output on its existing curve, use the double drop line took to mark the new
combination and label that Point B.
19. The curve below represents the investment function for an economy. Suppose that the rate of depreciation
is given by 0.04 x K (depreciation=0.04 x the level of capital). Use the infinite line tool to draw the
depreciation function and label it accordingly. Then use the vertical drop line tool to show the steady state
level of capital. Label this point the Steady State.
20. The old country, which was once a very prosperous nation, has fallen on hard times. Its growth rate has
fallen off and it cannot compete with the new economic powerhouses. A leading group of scientists and
economists in the old country urges the government to increase its expenditure on research and
development. The group argues that a renewed commitment to R&D will boost the country's long-run
growth potential. The current production function in the old country is given by Production 1.
Demonstrate the possible impact of increased R&D spending on the country's production function by using
the 3-point drawing tool to draw a new production function and label it Production 2.
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1. In economics, investment refers to the
a. amount of personal savings in a bank.
b. fund used to settle a debt.
c. purchase of stocks and bonds.
d. purchase of new capital goods.
2. In the loanable funds market, which group best represents the demand side of the market?
a. banks
b. stock markets
c. savers
d. borrowers
3. Savings is defined as
a. income not spent on consumption goods.
b. income not spent on investment goods.
c. income not taxed by the government.
d. the purchase of new capital goods.
4. Which of the following best represents time preference?
a.
Alex smokes a pack of cigarettes per day even though he knows that he may face poor health
down the road because of his smoking habit.
b.
Thomas invests money in Apple today, which is subsequently used by Apple to fund additional
investment purchases that will benefit future shareholders.
c.
Sarah is spending $20,000 per year in tuition and other expenses to attend college with the hopes
of earning a higher income in the future.
d. Max saves $300 per month from his paychecks for retirement.
5. Which of the following explain why the supply of savings is upward sloping?
a. A decrease in the interest rate leads to an increase in the opportunity cost of saving.
b. An increase in time preference leads to an increase in the quantity of saving.
c. An increase in the interest rate leads to an increase in the quantity of saving.
d. An increase in investment leads to an increase in the level of saving.
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6. If the recent financial crisis raises awareness about the dangers of not saving, leading to an increase in
overall savings rates across the country, the loanable funds market will experience an increase in the
______ loanable funds and ______ in equilibrium interest rates.
a. demand for; an increase
b. supply of; a decrease
c. supply of; an increase
d. demand for; a decrease
7. For savers, the role of financial intermediaries is to
a. earn more returns on their investments.
b. ensure that all borrowers can fund their investments.
c. reduce the default risk on money they save and lend.
d. avoid taxes from income earned on investments.
8. Financial intermediaries
a. are inefficient middlemen, raising the cost of economic activity.
b. reduce the costs of moving savings from savers to borrowers and investors.
c. have liabilities that exceed their assets.
d. profit by keeping resources in their least valuable uses.
9. A zero-coupon bond matures in one year. The price of the bond is $500, and it will pay $1,000 in one
year's time. What is the rate of return on the bond?
a. 500 percent
b. 100 percent
c. 50 percent
d. 20 percent
10. Collateral is
a. the decrease in private consumption and investment that occurs when government borrows more.
b. a sophisticated IOU that documents who owes how much and when payment must be made.
c.
something of value that by agreement becomes the property of the lender if the borrower
defaults.
d. the first time a corporation sells stock to the public in order to raise capital.
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11. Crowding-out is
a. a sophisticated IOU that documents who owes how much and when payment must be made.
b. the decrease in private consumption and investment that occurs when government borrows more.
c. the first time a corporation sells stock to the public in order to raise capital.
d.
something of value that by agreement becomes the property of the lender if the borrower
defaults.
12. Financial intermediation can breakdown as a result of
a. free adjustments in the loanable funds market.
b. bank panics.
c. a high saving rate.
d. the government's granting property rights.
13. A binding interest rate ceiling creates ______ savings.
a. an equilibrium quantity of
b. a surplus of
c. increase in
d. a shortage of
14. According to Ben Bernanke, bank failures during the onset of the Great Depression
a. increased the rate of investment, which ultimately got the United States out of depression.
b. made it harder for households, farmers, and small firms to get credit, worsening the recession.
c. are urban legends.
d. were not as harmful as the stock market crash.
15. If the down payment for a $250,000 home is $50,000 and the mortgage is $200,000, the leverage ratio
is
a. 4.
b. 5.
c. 0.25.
d. 1.25.
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16. The shadow banking system
I. typically borrows short-term and invests in longer-term assets.
II. operates with higher leverage ratios than commercial banks.
III. includes investment banks, hedge funds, money markets and a variety of
other complex financial entities.
a. II and III only
b. I and III only
c. I, II, and III
d. I and II only
17. All of the following are reasons for the financial crisis of 2007–2008 EXCEPT
a. increases in the leverage ratios for financial intermediaries.
b. excessive securitization of liabilities.
c. collapse of the shadow banking system.
d. excessive confidence about the stock market.
18. The process of bundling loans together and selling them on the market as financial assets is called
a. securitization.
b. arbitrage.
c. crowding out.
d. collaterallization.
19. Part 1: Draw a demand curve and a supply curve in the market for loanable funds. Label the curves
Demand 1 and Supply 1 accordingly. Plot the equilibrium point and label it Equilibrium 1.
Part 2: Suppose the graph you have just drawn represents the market for loanable funds in China. Now
suppose that international investors see China as an upcoming economic power whose manufacturing
industry has the potential to grow exponentially. These investors begin to moving their funds to China.
Show how this affects the demand and/or the supply of loanable funds in China by drawing new
curve(s). Label the new curve(s) Demand 2 and/or Supply 2. Show what happens to the equilibrium
interest rate and the equilibrium amount of loanable funds by plotting the new equilibrium point and
label it Equilibrium 2.
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20. To create incentives for entrepreneurs to increase the level of private investment the government plans
to provide an investment tax credit to firms that spend at least 10 million dollars to build new factories
or buy new equipment during the next year. The program is expected to increase the demand for
borrowing by 150 billion dollars and include other spending changes so that the budget deficit remains
unchanged.
The market for loanable funds in this country is depicted in the graph below. Based on the current
supply of savings (Supply 1) and demand for borrowing (Demand 1), Equilibrium 1 is 10 percent and
300 billion dollars.
Draw the new supply and/or demand curve(s) to demonstrate the effect of this tax policy. Label the new
curve(s) as Supply 2 and/or Demand 2. Use the double drop-line tool to mark the new equilibrium
interest rate and quantity of savings/borrowing in this country and label it Equilibrium 2.
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1. A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not
interested in working, another 5 million are interested in working but have given up looking for work,
and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but
would like to work full time, and the remaining 10 million are working full time. How many people in
this country are in the labor force?
a. 30 million
b. 15 million
c. 25 million
d. 20 million
2. If the adult population of a country is 200 million, 100 million are employed, and 10 million are
unemployed, this country's labor force is
a. 110 million.
b. 100 million.
c. unknown given the above information.
d. 200 million.
3. Table: Employment, Unemployment, and Labor Force Participation
Year
2009
2010
Population
380 million
400 million
Adults in labor force
255 million
260 million
Adults not in labor force
78 million
80 million
Employed workers
245 million
247 million
Reference: Ref 11-­1
What is the unemployment rate of the country in 2010?
a. 6 percent
b. 5 percent
c. 4 percent
d. 3 percent
4. All of the following are counted as employed persons EXCEPT
a. a part-time worker.
b. an employee working overtime every day.
c. an underemployed person.
d. a discouraged worker.
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5. The most likely influence of the Internet on the rate of frictional unemployment has been to
a. It is impossible to tell.
b. lower it.
c. raise it.
d. have no effect on it.
6. Which type of unemployment is an outcome of economist Joseph Shumpeter's creative destruction
process within an industry?
a. seasonal unemployment
b. structural unemployment
c. frictional unemployment
d. cyclical unemployment
7. Over the past few decades, the U.S. economy has switched from a primarily manufacturing economy to a
service economy. Many individuals working in manufacturing positions lost their jobs, and many new
jobs opened up in services. For those who lost jobs in manufacturing, this is an example of
a. structural unemployment.
b. cyclical unemployment.
c. industry unemployment.
d. frictional unemployment.
8. The phrase “persistent long-term unemployment” means
a. that the unemployment problem has lasted for a long time.
b.
that a substantial fraction of the unemployed have been so for more than one year and that this
problem has lasted for a long time.
c. that a substantial fraction of the unemployed have been so for more than one year.
d.
that a small fraction of the unemployed have been so for more than one year but that this problem
has not lasted for a long time.
9. Long-lasting unemployment benefits tend to
a. decrease the rate of structural unemployment.
b. decrease the rate of frictional unemployment.
c. increase the rate of structural unemployment.
d. increase the rate of frictional unemployment.
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10. Which of the following is true of the effects of employment protection laws?
a. They reduce the duration of unemployment.
b. They make labor markets more flexible in adjusting for changes in market conditions.
c. They reduce the unemployment rates among young and minority workers.
d. They create employment security for workers with a job.
11. All of the following policies can reduce structural unemployment EXCEPT
a. raising unemployment benefits.
b. work tests.
c. job retraining.
d. job search assistance.
12. If minimum wages are higher relative to the median wage, then minimum wage will affect
a. fewer people and create less unemployment.
b. more people and create more unemployment.
c. more people and create less unemployment.
d. fewer people and create more unemployment.
13. The most basic U.S. employment law stipulating that an employee may quit and employer may fire at
any time and for any reason is called
a. affirmative action.
b. the employee privacy law.
c. the Equal Employment Opportunity Act.
d. the employment at will doctrine.
14. Which of the following is an example of an active labor market policy?
a. paying unemployed workers who find a job
b. minimum wage laws
c. extending unemployment benefits
d. worker unions
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15. Which of the following is the best example of cyclical unemployment?
a.
Heather recently graduated with her doctorate in economics. She is searching for a job that
matches her skills.
b. John is a house painter in northern Michigan. During the winter months, John is unemployed.
c.
Allison, a recent high school graduate with high aspirations, is seeking a job as the CEO of a
Fortune 500 company.
d.
Peter, a highly skilled construction worker, lost his job when the recession began. He is looking
for work, but demand in the construction industry is still low.
16. Suppose that Congress decided to exempt seniors from paying income tax on labor income. What
would happen to the labor force participation rate for seniors?
a. It would remain the same.
b. It would increase.
c. It would decrease.
d. It is impossible to tell.
17. Which of the following is a concern among economists regarding the aging of the U.S. population?
Since older people typically consume different goods (more health care and prescription drugs,
a. less pizza and beer), an aging population will lead to increased structural unemployment in
certain areas of the economy (such as the pizza and beer industries).
b.
Since older people are less likely to work, an aging population will lead to a decreased labor
force participation rate in the United States and lower tax revenues.
c.
Since older people are more likely to favor increasing Medicare and prescription drug benefits,
an aging population will alter political support for such programs.
d.
Since older people typically consume less, the aging of the population will lead to lower
consumption and thus lower GDP.
18. Females started entering the labor force, and particularly professional schools, in increasing numbers
beginning around
a. 1960.
b. 1970.
c. 1940.
d. 1950.
19. The graph below shows equilibrium in the labor market. Now suppose the government increases
unemployment benefits. Show what effect this will have on the labor market by shifting one or more
curves and plotting the new equilibrium. Label all parts accordingly.
Graphing Tip:To draw the new curve(s) you can either use the copy tool to copy/drag an existing curve
or use the infinite line tool to draw in a new curve. Use the double drop line tool to mark the new
equilibrium
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20. The graph below represents equilibrium in the labor market. Suppose the government enacts a labor
law that restricts the ability of businesses to fire employees. Show what effect this will have on the
labor market by shifting one or more curves and plotting the new equilibrium. Label all parts
accordingly.
Graphing Tip:To draw the new curve(s) you can either use the copy tool to copy/drag an existing curve
or use the infinite line tool to draw in a new curve. Use the double drop line tool to mark the new
equilibrium.
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Introduction to Macroeconomics (11f14) - Graded Homework - Chapter 12
1. When the government of Zimbabwe ran out of money, President Robert Mugabe:
a. printed more money.
b. raised taxes.
c. slashed spending.
d. collapsed.
2. If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and
2 will be:
a. 7.69 percent.
b. 10 percent.
c. 8.33 percent.
d. 9.23 percent.
3. Which measure of the average price level most closely corresponds to a student's daily economic
activities?
a. producer price index
b. household price index
c. consumer price index
d. GDP deflator
4. The average rate of inflation in the United States over the past 10 years has been around 2.6 percent. If
this trend continues, how long will it take for prices in the United States to double?
a. 26.9 years
b. 10.5 years
c. 38.5 years
d. 18.4 years
5. Which of the following identities represents the quantity theory of money?
a. MP = Yv.
b. Mv = YR.
c. Mv = PYR.
d. P = M.
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6. If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level
of real output equals $5,000, then the velocity of money is:
a. 5.
b. 100.
c. 1,000.
d. 20.
7. If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real
GDP?
a. $100,000
b. $1 million
c. $10,000
d. $1,000
8. In the long run, the quantity theory of money says that the growth rate of the money supply will be
approximately equal to the:
a. inflation rate.
b. velocity of money.
c. growth rate of real GDP.
d. price level.
9. In the long run, money is:
a. neutral.
b. temporary.
c. velocity.
d. expansionary.
10. According to the quantity theory, what causes inflation in the long run?
a. aggregate demand shocks
b. money supply
c. unemployment
d. unexpected inflation
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11. Disinflation occurs when the overall price level:
a. rises at a decreasing rate.
b. rises at an exponential rate.
c. falls at an increasing rate.
d. falls.
12. According to the quantity theory of money, a change in the money supply affects:
a. nominal GDP in the short run but not in the long run.
b. real GDP in the long run but not in the short run.
c. nominal GDP in the long run but not in the short run.
d. real GDP in the short run but not in the long run.
13. Deflation is a decrease in the:
a. exchange rate.
b. velocity of money.
c. average level of prices.
d. inflation rate.
14. When the expected rate of inflation is higher than the actual rate of inflation, wealth is:
a. redistributed from borrowers to lenders.
b. redistributed from lenders to borrowers.
c. redistributed at random.
d. not redistributed at all.
15. The primary reason we think of inflation as bad even when wages rise with it is that it:
a. increases the velocity of money.
b. makes things more expensive for consumers.
c. leads to lower real wages.
d. distorts the information delivered by prices.
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16. Suppose you are forced to take a pay cut of 5 percent when the economy is experiencing overall
deflation of 5 percent. If in response to your pay cut you also reduce your consumption by 5 percent,
then economists would say:
a. you are exhibiting money illusion.
b. the quantity theory of money held.
c. you made a rational decision.
d. your real wage decreased by 5 percent.
17. Suppose the nominal interest rate is 4 percent and the inflation rate is 5 percent. The real interest rate is:
a. 0 percent.
b. 9 percent.
c. 1 percent.
d. –1 percent.
18. According to the Fisher effect, an, increase in expected inflation will cause:
I.
the nominal rate of interest to increase.
II. the real rate of interest to increase.
III. inflation to increase.
a. I, II, and III
b. II only
c. I only
d. II and III only
19. If a lender expects an inflation rate of 5 percent and asks for a nominal interest rate of 10 percent, then
the lender expects to earn a real interest rate of:
a. 2 percent.
b. 10 percent.
c. 15 percent.
d. 5 percent.
20. Monetizing the debt occurs when a government:
a. decreases the money supply to pay off the debts.
b. issues more debt to finance its budget deficit.
c. pays off its debts by printing money.
d. raises tax to pay off the debt.
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