Macro Econ Midterm

A nation's standard of living is determined by

a. the percentage of its GDP that is accounted for by government purchases.

b. the quantity of natural resources with which it is endowed.

c. the productivity of its workers.

d. factors and events that are beyond the nation's control.

c. the productivity of its workers

A nation's standard of living is best measured by its

a. real GDP.

b. real GDP per person.

c. nominal GDP.

d. nominal GDP per person.

b. real GDP per person

Which of the following measures how the level of well-being in a country has changed over time?

a. level of nominal GDP per person.

b. growth rate of nominal GDP.

c. growth rate of real GDP.

d. growth rate of real GDP per person

d. growth rate of real GDP per person

Countries that have lower levels of real GDP per person than the United States

a. tend to have growth rates that are higher than that of the United States.

b. tend to have growth rates that are about the same as that of the United States.

c. tend to have growth rates that are lower than that of the United States.

d. in some cases have growth rates that are higher than that of the United States and in other cases lower than that of the United States

d. in some cases have growth rates that are higher than that of the United States and in other cases lower than that of the United States.

Which of the following is an example of physical capital?

a. the available knowledge on how to make semiconductors

b. a taxi-cab driver's knowledge of the fastest routes to take

c. bulldozers, backhoes and other construction equipment

d. All of the above are correct

c. bulldozers, backhoes and other construction equipment

Ralph is a plumber. Which of the following are included in his human capital?

a. the knowledge he learned on the job, and the tools he uses

b. the knowledge he learned on the job, but not the tools he uses

c. the tools he uses, but not the knowledge he learned on the job

d. neither the knowledge he learned on the job nor the tools he uses

b. the knowledge he learned on the job, but not the tools he uses

A leading environmental group recently published a report contending that humans are running a "resource

deficit" because we are using natural resources faster than they can be regenerated. The group claims that

this means that economic growth will eventually stop, and will even be reversed. An economist would

a. agree with the report, and would point to rising natural resource prices as evidence.

b. agree with the report, but wouldn't think it was important because growth will not slow down for several

centuries.

c. disagree with the report, in part because it ignores the mitigating effects of technological change.

d. disagree with the report because labor and capital are the primary determinants of growth, and since they are plentiful, growth will not slow down.

c. disagree with the report, in part because it ignores the mitigating effects of technological change

Perry accumulated a lot of mathematical skills while in high school, college, and graduate school.

Economists include these skills as part of Perry's

a. proprietary knowledge.

b. technological knowledge.

c. human capital.

d. physical capital.

c. human capital.

Which of the following statements is correct?

a. Productivity is a determinant of human capital per worker.

b. Technological knowledge is a determinant of productivity.

c. Human capital and technological knowledge are the same thing.

d. All of the above are correct.

b. Technological knowledge is a determinant of productivity.

In a particular production process, if the quantities of all inputs used are increased by 60%, then the

quantity of output increases by 60% as well. This means that

a. the production process cannot be enhanced by technological advances.

b. no mathematical representation of the relevant production function can be formulated.

c. the relevant production function has the limits-to-growth property.

d. the relevant production function has constant-returns-to-scale.

d. the relevant production function has constant-returns-to-scale.

"When workers have a relatively small quantity of capital to use in producing goods and services, givingthem an additional unit of capital increases their productivity by a relatively large amount." This statement

a. is an assertion that production functions have the property of constant returns to scale.

b. is consistent with the view that capital is subject to diminishing returns.

c. is inconsistent with the view that it is easier for a country to grow fast if it starts out relatively poor.

d. All of the above are correct.

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except

one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose

that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we

would expect that

a. the growth rate will not change in either country.

b. the country that started with less capital per worker will grow faster.

c. the country that started with more capital per worker will grow faster.

d. both countries will grow and at the same higher rate.

b. the country that started with less capital per worker will grow faster.

When a country saves a larger portion of its GDP than it did before, it will have

a. more capital and higher productivity.

b. more capital and lower productivity.

c. less capital and higher productivity.

d. less capital and lower productivity

a. more capital and higher productivity.

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire

the necessary funds from someone else,

a. their consumption expenditures are being financed by someone else's saving.

b. their consumption expenditures are being financed by someone else's investment.

c. their investments are being financed by someone else's saving.

d. their saving is being financed by someone else's investment.

c. their investments are being financed by someone else's saving.

When public saving falls by $2b and private saving falls by $1b in a closed economy,

a. investment falls by $1b.

b. investment falls by $3b.

c. investment increases by $1b.

d. investment falls by $2b

b. investment falls by $3b.

Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government

purchases equal 4,000 and taxes equal 3,000. What are private saving, public saving, and national saving?

a. -2,000, 1,000, and 2,000, respectively.

b. 1,000, 2,000, and 3,000, respectively.

c. 2,000, -1,000, and 1,000, respectively.

d. 2,000, 1,000, and 2,000, respectively

The slope of the demand for loanable funds curve represents the

a. positive relation between the real interest rate and investment.

b. negative relation between the real interest rate and investment.

c. positive relation between the real interest rate and saving.

d. negative relation between the real interest rate and saving

b. negative relation between the real interest rate and investment.

Other things the same, when the interest rate rises,

a. people would want to lend more, making the supply of loanable funds increase.

b. people would want to lend less, making the supply of loanable funds decrease.

c. people would want to lend more, making the quantity of loanable funds supplied increase.

d. people would want to lend less, making the quantity of loanable funds supplied decrease.

c. people would want to lend more, making the quantity of loanable funds supplied increase.

If the government institutes policies that diminish incentives to save, then in the loanable funds market

a. the demand for loanable funds shifts rightward.

b. the demand for loanable funds shifts leftward.

c. the supply of loanable funds shifts rightward.

d. the supply of loanable funds shifts leftward.

d. the supply of loanable funds shifts leftward.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the

reserve requirement.

a. It has $80 in reserves and $9,920 in loans.

b. It has $8,000 in reserves and $2,000 in loans.

c. It has $1,250 in reserves and $8,750 in loans.

d. It has $800 in reserves and $9,200 in loans.

d. It has $800 in reserves and $9,200 in loans.

Which of the following best represents fiat money?

a. Monopoly money

b. Baseball cards

c. A gold bar

d. The euro

d. The euro

The federal funds rate is the

a. interest rate at which banks lend reserves to each other overnight.

b. interest rate at which the Federal Reserve makes short-term loans to banks.

c. percentage of deposits that banks must hold as reserves.

d. percentage of face value that the Federal Reserve is willing to pay for Treasury Securities.

a. interest rate at which banks lend reserves to each other overnight.

The leverage ratio is calculated as

a. assets divided by bank capital.

b. the required reserve ratio multiplied by bank capital.

c. the reciprocal of the required reserve ratio.

d. assets minus liabilities.

Which of the following is included in both M1 and M2?

a. Currency, demand deposits, and other checkable deposits

b. Currency, demand deposits, and savings deposits

c. Traveler's checks, demand deposits, and savings deposits

d. Currency and money market mutual funds

When in France you notice that prices are posted in euros. This best illustrates money's function as

a. a store of value.

b. a unit of account.

c. a method of barter.

d. a medium of exchange.

The shoeleather cost of inflation refers to the

a. redistributional effects of unexpected inflation.

b. time spent searching for low prices when inflation rises.

c. waste of resources used to maintain lower money holdings.

d. increased cost to the government of printing more money.

c. waste of resources used to maintain lower money holdings.

If there is inflation, then a firm that has kept its price fixed for some time will have a

a. low relative price. Relative-price variability falls as the inflation rate rises

b. low relative price. Relative-price variability rises as the inflation rate rises.

c. high relative price. Relative-price variability rises as the inflation rate rises.

d. high relative price. Relative-price variability falls as the inflation rate rises

According to the classical dichotomy, which of the following increases when the money supply

increases?

a. The nominal wage

b. The real GDP

c. The real interest rate

d. The real wage

a. The nominal wage

In order to maintain stable prices, a central bank must

a. maintain low interest rates.

b. keep unemployment low.

c. tightly control the money supply.

d. sell indexed bonds

c. tightly control the money supply.

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

a. The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria,Hungary, Germany, and Poland.

b. Neither the quantity theory nor evidence from classic hyperinflations that occurred during the 1920s

in Austria, Hungary, Germany, and Poland.

c. The quantity theory but not evidence from classic hyperinflations that occurred during the 1920s in

Austria, Hungary, Germany, and Poland.

d. Evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany,

and Poland but not the quantity theory.

a. The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

The claim that increases in the growth rate of the money supply increase nominal interest rates but not

real interest rates is known as the

a. inflation tax.

b. Fisher Effect.

c. Friedman Effect.

d. Hume Effect

b. Fisher Effect.

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as

did the price level. Before taxes, you experienced

a. a nominal gain, but no real gain, and you paid taxes on the nominal gain.

b. a nominal gain, but no real gain, and you paid no taxes on the transaction.

c. both a nominal gain and a real gain, and you paid taxes on the nominal gain.

d. both a nominal gain and a real gain, and you paid taxes only on the real gain.

a. a nominal gain, but no real gain, and you paid taxes on the nominal gain.

If the price level increased from 120 to 144, then what was the inflation rate?

a. 17 percent

b. 24 percent

c. 25 percent

d. 20 percent

d. 20 percent