ECON 2201 Study Guide - Midterm Guide: Nominal Interest Rate, Retained Earnings, Real Interest Rate
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3 Nov 2015
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National income accounting: the national income accounts is an accounting framework used in measuring current. Econ 2201 chapter 2 economic activity: there are three approaches to calculate national income. Fundamental identity of national income accounting: total production = total income = total expenditure. It is a sum of value added value of an output minus value of its inputs. Gdp versus gnp: gross national product (gnp) is the market value of final goods newly produced by domestic factors of production (capital, labour) during the current period, canadian owned capital and labour used abroad produce output and income. They are included into canadian gnp, not gdp: foreign owned capital and labour used in canada produce output and income. The expenditure approach to measuring gdp: y = c + i +g + nx, gdp, total production or total income or total expenditure, consumption (57. 1% of gdp), consumer durable goods, semi-durable goods, nondurable goods, services.
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| Q1. The total resource cost of goods and services produced by the U. S. economy is known as a. real GDP b. personal income c. national wealth d. national income Q2. The difference between GDP and final sales equals a. depreciation b. exports c. imports d. net inventory change Q3. Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income. a. true b. false Q4. If a lawn service mows your grass, it is included in the GDP. a. true b. false Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered a(n) a. final good b. intermediate good c. consumer good d. capital consumption allowance Q6. Imports constitute a minus figure in national income accounting. a. true b. false Q7. The total value added in the production of a final good a. exceeds the price of the final good b. equals the price of the final good c. exceeds the total payments made to owners of productive resources used in the production d. both (b) and (c) Q8. The GDP is reported on a monthly basis by the Department of Commerce. a. true b. false Q9. Transfer payments are added to NI in the process of determining personal income. a. true b. false Q10. U.S. gross domestic product is converted to U.S. gross national product by a. adding the value of output produced by U.S.-owned resources in foreign countries b. subtracting the value of output produced by U.S.-owned resources in foreign countries c. subtracting the value of output produced in the United States by foreign-owned resources d. both (a) and (c) Q11. Final sales are always larger than the GDP. a. true b. false Q12. Because of the value of things produced inside households, (building your own desk, mowing your own lawn, etc.) a. the GDP value is automatically adjusted upward to reflect this b. the GDP value is automatically adjusted downward to reflect this c. Official GDP is surely smaller than true total output d. Official GDP is surely larger than true total output Q13. A government surplus may trigger a decline in the money supply. a. true b. false Q14. Real wages are determined by multiplying money wages by the CPI. a. true b. false Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred payment. a. true b. false Q16. An increase in the money supply always causes an increase in the price level. a. true b. false Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise? a. 30 percent b. 16.7 percent c. 8.33 percent d. 12 percent Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries have a. increased about 40 percent b. increased slightly c. remained about the same d. declined Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of a. $50,000 b. $500 c. $5,000 d. $4,500 Q20. The effect of a change in the money supply on economic activity may be offset by a change in velocity. a. true b. false Q21. The current base period for the CPI is a. 1967 b. 1977 c. 1982â1984 d. 1990 Q22. In the circular flow, an increase in the money supply tends to result when a. planned I equals planned S b. planned I is less than planned S c. planned I is greater than planned S d. there is a surplus government budget Q23. COLA is a form of indexation. a. true b. false Q24. The total checkable deposits a bank may have can be determined by dividing its reserves by the reserve requirement. a. true b. false Q25. The Financial Services Modernization Act a. reinforced the Glass Steagall Act b. prevented mergers of banks c. eliminated barriers between banks, brokerage houses, and insurance companies d. eliminated all banking regulations Q26. Each Federal Reserve Bank has its own board of directors. a. true b. false Q27. The most frequently used tool of U.S. monetary policy is a. the discount rate b. the reserve requirement c. open-market operations d. moral suasion Q28. When the Fed conducts open-market operations, it primarily uses a. Treasury bills b. long-term U.S. government bonds c. bonds of publicly traded corporations d. overnight loans of major banks Q29. The Board of Governors of the Federal Reserve System has a. 6 members b. 7 members c. 1 member from each Federal Reserve Bank d. 20 members Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement. a. true b. false Q31. The interest rate at which banks borrow excess reserves from each other is known as the a. prime rate b. federal funds rate c. discount rate d. T-bill rate Q32. If member banks need to borrow reserves, they must do so through the discount window. a. true b. false Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy Report. a. true b. false Q34. In terms of the total number of payments, which of the following comprises the largest share? a. cash b. personal checks c. debit cards d. credit cards Q35. By buying government securities, the Federal Open Market Committee adds to member banks' reserves. a. true b. false Q36. More than 50 percent of commercial banks in the United States belong to the Federal Reserve System. a. true b. false Q37. The Federal Reserve System is built around a. 4 regional banks b. 6 regional banks c. 12 district banks d. 1 bank with several branches Q38. The time lags lead monetarists to contend that monetary policy is counterproductive. a. true b. false Q39. The marginal propensity to consume is a. the fraction of an increase in income that would be spent on consumer goods b. the additional desire people have for consumer goods c. the fraction of a person's total income normally spent for consumer goods d. the change in consumption resulting from a $1 change in the price level Q40. The consumption function shows a. how fast the economy is consuming its capital b. that the amount of national income determines the rate at which the economy consumes its resources c. that households' incomes determine how much the households will spend for consumer goods d. the rate at which people actually use up their consumer goods Q41. In the simple Keynesian model, if output exceeds aggregate expenditures, a. there will be no response from businesses b. inventories will decrease and businesses will increase output c. inventories will increase and businesses will increase output d. inventories will increase and businesses will decrease output Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by a. $30 billion b. $20 billion c. $45 billion d. $90 billion Q43. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the a. multiplier effect b. marginal propensity to consume c. marginal propensity to invest d. consumption function Q44. In the multiplier formula, 1/MPS equals the multiplier. a. true b. false Q45. The classical economists held that chronic unemployment was likely. a. true b. false Q46. As income increases, the absolute level of planned consumption will increase. a. true b. false Q47. The new classical school contends that government fiscal policy is better than monetary policy in controlling inflation. a. true b. false Q48. Higher price levels are associated with lower aggregate expenditure at every level of income. a. true b. false Q49. Any time that planned leakages exceed planned injections, the economy will expand. a. true b. false Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to a. reduce total employment in the United States b. increase total employment in the foreign country c. reduce total output in the United States d. increase total output in the United States |
Question 1:
The annual income that can be consumed without diminishing the total capital assets of a nation is
| purchasing power parity income. |
| sustainable national income. |
| environmental capital stock. |
| per capita income. |
Question 2:
Maintaining the rainforest is very important because
| of its absorptive capacity for CO2 emissions. |
| of maintaining agricultural production of countries dependent on the rainforest such as Brazil. |
| ensuring a successful land reform policy. |
| encouraging rainforest settlement of the poor |
Question 3:
Which of the following leads to an underallocation of resources to a specific economic activity?
| External benefits |
| Marginal costs |
| External costs |
| Marginal benefits |
Question 4:
The free-rider problem plagues public goods because
| once public goods are produced it is not possible to exclude anyone from consuming these goods. |
| the public doesn't care about public goods. |
| public goods are not produced by profit-maximizing firms and hence can be produced only at a loss to society. |
| policymakers ignore opportunity costs in making decisions |
Question 5:
Which of the following methods could be used to correct for external costs?
| Require firms in the industry to install pollution control devices. |
| Impose a tax or an effluent fee on the offenders. |
| Have the offender clean up the pollution it caused. |
| All of the above would be appropriate. |
Question 6:
To correct for a negative externality, a government might impose a uniform tax related only to the physical quantity of pollution if
| the economic damages are zero. |
| the administrative costs are high. |
| the cost of ascertaining the actual economic costs are relatively small. |
| the economic damages associated with the pollution are different across different locations. |
Question 7:
In order to internalize the externality due to pollution, the government should impose a tax based on
| the size of the firm causing the pollution. |
| the physical amount of pollution. |
| the value of the pollution-causing business activity. |
| the economic damage associated with the pollution. |
Question 8:
In a market for emission permits, firms that emit over their allowed limits
| pay a price of these emissions. |
| are forced to shut down. |
| are taxed by the government for the amount of emissions. |
| receive a subsidy for the amount of emissions. |
Question 9:
The 1997 Kyoto Protocol was signed by
| more than three dozen nations. |
| all nations in the world. |
| only the United States and the European Union. |
| only nations in Asia. |
Question 10:
The problem of overfishing in waters that are commonly owned can be solved by
| subsidizing fishing. |
| establishing property rights for fishing in the waters. |
| the use of the Coase Theorem. |
| allowing the market to ration fish. |