Goff WKU Macroeconomics Test 4
Which of the following is true? A) Expansions have different lengths. B) Expansions are always shorter than recessions. C) Recessions are always accompanied by high inflation. D) Economists can correctly predict the beginning of a recession in advance
A) Expansions have different lengths.
National Net Worth in the U.S. for Households and Not-for-Profit Businesses is about A) $100 Trillion B) $50 Trillion C) $20 Trillion D) $5 Trillion
A) $100 Trillion
If the value of a government-taxation multiplier is 1.8, which of the following is likely to be true if all other variables remain unchanged? A) A $1 reduction in taxation increases gross domestic product by $1.80. B) A $1 increase in taxation increases gross domestic product by $1.80. C) A $1.80 increase in taxation increases gross domestic product by $1.80. D) A $1.80 reduction in taxation increases gross domestic product by $1.80.
A) A $1 reduction in taxation increases gross domestic product by $1.80.
Which of the following is likely to lead to a partial recovery after a recession, at least according to some advocates of fiscal stimulus? A) A decrease in tax rates B) A decrease in government spending C) A decrease in money supply D) An increase in the interest rate
A) A decrease in tax rates
Which of the following terms refers to an unusually severe, prolonged recession, typically with an unemployment rate that exceeds 10%? A) Depression B) Inflation C) Deflation D) Depreciation
A) Depression
Which of the following economic variables is affected when the government adopts countercyclical fiscal policy? A) Government spending B) Interest rates C) Bank reserves D) M2 measure of money supply
A) Government spending
Identify the correct definition of the federal funds rate. A) The federal funds rate is the interest rate at which banks lend their deposits with the Fed to other banks. B) The federal funds rate is the interest rate at which the Fed lends money to households. C) The federal funds rate is the interest rate at which the Fed lends money to business firms. D) The federal funds rate is the interest rate at which banks lend money to the Fed.
A) The federal funds rate is the interest rate at which banks lend their deposits with the Fed to other banks.
________ emphasize(s) that changing productivity and technology are the main reasons behind fluctuations in the economy. A) The real business cycle theory B) Keynesian theory C) Ricardian theory D) Monetary theories
A) The real business cycle theory
Which of the following falls during an expansion? A) Unemployment B) Gross Domestic Product C) Consumption D) Investment
A) Unemployment
Select the correct answer below: A) a production possibilities frontier is a simple graphic used to illustrate limits and tradeoffs to production and consumption B) undesirable tradeoffs can be avoided by careful planning and efficient use of resources C) production is limited by resources but consumption is not as long as the forces of supply and demand are permitted to determine exchanges D) none of the above
A) a production possibilities frontier is a simple graphic used to illustrate limits and tradeoffs to production and consumption
Looking at ratios like debt to GDP ratios is useful for evaluating the sustainability of government debt A) because it provides information of the size of the debt relative to the size of an important tax base B) because if debt exceeds GDP, it is obviously unsustainable C) because GDP is our best measure of total assets available in the economy D) because ratios are always more informative than raw levels
A) because it provides information of the size of the debt relative to the size of an important tax base
Controlled experiments and field studies in countries like India indicate that the success of programs to assist individuals in extreme poverty A) can be dependent on very specific circumstances surrounding each of these programs B) can be dependent on the continent on which the program is used C) can be dependent on which World Bank unit is involved in supervising aid D) can be dependent on the way in which GDP is calculated in the country
A) can be dependent on very specific circumstances surrounding each of these programs
The poverty-related controlled experiments and field studies in countries like India show that poverty A) can be impacted by poor decision making skills of individuals B) rarely arises because of family problems C) tends to be unrelated to other outcomes like health or family status D) frequently arises because of trade with wealthier nations
A) can be impacted by poor decision making skills of individuals
A problem in comparing real GDP over many decades is A) changes in quality and types of goods B) changes in population C) changes in the definition of GDP D) all of the above
A) changes in quality and types of goods
A longitudinal view of income differences A) considers incomes across different groups by tracking them over time B) considers incomes across different groups by creating a base year for comparison C) considers income across different groups at a given point in time D) averages all incomes into a single measure of differences
A) considers incomes across different groups by tracking them over time
A "dynamic" view of income differences A) considers incomes across different groups over time B) considers incomes across different groups by creating a base year for comparison C) considers income across different groups at a given point in time D) averages all incomes into a single measure of differences
A) considers incomes across different groups over time
The graphic on family income distribution above A) depicts a "static" view of income differences B) depicts a "dynamic" view of income differences C) depicts a "longitudinal" view of income differences D) depicts a view of income differences based on the "gini coefficient"
A) depicts a "static" view of income differences
The term "fiscal illusion" refers to A) households not grasping the higher future taxes from debt-financed stimulus spending B) households not grasping the higher future inflation from money-financed stimulus C) households not grasping the higher future debt from increasing entitlement spending D) households not grasping the higher future inflation from debt-financed stimulus spending
A) households not grasping the higher future taxes from debt-financed stimulus spending
The term "money illusion" refers to A) households not grasping the higher future taxes from debt-financed stimulus spending B) households not grasping the higher future inflation from money-financed stimulus C) households not grasping the higher future debt from increasing entitlement spending D) households not grasping the higher future inflation from debt-financed stimulus spending
A) households not grasping the higher future taxes from debt-financed stimulus spending
The statement that "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner," has often been used to emphasize the motivation of self-interest. Adam Smith's original emphasis in making the statement was on A) how voluntary exchange promoted cooperation between otherwise disconnected individuals B) the technical expertise acquired by specialization in production C) expansionary policies of Great Britain had increased wealth D) none of the above
A) how voluntary exchange promoted cooperation between otherwise disconnected individuals
Evidence on income differences shows which of the following as a contributor to income inequality over the second part of the 20th century: A) increasing age demographics B) increasing prices C) increasing immigration D) all of the above
A) increasing age demographics
The Great Depression A) is a very serious recession in U.S. history in which national income fell by 30 percent B) was the most serious recession in U.S. history until the more recent "Great Recession" C) imposed great hardships on households because the unemployment rate reached as high as 10 percent D) all of the above
A) is a very serious recession in U.S. history in which national income fell by 30 percent
Japan's long run fiscal situation A) is worse than the U.S. partly because of declining overall population B) is not as bad as the U.S. in terms of Debt to GDP ratio C) is worse than the U.S. in terms of current interest rates on long term government bonds D) is in bad condition because of the hangover effects of World War II
A) is worse than the U.S. partly because of declining overall population
When viewed from a worldwide perspective, extreme poverty equates to people living on A) less than $1 or $2 per day B) less than $10,000 per year C) at the bottom 10 percent of their countries' income distribution D) at the bottom 10 percent of worldwide income
A) less than $1 or $2 per day
Discretionary fiscal policy to stimulate the economy includes A) lowering the tax rate paid by households with middle incomes B) raising the tax on gasoline C) decreasing spending on items like roads and bridges D) increasing taxes on corporations and businesses
A) lowering the tax rate paid by households with middle incomes
According to advocates, expansionary monetary policy ________. A) lowers interest rates B) increases interest rates C) lowers tax rates D) increases tax rates
A) lowers interest rates
The preceding graphic from the St. Louis Federal Reserve A) shows a dynamic view of income differences B) indicates that very few households in the lowest two groups moved upward over the decade C) reflects a highly skewed income distribution D) all of the above
A) shows a dynamic view of income differences
Governments, like individuals, businesses, and entire economies face resource and spending limits. Over the very long run, the limits mean that A) spending must be paid for by income or revenue and not by more debt B) spending now must be paid for by income or revenue now C) the debt to gdp ratio must be zero D) spending must eventually decrease if running a budget deficit
A) spending must be paid for by income or revenue and not by more debt
Total Government spending A) sums up federal, state, and local spending B) is nearly the same across all large, wealthy countries C) is evenly divided among federal, state, and local in the U.S. D) all of the above
A) sums up federal, state, and local spending
If consumers save the entire amount of the increase in their disposable income due to a tax cut, the ________. A) tax cut will have no effect on GDP B) tax cut will lead to an increase in GDP C) tax cut will lead to a decrease in GDP D) tax cut will lead to an increase in current account deficit
A) tax cut will have no effect on GDP
The government budget deficit is equal to A) the difference between government spending and government revenue in a given year B) the increase in the total amount of debt owed by the government C) the total amount of debt issued by the government D) the ratio of government revenue to government spending
A) the difference between government spending and government revenue in a given year
If the Fed increases the supply of bank reserves, ________. A) the federal funds rate falls B) the inflation rate falls C) consumption falls D) investment falls
A) the federal funds rate falls
A short-run change in ________ is referred to as a business cycle. A) the growth rate of output B) the aggregate price level C) the currency exchange rate D) the expenditure incurred by the government
A) the growth rate of output
If the government runs a budget deficit in a given year, then A) the public debt will increase in size B) revenues exceed spending C) imports exceed exports D) government expenditures must be increasing
A) the public debt will increase in size
The graphic for India, China, Brazil, DRC, France and the US showing income groups and percentages of total country income for each group highlights that A) there are income differences within highly developed countries such as the U.S. but these are relatively small in comparison to BRIC countries B) low income groups in the U.S. are very similar to low income groups in these other nations C) although median incomes differ across nations, extreme poverty is present in similar proportions D) all of the above
A) there are income differences within highly developed countries such as the U.S. but these are relatively small in comparison to BRIC countries
In the United States, recessions are informally defined as ________ in real GDP. A) two consecutive quarters of negative growth B) three consecutive quarters of negative growth C) two consecutive quarters of positive growth D) three consecutive quarters of positive growth
A) two consecutive quarters of negative growth
A government spending multiplier of 0.5 would imply that a $1 trillion stimulus package would be expected to generate A) $0.05 trillion in GDP B) $0.5 trillion in GDP C) $1 trillion in GDP D) $1.5 trillion in GDP
B) $0.5 trillion in GDP
A government spending multiplier of 1.5 would imply that a $1 trillion stimulus package would be expected to generate A) $0.15 trillion in GDP B) $1.5 trillion in GDP C) $3 trillion in GDP D) $15 trillion in GDP
B) $1.5 trillion in GDP
GDP per capita in the U.S.on a PPP basis is closest to which level? A) $30,000 B) $60,000 C) $45,000 D) $75,000
B) $60,000
If a $15 billion reduction in taxation produces a change of $20 billion in output, the value of the government taxation multiplier is ________. A) 0.75 B) 1.3 C) 5 D) 35
B) 1.3
By 2040, the dependency ratio for Japan is expected to be closest to which number? A) 1 to 1 B) 1.5 to 1 C) 3 to 1 D) 5 to 1
B) 1.5 to 1
In computing real or constant dollar GDP, the purpose is to attempt to A) Adjust for spending patterns B) Adjust for the value of a dollar C) Adjust for more investment D) Adjust for changes in the housing prices
B) Adjust for the value of a dollar
Which of the following is true of economic expansions? A) Governments can correctly predict the length of periods of economic expansion. B) Economic expansions are defined as the period between recessions. C) Output grows during periods of economic expansion, but the unemployment rate is also high. D) Consumption increases but investment falls during periods of economic expansion.
B) Economic expansions are defined as the period between recessions.
If the aggregate production function of 1850 were still in place today, A) GDP per capita would be higher because no one would have lost their agricultural jobs B) GDP per capita would be about what it was in 1850 C) GDP per capita would be higher but more people would be working in agriculture D) population would be much higher than today
B) GDP per capita would be about what it was in 1850
In the broad context of growth economics and living standards, "technological change" is based on A) The greater influence of machinery in daily life B) Innovation and creativity C) Scientific-based influences on life D) Industrial change
B) Innovation and creativity
Which of the following is true? A) Investment growth tends to be high when GDP growth is low. B) Investment growth tends to be high when consumption growth is high. C) Consumption growth tends to be high when GDP growth is low. D) Unemployment growth tends to be high when GDP growth is high.
B) Investment growth tends to be high when consumption growth is high.
________ emphasize(s) that changing expectations about the future is the main reason behind fluctuations in the economy. A) The real business cycle theory B) Keynesian theory C) Ricardian theory D) Monetary theories
B) Keynesian theory
Which of the following statements is true? A) Life expectancy around the world was much higher 70 years ago than it is today. B) Life expectancy around the world was much lower 70 years ago than it is today. C) There is no gap between the life expectancy rates in rich and poor nations today. D) Global drug innovation helped lower the life expectancy rate around the world.
B) Life expectancy around the world was much lower 70 years ago than it is today.
Select the accurate statement below for U.S. data: A) Except for the lowest 10 percent of households in terms of income, all households pay about the same proportion of income in federal income tax B) The lowest 50 percent of household in terms of income pay little or no federal income tax C) The highest 1 percent of households in terms of income pay little or no federal income tax D) The middle 50 percent of households in terms of income pay almost all of the income taxes
B) The lowest 50 percent of household in terms of income pay little or no federal income tax
Select the accurate statement below: A) European Union budget problems are due to decline in real estate values since the Great Recession B) US budget problems are due to increasing Medicare and Social Security arising from demographic changes C) US budget problems are due to the rising costs of medical care from the expansion of Medicaid D) Japanese budget problems are due to the increase in the number of people below working age
B) US budget problems are due to increasing Medicare and Social Security arising from demographic changes
The federal income tax system in the U.S. is A) a regressive system B) a progressive system C) a neutral system D) a flat tax
B) a progressive system
According to advocates, if the government adopts expansionary monetary policy during a recession, ________. A) interest rates increase B) access to credit increases C) government spending falls D) tax rates increase
B) access to credit increases
Real business cycle theories rely on changes in ____________ to as causes of short run fluctuations A) aggregate spending by consumers B) components of the production function C) consumer views about the course of the economy D) fluctuations in the quantity of money
B) components of the production function
Over the long run, evidence on the size of the government spending multiplier is A) estimated to be about 1.5 implying a high degree of effectiveness of spending B) estimated to fall below 1.0 because increases in spending come with higher taxes and lower private C) estimated to be greater than the short run government spending multiplier D) estimated as the ratio of the unemployment rate to government spending per capita
B) estimated to fall below 1.0 because increases in spending come with higher taxes and lower private
The concept of a government spending multiplier refers to A) how much government spending increases whenever GDP increases B) how much GDP increases whenever government spending increases C) how much the money supply multiplies for a given increase in the monetary base D) how much GDP increases for a reduction in the Fed Funds target rate
B) how much GDP increases whenever government spending increases
We referenced the picture above when discussing A) how overreliance on one resources allows for economic disturbances to be propagated B) how restrictions on the movement of prices, even if well-intentioned, interfere with price signals, creating surpluses or shortages C) how cars produced in an era of low scarcity of gasoline had very low fuel mileage resulting in frequent refueling D) none of the above
B) how restrictions on the movement of prices, even if well-intentioned, interfere with price signals, creating surpluses or shortages
The preceding graphic from the St. Louis Federal Reserve A) shows a static view of income differences B) indicates that about 50 percent or more in the lowest two quintiles moved upward over the decade C) indicates that about 50 percent in the second quintile moved downward over the decade D) indicates that about 30 percent in the lowest income group moved upward over the decade
B) indicates that about 50 percent or more in the lowest two quintiles moved upward over the decade
The policy of attempting to obtain a specific low level of inflation over the long run is referred to as: A) price control. B) inflation targeting. C) the seigniorage policy. D) the minimal inflation policy.
B) inflation targeting.
If the Fed wants to try to stimulate the economy, ________. A) it lowers spending B) it lowers its short-run interest rate target C) it increases tax rates D) it reduces money supply
B) it lowers its short-run interest rate target
The major theme that we emphasized with regard to the measurement of income differences/inequality as well as contributors and remedies for these differences is that A) the U.S. has contributed little to income assistance B) it's a complex topic with many underlying questions and issues C) private solutions to low income are relatively simple and effective, unlike public solutions D) there are no chronically low income households in the U.S.
B) it's a complex topic with many underlying questions and issues
If a country has a $10 Trillion public debt and its average interest rate that it pays on it is 5%, then A) its debt payments will be greater than GDP B) its interest payments on debt will be $500 billion per year C) its interest payments on debt will be higher than tax revenues D) its debt has reached unsustainable levels
B) its interest payments on debt will be $500 billion per year
Federal income taxes are A) about 20 percent of incomes regardless of the size of the household income B) paid almost exclusively by the top half of households C) are primarily paid by the bottom 99 percent of households because of tax avoidance by the top 1% D) are less important to federal revenue than are excise taxes
B) paid almost exclusively by the top half of households
In Chapter 3 of the Undercover Economist, Harford makes reference to prices and "the world of truth." By using this phrase, he means that A) prices always embody the full cost of actions B) prices convey key information about scarcity and demand C) prices exist external to "truth" in the world D) none of the above
B) prices convey key information about scarcity and demand
Select the accurate statement below related to trade: A) bilateral trade deficits between the U.S. and a specific country or bad for the U.S. B) similar to technology, expanding trade results in creative destruction C) trade based on comparative advantage always leads to complete specialization of production D) exporting increases a country's living standards but importing diminishes them
B) similar to technology, expanding trade results in creative destruction
Evidence on inheritance and current income shows A) very little relationship between the two B) that a little inheritance boosted incomes substantially C) that few individuals receive inheritances D) that very few people inherit more than $10,000
B) that a little inheritance boosted incomes substantially
Which of the following is a reasonable conclusion based on the distinction between "fundamental" and "proximate factors on long run growth and living standards? A) factors such as capital and labor really don't matter much to growth and living standards B) the extent of protective institutions is more fundamental that capital, labor, and technology C) technology is the most fundamental of all factors contributing to long run growth D) none of the above
B) the extent of protective institutions is more fundamental that capital, labor, and technology
Adjusting GDP so that a dollar purchases roughly the same amount across countries is A) the role of converting nominal to real GDP B) the role of Purchasing Power Parity adjustments C) the role of the CPI D) the role of diving by population
B) the role of Purchasing Power Parity adjustments
The "dependency ratio" refers to A) the average number of children or other dependents in a household B) the size of the working age population relative to the senior population C) the number net recipients of governmental aid relative to the number of net tax payers D) the ratio of households that do not pay income tax to households that pay income tax
B) the size of the working age population relative to the senior population
According to countercyclical monetary policy advocates, if the European Central Bank pursues an expansionary monetary policy, ________. A) the interest rate will rise B) the unemployment rate will fall C) its labor supply will likely fall D) the price level in will fall
B) the unemployment rate will fall
The graphic for India, China, Brazil, DRC, France and the US showing income groups and percentages of total country income for each group highlights that A) the poor in the U.S. live in extreme poverty similar to the residents of BRIC nations B) there is relatively more income inequality in the U.S. than in France C) there is relatively more income inequality in the U.S. than in Brazil D) all of the above
B) there is relatively more income inequality in the U.S. than in France
Payments for Social Security benefits A) are about the same size now in constant dollar terms as when it began B) to current retirees are paid for by current workers C) to current retirees are paid for by the accumulation of their payments in to their individual accounts D) are roughly equal in size to Federal defense expenditures
B) to current retirees are paid for by current workers
Since 2008, with both stimulus and other spending, the federal budget deficit has been about A) $50 billion per year B) $100 billion per year C) $1 trillion per year D) $5 trillion per year
C) $1 trillion per year
Currently, the U.S. federal government spends about A) $500 billion per year B) $1 trillion per year C) $2 trillion per year C) $4 trillion per yer
C) $2 trillion per year
Nominal GDP for a year in the U.S. is currently closest to which of the following figures? A) $2 trillion B) $10 trillion C) $20 trillion D) $100 trillion
C) $20 trillion
Federal poverty assistance programs spend close to which of the following amounts per year? A) $10 billion B) $150 billion C) $750 billion D) $3.5 trillion
C) $750 billion
Valery Ramey's evidence and summary of evidence by others on the size of the short run government spending multiplier indicates that it is close A) 0.1 B) 0.5 C) 0.8 D) 1.4
C) 0.8
Over the past 100 years, real GDP has increased at an annual average of about A) 10% B) 6% C) 3% D) 1%
C) 3%
Currently, the amount of total government (federal, state, local) as a percent of GDP in the U.S. is close to A) 10% B) 20% C) 40% D) 60%
C) 40%
Babe Ruth's baseball career illustrates A) How an individual can hold a comparative advantage across many different skills B) How well his Boston Red Sox manager understood the concept of comparative advantage better than his Yankees manager C) How comparative advantage emphasizes relative skill both across individuals and for the same individual D) How no one can be good at everything
C) How comparative advantage emphasizes relative skill both across individuals and for the same individual
Using GDP per capita on a PPP basis, which of the following countries would fall $5000 to $15000? A) Mexico B) Democratic Republic of Congo C) India D) all of the above
C) India
________ emphasized that "animal spirits" affect GDP. A) Milton Friedman B) Adam Smith C) John Maynard Keynes D) David Ricardo
C) John Maynard Keynes
The difference between government spending and government revenue in a given year equals A) The Public Debt B) The Trade Deficit C) The Budget Deficit D) Discretionary Spending
C) The Budget Deficit
Select the accurate statement below for U.S. data: A) income tax payments are equal as a percent of income across almost all households B) The lowest 50 percent of household in terms of income pay about 50 percent of the total income taxes C) The highest 1 percent of households in terms of income pay a large percentage of total income taxes D) The middle 50 percent of households in terms of income pay almost all of the income taxes
C) The highest 1 percent of households in terms of income pay a large percentage of total income taxes
Which of the following is correct: A) The ratio of Total Government Spending to GDP is about 20 percent in the U.S. B) The ratio of Total Government Spending to GDP is about 60 percent in the U.S. C) The ratio of Total Government Spending to GDP is about 60 percent in France D) The ratio of Total Government spending to GDP is about 90 percent in France
C) The ratio of Total Government Spending to GDP is about 60 percent in France
Which of the following happened during the recession of 2007-2009? A) Housing prices rose. B) Food prices rose. C) Unemployment increased. D) Consumption increased.
C) Unemployment increased.
A "static" view of income differences A) considers incomes across different groups by tracking them over time B) considers incomes across different groups by creating a base year for comparison C) considers income across different groups at a given point in time D) averages all incomes into a single measure of differences
C) considers income across different groups at a given point in time
Keynesian theories theories relay on changes in ____________ as causes of short run fluctuations A) large increases in the price of oil B) component ofs the production function C) consumer views about the course of the economy D) fluctuations in the quantity of money
C) consumer views about the course of the economy
The point we were making in using the pictures above and similar examples was that A) large income differences permit wide variation in the quality of items purchased B) the wealthy use vastly different means of transportation than middle income households C) consumption differences are not as spread out as income differences D) wealthy people prefer black cars relative to blue cars
C) consumption differences are not as spread out as income differences
Determining accurate estimates of the government spending multiplier is difficult because A) the total amount of debt also impacts the rate of inflation B) separating the impacts of debt versus deficits is difficult c) determining the expectations of households regarding future debt obligations is difficult D) estimating the average interest rate paid on the total amount of debt is difficult
C) determining the expectations of households regarding future debt obligations is difficult
Sometimes commentators state that recovery from a natural disaster may boost a local economy. The fundamental flaw behind this this fallacy is that it A) fails to take account of the higher prices that may result from the increased activity B) fails to appreciate the emotional costs of natural disasters C) fails to take account of the large losses in assets and wealth from natural disasters D) fails to appreciate the loss population from natural disasters
C) fails to take account of the large losses in assets and wealth from natural disasters
Among other things, an aggregate production function illustrates A) how living standards are limited although most resources are not B) how capital is more critical than labor to economic development C) how there is a resource cost to producing more output D) all of the above
C) how there is a resource cost to producing more output
The Great Depression A) is a very serious recession in U.S. history in which national income fell by 10 percent B) was the most serious recession in U.S. history until the more recent "Great Recession" C) imposed great hardships on households because the unemployment rate exceeded 20 percent D) all of the above
C) imposed great hardships on households because the unemployment rate exceeded 20 percent
The graphic on family income distribution above A) indicates that median family income is $17,000 B) indicates that mean family income is below median family income C) indicates that median family income is $66,000 D indicates that a large percentage of families make more than $250,000 per year
C) indicates that median family income is $66,000
The current Debt to GDP level in the U.S. A) is higher than they it has ever been B) is the highest in the world C) is about 100% D) grows at about $10 billion per year
C) is about 100%
The U.S. Public Debt A) is issued and managed by the Federal Reserve System B) is issued and managed by the U.S. Department of Commerce C) is equal to the total amount owed by the federal government D) is less than the federal budget deficit
C) is equal to the total amount owed by the federal government
The current Debt to GDP levels in the U.S. A) is one of the lowest in world among large nations but expected to rise dramatically B) is at its highest point in U.S. history C) is over 100% which was reached previously only as a result of war D) is the highest among the high income nations
C) is over 100% which was reached previously only as a result of war
Based on our discussion, which is one of the contributors to chronic poverty in the U.S.? A) lack of property rights B) little public assistance C) low starting income D) lack of economic freedom
C) low starting income
The preceding Powerpoint slide illustrates which of the following ideas? A) markets tend to "lock-in" particular preferences for a long time B) markets tend require extensive use of price information to function well C) markets value and reflect individual preferences especially as markets expand D) all of the above
C) markets value and reflect individual preferences especially as markets expand
Automatic fiscal policy A) requires an action of the government B) is weak unless the government cuts its outlays to reduce the deficit C) operates as the economy moves along its business cycle D) reduces the deficit as the economy goes into recession
C) operates as the economy moves along its business cycle
Automatic stabilizers are defined as A) actions taken by the President without Congressional consent to stabilize the economy. B) actions taken by an act of Congress to stabilize the economy. C) policy that stabilizes without the need for action by the government. D) discretionary policy taken to stabilize the economy.
C) policy that stabilizes without the need for action by the government.
The term "progressive tax system" means that A) income tax rates and payments in proportion to income increase over time B) tax rates reflect the preferences of political progressives C) tax rates and payments in proportion to income increase as income increases D) tax rates and payments in proportion income increase as income increases
C) tax rates and payments in proportion to income increase as income increases
In the United States, A) Congress must approve monetary policy changes. B) Congress initializes changes in monetary policy and the Fed approves the changes. C) the Federal Reserve sets monetary policy. D) the Federal Reserve sets monetary and fiscal policies.
C) the Federal Reserve sets monetary policy.
Which of the following would help reduce the future burden of the U.S. Public Debt? A) worldwide demand for buying and holding U.S. debt decreases B) the Fed creates enough new currency to buy all of it back C) the eligibility for and size of Social Security benefits is reduced D) the working age population decreases
C) the eligibility for and size of Social Security benefits is reduced
For U.S. data, A) median incomes were about the same in 2001 as in 1967 B) median incomes had fallen from 1967 to 2001 C) the spread in incomes had widened some between 1967 and 2001 D) the spread in incomes had narrowed some between 1967 and 2001
C) the spread in incomes had widened some between 1967 and 2001
Japan's Debt to GDP ratio is currently about A) 50% B) 100% C) 150% D) 250%
D) 250%
Which of the following statements is true of income inequality in the U.S. economy? A) Inequality in the U.S. economy had increased throughout the 20th century. B) Inequality in the U.S. economy had decreased throughout the 20th century. C) Inequality in the U.S. economy is now less than what it was in the year 1950. D) Inequality in the U.S. economy is now higher than what it was in the year 1950.
D) Inequality in the U.S. economy is now higher than what it was in the year 1950.
Which of the following economic variables is affected when the central bank adopts countercyclical monetary policy? A) Government spending B) Personal income tax rates C) Corporate tax rates D) Interest rates
D) Interest rates
A recession has hit Canada. Which of the following can is a proposed means of stimulating the economy? A) Lowering of government expenses B) Lowering the supply of money C) Imposition of new taxes D) Lowering interest rates
D) Lowering interest rates
________ was the main proponent of the view that changes in the money supply can drive business cycles. A) David Ricardo B) John Maynard Keynes C) Adam Smith D) Milton Friedman
D) Milton Friedman
________ emphasize(s) that changes in prices and interest rates are the main reasons behind fluctuations in the economy. A) The real business cycle theory B) Keynesian theory C) Ricardian theory D) Monetary theories
D) Monetary theories
Which of the following rises during a recession? A) Consumption B) Investment C) Gross Domestic Product D) Unemployment
D) Unemployment
The unemployment rate is usually ________ during a depression. A) below 3% B) between 3% to 5% C) between 5% to 10% D) above 20%
D) above 20%
Emerging problems in the size of Social Security and Medicare expenditures A) reflect longer life spans declining population in the U.S. B) reflect the "baby boom" in birth rates and its retirement C) reflect generous expansion of benefit rates and programs over time D) all of the above
D) all of the above
In which of the following periods did the U.S. experience a serious recession? A) 1980-81 B) 2008-09 C) 1929-33 D) all of the above
D) all of the above
Increases in minimum wage rates: A) have an impact similar to changing the degree of scarcity of a resource B) will impact different areas to varying extents based on existing market wages C) lead to a tradeoff between higher wage rates from some workers and less employment for others D) all of the above
D) all of the above
Japan A) has significant debt problems because of a shrinking and aging population B) has avoided debt default because of purchases of debt by its own citizens and low interest rates C) has a debt to GDP ratio more than double that of the U.S. D) all of the above
D) all of the above
Select the statement below which is accurate about the effectiveness of temporary stimulus: A) it depends on how quickly the Federal Reserve can implement it B) it depends on the degree to which the public treats debt-financed stimulus as increases in net wealth C) it depends on the size of the long run amount of debt financed by the Treasury D) all of the above
D) all of the above
Using GDP per capita on a PPP basis, which of the following countries would fall between $12,000 to $25,000? A) Mexico B) Brazil C) China D) all of the above
D) all of the above
What role do prices play in markets? A) incentivize behavior B) signal information C) coordinate activity D) all of the above
D) all of the above
Which of the following adjustments makes a difference for the measurement of income inequality? A) using families instead of households B) using before taxes and transfers versus after C) using longitudinal data versus static data D) all of the above
D) all of the above
Which of the following is a contributor to low incomes in the U.S.? A) substance abuse B) poor decision skills C) family decisions and outcomes D) all of the above
D) all of the above
The two primary objectives of the Fed are: A) low and predictable levels of inflation, and interest rates above 10%. B) zero inflation, and zero unemployment. C) low and predictable levels of inflation, and zero unemployment. D) low and predictable levels of inflation, and maximum levels of employment.
D) low and predictable levels of inflation, and maximum levels of employment.
If the Fed is concerned about a possible recession, it attempts to ________ the federal funds rate by ________ the quantity of money and, thereby, ________ the amount of bank loans. A) raise; decreasing; increasing B) lower; decreasing; decreasing C) lower; increasing; decreasing D) lower; increasing; increasing
D) lower; increasing; increasing
11) Which of the following conclusions does the graphic above support? A) income differences within wealthy account for most worldwide income differences B) income differences within the BRIC countries are relatively small C) income differences within countries like the DRC account for most worldwide income differences D) none of the above
D) none of the above
When economic data is reported with the acronym SAAR, this means that the data A) has been converted to a constant dollar value B) has been converted to percent changes and adjusted for interest rates C) has been adjusted for the size of the population and converted to real values D) none of the above
D) none of the above
When the nominal price of a good increases over time, the real price of the good A) Must increase B) Decreases because income also increases over time. C) Does not change if the CPI is unchanged D) none of the above *Note: If the nominal price increases, the direction (up/down) of the real price will be determined by the size of the change in the CPI. If the CPI is unchanged, the real price will go up. If the CPI goes up less than the nominal price, the real price increases. If the CPI goes up more than the nominal price, the real price decreases.
D) none of the above
According to advocates, counter cyclical policies ________. A) lead to hyperinflation B) lower output below its potential level C) increase the intensity of economic fluctuations D) smooth the rate of growth of the economy over time
D) smooth the rate of growth of the economy over time
Government spending as a percent of GDP can be used as an approximate measure of A) the mix of democracy versus dictatorships in choosing economic systems B) the mix of spending on consumption versus investment goods C) the mix of preferences of different citizens D) the mix of public versus private decisions in allocating goods
D) the mix of public versus private decisions in allocating goods
A key distinction between market-based economic systems and non-market systems is A) the use of democratic political systems to determine the goods produced, methods of production, and allocations of goods B) the use of corporations as a key mechanism for production of goods C). the use of public rather than private decisions to determine the goods produced, methods of production, and allocations of goods D) the reliance on voluntary decisions and exchanges versus exchanges based on force or the threat of force
D) the reliance on voluntary decisions and exchanges versus exchanges based on force or the threat of force
Which of the following statements is accurate? A) the poor in the U.S. are nearly as poor as anywhere in the world B) in dollar terms, the lowest 10 percent in the U.S. receive a smaller share of income than all other developed nations C) there is little income mobility in the U.S. across ages D) there is substantial income mobility in the U.S. across income groups
D) there is substantial income mobility in the U.S. across income groups
The current and impending fiscal problems of several state governments, including Kentucky, revolve around which of the following issues A) state-run medical insurance programs growing out of the Affordable Care Act B) declining populations that are shrinking the size of the tax base C) expansion of the number of low income households receiving state assistance D) underfunded public pension plans for retirees
D) underfunded public pension plans for retirees
