Chapter 5 economics
A household that spends less than it receives in income during a given period is A) saving. B) dissaving. C) running a deficit. D) receiving transfer payments.
A
Ami purchased 100 shares of stock for $10,000. A year later the stock is valued at $18,000. Instead of selling the stock, Ami held onto it for another year. Which of the following is TRUE? A) The $8,000 increase in the value of the stock represents an unrealized capital gain. B) The $8,000 increase in the value of the stock represents a dividend. C) To determine the capital gain, it is first necessary to know the normal rate of return on capital. D) none of the above
A
Deflation occurs when A) the average price level declines. B) economic activity declines. C) the economic growth rate declines. D) the unemployment rate declines.
A
Government policies regarding taxes and expenditures are called A) fiscal policy. B) income policies. C) supply-side policy. D) monetary policy.
A
Since 1970, the annual inflation rate in the U.S. has been about 9.7 percent or more.
False
If 20 million workers are unemployed and 180 million workers are employed, then the unemployment rate is A) 10%. B) 11.1%. C) 18%. D) 80%.
A
If the central bank decreases the money supply, it is conducting A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.
A
In a business cycle, a peak represents the end of A) an expansion. B) a depression. C) trough. D) a recession
A
In a business cycle, a peak represents the end of ________ and a trough represents the end of ________. A) an expansion; a recession B) a depression; an expansion C) a trough; a peak D) a recession; an expansion
A
In which basic market would DVDs be traded A) the goods and services market B) the money market C) the labor market D) the factor market
A
Rapid increases in the price level during periods of recession or high unemployment are known as A) stagflation. B) stagnation. C) depression. D) inflation.
A
Since 1970, the U.S. economy has experienced two A) periods of high inflation. B) recessions. C) deflations. D) all of the above
A
The demand for massage therapists declined in the spring of 2007, but the starting wages paid to massage therapists was still the same at the end of 2007. This is an example of a A) sticky price. B) flexible price. C) highly regulated market. D) price control.
A
The period in the business cycle from a peak to a trough is a(n) A) recession. B) boom. C) expansion. D) inflation.
A
The portion of a corporation's profits that a firm pays out each period to its shareholders is A) dividend. B) promissory note. C) capital gain. D) corporate bond.
A
The trend of the economy is A) the long run growth path of the economy. B) the long run inflation rate. C) the long run unemployment rate. D) the short run production capacity of an economy.
A
Unemployment implies that in the labor market A) there is an excess supply of labor. B) there is an excess demand for labor. C) there are too few workers for the jobs available. D) quantity demanded of labor exceeds quantity supplied.
A
Unemployment means that A) at the going wage rate, there are people who want to work but cannot find work. B) people are not willing to work at the going wage rate. C) there are some people who will not work at the going wage rate. D) there is excess demand in the labor market.
A
Which of the following is a topic studied in Macroeconomics? A) gross domestic product B) the wage of auto workers C) the price of IBM computers D) the amount of pizza produced
A
n the circular flow diagram, the different payments made by firms to households include A) wages and profits. B) interest and taxes. C) transfer payments and dividends. D) taxes and transfer payments.
A
A period of very rapid increase in the overall price level is known as A) stagnation. B) hyperinflation. C) stagflation. D) depression.
B
A prolonged and deep recession is called A) a business cycle. B) a depression. C) a stagflation. D) hyperinflation.
B
A promissory note issued by a corporation when it borrows money is a A) share. B) corporate bond. C) corporate dividend. D) stock.
B
A transfer payment is A) a bonus to get a worker to accept a transfer. B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment. C) a cash payment for transferring a good from one person to another. D) an in kind payment for working "off the books."
B
According to Classical models, the level of employment is determined primarily by A) the level of aggregate demand for goods and services. B) prices and wages. C) government taxation. D) government spending.
B
According to the Classical model, unemployment A) could not persist because wages would rise to eliminate the excess supply of labor. B) could not persist because wages would fall to eliminate the excess supply of labor. C) could be eliminated through fiscal and monetary policies. D) could be eliminated only through government intervention.
B
Dividends are A) government profits distributed among bondholders. B) corporate profits distributed among shareholders. C) capital gains realized by stockholders. D) promissory notes issued by corporations.
B
If Juanita purchases a share of stock for $20 and three years later sells it for $120, she will realize a A) dividend of $100. B) capital gain of $100. C) dividend of $120. D) capital gain of $140.
B
If Tomas purchases a share of stock for $150 and one year later sells it for $225, he will realize a A) dividend of $75. B) capital gain of $75. C) dividend of $225. D) a capital gain of $225
B
If output is rising and unemployment is falling, the economy MUST be in a(n) A) contraction. B) expansion. C) depression. D) hyperinflationary period.
B
If the labor force is 50 million and 48 million are employed then the unemployment rate is: A) 2%. B) 4%. C) 5%. D) 52%.
B
In the U.S. economy, the inflation rate in 1975 peaked at ________ percent. A) 10.1 B) 11.0 C) 14.2 D) 22.4
B
In the circular flow diagram, firms ________ labor and households ________ goods and services. A) demand; supply. B) demand; demand. C) supply; demand. D) supply; supply.
B
In the goods-and-services market, households A) only supply. B) only demand. C) both supply and demand. D) neither supply nor demand.
B
It has become conventional to classify an economic downturn as a recession when aggregate output declines for A) three consecutive quarters. B) two consecutive quarters. C) a year. D) six consecutive quarters.
B
Macroeconomic policies became more influenced by Keynes' theories starting with, A) the period of high unemployment and high inflation in the 1970s. B) the Great Depression. C) the period of high inflation in the early 1980s. D) the OPEC recession.
B
Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are A) administered prices. B) sticky prices. C) regulatory prices. D) market prices.
B
Related to the Economics in Practice on p. 97 [409]: John Steinbeck's The Grapes of Wrath is set in the early 1930s. During this time, the U.S. economy was primarily in the ________ phase of the business cycle, culminating in the Great Depression. A) peak B) recession C) trough D) expansion
B
Related to the Economics in Practice on p. 99 [411]: John Maynard Keynes' most notable published work is entitled A) Capitalism Doomed. B) The General Theory of Employment, Interest, and Money. C) The Communist Manifesto. D) Freakonomics
B
Since 1970, the U.S. economy has experienced four A) periods of high inflation. B) recessions. C) deflations. D) periods of stagflation.
B
Stagflation occurs when the economy's inflation rate is high and A) employment is high. B) the unemployment rate is high. C) the unemployment rate is low. D) the rate of change in economic activities is positive.
B
The Federal Reserve affecting the supply of money is known as A) fiscal policy. B) monetary policy. C) growth policy. D) supply side policy.
B
The ________ can change the quantity of money in the economy. A) Treasury Department B) Federal Reserve C) Congress D) Office of the Comptroller of the Currency
B
The concept of "market clearing" is adopted and defended by A) Keynesian economists. B) Classical economists. C) fine-tuning economists. D) demand-side economists.
B
The diagram that shows the income received and payments made by each sector of the economy is the A) aggregate demand-aggregate supply diagram. B) circular flow diagram. C) income flow diagram. D) income-production diagram.
B
The government wants to encourage consumer spending through cutting income taxes. This is an example of A) an incomes policy. B) a fiscal policy. C) a supply-side policy. D) a monetary policy.
B
The period in the business cycle from a trough to peak is called a(n A) recession. B) expansion. C) slump. D) depression.
B
Wayne purchased 10 autographed Eli Manning football cards when he was 15 years old for a total cost of $50 and then sold those football cards 4 years later for $800. Due to these transactions A) Wayne earned a capital gain of $800. B) Wayne earned a capital gain of $750. C) Wayne earned a dividend of $800. D) Wayne earned a dividend of $750.
B
Which of the following is a topic studied in Macroeconomics? A) the functioning of individual industries B) aggregate behavior of households and industries C) the behavior of individual households D) the decision-making behavior of individual business firms
B
The following is a correct order in a business cycle: recession, trough, peak, expansion.
False
A capital gain is A) a financial instrument that gives the holder a share in the ownership of a firm and therefore the right to share in the profits of the firm. B) the portion of a corporation's profits that the firm pays out each period to its shareholders. C) an increase in the value of an asset over the price initially paid for it. D) the difference between an individual's economic income and money income.
C
According to Classical economists, if the quantity of labor demanded exceeds the quantity supplied, there is a A) surplus of labor and wages will rise. B) shortage of labor and wages will fall. C) shortage of labor and wages will rise. D) surplus of labor and wages will fall.
C
According to the Classical economists, the economy A) requires fine-tuning to reach full employment. B) has sticky prices in many industries. C) is self-correcting. D) will never be at full employment.
C
Aggregate behavior is A) the behavior of each household and firm. B) the behavior of each individual. C) the behavior of all households and firms together. D) none of the above.
C
An example of a transfer payment is A) an interest payment on a General Motors' bond. B) the added value of stock from the time it was bought to the time it was sold. C) a Social Security retirement benefit. D) the salary paid to a member of the armed forces.
C
An increase in the overall price level is known as A) deflation. B) recession. C) inflation. D) stagflation.
C
Between a peak and a trough, the economy goes through a(n) A) expansion. B) inflation. C) recession. D) boom.
C
Between a trough and a peak, the economy goes through a(n) A) recession. B) bust. C) expansion. D) hyperinflation.
C
During the U.S. recession of 1980-1982, the unemployment rate reached a high of ________ percent. A) 7.6 B) 8.8 C) 10.7 D) 22.4
C
If Congress increases government spending, it is using A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.
C
If the labor force is 500 and employment is 450, then the unemployment rate is A) 100%. B) 90%. C) 10%. D) 0%.
C
In the circular flow diagram, households demand ________ and supply ________. A) labor; labor. B) goods; services. C) goods and services; labor. D) labor; goods and services.
C
Inflation is a(n) A) decrease in the overall price level. B) decrease in the overall level of economic activity. C) increase in the overall price level. D) increase in the overall level of economic activity.
C
Promissory notes issued by the federal government when it borrows money are known as A) Treasury shares. B) Treasury stocks. C) Treasury bonds. D) none of the above
C
Related to the Economics in Practice on p. 97 [409]: F. Scott Fitzgerald's The Great Gatsby is set in the "Roaring '20s". This decade in U.S. history was characterized by A) economic expansion and high unemployment. B) recession and high unemployment. C) economic expansion and low unemployment. D) the Great Depression and stagflation.
C
The demand for corn has increased in May without any change in supply. Eight months later there still has been no change in corn prices. This is an example of a A) price floor. B) price control. C) sticky price. D) macroeconomic price.
C
The government implements fiscal policy when it changes A) spending and/or interest rate. B) money supply and/or taxes. C) taxes and/or spending. D) taxes and/or interest rate.
C
The major lesson of the circular flow diagram is that A) saving must always be less than investment. B) taxes must always be greater than government expenditures. C) total income in the economy must always equal total spending. D) tax receipts must be equal to transfer payments
C
The term business cycle refers to the A) short-term ups and downs in the price level. B) long-term trends in the price level. C) short-term ups and downs in the level of economic activity. D) long-term trends in the level of economic activity.
C
To bring the economy out of an inflationary period, Keynes argued that the government should A) cut both taxes and government spending. B) increase both taxes and government spending. C) increase taxes and/or decrease government spending. D) decrease taxes and/or increase government spending.
C
Unemployment generally ________ during recessions and ________ during expansions. A) falls; rises. B) falls; falls. C) rises; falls. D) rises; rises.
C
Which of the following is NOT a topic studied in Macroeconomics? A) gross domestic product B) the unemployment rate C) the price of IBM computers D) the inflation rate
C
Which of the following would be an example of fine tuning? A) Firms increase wages to attract high-quality workers. B) Firms increase employment benefits to increase workers' productivity. C) The federal government enacts legislation to increase spending to try to stimulate the economy. D) The federal government passes legislation that would require that the government's budget always be balanced.
C
ch of the following markets are funds demanded and supplied? A) the labor market B) the goods and services market C) the money market D) the factor market
C
The unemployment rate equals A) labor force/population. B)unemployed/employed. C) (employed - unemployed)/labor force. D) (labor force - employed)/labor force.
D
To get the economy out of a slump, Keynes believed that the government should A) cut both taxes and government spending. B) increase both taxes and government spending. C) increase taxes and/or decrease government spending. D) decrease taxes and/or increase government spending.
D
Since 1970, the U.S. economy has experienced 2 recessions.
False
A dividend is A) a promissory note issued by corporations when they borrow money. B) an increase in the value of an asset over the purchase price initially paid for it. C) the difference between the interest rate a bank pays on deposits and the interest rate it charges for loans. D) the portion of a corporation's profits that the firm pays out each period to its shareholders.
D
A period during which aggregate output rises is known as a(n) A) recession. B) inflation. C) hyperinflation. D) expansion.
D
A period when the economy shrinks is known as A) a recession. B) a contraction. C) a slump. D) all of the above.
D
According to Keynes, the level of employment is determined by A) flexible wages and prices. B) interest rates. C) price and wages. D) the level of aggregate demand for goods and services.
D
An increase in the value of an asset over the price initially paid for it is a A) dividend. B) share of stock. C) promissory note. D) capital gain.
D
In a business cycle, a trough represents the end of A) an expansion. B) an inflation. C) a peak D) a recession.
D
Mike purchased a 1968 Chevy Corvette in 2006 for $30,000 and a year later he sold it for $36,000. Due to these transactions A) Mike earned a capital loss of $6,000. B) Mike earned a dividend of $36,000. C) Mike earned a dividend of $600. D) Mike earned a capital gain of $6,000.
D
Policies designed to affect the quantity of money are A) fiscal policies. B) supply side or growth policies. C) government spending policies. D) monetary policies.
D
Related to the Economics in Practice on p. 99 [411]: John Maynard Keynes sought to solve the economic paradox of the Great Depression, which was the coexistence of A) low production and low unemployment. B) high production and low inflation. C) high production and high inflation. D) low production and high unemployment.
D
Suppose the economy suffers a high rate of unemployment. According to Keynesian economists, the government should increase employment by A) decreasing money supply. B) balancing the budget. C) not doing anything. D) increasing government spending.
D
The demanders in the goods-and-services market are A) households and business firms. B) households, the government, and the rest of the world. C) the government and business firms. D) households, the government, business firms, and the rest of the world.
D
The unemployment rate equals A) labor force/population. B)unemployed/employed. C) (employed - unemployed)/labor force. D) unemployed/labor force.
D
Which of the following is a CORRECT statement? A) Companies issue shares but don't issue bonds. B) The government issues both bonds and shares. C) Bondholders earn dividends but shareholders don't. D) Shareholders earn dividends but bondholders don't.
D
Which of the following is an assumption used by Classical economists? A) Wages adjust downward but not upward. B) Wages adjust upward but not downward. C) Wages are inflexible. D) Wages adjust both upward and downward.
D
Which of the following statements is FALSE? A) The rate of change in economic activity is used to assess whether an economy is expanding or contracting. B) Short-term ups and downs in the economy are known as business cycles. C) During a recession, output and employment are falling. D) Business cycles are always symmetricthe length of an expansion is the same as the length of a contraction.
D
A dividend is is paid by shareholders to firms.
False
A transfer payment is the tax one pays when transferring real estate.
False
According to Keynes, aggregate supply determines the level of economic activities in the economy.
False
According to the Classical model, an excess supply of labor would drive up wages to a new equilibrium level and therefore unemployment would not persist.
False
All business cycles are symmetricthe length of an expansion is the same as the length of a recession.
False
Fiscal policy generally takes the form of regulations specifying the maximum amount by which the money supply can be changed.
False
Hyperinflation and stagflation are two different names which refer to identical economic conditions.
False
In the Classical model, the level of employment is determined by the level of aggregate demand.
False
Keynes believed that expansionary fiscal policy could help get an economy out of an inflation.
False
Macroeconomics is concerned with the market price and equilibrium quantity of each good or service.
False
Monetary policy includes changing the level of household taxes.
False
Macroeconomics is concerned with inflation or deflation, output growth and unemployment.
TRUE
"Fine tuning" is any government attempt to regulate inflation or unemployment.
True
A capital gain is the increase in value of an asset above its initial cost.
True
A corporate bond is a promissory note issued by a firm when it borrows money.
True
A recession is associated with a negative rate of growth of the economy.
True
A recession is usually associated with increasing unemployment.
True
According to Keynes, the government's role during periods when private demand is low is to stimulate aggregate demand and, by so doing, lift the economy out of recession.
True
An expansion is usually associated with rising price levels.
True
Classical economists believed that economic slowdowns are self-correcting.
True
Contractionary fiscal policy includes raising taxes.
True
In the circular flow diagram everyone's expenditure is someone else's receipt.
True
Macroeconomic behavior is the sum of all the microeconomic decisions made by individual households and firms.
True
Since 1970, the U.S. economy has experienced 2 periods of high inflation.
True
The employment rate is the number of people employed divided by number of people in the labor force.
True