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Quiz 1 Macroeconomics (Econ 5000) (1) Recessions are periods when real GDP: a. b. c. d. increases slowly increases rapidly decreases mildly decreases severely (2) A measure of how fast prices are rising is called the: a. b. c. d. growth rate of real GDP inflation rate unemployment rate interest rate (3) Deflation occurs when a. b. c. d. nominal GDP increases unemployment rate decreases prices increases at a slower rate prices fall (4) It is a national income accounting rule that all expenditure on purchases of products is necessarily equal to: a. b. c. d. profits of firms wages of employees income of the producers of the products income of employees (5) The market value of all final goods and services produced within an economy in a given period of time is called: a. b. c. d. industrial production the GDP deflator gross domestic product general durable purchases (6) When a firm sells a product out of inventory, GDP: a. b. c. d. increases decreases increases or decreases, depending on the year the product was produced is not changed (7) The value added on an item produced means: a. b. c. d. a firm’s profit on the item sold the value of the labor inputs in the production of an item the value of firm’s output less the value of its costs the value of firm’s output less the value of the intermediate goods that the firm purchases (8) The GDP deflator is equal to: a. b. c. d. the ratio of nominal GDP to real GDP the ratio of real GDP to nominal GDP real GDP minus nominal GDP nominal GDP minus real GDP (9) If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and the government purchases are $1,098, then net exports are: a. b. c. d. $131 -$131 $31 -$31 (10) The CPI is determined by computing: a. an average price of all goods and services b. nominal GDP relative to real GDP c. the price of a basket of goods that changes every year, relative to the same basket in a base year d. the price of fixed basket of goods and services, relative to the price of the same basket in a base year (11) Other things equal, an increase in the interest rate leads to: a. b. c. d. a decrease in the quantity of investment goods demanded no change in the quantity of investment goods demanded an increase in the quantity of investment goods demanded sometimes an increase and sometimes a decrease in the quantity of investment goods demanded (12) The real interest rate is the: a. rate of interest actually paid by the consumers b. rate of interest actually paid by the banks c. rate of inflation minus the nominal interest rate d. nominal interest rate minus the rate of inflation (13) In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will: a. b. c. d. increase decrease remain unchanged either increase or decrease, depending on whether consumption is greater than or less than investment (14) In a closed economy with fixed output, when government spending increases: a. b. c. d. private saving decreases private saving increases public saving decreases public saving increases (15) The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called: a. b. c. d. Answers: (1) c (2) b (3) d (4) c (5) c (6) d (7) d (8) a (9) d (10) d (11) a (12) d (13) b (14) c (15) d a budget deficit monetary policy the identification problem crowding out