ECON 304 WITH 172 EXAM QUESTIONS & CORRECT
ANSWERS
the slope of the production function falls; declines
As the capital stock increases, ________. This means that the marginal product of
capital (MPK) ________.
the slope of the production function falls; declines
As the amount of labor input increases ________. This means that the marginal
product of labor (MPL) ________.
the purchase of a new microwave by a fast food restaurant
Which of the following is a component part of investment spending?
the firm should add additional capital
If the marginal product of capital is greater than the real rental price of capital, then
________.
the real rental cost of capital is more than the marginal product of capital
A firm possesses too much capital if ________.
depreciation
The fraction of capital that wears out every year is known as ________.
a decrease in net investment
An increase in the rate of depreciation is associated with ________.
increase the interest cost and the depreciation cost of capital
An increase in the price of capital goods will ______
MPKe=uc/(1-t)
When a company must consider taxes in determining investment, its desired capital
stock is chosen such that _________
tax revenues minus transfers minus gov purchases
Government saving refers to ________.
,disposable income goes up
If government cuts taxes ________.
if perfect capital mobility is assumed
The domestic real interest rate (r) for a given country must be the same as the
world real interest rate (rw) ________.
saving equals investment as long as NX=0
In an economy open to international trade ________.
a trade surplus to shrink
An increase in autonomous investment in a small open economy will cause
________.
a larger economy may actually affect the world economy
The saving-investment analysis for large open economies is somewhat more
complicated than the analysis for small open economies mainly because ________.
increases; banks gain liquidity, they make more loans and checking account
deposits increase
When the Fed buys government securities in the open market, money supply
________ because ________.
the velocity of money
times the money supply should equal total income according to the equation of
exchange
the equation of exchange
implies that nominal income divided by money supply equals the velocity of
money
also doubles
In the equation of exchange, if the quantity of money (M) has doubled, while the
price level (P) has increased by 50 percent and velocity (V) remains constant, then
real output (Y) ________.
the quantity theory of money
, gives mathematical grounding for the view that a country's central bank determines
the general price level through control of the money supply
these deposits meet the reserve requirements imposed by the Fed
Banks hold some deposits on reserve at the Fed because _________
money
any asset that people generally accept in exchange for goods and services or for
payment of debts
medium of exchange, unit of account, store of value, standard for deferred payment
what the functions of money
medium of exchange
used to buy and sell things
unit of account
things are valued in terms of money
store of value
state some of assets now for future consumption
M1
NARROW category that includes currency, the value of checkable deposits,
travelers checks, other liquid assets
M2
BROADER definition of money and includes all assets in M1 plus small-
denominations time deposits, non institutional money market mutual funds
quantity equation
MV=PY
velocity of money
measure of the number of times a dollar bill is used to buy things that are included
in GDP
ANSWERS
the slope of the production function falls; declines
As the capital stock increases, ________. This means that the marginal product of
capital (MPK) ________.
the slope of the production function falls; declines
As the amount of labor input increases ________. This means that the marginal
product of labor (MPL) ________.
the purchase of a new microwave by a fast food restaurant
Which of the following is a component part of investment spending?
the firm should add additional capital
If the marginal product of capital is greater than the real rental price of capital, then
________.
the real rental cost of capital is more than the marginal product of capital
A firm possesses too much capital if ________.
depreciation
The fraction of capital that wears out every year is known as ________.
a decrease in net investment
An increase in the rate of depreciation is associated with ________.
increase the interest cost and the depreciation cost of capital
An increase in the price of capital goods will ______
MPKe=uc/(1-t)
When a company must consider taxes in determining investment, its desired capital
stock is chosen such that _________
tax revenues minus transfers minus gov purchases
Government saving refers to ________.
,disposable income goes up
If government cuts taxes ________.
if perfect capital mobility is assumed
The domestic real interest rate (r) for a given country must be the same as the
world real interest rate (rw) ________.
saving equals investment as long as NX=0
In an economy open to international trade ________.
a trade surplus to shrink
An increase in autonomous investment in a small open economy will cause
________.
a larger economy may actually affect the world economy
The saving-investment analysis for large open economies is somewhat more
complicated than the analysis for small open economies mainly because ________.
increases; banks gain liquidity, they make more loans and checking account
deposits increase
When the Fed buys government securities in the open market, money supply
________ because ________.
the velocity of money
times the money supply should equal total income according to the equation of
exchange
the equation of exchange
implies that nominal income divided by money supply equals the velocity of
money
also doubles
In the equation of exchange, if the quantity of money (M) has doubled, while the
price level (P) has increased by 50 percent and velocity (V) remains constant, then
real output (Y) ________.
the quantity theory of money
, gives mathematical grounding for the view that a country's central bank determines
the general price level through control of the money supply
these deposits meet the reserve requirements imposed by the Fed
Banks hold some deposits on reserve at the Fed because _________
money
any asset that people generally accept in exchange for goods and services or for
payment of debts
medium of exchange, unit of account, store of value, standard for deferred payment
what the functions of money
medium of exchange
used to buy and sell things
unit of account
things are valued in terms of money
store of value
state some of assets now for future consumption
M1
NARROW category that includes currency, the value of checkable deposits,
travelers checks, other liquid assets
M2
BROADER definition of money and includes all assets in M1 plus small-
denominations time deposits, non institutional money market mutual funds
quantity equation
MV=PY
velocity of money
measure of the number of times a dollar bill is used to buy things that are included
in GDP
