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: P 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 Good Quantity Price Food 20 $6 Clothing 10 $8 Year 2 Good Quantity Price Food 25 $10 Clothing 20 $7 1) Year 1 nominal GDP is A) $200. B) $310. C) $390. D) $270. 1) 2) Year 2 nominal GDP is A) $200. B) $310. C) $390. D) $270. 2) 3) Suppose that Year 1 is the base year. Year 2 real GDP is A) $270. B) $310. C) $390. D) $200. 3) 4) Suppose that Year 2 is the base year. Year 1 real GDP is A) $390. B) $200. C) $270. D) $310. 4) 5) Suppose that Year 1 is the base year. What is the growth rate of GDP? A) 55% B) 110% C) 70% D) 35% 5) 6) Suppose that Year 2 is the base year. What is the growth rate of GDP? A) 120% B) 67.5% C) 58% D) 44.4% 6) 7) Suppose that Year 1 is the base year. The CPI for Year 2 is approximately A) 170.0. B) 240.0. C) 100.0. D) 135.0. 7) 8) Suppose that Year 2 is the base year. The CPI for Year 1 is approximately A) 80.0. B) 90.0. C) 120.0. D) 100.0. 8) 9) In a general equilibrium model A) all markets but one clear. B) all prices are exogenous. C) there are no fluctuations. D) all prices are endogenous. 9) 10) 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) the turning points of GDP happen before its turning points. D) its persistence is smaller than that of GDP. 10) 2
11) The second fundamental theorem of welfare economics states that 11) A) a Pareto optimum is always a competitive equilibrium. B) a competitive equilibrium is always Pareto optimal. C) under certain conditions, a Pareto optimum is a competitive equilibrium. MULTIPLE CHOICE. D) under certain Choose conditions, the one alternative a competitive that equilibrium best completes is Pareto the statement optimal. 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 12) the Negative table below. correlation between x and y implies that 12) A)x/y < 0. B) when x is high, y is high. C)when Year 1 x is high, y is low. D)xy < 0. Good Quantity Price Food 13) The fact 20 that indifference $6 curves are bowed in toward the origin 13) Clothing A) follows 10 from $8 the property that the consumer likes diversity in his or her consumption bundle. B) is not true. C)follows Year 2 from the fact that more is preferred to less. Good D) Quantity follows from Price the property that consumption and leisure are normal goods. Food 25 $10 Clothing 14) The construct 20 of $7 a representative firm is most helpful in describing the behavior of all of the firms 14) in the economy when A) there are decreasing returns to scale. B) the marginal product of labor is increasing in the amount of labor input. C) there are increasing returns to scale. D) there are constant returns to scale. 15) When a macroeconomic aggregate is procyclical A) it grows faster than GDP. B) its deviations from trend generally change more that the deviations from trend in GDP. C) its deviations from trend generally change before the deviations from trend in GDP do. D) its deviations from trend are more often of the same sign as the deviations from trend in GDP. 15) 16) Employment tends to be A) countercyclical and less variable than real GDP. B) procyclical and more variable than real GDP. C) countercyclical and more variable than real GDP. D) procyclical and less variable than real GDP. 16) 17) The presence of a distorting tax on wage income can result in A)MRTl,C < MRSl,C. B)MPN < w. C)MRSl,C < MPN. D)MPN < MRTl,C. 17) 18) 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 18) If the real wage is 7, how many workers should Widget Company hire? A) none B) 3 C)2 D) 4 19) The frequency of the business cycle refers to 19) 3
19) The frequency of the business cycle refers to A) how long a cycle lasts. B) how variable it is. C)how large the deviations from trend are. D) how much it leads or lags. 20) The production function is concave in labor because A) the marginal product of labor is increasing. B) the marginal product of capital is decreasing. C) the contribution to production of each additional unit of labor decreases. D) the labor demand is downward sloping. 19) 20) 21) The principle that consumers and firms optimize A) is not helpful because some economic agents may behave irrationally. B) is helpful because it determines the available technology. C)is helpful because it allows us to analyze how economic agents respond to changes in their environment. D) only applies to perfectly competitive markets. 21) 22) A competitive equilibrium may fail to be Pareto optimal due to all of the following except A) distorting taxes. B) non-price-taking firms. C) inequality. D) externalities. 22) 23) The property of diminishing marginal rate of substitution follows from the property that the indifference curve is A) bowed out from the origin. B) downward sloping. C) bowed in toward the origin. D) upward sloping. 23) 24) A turning point is A) a boom or a recession. B) a change in policy. C)a peak or a trough. D) a zero deviation from trend. 25) The fact that indifference curves are downward sloping A) follows from the fact that more is preferred to less. B) is not true. C) follows from the property that consumption and leisure are normal goods. D) follows from the property that the consumer likes diversity in his or her consumption bundle. 24) 25) 26) Changes in total factor productivity are plausible causes of business cycles because A) of the welfare theorems. B) the U.S. government is following supply-side economic policy. C) the model matches many stylized facts. D) prices are countercyclical. 26) 27) The real wage denotes A) the number of units of labor time that can be exchanged for one unit of consumption goods. 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 consumption goods that can be exchanged for one unit of labor time. 27) 4
28) If the government replaces a lump sum tax with a proportional labor income tax, then A) employment and output decrease. B) employment decreases and output increases. C) employment and output increase. D) employment increases and output decreases. 28) 29) An increase in government spending shifts the PPF A) downward, and also changes its slope. B) upward, but does not change its slope. C) upward, and also changes its slope. D) downward, but does not change its slope. 29) 30) Predicting business cycles is difficult because A) the weather changes unpredictably. B) statistics lie. C) their frequency is irregular. D) they are very persistent. 30) 31) An increase in government spending A) increases consumption, decreases output. B) increases consumption and output. C) decreases consumption, increases output. D) decreases consumption and output. 31) 32) If a macroeconomic variable tends to aid in predicting the future path of real GDP, it is said to be a A) leading variable. B) convenient variable. C) lagging variable. D) coincident variable. 32) 33) Business cycle persistence refers to the property that A) real GDP is rarely exactly at trend. B) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend. C) business cycles are persistently hard to predict. D) booms and recessions last a long time. 33) 34) In response to an increase in total factor productivity A) the substitution effect suggests that hours worked should increase, while the income effect suggests that hours worked should decrease. B) both the substitution effect and the income effect suggest that hours worked should increase. C) both the substitution effect and the income effect suggest that hours worked should decrease. D) the substitution effect suggests that hours worked should decrease, while the income effect suggests that hours worked should increase. 34) 35) The vertical intercept of the consumer's budget line is equal to A)π - T. B)wh + π - T. C)c + w(l - h). D)h + (π - T) w. 35) 36) 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) $85K B) $80K C) $190K D) $260K 36) 5
37) When consumption and leisure are both normal goods, after an increase in real dividend income minus taxation, the rational consumer A) increases consumption and reduces leisure. B) increases consumption and increases leisure. C) reduces consumption and reduces leisure. D) reduces consumption and increases leisure. 37) 38) 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) $24,000 B) $28,000 C) $25,000 D) $29,000 38) 39) Which of the following is wrong with respect to an increase in total factor productivity? A) Households are better off. B) Output is up. C)The real wage is down. D) Consumption is up. 40) 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. 39) 40) 6
Answer Key Testname: QUIZ1P 1) A 2) C 3) B 4) C 5) A 6) D 7) A 8) A 9) D 10) C 11) C 12) C 13) A 14) D 15) D 16) D 17) C 18) B 19) A 20) C 21) C 22) C 23) C 24) C 25) A 26) C 27) D 28) A 29) D 30) C 31) C 32) A 33) B 34) A 35) B 36) C 37) B 38) B 39) C 40) A 7