EC 102 Quiz 3

(Table) According to the table, which country was MOST likely to experience catch-up growth? A. Econia B. Croland C. Nomica D. Macroland

A. Econia

Which of these BEST illustrates the wealth effect? A. The Jones family has $50,000 in the bank. But when prices rose dramatically, their purchasing power diminished by $50,000. B. Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. C. Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks. D. Simon felt he needed at least $800,000 to retire comfortably. He increased his savings to build up his wealth.

A. The Jones family has $50,000 in the bank. But when prices rose dramatically, their purchasing power diminished by $50,000.

Because of the work of _____ during the late 18th and early 19th centuries, economics became known as the dismal science. A. Thomas Malthus B. Karl Marx C. John Maynard Keynes D. Alfred Marshall

A. Thomas Malthus

The historical evidence shows that A. economic freedom is detrimental to growth because market participants tend to make mistakes. B. a country's degree of freedom is related to the level of economic growth. C. dictatorial governments invest wisely because they have access to all relevant information. D. there is no connection between citizens' freedoms and economic prosperity.

B. a country's degree of freedom is related to the level of economic growth.

Which resource is an example of infrastructure? A. a newly drained swamp B. an elementary school C. a coal mine D. a computer manufacturing plant

B. an elementary school

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent? A. $40 B. $160 C. $1,000 D. $200

C. $1,000

If income rises from $3,000 per month to $3,500 per month and consumption increases from $2,800 per month to $3,200 per month, what is the marginal propensity to consume? A. 1.09 B. 0.91 C. 0.8 D. 1.25

C. 0.8

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the A. increasing returns to capital effect. B. copycat effect. C. catch-up effect. D. productivity effect.

C. catch-up effect.

Which of these would NOT cause a shift in the aggregate demand curve? A. change in investment B. change in net exports C. change in the price level D. change in consumption spending

C. change in the price level

Which effect tends to make aggregate demand decrease by more than the amount that consumer spending decreases? A. crowding-out B. interest rate C. wealth D. multiplier

D. multiplier

A country with a large population and high level of poverty cannot be a world leader in economic growth.

False

The more time a free-market economy has to adjust to price changes, the A. closer GDP gets to the natural rate of output. B. greater the rate of inflation. C. more volatility is seen in the business cycle. D. closer the economy gets to the horizontal portion of the aggregate demand curve.

A. closer GDP gets to the natural rate of output.

In the Keynesian framework, the way to fight a recession is to A. cut taxes and/or increase government spending. B. reduce interest rates. C. increase the population with more immigration. D. do nothing and wait for the economy to return to full employment on its own.

A. cut taxes and/or increase government spending.

The collapse of home values in 2008 led to a(n) _____ in Americans' consumption and a(n) _____ in their saving rates. A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease

A. decrease; increase

When the government funds Head Start, a program that provides early childhood education, it is acting in its role to promote economic growth by A. enhancing physical and human capital. B. ensuring a stable legal system. C. promoting free and competitive markets. D. ensuring a stable and secure financial system.

A. enhancing physical and human capital.

Suppose the economy is at full employment, and consumers spend more than usual. In the short run, output will _____; in the long run, output will _____. A. increase; remain unchanged B. remain unchanged; decrease C. remain unchanged; increase D. increase; increase

A. increase; remain unchanged

If a country has a low capital-to-labor ratio, then it tends to have _____ labor productivity _____ wages. A. low; and low B. high; but low C. high; and high D. low; but high

A. low; and low

High taxes and/or heavy regulation A. raise costs of production so that the aggregate supply curve shifts to the left. B. are not likely to affect firms' behavior since they are more concerned about profits than taxes or regulation. C. can cause firms to boost production so they can cover the added costs. D. are likely to shift aggregate supply to the right.

A. raise costs of production so that the aggregate supply curve shifts to the left.

If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption? A. $10,053 B. $5,655 C. $1,885 D. $30,160

B. $5,655

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals A. 0.4. B. 0.2. C. 0.6. D. 0.5.

B. 0.2.

Assume that the economy includes only consumers and businesses, and is in equilibrium with income equal to $6 million and consumption spending equal to $5 million. Which statement is correct? A. The economy will go into disequilibrium because consumption is not equal to income. B. Investment is $1 million. C. There is no saving in this economy. D. The marginal propensity to consume is 0.83 (INCORRECT)

B. Investment is $1 million.

Which country had the lowest national savings rate in 2018? A. China B. Japan C. Germany D. India

B. Japan

In general, the higher the capital-to-labor ratio, the A. lower the wages. B. higher the wages. C. lower the rate of investment. D. lower the productivity.

B. higher the wages.

If national incomes of foreign countries fall at the same time the dollar appreciates, then in the United States, the aggregate demand curve A. remains unchanged. B. shifts to the left. C. does not shift, but there is movement up along it. D. shifts to the right.

B. shifts to the left.

(Table) According to the table, who will have higher real GDP per capita in 11.67 years? A. Ecoland because it has a higher growth rate and starting level B. Macia because it has a higher growth rate and starting level C. Macia because its starting level is high enough that Ecoland will not have enough time to catch up D. Ecoland because its output will double and then double again

C. Macia because its starting level is high enough that Ecoland will not have enough time to catch up

(Figure: Aggregate Demand Shift) The shift in aggregate demand depicted may be due to a(n) A. increase in exports. B. decrease in interest rates. C. increase in income taxes. D. increase in consumer confidence.

C. increase in income taxes.

A falling aggregate price level _____ demand for a country's exports and therefore _____ output demanded. A. reduces; reduces B. reduces; increases C. increases; increases D. increases; reduces

C. increases; increases

The idea that new spending creates more new spending is known as the _____ effect. A. crowding-out B. interest rate C. multiplier D. wealth

C. multiplier

In the simple Keynesian model, the economy will be in equilibrium when A. savings is greater than investment. B. savings is greater than income. C. savings is equal to investment. D. investment is equal to income.

C. savings is equal to investment.

After the acceptance of Keynesian analysis, the government A. played a role in setting the interest rate only. B. reduced its role in the economy. C. took actions toward macroeconomic policy that grew significantly. D. turned to communism as the only solution to the Great Depression.

C. took actions toward macroeconomic policy that grew significantly.

(Figure: Simple Keynesian Model) In the figure, equilibrium savings equals _____ when investment is at AE = C + I 0, and _____ when investment is at AE = C + I A. -$50; -$200 B. $50; $150 (INCORRECT) C. $0; $0 D. $100; $200

D. $100; $200

(Table: Consumption and Savings) Based on the table, the marginal propensity to consume is _____ and the average propensity to consume _____. A. 2; varies with the level of income B. $10,000; is $35,000 C. $5,000; is $5,000 D. 0.5; varies with the level of income

D. 0.5; varies with the level of income

Which statement(s) is/are TRUE regarding the paradox of thrift? I. People intend to save less but their actions actually lead to an increase in savings. II. For the paradox of thrift to occur, investment must be positively related to income. III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. A. II and III only B. I, II, and III C. I and II only D. II only

D. II only

(Figure: Determining SRAS Shifts 3)Consider the shift in aggregate supply shown in the accompanying figure. Which of these might cause this change in short-run aggregate supply? A. Workers and firms believe that inflation is going to fall. B. Subsidies to firms increase. C. Incomes of consumers decrease. D. Unions successfully negotiate higher wages.

D. Unions successfully negotiate higher wages.

The real GDP that firms will produce at varying price levels is A. individual product demand. B. individual product supply. C. aggregate demand. D. aggregate supply.

D. aggregate supply.

At high domestic price levels compared to other countries, Americans A. buy more American-made goods. B. sell more exported goods. C. buy the same amount of foreign goods. D. buy more imported goods.

D. buy more imported goods.

A solution to the simultaneous emergence of deflation and unemployment is to use policies that shift the aggregate A. demand curve to the left. B. supply curve to the right. C. supply curve to the left. D. demand curve to the right.

D. demand curve to the right.

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____. A. saving; investment B. saving; consumption C. disposable income; saving D. disposable income; consumption

D. disposable income; consumption

Which of these is NOT a reason the aggregate demand curve is negatively sloped? A. export effect B. wealth effect C. interest rate effect D. income effect

D. income effect

Firms decide how much to invest by comparing the rate of return on their projects with the A. before-tax rate of return. B. total profit. C. productivity of the workers assigned to the projects. D. interest rate.

D. interest rate.

The short-run aggregate supply curve A. is vertical because the economy is at full capacity. B. cannot be generalized because each economy is unique. C. is horizontal because input prices do not rise as output rises. D. is upward sloping because some costs are slow to rise as output expands.

D. is upward sloping because some costs are slow to rise as output expands.

The _____ is the change in consumption associated with a change in income. A. average propensity to save B. marginal propensity to save C. average propensity to consume D. marginal propensity to consume

D. marginal propensity to consume

Which technology most strongly affected the growth in U.S. productivity in recent decades? A. railroads B. ticker tape C. petrochemicals D. microcomputers

D. microcomputers

On-the-job training can lead to an increase in the A. financial capital ratio. B. population. C. capital-to-labor ratio. D. quality of the labor force.

D. quality of the labor force.

If technology is held constant, an increase in capital concurrent with a decrease in labor input causes output to A. rise. B. fall. C. stay the same. D. rise, fall, or stay the same.

D. rise, fall, or stay the same.

If the U.S. aggregate price level rises A. interest rates will decline. B. net exports will also rise. (INCORRECT) C. the aggregate demand curve will shift to the left. D. the purchasing power of wealth will decrease.

D. the purchasing power of wealth will decrease.

An absence of enforcement of contracts would encourage economic development because people would be more willing to incur risks if they did not have to worry about getting sued.

False

Tariffs that protect U.S. industries foster economic growth.

False

The aggregate demand curve shows the level of real GDP that firms will produce at different price levels.

False

The short-run aggregate supply curve is vertical.

False

A criticism of Keynesian policies is that they are the cause for significant growth in the size of the government.

True

An increase in government spending will increase aggregate demand.

True

An increase in interest rates will cause the aggregate demand curve to shift to the left.

True

Hypothetically speaking, if the Organization of the Petroleum Exporting Countries (OPEC) stopped exporting oil, a decrease in production would lead to a decrease in aggregate supply.

True

The aggregate supply curve in the long run is vertical because wages and other input prices respond completely to a change in the price level.

True

The efficiency with which inputs are converted to outputs is productivity.

True

There is a positive correlation between countries with the most economic freedom and high levels of per capita GDP.

True

Thomas Malthus thought that world starvation was inevitable.

True

To sustain growth beyond the small fluctuations common in the business cycle, an economy's ability to produce must increase.

True

Two developments that contributed to recent economic growth are innovations in telecommunications and computer technology.

True