Quiz I Topics in Macroeconomics 2 Econ 2004 You have 35 min to complete the quiz. Please write the letter of your answer choice in the space provided on this COLOURED FRONT SHEET!. Clearly write your name and student ID number in the space provided! Name Stduent ID Your Answers: 1) 11) 21) 31) 2) 12) 22) 32) 3) 13) 23) 33) 4) 14) 24) 34) 5) 15) 25) 35) 6) 16) 26) 36) 7) 17) 27) 37) 8) 18) 28) 38) 9) 19) 29) 39) 10) 20) 30) 40) University of Southampton code: O MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. For the following questions, suppose an economy produces only food and clothing, and that price and quantity data are given in the table below. Year 1 Food 20 $6 Clothing 10 $8 Year 2 Food 25 $10 Clothing 20 $7 1) Year 1 nominal GDP is A) $390. B) $270. C) $310. D) $200. 1) 2) Year 2 nominal GDP is A) $200. B) $270. C) $310. D) $390. 2) 3) Suppose that Year 1 is the base year. Year 2 real GDP is A) $200. B) $270. C) $390. D) $310. 3) 4) Suppose that Year 2 is the base year. Year 1 real GDP is A) $310. B) $390. C) $270. D) $200. 4) 5) Suppose that Year 1 is the base year. What is the growth rate of GDP? A) 35% B) 55% C) 70% D) 110% 5) 6) Suppose that Year 2 is the base year. What is the growth rate of GDP? A) 67.5% B) 58% C) 120% D) 44.4% 6) 7) Suppose that Year 1 is the base year. The CPI for Year 2 is approximately A) 100.0. B) 240.0. C) 135.0. D) 170.0. 7) 8) Suppose that Year 2 is the base year. The CPI for Year 1 is approximately A) 100.0. B) 120.0. C) 90.0. D) 80.0. 8) 9) When consumption and leisure are both normal goods, after an increase in real dividend income minus taxation, the rational consumer A) increases consumption and increases leisure. B) reduces consumption and reduces leisure. C) reduces consumption and increases leisure. D) increases consumption and reduces leisure. 9) 2
10) In response to an increase in total factor productivity A) the substitution effect suggests that hours worked should decrease, while the income effect suggests that hours worked should increase. B) both the substitution effect and the income effect suggest that hours worked should decrease. C) both the substitution effect and the income effect suggest that hours worked should increase. D) the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 11) Changes in total factor productivity are plausible causes of business cycles because 11) For the following questions, suppose an economy produces only food and clothing, and that price and quantity data are A) the U.S. government is following supply-side economic policy. given in the table below. B) prices are countercyclical. C) of the welfare theorems. Year 1 D) the model matches many stylized facts. Food 20 $6 Clothing 12) Negative 10 correlation $8 between x and y implies that 12) A) when x is high, y is high. B)xy < 0. C)when Year 2 x is high, y is low. D)x/y < 0. Food 13) When 25 a macroeconomic $10 aggregate is procyclical 13) Clothing A) its 20 deviations $7 from trend generally change more that the deviations from trend in GDP. B) its deviations from trend generally change before the deviations from trend in GDP do. C)it grows faster than GDP. D) its deviations from trend are more often of the same sign as the deviations from trend in GDP. 10) 14) The principle that consumers and firms optimize A) only applies to perfectly competitive markets. B) is not helpful because some economic agents may behave irrationally. C) is helpful because it determines the available technology. D) is helpful because it allows us to analyze how economic agents respond to changes in their environment. 14) 15) Predicting business cycles is difficult because A) statistics lie. B) their frequency is irregular. C) they are very persistent. D) the weather changes unpredictably. 15) 16) You are a baker. You paid $150K in wages, $50K for dough, $20K for power, $5K in interest for a business loan, $25K in taxes, and made a profit of $10K. How much did you contribution to GDP using the product approach? A) $190K B) $260K C) $85K D) $80K 16) 17) The fact that indifference curves are downward sloping A) follows from the fact that more is preferred to less. B) follows from the property that consumption and leisure are normal goods. C) follows from the property that the consumer likes diversity in his or her consumption bundle. D) is not true. 17) 3
18) Here is what we know about a household: wages $25,000, unemployment insurance benefits $3,000, dividend income $4,000, income tax $5,000. What is the contribution to GDP of this household following the expenditure approach? A) $28,000 B) $25,000 C) $29,000 D) $24,000 18) 19) An increase in government spending shifts the PPF A) downward, but does not change its slope. B) upward, but does not change its slope. C) downward, and also changes its slope. D) upward, and also changes its slope. 19) 20) A lagging variable can be recognized by the fact that A) its persistence is larger than that of GDP. B) its turning points happen before the turning points of GDP. C)its persistence is smaller than that of GDP. D) the turning points of GDP happen before its turning points. 20) 21) The presence of a distorting tax on wage income can result in A)MPN < MRTl,C. B)MPN < w. C)MRTl,C < MRSl,C. D) MRSl,C < MPN. 21) 22) The property of diminishing marginal rate of substitution follows from the property that the indifference curve is A) downward sloping. B) upward sloping. C)bowed out from the origin. D) bowed in toward the origin. 23) Real consumption tends to be A) procyclical and less variable than real GDP. B) procyclical and more variable than real GDP. C) countercyclical and less variable than real GDP. D) countercyclical and more variable than real GDP. 22) 23) 24) Business cycle persistence refers to the property that A) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend. B) real GDP is rarely exactly at trend. C)booms and recessions last a long time. D) business cycles are persistently hard to predict. 24) 25) Employment tends to be A) countercyclical and more variable than real GDP. B) countercyclical and less variable than real GDP. C) procyclical and more variable than real GDP. D) procyclical and less variable than real GDP. 25) 26) The second fundamental theorem of welfare economics states that A) a competitive equilibrium is always Pareto optimal. B) under certain conditions, a Pareto optimum is a competitive equilibrium. C) under certain conditions, a competitive equilibrium is Pareto optimal. D) a Pareto optimum is always a competitive equilibrium. 26) 4
27) In a general equilibrium model A) there are no fluctuations. B) all prices are endogenous. C) all markets but one clear. D) all prices are exogenous. 27) 28) The vertical intercept of the consumer's budget line is equal to (π- T) A)wh + π - T. B)c + w(l - h). C)h +. D)π - T. w 28) 29) The frequency of the business cycle refers to A) how variable it is. B) how much it leads or lags. C)how long a cycle lasts. D) how large the deviations from trend are. 30) The construct of a representative firm is most helpful in describing the behavior of all of the firms in the economy when A) there are decreasing returns to scale. B) there are increasing returns to scale. C) there are constant returns to scale. D) the marginal product of labor is increasing in the amount of labor input. 29) 30) 31) A competitive equilibrium may fail to be Pareto optimal due to all of the following except A) inequality. B) distorting taxes. C) non-price-taking firms. D) externalities. 31) 32) The fact that indifference curves are bowed in toward the origin A) follows from the property that consumption and leisure are normal goods. B) follows from the property that the consumer likes diversity in his or her consumption bundle. C)follows from the fact that more is preferred to less. D) is not true. 32) 33) An increase in government spending A) decreases consumption and output. B) decreases consumption, increases output. C) increases consumption, decreases output. D) increases consumption and output. 33) 34) If a macroeconomic variable tends to aid in predicting the future path of real GDP, it is said to be a A) convenient variable. B) coincident variable. C) leading variable. D) lagging variable. 34) 35) Which of the following is wrong with respect to an increase in total factor productivity? A) Consumption is up. B) Households are better off. C)The real wage is down. D) Output is up. 36) The production function is concave in labor because A) the marginal product of labor is increasing. B) the labor demand is downward sloping. C) the marginal product of capital is decreasing. D) the contribution to production of each additional unit of labor decreases. 35) 36) 5
37) Look at the production schedule of the Widget Company below: Number of workers 0 1 2 3 4 5 Number of widgets 0 12 22 30 36 40 37) If the real wage is 7, how many workers should Widget Company hire? A) 3 B) none C)2 D) 4 38) A turning point is A) a change in policy. B) a peak or a trough. C)a zero deviation from trend. D) a boom or a recession. 39) If the government replaces a lump sum tax with a proportional labor income tax, then A) employment and output decrease. B) employment and output increase. C) employment decreases and output increases. D) employment increases and output decreases. 38) 39) 40) The real wage denotes A) the number of units of consumption goods that can be exchanged for one unit of labor time. B) the number of units of leisure time that can be exchanged for one unit of labor time. C)the number of units of labor time that can be exchanged for one unit of leisure time. D) the number of units of labor time that can be exchanged for one unit of consumption goods. 40) 6
Answer Key Testname: QUIZ1O 1) D 2) D 3) D 4) C 5) B 6) D 7) D 8) D 9) A 10) D 11) D 12) C 13) D 14) D 15) B 16) A 17) A 18) A 19) A 20) D 21) D 22) D 23) A 24) A 25) D 26) B 27) B 28) A 29) C 30) C 31) A 32) B 33) B 34) C 35) C 36) D 37) A 38) B 39) A 40) A 7