Macro Exam #1: Practice Test Questions – Flashcards

According to the article "The poor and the rich," which of the following features of the neoclassical growth model was called into question by the "new growth theory"? a. Constant returns to scale b. The neoclassical production function c. The role of government expenditure d. The law of diminishing returns

The real exchange rate is equal to the nominal exchange rate (units of foreign currency per dollar) times a. U.S. prices minus foreign prices. b. U.S. prices divided by foreign prices. c. foreign prices divided by U.S. prices. d. None of the above

Foreign direct investment occurs when a Chinese corporation a. opens a new Chinese factory. b. purchases stock issued in China. c. purchases 1,000 shares of stock issued by an American company. d. opens a new factory in France.

4. If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge? a. 1% b. 5% c. 6% d. 9%

5. The article "Can India Overtake China" lists several reasons why India is still lagging behind China in terms of GDP and other growth benchmarks. Which of the following is not one of the reasons given? a. India's economic reforms began later than China's b. India's national savings rate is less than China's c. Technology growth has been slower in India than in China d. Indian politics and foreign relations are more volatile than Chinese politics and foreign affairs

6. An increase in the real interest rate results in which of the following? a. an increase in the demand for loanable funds b. a decrease in the demand for loanable funds c. an increase in the quantity of loanable funds supplied d. Both B and C will occur as a result of an increase in the real interest rate.

7. What are some of the problems of microfinance as detailed in the article "The hidden wealth of the poor"? I. Credit can mean social upheaval as merit and enterprise replace inheritance and social position II. Commercial elites resent the prospect of future competition from microfinance loan recipients III. Microfinance has prevented the entry of larger, better capitalized banks into the market IV. Defaults on microfinance loans may go unreported or are underreported a. I and III only b. I, II and IV only c. III and IV only d. I, II, III and IV

In 2005, Freedonia produced 80 units of Redbull and 40 units of Doritos and the cost of $5 and $4 respectively. In 2013, it produced 90 units of Redbull and 60 units of Doritos and the cost of $6 and $10 respectively. Thus real GDP for Freedonia for 2013 using 2005 as the base year equals: a. $ 1,140 b. $ 560 c. $ 690 d. $ 880

9. In a closed economy, a. I = Y - C + G. b. I = Y - C - G. c. I = Y + C + G. d. I = Y + C - G.

10. When r increases: a. C goes down, I goes down, NX goes down. b. C goes down, I goes down, NX goes up. c. C goes down, I goes up, NX goes down. d. C goes up, I goes up, NX goes down.

11. The "new growth theory" states that increases in ________ capital are subject to ________. a. knowledge; decreasing returns b. physical; increasing returns c. knowledge; increasing returns d. financial; decreasing returns

12. Which of the following could cause nominal GDP to decrease, but real GDP to increase? a. The price level rises and the quantity of final goods and services produced falls. b. The price level falls and the quantity of final goods and services produced falls. c. The price level falls and the quantity of final goods and services produced rises. d. The price level rises and the quantity of final goods and services produced rises.

13. In July 20, Recently, the price of a Big Mac in the U.S. was $3.57. In Mexico, the average price of a Big Mac at that time was 33 pesos. What should the nominal exchange rate be if purchasing power parity holds? a. 0.108 pesos per dollar b. 8.25 pesos per dollar c. 9.24 pesos per dollar d. 11.78 pesos per dollar

14. If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years? a. 270% b. 50% c. 5% d. 2.7%

15. In the article "Unlocking Growth in Africa," Kenneth Rogoff specifies four things that African countries should do to spur growth. Which of the following is not one of them? a. Protect domestic industries from foreign competition b. Become more open to trade and FDI c. Improve the flexibility of their labor and product markets d. Improve the flexibility of their price and exchange rate systems

16. If the U.S. nominal exchange rate appreciates, U.S. exports a. increase and U.S. imports decrease. b. decrease and U.S. imports increase. c. and U.S. imports both increase. d. and U.S. imports both decrease.

17. If inflation in Russia is higher than it is in the United States, according to purchasing power parity, a. the purchasing power of the ruble in buying Russian goods will rise. b. the ruble will depreciate in the long run. c. the ruble will appreciate in the long run. d. Both a and c are correct.

18. Labor productivity will increase if the ________ increases and ________. a. quantity of capital per hour worked; technology improves b. quantity of labor per unit of capital; immigration increases while capital is fixed c. quantity of capital per hour worked; immigration increases while capital is fixed d. quantity of labor per unit of capital; technology improves

19. If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size? a. 12 years b. 21 years c. 23 years d. 35 years

20. The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010? a. $45,977 b. $66,565 c. $87,200 d. $143,486

21. If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is a. 1.25 b. 12.5 c. 125 d. 800

22. Refer to Figure 11-2. The movement from A to B to C illustrates a. one reason why poorer countries might grow faster than richer countries. b. a decline in capital per worker hour due to diminishing marginal returns. c. an improvement in technology due to funding of research and development. d. diminishing returns to labor due to an increase in unemployment.

23. Refer to Figure 11-2. Using the per-worker production function in the figure above, the largest improvement in an economy's standard of living would be achieved by a movement from a. D to B to E. b. A to B to C. c. C to B to A. d. E to B to D.

24. According to the "institutional approach" to economic growth, if a country does not have a well-developed, honest legal system, a. that country will grow more rapidly because of the reduction of law suits. b. that country's growth rate will not be affected. c. the market system will still work smoothly. d. entrepreneurs are less likely to risk their own funds investing in such an economy.

25. When an economy is at its natural rate of unemployment, which of the following will be true? a. The unemployment rate will be 0%. b. Only structural unemployment as a result of technological change will exist in the economy. c. The unemployment rate will be greater than 0%. d. The labor force participation rate will be 100%.

26. Which of the following expenditures would not be classified as investment? a. The purchase of a new house by a family b. An increase in the inventory of Ford Motor Company c. The purchase of stock in Facebook by a hedge fund d The purchase of a new fleet of trucks by UPS

27. What is the largest component of spending in the United States? a. government spending b. investment spending c. net investment spending d. consumption spending

28. Mike has been unemployed for over a year. He hasn't looked for a job in the last three months, but he's just started looking for work again. Because Mike started looking for a new job, a. the unemployment rate decreased. b. the unemployment rate increased. c. the working-age population increased. d. the labor force participation rate decreased.

29. The "environmental approach" to economic development stresses which of the following as essential in order for low-income countries to escape their poverty? a. Foreign aid b. Openness to foreign trade c. Stable, honest government d. Protection of natural resources

30. A paperback book in the U.S. costs $6. In Chile it costs 4 pesos. If the nominal exchange rate is 1/2 peso per dollar, what is the real exchange rate? a. 2/3 b. 1/4 c. 4/3 d. 3/4