Macro Final

Consider the table, which shows the annual salary for several workers. Worker Salary Chuck $31040 Ade $23920 Gwen $61070 Sophie $15000 Tony $517610 1. Calculate the median wage. 2. Comparison of the minimum wage and the median wage can be used to estimate the extent to which unemployment results from minimum wage laws. All else equal, which scenario would result in the most unemployment? A. A country where the minimum wage is set at 60% of the median wage. B. A country where the minimum wage is set at 10% of the median wage. C. A country where the minimum wage is set at 1% of the median wage. D. A country where the minimum wage is set at 95% of the median wage.

1. 31040 2. D. A country where the minimum wage is set at 95% of the median wage.

These figures illustrate the production possibilities available to Kate and Sarah with eight hours of labor in their bakery. Answer the questions according to these figures. 1. Kate has an absolute advantage in: A. both goods. B. cake. C. bread. D. neither good. 2. Sarah has an absolute advantage in: A. bread. B. both goods. C. neither good. D. cake.

1. D. Neither Good 2. B. Both Goods

Kayla is a speculator in the market for a rare French goat cheese known as Crottin de Chavignol. She entered into a futures contract with farmers from the small town of Chavignol, where the cheese is produced. The futures contract specifies that after 4545 months, Kayla will purchase 45004500 kilograms (kg) of Crottin de Chavignol at $210210/kg. When the specified number of months has passed, the price of Crottin de Chavignol is $260260/kg. 1. What is Kayla's profit per kilogram? Please denote losses with a negative sign. 2. Which of the statements is NOT true about futures contracts? A. Many futures contracts are settled in cash that do not require actual delivery of the commodity. B. The futures markets are used as a prime tool for speculators. C. Few people have the space or resources to purchase commodity futures. D. Futures markets can help to reduce investor risk.

1. $50 2. C. Few people have the space or resources to purchase commodity futures.

Shirts Pants Year Price Quantity Price Quantity 2013 $7.50 750 $12.50 4000 2014 $12.00 600 $18.50 3500 The table contains prices and output for a two good economy. Nominal and real GDP in 2013 are both $55,625. Use the information in the table to answer the questions. 1. What is nominal GDP in 2014? 2. What is real GDP in 2014? Use 2013 as the base year. 3. Real output from 2013 to 2014 has A. stayed the same. B. increased. C. decreased. D. experienced inflation.

1. $71950 2. $48250 3. C. decreased

Use the table to answer the questions. Define productivity as GDP per worker, and please enter all answers as numerical values rounded to 3 decimal places, and not as percentages (e.g., 0.103 instead of 10.3%). GDP Population Workers Year 1 1099 195 119 Year 2 1247 279 231 1. What is the GDP growth rate? 2. What is GDP per capita growth rate? 3. What is the productivity growth rate?

1. 0.135 2. -0.207 3. -0.415

Market Basket '70 $ '75 # '75 $ '76 # '76 $ Dozen Eggs $0.40 21 $0.06 27 $0.80 Calculator $20.00 14 $10.50 17 $15.50 Microwave $110.00 3 $160.00 9 $190.00 1. What is the GDP deflator for 1975? 2. What is the GDP deflator for 1976? 3. What was the inflation rate from 1975 to 1976? Enter a negative number if there was deflation.

1. 103.4 2. 148.8 3. 43.9

Suppose total output is 10, total input is 5, and the cost of input is $10.00 each. 1. What is the productivity measure? 2. What is the per‑unit production cost? 3. What is the main source of increased productivity? A. offshoring of labor to increase firm profits B. improved production technology C. wartime production needs D. enforcing barriers to firm entry in key markets E. demand increases during a recession

1. 2 2. $5 3. B. improved production technology

After a financial crisis hits the country of Arcadia, 33 million people become unemployed. If 2525 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

10.71%

"Italy includes cocaine, prostitution and black market alcohol in GDP figures" (The Independent, October 30, 2014). 1. How would you expect the inclusion of these previously excluded underground activities to impact the value of Italy's GDP? A. Increase the value of GDP. B. Decrease the value of GDP. C. The inclusion of these items will not change the value of GDP. 2. Select ALL of the statements that correspond to a deficiency in real GDP per capita as an accurate reflection of the well-being of a nation. A. It does not put importance on physical health. B. It does not value production that is not intended for sale. C. It does not take into account the cost of the intermediate goods that go into production. D. It does not consider the quality of the environment.

1. A 2. A, B, and D

Classify the items as to whether or not they would be included in calculating the GDP for Canada. If a country is not specified, assume the action is done in Canada. 1. A college student buys used textbooks. This transaction _____ included in Canada's GDP. 2. Mrs. Baird's Bakery buys flour. This transaction _____ included in Canada's GDP. 3. Canadian Tire sells products in Canada. This transaction _____ included in Canada's GDP. 4. GM assembles and sells cars in Mexico. This transaction _____ included in Canada's GDP. 5. The Canadian government issues Old Age Security payments to individuals. These transactions _____ included in Canada's GDP.

1. is not 2. is not 3. is 4. is not 5. are not

The overall population for Region A is 9999 million people. The labor force contains 48 million people, 32 million people are employed, and 1616 million are unemployed. What is the unemployment rate? Round your answer to two decimals.

33.33%

Assume that the production function for a country is given by √Y=K and annual investment is given by the function 𝐼=𝛾×𝑌 where γ=0.300γ=0.300, and that the yearly depreciation rate is 5.005.00%. Suppose that this year, the output in the country is 1, and a neighbor country's output is 50% higher. Calculate the time it would take for the country's output to catch up with its neighbor's output. Assume the neighbor country's economy is neither growing nor shrinking.

5

Find the velocity of money when 𝑀=$622, 𝑃=107, and 𝑌R=$33. M is the money supply, v is the velocity of money, P is the price level, and YR is the real gross domestic product (GDP). Round your answer to 2 decimal places.

5.68

The steady-state capital stock is the capital stock where: A. investment equals depreciation. B. depreciation equals zero. C. investment is less than depreciation. D. investment exceeds depreciation.

A. investment equals depreciation

Select the components or inputs associated with the production function where gross domestic product (GDP) is the output. Production function inputs include A. physical capital B. technological knowledge C. capital deepening D. aggregate supply E. aggregate demand.

A and B

What are the unexploited gains from trade at the free market equilibrium? A. $0 B. $1,500 C. $500 D. $1,000

A. $0

Consider the GDP deflator and real GDP, given in thousands of dollars, for the country of Economica. Year Real GDP GDP deflator 1 $10587 111 2 $50524 118 3 $20987 100 The base year, or base period, is year 3. For the given years, calculate the nominal GDP. Round your answers to the nearest dollar. A. What is the nominal GDP for year 1? B. What is the nominal GDP for year 2? C. What is the nominal GDP for year 3?

A. $11752 B. $59618 C. $20987

Table: Equilibrium Quantity Price Quantity Demanded Quantity Supplied $10 100 400 8 150 350 6 200 300 4 250 250 2 300 200 Based on the table, the equilibrium quantity is: A. 250. B. 10. C. 100 and 400. D. 275.5.

A. 250

Jose sells his economics textbook from last semester, which he could sell back to the bookstore for $40, to Adolfo for $150. Adolfo had planned to pay $240 for the textbook at the bookstore. Which of the following statements is TRUE? A. Both Jose and Adolfo are made better off by the trade. B. Adolfo is made better off by the trade, but Jose is made worse off by the trade. C. Jose and Adolfo must have the same preferences for the textbook. D. This trade did not create value because Adolfo is buying the textbook for more than Jose could get from the bookstore.

A. Both Jose and Adolfo are made better off by the trade.

Please classify the given groups of people as either employed, unemployed, or not in the labor force. A. Retirees who neither have a job nor are looking for a job B. People who do not have a job but actively looked in the last four weeks C. People temporarily away from their jobs due to illness D. Full-time students E. People in active military service F. Full-time home-makers G. People temporarily away from their jobs due to vacation H. People in prison I. Those who worked during the previous week J. Mental patients confined in institutions K. People who actively looked for a job during the last 12 months, but not the last four weeks

A. Not in the labor force B. Unemployed C. Employed D. Not in the labor force E. Not in the labor force F. Not in the labor force G. Employed H. Not in the labor force I. Employed J. Not in the labor force K. Not in the labor force

The market value of which of the examples would be considered double counting in the calculation of GDP? A. Wheels used to produce a skateboard that will be sold new B. A new skateboard bought for a niece C. A ticket to the X Games bought from a person on the street corner D. The commission paid to the seller of a previously owned collector's skateboard

A. Not included in GDP because of double counting B. Included in GDP C. Not included in GDP because of double counting D. Included in GDP

Monetizing the debt occurs when a government: A. pays off its debts by printing money. B. raises taxes to pay off the debt. C. issues more debt to finance its budget deficit. D. decreases the money supply to pay off the debts.

A. pays off its debts by printing money

A discouraged worker is a(n): A. person who has given up looking for work but would still like a job if one is available. B. worker who is being discouraged by his or her employer when asking for a promotion. C. unemployed person who has temporary part-time employment. D. person working for fewer hours than he or she prefers.

A. person who has given up looking for work but would still like a job if one is available.

The equilibrium price is: A. stable because at this price the quantity demanded equals the quantity supplied. B. stable because at this price all buyers are willing and able to pay. C. unstable because at this price the quantity demanded is less than the quantity supplied. D. unstable because at this price the quantity demanded exceeds the quantity supplied.

A. stable because at this price the quantity demanded equals the quantity supplied

When the price of a good decreases: A. the quantity demanded increases. B. supply increases. C. demand increases. D. the quantity supplied increases.

A. the quantity demanded increases

Please match each scenario with the term it best identifies. (Early employment bonus, job retraining, job-search assistance, work test) A. The government implements a new policy where people receiving unemployment benefits must provide proof that they are searching for work. Otherwise, they will lose their benefits in 11 month. B. The government decides to give all unemployed workers a free account on a federal job bank, allowing workers to find jobs easier than ever before and hopefully expediting re-employment. C. Chelsea recently lost her job as an accountant. However, thanks to her stellar resume, she is able to quickly find a new job after two weeks. Much to her pleasure, she receives a tax credit because she was able to quickly find a new job. D. Simon is a junior chef at a three-star Michelin-renowned restaurant, Sur La Table. He loses his job and applies for, and is accepted into, a state funded program that allows unemployed individuals to take medical technician courses at their local community colleges for free.

A. work test B. Job-search assistance C. Early employment bonus D. Job retraining

1. What is inflation? A. a decrease in the overall price level B. an increase in the amount of money in circulation C. an increase in the overall price level D. an increase in the overall level of economic activity 2. Which of the examples provides the best evidence that inflation has occurred? A. A person whose salary has remained the same is able to purchase more goods and services. B. A person whose salary has decreased is able to purchase fewer goods and services. C. A person whose salary has increased is able to purchase fewer goods and services. D. A person whose salary has increased is able to purchase more goods and services. E. A person whose salary has decreased is able to purchase more goods and services.

C. an increase in the overall price level C. a person whose salary has increased is able to purchase fewer goods and services

The quantity demanded of a good or service is the amount that: A. consumers would like to buy but might not be able to afford. B. consumers need to consume during a given time period. C. consumers are willing and able to buy at a given price. D. firms are willing to sell during a given time period at a given price.

C. consumers are willing and able to buy at a given price

Which of these production functions exhibits diminishing returns? A B C D

D

Use the PPFs shown for the United States and India. With specialization and trade, the United States would produce _____, and India would produce _____. A. 0 pounds of rice and 40 shirts; 20 pounds of rice and 0 shirts B. 30 pounds of rice and 16 shirts; 11.4 pounds of rice and 15 shirts C. 50 pounds of rice and 40 shirts; 20 pounds of rice and 35 shirts D. 50 pounds of rice and 0 shirts; 0 pounds of rice and 35 shirts

D. 50 pounds of rice and 0 shirts; 0 pounds of rice and 35 shirts

The hypothetical data in the table below displays the percentage that unemployment benefits replace take-home pay for workers in different countries. Country First Year Second Year After Five Years Belgium 75% 70% 61% Finland 70% 60% 55% Italy 54% 50% 22% Australia 40% 25% 10% Which country would you expect to have the lowest long-term unemployment rate? A. Italy B. Belgium C. Finland D. Australia

D. Australia

A car produced by the American company GM in a plant located in Canada would be included in: A. both U.S. GDP and U.S. GNP. B. U.S. GDP, but not U.S. GNP. C. neither U.S. GDP nor U.S. GNP. D. U.S. GNP, but not U.S. GDP.

D. US GNP, but not US GDP

A decrease in demand refers to: A. a rightward shift of the demand curve. B. a downward movement along the demand curve. C. an upward movement along the demand curve. D. a leftward shift of the demand curve.

D. a leftward shift of the demand curve

In the Solow model production function, Y = F(A, K, eL), A stands for: A. attitude. B. aggregate demand. C. assets. D. ideas.

D. ideas

The most volatile spending component of GDP in the United States is: A. net exports. B. government purchases. C. consumption. D. investment.

D. investment

Absolute advantage derives from which of the following? A. the most suitable climate B. the best educated labor force C. the least expensive labor force D. the lowest cost of production

D. the lowest cost of production

Absolute advantage can be determined by comparing different producers' A. comparative advantage. B. input requirements per unit of output. C. geographical location. D. input payments, such as wage. E. opportunity costs.

B. input requirements per unit of output

The figures illustrate the production possibilities available to Kate and Sarah with eight hours of labor in their bakery. Answer the questions according to these figures. 1. Kate has a comparative advantage in: A. neither good. B. both goods. C. cake. D. bread. 2. Sarah has a comparative advantage in: A. bread. B. neither good. C. both goods. D. cake.

1. C. Cake 2. A. Bread

Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 2.502.50 trillions of rupees. Individuals consume: 10.5010.50 trillions of rupees. Individuals save: 4.914.91 trillions of rupees. Businesses invest: 1.701.70 trillions of rupees. Foreigners spend: 0.520.52 trillions of rupees to purchase Pakistani firms. Pakistan imports: 2.032.03 trillions of rupees. Pakistan exports: 1.341.34 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals.

14.01 trillions of rupees

Suppose the civilian noninstitutionalized working-age population is 35.9 million in in a hypothetical economy. Of these, 4.9 million are working part-time and 14.53 million are working full-time. Assume the Bureau of Labor Statistics (BLS) definitions are used for calculating unemployment data. Among those not working, the most recent job-search activity for 2.90 million happened less than two weeks ago, while 1.72 million most recently looked for work between two and four weeks ago. An additional 0.86 million most recently looked for work five weeks ago, and the remaining 10.99 million who do not have jobs have not looked for work in the past six weeks. Round your answers to two decimal places. A. What is the size of the total labor force? B. How many people are unemployed? C. What is the labor force participation rate? D. What is the unemployment rate?

A. 24.05 B. 4.62 C. 66.99 D. 19.21

Suppose that Paulie and Vinny each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vinny each can produce in 1 hour, respectively, if they devote all of their time and effort into making the good. Round all answers to two decimal places. Ice Cream (cups) T-shirts (quantity) Paulie 5 16 Vince 9 15 A. What is Paulie's opportunity cost of producing a cup of ice cream? B. What is Vinny's opportunity cost of producing one t-shirt? C. Paulie has comparative advantage in __________ and Vinny has comparative advantage in __________.

A. 3.2 B. 0.6 C. t-shirts; ice cream

A. Move the supply and/or demand curve to illustrate how an across-the-board cut in the price of all apps on the Apple App Store affects the market for iPhones. B. Move the supply and/or demand curve to illustrate how a decrease in the price of Samsung's current Galaxy smartphone impacts the market for iPhones.

A. Demand shifts right; supply stays B. Demand shifts left; supply stays

Ned owns a small electronics repair business. He can either repair iPhones or Samsung phones. If he only repairs iPhones he can repair 16 phones in a day. If he only repairs Samsung phones, he can repair 12 in a day. What is the opportunity cost of iPhone repairs production (in terms of Samsung repairs/iPhone repairs)? A. 16 B. 3/4 C. 1/2 D. 12 E. 2 F. 4/3

B. 3/4

What is a real price? A. A real price refers to the actual price you pay for a good. B. A real price refers to a price that has been adjusted to account for inflation. C. A real price refers to the retail price, not the sales price. D. All of the above describe real prices.

B. A real price refers to a price that has been adjusted to account for inflation.

The ratio of the nominal value of economic output to the real value of economic output multiplied by 100 is the: A. producer price index. B. GDP deflator. C. exchange rate. D. consumer price index.

B. GDP deflator

Employment laws can vary significantly by country. For instance, in the United States, many jobs are governed by the principle of employment at-will. Employment at-will is rarer in certain countries in Europe, such as Portugal. Regulation and collective bargaining impact labor markets to a larger extent in Europe than in the United States. How do European labor markets compare to the labor market in the United States as a result of these varying labor laws? A. The hiring and firing costs are lower in Europe than the United States. B. The labor market in Europe is less flexible than in the United States. C. During a period of increased demand, European firms are more likely to hire more workers. D. Europe has a lower rate of long-term unemployment than the United States.

B. The labor market in Europe is less flexible than in the United States.

Consider a supply curve that shifts up and to the left. According to the figure, the: A. technology for producing output has improved. B. costs of producing output have increased. C. costs of producing output have decreased. D. price of the product has decreased.

B. costs of producing output have increased

The natural unemployment rate is the rate of _____ unemployment plus the rate of _____ unemployment. A. cyclical; structural B. structural; frictional C. cyclical; frictional D. frictional and structural; cyclical

B. structural; frictional

These figures illustrate the production possibilities available to Kate and Sarah with eight hours of labor in their bakery. Answer the questions according to these figures. If Kate and Sarah both specialize in the good in which they have a comparative advantage, the A. total production of bread will be 4 loaves, and the total production of cake will be 9 units. B. total production of bread will be 16 loaves, and the total production of cake will be 17 units. C. total production of bread will be 12 loaves, and the total production of cake will be 8 units. D. total production of bread will be 8 loaves, and the total production of cake will be 8.5 units.

C. total production of bread will be 12 loaves, and the total production of cake will be 8 units

Which of the following programs could help overcome structural unemployment? A. worker retraining B. job-search assistance programs C. worker retraining, limitations to unemployment benefits, and job-search assistance D. limitations to unemployment benefits

C. worker retraining, limitation to unemployment benefits, and job-search assistance

We know that a country reaches a steady state when investment equals depreciation. This means 𝛾𝑌=𝛿𝐾γ Consider an economy with the production function √Y=A⁢K Squaring both sides and solving for 𝐾K yields 𝐾=𝑌2𝐴2 Substituting 𝐾K into the steady state equation gives 𝛾𝑌=𝛿𝑌2𝐴2 Solve this equation for 𝑌.Y. Divide both sides by 𝑌Y and put everything on the other side to solve for 𝑌.Y. Once you do this, use this equation to answer the question about the economy in the steady state. What will make a country richer in the long run? A. doubling the saving rate B. Neither will make the country richer in the long run. C. Both changes will have the same impact on the steady state GDP. D. doubling total factor productivity

D. doubling total factor productivity

What happens to the marginal product of each additional unit of capital, all else equal? Capital A. increases output at an increasing rate. B. decreases output at a diminishing rate. C. decreases output at an increasing rate. D. increases output at a diminishing rate.

D. increases output at a diminishing rate

What is the catch‑up effect concerning developed and developing countries? Developing countries: A. have greater productivity per unit of capital because they are better at developing new technologies. B. never can catch up to developed countries. C. have lower productivity per unit of capital because they are better at developing new technology. D. may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.

D. may grow faster than developed countries because they lack the most basic tools and capital investment leads to higher productivity growth.

What is the value of the monetary base, given that the value of deposits at all depository institutions equals $2357.45 billion, currency is $1150.40 billion, and bank deposits held at the Fed are $1478.40 billion?

$2628.80 billion

Suppose banks increase excess reserves by $332157. If the reserve ratio is 9.0 percent, what is the maximum increase in the money supply? Round your answer to the nearest dollar.

$3690633

Suppose the Fed sells $200 billion200 billion in government securities and the reserve ratio is 0.10.1 . 1. Calculate the resulting change in the money supply. Be certain to include a negative sign. 2. What is the impact in the open market operation in the short term? (In other words, how do the curves on the graph shift?) 3. Which statement describes the impact on inflation and real GDP the Fed's policy has in the short run? A. Inflation increases and real GDP increases. B. Inflation increases and real GDP decreases. C. Inflation decreases and real GDP increases. D. Inflation decreases and real GDP decreases.

1. $-2000 2. AD curve shifts left 3. D. Inflation decreases and real GDP decreases

Refer to the hypothetical data in the table to answer the three questions. Year Nominal I.R. Real I.R. Inflation Rate 2017 5% --- 5% 2018 5% 1% --- 2019 --- 3% 9% 1. What was the real interest rate in 2017? 2. What was the inflation rate in 2018? 3. What was the nominal interest rate in 2019?

1. 0 2. 4 3. 12

There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 4.75% nominal interest rate. He expected inflation to be 3.00%. Instead, inflation is −3.00% (deflation). 1. What is the real interest rate that Herb expected to pay? Round your answer to two decimal places. 2. What is the real interest rate that Herb is actually paying? Round your answer to two decimal places. 3. Because the economy is experiencing deflation of −3.00−3.00% instead of inflation of 3.003.00%, Herb's real interest rate, compared to what he expected to pay, has A. increased, so Herb feels poorer. B. decreased, so Herb feels richer. C. decreased, so Herb feels poorer. D. increased, so Herb feels richer.

1. 1.75 2. 7.75 3. A. increased, so Herb feels poorer

John has to decide whether to buy a zero-coupon bond with very little risk that costs $950 and will pay $1085 in one year or put his money in a savings account with an annual interest rate of 12%. 1. Compute the difference in the rate of return of the two investments. Round your answer to one decimal place. 2. Which of the two investments will John prefer? A. the zero-coupon bond B. the savings account

1. 2.2 2. A. the zero-coupon bond

1. Suppose that in 2019, Mexico's total government outlays were 667 billion pesos and total government revenue was 690 billion pesos. Calculate Mexico's budget surplus or deficit. Be sure to include a negative sign if appropriate. 2. Select the answer that best describes the impact that the surplus or deficit you calculated will have on Mexico's debt. Mexico's debt will A. rise by an amount equal to the size of the deficit. B. not change. C. fall by an amount equal to the size of the surplus.

1. 23 2. C. fall by an amount equal to the size of the surplus

1. Suppose real GDP is forecasted to grow by 1.58%, the velocity of money has been stable, and the Fed announces an inflation target of 2.10%. What is the largest money growth rate the Fed could implement and still achieve its inflation target? 2. Now suppose there is a mid-year revision of the GDP forecast that lowers the expected growth rate below 1.58%. Ceteris paribus, what impact will this lower growth rate have on the rate of inflation? A. Inflation will be lower than originally expected. B. Inflation will be higher than originally expected. C. Inflation will be the same as originally expected. D. Inflation can be either higher or lower than originally expected.

1. 3.68 2. B. Inflation will be higher than originally expected.

Laura earns a base salary of $50,000 as an event planner and is subject to the following hypothetical income tax bracket. Laura is considering taking on an additional wedding that will increase her income by $5,000. In order for Laura to deem the wedding worth her time, it must earn her $3,000 after taxes. Please round all answers to two decimal places. Income Tax Rate $0-$10,000 5% $10,001-$30,000 10% $30,001-$50,000 20% $50,001+ 50% 1. What is the marginal tax rate associated with taking on this wedding? 2. What is Laura's average tax rate if the extra wedding is accepted? 3. Given the information, will Laura undertake this extra wedding? A. Yes B. No C. Need more information 4. How much does Laura end up paying in taxes?

1. 50% 2. 16.36% 3. B. No 4. 6500

What is the federal corporate tax rate in the United States? 1. The corporate tax rate is A. 21%. B. 35%. C. 2%. D. 12%. 2. Who bears most of the cost of paying the corporate income tax? The cost is borne by A. the top 1% of income earners. B. the chief financial officer. C. shareholders and bondholders. D. the board of directors.

1. A. 21% 2. C. shareholders and bondholders

1. Which phrase best describes a capital gain? A capital gain is A. an increase in the productive capacity of a firm. B. an increase in the market price of a firm's output. C. an increase in the amount of capital a firm uses in production. D. an increase in the value of an asset. 2. Which phrase best describes a dividend? A dividend is A. a portion of profits paid back to shareholders. B. a portion of stock issuance reserved for executive compensation. C. the portion of earnings retained by the traded company. D. the portion of capital gains realized from a stock split.

1. D. an increase in the value of an asset 2. A. a portion of profits paid back to shareholders

Suppose that a nation decides to introduce a new income tax system with the tax brackets shown in the table. Income Range Tax Rate $0-$20,000 0% $20,001-$39,000 31% $39,001-$70,000 42% $70,000+ 50% Use the table to calculate the average tax rate and marginal tax rate for each of the families. Where applicable, round your answer to the nearest whole number. 1. Byrne family: Income = $25,000 A. Average tax rate: B. Marginal tax rate: 2. Smith family: Income = $48,000 A. Average tax rate: B. Marginal tax rate: 3. Washington family: Income = $62,000 A. Average tax rate: B. Marginal tax rate: 4. Lee family: Income = $123,000 A. Average tax rate: B. Marginal tax rate:

1. A. 6% B. 31% 2. A. 20% B. 42% 3. A. 25% B. 42% 4. A. 37% B. 50%

1. State if each characteristic applies to the alternative minimum tax (AMT) or not. A. Establishes a base tax rate B. Exists alongside the normal tax code C. Allows for many deductions D. Is increasingly affecting fewer families 2. Which group was the originally intended focus of the AMT? A. The super‑rich. B. Retired individuals. C. The middle class. D. Low‑income families.

1. A. Applies to the AMT B. Applies to the AMT C. Does not apply to the AMT D. Does not apply to the AMT 2. A. The super-rich

1. The people described spent their money during different time periods. Label each of their scenarios as to whether they bought their goods during a time of inflation, deflation, or price stability. A. Peter is a compulsive gamer. He decides to buy World of Warcraft, all of its expansions, Starcraft 2, a PS3, a Wii, and an Xbox 360, since prices in general have been rising at an alarming rate. B. Melissa decides to start her own personal library by amassing a private collection of books and magazines about world religions, cooking, comics, and economics. As she reads an issue of The Economist, she discovers that overall price levels have changed only 0.01% in the past two years, and decides it does not matter whether she starts the project now or later. C. Linda postpones her wedding even though most food prices and most service prices were dropping this year, which would help keep the cost of the wedding down. 2. Out of these individuals, whose money gained the most value during their time period? A. Peter's money gained the most value. B. Melissa's money gained the most value. C. Linda's money gained the most value. D. All three had equal gains.

1. A. Inflation B. Price stability C. Deflation 2. C. Linda's money gained the most value

The graph represents a hypothetical picture of the U.S. economy. The Federal Reserve (Fed) determines that the economy must be stimulated. Assume that the Fed will use open market operations, the reserve ratio is 0.1, and the desired change in the money supply is an increase of $650 billion. 1. Which course of action will accomplish this goal? A. buying $65 billion of government bonds B. selling $65 billion of government bonds C. selling $6,500 billion of government bonds D. buying $6,500 billion of government bonds 2. On a graph, what is the impact this action will have on inflation and the growth rate of real GDP in the short run? 3. In the long run, what is the impact of this Fed action on inflation and the growth rate of real GDP? A. The inflation rate increases, and there is no impact on the growth rate of real GDP. B. There is no impact on the inflation rate, but the growth rate of real GDP increases. C. Both the inflation rate and the growth rate of real GDP increase. D. Both the inflation rate and the growth rate of real GDP decrease.

1. A. buying $65 billion of government bonds 2. AD shifts right 3. A The inflation rate increases, and there is no impact on the growth rate of real GDP

The table shows price indices for several regions in the United States at two points in time. Use this data to answer the questions. Year South US East US West US 1900 50 100 200 1950 65 137 249 1. Between 1900 and 1950, inflation occurred A. in all three regions. B. in only two of the three regions. C. in only one of the three regions. D. in none of the regions. 2. Rank the regions from largest to smallest inflation rate.

1. A. in all three regions 2. Eastern, Southern, Western

Suppose the government decreases taxes. What will happen to disposable income and consumer spending? 1. Disposable income A. increases. B. does not change. C. falls. 2. Consumer spending will A. not change. B. increase. C. decrease.

1. A. increases 2. B. increase

1. In many countries, one of the roles of the central bank is to provide loans to distressed financial institutions. What is the term for this? A. lender of last resort B. provider of fiduciary insurance C. source of ultimate credit D. bailout bank E. liquidity resource 2. Another potential role of central banks is to foster confidence in the banking system by making sure that people can retrieve their money even if a bank goes bankrupt. What is the term for this? A. financially distressed institution clause B. deposit insurance C. banking promise D. deposit guarantee

1. A. lender of last resort 2. B. deposit insurance

1. The source of the _______ for loanable funds is saving. A. supply B. demand C. interest rate D. market 2. The source of the _______ for loanable funds is investment. A. demand B. market C. interest rate D. supply 3. The _______ represents the price of a loan. A. rate of inflation B. catch-up effect C. interest rate D. loan term

1. A. supply 2. A. demand 3. C. interest rate

1. Consumer surplus is equal to the difference between A. the maximum price a buyer is willing to pay and the market price. B. the minimum price a buyer is willing to pay and the market price. C. the minimum price a seller is willing to accept and the market price. D. the maximum price a seller is willing to accept and the market price. 2. Consumer surplus is shown graphically as the area A. above the supply curve and below the market price. B. under the demand curve and above the market price. C. under the demand curve and below the market price. D. above the supply curve and above the market price.

1. A. the maximum price a buyer is willing to pay and the market price 2. B. under the demand curve and above the market price

1. For each of the pairs, please select who tends to benefit more from Social Security. A. men or women B. low income or high income C. married or single 2. What does it mean that Social Security is a pay‑as‑you‑go system? A. payments to Social Security are voluntary. B. revenue from Social Security tax is deposited in individual retirement accounts. C. individuals earn interest on each payment. D. revenue from the current Social Security tax is used to fund current payments.

1. A. women B. low income C. married 2. D. revenue from the current Social Security tax is used to fund current payments

1. What is the short-run effect of an increase in the growth rate of the money supply, assuming all else remains equal. (Answer in terms of shifting curves) 2. What happens in the long run? A. As expectations adjust to the increase, all curves shift back to their original locations. B. The AD curve shifts to the right, and both the real growth rate and inflation rate increase. C. The SRAS curve shifts to the left, and the inflation rate increases, with no change in the growth rate. D. The LRAS curve shifts to the right, and the real growth rate increases, with no change in the inflation rate.

1. Aggregate demand shifts right 2. C. The SRAS curve shifts to the left, and the inflation rate increases, with no change in the growth rate

Vincent and Jean are two cooks who work in a village. Each of them can either bake cakes or make pizzas. Every ingredient is readily available to them, and the only scarce resource is the cooks' time. Vincent can bake 10 cakes or make 5 pizzas in an hour. Jean can bake 12 cakes or make 8 pizzas in an hour. Please answer the four questions. 1. Which cook has the absolute advantage in baking cakes? A. Neither B. Jean C. Vincent 2. Which cook has the absolute advantage in making pizzas? A. Neither B. Jean C. Vincent 3. Which cook has the comparative advantage in baking cakes? A. Neither B. Jean C. Vincent 4. Which cook has the comparative advantage in making pizzas? A. Neither B. Vincent C. Jean

1. B. Jean 2. B. Jean 3. C. Vincent 4. C. Jean

Assume Spain and Mali can both produce grain and dates, and that the only limited resource is the farming labor force, meaning that land, water, and all other resources are plentiful in both countries. Each farmer in Spain can produce 10 t of grain or 5 t of dates in a season. Each farmer in Mali can also produce 10 t of grain or 25 t of dates. Please answer the four questions. 1. Which country has the absolute advantage in producing dates? A. Neither B. Mali C. Spain 2. Which country has the absolute advantage in producing grain? A. Mali B. Spain C. Neither 3. Which country has the comparative advantage in producing dates? A. Spain B. Neither C. Mali 4. Which country has the comparative advantage in producing grain? A. Mali B. Spain C. Neither

1. B. Mali 2. C. Neither 3. C. Mali 4. B. Spain

1. What effect will an increase in interest rates have on the quantity of loanable funds supplied? A. There will be no change in quantity supplied. B. Quantity supplied will increase. C. Quantity supplied will decrease. D. Some lenders will offer more whereas others offer less. 2. As interest rate decreases, what happens to the quantity of loanable funds demanded? A. Quantity demanded will decrease. B. There will be no change in quantity demanded. C. Quantity demanded will increase. D. Some borrowers will demand more funds whereas others will demand less. 3. Which of the terms acts as the "price" in the market for loanable funds? A. interest rate B. demand C. capital D. supply 4. If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act? A. The business will take out the loan. B. The business will proceed anyway, knowing that the return is only an estimate. C. The business will demand more funds to cover the shortfall. D. The business will not take out the loan.

1. B. Quantity supplied will increase. 2. C. Quantity demanded will increase. 3. A. Interest rate 4. D. The business will not take out the loan.

1. In the context of budget deficits, what is crowding out? A. when a multiplier effect magnifies the effect of increases in income and decreases in consumer spending B. when government borrowing leads to higher interest rates and corresponding decreases in private investment C. when budget surpluses cause firms to undertake increased levels of investment D. when government spending encourages additional levels of consumption and investment from the private sector 2. Which of the following is an example of crowding out? A. a firm that chooses not to borrow money to invest in new machinery because government borrowing has contributed to high interest rates B. a consumer paying cash to buy a new TV for $1000, leading to a greater than $1000 increase in GDP C. excess tax revenue flooding the market for loanable funds, causing firms to borrow less D. when the government uses excess tax revenues to increase the productive capacity of the nation

1. B. when government borrowing leads to higher interest rates and corresponding decreases in private investment 2. A. a firm that choose not to borrow money to invest in new machinery because government borrowing has contributed to high interest rates

Brian has grown tired of paying rent each month to his landlord and has decided to purchase a condo. Brian has been saving money and has $51.00 that he will use as a down payment on this condo. He will take out a mortgage to pay the remaining price. Brian finds a suitable condo and negotiates a price of $439.00. Assume that there are no extra fees associated with purchasing the condo. 1. Upon moving in, how much equity does Brian have in this condo? A. $0.00 B. $439.00 C. $51.00 D. $388.00 2. What is Brian's leverage ratio associated with this condo when he moves in? A. $388.00 B. 11.62% C. 0.13 D. 7.61

1. C. $51.00 2. D. 7.61

Determine whether the following statements related to the Federal Reserve are true, false, or you don't have enough information to answer. 1. Monetary policy always increases the stability of gross domestic product (GDP). A. not enough information to answer B. true C. false 2. Monetary policy is simple. A. not enough information to answer B. true C. false 3. An increase in the money supply increases short-run aggregate demand. A. not enough information to answer B. true C. false 4. The Federal Reserve was chartered by the U.S. Constitution. A. not enough information to answer B. true C. false 5. Monetary policy is ideally suited for affecting the prices of specific assets. A. not enough information to answer B. true C. false

1. C. False 2. C. False 3. B. True 4. C. False 5. C. False

Year Nominal GDP GDP deflator 2030 $1600 94 2035 $2055 100 2075 $2180 124 2088 $4500 145 1. What happened to the general price level between 2030 and 2035? A. Prices remained stable. B. Deflation occurred. C. Inflation occurred. 2. What is real GDP in 2075? Use 2035 as the base year, and round your answer to two decimal places.

1. C. Inflation occurred 2. 1758.06

1. Which is the best characterization of the theory of Ricardian equivalence? A. Fiscal policy and monetary policy both have the potential to influence aggregate demand. B. Trade between two nations is mutually beneficial if each nation specializes in goods and services for which they have a comparative advantage. C. People change their consumption and saving decisions in response to budget deficits or surpluses. D. Fiscal policy can achieve equivalent results through changes to either taxation or government spending practices. 2. Which is the best example of behavior predicted by the theory of Ricardian equivalence? A. An individual that increases saving in response to a tax cut in anticipation of future tax increases. B. A politician who suggests both tax cuts and increased government spending as expansionary fiscal policy. C. A nation that focuses on the production of one good while trading for other goods and services. D. An individual that increases consumption in response to a tax cut because she is able to keep a greater percentage of her income.

1. C. People change their consumption and saving decisions in response to budget deficits or surpluses. 2. A. An individual that increases saving in response to a tax cut in anticipation of future tax increases.

Suppose the production function and investment curves shift from Y1, up to Y2 and from Investment 1, up to Investment 2. 1. The shift is most likely due to: A. a decrease in population. B. a decrease in technology. C. an advancement in technology. D. a decrease in ideas per person. 2. More of which three factors could increase the speed of technology growth in the future? The factors are: A. capital, labor, ideas B. population, land, water C. land, capital, depreciation D. population, incentives, ideas.

1. C. an advancement in technology 2. D. population, incentives, ideas

1. Deficit spending is most associated with A. contractionary monetary policy. B. expansionary monetary policy. C. expansionary fiscal policy. D. contractionary fiscal policy. 2. Opponents of deficit spending argue that a portion of the desired economic effect will be A. crowded in due to lower interest rates. B. crowded in due to higher interest rates. C. crowded out due to lower interest rates. D. crowded out due to higher interest rates. 3. What does crowding out describe? A. Increased consumption and investment spending causing government spending to increase. B. Increased consumption and investment spending causing government spending to decline. C. Increased government spending causing consumption and investment to increase. D. Increased government spending causing consumption and investment to decline.

1. C. expansionary fiscal policy 2. D. crowded out due to higher interest rates 3. D. Increased government spending causing consumption and investment to decline.

1. Fiscal policy is conducted by... A. the Federal Reserve B. the US Treasury C. the federal government D. the US Mint 2. ...and involves: A. printing money B. government spending and taxes C. quantitative easing D. open market operations

1. C. the federal government 2. B. government spending and taxes

Suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $500 billion is necessary. 1. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.2. A. Increase the reserve ratio. B. Increase the interest paid on bank reserves. C. Sell government securities. D. Buy government securities. 2. Calculate the change in reserves necessary to achieve the $500 billion increase.

1. D. Buy government securities 2. $100

1. What is a liquidity trap? A. When deflation occurs because growing debt obligations cause a decrease in aggregate demand. B. When increasing price levels result in fixed-income earners "drowning" as expenses grow while income remains constant. C. When expansionary monetary policy results in a rapidly increasing price level. D. When nominal interest rates cannot be lowered any further. 2. Which of these statements about liquidity traps is false? A. The zero bound of interest rates prevents policy makers from taking some actions that could stimulate economic growth. B. The United States probably experienced a liquidity trap during the Great Depression. C. Firms are unlikely to undertake investment during liquidity traps because interest rates are prohibitively high. D. Expansionary monetary policy is difficult to achieve.

1. D. When nominal interest rates cannot be lowered any further 2. C. Firms are unlikely to undertake investment during liquidity traps because interest rates are prohibitively high.

1. What is crowding out? A. a reduction in investment, but not consumption, that results from government borrowing B. a reduction in consumption and investment spending that results from increased international trade C. a reduction in consumption, but not investment, that results from government borrowing D. a reduction in consumption and investment spending that results from government borrowing E. a reduction in government borrowing resulting from increases in consumption and investment spending 2. ________ are a mechanism by which crowding out occurs. A. Increases in interest rates B. Decreases in interest rates

1. D. a reduction in consumption and investment spending that results from government borrowing 2. A. Increases in interest rates

1. Producer surplus is the difference between A. the market price and the minimum price a buyer is willing to pay. B. the maximum price a seller is willing to accept and the market price. C. the maximum price a buyer is willing to pay and the market price. D. the market price and the minimum price a seller is willing to accept. 2. Producer surplus is shown graphically as the area A. under the demand curve and below the market price. B. above the supply curve and above the market price. C. above the supply curve and below the market price. D. under the demand curve and above the market price.

1. D. the market price and the minimum price a seller is willing to accept 2. C. above the supply curve and below the market price

Just like imagine a graph shows the market for loanable funds. 1. Show the effect of an increase in government borrowing by shifting the proper curve. 2. What is the effect of this change on the interest rate? A. It rises. B. It falls. C. It remains the same. 3. What is the effect of this change on consumption spending? A. It rises. B. t falls. C. It remains the same. 4. What is the effect of this change on private investment spending? A. It rises. B. It falls. C. It remains the same.

1. Demand curve shifts right 2. A. It rises 3. B. It falls 4. B. It falls

1. How would a graph move to show how an increase of $25.8 billion dollars in the government's budget deficit affects this loanable funds market, holding all else equal. 2. Select the answer that describes the adjustment in the loanable funds market. A. The deficit decreases the demand for loanable funds and shifts the demand curve to the left, decreasing the interest rate and crowding out investment spending. B. The deficit increases national savings and shifts the supply curve to the right, decreasing the interest rate and crowding out investment spending. C. The deficit decreases national savings and shifts the supply curve to the left, increasing the interest rate and crowding out investment spending. D. The deficit increases the demand for loanable funds and shifts the demand curve to the right, increasing the interest rate and crowding out investment spending.

1. Demand curve shifts right 2. D. The deficit increases the demand for loanable funds and shifts the demand curve to the right, increasing the interest rate and crowding out investment spending.

The figure shows the supply and demand for online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. 1. Move the supply and/or demand curves to reflect the primary effect this would have on the market for online music. You can assume that online music is a normal good. 2. Equilibrium price: A. increases. B. decreases. C. remains constant. D. change is ambigous. 3. Equilibrium quantity: A. increases. B. decreases. C. remains constant. D. change is ambiguous.

1. Demand shifts left; supple stays 2. B. decreases 3. B. decreases

Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. 1. Illustrate the impact this will have on the market for bricks. 2. Equilibrium price: A. remains constant. B. may increase or decrease, but it is impossible to know for sure. C. decreases. D. increases. 3. Equilibrium quantity: A. may increase or decrease, but it is impossible to know for sure. B. decreases. C. increases. D. remains constant.

1. Demand shifts right; supply stays 2. D. increases 3. C. increases

Suppose a graph shows the aggregate demand and long‑run aggregate supply (LRAS) curves for a given economy. 1. What is the effect of a real shock that results in the potential real GDP growth rate increasing from 4% to 6% in the shifting of the relevant curve or curves. 2. Which three factors could have caused this change in potential real GDP? Assume this is a typical economy relying on inputs such as coal and oil. All items should be placed as either a contributing factor or not a contributing factor. A. Oil price increase B. An increase in exports C. Discovery of a large source of rare metals used in manufacturing D. An improvement in technology E. Riots and political instability F. Increased consumer confidence G. Coal price decrease H. A major bird flu pandemic

1. LRAS shifts right 2. A. Not a contributing factor B. Not a contributing factor C. Contributing factor D. Contributing factor E. Not a contributing factor F. Contributing factor G. Not a contributing factor H. Not a contributing factor

The graph shows the aggregate demand (AD) curve and the long‑run aggregate supply (LRAS) curve for a hypothetical economy. Suppose that the economy observes a reduction in the world price of oil, an input in many production processes. 1. What is the effect of this change (shifting one of the curves in the graph)? 2. How will this change affect the rate of inflation? A. Inflation will rise. B. Inflation will fall. C. Inflation will be unchanged. 3. How will this change affect the growth rate? A. The growth rate will decrease. B. The growth rate will increase. C. The growth rate will be unchanged.

1. LRAS shifts right 2. B. Inflation will fall 3. B. The growth rate will increase

Label each of the examples of fiscal policy lags. (Implementation lag, recognition lag, legislative lag) 1. In December 2008, the Business Cycle Dating Committee of the National Bureau of Economic Research determined that the U.S. economy had been in recession since the fourth quarter of2007 (when economic activity peaked). 2. President George W. Bush released his tax relief agenda in February 2001. Following the debate in Congress, the Economic Growth and Tax Relief Reconciliation Act was signed into law in June 2001. 3. In September 1959, President Dwight D. Eisenhower signed the Federal Employees Health Benefits Act, which established a voluntary health insurance plan for approximately two million employees and their dependents, with costs to be shared by the Federal Government and the employees. The Act became effective in July 1960.

1. Recognition lag 2. Legislative lag 3. Implementation lag

In 2013, Prussia's aggregate demand curve was determined by the equation 𝑀⃗ +𝑣⃗ =4%M→+v→=4% . A change in aggregate demand means that in 2014, Prussia's aggregate demand curve was determined by the equation 𝑀⃗ +𝑣⃗ =7%. 1. How would the aggregate demand curve shift? 2. Which of the factors could have resulted in the change in aggregate demand seen between 2013 and 2014? A. a decrease in oil prices B. an increase in imports C. an improvement in technology D. higher consumer confidence

1. Shifts out to real GDP at 7 and inflation rate at 11 2. D. higher consumer confidence

Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401k retirement accounts, increasing the extent to which people can delay their tax obligation (effectively, this is a tax cut on retirement savings). 1. What shift of which curve would result in the market for savings? 2. According to this model, what is the result? A. Private investment would increase as the cost of borrowing decreased. B. Private investment would decrease as the cost of borrowing decreased. C. Private investment would increase as the cost of borrowing increased. D. Private investment would decrease as the cost of borrowing increased.

1. Supply curve shifts right 2. A. Private investment would increase as the cost of borrowing decreased.

Consider a hypothetical model for the loanable funds market. Suppose that the government decides to reduce the federal Goods and Services Tax (GST). 1. What shift would result from this? 2. How does this tax reduction impact investment and why? The tax reduction A. increases investment because lowering the GST increases savings. B. reduces investment because lowering the GST increases savings. C. reduces investment because lowering the GST reduces savings. D. increases investment because lowering the GST reduces savings.

1. Supply shift left 2. C. reduces investment because lowering the GST reduces savings

Complete the sentences with the correct terms. The Fed 1.(indirectly/directly) controls the money supply through open market operations. For instance, when the Fed buys bonds, this 2.(decrease/increase) in demand for bonds causes nominal interest rates to 3.(increase/decrease). When the Fed buys bonds, bank reserves 4.(increase/decrease), which reduces the need for banks to borrow. This causes the federal funds rate to 5.(increase/decrease).

1. indirectly 2. increase 3. decrease 4. increase 5. decrease

You are considering purchasing a car, and you are offered a loan with a nominal interest rate of 7%. Assume inflation is expected to average 3% over the life of the loan. What is the real interest rate?

4%

Suppose the Chief Financial Officer (CFO) of a company is interested in raising funds for a major investment by issuing bonds of varying maturity to investors. One of the longer-term bonds being issued can be purchased for $75,000.00 per bond and pays $7,125.00 annually to the investor. What is the annual interest rate on this bond?

9.5%

Identify all of the statements that are examples of fiscal policy. A. There is an increase in income tax rates. B. The Federal Reserve purchases bonds on the open market. C. The estate tax is repealed. D. Government increases military spending. E. Public money is used to build a high-speed train that connects Los Angeles and Las Vegas. F. The Federal Reserve increases the money supply by decreasing the reserve ratio requirement. G. To help domestic firms, government sets a quota on the number of goods that can be imported.

A, C, D, and E

Suppose you are considering putting your savings in an investment fund. Scenario A projects stable prices, and therefore, low returns. Scenario B involves high inflation and, consequently, high returns. In both cases, the capital earnings tax rate is 26.0%. Scenario Inflation Nominal Rate of Return A 2.5% 5.00% B 15% 17.50% Calculate the nominal and real after-tax returns for both scenarios. Please include at least two numbers after the decimal point for your answers. Do not round your answers. A. In Scenario A, what is the nominal after-tax rate of return? B. In Scenario A, what is the real after-tax rate of return? C. In Scenario B, what is the nominal after-tax rate of return? D. In Scenario B, what is the real after-tax rate of return?

A. 3.7 2. 1.2 C. 12.95 D. -2.05

The table shows employment statistics for a fictional country. Use the information to answer the questions. Round your percentages to two decimal places. Category Number of People Employed 5905 Unemployed 452 Not in the labor force 581 A. What is the total labor force? B. What is the labor force participation rate? C. What is the unemployment rate? Suppose 266 of the 452 unemployed people have been unemployed for so long that they stop looking for work. D. What is the new labor force? E. What is the new labor force participation rate? F. What is the new employment rate?

A. 6357 B. 91.63 C. 7.11 D. 6091 E. 87.79 F. 3.05

Suppose that Paulie and Vince each can produce ice cream or t-shirts. The table shows the quantity of each good that Paulie and Vince each can produce in one hour, respectively, if they devote all of their time and effort to making the good. Ice Cream (cups) T-shirts (quantity) Paulie 2 18 Vince 6 11 A. What is Paulie's opportunity cost of producing one cup of ice cream (round to two decimal places)? B.What is Vince's opportunity cost of producing one t-shirt (round to two decimal places)?

A. 9 T-shirts B. 0.55 cups of ice cream

Christine and Paul are deciding how to split their time between writing music and lyrics for their new album. Their PPFs for 72 h of work are shown. Christine and Paul have to write music for 8 songs and lyrics for 12 songs (4 songs already have music). When they are done, they can go to a private island and relax from all their hard work. It is possible that they will use more than 72 h. (Christine can write music for 8 songs and lyrics for 9 in 72h. Paul can write music for 6 songs and lyrics for 4 in 72h.) A. Once they start writing lyrics and music, assuming their hired help packs for them and their plane is waiting outside their door, in how many hours can they board the plane to their relaxing island getaway? B. Christine will write music for _____ songs. C. Paul will write music for _____ songs. D. Christine will write lyrics for _____ songs. E. Paul will write lyrics for _____ songs.

A. 96 B. 0 C. 8 D. 12 E. 0

Which of the statements is TRUE? A. Fiscal policy can effectively cause permanent shifts in short-run aggregate supply. B. A change in government spending is less effective when a recession is caused by a real shock. C. Fiscal policy is the best option to address a drop in factor productivity. D. Fiscal policy is primarily used to change interest rates.

A. A change in government spending is less effective when a recession is caused by a real shock.

Classify the events according to their impact on either long‑run aggregate supply (LRAS) or aggregate demand (AD). A. decrease in the velocity of money B. immigration leads to larger workforce C. a natural disaster destroys a nation's infrastructure, reducing the stock of capital D. development of smart phones increases worker productivity E. decrease in the money supply

A. AD decreases B. LRAS increases C. LRAS decreases D. LRAS increases E. AD decreases

1. Recessions typically hurt: A. no one; they help people B. firms and individuals. C. individuals D. Firms 2. The most common indicator in the labor market is: A. recessions. B. GDP. C. inflation. D. unemployment rate. 3. Since 1900, what has been the long-term pattern of growth in the United States? A. a decrease in real GDP (gross domestic product) per capita B. relatively constant real GDP (gross domestic product) per capita C. an increase in real GDP (gross domestic product) per capita

A. B. firms and individuals B. D. unemployment rate C. C. an increase in real GDP per capita

Classify each of the given events according to the category that best describes how it affects the equilibrium interest rate in the market for loanable funds. (increases the interest rate, decreases the interest rate) A. A decrease in investor optimism B. An investment tax credit C. An increase in large investments D. An increase in savings

A. Decreases the interest rate B. Increases the interest rate C. Increases the interest rate D. Decreases the interest rate

Categorize the characteristics according to whether they describe disinflation or deflation. A. Results in a decrease in output B. Results in a decrease in the general price level C. A period when the inflation rate is positive, but declining D. The opposite of inflation E. A reduction in the rate of inflation

A. Disinflation B. Deflation C. Disinflation D. Deflation E. Disinflation

Classify the statements as true or false. A. The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone. B. A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good. C. It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another. D. Countries specialize in the production of goods for which they have a comparative advantage. E. Absolute advantage is the source of the potential gains from specialization and trade.

A. False B. False C. True D. True E. False

Determine whether each statement is true or false. A. Economists are rarely confused by the causes of aggregate demand shocks. B. Credible inflation reduction by the Federal Reserve (the Fed) empirically increases unemployment. C. The Federal Reserve does not consider market confidence when creating monetary policy. D. The Federal Reserve can always achieve its stated monetary policy targets or goals. E. The Federal Reserve operates in real time, where data concerning the economy is not completely known.

A. False B. True C. False D. False E. True

Identify each statement as either true or false. A. In the United States, banks keep the entire value of all customer deposits in the bank vault to meet customer withdrawals. B. Banks typically loan out a portion of customer deposits. C. Bank runs occur when many customers attempt to withdraw deposits from a bank at the same time and the bank is unable to pay all customer withdrawals. D. The Federal Deposit Insurance Corporation (FDIC) protects bank depositors from bank failure. E. The fractional reserve banking system requires all banks to keep the total value of customer deposits in their vaults to prevent bank runs.

A. False B. True C. True D. True E. False

Some of the statements describe how the gross domestic product (GDP) can be related to and indicative of economic well‑being and some of the statements pertain to how GDP does not capture economic well‑being. Consider the production approach of measuring GDP when placing each statement in the category with the label that best describes the statement. Each category will contain two statements and each statement is used only once. A. People have more goods and services such as clothing, entertainment, transportation, etc. B. People with more leisure time are more relaxed and can come up with creative ideas that could help grow the economy. C. People have healthier food, healthcare, and education. D. People are more likely to volunteer and provide services because they tend to be more civic-minded.

A. GDP related to economic wellbeing B. GDP not related to economic wellbeing C. GDP related to economic wellbeing D. GDP not related to economic wellbeing

Consider the graphs, which show aggregate supply (AS) and the change in aggregate demand (AD) from AD1AD1 to AD2AD2 that will result from different monetary policies. Match each policy with the graph showing the corresponding shift. Graph 1: AD shifts right Graph 2: AD shifts left A. The central bank decreases the discount rate. B. The central bank sells bonds on the open market. C. The central bank uses open market operations to conduct expansionary monetary policy. D. The central bank increases the money supply. E. The central bank increases the required reserve ratio. F. The central bank buys bonds from private banks.

A. Graph 1 B. Graph 2 C. Graph 1 D. Graph 1 E. Graph 2 F. Graph 1

Which is the largest source of tax revenue in the United States? The most revenue comes from A. individual income taxes. B. value‑added taxes. C. social insurance taxes. D. corporate profit taxes. E. national sales taxes.

A. individual income taxes

Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate. A. Increase in the minimum wage B. Decreased unemployment benefits C. Increase in the unions' influence D. Introduction of employment-at-will doctrine

A. Increase in the unemployment rate B. Decrease in the unemployment rate C. Increase in the unemployment rate D. Decrease in the unemployment rate

The main reason specialization can raise productivity is that: A. knowledge in human brains is limited. B. it is always good to know less than more. C. some persons have more knowledge than others. D. it is impossible to learn anything well.

A. Knowledge in human brains is limited.

Classify each item as either part of the M2 measure of the money supply or as not part of the money supply. A. $900 billion in checkable deposits B. $2 trillion in savings accounts C. $3 trillion in government securities belonging to the Federal Reserve D. $1.25 trillion in small time deposits E. $900 billion in cash held by the public F. $4.5 trillion in credit card debt G. $650 billion in money market accounts

A. M2 B. M2 C. Not in the money supply D. M2 E. M2 F. Not in the money supply G. M2

Indicate whether each scenario involves a shift in the supply curve or movement along the supply curve. A. Americans sell their gold and silver jewelry as a result of rising prices. B. A national consumer products company produces less of its premium quality soap as a result of lower soap prices. C. Amplitude decides to join the smartphone market. D. After discovering that flash-steaming tuna before using mechanical processes to extract meat removes more tuna flesh, more cans of tuna arrive on the shelves at all major grocers.

A. Movement B. Movement C. Shift D. Shift

Classify each scenario according to whether it is an example of an active employment at-will doctrine. A. A tenured organic chemistry professor who cannot be fired despite being a horrible teacher. B. Cathy quits her job as a babysitter despite having only been hired three weeks ago, because she feels watching over eight toddlers at once will cause her to lose too much sleep. C. Katherine, a waitress, gets fired from her job after spilling a hot bowl of French onion soup on a customer's shoe. D. Alex has a clause in his worker's contract stating that if he gets fired during a recession, he gets a severance package of half his salary paid for up to six months. E. Brian, who works for an educational software company, quits. He is not allowed to work for a competing software company for six months due to a clause in his contract. F. Wei-Cheng gets fired from his company for no reason other than that he is the only Asian worker.

A. Not an example of employment-at-will B. Example of employment-at-will C. Example of employment-at-will D. Not an example of employment-at-will E. Not an example of employment-at-will F. Not an example of employment-at-will

Indicate whether each of the following items is an input in the aggregate production function for GDP. A. Contributions to Social Security B. Bonds issued by an automaker C. Profits of a large investment company D. A significant amount of oil discovered in Texas E. A recent graduate with an engineering degree F. Unskilled migrant worker from Latin America G. A decrease in property taxes H. An upgrade of computers for Mikey's Motors

A. Not an input B. Not an input C. Not an input D. Is an input E. Is an input F. Is an input G. Not an input H. Is an input

Classify the given goods according to whether or not they would be included in calculating the GDP for the United States. If a country is not specified, assume the action is performed in the United States. A. GM's assembly and sale of cars in Mexico B. resale of used textbooks to college students C. sale of wheat to Mrs. Baird's Bakery D. Honda's assembly and sale of cars in the U.S. E. Ocean Spray purchases plastic to make bottles F. Old Navy purchases mannequins to display clothes

A. Not included B. Not included C. Not included D. Included E. Not included F. Included

For each example, determine how the market for the good in bolded text will respond to the described change. A. Due to increases in hay prices, an input for raising cattle, the price of a gallon of 2% MILK increases from $2.98 to $3.25. B. A company offers a coupon for $6 off the price of LASER TAG. C. A sharp increase in the price of wood causes increases in prices for DRESSERS AND DESKS. D. At a week‑long special at the grocery store, PORK SHOULDER is on sale at $1.99/lb, down from $3.99/lb. E. A website offers a buy‑one‑get‑one‑free special for DIGITAL MUSIC ALBUMS.

A. Quantity demanded decreases B. Quantity demanded increases C. Quantity demanded decreases D. Quantity demanded increases E. Quantity demanded increases

How, if at all, did these events affect the long‑run aggregate supply (LRAS) curve? (shift right, shift left, no shift) A. Significant and sustained increase in income tax rate B. The Internet revolution of the 1990s C. A central bank increasing the amount of money in circulation D. A tsunami destroying much of the existing stock of capital in Japan E. James Watt's invention of the steam engine in 1775 F. The 1970s oil crisis

A. Shift Left B. Shift Right C. No Shift D. Shift Left E. Shift Right F. Shift Left

Determine which of the tools are available to the U.S. Federal Reserve Bank (the Fed) and which are not. A. Payment of interest on reserves B. Eurodollars C. Fiscal policy D. Open market operations E. London Inter-bank Offered Rate (LIBOR) F. Federal funds rate G. 30-year Treasury bill (T-bill) interest rate H. Pork spending I. Loans J. Treasury Department

A. Tool of the Federal Reserve B. Not a tool of the Federal Reserve C. Not a tool of the Federal Reserve D. Tool of the Federal Reserve E. Not a tool of the Federal Reserve F. Tool of the Federal Reserve G. Not a tool of the Federal Reserve H. Not a tool of the Federal Reserve I. Tool of the Federal Reserve J. Not a tool of the Federal Reserve

Determine if each of the statements regarding business cycles and how they can impact an economy is true or false. A. The four phases of business cycles are peaks, troughs, expansions, and recessions. B. Business cycles can be described as fluctuations from the economy's long‑term growth trend. C. Business cycles last for approximately nine months. D. When a business cycle reaches the trough, the economy is usually operating at its capacity. E. The peak of a business cycle is followed by a downturn or recession. F. Business cycles are common in emerging economies but not in developed economies.

A. True B. True C. False D. False E. True F. False

Households in the bottom 20% of the income distribution pay approximately what percentage of their income in federal taxes? A. less than 5% B. about 10% C. more than 20% D. about 20%

A. less than 5%

Which best describes why the multiplier exists? A. When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way. B. When people see other people spending money, they know that the economy is about to improve, leading them to spend more money. C. The multiplier exists because money spent today is always more valuable than money spent in the future, due to inflation and interest rates. D. When people see the government spending more money, they realize that the government thinks that prices are low; thus, they believe it is a good time to buy things.

A. When people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way.

Please complete the statements using the labels provided. (disinflation, recession, inflation, aggregate supply, aggregate demand, deflation) Suppose that the Federal Reserve Bank wants to address high levels of unemployment in the economy. To do so, it would likely seek to increase A. __________. If the Federal Reserve Bank is able to instigate the growth it desires, it will likely come at the cost of increasing B. __________. Suppose that the Federal Reserve Bank achieves the growth it wants, but also experiences the negative consequences. As a result, it will seek to decrease C. __________ , at the risk of leading the economy into a D. __________ .

A. aggregate demand B. inflation C. inflation D. recession

Categorize the scenarios as either a discretionary act or the result of automatic stabilizers. A. . A recession increases the number of recipients of unemployment benefits. B. A law is enacted that increases government spending on health‑care programs. C. Legislators increase the generosity of unemployment benefits. D. Economic growth increases personal and corporate income, increasing tax payments.

A. automatic stabilizers B. discretionary spending C. discretionary spending D. automatic stabilizers

Select the term that matches each definition. (budget deficit, government debt, balanced budget, budget surplus) A. when the government receives more in taxes than it spends in a given time period budget surplus B. when government spending and taxes are equal balanced budget C. when the federal government spends more than it collects in taxes in a given time period budget deficit D. the total accumulated amount that the government has borrowed and not yet paid back over time government debt

A. budget surplus B. balanced budget C. budget deficit D. government debt

Classify each item as associated with the government cutting taxes or the government increasing spending. A. When the government __________, private-sector spending will usually increase. B. When the government __________, it often results in increased paying down of private debt. C. When the government __________, it temporarily removes funding from the private sector. D. When the government __________, it funds infrastructure spending and public goods. E. When the government __________, it is supported by those who think the government spends too much. F. When the government __________, it is supported by those who think the government does not spend enough.

A. cuts taxes B. cuts taxes C. increases spending D. increases spending E. cuts taxes F. increases spending

Classify the events according to their impact on aggregate demand (AD). (increase, decrease, no change) A. A dramatic decline in the average price of houses will B. Increased concern that a recession is looming will C. An announcement by the central bank to maintain its existing monetary policy will D. A reduction in government spending will E. A dramatic improvement in the stock market, causing investors' wealth to rise, will F. A recession occurring in a trading partner's economy will G. An increase in income tax rates on individuals earning more than $450,000 per year will

A. decrease AD B. decrease AD C. no change to AD D. decrease AD E. increase AD F. decrease AD G. decrease AD

Reserves held by banks are mainly held in the form of: A. electronic claims. B. checkable deposits. C. savings accounts. D. currency.

A. electronic claims

The table shows information on the conditions of demand and supply for designer purses, where the quantity of designer purses is measured in thousands. For each price, select the correct category (equilibrium, excess demand or shortage, excess supply or surplus) Price Quantity demanded Quantity Supplied $300 490 420 $500 450 450 $700 400 520 $900 320 650 A. $300 B. $500 C. $700 D. $900

A. excess demand or shortage B. equilibrium C. excess supply or surplus D. excess supply or surplus

Gross domestic product is the market value of all: A. finished goods and services produced within a country in a year. B. goods and services produced within a country in a year. C. goods and services sold within a country in a year. D. finished goods and services produced by a country's permanent residents, wherever located, in a year.

A. finished goods and services produced within a country in a year

Which federal government policy influences business cycle fluctuations by taking action on taxes, spending, and borrowing? A. fiscal policy B. real business cycle policy C. growth policy D. monetary policy

A. fiscal policy

Classify each example as either relating to human capital, physical capital, or technology. A. An increase in adult literacy affects _____. B. An increase in the number of company cars impacts _____. C. An increase in the number of college graduates impacts _____. D. New distribution techniques affect _____. E. An increase in the number of company computers affects_____. F. More people graduating from culinary school affects _____. G. A new cancer treatment affects _____. H. A doctor's knowledge about a new cancer treatment affects _____.

A. human capital B. physical capital C. human capital D. technology E. physical capital F. human capital G. technology H. human capital

One of the most difficult policy decisions faced by the Federal Reserve Bank (the Fed) is how to use monetary policy in response to a real negative shock such as a severe drought. Please answer the questions and assume that the Federal Reserve Bank decides to address the negative real shock by focusing on inflation instead of recession. (increase, decrease, not change) As a result of the real negative shock, the inflation rate in the economy will A. _________ To remedy this situation, the Federal Reserve will seek to B. __________ aggregate demand. The Fed is likely to C. __________ the money supply in order to impact aggregate demand. If the Fed takes this approach, the real growth rate will D. __________ from the point to which it was shifted by the real negative shock.

A. increase B. decrease C. decrease D. decrease

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year? A. 6.0% B. 12.0% C. 2.0% D. 3.5%

C. 2.0%

Please complete the statements. (low or high) An ideal economic situation for a central bank would be one of A. __________ rates of unemployment, suggesting that output is high, coupled with B. __________ rates of inflation, giving central banks more leeway to help mitigate recessions. However, due to real shocks which increase input prices, central banks must sometimes choose between low rates of growth, resulting in C. __________ rates of unemployment, or equally unwanted D. __________ rates of inflation.

A. low B. low C. high D. high

Each of the scenarios occurred this year, but it fails to fit one of the criteria for the definition of Canada's GDP. Please classify the scenarios under the criteria it fails to meet. A. Dr. A. Just trades acne treatments with Kit E. Katz for dog-sitting services. This transaction violates the __________ criterion. B. Don E. Brook buys only vintage shirts because he wants a new look. This transaction violates the __________ criterion. C. Easton West buys Roots sweatshirts. Roots is headquartered in Toronto, Ontario but produces in Vietnam. This transaction violates the __________ criterion. D. Joy Rider makes guacamole from limes that her neighbor, Bea Kind, gave to Joy, from her tree. This transaction violates the __________ criterion. E. Yum n' Yummy restaurant buys onions, egg plant, and tomatoes for use in the famous Yum n' Yummy omelet. This transaction violates the __________ criterion. F. Trudy Ages buys her dream car that was made in the 1970's. This transaction violates the __________ criterion.

A. market value B. produced within a certain time frame C. produced within a country's boundaries criterion D. market value E. final good or service F. produced within a certain time frame

Match the terms with their corresponding descriptions. (business fluctuations, real shock, nominal wage confusion, menu cost, Solow growth rate) A. firms' costs associated with changing their prices B. when workers respond, not to the purchasing power of their wage, but to the face value of their wage or salary C. an event that changes the existing productivity and therefore changes the extent to which economic growth occurs D. given flexible prices and the existing factors of production, a measure of how much the economy grows E. variations in the growth rate from the long-run rate of economic growth

A. menu cost B. nominal wage confusion C. real shock D. Solow growth rate E. business fluctuations

Please decide whether each of the scenarios related to the loanable funds market will result in a shift in supply or a shift in demand. A. China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy. B. Calopolis, a college town in Northern California, has for many years banned the presence of fast food restaurants in city limits. As of 2012, however, the city will allow several fast food companies to open franchised locations. C. Due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades. D. As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less.

A. shift in supply B. shift in demand C. shift in demand D. shift in supply

Which statement best describes the Federal Reserve timeframe for monetary policy implementation and observable policy effect? A. short implementation time with a long lag before observation of effectiveness B. long implementation time with a short lag before observation of effectiveness C. short implementation time with a short lag before observation of effectiveness D. long implementation time with a long lag before observation of effectiveness E. short implementation time with a no lag before observation of effectiveness F. long implementation time with a no lag before observation of effectiveness

A. short implementation time with a long lag before observation of effectiveness

Which of the following would likely cause a shortage in the loanable funds market? A. strict limits on interest rates B. higher interest rates C. insecure property rights on physical capital D. an economic panic

A. strict limits on interest rates

Which of the methods is not used by the Federal Reserve to maintain market confidence? A. undergoing congressional review to ensure that the Fed is using monetary policy properly B. lending to banks to help stave off a recession C. taking action to increase aggregate demand when confidence falls D. sending countersignals when market fears arise

A. undergoing congressional review to ensure that the Fed is using monetary policy properly

Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. A. The United States federal government, which had almost $15 trillion in debt in 2011 B. Karen, a retired school teacher who relies upon her fixed pension to pay for her expenses C. Third National, a bank that loaned many people money for home purchases D. Joy, who borrowed $40,000 to pay for her college education E. Herb, who keeps his savings in an old coffee can

A. winner B. loser C. loser D. winner E. loser

The current state of a hypothetical economy is depicted in the graph (just imagine the LRAS, SRAS, and AD graph). In the graph, depict what happens if the economy's central bank successfully decreases the growth rate of the money supply to return the economy to its long-run equilibrium.

AD shifts down/left

Consider the table below. Assuming the law of demand holds, the cell labeled "?" could be which of the following quantities? Price of a movie Quantity Demanded $15 167 $17 ? A. 183 B. 175 C. 155 D. 169 E. 167

C. 155

The dynamic aggregate demand (AD) curve is modeled as a downward-sloping line. Which of the statements is the best explanation for why the dynamic AD has this shape? A. A proportional increase in spending for every decrease in the growth rate is required to keep inflation constant. B. A proportional increase in inflation for every decrease in the growth rate is required to keep the growth in spending constant. C. A proportional decrease in inflation for every decrease in the growth rate is required to keep the growth in spending constant. D. Lower levels of inflation are associated with lower levels of economic growth.

B. A proportional increase in inflation for every decrease in the growth rate is required to keep the growth in spending constant

Changes to both the money supply and the velocity of money induce changes in aggregate demand. However, the long-run impacts of changes in these variables are different. How are the effects of an increase in the velocity of money and the effects of an increase in the money supply different? A. Both can induce inflation in the short run, but only an increase in the velocity of money will lead to a long-term increase in inflation. B. Changes in the money supply can lead to permanent changes in aggregate demand, but changes in the velocity of money tend to have temporary changes in aggregate demand. C. In the short run, changes in the money supply impact only the real growth rate, but changes in the velocity of money impact both the price level and the growth rate. D. Changes in the money supply are necessarily temporary, but changes in the velocity of money are necessarily permanent. E. Ceteris paribus, a change in the velocity of money, has a more significant impact on aggregate demand than on a change in the money supply. F. In the short run, changes in the velocity of money impact only the real growth rate, but changes in the money supply impact both the price level and the growth rate.

B. Changes in the money supply can lead to permanent changes in aggregate demand, but changes in the velocity of money tend to have temporary changes in aggregate demand.

Rank the different types of bank accounts according to their liquidity (highest liquidity to lowest liquidity). A. Certificate of deposit B. Checking account C. Savings account

B. Checking account C. Savings account A. Certificate of deposit

Which of the statements best describes the monetary rule, as proposed by the economist Milton Friedman? A. Inflation is kept in check by increasing the growth of M1 and decreasing the growth of M2 in equal amounts. B. Inflation is kept in check in the long run by keeping the growth of M1 and M2 on a steady path. C. Inflation is kept in check by directly manipulating interest rates to decrease bond prices. D. An acceptable rate of unemployment is targeted and the money supply is adjusted accordingly.

B. Inflation is kept in check in the long run by keeping the growth of M1 and M2 on a steady path.

Which are reasons not to depend on Social Security as a retirement plan? Choose all that apply. A. The average monthly payout is only $2000 per month. B. The Social Security tax is "pay as you go." C. There is no money in "your account." D. You cannot collect full retirement benefits until you are 65.

B. The Social Security tax is "pay as you go" C. There is no money in "your account"

In the market for loanable funds, _____ coordinates between the savers and borrowers. A. a market supplier B. a financial intermediary C. the government D. an investor

B. a financial intermediary

Money is best defined as: A. only the amount we spend in a given period. B. anything that is a widely accepted means of payment. C. the total amount of fixed assets we own. D. anything that has a high nominal value.

B. anything that is a widely accepted means of payment

The crowding-out effect of government borrowing refers to a decrease in: A. private investment only. B. both private consumption and private investment. C. neither private consumption nor private investment. D. private consumption only.

B. both private consumption and private investment

Suppose that a baby boom occurs between the years 2025-2030, similar to the baby boom following World War II. What do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant? The labor force participation rate will: A. increase as the baby boomers will continue to work while in the influx of young workers will drive up the participation rate. B. decrease since the baby boomers will opt for more leisure. C. not change since every retiree will have a new worker replace them. D. increase since the baby boomers will opt for more leisure.

B. decrease since the baby boomers will opt for more leisure

Which of the following can explain a rightward shift of the long-run aggregate supply curve? A. negative supply shock B. development of new technology C. war D. oil crisis

B. development of new technology

A gardener can produce either beans or corn in her garden. The gardener's opportunity cost of a bushel of beans multiplied by her opportunity cost of a bushel of corn is: A. equal to three. B. equal to one. C. equal to two. D. equal to infinity. E. greater than one but smaller than three. F. unknown, because there is not enough information.

B. equal to one

Income that is not subject to taxation is called: A. average income. B. exempt income. C. marginal income. D. excluded income.

B. exempt income

The natural rate of unemployment equals A. cyclical unemployment plus structural unemployment. B. frictional unemployment plus structural unemployment. C. frictional unemployment plus underemployed workers. D. structural unemployment minus cyclical unemployment. E. frictional unemployment plus cyclical unemployment.

B. frictional unemployment plus structural unemployment

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will: A. decrease from 7% to 5%. B. increase from 5% to 7%. C. decrease from 13% to 8%. D. increase from 8% to 13%.

B. increase from 5% to 7%

Inflation: A. is an increase in the price of a good or service. B. is an increase in the average price level. C. occurs when any good or service increases in price. D. cannot occur when prices are decreasing.

B. is an increase in the average price level

Crowding out: A. is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations. B. is the decrease in private spending that occurs when government spending increases. C. occurs when people see that lower taxes today means higher taxes in the future, so they quickly spend the tax cut. D. is central bank policy on the monetary base, interest rates, and bank reserves that is designed to influence business fluctuations.

B. is the decrease in private spending that occurs when government spending increases

The benefits each person receives from the federal government _____ the amount of taxes that person pays. A. are greater than B. may be greater than, less than, or equal to C. are less than D. are equal to

B. may be greater than, less than, or equal to

What is the name of the monetary policy rule that changes interest rates based on a target for the nominal GDP growth rate? A. real GDP targeting B. nominal GDP targeting C. the Taylor rule D. the k‑percent rule

B. nominal GDP targeting

If we hold ideas, education, and labor constant in the Solow model, then output (GDP) is a function of: A. labor only. B. physical capital only. C. human capital only. D. technological knowledge only.

B. physical capital only

According to the quantity theory of money, in the long run, an increase in money supply causes an increase in: A. velocity of money. B. prices. C. real GDP. D. production.

B. prices

Social Security payroll tax is an example of what type of tax? A. progressive tax. B. regressive tax. C. local tax. D. excise tax.

B. regressive tax

The government of Balearic is concerned about a recession, so it decides to implement expansionary fiscal policy. How would this policy be depicted in an AD-AS model? Expansionary fiscal policy would: A shift the AD curve to the left. B. shift the AD curve to the right. C. shift the LRAS curve to the left. D. shift the LRAS curve to the left and the AD curve to the left. E. shift the LRAS curve to the right and the AD curve to the right.

B. shift the AD curve to the right

If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway, how much is added to short-run aggregate demand? A. $100,000 B. $500,000 C. $200,000 D. $300,000

C. $200,000

A farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 11 bushel of beans is A. 0.38 bushels of corn. B. 16.00 bushels of corn. C. 2.67 bushels of corn. D. 2.99 bushels of corn.

C. 2.67 bushels of corn

If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the money multiplier is: A. 40. B. 0.5. C. 4. D. 1.

C. 4

Which term best describes the situation that, relative to England, France can produce beef at a lower cost of production (i.e., can produce beef using fewer inputs)? A. appreciating currency B. comparative advantage C. absolute advantage D. compound interest E. black market F. budget constraint

C. Absolute advantage

1. What does the term money neutrality mean? A. Changes in the money supply and the price level are inversely related and proportional, meaning that a 10% increase in the money supply decreases prices by exactly 10%. B. Because the Federal Reserve is relatively free from oversight, it can take actions that are unpopular if they are in the best interest of the country. C. Changes in the money supply have no real effects on the economy in the long run. D. Changes in the money supply impact everyone in an economy in a similar way. 2. If money is neutral, what does this imply about the use of monetary policy? A. Mechanisms should be introduced to ensure that the Federal Reserve is making sound decisions. B. Monetary policy can influence the price level but cannot be used to encourage economic growth. C. Monetary policy is more effective in the short term than the long term.

C. Changes in the money supply have no real effects on the economy in the long run. C. Monetary policy is more effective in the short term than the long term.

The table shows the units of output a worker can produce per month in Germany and Korea for two different goods: televisions and personal computers. Use this table to answer the question. TVs per month Computers per month German worker 40 10 Korean worker 16 8 Which of the statements is true? A. Korea has a comparative advantage in the production of televisions, while Germany has a comparative advantage in the production of personal computers. B. Korea has a comparative advantage in the production of both goods. C. Germany has a comparative advantage in the production of televisions, while Korea has a comparative advantage in the production of personal computers. D. Germany has a comparative advantage in the production of both goods.

C. Germany has a comparative advantage in the production of televisions, while Korea has a comparative advantage in the production of personal computers.

1. Which of the choices is the best example of creative destruction? A. An antitrust suit is filed in court against a monopolist. B. The prime minister signs into law that the minimum wage will go down by 50 cents. C. In the past month, there were 20,000 layoffs but 22,000 new hires. D. A chemical plant decides to use a new process in their reactions, which after combustion results in large amounts of pink smoke being emitted to the nearby town and consequent fires in the chemical plant. 2. The typewriter industry goes bankrupt and lays off all its workers. In sharp contrast, the burgeoning electronic word processing industry hires 10,000 workers that same year. This type of unemployment resulting from the shift in industries would best be categorized under: A. structural unemployment. B. cyclical unemployment. C. frictional unemployment.

C. In the past month, there were 20000 layoffs but 22000 new hires. A. structural unemployment

What moral hazard problem results from action by the Federal Reserve (the Fed)? A. Many investors engage in naked short selling, which is when people short sell options on securities without first ensuring the security is available. B. The Federal Reserve will print too much currency, which leads to inflation. Thus, Treasury securities held by investors will lose real value. C. Large banks make risky decisions, understanding that the Fed will insulate them from bad choices. D. The President may not appoint enough Governors to the Board, thus giving too much power to people the President previously appointed. E. The Federal Funds rate may be set at a new level at any time, which causes confusion for associated banks. F. The Federal Reserve may not set the United States budget in time, thus leaving the military, the Department of Education, and the CIA underfunded. G. There is no moral hazard problem associated with the Federal Reserve. H. Speculators destabilize the interest rate, due to inflation targeting. I. Open market operations sell treasury notes that may not be redeemable at face value upon expiration.

C. Large banks make risky decisions, understanding that the Fed will insulate them from bad choices.

Only a very small portion of people who use microwaves know how they work. This is an example of: A. opportunity cost. B. absolute advantage. C. the division of knowledge. D. a production possibility frontier.

C. The division of knowledge

In a macroeconomic context, choose the best definition for the term velocity. A. The rate at which the aggregate price level increases. B. The rate at which the Federal Reserve increases or decreases the money supply. C. The rate at which money circulates through an economy. D. The speed of capital accumulation. E. The rate at which GDP increases in a year.

C. The rate at which money circulates through an economy.

What information does the World Bank's "rigidity of employment index" provide? A. a measure of the available government assistance for workers seeking employment B. a summary of the average length of unemployment over a 5-year period C. a summary of firms' costs for hiring, firing, and adjusting employment hours D. a measure of the effects of shrinking manufacturing firms in developed nations

C. a summary of firms' costs for hiring, firing, and adjusting employment hours

Conditional convergence refers to the tendency for: A. poorer countries to grow faster than richer countries given similar steady-state capital stocks, but the poor countries will never catch up with the rich countries. B. richer countries to grow faster than poorer countries given similar steady-state capital stocks, so the poor countries never catch up with the rich countries. C. countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge. D. poorer countries to grow faster than richer countries, but only if they receive sufficient foreign investment.

C. countries with similar steady-state levels of output to grow faster when they're poor than when they're rich until their per capita GDP levels converge.

Low interest rates are a signal that: A. people are no longer out for profit. B. deflation is on the way. C. credit is easy and it is a good idea to borrow money. D. credit is tight and it is a bad idea to borrow money.

C. credit is easy and it is a good idea to borrow money

Which is NOT one of the three main tools used by the Fed to influence aggregate demand? A. lending to banks and other financial institutions B. open market operations C. distributing currency D. changes in the interest rate paid on reserves

C. distributing currency

Increases in the minimum wage will most likely lead to: A. increases in worker education programs. B. lower wages in complement industries. C. higher unemployment. D. higher living standards for low-income workers.

C. higher unemployment

What is the term for GDP when price levels are held constant? A. aggregate GDP B. annual GDP C. real GDP D. nominal GDP

C. real GDP

Business cycles are short-term movements in: A. inflation around its long-term trend. B. the unemployment rate above and below zero. C. real GDP around its long-term trend. D. nominal GDP around its long-term trend.

C. real GDP around its long-term trend

According to the quantity theory of money, the major cause of inflation in the long run is an increase in: A. the standard of living. B. the velocity of money. C. the growth rate of the money supply. D. the growth rate of real GDP.

C. the growth rate of the money supply

Suppose that an increase in government spending causes aggregate demand to increase (shifts to the right) from AD1 to AD2 in the graph. Which choice is the best explanation as to why aggregate demand would continue to expand (shift right) to AD3 assuming that the government does not continue to increase spending? A. Ricardian equivalence B. an increase in the Solow growth rate C. the multiplier effect D. crowding out

C. the multiplier effect

What policy on taxes, spending, and borrowing is designed to influence business fluctuations? A. monetary policy B. cycle-smoothing policy C. tax-and-spend policy D. fiscal policy

D. fiscal policy

The Fisher Effect equation can be used to determine the real interest rate. Use this equation to determine the answer to the question. If the nominal interest rate is 0.120, and the inflation rate is 0.025, what is the real interest rate? A. 0.145 B. 1.093 C. Indeterminate. The real interest rate and the inflation rate are completely unrelated. D. 0.095 E. −0.095 F. −0.08482

D. 0.095

What is the neutrality of money with respect to the quantity theory of money? A. The money supply can affect the growth rate of prices (inflation) in the long run. B. The money supply cannot affect the growth rate of real GDP in the long run. C. The money supply can affect the growth rate of the real GDP in the short run. D. All of the above.

D. All of the above.

Which describes the role of automatic stabilizers in the economy? A. Automatic stabilizers refer to industries that are not subject to the fluctuations of the economy, and therefore moderate the effects of recessions. Food, housing, and the military are examples of these industries, which are usually more stable than the rest of the economy. B. Automatic stabilizers are changes in the money supply that occur automatically when inflation or unemployment occurs. C. Automatic stabilizers are discretionary changes to taxes, government spending, and transfers that Congress makes in an attempt to improve the economy. D. Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions.

D. Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions.

There were many causes that contributed to the financial crisis of 2007-2008. Which of the choices most accurately describes the role of securitization in contributing to the crisis? A. Globalization has increased the connectedness of the major economies of the world. Correspondingly, there has been a decrease in the economic security of the U.S., where the U.S. has been adversely affected by the many European nations that have suffered recessions. B. In providing aid to firms that were at risk of becoming insolvent, the U.S. government securitized these firms. In the future, firms are more now likely to engage in risky investments since the government securitizes these behaviors. C. Banks failed to securitize their loans by requiring sufficient down payments from home buyers. This resulted in small declines in housing prices causing many homes to go into foreclosure. D. Banks bundled mortgages together and then sold them on the market as a financial asset. However, the risk level of these securitized assets was often much higher than the purchaser thought.

D. Banks bundled mortgages together and then sold them on the market as a financial asset. However, the risk level of these securitized assets was often much higher than the purchaser thought.

Quantitative easing is the: A. interest rate on short-term Treasury securities. B. government purchase of private equities. C. lowering of the ratio of reserves to deposits. D. Fed purchase of longer-term government bonds.

D. Fed purchase of longer-term government bonds

Suppose that a bank has loaned money to two businesses: a trustworthy computer manufacturer and a risky mining venture. Unfortunately, the mining venture fails, and the mining firm goes bankrupt. The bank has no insurance for this situation. Now, on its balance sheet, the bank has more liabilities than assets. What is this situation called, and what is the result of this situation? A. Consumption. The money that was lost has no effect on the bank's operating status, but the firm's loss counts as part of GDP. B. Bank run. Depositors run on the bank to cash out before the bank runs out of money. C. Illiquidity. Shares of the bank are not traded as often on a stock exchange. D. Insolvency. The bank cannot pay back depositors. E. Fire sale. The available assets of the bank are sold for pennies on the dollar.

D. Insolvency. The bank cannot pay back depositors.

Which of the situations describes a bandwagon effect caused by a lack of confidence in markets? A. Shirley sees Jane with a new pair of fashionable jeans and decides to buy the same pair. B. Carol moves out of her parents' house and into an apartment of her own. Shortly thereafter, her brother does the same. C. Hank and Sid start to root for a local sports team only when the team makes it to the national championships. D. Rick notices that his brother Steve and many other investors have reduced the amount they invest, and Rick decides to do the same.

D. Rick notices that his brother Steve and many other investors have reduced the amount they invest, and Rick decides to do the same.

The single item on which the U.S. federal government spent the most in 2017 was: A. foreign aid. B. interest on the debt. C. defense. D. Social Security.

D. Social Security

Deflation is: A. an increase in prices. B. a reduction in the rate of inflation. C. an increase in the rate of inflation. D. a decrease in prices, that is, a negative inflation rate.

D. a decrease in prices, that is, a negative inflation rate

Which of the institutions has influence over the United States Federal Reserve (the Fed)? A. the United States Senate B. the President of the United States C. the Federal Reserve Board of Governors D. all of the above

D. all of the above

If the Fed wants to increase the money supply, it will: A. sell government bonds. B. require more reserves to be held. C. increase the rate of interest paid on reserves. D. buy government bonds.

D. buy government bonds

Monetary policy is a _____ means of popping a bubble because monetary policy _____ push down the price of specific commodities. A. crude; can B. good; can't C. good; can D. crude; can't

D. crude; can't

The Solow growth curve simply a vertical line because growth: A. is perfectly proportional to changes in the price level. B. is fixed. C. is perfectly proportional to changes in inflation. D. does not depend on the rate of inflation.

D. does not depend on the rate of inflation

An automatic stabilizer is a: A. government program that maintains a constant level of spending regardless of economic conditions. B. discretionary action taken by policymakers to address current economic conditions. C. type of fiscal policy tool that automatically adjusts the size of the multiplier to meet stabilization needs. D. government program that is designed to stimulate aggregate demand during recessions without the need for specific actions by policymakers.

D. government program that is designed to stimulate aggregate demand during recessions without the need for specific actions by policy makers

If the Fed increases 𝑀−→M→ to fight slower real growth after a negative real shock, what should occur? A. no change in real growth B. lower inflation C. lower real growth D. higher inflation

D. higher inflation

The alternative minimum tax: A. is the total tax payment divided by total income. B. has higher tax rates on people with higher incomes. C. is the tax rate paid on an additional dollar of income. D. is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes.

D. is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes

The term "business fluctuations" refers to: A. the different stages of a product cycle. B. changes in the prices of goods and services over time. C. the trend in real GDP over a long period of time. D. movement in real GDP around its long-term trend.

D. movement in real GDP around its long-term trend

The shadow banking system refers to A. non-bank financial firms that act as insurance agents by buying and selling insurance in an effort to make a profit. B. non-bank financial firms that purchase government bonds. C. non-bank financial firms that provide consulting services to hedge fund managers. D. non-bank financial firms that act as banks by borrowing and lending in an effort to make a profit.

D. non-bank financial firms that act as banks by borrowing and lending in an effort to make a profit

For savers, the role of financial intermediaries is to: A. ensure that all borrowers can fund their investments. B. earn more returns on their investments. C. avoid taxes from income earned on investments. D. reduce the default risk on money they save and lend.

D. reduce the default risk on money they save and lend

In the market for loanable funds: A. both savers and borrowers supply and demand loanable funds. B. banks supply loanable funds and the government demands loanable funds. C. savers demand loanable funds and borrowers supply loanable funds. D. savers supply loanable funds and borrowers demand loanable funds.

D. savers supply loanable funds and borrowers demand loanable funds

Gains from trade are maximized when: A. there are additional potential trades available that have not been completed. B. the market price is higher than the equilibrium price. C. the market price is less than the equilibrium price. D. the market price is equal to the equilibrium price.

D. the market price is equal to the equilibrium price

If an earthquake strikes, destroying a large number of factories, the long-run aggregate supply curve will move: A. to the right. B. up. C. down. D. to the left.

D. to the left.

Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. What is shift in the market for loanable funds would occur?

Supply shifts right

What country spends the most on the military?

US