ECON 320 MIDTERM 1 LATEST ACTUAL
EXAM QUESTIONS AND CORRECT
ANSWERS | A+ GRADE STUDYGUIDE
A fixed-weight price index like the CPI
_________________ the change in the cost of living
because it _________________ take into account that
people can substitute less expensive goods for ones that
have become more expensive. Correct Answer D)
Overestimates, does not
If 7 million workers are unemployed, 143 million workers
are employed, and the adult population equals 200 million,
then the unemployment rate equals approximately
_________________ percent. Correct Answer B) 4.7
A competitive firm: Correct Answer A) Is small relative to
the market in which it trades.
The property of diminishing marginal product means that,
after a point, when additional quantities of: Correct Answer
D) A factor is added when another factor remains fixed,
the marginal product of that factor diminishes.
A competitive, profit-maximizing firm hires labor until the:
Correct Answer B) Price of output multiplied by the
marginal product of labor equals the wage.
,If increased immigration raises the labor force, the
neoclassical theory of distribution predicts: Correct Answer
D) The real wage will fall and the real rental price of capital
will rise.
According to the neoclassical theory of distribution, if firms
are competitive and subject to constant returns to scale,
total income in the economy is distributed: Correct Answer
D) Between the labor and capital used in production,
according to their marginal productivities.
The public policy implication of Goldin and Katz's analysis
of growing income inequality is that reversing this trend
will require that more of society's resources be put into:
Correct Answer C) Education
According to the neoclassical theory of distribution, in an
economy described by a Cobb-Douglas production
function, workers should experience high rates of real
wage growth when: Correct Answer C) Average labor
productivity is growing rapidly.
In the case given above, the equilibrium real interest rate
is: Correct Answer C) 14.6 percent
In the case given above, the equilibrium level of
investment is: Correct Answer B) 700
In the case given above, public saving is
_________________ and private saving is
_________________ . Correct Answer A) 500; 200
, In the neoclassical model with fixed income, if there is a
decrease in taxes with no change in government
spending, then public saving _________________ and
private saving _________________ . Correct Answer C)
Decreases, increases.
People use money as a store of value when they: Correct
Answer A) Hold money to transfer purchasing power into
the future.
In a fractional-reserve banking system, banks create
money because: Correct Answer A) Each dollar of
reserves generates many dollars of demand deposits.
If the currency-deposit ratio equals 0.5 and the reserve-
deposit ratio equals 0.1, then the money multiplier equals:
Correct Answer D) 2.5
When the Fed makes an open-market sale, it: Correct
Answer D) decreases the monetary base (B)
To prevent banks from using excess reserves to make
loans that would increase the money supply, the Federal
Reserve could conduct open-market _________________
and _________________ the interest rate paid on bank
reserves. Correct Answer C) Sales; raise
Open-market operations change the _________________
; changes in interest rate paid on reserves change the
_________________ ; and changes in the discount rate
EXAM QUESTIONS AND CORRECT
ANSWERS | A+ GRADE STUDYGUIDE
A fixed-weight price index like the CPI
_________________ the change in the cost of living
because it _________________ take into account that
people can substitute less expensive goods for ones that
have become more expensive. Correct Answer D)
Overestimates, does not
If 7 million workers are unemployed, 143 million workers
are employed, and the adult population equals 200 million,
then the unemployment rate equals approximately
_________________ percent. Correct Answer B) 4.7
A competitive firm: Correct Answer A) Is small relative to
the market in which it trades.
The property of diminishing marginal product means that,
after a point, when additional quantities of: Correct Answer
D) A factor is added when another factor remains fixed,
the marginal product of that factor diminishes.
A competitive, profit-maximizing firm hires labor until the:
Correct Answer B) Price of output multiplied by the
marginal product of labor equals the wage.
,If increased immigration raises the labor force, the
neoclassical theory of distribution predicts: Correct Answer
D) The real wage will fall and the real rental price of capital
will rise.
According to the neoclassical theory of distribution, if firms
are competitive and subject to constant returns to scale,
total income in the economy is distributed: Correct Answer
D) Between the labor and capital used in production,
according to their marginal productivities.
The public policy implication of Goldin and Katz's analysis
of growing income inequality is that reversing this trend
will require that more of society's resources be put into:
Correct Answer C) Education
According to the neoclassical theory of distribution, in an
economy described by a Cobb-Douglas production
function, workers should experience high rates of real
wage growth when: Correct Answer C) Average labor
productivity is growing rapidly.
In the case given above, the equilibrium real interest rate
is: Correct Answer C) 14.6 percent
In the case given above, the equilibrium level of
investment is: Correct Answer B) 700
In the case given above, public saving is
_________________ and private saving is
_________________ . Correct Answer A) 500; 200
, In the neoclassical model with fixed income, if there is a
decrease in taxes with no change in government
spending, then public saving _________________ and
private saving _________________ . Correct Answer C)
Decreases, increases.
People use money as a store of value when they: Correct
Answer A) Hold money to transfer purchasing power into
the future.
In a fractional-reserve banking system, banks create
money because: Correct Answer A) Each dollar of
reserves generates many dollars of demand deposits.
If the currency-deposit ratio equals 0.5 and the reserve-
deposit ratio equals 0.1, then the money multiplier equals:
Correct Answer D) 2.5
When the Fed makes an open-market sale, it: Correct
Answer D) decreases the monetary base (B)
To prevent banks from using excess reserves to make
loans that would increase the money supply, the Federal
Reserve could conduct open-market _________________
and _________________ the interest rate paid on bank
reserves. Correct Answer C) Sales; raise
Open-market operations change the _________________
; changes in interest rate paid on reserves change the
_________________ ; and changes in the discount rate
