ECO 302 Week 5 Quiz – Strayer
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Chapters 6 and 7
Chapter 6
TRUE/FALSE
1. Bond
holdings and interest income are zero for the whole economy.
2. The
household real budget constraint shows that household real consumption is equal
to household real income plus household real saving.
3. In
the Barro model prices like the real wage adjust to clear markets like the
labor market.
4. In
the Barro model the nominal rate of return on capital, (R/P) - is greater than the nominal return on bonds,
i, because capital is viewed by households as more risky than bonds.
5. Real
profit equals real output plus spending on capital and labor inputs.
6. In
the bond market, a higher interest rate means that borrowing is less expensive
than before.
7. Household
decisions depend on the nominal values for wages and rent rather than the real
values for wages and rent.
8. In
the Barro model, households use money as a means for trading goods and
services.
9. In
the Barro market model, gold serves as money.
10. The
market-clearing interest rate depends on the marginal productivity of capital.
MULTIPLE CHOICE
1. The
market clearing approach assumes that:
a. people are not able to affect prices
that influence their decisions. c. firms are not able to affect prices
that influence their decisions.
b. prices adjust to clear markets. d. all
of the above.
2. The
market clearing approach assumes that:
a. people are not able to affect prices
that influence their decisions. c. firms are able to affect prices that
influence their decisions.
b. prices change very slowly. d. all
of the above.
3. The
market clearing approach assumes that:
a. people are able to affect prices that
influence their decisions. c. firms are able to affect prices
that influence their decisions.
b. prices adjust to clear markets. d. all
of the above.
4. The
market clearing approach assumes that:
a. people are able to affect prices that
influence their decisions. c. firms are not able to affect prices
that influence their decisions.
b. prices change very slowly. d. all of the above.
5. The
labor market clears when:
a. the real wage causes LS = LD. c. the
marginal product of labor is zero.
b. the real wage causes LS to be minimized.
d. the
real wage causes LS to be as large as possible.
6. In
the goods market in the Barro model households can buy:
a. bonds. c. labor services.
b. goods to increase their stock of
capital. d. all of the above.
7. The
goods market the price, P, is:
a. the price level. c. the
price of a particular good.
b. the rental price of goods. d. the
interest rate.
8. In
the rental market in the Barro model, households buy and sell:
a. real estate. c. the use of
capital for one period.
b. consumer durables like cars. d. all
of the above.
9. A
bond that is traded in the bond market in the Barro model is piece of paper
that:
a. is the lenders claim to the amount owed
by the borrower. c. is the lenders claim to ownership in the
company.
b. is the borrowers claim to the amount
owed by the lender. d. assures the person is who they say they
are.
10. Money
in the Barro model is held because:
a. for its own sake. c. to
earn interest.
b. to trade fairly soon for something
else. d. all of the above.
11. Money
in the Barro model is:
a. gold. c. interest earning.
b. a medium of exchange. d. all
of the above.
12. One
unit of money in the Barro model has a purchasing power of:
a. the price level time that one unit, P. c. the
interest rate, i.
b. the price level over the interest rate,
(P/i). d. one over the price level, (1/P)
13. If
a household has $2,000 in money and the price level is 10, then the real value
of its money is:
a. $10. c. 200 goods.
b. $20,000. d. 1,900
goods.
14. The
real wage is:
a. hourly earning after taxes. c. the
value of a worker’s time in goods received.
b. wages plus fringe benefits. d. the
price level divided by the nominal wage rate.
15. If
the nominal wage rate is $10 per hour and the price level is 2, then the real
wage a worker earns is:
a. five units of goods per hour. c. twenty
units of goods per hour.
b. eight units of goods per hour. d. one-fifth
unit of goods per hour.
16. If
the rental price of a capital good is $100 and the price level is 25, then when
renting the capital the owner’s real earnings are:
a. 4 units of output per period. c. seventy
five units of output per period.
b. 2,500 units of output per period. d. one-forth
unit of output per period.
17. The
rental price of capital is:
a. a dollar amount per unit of capital. c. a
nominal interest rate
b. a real interest rate. d. profit.
18. Over
all households bonds, B, must total zero because:
a. there are no bonds in the model. c. bonds
are not important in the model.
b. for every dollar loaned a dollar is
borrowed in the bond market. d. bonds are illegal in most economies.
19. The
profit in the model is:
a. output
- (wages times labor hired + the rental price times capital rented). c. (price
times output) - (wages times labor hired
+ the rental price times capital rented).
b. (price times output) divided by (wages times labor hired + the
rental price times capital rented). d. (wages times labor hired + the
rental price times capital rented) - (price times output).
20. The
rate of return from owning capital is:
a. the rental price of capital, R. c. the
net nominal rental income, (R/P)•PK -
PK.
b. the value of depreciation, PK. d. the real rental price less
depreciation, (R/P) - .
21. The
principal of a bond is:
a. the amount of interest paid each
period. c. the amount of interest paid over the term of the bond.
b. the initial amount borrowed. d. the
total amount to be paid back including the amount borrow and the amount of
interest paid over the term of the bond.
22. The
maturity of a bond is:
a. the amount of interest paid each
period. c. the amount of interest paid over the term of the bond.
b. the amount borrowed. d. the
time at which the lender must be paid back.
23. If
the principal of a bond is $100, it matures in a year and the interest rate is
4%, then at the interest payment on this bond will be:
a. $100. c. $4.
b. $96. d. $400.
24. If
the principal of a bond is $1000, it matures in a year and the interest rate is
6%, then at the end of the year the lender will receive:
a. $1000. c. $60.
b. $1060. d. $940.
25. In
the market clearing model, for the whole economy interest income is:
a. bonds minus the interest rate. c. the
interest rate divided by bonds.
b. zero. d. bonds divided by the interest rate.
26. Individual
household nominal income includes:
a. nominal interest income, iB. c. nominal
wage income, wL.
b. nominal
net rental income, [(R/P) -
PK]•PK. d. all of the above.
27. In
the model the nominal interest rate equals the nominal net return on
capital, i = (R/P) - , because:
a. other than rates of return bonds and
capital look the same to households as assets. c. bonds are riskier than capital.
b. capital is riskier than bonds. d. bonds
are zero in the aggregate.
28. In
the model the nominal interest rate equals the nominal net return on
capital, i = (R/P) - , because:
a. bonds are zero in the aggregate. c. bonds
are riskier than capital.
b. capital is riskier than bonds. d. if
bonds offered a higher return than capital households would hold no capital.
29. According
to the household nominal budget constraint, PC+ B+P• K = + wL + i(B + PK), households can use their
income to:
a. purchase consumption goods. c. purchase
capital goods.
b. acquire more bonds. d. all
of the above.
30. Interest
income is:
a. positive for net bond holders. c. negative
for net bond issuers.
b. zero for the whole economy. d. all
of the above.
31. According
to the household nominal budget constraint, PC+ B+P• K = + wL + i(B + PK), households can use their
income to:
a. purchase consumption goods. c. acquire
more money.
b. hire more workers. d. all
of the above.
32. According
to the household nominal budget constraint, PC+ B+P• K = + wL + i(B + PK), households can use their
income to:
a. acquire more money. c. pay
more wages.
b. acquire more bonds. d. all
of the above.
33. According
to the household nominal budget constraint, PC+ B+P• K = + wL + i(B + PK), households can use their
income to:
a. hire more workers. c. purchase
capital goods.
b. acquire more money. d. all
of the above.
34. If
a household this week produces 20 of its product at a cost of 50 cents each,
sells them for $1, works 40 hours at $10 per hour, must pay $10 in interest
owed on its borrowing and rents out 10 units of capital at $100 for the week,
the household’s, nominal income is:
a. $1,440 this week. c. $1,420
this week.
b. $1,400 this week. d. none
of the above.
35. The
household real budget constraint C + ( B/P) +
K = ( /P)+ (w/P)•L + i•((B/P) + K).
shows
that in our model:
a. households get income only from labor. c. households
can spend their income only on consumption.
b. households can spend their income on
consumption or acquiring more capital and bonds. d. households view
bonds as riskier than capital.
36. The
household’s budget constraint shows that:
a. sources of fund = uses of funds. c. labor
income is the largest part of income.
b. profits are the largest part of income d. consumption
is the largest part of spending.
37. The
household real budget constraint C + ( B/P) +
K = ( /P) + (w/P)•L + i•((B/P) + K).
shows
that in our model:
a. households get income only from labor. c. households
get income from profits from production, labor and interest on bonds and
capital.
b. households can spend their income only
on consumption. d. households view bonds as riskier than
capital.
38. To
maximize profit a firm should hire labor:
a. until it can produce no more of its
product. c. until the marginal product of labor equal the real wage
rate.
b. until the marginal product of labor
begins to fall. d. until the marginal product of labor is
zero.
39. An
investment in the Barro model is:
a. the purchase of a bond. c. the
purchase of a capital good used for production.
b. the purchase of ownership in a firm. d. all
of the above.
40. To
maximize profit a firm should hire capital:
a. until it can produce no more of its
product. c. until the marginal product of capital equal the real rental
price of capital.
b. until the marginal product of labor
begins to fall. d. until the marginal product of capital
is zero.
41. In
the market for capital services:
a. the supply of capital adjusts to create
market clearing. c. the demand for capital adjusts to
create market clearing.
b. the real rental price of capital
adjusts to create market clearing. d. all of the above.
42. In
the market clearing model, depreciation,
, is:
a. the rate at which capital disappears. c. the
rate at which bonds lose value.
b. the rate at which money loses value. d. all
of the above.
43. In
the market clearing model:
a. households can owe pay interest. c. for
the whole economy interest income is zero.
b. households can earn interest. d. all
of the above.
44. In
the market clearing model, nominal saving is:
a. the change in money + the change in
bonds + the change in the nominal value of capital. c. + wL + i(B + PK) - PC.
b. nominal income less nominal
consumption. d. all of the above.
45. In
the market clearing model, nominal saving is:
a. the change in money + the change in
bonds. c. + wL + i(B + PK) - PC.
b. nominal income plus nominal
consumption. d. all of the above.
46. In
the market clearing model, nominal saving is:
a. always zero. c. nominal income -
depreciation of capital.
b. nominal income less nominal
consumption. d. all of the above.
47. In
the market clearing model, nominal saving is:
a. the change in money + the change in
bonds + the change in the nominal value of capital. c. always zero.
b. nominal income plus nominal saving. d. all
of the above.
48. Real
saving is:
a.
+ wL + i(B + PK) - PC. c. ( /P) + (w/P)L + i((B/P) + K) - C.
b. output plus consumption. d. all
of the above.
49. Figure 6.1
In
Figure 6.1 an increase in real income is shown by:
a. a shift of the curve up and to the
right. c. a shift of the curve inward and to the left.
b. rotating the curve out the real
consumption axis. d. rotating the curve up the real saving
axis.
50. In
the market clearing model, the demand for capital and labor come from:
a. the tastes of people. c. the
objective of profit maximizing.
b. rental and labor markets. d. all
of the above.
51. In
the goods market, production of goods comes from
a. large corporate firms. c. households.
b. technology-related businesses. d. large
partnerships.
52. Households
buy goods on the goods market because they wish to
a. consume. c. export.
b. invest. d. both (a) and (b).
53. Households
provide to the rental market
a. all available capital services, so that
no capital remains idle. c. none of their capital services, since
households do not own capital.
b. some of their capital services, leaving
a fraction of capital idle. d. none of their capital services, so that
only businesses own capital.
54. In
the Barro market model, currency is used
a. to earn interest income. c. only
in the bond market.
b. as a medium of exchange. d. only
in the labor market.
55. Households
earn interest from
a. holding bonds and holding money. c. holding
bonds, but not from holding money.
b. holding money, but not from holding
bonds. d. none
of the above.
56. To
simplify the analysis of the bond market, the Barro bond market model initially
assumes that
a. each bond has a different risk level. c. bond
maturities are long.
b. a bond has no principal amount. d. the
inflation rate is zero.
57. A
household views the real rental price for capital (R/P) as
a. the rate of return on capital only
after it is adjusted for depreciation. c. the profit from its production of goods
and services.
b. the rate of return on capital only
after it is adjusted for inflation. d. the profit from its holdings of bonds
and money.
58. In
the Barro markets model, the medium(s) of exchange
a. is bonds. c. are both
bonds and money.
b. is money. d. are bonds,
money, and labor services.
59. If
bonds offer a higher rate of return than capital does, then households would
a. hold neither bonds nor capital. c. hold
bonds only.
b. hold capital only. d. hold
both bonds and capital.
60. In
the market for capital services, if the real rental price is below the
market-clearing rental price, then
a. suppliers of capital services would
compete by bidding down the real rental price. c. the market for capital services would
be in equilibrium.
b. suppliers of capital services would
compete by bidding up the real rental price. d. demanders of capital services would
compete by bidding up the real rental price.
SHORT ANSWER
1. How
is profit calculated in the model?
2. What
is the household real budget constraint and what does it tell us?
3. In
the model why does the return on bonds, i, equal the return on capital, (R/P)
- ?
4. What
is real profit in the Barro model?
5. What
causes the labor and capital markets to clear in the Barro model?
6. In
the Barro market-clearing model, on what variable does the interest rate
depend? Explain briefly.
7. Why
does the Barro model assume that the labor and capital market clear? Explain briefly.
8. In
the Barro market model, why are equilibrium profits equal to zero?
Chapter 7
TRUE/FALSE
1. If
the value of initial assets increases, then a household will change consumption
or present value of asset at the end of period 2 due to an income effect.
2. $100
a year from now is equal in worth to $100 today.
3. A
discount factor is used to deflate nominal consumption to real consumption.
4. If
wages rises by $10 per worker just this period, we would expect to see
consumption rise by much less than $10 this period.
5. The
aggregate household budget constraint is consumption plus net investment is
real GDP less depreciation.
6. In
the multiyear household budget constraint, wage incomes from each year are
added together without further adjustments.
7. In
the multiyear household budget constraint, initial asset values are excluded.
8. An
increase in the interest rate leads to an income effect and an
intertemporal-substitution effect on consumption which offset each other.
9. An
increase in the interest rate leads to an income effect which increases
consumption and saving in year 1.
10. An
increase in the interest rate leads to an intertemporal substitution effect
which decreases consumption and increases saving in year 1.
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