Intermediate MacroeconomicsFall 2015Assignment 1 (Answer sheet) Due: Oct. 13Multiple choicesShort Answers:Intermediate MacroeconomicsFall 2015Assignment 1Due: Oct. 13Multiple Choices:1.All of the following are types of macroeconomics data except the:A.price of an IBM computer.B.growth rate of real GDP.C.inflation rate.D.unemployment rate.2. A measure of how fast prices are rising is called the:A.growth rate of real GDP.B.inflation rate.C.unemployment rate.D.market-clearing rate.3.Recessions are periods when real GDP:A.increases slowly.B.increases rapidly.C.decreases mildly.D.decreases severely.pared with a recession, real GDP during a depression:A.increases more rapidly.B.increases at approximately the same rate.C.decreases at approximately the same rate.D.decreases more severely.5.Deflation occurs when:A.real GDP decreases.B.the unemployment rate decreases.C.prices fall.D.prices increase, but at a slower rate.6.Exogenous variables are:A.fixed at the moment they enter the model.B.determined within the model.C.the outputs of the model.D.explained by the model.7.Endogenous variables are:A.fixed at the moment they enter the model.B.determined within the model.C.the inputs of the model.D.from outside the model.8.Important characteristics of macroeconomic models include all of the following except:A.simplifying assumptions.B.functional relationships based on controlled experiments.C.endogenous and exogenous variables.D.implicit or explicit consistency with microeconomic foundations.9.The assumption of continuous market clearing means that:A.sellers can sell all that they want at the going price.B.buyers can buy all that they want at the going price.C.in any given month, buyers can buy all that they want and sellers can sell all that they want at thegoing price.D.at any given instant, buyers can buy all that they want and sellers can sell all that they want at thegoing price.10.How does the distinction between flexible and sticky prices impact the study of macroeconomics?A.The study of flexible prices is confined to microeconomics, while macroeconomics focuses onsticky prices.B.Macroeconomists use flexible prices to explain inflation and sticky prices to explainunemployment.C.Flexible prices are typically assumed in the study of the long run, while sticky prices are assumedin the study of the short run.D.Endogenous variables are measured using flexible prices, while exogenous variables aremeasured using sticky prices.11.The economic statistic used to measure the level of prices is:A.GDP.B.CPIC.GNPD.Real GDP12.GDP is all of the following except the total:A.expenditure of everyone in the economy.B.income of everyone in the economy.C.expenditure on the economy's output of goods and services.D.output of the economy.13.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.B.consumption expenditures of everyone in the economy.C.expenditures of all businesses in the economy.ernment expenditures.14.An economy's ______ equals its ______.A.consumption; incomeB.consumption; expenditure on goods and servicesC.expenditure on goods; expenditures on servicesD.income; expenditure on goods and services15.Which of the following is a flow variable?A.WealthB.the number unemployedernment debtD.income16.All of the following are a stock except:A. a consumer's wealth.B.the government budget deficit.C.the number of unemployed people.D.the amount of capital in the economy.17.The amount of capital in an economy is a ______ and the amount of investment is a ______.A.flow; stockB.stock; flowC.final good; intermediate goodD.intermediate good; final good18.To compute the value of GDP:A.goods and services are valued at market prices.B.the sale of used goods is included.C.production for inventory is not included.D.goods and services are valued by weight.19.Since GDP includes only the additions to income, not transfers of assets, ______ are not included inthe computation of GDP.A.final goodsed goodsC.consumption goodsD.goods produced for inventory20.When a firm sells a product out of inventory, investment expenditures ______ and consumptionexpenditures ______.A.increase; decreaseB.decrease; increaseC.decrease; remain unchangedD.remain unchanged; increase21.Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sellsyou a hamburger made from that meat for $2. In this case, the value included in GDP should be:A.$0.50.B.$1C.$2D.$322.Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers$10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is:A.$10,000.B.$12,000.C.$20,000.D.$22,000.23.An example of an imputed value in the GDP is the:A.value-added of meals cooked at home.B.housing services enjoyed by homeowners.C.services of automobiles to their owners.D.value of illegal drugs sold.24.The underground economy:A.is included in the latest GDP accounts.B.includes only illegal activities.C.includes domestic workers for whom Social Security tax is not collected.D.excludes the illegal drug trade.25.Nominal GDP is measured in _____ dollars _____ time.A.current; at a point inB.current; per unit ofC.constant; at a pointa inD.constant; per unit of26.Real GDP means the value of goods and services is measured in ______ prices.A.CurrentB.ActualC.ConstantD.Average27.If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is thevalue of the GDP deflator?A.0.79B. 1.03C. 1.27D. 1.3028.The GDP deflator is equal toA.the ratio of nominal GDP to real GDP.B.the ratio of real GDP to nominal GDP.C.real GDP minus national GDP.D.nominal GDP minus real GDP.29.If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew byapproximately ______ percent.A. 2B. 3C. 5D.830.Nominal GDP measures the value of goods and services in ______ prices, while real GDP measuresthe value of goods and services in ______ prices.A.foreign; domesticB.domestic; foreignC.current; constantD.constant; current31.In the national income accounts, consumption expenditures include all of the following excepthousehold purchases of:A.durable goods.B.nondurable goods.C.new residential housing.D.services.32.In the national income accounts, goods bought for future use are classified as which type ofexpenditure?A.ServicesB.Investmenternment purchases exports33.In the national income accounts, government purchases are goods and services purchased by:A.the federal government.B.the federal and state governments.C.state and local governments.D.federal, state, and local governments.34.All of the following actions are investments in the sense of the term used by macroeconomists except:A.IBM's building a new factory.B.corner candy store's buying a new computer.C.John Smith's buying a newly constructed home.D.Sandra Santiago's buying 100 shares of IBM stock.35.In 2010 in the United States, the approximate percentage of GDP that was spent on consumptionwas:A.67 percentB.50 percent.C.31 percent.D.16 percent.36.GNP equals GDP ______ income earned domestically by foreigners ______ income that nationalsearn abroad.A.plus; plusB.minus; minusC.minus; plusD.plus; minus37.National income differs from net national product by an amount called:A.depreciation.B.indirect business taxes.C. a statistical discrepancy. foreign factor income payments.38.Disposable personal income:A.is computed by subtracting personal tax and nontax payments from personal income.B.is generally greater than personal income.C.includes corporate profits but not dividends.D.does not include government transfers to individuals.39.Prices of items included in the CPI are:A.averaged with the price of every item weighted equally.B.weighted according to amount of the item produced in GDP.C.weighted according to quantity of the item purchased by the typical household.D.chained to the base year by the year-to-year growth rate of the item.40.Measuring the rate of inflation using a market basket that excludes food and energy prices ispreferred by some analysts because this measure, called core inflation,A.provides a real, rather than a nominal, rate of inflation.B.gives a better measure of ongoing, sustained price changes.C.is more consistent with measures of inflation used in other countries.D.fluctuates more than measures of inflation that include food and energy prices.41.Unlike the GDP deflator, the CPI includes the prices of:A.goods purchased by firms.B.goods purchased by governments.C.exported goods.D.imported goods.42.The labor force equals the:A.adult population.B.number of employed individuals.C.number of unemployed individuals.D.number of employed and unemployed individuals.43.If 7 million workers are unemployed, 143 million workers are employed, and the adult populationequals 200 million, then the unemployment rate equals approximately ______ percent.A. 3.5B. 4.7C. 4.9D.744.If the unemployment rate is 6 percent and the number of employed is 188 million, then the laborforce equals ______ million.A.11.28B.176.72C.188D.20045.If an increasing proportion of the adult population is retired, then the labor force participation rate:A.will increase.B.will decrease.C.will remain constant.D.may increase, decrease, or remain constant.46.The employment statistics computed from the establishment survey do not include:A.workers with two jobs.B.the self-employed.C.workers on firms' payrolls.D.part-time workers on firms' payrolls.47.An estimate of total employment in the economy can be obtained from:A.both the household and establishment surveys.B.from the household survey, but not from the establishment survey.C.from the establishment survey, but not from the household survey.D.from neither the household nor the establishment surveys.48.A woman marries her butler. Before they were married, she paid him $60,000 per year. He continuesto wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage:A.does not change GDP.B.decreases GDP by $60,000.C.increases GDP by $60,000.D.increases GDP by more than $60,000.49.The circular flow model shows that households use income for:A.consumption, saving, and factor payments.B.consumption, taxes, and factor payments.C.taxes, saving, and factor payments.D.consumption, taxes, and saving.50.In the circular flow model, households receive income from the _____ market and save through the_____ market.A.goods; financialB.factor; financialC.goods; factorD.factor; goods51.An economy's factors of production and its production function determine the economy's:bor force participation rate.B.budget surplus or deficit.C.population growth rate.D.output of goods and services.52.The two most important factors of production are:A.goods and services.bor and energy.C.capital and labor.D.saving and investment.53.A production function is a technological relationship between:A.factor prices and the marginal product of factors.B.factors of production and factor prices.C.factors of production and the quantity of output produced.D.factor prices and the quantity of output produced.54.If an increase of an equal percentage in all factors of production results in an increase in output of thesame percentage, then a production function has the property called:A.constant marginal product of labor.B.increasing marginal product of labor.C.constant returns to scale.D.increasing returns to scale.55.At any particular point in time, the output of the economy:A.is fixed because the supplies of capital and labor and the technology are fixed.B.is fixed because the demand for goods and services is fixed.C.varies because the supplies of capital and labor vary.D.varies because the technology for turning capital and labor into goods and services varies.56.The price received by each factor of production for its services is determined by:A.demand for output and supply of factors.B.demand for factors and supply of output.C.demand and supply of output.D.demand and supply of factors.57.A firm's economic profit is:A.the price of output minus the wage minus the rental price of capital.B.revenue minus costs.C.revenue plus capital costs.D.the price of output minus labor costs.58.The property of diminishing marginal product means that, after a point, when additional quantitiesof:A. a factor are added, output diminishes.B.both labor and capital are added, output diminishes.C.both labor and capital are added, the marginal product of labor diminishes.D. a factor are added when another factor remains fixed, the marginal product of the first factordiminishes.59.The real wage is the return to labor measured in:A.dollars.B.units of output.C.units of labor.D.units of capital.60.An increase in the supply of capital will:A.increase the real rental price of capital.B.decrease the real rental price of capital.C.increase the productivity of capital.D.decrease the real interest rate.61.Economic profit is zero if:A.all factors are paid their marginal products and the law of diminishing returns is valid.B.all factors are paid their marginal products and there are constant returns to scale.C.all firms maximize profits and none are competitive.D.all firms maximize profits and all factors are paid their marginal products.62.According to the neoclassical theory of distribution, if firms are competitive and subject to constantreturns to scale, total income in the economy is distributed:A.only to the labor used in production.B.partly between labor and capital used in production, with the surplus going to the owners of thefirm as profits.C.equally between the labor and capital used in production.D.between the labor and capital used in production, according to their marginal productivities.63.If output is described by the production function Y = AK0.2L0.8, then the production function has:A.constant returns to scale.B.diminishing returns to scale.C.increasing returns to scale.D. a degree of returns to scale that cannot be determined from the information given.64.Skill-biased technological change ______ the demand for high-skilled workers, while the slowdownin the pace of educational advancement reduces the supply of skilled workers, resulting in relatively _____ wages for skilled workers.A.increases; higherB.increases; lowerC.decreases; higherD.decreases; lower65.The demand for output in a closed economy is the sum of:A.public saving and private saving.B.the quantity of capital and labor and production technology.C.consumption, investment, and government spending.ernment purchases and transfer payments minus tax receipts.66.Consumption depends ______ on disposable income, and investment depends ______ on the realinterest rate.A.positively; positivelyB.positively; negativelyC.negatively; negativelyD.negatively; positively67.If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increasesby:A.0.15 units.B.0.5 units.C.0.85 units.D. 1 unit.68.Assume that the consumption function is given by C = 150 + 0.85(Y–T), the tax function is given byT = t0 + t1Y, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by:A.85B.425C.500D.52569.Investment goods as measured in the GDP are purchased by:A.business firms alone.B.households alone.C.business firms and households.D.business firms, households, and governments.70.When economists speak of “the” interest rate, they mean:A.the rate on 90-day Treasury bills.B.the rate on 30-year government bonds.C.the “prime” rate on loans.D.no particular interest rate, since it is assumed that various interest rates tend to move up anddown together.71.The real interest rate is the:A.rate of interest actually paid by consumers.B.rate of interest actually paid by banks.C.rate of inflation minus the nominal interest rate.D.nominal interest rate minus the rate of inflation.72.The investment function slopes ______ because there are ______ investment projects that areprofitable as the interest rate decreases.A.upward; fewerB.upward; moreC.downward; fewerD.downward; more73.If government purchases exceed taxes minus transfer payments, then the government budget is:A.balanced.B.in deficit.C.in deficit.D.endogenous.74.In examining the impact of fiscal policy, it is assumed that:A.consumption, investment, and the interest rate are endogenous variables.B.consumption, investment, and the interest rate are exogenous variables.ernment purchases, taxes, and interest rates are endogenous variables.ernment purchases, taxes, and interest rates are exogenous variables.75.The demand for the economy's output:A.is always equal to the supply, regardless of the interest rate.B.may be computed provided that we know disposable income.C.is equal to consumption, investment, and government purchases.D.is determined by government purchases and taxes.76.In the classical model with fixed income, if the interest rate is too low, then investment is too______ and the demand for output ______ the supply.A.high; exceedsB.high; falls short ofC.low; exceedsD.low; falls short of77.In a closed economy, Y–C–G equals:A.national saving.B.private saving.C.public saving.D.financial saving.78.If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfersare 800, private saving is:A.300B.500C.1000D.130079.When the demand for loanable funds exceeds the supply of loanable funds, households want to save______ than firms want to invest and the interest rate ______.A.more; risesB.more; fallsC.less; risesD.less; falls80.Crowding out occurs when an increase in government spending ______ the interest rate andinvestment ______.A.increases; increasesB.increases; decreasesC.decreases; increasesD.decreases; decreasesShort answers:1.Assume that the equation for demand for bread at a small bakery is Q d = 60 – 10P b + 3Y, where Q d isthe quantity of bread demanded in loaves and Y is the average income in the town in thousands of dollars.a. If the average income in the town is 10, state the equation for Q d in terms of Pb.b. Draw a graph of the demand curve with Q d on the horizontal axis and P b on the vertical axis.Label the curve DD.a. Q d = 90 – 10P bb.2.Assume two countries have the same nominal GDP (measured in the same currency using the sameaccounting rules). Explain at least three reasons why you cannot assume that citizens in each country enjoy approximately the same level of economic well-being.Some possible, but not all, explanations include:a. different price levels in the two countries would result in different amounts of real GDP, i.e.,different quantities of goods and services available in each country;b. different-sized populations could result in different quantities of goods and services available perperson in each country;c. different levels of nonmarket production in the two countries would alter the quantity of goodsand services available in each country;d. different amounts of leisure time available (not captured in nominal GDP figures) would causeeconomic well-being to differ in the two countries;e. different distributions of income in the two countries could alter the quantity of goods andservices available to the typical citizen in each country;f. different quantities of both positive and negative externalities associated with producing GDP,such as pollution and congestion, which are not measured in GDP, would cause the different levels of economic well-being between the two countries.3.There are a number of measures of aggregate economic activity, such as GDP, GNP, nationalincome, personal income, and disposable personal income. Each of these measures can be a goodindicator depending on the issue under consideration. For each of the following issues, give your reasons for selecting one of the measures just mentioned as the best indicator to use in studying the issue:a. the proportion of income households save;b. the relative share of earnings going to labor versus capital;c. the total output of final goods and services.a. Disposable personal income provides a measure of the income households have to use foreither consumption or saving after they pay taxes.b. National income provides a measure of the income going to the factors of production.c. GDP is the most complete measure of the value of newly produced goods and services in theeconomy. In contrast, personal income includes transfer payments, which do not represent newly produced goods and services.4.Assume that GDP (Y) is 5,000. Consumption (C). is given by the equation C = 1,000 + 0.3(Y–T).Investment (I) is given by the equation I = 1,500 – 50r, where r is the real interest rate in percent.Taxes (T) are 1,000 and government spending (G) is 1,500.a. What are the equilibrium values of C, I, and r?b. What are the values of private saving, public saving, and national saving?c. Now assume there is a technological innovation that makes business want to invest more. Itraises the investment equation to I = 2,000 – 50r. What are the new equilibrium values of C, I, and r?d. What are the new values of private saving, public saving, and national saving?a. 2,200; 1,300; 4 percentb. 1,800; –500; 1,300c. 2,200; 1,300; 14 percentd. 1,800; –500; 1,3005.Consider two competitive economies that have the same quantities of labor (L = 400) and capital(K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb–Douglas production functions:North Economy: Y = A L.3K.7South Economy: Y = A L.7K.3a. Which economy has the larger total production? Explain.b. In which economy is the marginal product of labor larger? Explain.c. In which economy is the real wage larger? Explain.d. In which economy is labor's share of income larger? Explain.a. Output is the same in both economies, given the symmetry of the parameters of theproductions function and the equal quantities of labor and capital.b. The MPL is larger in the South Economy. The MPL depends on the value of (1 –) and theaverage productivity of labor (Y/L). Since the average productivity of labor is the same inboth countries, differences in the MPL depend on the value of (1 –), which is larger in South Economy (.7) than in North Economy (.3).c. Since factors are paid according to the values of their marginal products, the real wage islarger in South Economy, because the MPL is larger in South Economy than in North Economy (from part b).d. Labor's share of income equals (1 –), which is larger in South Economy (.7) than in NorthEconomy (.3).。
