ECO TRUE/FALSE

If planned investment increases, equilibrium will be restored only when saving has increased by exactly the amount of the initial increase in planned investment, assuming there is no government or foreign sector.

TRUE

If real GDP increased during a year, then output must have increased.

TRUE

If tax receipts are less than government expenditures the government is running a deficit.

TRUE

If the GDP deflator next year is less than the GDP deflator this year, then the price level has fallen.

TRUE

If the MPC is .75, then the multiplier is 4.

TRUE

If the MPS is .1, then the multiplier is 10.

TRUE

If the MPS is 0.4 and t is 0.3, then the tax multiplier is about -1.03.

TRUE

If the government increases taxes by $4 billion and increases spending by $4 billion, equilibrium output increases by $4 billion.

TRUE

If the government runs a deficit, then the government debt increases.

TRUE

Labor productivity is total output divided by the total number of worker hours.

TRUE

Value added is the difference between the value of good as they leave a stage of production and cost of the goods as they entered that stage of production.

TRUE

A tax cut of $12 billion will have less effect on the economy than an increase in government purchases of $12 billion.

TRUE

A weakness in the concept of GDP is that it ignores income distribution.

TRUE

Actual investment equals planned investment plus unplanned changes in inventories.

TRUE

An inflation rate that is lower than expected benefits creditors.

TRUE

Assuming there is no government or foreign sector, the economy will be in equilibrium if, and only if, planned investment equals actual investment.

TRUE

Automatic stabilizers include those elements of government spending that automatically grow during a recession.

TRUE

Depreciation is included in GDP, but excluded from NNP.

TRUE

Disposable income is income less net taxes.

TRUE

Disposable personal income is personal income minus personal taxes.

TRUE

Final sales plus changes in inventories equals GDP.

TRUE

Firms react to negative inventory investment by increasing output.

TRUE

Fixed weight indexes can not account for new goods.

TRUE

For the economy to be in equilibrium, the following condition must be satisfied: G + I = S + T.

TRUE

GDP measured in base year prices is real GDP.

TRUE

If discouraged workers were counted as unemployed, the measured unemployment rate would increase.

TRUE

If in the same period output doubles and the price level remains the same, nominal GDP doubles

TRUE

If more workers have more capital to work with, then production will increase.

TRUE

Production in the illegal or underground economy is not reflected in GDP.

TRUE

Productivity is output per worker hour.

TRUE

The CPI somewhat overstates changes in the cost of living because it does not allow for substitutions that consumers might make in response to price changes.

TRUE

The actual real rate of interest is the nominal rate less the actual inflation rate.

TRUE

The balanced-budget multiplier works whenever the government increases spending and increases taxes by the same amount.

TRUE

The government budget is balanced when tax receipts equal government spending.

TRUE

The marginal propensity to consume is the change in consumption per change in income.

TRUE

The natural rate of unemployment is the unemployment rate during a period of full employment.

TRUE

The paradox of thrift is that all people deciding to save more could lead to them saving less.

TRUE

The smaller the MPS, the larger the multiplier.

TRUE

The structural deficit is the deficit at full employment.

TRUE

When more people who are not working start looking for jobs, the labor-force participation rate increases.

TRUE

When the economy is in equilibrium, savings equals planned investment.

TRUE

When the tax rate increases, the absolute value of the tax multiplier falls.

TRUE

When there is an unplanned draw down of inventories, firms will increase production.

TRUE

Workers who take a job related training course are enhancing their human capital.

TRUE

There are no costs associated with inflation if the inflation rate is perfectly anticipated.

FALSE

Total income in the economy can sometimes be greater than total spending.

FALSE

Transfer payments are subtracted from national income to get to personal income.

FALSE

Uncertainty about the future is likely to increase current spending.

FALSE

When aggregate expenditure is greater than aggregate output, there will be an unplanned build up of inventories.

FALSE

When investment is greater than planned investment, output grows.

FALSE

When taxes depend on income, a higher tax rate implies a higher government spending multiplier.

FALSE

When the MPC is 0.8 and t is 0.4, then the government spending multiplier is about -1.54.

FALSE

The larger the MPC, the smaller the multiplier.

FALSE

The natural rate of unemployment in the economy is determined by the Congress and the president of the country.

FALSE

The only source of economic growth is growth in the number of workers in the economy.

FALSE

A 100% increase in the price of salt changes the CPI more than a 10% increase in rent.

FALSE

A GDP deflator is real GDP divided by nominal GDP times 100.

FALSE

All economic activities in the economy are included in the GDP.

FALSE

An increase in search costs will decrease structural unemployment.

FALSE

An increase in the MPC, reduces the multiplier.

FALSE

An unemployment rate of 10% means that the average worker has been unemployed for 10% of the year.

FALSE

Anyone 16 years of age or older who is not classified as employed is classified as unemployed.

FALSE

As interest rates fall, spending decreases.

FALSE

As the MPC decreases, the government spending multiplier increases.

FALSE

Consumers can spend their entire personal income

FALSE

Dairy Queen opens a branch in Estonia. The sales of the restaurant enter the U.S. GDP and the Estonian GNP.

FALSE

Defense spending is the largest part of the U.S. government spending.

FALSE

During recessions, automatic stabilizers work to reduce government expenditures and increase government revenues.

FALSE

Firms react to an unplanned inventory investment by increasing output.

FALSE

GDP measures the total income of everyone and the total spending by everyone in the economy.

FALSE

If actual investment is greater than planned investment, unplanned inventories decline.

FALSE

If aggregate expenditure decreases, then equilibrium output increases.

FALSE

If autonomous spending increases, the aggregate expenditure function becomes steeper.

FALSE

If investment is larger than depreciation, the capital stock decreases

FALSE

If labor markets were perfectly efficient, the unemployment rate would fall to zero.

FALSE

If nominal GDP rises, then so must real GDP

FALSE

If planned saving exceeds planned investment, injections are greater than leakages.

FALSE

If real GDP rises, then so must nominal GDP.

FALSE

If the MPS is 0.25 and t is 0.4, then the tax multiplier is about -2.96.

FALSE

If the marginal propensity to consume is .8, the marginal propensity to save is 8.

FALSE

If the population is growing as fast the economy, then per capita output is growing.

FALSE

In an expansion the U.S. federal government deficit automatically grows.

FALSE

Stock market transactions are part of GNP.

FALSE

The amount the government owes to the public is the deficit.

FALSE

The costs of pollution are subtracted from the value of final sales before calculating GDP.

FALSE

The difference between GNP and GDP is depreciation.

FALSE

The economy is in equilibrium when aggregate output equals consumption spending.

FALSE

The income of U.S. citizens working abroad counts in U.S. GDP.

FALSE