EC midterm quiz questions

3.5%

In May 2019, Texas reported a civilian labor force of 14,012,711. The number of employed people was 13,516,387. What was the unemployment rate? 5.3% 96.5% 4.9% 3.5%

c. Keele, who lost her job after her company lost a lot of customers during an economic downturn

You have four friends. Which of your friends can be described as "cyclically unemployed"? a. Martha, who is a full-time stay-at-home parent b. Arthur, who quit his job to look for a better job c. Keele, who lost her job after her company lost a lot of customers during an economic downturn d. Regan, who is in a nursing home

b. technology

Along the same aggregate production function, the level of _____ is the same. a. labor b. technology c. capital d. economic growth

c. 0.62.

If a $100 million increase in total income leads to a $62 million increase in consumption, the slope of the consumption function is: a. negative. b. 0.38. c. 0.62. d. zero.

(i) only

The aggregate production function Y = f(L, H, K) shows that economic growth can occur if: (i) more labor is employed. (ii) human capital is reduced. (iii) the dependency ratio rises. (iv) the capital stock stays constant.

Y = f(L, H, K).

The aggregate production function is represented as: Y = f(L, H, K). K = f(L, H, Y). L = f(Y, H, K). H = f(L, Y, K).

a. at its potential.

The neutral interest rate occurs when the economy is: a. at its potential. b. below its potential. c. above its potential. d. experiencing very high inflation.

0.85%

You purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your nominal rate of interest is 2.1%. What is your expected real rate of return? 0.85% -2.1% -0.85% 1.25%

$137,500

A new assembly line robot with a price tag of $2.5 million is expected to depreciate by 3% at the end of next year. The real interest rate is 2.5%. What is the user cost of the robot for one year? $12,500 $62,500 $137,500 $75,000

b. equilibrium real interest rate.

Equilibrium in the loanable funds market determines the: a. amount of inventories in an economy. b. equilibrium real interest rate. c. point where there is excess demand for loanable funds. d. up-front cost of capital.

c. increases; boosts; raises

Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand. a. increases; lowers; lowers b. decreases; lowers; lowers c. increases; boosts; raises d. decreases; boosts; raises

c. on average, prices went up across the economy by 3%.

If you see that inflation between last year and this year is 3%, this means that: a. economic growth is also 3%. b. the prices of each and every good and service went up by 3%. c. on average, prices went up across the economy by 3%. d. the consumer price index rose by 3% more than the producer price index.

b. marginal costs of adjusting prices.

Menu costs are the: a. costs of producing restaurant meals. b. marginal costs of adjusting prices. c. variety of costs that cause producers to change their prices. d. total costs of producing goods and services.

a. tendency to focus on nominal values instead of inflation-adjusted values.

Money illusion is the: a. tendency to focus on nominal values instead of inflation-adjusted values. b. illusion that one's earnings this year are higher than they were last year. c. inability to understand that prices always rise. d. increase in the amount of money that it takes to purchase goods and services when prices rise.

(i), (ii), and (iii)

Refer to the diagram of the circular flow of income. The key lessons from this diagram are that:(i) all flows of resources are matched by flows of money.(ii) the market value of total output must be equal to total spending. (iii) total spending must equal total income. (iv) all inputs are provided by businesses.

d. $1,550 million

Refer to the following statistics. Based on these statistics, the level of business investment is:Inventories: $12 millionHousing: $400 millionEquipment: $500 millionBusiness structures: $350 millionIntellectual property: $700 million. a. $500 million. b. $1,050 million. c. $1,562 million. d. $1,550 million.

15,000,000

Suppose a labor market is described by the demand equation, Qd = 60 - 2w, and the supply equation, Qs = -10 + w, where Qd is the quantity demanded of labor, Qs is the quantity supplied of labor, and w is the wage (in dollars). If the government institutes a minimum wage of $25, how many workers will be willing to work in this market? 15,000,000 5,000,000 10,000,000 20,000,000

$16.8 billion

What is Uganda's real GDP if its nominal GDP is $27.5 billion (in current US$), and the GDP deflator is 163.4? $12.4 billion $16.8 billion $44.9 billion $27.5 billion

c. shift the AD curve further to the right than the effect of the spending.

When the government increases spending, a multiplier effect will: a. cause a movement to the right along the same AD curve. b. shift the AD curve further to the left than the effect of the spending. c. shift the AD curve further to the right than the effect of the spending. d. cause a movement to the left along the same AD curve.

unemployment benefits

Which of the following is an example of transfer payments? a. interest earned on savings in banks b. government loans c. unemployment benefits d. military salaries

b. Fred pays a contractor to add two new rooms to his house.

Which of the following is an investment? a. Dan purchases $6,800 worth of gold. b. Fred pays a contractor to add two new rooms to his house. c. Ben's computer depreciates by 15%. d. Frank buys a used car.

in microeconomics, spending refers to spending by you, or your family, or your company, whereas in macroeconomics, spending refers to the spending by all consumers, all businesses, and the government in the economy.

What is the difference between spending from a microeconomic standpoint versus spending from a macroeconomic standpoint? a. In microeconomics, spending refers to one individual's spending, whereas in macroeconomics, spending refers to government expenditure. b. In microeconomics, spending refers to expenditure on consumer goods only, whereas in macroeconomics, spending refers to business expenditures only. c. In microeconomics, spending refers to spending by you, or your family, or your company, whereas in macroeconomics, spending refers to the spending by all consumers, all businesses, and the government in the economy. d. In microeconomics, spending refers to domestic spending, whereas in macroeconomics, spending refers to foreign spending.

c. an increase in the costs for the government.

During the Great Recession, the United States Congress increased the length of time that unemployment benefits could be received from 52 weeks to 99 weeks. This change caused: a. an increase in the labor force participation rate. b. an increase in the number of employed people in the economy. c. an increase in the costs for the government. d. a decrease in unemployment.

a. on average, prices went down across the economy.

If you see that the consumer price index this year is lower than the consumer price index last year, this means that: a. on average, prices went down across the economy. b. the prices of each and every good and service went down. c. the consumer price index is lower than the producer price index. d. economic growth also decreased.

d. saving is the money left over after paying for spending, and investment is the purchase of new capital.

In macroeconomics, the difference between saving and investment is that: a. saving is the money left over after paying for spending, and investment is the purchase of stocks and bonds. b. saving does not depend on income, but investment depends on profitability. c. saving is created by the government, and investment is specific to firms. d. saving is the money left over after paying for spending, and investment is the purchase of new capital.

(ii) only

Which of the following is (are) included in investment? (i) military spending (ii) the purchase of an aircraft by a domestic airline (iii) the purchase of $45,000 worth of bonds (iv) the purchase of $32,000 worth of stock (v) social security payments (vi) the construction of a highway by the federal government

b. an example of a price floor.

A minimum wage that is above the equilibrium wage is: a. a labor union negotiated wage. b. an example of a price floor. c. an unemployment benefit. d. an efficiency wage.

$174,000

A new assembly line robot costs $1.2 million and is expected to depreciate by 10% at the end of next year. The real interest rate is 4.5%. What is the user cost of the robot for one year? $120,000 $174,000 $66,000 $54,000

a. They are not counted.

Dale is a stay-at-home-parent whose typical day consists of getting the kids ready for school, doing the laundry, cooking three meals, and cleaning the house. How are Dale's home activities counted in GDP? a. They are not counted. b. They are counted at market value. c. They are counted by assigning a value that is equivalent to what it would have taken to pay a housekeeper to perform the same tasks. d. They are counted by subtracting Dale's opportunity cost in terms of lost income.

a. a small change in consumption.

If Marios is a consumption smoother and has just won a prize of $12,000, we can expect Marios to exhibit: a. a small change in consumption. b. no change in MPC. c. zero change in saving. d. a large change in consumption.

b. constant returns to scale.

If a bakery buys a second oven, hires a second baker, buys double the number of ingredients, doubles the size of the bakery, and then produces double the number of cakes, then the bakery is experiencing: a. an increase in labor productivity. b. constant returns to scale. c. increasing returns to scale. d. technological advancement.

b. the equilibrium rate of unemployment is 3.75%.

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that: a. the labor force participation rate has fallen significantly. b. the equilibrium rate of unemployment is 3.75%. c. there is 2.25% actual unemployment. d. the economy is experiencing an economic boom.

c. demand for; right

If the government lowers the corporate tax rate, then the ______ loanable funds shifts to the _______ . a. demand for; left b. supply of; left c. demand for; right d. supply of; right

$22,204

If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years? $17,949 $15,900 $10,133 $22,204

(ii) and (iv)

The higher the GDP deflator in an economy, the:(i) higher the purchasing power of the currency. (ii) lower the real wealth in the economy. (iii) higher the real wealth in an economy. (iv) more expensive the country's exports.

0.8

Total consumption is $1,800 when income is $2,000, and total consumption increases to $2,600 when income is $3,000. What is the marginal propensity to consume? a. 0.2 b. 1.25 c. 0.8 d. 0.5

a. movement up and to the left, along the same aggregate demand curve.

A rise in prices leads to a: a. movement up and to the left, along the same aggregate demand curve. b. movement down and to the right, along the same aggregate demand curve. c. right shift of the aggregate demand curve. d. left shift of the aggregate demand curve.

b. consumption, planned investment, government expenditure, and net exports.

Aggregate expenditure is the sum of: a. consumption, planned investment, imports, and taxes. b. consumption, planned investment, government expenditure, and net exports. c. planned Investment, government expenditure, exports, and imports. d. consumption, exports, and planned investment.

$8,746

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars? $8,746 $227 $1,410 $9,422

2.4%

In May 2019, there were approximately 68,980,000 people in Japan's labor force. About 1,650,000 people were unemployed. What was the unemployment rate? 5.0% 1.8% 6.1% 2.4%

d. control over a tangible or intangible resource.

Property rights refer to: a. the time it takes to start a business venture. b. the number of properties owned by an entrepreneur. c. patents owned by a business. d. control over a tangible or intangible resource.

b. government budget deficit as a percentage of GDP

Which of the following is a scaled number? a. the country's national debt b. government budget deficit as a percentage of GDP c. the sum of all incomes earned in the economy d. total tax revenues in the economy

your new car

Which of the following is an example of a durable good? a. fresh flowers from the florist b. your haircut c. a soft drink d. your new car

d. All prices adjust, and the economy returns to long-run potential.

Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand? a. There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales. b. There is a recession as output falls sharply, and prices will not have had time to adjust. c. There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will increase. d. All prices adjust, and the economy returns to long-run potential.

$19,588

If the interest rate is 5%, what is the approximate present value of $25,000 received in five years?$19,588 $23,810 $31,907 $22,676

$132,852

If the interest rate is 6% and the average inflation rate is 3.1%, what is the approximate future value of $75,000 in 20 years? $240,535 $89,743 $132,852 $42,340

$18,865

In 1995, when the consumer price index was 152.38, women earned a median income of $12,130 per year. If the consumer price index in 2015 was 236.99, how much was $12,130 in 2015 dollars? $16,259 $18,865 $12,130 $7,799

1.25

In 2017, the total population of Africa was estimated to be about 1,250,000,000 people. This number, in billions, is: 125. 1.25. 1,250. 12.5.

c. nominal interest rate minus the rate of inflation.

The real interest rate is the: a. economic growth rate adjusted for the effects of inflation. b. percentage of the nominal interest that is inflation. c. nominal interest rate minus the rate of inflation. d. nominal interest rate plus the rate of inflation.

South Korea

Which of the following countries enjoyed significant catch-up economic growth in the second half of the twentieth century? United States Argentina Spain South Korea

c. medium of exchange, store of value, and unit of account

Which of the following lists the functions of money? a. store of value, store of interest, and buffer against inflation b. medium of exchange, measure of inflation, and benchmark of quality c. medium of exchange, store of value, and unit of account d. carrier of exchange, unit of account, and measure of inflation

b. Daniela goes to the store and purchases roses with U.S. dollars.

Which of the following shows the medium of exchange function of money? a. Mena saves his money in a certificate of deposit at the bank. b. Daniela goes to the store and purchases roses with U.S. dollars. c. Wilma wants to sell her old car, and she values it at $2,400. d. Darius goes window shopping.

d. higher; greater

Holding everything else equal, the _____ the interest rate on saving, the _____ the future value of that saving. a. higher; lower b. lower; greater c. lower; the more negative d. higher; greater

(i), (ii), and (iii)

The news of an impending recession in the economy will lead to a: (i) fall in consumption. (ii) rise in precautionary saving. (iii) rise in national saving.(iv) rise in consumption.

a. extremely high rates of inflation.

Hyperinflation is: a. extremely high rates of inflation. b. very high rates of economic growth. c. a period of high money growth in an economy. d. inflation that occurs when the economy is in a recession.

c. price of all goods and services produced domestically.

The GDP deflator is an index that tracks the: a. price that businesses pay over time for the inputs used in the production process. b. highest prices consumers pay over time for imported goods and services. c. price of all goods and services produced domestically. d. average price that consumers pay over time for a representative basket of goods and services.

(i), (ii), and (iv)

In order to be considered unemployed, a person must: (i) be part of the working-age population. (ii) be actively looking for work.(iii) not have been self-employed. (iv) must be noninstitutionalized.

b. amount of money that people can borrow.

Credit constraints limit the: a. interest rates that banks can charge. b. amount of money that people can borrow. c. amount of saving that people can make. d. amount of money that banks can accept as deposits.

a. The capital stock increases, and economic growth is positively affected.

The government passes a new investment tax credit initiative. Which input in the production function changes, and what is the effect on economic growth in the country? a. The capital stock increases, and economic growth is positively affected. b. Human capital is enhanced, and economic growth is positively affected. c. Technological advance occurs, but there is no effect on economic growth. d. The capital stock decreases, and economic growth is negatively affected.

d. a reduction in the birth rate coupled with an increase in the retirement rate of a population

Which of the following would lead to a slowdown in economic growth? a. the institution of a savings tax credit b. an increase in innovation in the economy c. an increase in capital accumulation coupled with technological advancement d. a reduction in the birth rate coupled with an increase in the retirement rate of a population

-0.15%

You purchase a certificate of deposit that earns an advertised rate of 1.75% interest per year. What is your real rate of return if the actual inflation rate is 1.9%? 3.65% 1.75% 0.15% -0.15%

a. Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.

When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure? a. Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure. b. Government expenditure rises, and this increases imports, net exports, and aggregate expenditure. c. The real value of savings increases, leading to increased imports and decreased exports, and this causes net exports and aggregate expenditure to fall. d. Inflows of foreign savings cause the dollar to depreciate, and this increases exports and reduces imports, leading to a rise in net exports and a rise in aggregate expenditure.

a. The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.

When prices rise in the United States, what is the effect on consumption and aggregate expenditure? a. The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure. b. Real interest rates rise, and this decreases consumption and aggregate expenditures. c. The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure. d. The real value of debt increases, and this increases consumption and aggregate expenditure.

a. Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate.

Which of the following correctly shows the steps needed to calculate the inflation rate? a. Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate. b. Tally up the cost of the basket of goods and services, subtract the value of goods and services that are no longer counted in the basket, and then calculate the inflation rate. c. Collect prices from the stores where people shop, assess the substitution that people make from low inflation to high inflation products, and calculate the difference in the prices that people pay. d. Find the total value of the basket of goods and services, assess quality changes from one period to the next, and measure the inflation rate.

b. working but whose skills are not fully utilized.

An underemployed person is one who is: a. cyclically unemployed. b. working but whose skills are not fully utilized. c. employed in the underground economy. d. retired or outside of the labor force.

c. a temporary

If there is _____ rise in income, there will be an intermediate increase in total consumption in the economy. a. zero b. no news of a c. a temporary d. a permanent

c. a small increase; a large increase

If there is a temporary rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. a. no change; a large increase b. a large increase; no change c. a small increase; a large increase d. a large increase; a large increase

a. a technological innovation that can increase labor

Southeast Asian countries experience high temperatures and high humidity during the monsoon seasons. This makes working conditions difficult. Because air conditioners are expensive and consume a lot of electricity, an alternative air cooler called an Eco-cooler was invented. This device does not use electricity, is made from readily available soda bottles, and works by funneling air into a room. This scenario is an example of: a. a technological innovation that can increase labor productivity and thus increase economic growth. b. a rise in productivity causing an increase in technology. c. a decrease in the labor force participation rate in Southeast Asian countries. d. the development of human capital.

(i) only

The aggregate production function Y = f(L, H, K) shows that economic growth can occur if: (i) human capital increases. (ii) labor productivity falls.(iii) the capital stock in the country depreciates. (iv) the depreciation rate increases.

d. marginal benefit of consumption.

The benefit of an extra dollar of consumption is called the: a. real interest rate. c. average benefit of consumption. d. marginal benefit of consumption. d. average price of goods and services consumed.

long-run

The equilibrium unemployment rate is also known as the _____ unemployment rate. frictional structural long-run cyclical

a. higher the structural unemployment rate.

The higher the minimum wage, as compared to the equilibrium wage, the: a. higher the structural unemployment rate. b. lower the natural rate of unemployment. c. lower the structural unemployment rate. d. higher the cyclical unemployment rate.

a. The investment line shifts to the right.

What happens to the investment line if the government institutes a tax break for funds invested? a. The investment line shifts to the right. b. There is a movement down and to the right along the same investment line. c. The investment line shifts to the left. d. There is a movement up and to the left along the same investment line.

c. right shift of the aggregate demand curve.

Ceteris paribus, a decrease in imports leads to a: a. movement down and to the right along the same aggregate demand curve. b. movement up and to the left along the same aggregate demand curve. c. right shift of the aggregate demand curve. d. left shift of the aggregate demand curve.

10.13%

Consider the following basket of goods: 50 bottles of milk, 100 avocadoes, 50 apples, and eight pineapples. Suppose that last year, each bottle of milk was $2.50, each avocado was $1.50, each apple was $0.75, and each pineapple was $4. This year, each bottle of milk is $2.50, each avocado is $1.80, each apple is $0.80, and each pineapple is $4.30. What is the inflation rate between last year and this year? -10% 8.99% -9.09% 10.13%

d. raises; lowers; decreases; lowers

Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand. a. lowers; raises; decreases; lowers b. raises; lowers; boosts; raises c. lowers; raises; boosts; raises d. raises; lowers; decreases; lowers

a. left shift of the aggregate demand curve.

Contractionary monetary policy causes a: a. left shift of the aggregate demand curve. b. right shift of the aggregate supply curve. c. right shift of the aggregate demand curve. d. movement along the same aggregate demand curve.

a. the GDP deflator and the real GDP

In the AD-AS framework, price and quantity are represented by _____, respectively. a. the GDP deflator and the real GDP b. the real GDP and the real interest rate c. nominal interest rates and the real GDP d. the real interest rate and consumption

c. capital accumulation alone cannot lead to sustainable economic growth.

The moral of the story of the Solow growth model is that: a. capital accumulation is the key to sustained economic growth. b. human capital growth does not lead to economic growth. c. capital accumulation alone cannot lead to sustainable economic growth. d. technological advance cannot sustain continuous economic growth.

149.8

What is Sri Lanka's GDP deflator if its nominal GDP is $88.9 billion (in current US$) and the real GDP is $59.34 billion? 149.8 136.5 100 66.7

d. Consumption is based on permanent income, which is already factored into anticipated future changes in income.

Why does an anticipated change in income lead to no change in consumption for a consumption smoother? a. The consumer is not aware of anticipated changes in future income. b. There are high tax rates on anticipated changes in future income. c. There is a failure of the permanent income hypothesis. d. Consumption is based on permanent income, which is already factored into anticipated future changes in income.

d. GDP rises by $38,000.

You purchase a new car (produced this year) for $38,000. After six months, you sell the car for $31,500. How much does GDP rise because of these two transactions? a. GDP rises by $69,500. b. GDP rises by $6,500. c. GDP rises by $31,500. d. GDP rises by $38,000.

$83,333

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on a proposed project. - Up-front cost: $300,000 - Next year's revenue: $15,000 - Real interest rate: 8% - Depreciation rate: 10% What is the present value of the stream of payments from this project? $83,333 $383,333 $315,000 $18,000

c. marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future.

The rational rule of consumption is to consume more today if the: a. marginal benefit of a dollar of consumption today is less than the marginal benefit of spending a dollar plus interest in the future. b. price of consumption today exceeds the dollar-plus-interest in the future. c. marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future. d. real interest rate in the future is expected to be higher than the real interest rate today.

3.

When government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is: 3. 2.5. 1. 2.

a rise in aggregate supply

Which of the following changes will lead to a decrease in the price level but an increase in the quantity of output in an economy? a. a fall in aggregate demand b. a fall in aggregate supply c. a rise in aggregate demand d. a rise in aggregate supply

c. You eat at a fancy restaurant for Valentine's Day.

Which of the scenarios represents consumption spending? a. A new hospital is constructed in your town. b. You take out a bank loan. c. You eat at a fancy restaurant for Valentine's Day. d. Your parents pay their income taxes.

d. Both prices and GDP decrease.

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when corporate taxes rise in the economy? a. Prices increase, and GDP decreases. b. Prices decrease, and GDP increases. c. Both prices and GDP increase. d. Both prices and GDP decrease.

c. Prices decrease, and GDP increases.

You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper? a. Both prices and GDP decrease. b. Both prices and GDP increase. c. Prices decrease, and GDP increases. d. Prices increase, and GDP decreases.