Econ 2200: Exam 1 Review

b. increase at the same rate as inflation.

For your purchasing power to stay the same, your wages must: a. increase faster than the rate of inflation. b. increase at the same rate as inflation. c. decrease as the rate of inflation increases. d. increase more slowly than the rate of inflation.

b. False

If a country's growth rate is 1.25%, then it will take about 40 years for its output to double. a. True b. False

d. the price level

In the Keynesian aggregate expenditure model, which variable is assumed to be fixed? a. GDP b. consumption c. unemployment d. the price level

a. 1%

For which growth rate would the Rule of 70 be most accurate? a. 1% b. 15% c. 20% d. 30%

d. Japan

Which country has the lowest national savings rate? a. China b. Germany c. India d. Japan

d. 0.90.

(Table) The following table shows data on consumption at various levels of income. The value of the MPC is: a. 0.25. b. 0.75. c. 0.80. d. 0.90.

a. True

The chained consumer price index (CPI) for urban consumers does a better job in approximating the cost- of-living index than does the CPI. a. True b. False

c. $1,365

(Table) According to the table, what is this country's GDP? a. $1,225 b. $1,305 c. $1,365 d. $1,440

c. Income will increase by $10,000.

According to the balanced budget multiplier, an increase in government spending of $10,000 that is financed by an increase of $10,000 in taxes will have what effect on the economy when MPC is 0.80? a. Income will not change. b. Income will increase by $8,000. c. Income will increase by $10,000. d. Income will increase by $50,000.

a. 0.9

If income is $5,000 per month and consumption spending is $4,500 per month, what is the average propensity to consume? a. 0.9 b. 1.11 c. 500 d. -500

d. $13,424.9 billion.

In the first quarter of 2010, nominal GDP was $14,592.3 billion and the GDP deflator was 110.2. Real GDP for the first quarter of 2010, then, was equal to: a. $13,133.1 billion. b. $13,241.7 billion. c. $13,103.9 billion. d. $13,424.9 billion.

b. property taxes.

The consumer price index does NOT include: a. the price of a haircut. b. property taxes. c. apartment rental rates. d. the price of milk.

d. Younger people and lower-income people tend to save less.

Which is true about differences in savings rates across groups of people? a. Older people and higher-income people tend to save less. b. Older people and lower-income people tend to save less. c. Younger people and higher-income people tend to save less. d. Younger people and lower-income people tend to save less.

c. cyclical unemployment and full employment

Which of the following pairs is NOT synonymous? a. nonaccelerating inflation rate of unemployment and full employment b. full employment and natural rate of unemployment c. cyclical unemployment and full employment d. natural rate of unemployment and nonaccelerating inflation rate of unemployment

c. supplemental income paid by the government to a disabled person

Which of the following transactions would NOT be included in the GDP calculation of a country? a. price of a new office building b. salary of a soldier in a country's army c. supplemental income paid by the government to a disabled person d. the value of an increase in unsold inventory of a company

a. the value of time spent learning how to prepare your personal income tax return

Which of the following would NOT be included in the GDP accounts? a. the value of time spent learning how to prepare your personal income tax return b. the value of time spent by a mechanic changing the battery of a customer's car c. the payment to a certified nursing assistant for caring for an aged relative in her home d. the value of winnings from gambling that you report on your tax return

b. unemployed.

Zach has been laid off from his job as an aircraft worker. He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is: a. employed. b. unemployed. c. a discouraged worker. d. not in the labor force.

b. 1

(Table) The table shows data on consumption at various levels of income. The value of the average propensity to consume at equilibrium is: a. 1.25 b. 1 c. 0.917 d. 0.875

a. 0.1.

(Table) The table shows data on consumption at various levels of income. The value of the marginal propensity to save is: a. 0.1. b. 0.25. c. 0.75. d. 0.9.

a. rises by $10 billion.

Holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP: a. rises by $10 billion. b. falls by $10 billion. c. falls by $30 billion. d. rises by $30 billion.

d. 2.86

If the marginal propensity to consume is 0.65, the spending multiplier is: a. 4 b. 1.33 c. 1.54 d. 2.86

d. $1,000

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent? a. $40 b. $160 c. $200 d. $1,000

d. 10

If the marginal propensity to consume is 0.9, what is the size of the multiplier? a. 9 b. 0.1 c. 1 d. 10

c. $4,000

If the marginal propensity to save is 0.2 and income rises by $5,000, how much of this $5,000 will be consumed? a. $625 b. $1,000 c. $4,000 d. $5,000

c. disinflation

If the rate of inflation decreases from 5% to 3%, the economy is undergoing: a. deflation. b. hyperinflation c. disinflation d. stagflation.

c. $5 billion.

In an economy with three sectors (household, business, and government), government spending is $5 billion, taxes are $4 billion, and investment is $4 billion. If the economy is in equilibrium, then saving is: a.b $1 billion. b. $4 billion. c. $5 billion. d. $9 billion.

a. structural

Since the invention of automatic teller machines, many bank tellers have lost their jobs. This is an example of _____ unemployment. a. structural b. frictional c. cyclical d. statistical

a. creditors gain at the expense of debtors

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%: a. creditors gain at the expense of debtors b. people on a fixed income see the purchasing power of their incomes rising c. debtors gain at the expense of creditors d. there is a redistribution of income from creditors to debtors.

b. inflation or deflation

Unanticipated _____ is detrimental to economic growth. a. inflation b. inflation or deflation c. deflation d. Neither inflation nor deflation is detrimental to economic growth.

d. paying $50 consultation fee over the phone with a psychic adviser

Which of the following items would be included in the GDP accounts? a. personal time spent learning how to use accounting software b. personally rotating the tires on your neighbor's car c. caring for your aged grandmother at home d. paying $50 consultation fee over the phone with a psychic adviser

a. 7.0%

An economy has a population of 226,500, of whom 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _____. a. 7.0% b. 21.0% c. 5.5% d. 21.1%

a. A increases by 50%.

Given the form of a typical production function, which of the following would have the greatest impact on the output of a country? a. A increases by 50%. b. L increases by 50%. c. K increases by 50%. d. N increases by 50%.

b. False

Henry sells brownies to his classmates at college for cash. His income from this product is probably NOT part of the informal economy. a. True b. False

a. GDP per capita has increased.

If a country's population increases at a slower rate than the growth in its real GDP: a. GDP per capita has increased. b. the standard of living in the country has declined. c. average output per person has decreased. d. the country's rate of inflation has decreased.

a. True

If a tsunami washes across an island nation, the output loss will be greater than that predicted using a production function. a. True b. False

a. True

If it will take 10 years for a nation's income to double, then its growth rate must be 7%. a. True b. False

d. $5,000

If the amount of spending in an economy declines by $1,000 and the marginal propensity to consume is 0.8, the effect on the economy is a change of _____ in income or output. a. $800 b. $1,000 c. $1,800 d. $5,000

b. False

If the structural unemployment rate is 3%, the frictional unemployment rate is 2%, and the cyclical unemployment rate is 4%, then the natural rate of unemployment is 9%. a. True b. False

d. $3,200,000

If you have $100,000 in a 401(k) growing 10% per year on average, how much will this be worth in 35 years when you retire? a. $500,000 b. $800,000 c. $1,600,000 d. $3,200,000

a. True

Kyle is working part-time as a bartender while he auditions for his dream job as a member of a ballet company. According to the Bureau of Labor Statistics, Kyle is employed. a. True b. False

a. 8.7%.

Last year, the consumer price index (CPI) was 115 while the consumer price index for this year is 125. The rate of inflation is: a. 8.7%. b. 8%. c. 9.2%. d. 10.8%.

b. False

Spending money on research and development hurts a national economy because it increases the average cost of all products. a. True b. False

b. False

When Andrea was a poor college student, she changed the oil in her car herself. Now that she has a real job, she takes her car to her mechanic to have the oil changed. GDP is not affected by this change. a. True b. False

c. a six-pack of beer

Which of the following is a nondurable good? a. a Toyota sedan b. a movie ticket c. a six-pack of beer d. an hour with a masseuse

d. an increase in the supply of food

Which one of the following would NOT lead to higher prices? a. strong consumer demand b. higher gas prices c. an increase in the supply of money d. an increase in the supply of food

b. False

Absence of enforcement of contracts would encourage economic development, because people would be more willing to incur risks if they did not have to worry about getting sued. a. True b. False

a. True

An example of a natural resource is an untapped vein of platinum. a. True b. False

a. 112.0

Suppose a market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What is the consumer price index for the current period? a. 112.0 b. 120.0 c. 89.3 d. 132.0

d. a household's purchase of shares of Google stock

Which of the following is NOT an example of gross private domestic investment? a. the construction of new residential housing b. the construction of a new hotel c. a change in business inventories d. a household's purchase of shares of Google stock

a. 2013's; inventory changes

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in _____ GDP, and its value should be counted in _____. a. 2013's; inventory changes b. 2013's; durable goods c. 2014's; durable goods d. 2014's; personal consumption expenditures

d. $1.5 billion

In the simple Keynesian model with no government and foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level? a. $1.95 billion b. $2.5 billion c. $1.9 billion d. $1.5 billion

a. True

Tax changes generally have less of an impact on equilibrium income than do changes in government spending. a. True b. False

b. False

The chained consumer price index (CPI) for urban consumers takes less time to estimate than does the CPI. a. True b. False

c. buildings owned by General Electric

Which of the following institutions is NOT an example of our nation's infrastructure? a. interstate highway systems b. the Hoover Dam c. buildings owned by General Electric d. subway systems

a. 115

(Table) According to the table, the number of people in the labor force is: a. 115 b. 110 c. 130 d. 120

c. 350

(Table) According to the table, what is the labor force of this economy? a. 50 b. 300 c. 350 d. 500

c. $2.65

(Table) Suppose a loaf of bread goes through the following stages of production, with the values noted at the end of each stage: The sale of one loaf of bread adds _____ to GDP. a. $4.45 b. $5.65 c. $2.65 d. $6.30

a. True

An economy has 100,000 residents. There are 46,000 people with full-time jobs, 14,000 with part-time jobs, and 4,000 unemployed people who are actively looking for work. The unemployment rate for this economy is 6%. a. True b. False

a. decrease productivity of the economy.

Decreasing the accessibility to college in order to funnel workers into the workforce faster will: a. decrease productivity of the economy. b. increase productivity of the economy. c. increase real wages. d. have no impact on the economy.

b. in the labor force.

Hannah is not at work because she broke her leg, but she will return once it heals. She is: a. unemployed. b. in the labor force. c. temporarily unemployed. d. part-time employed.

d. At 14%, the investment will double five years faster.

How much faster does it take for a $10,000 investment to increase to $20,000 if the average annual growth rate is 14% compared to 7%? a. At 14%, the investment will double two years faster. b. At 14%, the investment will double three years faster. c. At 14%, the investment will double four years faster. d. At 14%, the investment will double five years faster.

a. True

Human capital can be increased by providing more education opportunities. a. True b. False

b. 0.8

If income increases from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume? a. 1.25 b. 0.8 c. 1.09 d. 0.91

d. There is not enough information to answer this question.

If income is $50,000, consumption is $47,500, and saving is $2,500, then the marginal propensity to consume is: a. 0.95 b. 0.50 c. 0.05 d. There is not enough information to answer this question.

c. 0.70.

If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is: a. 0.10. b. 0.30. c. 0.70. d. 0.80.

d. $140.

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: a. $160 b. $180 c. $150 d. $140.

c. deflation.

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing: a. inflation. b. disinflation. c. deflation. d. hyperinflation.

a. inflation.

If the cost of a typical market basket is 400 in 2018, 450 in 2019, and 550 in 2020, then during this period the economy is undergoing: a. inflation. b. disinflation. c. deflation. d. hyperinflation.

b. 20 years

If the growth rate in an economy is 3.5%, then its GDP will double in about: a. 3.5 years. b. 20 years. c. 70 years. d. 245 years.

b. increases; remains the same

If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____. a. decreases; remains the same b. increases; remains the same c. increases; increases d. decreases; decreases

a. $1,000

If you spend $100 and the MPC is 0.9, how much spending will this $100 generate in the economy? a. $1,000 b. $500 c. $250 d. $100

d. GDP rises as a result of this change.

If, in the past, you have always painted your own house but now you hire a painting contractor to do the work, what effect does this have on GDP? a. GDP is unaffected by this change. b. GDP falls as a result of this change. c. GDP at first rises but then falls. d. GDP rises as a result of this change.

b. resources are underutilized

In the Keynesian aggregate expenditure model, prices are assumed to be fixed because: a. unemployment is low b. resources are underutilized c. consumption and disposable income are closely related. d. the government heavily intervenes in the economy.

b. False

Most frozen foods are considered durable goods. a. True b. False

b. enhancing physical and human capital.

The use of tax receipts to modernize the air traffic control system promotes economic growth by: a. ensuring a stable legal system. b. enhancing physical and human capital. c. ensuring a stable and secure financial system. d. promoting free and competitive markets.

c. 10%

There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is Marketstan's unemployment rate? a. 6.7% b. 1% c. 10% d. 11.1%

d. structural

U.S. steelworkers who have lost their jobs to workers receiving lower wages overseas are part of _____ unemployment. a. frictional b. cyclical c. seasonal d. structural

d. Negative values mean the economy is growing more slowly than its long-term trend.

Which of the following statements is true about the National Activity Index? a. When the index has a zero value, the economy has reached a trough. b. Negative values always mean the economy is in a recession. c. Positive values indicate the economy may face a period of increasing inflation. d. Negative values mean the economy is growing more slowly than its long-term trend.

d. disinflation

Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year? a. hyperinflation b. inflation c. deflation d. disinflation

b. a payment made by you to your doctor

Which of the following would be included in the consumer price index? a. a payment made to your doctor on your behalf by Medicare b. a payment made by you to your doctor c. a payment made to your doctor on your behalf by your employer-provided insurance company d. a payment made to your doctor on your behalf by Medicaid