ECON final exam

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Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percentage of potential GDP is

8 percent.

MPC + MPS

= APC + APS.

MPC

?

marginal propensity

?

real income

?

In a mixed open economy, the equilibrium GDP exists where

Ca + Ig + Xn + G = GDP.

Which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Okun's Law

The generalization that any 1-percentage-point rise in the unemployment rate above the full-employment unemployment rate will increase the GDP gap by 2 percent of the potential output (GDP) of the economy.

Which of the following will not cause the demand for product K to change?

a change in the price of product K

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

At equilibrium real GDP in a private closed economy,

aggregate expenditures and real GDP are equal.

Which of the following would most likely shift the aggregate demand curve to the right?

an increase in stock prices that increases consumer wealth

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

Which of the following lists includes only capital resources (and therefore no labor or land resources)?

autos owned by a car rental firm, computers at the car rental agency, vans used to shuttle rental customers to and from the airport

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift

both the consumption and saving schedules downward.

Recurring upswings and downswings in an economy's real GDP over time are called

business cycles.

The U.S. public debt

consists of the historical accumulation of all past federal deficits and surpluses.

If the demand for steak (a normal good) shifts to the left, the most likely reason is that

consumer incomes have fallen.

Inflation initiated by increases in wages or other resource prices is labeled

cost-push inflation.

The type of unemployment associated with recessions is called

cyclical unemployment.

An increase in the price of C will do what to the demand for complementary product D.

decease

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An increase in the price of a product that is a complement to X will

decrease D, decrease P, and decrease Q.

An increase in the price of C will

decrease the demand for complementary product D.

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

decrease, quantity demanded will increase, and quantity supplied will decrease.

Fiscal policy refers to

deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability

The phrase "too much money chasing too few goods" best describes

demand-pull inflation.

The amount of after-tax income received by households is measured by

disposable income.

The optimal point on a production possibilities curve is achieved where

each good is produced at a level where marginal benefits equal marginal costs.

he optimal point on a production possibilities curve is achieved where

each good is produced at a level where marginal benefits equal marginal costs.

Transfer payments are

excluded when calculating GDP because they do not reflect current production.

Other things equal, a decrease in the real interest rate will

expand investment and shift the AD curve to the right.

The determinants of aggregate demand

explain shifts in the aggregate demand curve.

Prices and wages tend to be

flexible upward, but inflexible downward.

A positive statement is one that

focuses on facts, descriptions, and theoretical relationships.

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job in two weeks with company B. Kyle will be considered as

frictionally unemployed.

The production possibilities curve illustrates the basic principle that

if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.

Going into a recession the marginal propensity to consume (MPC) often increases as individuals increase precautionary savings, what would happen to the Keynesian Multiplier as the MPC increases?

increase

The consumption schedule is drawn on the assumption that as income increases, consumption will

increase absolutely but decline as a percentage of income.

Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will

increase by more than $100 billion.

Other things equal, an increase in an economy's exports will

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

In the aggregate expenditures model, an increase in government spending may

increase output and employment.

A government subsidy to the producers of a product

increases product supply.

The relationship between the real interest rate and investment is shown by the

investment demand schedule.

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

The aggregate supply curve (short run)

is steeper above the full-employment output than below it.

A nation's gross domestic product (GDP)

is the dollar value of all final output produced within the borders of the nation during a specific period of time.

The most important determinant of consumption and saving is the

level of income.

The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by

national income.

The equilibrium level of GDP is associated with

no unintended changes in inventories.

Scarcity

persists because economic wants exceed available resources.

The law of demand states that, other things equal,

price and quantity demanded are inversely related.

Inflation means that

prices on average are rising, although some particular prices may be falling.

The two basic markets shown by the simple circular flow model are

product and resource.

In terms of the circular flow diagram, businesses obtain revenue through the _____ market and make expenditures in the _____ market.

product; resource

The growth of GDP may understate changes in the economy's economic well-being over time if the

quality of products and services improves.

Which of the following will not produce an outward shift of the production possibilities curve?

reducing unemployment

An effective price ceiling will

result in a product shortage.

The effect of expansionary fiscal policy is shown as a

rightward shift in the economy's aggregate demand curve.

Other things equal, an improvement in productivity will

shift the aggregate supply curve to the right.

Other things equal, a 10 percent decrease in corporate income taxes will

shift the investment demand curve to the right.

The aggregate demand curve

shows the amount of real output that will be purchased at each possible price level.

Economics may best be defined as the

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.

If Trent's MPC is 0.80, this means that he will

spend eight-tenths of any increase in his disposable income

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment

The consumption schedule is such that

the MPC is constant and the APC declines as income rises.

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes

the crowding-out effect.

If intermediate goods and services were included in GDP,

then GDP would be overstated.

At the equilibrium price,

there are no pressures on price to either rise or fall.


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