econ final

_____ unemployment includes workers who voluntarily quit their jobs to search for better positions.

frictional

One characteristic of an annually balanced federal budget is that:

it makes it impossible for the gov to engage in countercyclical activity

If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:

0.25

The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is:

0.9

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in:

increased inflation

Assume the economy is currently experiencing aggregate expenditure greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment, and _____ income.

more, more, more

_____ unemployment is caused by changes in consumer demands or technology.

structural

Suppose the economy is in full employment equilibrium. Then a positive supply shock, caused by a fall in oil prices, hits the economy. A contractionary monetary policy will:

move the economy back to full employment output but at a much lower price level

The idea of the spending multiplier is that:

one persons spending, becomes another persons income

One argument against using taxation to pay off the public debt is that it will redistribute wealth from:

poorer people who dont own bonds

In the short run, the aggregate supply curve is _____ because input prices are _____.

positively sloped; not completely flexible

The nation of Workovia has a population of 15 million, of whom, 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is:

60%

The price of automobiles is rising because more people want to purchase cars. As a result,

c. quantity demanded decreases.

If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output.

$4,000

Which of the following statements describe(s) the unemployment rate? I. The unemployment rate includes those people who do not have a job and have ended their job search. II. The unemployment rate counts as employed those people who may be only working part-time. III. The unemployment rate is the percentage of the entire U.S. population that does not have a job but is searching for one.

1 and 11 only

Which of the following would be considered frictional unemployment? I. Alisha has taken a job at a different company in order to accept a promotion. She quit her current job but has one month off until she starts her new job. II. John has lost his job as a book binder as the demand for e-books has replaced demand for traditional books in the country. III. Melissa quit her full-time job to become a full-time student in order to pursue her Ph.D.

1 only

Suppose the Federal Reserve raises interest rates. Which situation would MOST likely trigger such a policy move?

The US dollar had depreciated and inflation was high

If the Surgeon General announced that wearing baseball caps will eliminate dandruff, then, ceteris paribus, the:

equilibrium price for baseball caps would increase

In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion:

a. the velocity of money (V) = 6.

In the market for cable television, fewer people are subscribing to cable while the cost of providing cable television has increased. As a result, since the drop in cable subscribers has had a bigger impact on the market, we can expect a(n):

b. decrease in the equilibrium price and quantity of cable television.

Retirees and creditors:

benefit from inflation because int. rates rise

Assume that butter is a substitute for margarine. If the price of margarine drops, which of the following would result?

both the price of butter and quantity of butter rise

If the economy starts below full employment, an expansionary fiscal policy will shift the aggregate demand curve from _____ to _____, and equilibrium will move from point _____ to _____.

c. AD0; AD1; a; b

Suppose consumers spend more than usual. In the short run, output will _____; in the long run, output will _____ from its starting point.

increase; remain unchanged

The aggregate demand curve:

is downward sloping because production costs decline as real GDP increases

If rational expectations theory is correct, then any increase in aggregate demand caused by announced expansionary policies:

is offset by rising inflationary expectations, causing a short-run ag supply to immediately shift to the left

A practical implication of the crowding-out effect is that it:

makes expansionary fiscal policy less effective

The reason business investment is sensitive to interest rates is that:

most funds for investment are borrowed, so firms incur an interest charge

Starting at point J, the economy will move to point _____ in the short run if policymakers successfully reduce aggregate demand.

n

Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded.

reduces; reduces

Which of the following is an example of contractionary fiscal policy?

reducing military spending

Which statement correctly describes the sequence that explains how a contractionary monetary policy impacts an economy?

the policy raises int rates; higher int rates reduce spending; lower spending reduces ag demand, which impacts output and price level

Which of the following would shift the aggregate demand curve from AD1 to AD2?

decrease in int rates

Suppose that a major drought causes a 30 percent reduction in the peanut harvest. If there is no change in demand, this event would cause a _____ at the original equilibrium price, and the equilibrium price will therefore _____ and the equilibrium quantity will _____.

shortage, rise, fall

If the rate of inflation decreases from 5% to 3%, the economy is undergoing:

disinflation

In the United States, people are considered unemployed if and when they:

do not have a job, available for work

Suppose that the price of pork rises. We would expect that the supply of beef will:

fall because farmers will shift resources from beef production to pork production

According to the figure of AD-AS curves and assuming the country begins on AD1 and SRAS1, what will happen in the short and long run if the price of oil rises significantly?

d. The economy will move from point C to A to B.

Which factor would NOT change the demand for sea kayak tours?

d. a decrease in the price of a sea kayak tour

Agricultural output is a large part of Econland's GDP. Particularly bad weather one year leads to an output that is smaller than normal, causing a shock to Econland's economy. Which of these correctly describes, from a Keynesian perspective, the impact of expansionary or contractionary monetary policy taken to address the situation?

increase M1 to reduce unemployment

Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is:

121.4

The graph depicts an economy originally in equilibrium at point e. Assume that the government uses expansionary fiscal policy. Which of the following statements is true?

c. The movement from point a to point b is due to increased consumer spending brought about by increased government spending and/or lower taxes.

In the simple Keynesian model with no government and foreign sectors, suppose that initially the economy is in equilibrium at an output level of $10 trillion with a marginal propensity to consume of 0.8. If investment spending increases by $0.5 trillion, what is the new equilibrium output level?

$10.8 trillion

In the simple Keynesian model with no government and foreign sectors, assume that full employment occurs at an output level of $10,000. With a marginal propensity to consume of 0.5 and equilibrium output at $9,600, by how much will investment spending have to increase to move the economy to full employment?

$200

Which statement correctly describes the sequence that explains how an expansionary monetary policy impacts an economy?

c. The policy lowers interest rates; lower interest rates increase investment; higher investment increases aggregate demand, which impacts output and the price level.

If the economy is at short-run equilibrium point b because of a negative supply shock, the Federal Reserve could enact an expansionary monetary policy, thus shifting the new equilibrium to point _____. As a result of this, the price level would _____ and real output would _____.

c; further increase; increase

Which of the following illustrates the paradox of thrift?

consumer uncertainty causes people to save more; production falls; savings decrease because income is lower

Anne and Charlie are discussing the best possible fiscal policy to bring the country out of a recession. Charlie wants to see government reduce taxes by $100 billion. Anne prefers to see government spending increase by $100 billion. Whose proposition would have the larger total impact on aggregate demand?

d. Anne's, because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved and not spent

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier.

disposable income, smaller

Suppose policymakers wish to use fiscal policy to fight inflation. Which statement, then, is MOST accurate?

essentially decrease ag demand, causing a rise in unemployment

Suppose a booming stock market encourages consumption spending to rise dramatically. What would be the most likely short-run impact?

inflation and rising GDP

Which event will NOT occur if policymakers want to keep unemployment below its natural rate?

inflation will be lower than expected

Starting at point J, the economy will move to point _____ in the long run if policymakers reduce aggregate demand.

r

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Suppose that quantity supplied of a product equals 5 units and quantity demanded equals 8 units at the current market price. In this market, there is a _____ of this product and the price should _____.

shortage; rise

The long-run Phillips curve:

shows no tradeoff between inflation and unemployment

Suppliers of Chia Pets have reduced supply since the gift-giving season has passed. Suppliers are MOST likely responding to:

their expectation that the price of chia pets will fall in market place