Review of Exam 1

1. In a simple model of the supply and demand for pizza, the endogenous variables are:
A) the price of pizza and the price of cheese.
B) aggregate income and the quantity of pizza sold. C) aggregate income and the price of cheese. D) the price of pizza and the quantity of pizza sold.

1. In a simple model of the supply and demand for pizza, the endogenous variables are:
A) the price of pizza and the price of cheese.
B) aggregate income and the quantity of pizza sold. C) aggregate income and the price of cheese. D) the price of pizza and the quantity of pizza sold.

2. 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 on sticky prices. B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment. C) Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run. D) Endogenous variables are measured using flexible prices, while exogenous variables are measured using sticky prices.

2. 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 on sticky prices. B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment. C) Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run. D) Endogenous variables are measured using flexible prices, while exogenous variables are measured using sticky prices.

3. 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. D) government expenditures.

3. 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. D) government expenditures.

4. 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.

4. 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.

5. The CPI is determined by computing:

A) an average of prices of all goods and services. B) the price of a basket of goods and services that changes every year, relative to the same basket in a base year. C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. D) nominal GDP relative to real GDP.

5. The CPI is determined by computing:

A) an average of prices of all goods and services. B) the price of a basket of goods and services that changes every year, relative to the same basket in a base year. C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. D) nominal GDP relative to real GDP.

6. If the number of employed increases while the number of unemployed does not change, the unemployment rate:
A) will increase.
B) will decrease. C) will not change. D) may either increase or decrease.

6. If the number of employed increases while the number of unemployed does not change, the unemployment rate:
A) will increase.
B) will decrease. C) will not change. D) may either increase or decrease.

7. The two most important factors of production are:

A) goods and services. B) labor and energy. C) capital and labor. D) saving and investment.

7. The two most important factors of production are:

A) goods and services. B) labor and energy. C) capital and labor. D) saving and investment.

8. The property of diminishing marginal product means that, after a point, when additional quantities of:
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 that factor diminishes.

8. The property of diminishing marginal product means that, after a point, when additional quantities of:
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 that factor diminishes.

9. According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:
A) only to the labor used in production. B) between the labor and capital used in production, according to their marginal productivities. C) equally between the labor and capital used in production. D) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits.

9. According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:
A) only to the labor used in production. B) between the labor and capital used in production, according to their marginal productivities. C) equally between the labor and capital used in production. D) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits.

10. 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. D) government purchases and transfer payments minus tax receipts.

10. 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. D) government purchases and transfer payments minus tax receipts.

11. 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.

11. 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.

12. The equation Y = C(Y T) + I(r) + G may be solved for the equilibrium level of: A) income.
B) consumption. C) government purchases. D) the interest rate.

12. The equation Y = C(Y T) + I(r) + G may be solved for the equilibrium level of: A) income.
B) consumption. C) government purchases. D) the interest rate.

13. In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on ______, the amount of investment spending depends on ______, and the amount of government spending is determined ______.

A) disposable income; the interest rate; exogenously B) the real wage; the real rental price of capital; by factor prices C) labor's share of output; capital's share of output; by the interest rate D) the interest rate; disposable income; by tax revenue

13. In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on ______, the amount of investment spending depends on ______, and the amount of government spending is determined ______.

A) disposable income; the interest rate; exogenously B) the real wage; the real rental price of capital; by factor prices C) labor's share of output; capital's share of output; by the interest rate D) the interest rate; disposable income; by tax revenue

14. When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes:
A) output per worker.
B) output per unit of capital. C) the marginal product of labor. D) the marginal product of capital.

14. When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the line denotes:
A) output per worker.
B) output per unit of capital. C) the marginal product of labor. D) the marginal product of capital.

15. If the national saving rate increases, the:

A) economy will grow at a faster rate forever.
B) capital-labor ratio will increase forever. C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. D) capital-labor ratio will eventually decline.

15. If the national saving rate increases, the:

A) economy will grow at a faster rate forever.
B) capital-labor ratio will increase forever. C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. D) capital-labor ratio will eventually decline.

16. Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have ______ level of total output and ______ rate of growth of output per worker as/than the country with the lower saving rate.
A) the same; the same
B) the same; a higher

C) a higher; the same

D) a higher; a higher

16. Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have ______ level of total output and ______ rate of growth of output per worker as/than the country with the lower saving rate.
A) the same; the same
B) the same; a higher

C) a higher; the same

D) a higher; a higher

17. The Golden Rule level of the steady-state capital stock:

A) will be reached automatically if the saving rate remains constant over a long period of time. B) implies a choice of a particular saving rate.
C) will be reached automatically if each person saves enough to provide for his or her retirement. D) should be avoided by an enlightened government.

17. The Golden Rule level of the steady-state capital stock:

A) will be reached automatically if the saving rate remains constant over a long period of time. B) implies a choice of a particular saving rate.
C) will be reached automatically if each person saves enough to provide for his or her retirement. D) should be avoided by an enlightened government.

18. The efficiency of labor:

A) is the marginal product of labor. B) is the rate of growth of the labor force. C) includes the knowledge, health, and skills of labor. D) equals output per worker.

18. The efficiency of labor:

A) is the marginal product of labor. B) is the rate of growth of the labor force. C) includes the knowledge, health, and skills of labor. D) equals output per worker.

19. In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:
A) the rate of population growth.

B) the saving rate.

C) the rate of technological progress. D) the rate of population growth plus the rate of technological progress.

19. In the Solow growth model with population growth and technological change, the steady-state growth rate of income per person depends on:
A) the rate of population growth.

B) the saving rate.

C) the rate of technological progress. D) the rate of population growth plus the rate of technological progress.

20. In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, total output grows at a ______ percent rate.
A) 0 B) 2

C) 3
D) 5

20. In a Solow model with technological change, if population grows at a 2 percent rate and the efficiency of labor grows at a 3 percent rate, then in the steady state, total output grows at a ______ percent rate.
A) 0 B) 2

C) 3
D) 5

21. Endogenous growth theory rejects the assumption of exogenous:

A) production functions.
B) rates of depreciation. C) population growth rates. D) technological change.

21. Endogenous growth theory rejects the assumption of exogenous:

A) production functions.
B) rates of depreciation. C) population growth rates. D) technological change.

22. Money that has no value other than as money is called ______ money.
A)fiat
B) intrinsic C) commodity D) government

22. Money that has no value other than as money is called ______ money.
A)fiat
B) intrinsic C) commodity D) government

23. Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the rate of inflation in this country?

A) 3 percent B) 7 percent

C) 10 percent
D) 13 percent

23. Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the rate of inflation in this country?

A) 3 percent B) 7 percent

C) 10 percent
D) 13 percent

24. According to the Fisher effect, the nominal interest rate moves one-forone with changes in the:
A) inflation rate. B) expected inflation rate.
C) ex ante real interest rate. D) ex post real interest rate.

24. According to the Fisher effect, the nominal interest rate moves one-forone with changes in the:
A) inflation rate. B) expected inflation rate.
C) ex ante real interest rate. D) ex post real interest rate.

25. If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level. A) increase; increase B) increase; decrease

C) decrease; increase
D) decrease; decrease

25. If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level. A) increase; increase B) increase; decrease

C) decrease; increase
D) decrease; decrease