econ test #2 practice test

According to Say's Law, people

supply goods in order to obtain other goods

New growth theory emphasizes the importance of increases in what factor in explaining growth?

technology

Which of the following explains why Keynesian economics lost influence in the 1970s?

the damaging effects on inflation

An increase in aggregate demand:

does not change potential output

Suppose an economy's trend growth rate is 3% and current output is $10 trillion. If the economy enters a recession where output declines by 5% in one year, by how much does output have to rise to return the economy back to its trend? Assume it takes two years for the economy to return to its trend.

$1.4 trillion

Why are economists so often skeptical of replacing GDP as a measure of well-being?

The alternatives involve value judgments about social goals that some or many economists find controversial

The U.S. economy did not recover as expected after which economic downturn?

The crash of 2008

Market economies have been so successful because:

They have channeled individual efforts toward production and growth.

Which of the following statements would a Classical economist of the 1930s most likely disagree with?

Unions do not impede wage and price adjustment.

The balance of payment account is made up of:

a current account and a financial and capital account.

Which of the following is associated with an increase in potential output?

a decrease in target rate of unemployment

An increase in the price level might cause:

a decrease in the quantity of aggregate demand because of the interest rate effect.

A shift in the long run aggregate supply curve will change:

both output and the price level.

An economy's resources:

can be overutilized, but only temporarily.

According to the Classical growth model, the most important source of economic growth is:

capital accumulation

In the early 2000s, the United States went through what many economists described as a jobless recovery, which is a situation in which real output grows but the unemployment rate does not fall. Normally, an increase in real output affects:

cyclical unemployment more than structural unemployment.

The value of intermediate goods is:

excluded from both GDP and GNP.

General Electric, a U.S. company, buys $50 million of Japanese securities. This transaction causes the U.S.:

financial and capital account balance to decrease.

Say's Law allows growth theorists to

ignore aggregate demand and focus only on aggregate supply.

According to long-run growth models, which of the following is least likely to increase potential output?

increased aggregate demand

A fall in the price level:

increases the value of money in peoples' pockets, so people buy more goods.

If the euro rises in price, it becomes:

more expensive for Americans to buy European products but cheaper for Europeans to buy American products.

The effect of specialization and the division of labor is to make us:

more productive and more dependent on others.

In the AS/AD model, the repercussions that a change in quantity demanded has on production and subsequently on income and expenditures is called the:

multiplier effect

An American automobile company opens a parts factory in Canada. The salaries of the Canadian employees of the factory would be

not included in either GDP or GNP.

Compounding means that changes in living standards depend:

on both the initial level of income and the accumulation of changes in income since the initial year.

The most important policy implication of the Classical growth model is that:

policies to stimulate saving and investment will stimulate economic growth.

A Chinese purchase of Boeing aircraft is recorded in the American balance of payments as a:

positive entry in the current account.

The key to the equality of output and income is

profit

Double counting in the national income accounts will be avoided if GDP is computed by totaling all

sales of final output

If total income remains the same but profits fall and real wages rise, the aggregate demand curve will most likely:

shift to the right

An increase in production costs is most likely to shift the

short-run aggregate supply curve up (to the left)

If workers begin to expect more inflation in the future, then we would expect that the:

short-run aggregate supply curve will shift up (to the left).

The legal system is an example of:

social capital

If the prices used in two countries are exactly the same, then a comparison of the per capita GDPs of the two countries provides:

some insight into living standards depending on the extent of non-market activities in each country.

Using the expenditure approach, gross domestic product equals:

the sum of consumption, investment, government purchases, and net exports.