Macro Final Exam

Look at the following data: GDP = 1,150 billion; investment = $200 billion; exports = $55 billion; government purchases = $145 billion; consumption = $850 billion. What does import spending equal? a. $100 billion b. $370 billion c. $200 billion d. $430 billion

a. $100 billion

An economy produces 5X, 10Y, and 20Z in a year. Base-year prices for these goods are $1, $3, and $5, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP? a. $135 b. $165 c. $120 d. $170 e. none of the above

a. $135

Look at the following data: durable goods = $300 billion; nondurable goods = $450 billion; services = $900 billion; fixed investment + inventory investment = $200 billion; government purchases = $400 billion; exports = $40 billion; imports = $85 billion. GDP is equal to a. $2,205 billion. b. $2,375 billion. c. $1,855 billion. d. $1,010 billion. e. There is not enough information to answer the question.

a. $2,205 billion

Look at the following data: GDP = $3,590 billion; consumption = $1,820 billion; exports = $450 billion; investment = $1,250 billion; government purchases = $900 billion. Imports is equal to __________ billion a. $830 b. $1,460 c. -$830 d. $1,240 e. none of the above

a. $830

Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 2 and year 3? a. -3.0% b. 2.6% c. 14.0% d. -2.2%

a. -3.0%

Refer to Exhibit 6-1. Prices rose by __________ percent from Year 1 to Year 2 a. 1.38 b. 0.14 c. 1.29 d. 1.94

a. 1.38

Refer to Exhibit 6-1. Prices rose by approximately __________ percent from Year 1 to Year 5 a. 10.6 b. 9.6 c. 14.3 d. 4.5

a. 10.6

Suppose there are 200 million persons in the population, 120 million persons in the civilian labor force, and 90 million persons are employed. The number of persons unemployed is _______ million and the unemployment rate is ___________ percent a. 30; 25 b. 30; 33 c. 30; 5 d. 80; 40

a. 30; 25

As the U.S. dollar appreciates against foreign currencies, the U.S. ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) _________________ in Real GDP in the United States a. AD; leftward; decrease; decrease b. AD; rightward; increase; increase c. SRAS; rightward; decrease; increase d. SRAS; leftward; increase; decrease

a. AD; leftward; decrease; decrease

Why do economists prefer to compare Real GDP figures for various years instead of GDP figures? a. Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because output is higher. b. Because when GDP in one year is higher than in another year, there is no way of knowing if the quality of goods produced is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality of the goods produced is higher. c. Actually the question is incorrect. Economists prefer to compare GDP figures instead of Real GDP figures. d. Because Real GDP is easier to compute than GDP. e. Because when GDP in one year is higher than in another year, there is no way to tell if the quality of life is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality of life is higher.

a. Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because output is higher.

Part of the story of the interest rate effect is that a lower price level causes __________ in the demand for credit, which then causes the interest rate to __________ a. a decrease; fall b. a decrease; rise c. an increase; fall d. an increase; rise

a. a decrease; fall

Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar. In this situation, the dollar has _________________, making Japanese goods __________ expensive for Americans a. appreciated; less b. appreciated; more c. depreciated; less d. depreciated; more

a. appreciated; less

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $500 million. This is an example of a. incomplete crowding out. b. complete crowding out. c. zero crowding out. d. a and c

a. incomplete crowding out.

In year 1 the CPI is 140, and in year 2 the CPI is 154. From year 1 to year 2, Marcy's salary rises from $43,000 to $48,000, and Daphne's salary rises from $65,000 to $70,000. Who is "more than keeping up with inflation"? a. Marcy b. Daphne c. both Marcy and Daphne d. neither Marcy nor Daphne

a. marcy

A budget deficit a. occurs when government expenditures exceed tax revenues. b. occurs when tax revenues exceed government expenditures. c. occurs when transfer payments exceed tax revenues. d. will always result when Congress and the president cannot agree on expenditures. e. occurs when monetary policy works in the opposite direction of fiscal policy.

a. occurs when government expenditures exceed tax revenues.

Increases in export _____________________, ceteris paribus a. raise GDP b. lower GDP c. are always equal to decreases in exports d. may raise or lower GDP

a. raise GDP

A simultaneous rise in aggregate demand and fall in short-run aggregate supply will definitely a. raise the price level, but there is not enough information to know how Real GDP will change. b. lower Real GDP, but there is not enough information to know how the price level will change. c. raise the price level and Real GDP. d. raise Real GDP, but there is not enough information to know how the price level will change. e. raise the price level and lower Real GDP.

a. raise the price level, but there is not enough information to know how Real GDP will change.

A depreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S. AD curve to the __________ a. raise; right b. raise; left c. lower; right d. lower; left

a. raise; right

Suppose that in a certain nation the flat income tax rate of 30 percent rises to 35 percent and as a result the tax base falls from $400 billion to $375 billion. As a result, tax revenues __________, indicating the nation is on the __________ portion of its Laffer curve a. rise; upward-sloping b. rise; downward-sloping c. fall; upward-sloping d. fall; downward-sloping

a. rise; upward-sloping

Refer to Exhibit 7-4. Did Country A experience a recession (based on the standard definition) in 2019? a. Yes, because its Real GDP declined during two consecutive quarters in 2019. b. No, because its Real GDP did not decline during three consecutive quarters in 2019. c. Yes, because its Real GDP was lower at the end of the year than it was at the beginning of the year. d. This information cannot be determined because the determination of a recession is based upon GDP not Real GDP.

a. yes, because its Real GDP declined during two consecutive quarters in 2019

Look at the following data: personal income = $4,900 billion; personal taxes = $900 billion; transfer payments = $980 billion. What is disposable income? a. $3,200 billion b. $4,000 billion c. $4,980 billion d. $1,880 billion e. There is not enough information to answer the question.

b. $4,000 billion

Refer to Exhibit 7-2. GDP in 1990 is a. $49. b. $51. c. $86. d. $92. e. impossible to calculate without the CPI.

b. $51

The movie "Return of the Jedi" earned $264 million in 1983 when it was released. The CPI in 1983 was 97.8 and the CPI in 2012 was 226.665. Approximately how much did the movie earn in 2012 dollars? a. $590 million b. $612 million c. $2.12 million d. $123 million e. $150 million

b. $612 million

Refer to Exhibit 7-3. Net exports is equal to a. $200. b. -$200. c. $600. d. -$1,400.

b. -$200

Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 3 and year 4? a. 6.1% b. 2.3% c. 3.0% d. 18.2%

b. 2.3%

In an economy with 100 million people, 70 million hold civilian jobs and 19 million are not working but are looking for jobs. The unemployment rate is a. 12.86% b. 21.35%. c. 9.19%. d. 27.14%.

b. 21.35%

Look at the following data: The frictional unemployment rate is 3 percent, the natural unemployment rate is 6.5 percent, and the cyclical unemployment rate is 2.4 percent. The structural unemployment rate is __________ percent and the actual unemployment rate (in this economy) is __________ percent a. 3; 8.9 b. 3.5; 8.9 c. 3.5; 9.5 d. 5.4; 2.4 e. none of the above

b. 3.5; 8.9

Look at the following data: The frictional unemployment rate is 2 percent, the structural unemployment rate is 3.5 percent, and the actual unemployment rate is 9.5 percent. The natural unemployment rate is ____________ percent and the cyclical unemployment rate is __________ percent a. 1.5; 4 b. 5.5; 4 c. 1.5; 6 d. 6; 15

b. 5.5; 4

Which of the following is an example of crowding out? a. A decrease in the rate of growth of the money supply which causes a decrease in Real GDP. b. A budget deficit causes an increase in interest rates, which causes a decrease in investment spending. c. An increase in tariffs which causes a decrease in imports. d. A decrease in government housing subsidies which causes an increase in private spending on housing.

b. A budget deficit causes an increase in interest rates, which causes a decrease in investment spending

Smith says that if government purchases rise by $100 billion, the AD curve will shift to the right. Jones says that if government purchases rise by $100 billion, the AD curve will not shift to the right. It follows that a. Smith believes there will be zero or complete crowding out and Jones believes there will be complete crowding out. b. Smith believes there will be incomplete or zero crowding out and Jones believes there will be complete crowding out. c. Smith believes there will be complete crowding out and Jones believes there will be zero crowding out. d. Both Smith and Jones believe there will be incomplete crowding out, although Jones believes there will be more incomplete crowding out than Smith believes there will be.

b. Smith believes there will be incomplete or zero crowding out and Jones believes there will be complete crowding out.

Which of the following is consistent with the sticky-wage explanation of the upward-sloping SRAS curve? a. The price level rises, the real wage falls, and the quantity demanded of labor declines. b. The price level falls, the real wage rises, and the quantity demanded of labor falls. c. The price level rises, the real wage rises, and the quantity demanded of labor falls. d. The nominal wage rises, the real wage rises, and the quantity demanded and supplied of labor rise.

b. The price level falls, the real wage rises, and the quantity demanded of labor falls.

The federal budget is balanced and the economy is on the upward-sloping portion of the Laffer curve. Then, tax rates are cut and government purchases are increased. Is a budget deficit inevitable? a. No, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) increases tax revenues, and if the increase in tax revenues equals the increase in government purchases there is no deficit. b. Yes, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) lowers tax revenues. c. No, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) decreases tax revenues, and if the decrease in tax revenues is less than the increase in government purchases there is no deficit. d. Yes, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) raises interest rates, and higher interest rates discourage investment spending.

b. Yes, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) lowers tax revenues.

A taxpayer pays __________ tax rate on additional income if the income tax structure is progressive, __________ tax rate on additional income if the income tax structure is proportional, and __________ tax rate on additional income if the income tax structure is regressive a. a higher; a lower; the same b. a higher; the same; a lower c. a lower; a higher; the same d. the same; a lower; a higher e. the same; a higher; a lower

b. a higher; the same; a lower

The dollar appreciates against foreign currencies. This makes foreign-produced goods __________ for Americans and U.S.-produced goods __________ for foreigners. As a result, U.S. __________ fall and U.S. __________ rise a. more expensive; cheaper; imports; exports b. cheaper; more expensive; exports; imports c. cheaper; more expensive; imports; exports d. more expensive; cheaper; exports; imports

b. cheaper; more expensive; exports; imports

Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of a. incomplete crowding out. b. complete crowding out. c. zero crowding out. d. a and c e. none of the above

b. complete crowding out.

Suppose consumption decreases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________ a. increases; leftward b. decreases; leftward c. increases; rightward d. decreases; rightward

b. decreases; leftward

Suppose government spending rises by $120 billion. It follows that if private expenditures a. rise by $120 billion, complete crowding out exists. b. fall by $100 billion, incomplete crowding out exists. c. remain unchanged, complete crowding out exists. d. rise by more than $120 billion, complete crowding out exists. e. b and c

b. fall by $100 billion, incomplete crowding out exists.

Some economists argue that a rise in the interest rate, brought about by a rise in government borrowing in the loanable funds market to finance a budget deficit, brings in foreign funds in search of the higher interest rate return. This, in turn, dampens the rise in the interest rate. If this is true as far as it goes, there will be __________ crowding out than there would be if foreign funds did not flow into the country a. more b. less c. the same amount of d. none of the above

b. less

Increases in import spending _____________________, ceteris paribus a. raise GDP b. lower GDP c. are always equal to decreases in exports d. may raise or lower GDP

b. lower GDP

If there is complete crowding out as a result of an increase in government spending there will be a. a decrease in aggregate demand. b. no change in aggregate demand. c. an increase in aggregate demand. d. a downward movement along the aggregate demand curve.

b. no change in aggregate demand.

A budget surplus a. occurs when government expenditures exceed tax revenues. b. occurs when tax revenues exceed government expenditures. c. occurs when tax revenues exceed transfer payments. d. occurs when monetary policy works in the opposite direction of fiscal policy. e. is an impossibility.

b. occurs when tax revenues exceed government expenditures.

Suppose that in a certain nation, the flat income tax rate of 70 percent falls to 65 percent and as a result the tax base rises from $500 billion to $575 billion. As a result, tax revenues __________, indicating the nation is on the __________ portion of its Laffer curve a. rise; upward-sloping b. rise; downward-sloping c. fall; upward-sloping d. fall; downward-sloping

b. rise; downward-sloping

The AD curve shifts to the right with a __________ in government purchases (G) or a __________ in taxes a. rise; rise b. rise; fall c. fall; rise d. fall; fall

b. rise; fall

As the interest rate rises, the cost of a given investment project __________ and businesses invest __________ a. rises; more b. rises; less c. falls; more d. falls; less

b. rises; less

The sale of __________ goods is omitted from current GDP because __________ a. intermediate goods; these goods do not constitute production b. used goods; these goods were counted in an earlier year c. illegal; these goods do not constitute economic value d. b and c e. a, b, and c

b. used goods; these goods were counted in an earlier year

An economy produces 5X, 10Y, and 20Z in a year. Base-year prices for these goods are $1, $3, and $5, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is GDP? a. $135 b. $165 c. $120 d. $170 e. none of the above

c. $120

An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP? a. $180 b. $200 c. $140 d. $240

c. $140

Suppose that the price index in 1999 was 170 and your salary was $44,000. Suppose in 2016 the consumer price index will be 290. What salary will you have to earn in 2016 in order to equal your 1999 real income? a. $66,000 b. $77,647 c. $75,059 d. $83,209

c. $75,059

Refer to Exhibit 7-2. GDP in 2012 is a. $49. b. $51. c. $86. d. $92. e. not possible to calculate without the CPI.

c. $86

Suppose that in an economy the structural unemployment rate is 2.1 percent, the frictional unemployment rate is 2.3 percent, and the unemployment rate is 12.1 percent. The natural unemployment rate is _________ percent and the cyclical unemployment rate is ___________ percent a. 7.7; 4.4 b. 0.2; 9.9 c. 4.4; 7.7 d. 10; 3.1

c. 4.4; 7.7

Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 1 and year 2? a. 7.3% b. 8.3% c. 5.3% d. 6.8%

c. 5.3%

Suppose there are 50 million persons in the population, 25 million persons in the civilian labor force, and 20 million persons are employed. The number of persons unemployed is _______ million and the unemployment rate is ___________ percent a. 25; 50 b. 5; 10 c. 5; 20 d. 10; 10

c. 5; 20

In the business cycle, what is the difference between the recovery phase and the expansion phase? a. The expansion phase occurs in the rising portion of the business cycle, while the recovery phase occurs in the falling portion of the business cycle. b. The expansion phase occurs in the falling portion of the business cycle, while the recovery phase occurs in the rising portion of the business cycle. c. The expansion phase is the period when Real GDP increases beyond the recovery phase. d. The expansion phase must always come before the recovery phase.

c. The expansion phase is the period when Real GDP increases beyond the recovery phase.

Suppose the government attempts to stimulate the economy by increasing spending without increasing taxes. Which of the following statements is most likely to be accepted by someone who believes in crowding out? a. The government's actions will have their intended effect. b. The government's actions will cause businesses to become more optimistic about the economy, and they will increase their output even more than the government had intended. c. The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended. d. This is a trick question, because the federal government is required by law to increase taxes by the same amount as it increases expenditures.

c. The government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended.

If businesses buy fewer capital goods, and nothing else changes, then total expenditures on U.S. goods and services will decrease. And if total expenditures decrease, then __________ will decrease; consequently, the __________ curve will shift __________ a. aggregate demand (AD); AD; rightward b. short-run aggregate supply (SRAS); SRAS; leftward c. aggregate demand (AD); AD; leftward d. interest rates; AD; leftward

c. aggregate demand (AD); AD; leftward

When a decrease in one or more components of private spending completely offsets an increase in government spending, there is a. incomplete crowding out. b. zero crowding out. c. complete crowding out. d. complete crowding in. e. either c or d

c. complete crowding out.

If the economy is on the downward-sloping portion of the Laffer curve, a(an) __________ in tax rates will __________ tax revenues a. decrease; reduce b. increase; raise c. decrease; raise d. decrease; not change e. increase; not change

c. decrease; raise

The AD curve shifts to the left with a __________ in government purchases (G) or a __________ in taxes a. rise; rise b. rise; fall c. fall; rise d. fall; fall

c. fall; rise

When we speak of expansionary fiscal policy, we are talking about policymakers __________ government spending, or __________ taxes, or both a. decreasing; decreasing b. increasing; increasing c. increasing; decreasing d. decreasing; increasing

c. increasing; decreasing

The purchases made by the foreign sector are called __________; the purchases made by the household sector are called __________; the purchases made by the government sector are called __________; and the purchases made by the business sector are called investment a. net exports; consumption; net interest b. net exports; domestic spending; government purchases c. net exports; consumption; government purchases d. exports; domestic spending; government product

c. net exports; consumption; government purchases

What is the proper sequence of the phases of a business cycle? a. peak, contraction, trough, expansion, recovery b. peak, contraction, recovery, trough, expansion c. peak, contraction, trough, recovery, expansion d. contraction, peak, trough, recovery, expansion e. recovery, trough, peak, expansion, contraction

c. peak, contraction, trough, recovery, expansion

GDP can rise as a result of a rise in __________________, and Real GDP can rise as a result of a rise in _______________________ a. prices or output; prices only. b. prices only; prices or output. c. prices or output; output only. d. prices or output; prices or output.

c. prices or output; output only

Assume that Dakota's salary is $49,500, up from $45,000 last year, while the CPI is 198 this year, up from 180 last year. This means that Dakota's real income has ____________ since last year a. increased b. decreased c. stayed the same d. There is not enough information provided to answer this question.

c. stayed the same

Fiscal policy refers to a. efforts to balance a government's budget. b. changes in the money supply to achieve particular economic goals. c. changes in government expenditures and taxation to achieve particular economic goals. d. the change in private expenditures that occurs as a consequence of changes in government spending.

changes in government expenditures and taxation to achieve particular economic goals

Look at the following data: consumption = $925 billion; exports = $50 billion; imports = $62 billion; investment = $325 billion; government purchases = $300 billion. GDP is equal to __________ billion. a. $1,662 b. $1,468 c. $1,911 d. $1,538

d. $1,538

Look at the following data: consumption = $915 billion; exports = $40 billion; imports = $33 billion; inventory investment = $123 billion; fixed investment = $500 billion; government purchases = $300 billion. GDP is equal to a. $1,632 billion. b. $1,466 billion. c. $1,911 billion. d. $1,845 billion. e. none of the above

d. $1,845 billion

Refer to Exhibit 7-3. GDP is equal to a. $13,050. b. $11,550. c. $8,600. d. $11,450.

d. $11,450

In year 1 the CPI is 174, and in year 2 the CPI is 185. If Sarah's salary was $49,600 in year 1, what is the minimum salary he must earn in year 2 to "keep up with inflation"? a. $54,004 b. $51,942 c. $50,508 d. $52,736

d. $52,736

In year 1 the CPI is 175, and in year 2 the CPI is 189. If Dennis's salary was $82,000 in year 1, what is the minimum salary he must earn in year 2 to "keep up with inflation"? a. $83,550 b. $92,360 c. $85,750 d. $88,560

d. $88,560

Refer to Exhibit 7-2. Assuming that 1990 is the base year, Real GDP in 2012 is a. $49. b. $51. c. $86. d. $92. e. not possible to calculate without the CPI.

d. $92

Suppose the civilian non-institutional population equals 250,000; there are 132,500 employed persons and 10,000 unemployed persons. How many persons are not in the labor force? a. 122,500 b. 77,500 c. 63,500 d. 107,500

d. 107,500

Suppose the market basket consists of 100X, 200Y, and 300Z. Current-year prices are $5 for each unit of X, $2 for each unit of Y, and $3 for each unit of Z. Base-year prices are $2 for each unit of X, Y, and Z. What is the approximate CPI in the current year? a. 15 b. 70.20 c. 1,200 d. 150

d. 150

Look at the following data: The structural unemployment rate is 4 percent, the natural unemployment rate is 5 percent, and the cyclical unemployment rate is 3 percent. The frictional unemployment rate is ____________ percent and the actual unemployment rate is __________ percent a. 0.10 percent b. 6.43 percent c. 10 percent d. 14.1 percent

d. 1; 8

If Real GDP was $9,542 billion in year 2 and it had been $9,300 billion in year 1, what was the approximate economic growth rate during this time period? a. 9.7 percent b. 2.4 percent c. 3.5 percent d. 2.6 percent

d. 2.6 percent

Which set of changes is definitely predicted to lower Real GDP in the short run? a. Interest rates rise and wage rates fall. b. Interest rates rise and there is a beneficial supply shock. c. Interest rates rise and labor productivity increases. d. Interest rates rise and individuals expect lower (future) incomes.

d. Interest rates rise and individuals expect lower (future) incomes.

Refer to Exhibit 7-6. Given the information provided in this table, did country ABC experience a recession during 2019 (based upon the standard definition of a recession)? Refer to Exhibit 7-6. Given the information provided in this table, did country ABC experience a recession during 2019 (based upon the standard definition of a recession)? a. Yes, country ABC experienced a recession in 2019 since its GDP declined in two consecutive quarters. b. Yes, country ABC experienced a recession in 2019 since its GDP declined in three consecutive quarters. c. No, country ABC did not experience a recession in 2019 because its GDP did not decline four consecutive quarters. d. We cannot say whether or not country ABC is in a recession without knowing what its Real GDP was each quarter.

d. We cannot say whether or not country ABC is in a recession without knowing what its Real GDP was each quarter.

Which of the following goods is an intermediate good? a. lettuce that a restaurant buys to put on sandwiches b. tires that a car company buys to put on the cars it produces c. a television set that Chi-Mai buys to put in her college dorm room d. a and b e. b and c

d. a and b

Which of the following will cause a movement from one point on an AD curve to another point on the same AD curve? a. a change in consumption b. a change in government expenditures c. a change in net exports d. a change in the price level

d. a change in the price level

If the price level remains constant but the wage rate increases, then there will be __________ in production and the SRAS curve will shift __________ a. an increase; rightward b. a decrease; rightward c. an increase; leftward d. a decrease; leftward

d. a decrease; leftward

Complete crowding out implies that as government increases purchases by $1 a. private spending decreases by $1. b. Real GDP remains unchanged. c. there is an equal offsetting decrease in one or more of the components of private expenditures. d. all of the above

d. all of the above

Reductions in private spending as a result of increased government spending or the need to finance a budget deficit is called a. pushing in. b. rushing forth. c. crowding in. d. crowding out.

d. crowding out.

Refer to Exhibit 7-5. During year 3, Country Z experienced economic _____________ and _________________ a. decline; deflation (falling price level) b. growth; inflation (rising price level) c. growth; deflation (falling price level) d. decline; inflation (rising price level)

d. decline; inflation (rising price level)

As income taxes rise, disposable income __________, causing __________ the AD curve. a. increases; movement down along b. increases; a rightward shift of c. decreases; movement up along d. decreases; a leftward shift of

d. decreases; a leftward shift of

The economy suffers an adverse supply shock. As a result, in the short run Real GDP will __________ and the price level will __________ a. rise; rise b. fall; fall c. fall; remain constant d. fall; rise

d. fall; rise

A balanced budget occurs when a. the national debt is reduced to zero dollars. b. a budget deficit during one year is matched by a budget surplus in the next year. c. transfer payments equal tax revenues. d. government expenditures equal tax revenues. e. the deficit-GDP ratio equals one.

d. government expenditures equal tax revenues.

As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________ a. more; right b. more; left c. less; right d. less; left

d. less; left

An appreciation of the U.S. dollar against foreign currencies tends to __________ U.S. net exports and shift the U.S. AD curve to the __________ a. raise; right b. raise; left c. lower; right d. lower; left

d. lower; left

If an economist recommends that the government reduce the tax rate in order to increase tax revenues (based on the Laffer curve), she is implicitly assuming that the economy is currently operating at a point a. inside the Laffer curve. b. outside the Laffer curve. c. on the upward-sloping portion of the Laffer curve. d. on the downward-sloping portion of the Laffer curve. e. where tax revenues are maximized.

d. on the downward-sloping portion of the Laffer curve.

A simultaneous rise in both aggregate demand and short-run aggregate supply will definitely a. raise the price level, but there is not enough information provided to know how Real GDP will change. b. lower Real GDP, but there is not enough information provided to know how the price level will change. c. raise the price level and Real GDP. d. raise Real GDP, but there is not enough information provided to know how the price level will change. e. raise the price level and lower Real GDP.

d. raise Real GDP, but there is not enough information provided to know how the price level will change.

The change in the purchasing power of dollar-denominated assets (such as cash holdings) is the a. money effect. b. interest rate effect. c. asset effect. d. real balance effect.

d. real balance effect.

If consumption increases, a. the SRAS curve will shift rightward, which will push the price level up. b. the SRAS curve will shift leftward, which will push the price level up. c. the AD curve will shift leftward, which will push the price level down. d. the AD curve will shift rightward, which will push the price level up.

d. the AD curve will shift rightward, which will push the price level up.

Refer to Exhibit 7-3. Investment is equal to a. $850. b. $1,250. c. $200. d. $2,200. e. $1,050.

e. $1,050

Refer to Exhibit 7-3. Consumption is equal to a. $3,700. b. $9,000. c. $10,150. d. $8,200. e. $9,700.

e. $9,700

Smith's income was $50,000 in year 1 and $55,600 in year 2. The CPI was 114 in year 1 and 124 in year 2. What was the approximate percentage change in Smith's real income between the two years? a. -2.2 percent b. +3.4 percent c. -1.7 percent d. +5.6 percent e. +2.2 percent

e. +2.2 percent

Refer to Exhibit 6-1. Prices rose by __________ percent from Year 2 to Year 3 a. 3.39 b. 0.023 c. 3.28 d. 2.22 e. 2.27

e. 2.27

The Laffer curve illustrates that a. there are two tax rates at which zero tax revenues are raised. b. a decrease in tax rates can cause an increase in tax revenues. c. an increase in tax rates can cause an increase in tax revenues. d. an increase in tax rates can cause a decrease in tax revenues. e. all of the above

e. all of the above

To eliminate a recessionary gap, Keynesian theory indicates that government should a. increase taxes. b. decrease taxes. c. increase government purchases. d. decrease government purchases. e. b or c

e. b or c

To eliminate an inflationary gap, Keynesian theory indicates that government should a. increase taxes. b. decrease taxes. c. increase government purchases. d. decrease government purchases. e. either a or d

e. either or d