Econ 2 Macroeconomics - Winter Baden

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(Table: The Consumer Price Index) The approximate rate of inflation in year 3 is: A) 5%. B) 10%. C) 19%. D) 20%

A budget surplus exists when which of the following occurs? A) Taxes are greater than government spending. B) Taxes are less than government spending. C) Taxes are less than government spending plus investment. D) Investment is less than government spending less taxes

Good X and good Y are related goods. Holding everything else constant, if the price of X decreases and the demand for Y increases, then this most likely means that X and Y are: A) complements. B) substitutes. C) inferior. D) normal

Good X and good Y are related goods. If the price of good X increases and the demand for good Y shifts left, these goods are: A) complements. B) substitutes. C) inferior. D) normal.

A country's living standard is best measured by the: A) per capita nominal GDP. B) real GDP. C) nominal GDP. D) per capita real GD

Suppose an economy has rising total output accompanied by increasing employment. This is generally known as: A) stagflation. B) recession. C) inflation. D) expansion

Scarcity in economics means: A) We do not have sufficient resources to produce all of the goods and services we want. B) The wants of people are limited. C) There must be poor people in rich countries. D) Economists are clearly not doing their jobs.

The primary emphasis in macroeconomics is on: A) how firms set prices. B) the national economy. C) marginal analysis. D) bits and pieces of the economy

Macroeconomics deals with: A) bits and pieces of the economy. B) the question of how a business unit should operate profitably. C) the working of the entire economy or large sectors of it. D) how individuals make decisions.

If real GDP doubles in 12 years, its average annual growth rate is approximately: A) 6%. B) 5%. C) 4%. D) 3

When the Great Depression reached its trough in 1933, the unemployment rate was approximately: A) 5%. B) 10%. C) 25%. D) 50%

Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new hybrid truck C) the hiring of a new school teacher D) your purchase of your neighbor's house, which was built in 199

A key theme fundamental to all of economics is: A) There are limited wants. B) We are a rich country but are simply not aware of it. C) People have unlimited wants facing limited means to satisfy them. D) There are unlimited resources.

Scarcity exists when: A) making choices among two or more alternatives is not necessary. B) individuals can have more of any good. C) individuals can have more of one good but only at the expense of another. D) resources are unlimited.

Private savings is equal to: A) income after taxes minus consumption. B) taxes minus government spending on goods and services. C) the total amount of savings accounts plus stocks plus bonds owned by households. D) income plus investment

Productivity is equal to: A) real GDP divided by the number of workers. B) real GDP divided by the population. C) the number of workers per machine. D) the total output produced

Rising inventories typically indicate _______ unplanned inventory investment and a _________ economy. A) positive; slowing B) negative; slowing C) positive; expanding D) negative; expandin

Unemployment that is due to the time workers spend in job search is considered: A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) natural unemployment

When an economy is in an expansion, unemployment: A) tends to fall, and overall prices tend to rise. B) and overall prices tend to fall. C) tends to rise, and overall prices tend to fall. D) and overall prices tend to rise.

When an economy is operating between the business cycle trough and the business cycle peak, it is called: A) an expansion. B) a contraction. C) a short-run phenomenon. D) the beginning of a fall in aggregate spending.

The following is an algebraic representation of the consumption function: C = A + MPC × YD. Which of the following represents autonomous consumption? A) C B) A C) MPC D) Y

The instrument by which a household makes a loan to a firm and the firm pays interest to the household is known as: A) a stock. B) a bond. C) a transfer payment. D) disposable income

The invention of ATMs reduced the: A) menu costs of inflation. B) shoe-leather costs of inflation. C) unit-of-account costs of inflation. D) seignorage

The life-cycle hypothesis suggests that consumers: A) spend in response to current income. B) plan spending over their lifetime. C) spend more when income rises. D) save more when incomes rise

The market equilibrium is found at the: A) price where quantity demanded exceeds quantity supplied. B) price where quantity demanded equals quantity supplied. C) price where quantity supplied exceeds quantity demanded. D) highest price the market will bear

The market(s) that channel the excess savings of households into investment spending by firms is(are) known as: A) the stock market. B) financial markets. C) the international market. D) the bond market

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is an increase in consumer spending? A) an increase in the nominal GDP B) a decrease in the nominal GDP C) an increase in the unemployment rate D) a decrease in the inflation rate

(Figure: Demand and Supply) Look at the figure Demand and Supply. The slope of the curve labeled D is: A) -1. B) 0. C) 1. D) 3.

(Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A, B, E, and F: A) indicate combinations of guns and butter that society can produce using all of its factors efficiently. B) show that the opportunity cost of more guns increases but that of more butter decreases. C) indicate that society wants butter more than it wants guns. D) indicate constant costs for guns and increasing costs for butter

Periods in which output and employment are falling are known as: A) recessions. B) booms. C) expansions. D) deflations.

(Figure: Guns and Butter) Look at the figure Guns and Butter. This production possibility frontier is: A) bowed out from the origin because of increasing opportunity costs. B) bowed in toward the origin because of increasing opportunity costs. C) bowed in toward the origin because of constant costs of guns and butter. D) linear because of constant costs

Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is: A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) counted as employed, since she is likely to receive a job offer soon

Changing the level of government spending is an example of: A) fiscal policy. B) interest rate policy. C) monetary policy. D) exchange rate policy

Crowding out results in a(n): A) decrease in private investment spending resulting from government deficit spending. B) increase in physical capital accumulation, which leads to higher economic growth. C) increase in private investment spending resulting from government deficit spending. D) increase in consumption spending as a result of higher investment spending

Cyclical unemployment: A) rises during a recession. B) falls during a recession. C) rises during an expansion. D) is a part of natural unemploymen

Diminishing returns to physical capital means that when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to: A) a smaller increase in the marginal product of labor. B) a decrease in the total amount of output produced. C) negative marginal product . D) a constant amount of total output

Economists have identified several consecutive months of falling employment and forecasts for the next few months suggest more of the same. At what point in the business cycle is the economy? A) recession B) expansion C) business-cycle peak D) business-cycle trough

Efficiency wages are: A) above equilibrium to encourage better performance. B) below equilibrium to encourage better performance to get a raise. C) responsible for all structural unemployment. D) above equilibrium to encourage better performance and are responsible for all structural unemploymen

Excess supply occurs when: A) the price is above the equilibrium price. B) the quantity demanded exceeds the quantity supplied. C) the price is below the equilibrium price. D) the quantity demanded exceeds the quantity supplied and when the price is below the equilibrium price

If a country has a trade deficit, does it indicate that the country has a serious problem? A) No. Trade deficits occur when a country's investment spending is higher than its level of saving. B) Yes. Trade deficits occur when a country has low worker productivity. C) Yes. Trade deficits occur when a country does not have a comparative advantage in production. D) Yes. Trade deficits occur when a country has high budget surplus

If technology advances, then: A) more output can be obtained from the same inputs. B) more inputs are needed to produce the same output. C) less output can be obtained from the same inputs. D) less output can be produced even with more inputs

If the CPI changes from 120 to 125 between December 2009 and December 2010, the: A) inflation rate for 2010 is 4.2%. B) inflation rate for 2010 is 5%. C) deflation rate for 2010 is 5%. D) deflation rate for 2010 is 4.2%

Inflation is: A) a rising aggregate price level. B) an expansion of output. C) a rise in wages. D) a rise in the unemployment rate

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income If housing prices throughout the United States decrease rapidly due to an increase in mortgage foreclosures, which of the following equations could represent the new aggregate consumption function? A) C = 100 + 0.8YD. B) C = 250 + 0.8YD. C) C = 200 + 0.9YD. D) C = 200 + 0.7Y

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income If the stock market crashes suddenly, which of the following equations could represent the new aggregate consumption function? A) C = 100 + 0.8YD. B) C = 250 + 0.8YD. C) C = 200 + 0.9YD. D) C = 200 + 0.7YD

The Boeing Company buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model of aircraft at $10 million. The value added by Boeing is equal to: A) $3.5 million. B) $16.5 million. C) $13 million. D) $15.5 million

If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5 million, then its GDP per capita is: A) $500. B) $5,000. C) $50,000. D) $5 millio

If a country has a trade surplus, we can conclude that it also has: A) a budget surplus. B) a net capital outflow. C) a net capital inflow. D) a budget deficit

If chicken and beef are substitutes, then a fall in the price of chicken will bring about: A) an increase in the demand for beef. B) a decrease in the demand for beef. C) a decrease in the quantity demanded of beef. D) no change in the demand for beef

If deflation occurs and your income is fixed, your real income: A) will fall. B) will go up. C) will still be equal to your nominal income. D) is constant

If money income remains the same while the average price level doubles, then: A) nominal income will fall. B) real income will fall. C) interest rates will fall. D) purchasing power will increas

If the CPI is 180 in year 1 and 190 in year 2, the inflation rate between year 1 and year 2 is about: A) 5.26%. B) 5.56%. C) 6.5%. D) 10%

If the demand for tires goes down when the price of gas goes up, then tires and gas are: A) substitutes. B) complements. C) both expensive. D) both inexpensive

If the friend offers to pay you $1 five years from today, the net present value will: A) be higher than $1. B) depend upon the prevailing interest rate. C) be equal to zero, since you don't have the dollar. D) not be important in understanding the time value of money.

If you are paid $10,500 in one year on a $10,000 loan made today, then your annual interest rate is: A) 0%. B) 5%. C) $500. D) $10,000

Planned investment spending is _______ to the interest rate because ______. A) positively related; a fall in the market interest rate decreases the supply of loanable funds B) negatively related; a rise in the market interest rate makes any given investment project less profitable C) positively related; a fall in the market interest rate decreases the opportunity cost of investing D) negatively related; a rise in the market interest rate causes consumption to crowd out investment

Radhika just graduated from college. She recently quit her part time job to focus on finding a full time job that better uses the skills she has acquired in college. Radhika is considered to be: A) structurally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) employed since she is focusing on finding a full time job

Real GDP is nominal GDP adjusted for: A) double counting. B) changes in prices. C) population. D) import

Real GDP is the same as: A) current-dollar GDP. B) inflation-adjusted GDP. C) nominal GDP. D) value-added GDP

Recent declines in union membership are likely to cause the natural rate of unemployment to: A) increase. B) decrease. C) be unaffected. D) be unpredictable.

Shoe-leather costs refer to the: A) effect of inflation on the prices of food, clothes, and other necessities. B) increased cost of transactions due to inflation. C) high price of leather goods. D) effect of inflation on transportation costs

Structural unemployment occurs when: A) new workers enter the work force. B) there is a surplus of labor at the current wage rate. C) there is an expansion in the economy. D) there is cyclical unemployment

To be classified as unemployed, a person must be: A) not working. B) not working and actively looking for a job in the last four weeks. C) not working or working part-time when he or she wishes to be working full time. D) not working and actively looking for a job in the last four weeks or discouraged and not actually looking for a job

To be counted as unemployed, one must: A) have had a job previously. B) be out of work and be actively looking for a job. C) have had a job before and be actively looking for work. D) be actively looking for a job and have at least a high-school diploma or its equivalen

To help increase investment spending, the government can: A) lower taxes on consumption, so that disposable income rises. B) lower taxes on the returns from savings, so that total savings increase and the interest rate falls. C) raise taxes on the returns from bonds while lowering taxes on stock dividends. D) lower taxes on investment spending while raising taxes on savings, so that total tax revenue remains constant.

Transfer payments: A) are a means by which government raises funds. B) are a redistribution of funds from one individual to another individual in the economy. C) are counted in GDP. D) is another term for government taxation

When a market is in equilibrium, one will find that the: A) quantity demanded is equal to zero. B) quantity demanded is equal to quantity supplied. C) quantity demanded is greater than quantity supplied. D) quantity supplied is zero.

When future disposable income rises, current consumption: A) falls. B) rises. C) is unaffected. D) is autonomous

When portions of investment spending are financed by a capital inflow: A) interest is being paid by government for the use of those funds. B) interest is being paid to a foreigner for use of those funds. C) consumers will need to cut back on spending. D) taxes will be raised to pay for this capital inflow

When the economy is at full employment: A) there is no unemployment. B) cyclical unemployment is zero. C) frictional unemployment is zero. D) the natural rate of unemployment is zero

When the government invests resources in a nation's educational system, the government is said to be investing in: A) private property. B) human capital. C) political stability. D) infrastructure

When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have: A) hyperinflation. B) a trade deficit. C) price stability. D) a trade surplus.

Which of the following statements is true? A) The number of people not working but who have looked for work in the past year are unemployed. B) The labor force is the total number of people working plus those who are unemployed. C) The unemployment rate is the number of people unemployed expressed as a percentage of the population. D) The labor force is the same as the populatio

Which one of the following is an example of consumption expenditure? A) Samantha bought an oven for her cooking show on Food Network. B) Stephanie bought a laptop for her brother. C) Jim purchased 200 shares of Google stock. D) Mr. Smith spent $1,500 to buy a used car for his son

Within the circular-flow diagram, the value of household income, the sum of wages, dividends, interest, and rent plus transfer payments equals the sum of: A) the value of household tax payments. B) consumer spending, private saving, and the value of household tax payments. C) the money supply. D) transfer payments and household tax payments.

You win a prize at your sorority and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 5%, the present value of option 1 is: A) $176.56. B) $185.94. C) $190.48. D) $195.24

If the quantity supplied in a market exceeds the quantity demanded in a market, we would expect prices to: A) stay the same. B) rise. C) fall. D) rise in order to clear the marke

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is a decrease in consumer spending? A) an increase in the nominal GDP B) an increase in the real GDP C) an increase in the unemployment rate D) an increase in the inflation rate

(Figure: Circular-Flow Model) What is GDP in this economy? A) $100 B) $400 C) $500 D) $60

(Figure: Consumption and Real GDP) If real GDP is $4 trillion, consumption is _______ trillion. A) $0.75 B) $1 C) $3 D) $4

An action that would hinder growth would be: A) a government's provision of basic health measures. B) a government's support for research and development endeavors. C) the lack of government oversight for property rights. D) a government's encouragement of increased saving.

An economic expansion in the United States is typically associated with: A) a falling inflation rate. B) an increase in the poverty rate. C) a falling unemployment rate. D) a decrease in corporate profits.

An example of a positive statement is: A) the rate of unemployment should be 4%. B) a high rate of economic growth is good for the country. C) the federal government spends half of its budget on national defense. D) everyone in the country should be covered by national health insurance

An expansion is a period in which: A) output declines. B) the price level falls. C) output rises. D) unemployment rises

An increase in the nation's overall price level is: A) long-term economic growth. B) unemployment. C) inflation. D) deflation

Assume that the real GDP of the United States is approximately $12 trillion and the population of the United States is approximately 300 million. What is per capita real GDP? A) $4,000 B) $36,000 C) $40,000 D) Real per capita GDP can't be determined without more information

Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by: C = 500 + 0.80Y, where Y is income. The marginal propensity to consume in Behr is: A) 0.75. B) 500. C) 0.80. D) 1

If we add up all of the values added at every stage of production for a good, we will get: A) the total cost of the labor used to produce the good. B) the prices of the factors of production used to produce the good. C) the final value of the good. D) the intermediate value of the good

If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your MPC is: A) 0.2. B) 0.4. C) 0.6. D) 0.8

If your professor wins the lottery: A) GDP goes up. B) GDP goes down. C) GDP is not affected. D) the economy will clearly be better off

In a particular labor market, the demand for labor is given by W = 20 - (1/100)L and the supply of labor is given by W = 4 + (1/100)L where W is the wage rate, and L is the number of workers. Suppose government decides to impose a minimum wage of $15 in this market. What effect will this minimum wage have on the market? A) The wage will have no impact since it is below the equilibrium wage. B) The wage will create a shortage of workers since it is above the equilibrium wage. C) The wage will create surplus of workers since it is above the equilibrium wage. D) The wage will result in increases in wages for workers who were employed at the equilibrium wage only

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income If all employers announce in September that they guarantee to give all employees a large Christmas bonus in December, which of the following equations could represent the new aggregate consumption function? A) C = 100 + 0.8YD. B) C = 250 + 0.8YD. C) C = 200 + 0.9YD. D) C = 200 + 0.7YD

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income If disposable income increases from $500 to $800, aggregate consumption will increase by: A) $0. B) $200. C) $240. D) $440

Technological progress allows workers to produce more: A) because it increases the amount of physical capital available. B) because it increases the amount of human capital available. C) even when the amount of physical capital and human capital do not change. D) only if the amount of physical capital grows at the same rate.

The aggregate price level is: A) the average price of shares on the stock market. B) the average price of commodities. C) the overall level of prices in the economy. D) the average rate of inflation.

The current level of productive capacity ________________ investment spending. A) has no impact on B) is positively related to C) is negatively related to D) varies directly with

The following is an algebraic representation of the consumption function: C = A + MPC × YD. Which of the following represents the slope of the function? A) C B) A C) MPC D) Y

The main reason South Korea has grown so rapidly is that because it was so poor: A) it could take advantage of international financial aid for poor countries. B) people left to go to more prosperous countries. C) it could skip forward, or leapfrog, to use new-generation technology as it developed. D) it could import highly trained engineers from other countries.

The marginal propensity to consume is: A) increasing if the marginal propensity to save is increasing. B) the proportion of total disposable income that the average family consumes. C) the change in consumer spending divided by the change in aggregate disposable income. D) the change in consumer spending minus the change in aggregate disposable income

The sequence of business cycle phases is: A) business-cycle peak, business-cycle trough, expansion, recession. B) business-cycle peak, expansion, business-cycle trough, recession. C) business-cycle peak, recession, business-cycle trough, expansion. D) business-cycle peak, expansion, recession, business-cycle trough

The term human capital describes: A) improvement made possible by better machines and the equipment available. B) improvement in the technology available to the work force. C) improvement in a worker's skills made possible by education, training and knowledge. D) improvement in the robotics technology that can substitute for a human worke

The typical supply curve illustrates that: A) other things equal, the quantity supplied for a good is inversely related to the price of a good. B) other things equal, the supply of the good creates its own demand for the good. C) other things equal, the quantity supplied for a good is positively related to the price of a good. D) price and quantity supplied are unrelated

To acquire human capital a person would: A) save to buy a printing press. B) purchase a printing press rather than use his or her money on consumption. C) learn to use a printing press. D) sell the books that the printing press produces

Which of the following contributes to economic development? A) low saving and investment rates B) a command socialist economic system C) investment in infrastructure D) complete absence of government involvemen

Which of the following do economists view as investment spending? A) stocks B) bonds C) spending on physical capital D) mutual fund investin

Which of the following institutions is important in channeling savings into investment? A) schools B) religious institutions C) banks D) the federal government

Which of the following is NOT included in investment spending in the national income accounts? A) new residential construction B) the purchase of machinery and other productive physical capital C) the purchase of stocks and bonds by a business D) spending on inventorie

Which of the following is a normative statement? A) International trade leads to expanded consumption opportunities. B) Higher expenditures on health care will reduce infant mortality rates. C) We would all be better off if we could reduce our dependence on oil imports. D) Increased defense spending will lead to higher budget deficits

Which of the following is an example of investment spending? A) The owner of a Domino's Pizza store has employed two students to deliver pizzas. B) The manager of a local Domino's Pizza store has taken some cash to the bank to make a deposit. C) A local Domino's Pizza store has purchased a new pizza oven. D) The owner of the Domino's Pizza store has used some of her salary to buy shares of stock in the Domino's corporation

Which of the following most accurately describes how to calculate the unemployment rate? A) (Unemployed / population) × 100 B) (Unemployed / employed) × 100 C) (Unemployed / labor force) × 100 D) [(Unemployed - employed) / labor force] × 100

Which of the following would shift the demand curve for new textbooks to the right? A) a decrease in the price of paper B) a fall in the price of used textbooks C) an increase in college enrollment D) a fall in the price of new textbooks

You read in the newspaper that the CPI in 2011 was 120. You conclude that a typical market basket in 2011 would have cost: A) 20 percent more than the same market basket purchased in 2010. B) 120 percent more than the same market basket purchased in 2010. C) 20 percent more than the same market basket purchased in the base year. D) 120 percent more than the same market basket purchased in the base year

(Figure: Unemployment Rate over Time) Look at the figure Unemployment Rate over Time. In the time-series graph, as we move from the beginning of 2001 to the beginning of 2003, we see that the unemployment rate has: A) decreased from approximately 5% to approximately 4%. B) increased from approximately 5.3% to approximately 7.3%. C) decreased from approximately 7.7% to approximately 5.5%. D) increased from approximately 4% to approximately 6%.

(Table: Competitive Market for Good Z) Look at the table Competitive Market for Good Z. A surplus of the good will occur at a price of ________. A) $0 B) $5 C) $10 D) $15

An increase in the level of business opportunity will generally: A) not change the loanable funds demand curve. B) shift the loanable funds demand curve to the left. C) cause a movement either up or down the loanable funds demand curve. D) shift the loanable funds demand curve to the right

An increase in the price of wheat, an important ingredient in the production of bread, combined with an increase in the number of people consuming bread, will result in which of the following changes in the bread market? A) Both the equilibrium price and quantity will increase. B) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same. C) Both the equilibrium price and quantity will decrease. D) Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same.

As long as people have different ________, everyone has a comparative advantage in something. A) direct costs B) benefits C) utility D) opportunity costs

China has much higher rate of growth than the United States, but the average Chinese household is: A) as well off as a typical U.S. household, because China's real GDP per capita is catching up with that of the United States. B) richer than a typical U.S. household, because China's real GDP per capita is much higher than that of the United States. C) still a bit poorer than a typical U.S. household, but China's real GDP per capita is growing faster to equal that of the United States in a matter of few years. D) still far poorer than a typical U.S. household, because China's real GDP per capita is much lower than that of the United States

Computers started to become more common in the 1970s in America. From this time until the mid-1990s: A) the economy started to grow rapidly. B) real GDP per person increased quickly and then slowed down. C) nominal GDP per person increased quickly. D) very little happened to productivity

Discouraged workers are those individuals: A) who are getting paid too little. B) who do not like their job. C) who are working part time but are looking for a full-time job. D) who have given up looking for a job.

If nominal GDP decreases from one year to the next: A) prices must have fallen from one year to the next. B) real GDP must have fallen from one year to the next. C) prices and real GDP must have fallen from one year to the next. D) either output or prices or both must have fallen from one year to the next

If nominal GDP increases from one year to the next: A) prices must have risen from one year to the next. B) real GDP must have risen from one year to the next. C) prices and real GDP must have risen from one year to the next. D) either output or prices or both must have risen from one year to the next.

In 1798, the English economist Thomas Malthus predicted that: A) countries with a large supply of natural resources would always enjoy economic growth. B) the recently independent American colonies would rejoin the British empire out of economic necessity. C) the French Revolution would improve the economies of most European countries. D) rising population growth would cause productivity to fall

In general, for the U.S. economy, the relation between unemployment and economic growth is: A) positive. B) direct. C) neutral. D) negative.

Long-run economic growth is: A) higher in countries with a weak rule of law and excessive government intervention. B) lower in countries with a strong government and independent judiciary. C) lower in countries whose courts enforce property rights and whose government protects its citizens. D) higher in countries with a strong rule of law and political stability

Market equilibrium occurs when: A) there is no incentive for prices to change in the market. B) quantity demanded equals quantity supplied. C) the market clears. D) there is no incentive for prices to change in the market, quantity demanded equals quantity supplied, and the market clears.

Recessions are periods when: A) output rises. B) the aggregate price level rises. C) the unemployment rate is falling. D) output and employment are falling.

The main role of financial systems is to: A) make the capitalist class richer. B) provide credit cards to as many people as possible. C) channel goods and services to the people willing to pay for them. D) channel funds from savers into investments.

The major difference between the CPI and the producer price index is that: A) the producer price index is based on retail prices and CPI is based on wholesale prices. B) the producer price index measures the cost of living of self-employed workers and the CPI measures the cost of living of salaried workers. C) the producer price index generally registers a higher rate of inflation than the CPI. D) the producer price index is based on the cost of a basket typically purchased by producers, while the CPI is based on the cost of a basket typically purchased by consumers

The national accounts keep track of everything except: A) the spending of consumers and the government. B) the sales of producers. C) business investment. D) exchange rates.

The net present value of a project is the difference between: A) current benefits and the present value of future costs. B) the present value of current benefits and the current value of future costs. C) the present value of future benefits and the present value of future costs. D) the present value of current and future benefits and the present value of current and future costs.

The topics studied in macroeconomics include: A) inflation. B) unemployment. C) economic growth. D) inflation, unemployment, and economic growth

Which of the following statements is correct? A) A change in demand is a movement along the demand curve, and a change in quantity demanded is a shift of the demand curve. B) Both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions. C) Both a change in quantity demanded and a change in demand are shifts of the demand curve, only in different directions. D) A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

Which of the following would NOT be included in this year's GDP? A) the production of a television show B) the purchase of a new work truck C) the hiring of a new police officer D) your purchase of your neighbor's 2001 Toyota

Which of the following demonstrates how people respond to incentives to make themselves better off? A) More students major in economics when they hear that salaries for economists are rising. B) Students are assigned dorm rooms through a lottery system. C) Students are encouraged to donate blood because it is the "right thing to do." D) Students and faculty are encouraged to wear college apparel to support the college athletic teams.

Which of the following policies is most likely to reduce traffic congestion in a large metropolitan area? A) a limited number of free "early bird" parking passes given only to those who arrive prior to 6 A.M. B) a toll road that requires each car to pay a fee to enter the city center C) an increase in the price of subway and bus fare to and from the city D) asking citizens to carpoo

Opportunity cost is: A) about half of the monetary cost of a product. B) the dollar payment for a product. C) the benefit derived from a product. D) the value of the best alternative forgone in making any choice.

The opportunity cost of something is: A) greater during periods of rising prices. B) equal to the money cost. C) less during periods of falling prices. D) what is given up to acquire it

The problem of scarcity is confronted by: A) industrialized societies only. B) preindustrialized societies only. C) societies governed by communist philosophies only. D) all societies

A negative relationship between the quantity demanded and price is called the law of ________. A) demand B) marginality C) efficiency D) supply

A negative relationship between the quantity demanded and price is called the law of: A) demand. B) increasing returns. C) market clearing. D) supply.

A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect: A) an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and higher beef prices. B) an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and lower beef prices. C) a decrease in the supply of beef, leading to a shift to the left in the supply curve for beef and higher beef prices. D) a decrease in the demand for beef, leading to a shift to the left in the demand curve for beef and higher beef prices.

A person who spends time looking for work is: A) engaged in job search. B) counted as employed. C) counted as out of the labor force. D) usually counted as a discouraged worke

(Figure: The Labor Market) Refer to the accompanying figure on the labor market. The unemployment rate at the equilibrium wage rate is: A) 0%. B) 50%. C) 80%. D) 15%

(Figure: The Market for Loanable Funds II) If the interest rate is higher than ______ in this loanable funds market, the quantity supplied of loanable funds will _______ the quantity of loanable funds demanded. A) 8%; be greater than B) 8%; be less than C) 8%; equal D) 10%; be less tha

(Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2010. A) 111 B) 104 C) 90 D) 96

(Table: Individual and Aggregate Consumption Functions) Which of the following represents Andy's individual consumption function? A) C = 0.15YD B) C = 150 + 0.5YD C) C = 150 + 0.8YD D) C = 0.95Y

(Table: Individual and Aggregate Consumption Functions) Which of the following represents Fred's individual consumption function? A) C = 100 + 0.7YD. B) C = 100 + 0.5YD. C) C = 150 + 0.8YD. D) C = 0.80YD

(Table: Labor Force Data) Using the data from the accompanying table, suppose the labor force participation rate is 70%. The number of unemployed adults is: A) 8 million. B) 53 million. C) 103 million. D) 50 million

(Table: Pizza Economy III) Considering 2010 as the base year, nominal GDP in 2011 was: A) $47,000. B) $69,000. C) $72,000. D) $114,000

A business will want a loan when: A) interest rate < (return on project - cost of project) / cost of project × 100. B) rate of return < interest rate. C) rate of return - interest rate < 0. D) rate of return > (cost of project - interest rate) / interest rate × 100.

A checking account with $500 is: A) more liquid than a person's new car. B) less liquid than a checking account with $1,000. C) equally liquid as a stock share with a $500 value. D) less liquid than a home with a market value of $250,000.

A physical asset is: A) a claim on a tangible asset that gives the owner the right to dispose of it as he or she wishes. B) a claim that entitles the owner to future income from the seller. C) the value of accumulated savings. D) human capital.

A shift of a demand curve to the right, all other things unchanged, will: A) increase equilibrium price and quantity. B) decrease equilibrium price and quantity. C) decrease equilibrium quantity and increase equilibrium price. D) increase equilibrium quantity and decrease equilibrium price

A simplified representation that is used to study a real situation is called: A) a model. B) a production possibility frontier. C) an assumption. D) a trade-off

All points on the production possibility frontier are: A) efficient production points. B) inefficient production points. C) infeasible production points. D) economic growth

An example of a positive statement is: A) the rate of unemployment is 4%. B) a high rate of economic growth is good for the country. C) everyone in the country should be covered by national health insurance. D) baseball players should not be paid higher salaries than the president of the United States

An example of infrastructure is: A) New York City's public transportation system. B) corporate bonds. C) private equity firms. D) the water supply system, government bonds and corporate stock

An increase in the MPC: A) increases the multiplier. B) shifts the autonomous investment line upward. C) decreases the multiplier. D) shifts the autonomous investment line downward

An increase in the price of hamburger would probably result in ________ in the demand for hamburger buns. A) a decrease B) an increase C) no change D) random fluctuation

Financial intermediaries that manage a stock portfolio and sell shares of the stock portfolio itself to individual investors are: A) mutual funds. B) pension funds. C) life insurance companies. D) banks

Greenhouse gas emissions are an example of: A) a negative externality. B) a public good. C) a positive externality. D) a private good

High rates of inflation often result in people spending inordinate amounts of time trying to make transactions and finding ways to keep the real value of their money from decreasing. This is an example of _______ costs. A) shoe-leather B) menu C) efficiency wage D) unit-of-accoun

High-fructose corn syrup, which is derived from corn, is an important ingredient in the production of many soft drinks. If the price of corn increases, one would expect: A) the supply curve for soft drinks to shift left. B) the quantity supplied of soft drinks to increase. C) the demand for soft drinks to increase. D) the supply curve for soft drinks to shift right

Holding everything else constant, when the government uses an expansionary policy in the presence of a deficit, it will result in: A) an increase in the equilibrium interest rate in the loanable funds market. B) an increase in the level of private investment spending. C) an increase in government savings. D) a fall in the equilibrium interest rate in the loanable funds market

If wages grew at a 5% rate last year and average prices grew at a 3% rate, then the average worker is: A) better off. B) worse off. C) no better or worse off. D) unaffected

In a market basket of goods: A) the quantities stay constant and the prices may change. B) the quantities may change and the prices are held constant. C) both the prices and the quantities are held constant. D) both the prices and the quantities may change

In an open economy, total investment is equal to: A) national savings plus capital inflow. B) private savings plus national savings plus capital inflow. C) private savings plus capital inflow. D) national savings minus private savings minus capital inflow

In the circular-flow model, households: A) receive transfer payments from the government. B) buy resources in the factor markets. C) sell products in the market for goods and services. D) issue stocks and bonds to raise capital.

Inflation: A) raises the cost of making purchases and sales for which cash is required. B) can result in a decrease in barter transactions. C) encourages people to hold cash. D) is caused by changes in interest rates

Investment spending represents spending on: A) productive physical capital. B) stocks. C) mutual funds. D) corporate bond

Long-run economic growth depends almost entirely on: A) labor productivity growth. B) population growth. C) agricultural production growth. D) the number of hours worked.

Long-run growth is the sustained upward trend in: A) aggregate output per person over several decades. B) nominal GDP over time. C) interest rates over time. D) aggregate output per person over the business cycl

Long-run growth is: A) the sustained upward trend in aggregate output per person over several decades. B) the expansion phase of business cycles. C) the downturn phase of business cycles. D) the sustained downward trend in the employment rate over several decades

Macroeconomics involves the study of the: A) overall behavior of the economy. B) individual decision makers in the economy. C) different market structures that exist in the economy. D) cost and production decisions made by firms.

Milk is an important ingredient in the production of ice cream. If the price of milk increases, then one would expect, holding all other things constant: A) the supply curve for ice cream to shift left. B) the supply curve for ice cream to shift right. C) no change in the supply curve for ice cream. D) a movement along the supply curve for ice cream curve, resulting in more ice cream supplied

Private saving by households is: A) the portion of disposable income not spent on goods and services. B) the portion of income coming from transfer payments. C) often larger than consumption spending. D) not related to consumption spending.

Shares of stock represent: A) shares of ownership in the issuing company. B) a tax liability for the issuing company. C) a tax deduction for the investor. D) a debt of the issuing company to the investors who purchase the stock

The CPI reflects: A) changes in the prices of goods and services typically purchased by consumers. B) the level of prices for intermediate goods and services purchased by business. C) the level of prices for raw materials. D) the prices of all goods and services computed from the ratio of nominal GDP to real GDP

The ______________in an economy whose aggregate real output is growing faster than the total population. A) real GDP per capita is rising B) standard of living is declining C) national income is falling D) nominal GDP per capita is rising

The convergence hypothesis says that international differences in GDP per capita tend to: A) narrow over time. B) expand over time. C) remain steady over time. D) narrow and then expand over time

The country of Livonia has an adult population of 100 million; 60% of Livonia's population is employed, but 10% of the people are unemployed. The labor force participation rate in Livonia is: A) 70%. B) 60%. C) 7%. D) 10

The horizontal summation of individual demand curves for a particular product, holding the quantity demanded constant, is referred to as: A) market demand. B) market supply. C) complements in production. D) substitutes in production.

The key factor explaining the poor growth performance of the African continent is probably: A) the lack of political stability within countries. B) the lack of natural resources. C) overpopulation. D) the prevalence of military conflicts among neighboring countrie

The marginal propensity to consume (MPC) is equal to the change in: A) consumer spending divided by the change in disposable income. B) consumer spending divided by the change in investment spending. C) consumer spending divided by the change in gross domestic product. D) disposable income divided by the change in consumer spending.

The multiplier is: A) 1 / (1 - MPC). B) MPS / MPC. C) 1 / (MPC). D) 1(1 + MPC)

The present value of $1 realized one year from now is equal to: A) $1 / (1 + r). B) $1 × (1 + r). C) 1 + r. D) 1 / r

The present value of a future payment: A) decreases when the interest rate rises. B) decreases when the interest rate falls. C) decreases when the interest rate stays the same. D) never changes regardless of the interest rates

The primary difference between a change in supply and a change in the quantity supplied is that: A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve. B) both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions. C) a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply. D) a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve

The short-run alternation between economic downturns and recessions, then economic upturns and expansions is known as the: A) business cycle. B) contractionary cycle. C) expansionary cycle. D) disequilibrium cycle

The sources of funds for investment spending are: A) savings by households, government, and foreigners. B) taxes and transfer payments. C) always equal to U.S. spending on imports. D) directed to their most productive uses by the U.S. government

The unemployment rate is: A) the percent of the labor force that is unemployed. B) the number of people unemployed. C) the ratio of the labor force to the number of people unemployed. D) the average length of time someone is unemploye

Total factor productivity: A) is the amount of output produced from a given amount of factor inputs. B) is not an essential element in long-run growth. C) is less important than technological progress. D) cannot be used to explain how contributions of factors of production affect a country's growth

Unanticipated inflation: A) reduces the value of money. B) increases the value of future obligations. C) increases certainty about the future. D) helps lenders.

Which of the following assets would be considered to be the most liquid? A) currency B) checking account balance C) stock in a publicly traded company D) a townhous

Which of the following measures is typically used as an indicator of the conditions in the labor market? A) the unemployment rate B) the population growth rate C) the inflation rate D) the trade defici

Which one of the following is an accurate formula for the budget balance? A) The budget balance equals taxes minus government spending. B) The budget balance equals transfers minus government spending. C) The budget balance equals taxes plus government spending. D) The budget balance equals savings plus taxes

With inflation: A) overall prices are increasing, although some prices may be increasing and some may be decreasing. B) all prices must be increasing. C) the economy must be contracting. D) the economy must be producing at full employment

You win a prize at your sorority, and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is: A) $173.56. B) $190.91. C) $182.65. D) $181.80.

Your friend wants to borrow $2,000 and pay it back in one year. She is someone who keeps her word. She agrees to repay you $2,080 in one year. The bank annual interest rate is 5%. Which of the following statements is true? A) You will be financially worse off if you make the loan rather than deposit $2,000 in the bank. B) You will be financially better off if you make the loan rather than deposit $2,000 in the bank. C) The present value of $2,080 payable in one year with an interest rate of 5% is $1,904.76, which is less than the value of the $2,000 you have been asked to lend. D) None of the statements is true

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is an increase in investment spending? A) a decrease in the nominal GDP B) an increase in the nominal GDP C) an increase in the unemployment rate D) a decrease in the inflation rate

(Figure: Consumption and Real GDP) The marginal propensity to consume in this example is: A) 0. B) 0.5. C) 1.0. D) 2.0

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than ________ will create pressure for the price to ________. A) $2.00; fall B) $2.50; rise C) $3.00; rise D) $2.50; fal

(Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for big-screen televisions, a normal good? A) panel A B) panel B C) panel C D) panel D

(Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose the Surgeon General announces that eating chocolate prevents heart disease. Which panel best describes how this will affect the market for chocolate? A) panel A B) panel B C) panel C D) panel

(Figure: The Labor Market) Refer to the accompanying figure on the labor market. The equilibrium wage rate is: A) $16. B) $15. C) $14. D) $17

(Figure: The Market for Loanable Funds II) If the interest rate is lower than 8%, the quantity supplied of loanable funds will _______ the quantity of loanable funds demanded. A) be greater than B) be less than C) equal D) The quantity supplied of loanable funds cannot be determined from the information provided

(Scenario: Good A and Good B) In 2010, nominal GDP is: A) greater than the nominal GDP in 2011. B) greater than the nominal GDP in 2009. C) equal to the nominal GDP in 2011. D) equal to the nominal GDP in 2009

(Scenario: Good A and Good B) Using 2009 as the base year, one would find that the real GDP in 2009: A) is equal to the real GDP in 2010. B) is equal to the nominal GDP in 2009. C) is greater than the real GDP in 2010. D) cannot be calculated

(Scenario: Market Basket) What is the rate of inflation between 2010 and 2011? A) -10% B) 11% C) 32% D) 0

(Table: Calculating GDP) Using the information in the table provided, which of the following is the correct calculation for GDP? A) $47,475 B) $12,200 C) $21,485 D) $34,085

(Table: Competitive Market for Good Z) Look at the table Competitive Market for Good Z. If the current price of good Z is $15, there will be: A) excess demand of 25 units. B) excess supply of 25 units. C) a shortage of 20 units. D) a surplus of 45 units.

(Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2011. A) 111 B) 104 C) 90 D) 9

(Table: Kenya's Economy in 2010) Aggregate output in Kenya at the end of 2010, assuming no changes in the price level, was about: A) $326 billion. B) $32.632 billion. C) $3,635 billion. D) $6,500 billion

(Table: Kenya's Economy in 2010) The population in Kenya at the end of 2010 was about: A) 400 million. B) 41 million. C) 14.002 million. D) 401,000,20

(Table: Peanut Butter and Jelly Economy) A simple economy produces only peanut butter and jelly. Using the data in the attached table, in 2011, nominal GDP was ____ and real GDP was _____. A) $450; $400 B) $525; $450 C) $525; $400 D) $450; $575

(Table: Pizza Economy III) Considering 2010 as the base year, real GDP in 2011 was: A) $47,000. B) $69,000. C) $72,000. D) $114,00

(Table: Price and Output Data) The value of year 3's output in real dollars is: A) $5. B) $20. C) $27. D) $3

A business will want to borrow to undertake an investment project when the rate of return on that project is: A) lower than the interest rate. B) higher than the interest rate. C) higher than the exchange rate. D) equal to the inflation rate

A contraction in the business cycle is: A) called the long run. B) called a recession. C) accompanied by an increase in employment. D) viewed as a rarit

A country's growth rate depends very highly on how it has invested in its physical capital. Generally, countries that have: A) used foreign direct investment as a source of their capital have exhibited the highest growth rate. B) used domestic saving as a source of their investment on physical capital have exhibited the highest growth rate. C) used foreign portfolio investment as a source of their capital have exhibited the highest growth rate. D) used contracted globalization as a source of their capital have exhibited the highest growth rate

A financial asset is: A) a physical asset like a car. B) a claim that entitles the owner to future income from the seller. C) the value of accumulated savings. D) another term for capital

A key statistic to measure economic growth is: A) the size of the government's budget. B) real GDP per capita. C) life expectancy. D) the Dow Jones stock market inde

A laptop computer that is purchased by an accounting firm is considered to be: A) consumption spending. B) investment spending. C) private saving. D) a pretax dividend

A rubbernecking traffic jam is an example of: A) microeconomics in action. B) individual behavior that has a large aggregate impact. C) the paradox of thrift. D) an outcome smaller than the sum of its parts

A semiconductor firm is considering opening a new plant. The plant will generate profits of $100 million for each of three years after the first year of production and then zero profits after that. If the interest rate is 10%, what is the maximum cost (to the nearest million) the firm is willing to pay now for the plant? A) $300 million B) $249 million C) $273 million D) $100 millio

A shift of the demand curve for thin-crust pizza would not be caused by a change in: A) buyers' incomes. B) the price of thin-crust pizza. C) the price of thick-crust pizza. D) the popularity of thin-crust pizza

A survey reveals that on a small island 100 people have jobs, 25 people are looking for jobs, and 45 people are neither working nor looking for work. The unemployment rate on the island is: A) 12.5%. B) 20%. C) 25%. D) 50%.

A survey reveals that on a small island 40 people have jobs, 10 people are looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is: A) 12.5%. B) 20%. C) 25%. D) 50%

According to the circular-flow diagram, which of the following economic agents engages in consumer spending? A) firms B) households C) factor markets D) financial market

All points inside the production possibility frontier represent: A) efficient production points. B) inefficient production points. C) infeasible production points. D) economic growth

An ambiguous change in price and a decrease in quantity are most likely caused by: A) no shift in supply and a shift to the left in demand. B) a shift to the left in supply and a shift to the left in demand. C) a shift to the right in supply and a shift to the left in demand. D) a shift to the left in supply and a shift to the right in demand.

An economy's gross domestic product is made up of: A) consumption, saving, investment, and government spending. B) consumption, investment, government spending, and net exports. C) consumption, saving, inventories, financial markets, and government spending. D) consumption and savin

If the labor force totals 100 million workers and 90 million are actively working, then the unemployment rate is: A) 1%. B) 5%. C) 10%. D) 90%

An increase in the price of sugar (an ingredient for soft drinks) and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following in the soft drink market? A) There will be an increase in both the equilibrium price and quantity. B) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same. C) There will be a decrease in both equilibrium price and quantity. D) Equilibrium quantity will increase, but equilibrium price may decrease, increase, or stay the same

An overall decrease in the price level is called. A) inflation. B) deflation. C) long-run growth. D) the result of an increase in economic production

David receives a tax refund of $800. He spends $600 and saves $200. David's marginal propensity to consume is: A) 0.6. B) 0.75. C) 0.25. D) 0.20

During a recession, one will often observe: A) rising aggregate output. B) rising unemployment rates and falling aggregate output. C) rising employment rates. D) zero unemployment rates.

Economists generally agree that ____ are the best way for governments to reduce greenhouse gases to address climate change. A) military actions B) market-based incentives C) direct pollution controls D) subsidies for offshore oil exploratio

Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest. A) the money market B) the market for loanable funds C) aggregate demand and aggregate supply D) the financial syste

Financial assets that carry more risk: A) usually have a lower rate of return. B) usually have a higher rate of return. C) are purchased by risk-averse buyers. D) are a hedge against the future

Fiscal policy involves: A) changes in interest rates. B) changes in government spending. C) changes in the quantity of money. D) changes in the quantity of money and interest rates.

Fiscal policy involves: A) deliberate changes in the money supply. B) deliberate changes in taxation and/or government spending. C) changes in interest rates in specific markets. D) changes which correct only recessionary problems.

Four types of financial intermediaries are: A) mutual funds, pension funds, government, and the central bank. B) mutual funds, pension funds, life insurance companies, and banks. C) banks, stock markets, pension funds, and the central bank. D) the central bank, government, the stock market, and the Dow Jones Industrial Average

Governments can save when: A) taxes are less than expenditures. B) taxes are greater than expenditures. C) the government borrows to finance its expenditures. D) the president insists that Congress balance the budget

Growth accounting enables us to: A) calculate how long it takes the economy to grow. B) calculate the effects of technological progress on economic growth. C) compare growth rates across countries. D) better calculate real GDP per capita.

If the rate of unemployment is 10% and the labor force is 130 million, the number of unemployed workers is: A) 10%. B) 13 million. C) 10 million. D) impossible to determine with the above informatio

If we add up the consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's: A) disposable income. B) gross domestic product. C) trade deficit. D) value added

If workers' nominal wages have risen by 50% over a ten-year period and prices have increased by 40% in that same period, then we can safely conclude that the amount of goods and services that workers can buy has A) fallen. B) increased. C) not changed. D) It is impossible to determine whether the amount of goods and services that workers can purchase has changed and in what direction

Which of the following always results in an increase in price and quantity? A) an increase in supply and a decrease in demand B) an increase in demand with no change in supply C) an increase in supply with no change in demand D) a decrease in demand and supply

In a particular labor market, the demand for labor is given by W = 20 - (1/100)L and the supply of labor is given by W = 4 + (1/100)L where W is the wage rate, and L is the number of workers. What is the equilibrium wage and number of workers in this market? A) The equilibrium wage is $10, and the equilibrium number of workers is 1000. B) The equilibrium wage is $12, and the equilibrium number of workers is 800. C) The equilibrium wage is $8, and the equilibrium number of workers is 1200. D) The equilibrium wage is $20, and the equilibrium number of workers is 1000

In an economy with no international trade, no government expenditure, no transfers, and no taxes, planned aggregate spending is equal to: A) GDP minus disposable income plus planned investment spending. B) consumption plus planned investment spending. C) disposable income plus planned investment spending. D) GDP minus consumption plus unplanned investment spendin

In general, expansions are characterized by: A) increasing unemployment. B) falling unemployment C) decreasing employment. D) constant employment

In many countries, economists adopt the rule that a recession is a period of at least ______ during which aggregate output falls. A) one quarter B) two consecutive quarters C) three consecutive quarters D) a full yea

Jim has a part-time job and would prefer to have a full-time job but has been unable to find full-time work. Jim is classified as: A) a discouraged worker. B) an underemployed worker. C) an unemployed worker. D) out of the labor force.

Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate is equal to: A) 3%. B) 9%. C) 12%. D) 6%

Suppose that South Korea is growing at 7% per year and is producing real GDP per capita of about $28,000, while Norway is growing at 3.5% per year and is producing real GDP per capita equal to $56,000. If all else stays equal, the real GDP per capita for these two countries will converge in: A) 40 years. B) 20 years. C) 10 years. D) 4 years.

Suppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following would be true about the reported official GDP the following year? A) It would rise. B) It would fall. C) It would stay the same. D) There is not enough information to evaluate the impact that it would have on GDP

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity? A) The price will increase, but quantity may increase, decrease, or stay the same. B) The price will decrease, but quantity may increase, decrease, or stay the same. C) The price will decrease and quantity will decrease. D) The price will increase and quantity will increase

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income If disposable income increases from $500 to $800, autonomous consumption is: A) $0. B) $200. C) $240. D) $440

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income If disposable income is $500, autonomous consumption is: A) $0. B) $200. C) $400. D) $600

Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is equal to: A) 3%. B) 4%. C) 10%. D) 7%.

The GDP deflator is: A) a price index. B) equal to 100 in the base year. C) the ratio of real GDP for year X divided by nominal GDP for year X × 100. D) a measure that tracks price changes for consumer goods.

The Keynesian cross was developed by: A) John Maynard Keynes. B) Paul Samuelson. C) Adam Smith. D) Robert Heilbrone

The MPS plus the MPC must equal: A) zero. B) one. C) income. D) savin

The ______ is the most widely used measure of inflation in the United States. A) producer price index B) CPI C) GDP deflator D) national income account

The budget balance is equal to: A) taxes plus government spending. B) taxes minus government spending. C) consumption plus investment. D) imports minus exports

The modern tools of macroeconomic policy are: A) tax policy and antitrust policy. B) fiscal policy and monetary policy. C) monetary policy and exchange rate policy. D) capital policy and labor policy

The paradox of thrift highlights: A) the role investment plays in the macroeconomy. B) how individual decisions to save more may worsen a recession. C) how an increase in spending occurs during recessions. D) the irrational behavior on the part of households.

The rate of unemployment that exists when the economy is at full employment is: A) zero. B) the natural rate of unemployment. C) the structural rate of unemployment. D) less than full employment rate of unemployment

The rule of 70 indicates that a 6% annual increase in the potential level of real GDP would lead to the potential output doubling in _______ years. A) 6 B) 12 C) 24 D) 3

The skills, training, and education possessed by workers that contribute to economic growth are known as: A) saving. B) human capital. C) natural resources. D) output of labor

The total volume of business sales in the economy is much larger than GDP because: A) GDP understates the value of total output. B) the output approach to measuring GDP excludes intermediate transactions. C) GDP includes transfer payments. D) GDP excludes exports

The trade balance is the difference between the value of the: A) trade deficit and the budget deficit. B) goods and services that a country sells to other countries and the value of the goods and services it buys in return. C) exchange rates of two countries that are engaged in international trade. D) national debt and the foreign debt

Which of the following is an example of a cyclically unemployed worker? A) Julio, a statistician, lost his job in a forecasting firm and now does consulting work part time. B) Jennifer, an accountant, spends her days at home reading The New York Times and mailing out her résumé. C) Ana Maria, a business major, received a job offer during her senior year but has yet to start working. D) Ulysses, a high school dropout, joined the army

Which of the following is true? A) Unexpected inflation benefits lenders and hurts borrowers. B) Unexpected inflation benefits borrowers and hurts lenders. C) Unexpected inflation benefits borrowers but does not affect lenders. D) Unexpected deflation benefits lenders but does not affect borrowers

If real GDP grows at an average rate of 3% per year, it will double in approximately _______ years. A) less than 10 B) 20 C) 23 D) 36

(Figure: Circular-Flow Model) If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of that box), which of the following is likely to happen if there is an increase in exports? A) a decrease in the nominal GDP B) a decrease in the real GDP C) a decrease in the unemployment rate D) a decrease in the inflation rate

(Figure: Cold Drinks Sold and Temperature) Look at the figure Cold Drinks Sold and Temperature. If we move from point B to point C in the figure, the outside temperature has ________ and the number of cold drinks sold has ________. A) decreased by 30 degrees; decreased by 30 drinks B) increased by 20 degrees; increased by 20 drinks C) increased by 30 degrees; increased by 30 drinks D) increased by 40 degrees; increased by 40 drinks

(Figure: Consumption and Real GDP) The slope of the consumption function is called the: A) marginal propensity to save. B) average propensity to consume. C) marginal propensity to consume. D) marginal consumption increment

(Figure: Demand and Supply) Look at the figure Demand and Supply. The slope of the curve labeled S is: A) -1. B) 0. C) 1. D) 3.

(Figure: The Labor Market) Refer to the accompanying figure on the labor market. The level of employment at the equilibrium wage rate is: A) 80,000. B) 110,000 C) 100,000. D) 90,000

(Figure: The Labor Market) Refer to the accompanying figure on the labor market. The size of the labor force at equilibrium wage rate is: A) 80,000. B) 110,000. C) 100,000. D) 200,000

(Figure: Unemployment Rate over Time) Look again at the figure Unemployment Rate over Time. In the time-series graph, as we move from 1993 to 1995, we see that the unemployment rate has: A) decreased from approximately 5% to approximately 4%. B) increased from approximately 5.3% to approximately 7.3%. C) decreased from approximately 7% to approximately 5.5%. D) increased from approximately 4% to approximately 6.3%.

(Scenario: Market Basket) What is the value of the price index in 2011? A) 100 B) 90 C) 111 D) 13

(Table: Kenya's Economy in 2010) Aggregate output per capita in Kenya at the beginning of 2010 was: A) $5,000. B) $10,000. C) $775. D) $7,750

(Table: Labor Force Data) Using the data from the accompanying table, suppose the labor force participation rate is 70%. The labor force is equal to: A) 1,200 million. B) 50 million. C) 105 million. D) 400 million

(Table: Pizza Economy III) Considering 2010 as the base year, real GDP between 2010 and 2011 grew at a rate of: A) 53.19%. B) 39.47%. C) -39.47%. D) -58.67%

A business decision to borrow to fund projects should be based on whether: A) the rate of return on the project is less than the interest rate on the loan. B) the project will produce a good or service that is in high demand. C) the rate of return on the project is at least as high as the interest rate on the loan. D) the minimum efficient scale will be attained.

A fall in the market interest rate makes any investment project: A) less profitable if the funds were borrowed and more profitable if it came from retained earnings. B) less profitable whether the funds were borrowed or came from retained earnings. C) more profitable whether the funds were borrowed or came from retained earnings. D) more profitable only if the funds were borrowed

If the economy grew at a 3% rate this year and average prices increased ______, people would be better off this year than last year. A) 3% B) faster than 3% C) less than 3% D) faster than 10

A person who is out of work, would like to work, but has given up looking for work is called: A) unemployed. B) employed. C) a discouraged worker. D) a lazy nonworker.

Consider the simple economy of Behr, whose government does not tax its citizens. The consumption function of Behr is given by: C = 500 + 0.80Y, where Y is income. The autonomous consumer spending in this economy is: A) 1,000. B) 800. C) 500. D) not possible to calculate.

Consumer spending in the United States normally accounts for approximately ______ of the economy. A) one-third. B) one-half. C) two-thirds. D) three-fourths

Deflation: A) raises the cost of making purchases and sales for which cash is required. B) can result in an increase in employment. C) encourages people to hold cash rather than invest in new factories and productive assets. D) is caused by changes in interest rates

Donna was laid off by her employer at the beginning of 2011. She looked for a job for three months, but could not find anything suitable. She then decided to volunteer for a soup kitchen and stopped looking for a job. Donna is considered to be: A) unemployed. B) underemployed. C) a discouraged worker. D) a part-time worker

Economic growth will likely involve: A) a reduction in investment. B) a decrease in the capital stock. C) higher saving. D) lower saving.

If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its unemployment rate is: A) 4%. B) 7.5%. C) 10%. D) 67.5%

If a country sold more goods and services to the rest of the world than it purchased from the other countries, then the country has a: A) trade deficit. B) budget deficit. C) trade surplus. D) budget surplus

If all of the households and businesses in the economy start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as: A) the quantity theory. B) the crowding-out theory. C) the paradox of thrift. D) the permanent income hypothesis.

If people demand more of product A when the price of B falls, then A and B are: A) not related. B) substitutes. C) complements. D) inferior good

If the marginal propensity to consume is 0.5, individual autonomous consumption is $10,000, and disposable income is $40,000, then individual consumption spending is: A) $20,000. B) $25,000. C) $30,000. D) $45,000

In order to finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years? A) $10,000(1 + 0.05) B) $10,000(1 + 5) C) $10,000(1 + 0.05) 8 D) $10,000(1 + 0.5)

In the circular-flow diagram, government purchases of goods and services are financed by: A) tax revenues. B) tax revenues net of transfer payments. C) tax revenues net of transfer payments plus government borrowing from financial markets. D) tax revenues plus government borrowing from financial markets.

In the paradox of thrift: A) firms that are pessimistic about the future lay off the most saving-conscientious workers. B) when families and business are feeling pessimistic about the future, they spend more today. C) increased saving by individuals increases their chances of becoming unemployed. D) profligate behavior during economic tough times has large negative consequences for society

Increases in the average level of prices are called: A) depreciation. B) deflation. C) inflation. D) expectations

Menu costs of inflation are the: A) costs associated with money being a less reliable unit of measurement. B) costs of transactions associated with avoiding the inflation tax. C) costs associated with businesses changing prices. D) revenue the government gets from printing mone

Menu costs refer to the increased cost: A) of food in a time of inflation. B) eating out when inflation increases. C) of changing listed prices. D) the minimum wage

Monetary policy involves: A) changes in government spending. B) changes in government tax receipts. C) changes in the quantity of money. D) changes in tax rates

Natural resources: A) are still the most important factor in determining the productivity of human or physical capital for all countries. B) are the only factor which consistently shows a positive impact on productivity for wealthy countries. C) are a less significant source of productivity growth in most countries today than in earlier times. D) can be used to explain the differences in productivity growth among countrie

Nominal GDP is: A) the inflation-adjusted GDP. B) the real GDP minus depreciation. C) the current-dollar GDP. D) the constant-dollar GDP

Price stability occurs when: A) the overall price level is zero. B) the economy is at full employment. C) the overall cost of living is changing very slowly. D) food prices have remained the same

Sally works twenty hours a week for an accounting firm. She would like to work full time and expects that she will in the future. Sally is a(n): A) discouraged worker B) unemployed worker C) underemployed worker D) full time worke

Suppose a consumer buys a frozen cheese pizza at the grocery store for $10. The frozen pizza company sold the pizza to the store for $5. The frozen pizza company purchased the pizza dough and tomato sauce from a food processing company at a price of $2 and bought the cheese from a dairy at a price of $1. How much has GDP increased? A) $2 B) $5 C) $10 D) $1

Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The investment multiplier is: A) 8. B) 10. C) 4. D) 0.25

Suppose only two countries existed in the world. Country A imported $200 million worth of goods and services from country B. Country B imported $100 million worth of goods and services from country A. Net exports for: A) country A equal $200 million. B) country B equal $200 million. C) country A equal -$100 million. D) country B equal -$100 million

The natural rate of unemployment changes when: A) the cyclical unemployment changes. B) actual rate of unemployment changes. C) there are changes in labor market institutions. D) government policies remain the same

The natural rate of unemployment is: A) the rate of unemployment that exists during recessions. B) equal to the sum of frictional and cyclical unemployment. C) equal to the sum of frictional and structural unemployment. D) cyclical unemployment less frictional unemployment

The natural rate of unemployment would: A) increase if a larger percentage of the labor force were over 25 years old. B) increase if union membership fell. C) increase if unemployment benefits were increased. D) always remain fixed

The nominal interest rate equals the: A) real interest rate times the rate of inflation. B) real interest rate minus the rate of inflation. C) real interest rate plus the rate of inflation. D) real interest rate when inflation is correctly anticipated

The official unemployment rate ignores: A) people with professional jobs. B) people who work on commission. C) discouraged workers who have given up looking for a job. D) people with professional jobs, people who work on commission, and discouraged workers who have given up looking for a job.

You got this, it'll all work out

(Figure: Cold Drinks Sold and Temperature) Look at the figure Cold Drinks Sold and Temperature. If we move from point C to point E in the figure, the outside temperature has ________ and the number of cold drinks sold has ________. A) decreased by 30 degrees; decreased by 30 drinks B) increased by 20 degrees; increased by 20 drinks C) increased by 30 degrees; increased by 30 drinks D) increased by 40 degrees; increased by 40 drink

(Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are: A) $2.00 and 450 gallons. B) $1.50 and 400 gallons. C) $2.00 and 200 gallons. D) $2.50 and 300 gallons

(Table: Individual and Aggregate Consumption Functions) Which of the following represents Mark's individual consumption function? A) C = 200 + 1.1YD. B) C = 450 + 0.5YD. C) C = 0.8YD. D) C = 200 + 0.9Y

(Table: Pizza Economy III) Considering 2010 as the base year, given that total population was 1,140 in 2010 and 1,300 in 2011, real GDP per capita in 2010 was: A) $80. B) $53. C) $60. D) $100

(Table: Price and Output Data) The value of year 4's output in nominal dollars is: A) $6. B) $24. C) $30. D) $36

(Table: The Consumer Price Index) The approximate rate of inflation in year 5 is: A) 5%. B) 10%. C) 19%. D) 20%.

A binding minimum wage does all of the following EXCEPT: A) decrease the quantity of labor demanded. B) increase unemployment. C) increase the amount of labor supplied. D) decrease the amount of labor supplied

A business cycle is: A) a very deep and prolonged economic downturn. B) a period in which output and employment are rising. C) a period in which output and employment are falling. D) a short-run alternation between economic upturns and downturns

A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect: A) a decrease in the supply of poultry, leading to a shift to the left in the supply curve for poultry and higher poultry prices. B) an increase in the supply of poultry, leading to a shift to the right in the supply curve for poultry and higher poultry prices. C) a decrease in the demand for poultry, leading to a shift to the right in the demand curve for poultry and lower beef prices. D) a decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices.

A person who is not working and is not looking for work is: A) included in the unemployment rate. B) underemployed. C) a member of the labor force who is not working. D) not counted in the unemployment statistics.

A price index: A) always includes a base year. B) measures the cost of purchasing a market basket of output across different years. C) is normalized to 100 for the base year. D) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

An economy is said to have a comparative advantage if it: A) can produce more of all goods than another economy. B) can produce less of all goods than another economy. C) has the highest cost for producing a particular good. D) has the lowest cost for producing a particular good

An increase in capital stock would: A) shift the production function upward. B) shift the production function inward. C) shift the production function downward. D) cause a movement to the right along a stationary production functio

Economic models are: A) created and used to duplicate reality. B) useless if they are simple. C) made generally of wood, plastic, and/or metal. D) often useful in forming economic policy

Fiscal and monetary policies: A) have no role in macroeconomic policies. B) have been used by the government for over 250 years. C) are most effective in microeconomic settings. D) are used to correct for short-term economic fluctuations

Generous unemployment benefits are likely to have which of the following consequences? A) an increase in the employment level B) a reduction in job search time C) a decrease in the unemployment rate D) an increase in the unemployment rat

Gross domestic product is defined as: A) consumer spending + government purchases + financial spending + exports - imports. B) consumer spending + government transfers + investment spending + exports - imports. C) disposable income + taxes + investment spending + exports + imports. D) consumer spending + government purchases + investment spending + exports - imports

Households derive income from all of the following except: A) wages or labor income. B) interest from lending. C) rent from allowing firms to use their land. D) import

If a country has a working-age population of 200 million, 120 million people with jobs, and 30 million people unemployed and seeking employment, then its unemployment rate is: A) 5%. B) 7.5%. C) 15%. D) 20%

Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each. How much do these transactions add to GDP? A) $86,000 B) $36,000 C) $31,000 D) $50,00

Suppose that a country has a progressive income tax code, where taxable income is calculated in nominal terms but the schedule of income tax rates is NOT indexed to inflation. An individual whose income keeps up with inflation will find that over time he or she she will pay: A) the alternative minimum tax. B) a lower percentage of income in taxes over time. C) the same percentage of income in taxes over time. D) a higher percentage of income in taxes over time.

Suppose that immigration laws are relaxed and many workers from other nations enter the U.S. labor force. How will this affect the U.S. labor market? A) The demand for labor will increase. B) The demand for labor will decrease. C) The supply of labor will decrease. D) The supply of labor will increase.

Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income. If disposable income is $500, aggregate consumption is: A) $0. B) $200. C) $400. D) $600

The East Asian countries have exhibited tremendous economic growth during the last 40 years because of all of the following EXCEPT: A) a significant increase in physical capital per worker made possible by very high rate of saving. B) a significant increase in human capital made possible by very good basic education. C) a substantial achievement in technological progress. D) intervening governments with lots of regulations

The convergence hypothesis helps explain why: A) highly educated people converge in high-income countries. B) high-income individuals marry other high-income individuals. C) high-income countries continue their high growth rates. D) the income of high-income and lower-income countries get close

The demand curve for running shoes has shifted to the right. What could have caused it? A) a fall in the price of running shoes B) an increase in the price of running shoes C) an increase in the supply of running shoes D) an increase in the income of buyers of running shoes

The inflation-adjusted measure of aggregate output typically used by economists is called: A) aggregated output. B) nominal gross national product. C) net domestic product. D) real gross domestic produc

The labor force is: A) the total of people employed. B) the total population. C) the total of the population of working age. D) the total of people employed and unemployed

The purpose of indexing Social Security payments to the CPI is to: A) increase corporate profits. B) justify continued government funding of the Bureau of Labor Statistics. C) avoid the privatization of Social Security. D) maintain the purchasing power of retirees

The purpose of macroeconomic policy is to: A) bring unemployment closer to the natural rate. B) reduce the severity of recessions. C) rein in excessively strong expansions. D) bring unemployment closer to the natural rate, rein in excessively strong expansions, and reduce the severity of recessions.

The rule of 70 states that a variable's approximate doubling time equals: A) 70 times the growth rate. B) the growth rate divided by 70. C) 70 divided by the doubling time. D) 70 divided by the growth rate

The unemployment rate is the ratio of all of the people: A) out of work to the total population. B) out of work to those over age 16. C) unemployed to those looking for work. D) unemployed to those in the labor forc

Transaction costs are: A) the return to an entrepreneur. B) the return to moving a product to market. C) the expenses of producing a product. D) the expenses of negotiating and executing a deal.

Which of the following assets would be considered to be the least liquid? A) cash B) checking account balance C) corporate bond D) ownership of one fourth of a privately held compan

Which of the following countries would NOT be characterized by abundant farmland and mineral deposits? A) United States B) Canada C) Argentina D) Japan

Which of the following is a normative statement? A) Women's labor force participation rate has increased during the past 100 years. B) The federal minimum wage is higher today than it was in 1990. C) Children in the United States are required to go to school until they reach a certain age. D) The best way to encourage growth in the economy is through government spending

Which of the following is false? Gross domestic product: A) is aggregate output. B) is the total production of final goods and services. C) grows during an expansion. D) is the total production of all final and intermediate goods and services

Which of the following is included in GDP? A) the purchase of 100 shares of Microsoft stock B) the purchase of a 1965 Ford Mustang C) Social Security payments from the U.S. government to retired people D) the purchase of a ticket to a Lady Gaga concer

Which of the following is likely to cause a rightward shift in the demand for home-delivered pizza? A) a lower price of pizza B) a lower price of fast-food hamburgers C) a higher price of pepperoni D) a larger population

Which of the following is true about inflation and deflation? A) Both are good for the economy. B) Inflation is always good for the economy and deflation is always bad for the economy. C) Inflation is always bad for the economy and deflation is always good for the economy. D) Both inflation and deflation can pose problems for the economy.

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