Second Midterm: Morning Exam Version 1-
BINARY CHOICES QUESRIONS:
1. One of the reasons the aggregate production function shows diminishing returns to labor is that as the number of workers increases
a. the quantity of land and capital per worker decreases.
b. the quantity of land and capital in the economy decreases.
2. Consider the demand for loanable funds by the businesses in the country of Myland. If the real interest rate is 4%, the quantity of funds demanded is $5 million. If the real interest rate increases to 5%, the quantity of funds demanded will be
a. less than $5 million.
b. $5 million.
3. According to the classical model, if the central bank of a country increases the supply of money:
a. the price level in this country will increase.
b. the Real GDP of this country will increase.
4. Which of the following statements is true about actual real GDP?
a. Actual real GDP can exceed potential real GDP.
b. When actual real GDP equals potential real GDP, it also equals actual nominal GDP.
5. Households increase the quantity of labor they supply when the
a. Real wage rate rises because the opportunity cost of not working falls.
b. Real wage rate rises because the opportunity cost of not working rises.
6. Holding everything else constant and assuming taxes are zero, an increase in the marginal propensity to consume
a. may or may not increase consumption in the short-run equilibrium due to its effect on the equilibrium output.
b. always increases consumption in the short-run equilibrium.
7. In the Keynesian model, cyclical unemployment is caused by
a. a negative spending shock.
b. a positive spending shock.
8. When aggregate expenditure is less than aggregate income, inventories
a. decrease.
b. increase.
9. A decrease in the income tax will
a. increase the labor supply.
b. increase the quantity of labor supplied.
MULTIPLE CHOICES QUESTIONS:
10. Economic growth is defined as a long-run increase in an economy's
a. employment rate.
b. total output of physical goods only.
c. total output of both goods and services.
d. money supply.
11. Consider the following demand and supply of labor information for the country of Simpleland:
LS = w - 5
LD = 120 - 3w
(w = real hourly wage)
At a real hourly wage of $25
a. the labor market in Simpleland is in equilibrium.
b. there is an excess demand of 25 workers.
c. there is an excess demand of 45 workers.
d. there is an excess supply of 25 workers.
12. The assumption that markets clear in the classical model means that:
a. the price in every market is fixed, and the demand and supply curves will shift so that quantities supplied and demanded are equal at that particular price.
b. the prices in all markets instantaneously adjust so that the quantities supplied and demanded are equal.
c. subsidies are paid by the government to producers and consumers so that the quantity demanded and supplied are equal.
d. international trade is not allowed.
Please consider the following table for the next two questions:
|
Real interest rate
(percent per year)
|
Planned Investment
(billions of
2003 dollars)
|
Private saving
(billions of
2003 dollars)
|
Net taxes
(billions of 2003 dollars)
|
Government purchases
(billions of 2003
dollars)
|
|
3
|
60
|
20
|
40
|
20
|
|
4
|
50
|
30
|
40
|
20
|
|
5
|
40
|
40
|
40
|
20
|
|
6
|
30
|
50
|
40
|
20
|
|
7
|
20
|
60
|
40
|
20
|
13. When the real interest rate is 6 percent, then the
a. total supply of funds is equal to $50 billion and budget surplus is $20 billion .
b. total supply of funds is equal to $70 billion and budget deficit is $20 billion.
c. total supply of funds is equal to $70 billion and budget surplus is $20 billion.
d. total supply of funds is equal to $50 billion and budget deficit is $20 billion.
14. The equilibrium interest rate is
a. 4 %.
b. 5 %.
c. 6 %.
d. 3 %.
15. To determine GDP from the production function, we need to know
a. the quantity of labor employed.
b. the quantity of labor available for work.
c. the unemployment rate.
d. the quantity of labor supplied by firms.
16. The demand and the supply of labor in the country of Yourland are:
LS = 4w - 10
LD = 80 - 2w
The aggregate production function is:
Real GDP (in billions) = 60 - 2500/200 + Quality of Labor
The real GDP corresponding to the full employment (potential output) is
a. $100 billion.
b. $40 billion.
c. $50 billion.
d. $10 billion.
17. In the Classical model, a fiscal policy that increases government spending and leaves taxes unchanged is going to cause (assume income is unchanged)
a. an increase in both private consumption and private savings.
b. an increase in private saving, but a decrease in private consumption.
c. only a decrease in private savings.
d. a shift to the right of the supply of loanable funds.
18. Consider the following information about the country of Myland:
(G - T) = $600
T = $400
I = $800 - 4000 iR
The equilibrium interest rate, iR, is 10%
(Hint: in this problem, the real interest rate is written as a decimal: e.g., if the real interest rate is 10%, it is written as iR=0.10).
According to the Classical model, leakages in this problem equal
a. $1,400.
b. $1,000.
c. $600.
d. $1,800.
19. An economic boom due to an increase in labor demand
a. will cause labor productivity to decrease.
b. will cause labor productivity to remain the same.
c. will cause labor productivity to increase.
d. will have an uncertain effect on labor productivity.
The tables below show a nation's labor demand and labor supply schedules and its production function
|
Real wage rate
(2003 dollars)
|
Quantity of
labor demanded
(billions of hours per year)
|
Quantity of
labor supplied
(billions of hours per year)
|
Employment
(billions of hours per year)
|
Real GDP
(billions of 2003 dollars)
|
|
50
|
80
|
100
|
60
|
2.0
|
|
40
|
90
|
90
|
70
|
3.0
|
|
30
|
100
|
80
|
80
|
3.7
|
|
20
|
110
|
70
|
90
|
4.2
|
|
10
|
120
|
60
|
110
|
4.5
|
20. In the country described above, the equilibrium real wage rate is ____ , the equilibrium quantity of labor is ____ billion hours per year and the potential GDP is ____ billions of 2003 dollars.
a. $50; 100; $4.5
b. $40; 90; $4.2
c. $30; 80; $4.2
d. $40; 90; $4.5
21. Many European countries have laws that require firms to pay large fines when firing workers. This policy is most likely to have the unintended consequence of
a. reducing the probability of a recession.
b. reducing the probability of a boom.
c. increasing the real wage.
d. speeding up the adjustment after a recession.
22. The MPC is 0.8. Holding everything else constant, if government purchases increase by $1 and taxes decrease by $2, the short-run equilibrium level of output will increase by
a. $1.
b. $3.
c. $13.
d. $15.
23. If autonomous consumption is $1,000, the MPC is 0.75, taxes are $500, investment spending is $800, and government purchases equal $500, what is equilibrium GDP? (Assume net exports equal 0.)
a. $1,925
b. $9,200
c. $2,567
d. $7,700
24. In the simple short-run Keynesian model presented in Chapter 10, if GDP=$5 trillion and aggregate expenditure=$4.6 trillion, we would expect
a. prices to fall until the additional $0.4 trillion of output was sold.
b. prices to rise.
c. output to rise as businesses anticipate that buyers will spend more in the future to compensate for weak spending in this period.
d. inventories to rise by $0.4 trillion.
25. Suppose the labor market is initially in equilibrium and that you are using a classical model. Holding everything else constant, government decreases the income tax. This will result in
a. lower labor productivity since workers can reduce their work effort and still maintain the same level of income due to the lower income tax rate.
b. a downward shift in the aggregate production function since less labor will be available.
c. an upward shift in the aggregate production function since more labor will be available.
d. lower labor productivity since workers will choose to supply more labor when the income tax decreases.
Use the information below to answer the next two questions:
|
Y
|
T
|
C
|
|
0
|
10
|
16
|
|
100
|
10
|
56
|
|
200
|
10
|
96
|
|
300
|
10
|
136
|
26. What is the consumption function as a function of aggregate income?
a. C=20+.4(Y-T)
b. C=16+.4(Y-T)
c. C=16+.4Y
d. C=24+.4Y
27. What is the saving function as a function of disposable income?
a. S=-20+.6(Y-T)
b. S= -16+.6(Y-T)
c. S= -16+.6Y
d. S= -24+.6Y
Use the information below to answer the next two questions:
|
Year
|
Population
|
Employment
|
Output
|
|
1990
|
250 million
|
120 million
|
$ 10 billion
|
|
1994
|
300 million
|
150 million
|
$ 12 billion
|
|
1998
|
350 million
|
200 million
|
$ 15 billion
|
|
2002
|
350 million
|
250 million
|
$ 20 billion
|
28. What is labor productivity in 1994?
a. $ 27.27 / worker
b. $ 42.86 / worker
c. $ 80 / worker
d. $ 75 / worker
29. By how much has the average standard of living increased between 1990 and 1998?
a. 6.25%
b. 7.15%
c. 7.75%
d. 5.5%