Download Study Questions. More sample multiple choice

1) If nominal GDP has risen, what do we know?
a.
There are more goods
b.
There was inflation
c.
There was inflation and there are more goods
d.
There was inflation or there are more goods
e.
None of the above
2) If real GDP has risen, what do we know?
a.
There are more goods
b.
There was inflation
c.
There was inflation and there are more goods
d.
There was inflation or there are more goods
e.
None of the above
3) Which of the these terms does not go with the others
a.
National Income
b.
CPI
c.
All goods and services produced
d.
GDP
e.
C+I+G+NX
4) What are the two types of changes in national income that
macroeconomics tries to explain
a.
recessions and depressions
b.
inflation and recessions
c.
growth and business cycles
d.
per capita and per person
e.
capital and labor
5) According to theory, which of the following does not
determine national income?
a.
Quantity of natural resources
b.
Quantity of tools
c.
The amount of worker training
d.
The amount of labor provided
e.
The rate of inflation
6) What would cause an increase production of real income
in the economy?
a.
More money
b.
More labor or more capital
c.
More labor but less capital
d.
More capital but less labor
e.
More income
7) Consumers are buying more organic produce that is more
expensive. This increase in prices of produce will be
improperly picked up by the CPI. This is an example of a
a.
substitution bias
b.
new goods bias
c.
quality change bias
d.
base year bias
e.
none of the above
8) Which of the following would not increase savings in the
economy
a.
government reduces its budget deficit
b.
consumers become more confident
c.
consumers become more patient
d.
household income rises temporarily
e.
high real interest rate
9) Which of the following would make real interest rates
fall?
a.
Tax incentives for business investment
b.
Tax increases on savings
c.
New technology is developed
d.
The government increases it budget deficit
e.
Consumers become more patient
10) Which of the following would increase investment?
a.
Investor pessimism
b.
Elimination of all investment tax credits
c.
Higher real interest rates
d.
New technology
e.
All of the above
11) What would increase the amount of savings?
a.
lower real interest rate
b.
less consumer patience
c.
lower consumer confidence
d.
higher inflation
e.
lower inflation
12) Savings is determined by the real interest rate, not the
nominal rate, because
a.
The real rate is determined by the market while the
nominal rate is determined by the Fed.
b.
People really care about how much their savings
will buy in the future
c.
Nominal interest rate is too theoretical, while the
real interest rate is more realistic
d.
The real interest rate is the rate that the real world
uses
e.
All of the above
13) As the nominal interest rate increases, theory would
predict
a.
investment and savings decreases
b.
investment and savings increases
c.
investment decrease but savings increases
d.
investment increases but savings decreases
e.
not enough information to answer
14) If there is more savings than investment (assuming no
government deficit)
a.
technology will increase
b.
capital will increase
c.
capital will decrease
d.
inflation will decrease
e.
real interest rate will decrease
15) What determines the real interest rate in the economy?
a.
Supply and demand for loans
b.
The Fed
c.
The Equation of Exchange
d.
Production Function
e.
All of the above
16) Which of the following would not contribute to
economic growth?
a.
more education of workers
b.
more investment
c.
more inflation
d.
more savings
e.
more research and development
17) An increase in a government budget deficit is the same
as
a.
a decrease in the real interest rate
b.
a decrease in the nominal interest rate
c.
a decrease in investment
d.
a decrease in a government budget surplus
e.
a decrease in private savings
18) Which of the following government policies would help
to promote economic growth?
a.
A restriction on private ownership of property
b.
Enforcement of patent laws
c.
Higher tax rates on income from savings
d.
Restriction on imports into a country
e.
Tax credits for large families to help them pay the
bills
19) What affect does a higher real interest rate have upon
investment?
a.
Investment increases because people will earn more
on their savings
b.
Investment increases because with higher interest
rates investors are more optimistic
c.
Investment decreases because some investments are
not longer profitable with the higher cost of
borrowing
d.
Investment decreases because with higher interest
rate investors are more pessimistic
e.
Investment doesn’t change
20) The price of a Taco Bell burrito in 1970 was 25 cents.
Today it's 89 cents. The price index in 1970 is 21.3 (base
year this year). Since 1970, the real price of burritos have
gone
a.
up
b.
down
c.
stayed the same
d.
not sufficient information to say
21) Which of the following is an example of an institutional
resource?
a.
The knowledge of how to build computer integrated
circuits
b.
Factories
c.
Worker training
d.
Common system of weights and measures (like the
metric system)
e.
High speed connection to the internet
22) In the loanable funds market, banks play the role of
a.
a supplier of funds
b.
a demander of funds
c.
an intermediary between suppliers and demanders
d.
a saver
e.
a controller of interest rates
23) In order to grow, an economy needs
a.
to invest
b.
to save
c.
stable institutions such as government and property
rights
d.
to do research and development
e.
all of the above
24) The difference between nominal income and real
income is
a.
nominal income includes depreciation, real income
is net of depreciation
b.
nominal income does not include non-market goods
but real income does
c.
nominal income is not adjusted for population but
real income is
d.
nominal income will increase as a result of inflation
but real income will not
e.
all of the above
25) Which of the following would be included in US GDP
measured expenditures
a.
Apple Corporation buying electronic components to
build I-pods
b.
A tax accountant buying a new computer
c.
Your instructor buying a six-pack of Mexican beer
d.
A neighbor mowes her own lawn
e.
A friend buying a 1942 Silver Dollar on eBay
26) GDP serves as a measure of
a.
the total spending of everyone in the economy and
the total saving of everyone in the economy.
b.
the total income of everyone in the economy and
the total expenditure on the nation’s output of goods
and services.
c.
the value of all goods that exist in an economy.
d.
the value of the nation’s output of goods and
services for domestic citizens and the value of the
nation’s output of goods and services for the rest of
the world.
e.
the nation’s saving and the nation’s investment.
27) A steel company sells some steel to a bicycle company
for $100. The bicycle company uses the steel to produce a
bicycle which it sells for $200. Taken together, these two
transactions contribute
a.
$100 to GDP
b.
$200 to GDP
c.
between $200 and $300 to GDP, depending on the
profit earned by the bicycle company when it sold
the bicycle
d.
$300 to GDP
e.
Not enough information to answer
28) Babe Ruth earned $80,000 in 1931. Today, the best
baseball players earn 300 times as much. However, prices
have also gone up since 1931. We can conclude
a.
the best baseball players today are about 300 times
better off than Babe Ruth was in 1931
b.
because prices have risen also, the standard of
living of baseball stars hasn’t changed since 1931
c.
one cannot make judgments about changes in the
standard of living based on changes in prices and
changes in incomes.
d.
one cannot determine whether baseball stars today
enjoy a higher standard of living than Babe Ruth
did in 1931 without additional information
regarding increases in prices since 1931
e.
since prices increase and the cost of living today is
higher, players are worse off today.
29) Which of the following is not a necessary condition for
there to be economic growth in an economy
a.
There are increases in productivity
b.
Any increases in output must be sustained over the
“long run”
c.
Increases in income must be real, not nominal
d.
There’s a strong steady rate of inflation
e.
Increases of GDP must be per person
30) Which of the following government policies would most
likely be beneficially to economic growth?
a.
Companies who invest in new equipment or
technology get special, higher tax breaks
b.
The US government takes over control of the oil
industry
c.
Patent rights are eliminated for “life saving” drugs
d.
Importation of inexpensive European steel is
blocked
e.
California increases the tuition fees at state colleges
31) If a price index has a value of 120 in 2006, that means
a.
the government set prices 20% too high in 2006
b.
prices are 120 times higher than they should be
c.
the cost of living is 20% higher in 2006 compared
to a base year
d.
prices are 20% higher than they should be
e.
there are 20% more goods in the price index in
2006 than in a base year
32) Over much of the 20th Century, China, Japan, and
Brazil all grew faster than the US. The largest factor that
explains this is
a.
diminishing returns and the “catch-up” effect
because those countries began the century poorer
than the US
b.
better economic polices that encouraged trade and
investment
c.
more stable governments
d.
access to better technology and the creation of
better technology
e.
more investment in education and worker training
than the US
33) Gender discrimination (for example, women’s rights are
greatly restricted compared to men) in an economy
a.
May limit the development of human capital in
some people and limit growth
b.
Could lead to higher fertility rates which would
limit growth
c.
Is an example of an institution
d.
If lessened, can aid economic growth
e.
all the above
34) In the market for loanable funds, consumers play the
role of
a.
demanders for loanable funds
b.
demanders of private savings
c.
suppliers of public savings
d.
suppliers of private savings
e.
demanders of investment
35) If consumers spent less, then there would be
a.
an increase in demand for loanable funds
b.
a decrease in demand for loanable funds
c.
an increase in private savings
d.
a decrease in private savings
e.
an increase in public savings
36) The demanders of loanable funds are
a.
governments who run a deficit
b.
businesses who are investing
c.
consumers who spent more than they make
d.
consumers who save and want stocks and bonds
e.
banks
37) An increase in the supply of loanable funds and an
increase in the demand for loanable are similar in that they
both
a.
cause the interest rate to rise
b.
cause the interest rate to fall
c.
cause investment to increase
d.
cause investment to decrease
e.
cause a funds shortage
38) An increase in the supply of loanable funds and an
increase in the demand for loanable are different in that one
a.
causes the interest rate to rise, the other fall
b.
causes investment to increase, the other decrease
c.
causes growth to quicken, the other to slow
d.
all of the above
e.
none of the above
39) An increase in savings and an increase in investment are
similar in that they both
a.
cause interest rates to rise
b.
cause economic growth to quicken
c.
cause a surplus of loanable funds
d.
are caused by a change in investor sentiments
e.
all of the above
Answers:
1) d. since nominal GDP is goods and their prices, then
inflation or more goods can increases, but you don’t know
which. That is why we use real GDP.
2) a. If real income goes up, that means there are more
goods.
3) b. all the others are a form of national income. The CPI is
a measure of prices.
4) c. the two main changes in the history of nation income is
the tendency for income to rise, growth, and the up and down
movement, business cycles.
5) e. natural resources (land), tools (or capital) and labor are
all factors of the production of national income. The
inflation rate is not a theorized factor of production.
Inflation is not a resource used to make things (did Tom
Hanks need inflation to make stuff on his island?).
6) b. The production function describes that national income
is determined by the factors of production: labor and capital.
Increases in either will increase production.
7) c. Consumers buying more expensive goods which have
more features or more desirable qualities can be picked up
by the CPI and misinterpreted as inflation.
8) b. As consumers become more confident, they'll want to
spend more today which reduces current savings.
9) e. Real interest rates fall when either supply increases or
demand decreases. Only (e) will increase supply of funds as
consumers become more patient, they postpone spending and
save more.
10) d. Only the increase in technology will increase
investment. Higher interest rates, investor pessimism, and
elimination of government investment incentives would
reduce investment.
11) c. If consumers are less confident, then they will want to
prepare for potentially bad times by saving some extra
money.
12) b. The real interest rate adjusts for inflation. The real
interest rate described how much someone makes on savings
in terms of purchase of goods. We assume people are
motivated by the goods they can buy, not the dollars they
receive.
13) e. Because the question specified “nominal” interest rate
which is inflation and the real rate, we can’t be sure whether
inflation has gone up (which means there would be no effect)
or the real interest rate has gone up (which means investment
decreases and savings increases)
14) e. If savings is not equal to investment, then the supply
of loans is larger than the demand for loans, so there’s a
surplus of funds for loans. Money is building up in the bank
vaults. The economy will balance the two by lowering the
real interest rate.
15) a. The market will adjust the real interest rate to balance
the supply and demand for loans.
16) c. The main causes of economic growth are increases in
technology (e) and capital, both human (a) and physical (b,
which is funded by savings(d)).
17) d. A government budget deficit is just the opposite of a
government budget surplus. So an increase in the deficit is
the same as a decrease in the surplus.
18) b. Patent laws help to encourage technology which is the
most important source of economic growth. The other
policies would hinder growth.
19) c. The interest rate is the “cost of capital.” As it
becomes more expansive to borrow to finance investment,
some investment projects become unprofitable to the firm,
and firms will decided not to invest in those projects.
20) b. Solve this by viewing a burrito the same as nominal
income. Adjust the nominal value of a burrito by dividing by
the price level just like you would adjust nominal income.
So 1970 real value of a taco = .25 / .213 = $1.17. Today’s
value = .89 / 1.00 = .89. So today’s burrito is cheaper, real
price has gone down. Where did the 1.00 come from?
Today is the base year, so the price level value = 1.00 by
definition.
21) d. A common system of weights and measures is an
example of "rules" that people follow that allows society to
interact more productively.
22) c. Banks act as a go-between, or intermediary, bringing
together suppliers (savers) and demanders (investors).
23) e. Investment is critical to increase technology, physical
capital, and human capital which are the main sources of
growth. Savings funds that investment. Stable institutions
are also important.
24) d. Nominal is measured by current prices, and thus
inflation, which is the rise of current prices, can affect GDP.
Real income uses constant prices so inflation will not change
real income.
25) b. It’s an investment. a. is an intermediate good. c. is
not produced in the US. d is a do-it-yourself project and
isn’t measured. e is a used good.
26) b. GDP measures total income and total expenditure of
the people of an economy.
27) b. The final good, the bicycle, is valued at $200
28) d. It depends upon how much prices have gone up over
the same time period, more, less or the same as 300 fold. All
that we have is that nominal pay rates have gone up 300 fold.
If prices went up less than 300 fold, players are better off
today. If prices went up more than 300 fold, players are
worse off. We’d need to know how much price went up.
29) d. Inflation is not necessary for growth. Too much or
erratic inflation can even harm growth
30) a. Tax breaks that encourage investment would stimulate
some growth. Elimination of some property rights, less open
trade, and making it harder to develop human capital would
all be bad for growth.
31) c. A price index of 120 means prices are 120%, or 20%
higher, compared to some base year.
32) a. Since those countries started out significantly poorer
than the US, they had the opportunity to grow much faster.
This isn’t to say that answers b & e don’t play a role. It’s
possible other countries trained their workers better or
investment more or had better policies. But to explain the
large difference in growth rates, the Catch-up effect is the
most significant.
33) e. Discrimination can limit how human capital is
developed. If women are limited in their educational and
work options, they may have higher fertility rates which
would negatively impact growth. Discrimination should be
viewed as an institution. Lessening discrimination can create
more opportunities for growth.
34) d. Consumers supply private savings
35) c. If consumers spend less, then they must be saving
more (as long as disposable income has stayed the same)
36) b. Businesses demand loanable funds to fund investment
in their businesses.
37) c. In both examples, investment increases, and growth
will quicken
38) a. An increase in supply causes a surplus and the real
interest rate to fall. The increase in demand causes a
shortage and the real interest rate to rise.
39) b. With more investment, there’s more growth (along
with a shortage of funds and a higher interest rate). With
more savings, there will be more investment (with a surplus
of funds and lower interest rate) and faster growth.