Macroeconomics Final Exam

Life Cycle theory of consumption

A theory of household consumption, households make lifetime consumption decisions based on their expectations of lifetime income

an international agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade known as ___________

GATT

In general, a depreciation of a country's currency is likely to _______________ After the depreciation of a country's currency, the balance of trade is likely to a.) remain constant b.) improve, then worsen c.) worsen, then improve d.) improve e.) worsen

Increase c.) worsen, then improve

A production technique that uses a large amount of labor relative to capital is known as_________ technology

Labor intensive

Nominal wage rate

The amount the nominal wage rate can buy in terms of goods and services

animal spirits of entrepreneurs

a term coined by Keynes to describe investors' feelings

The quantity theory of money implies that a 3% increase in the money supply will eventually cause a.) 3% increase in the price level b.) a 3% increase in real GDP c.) a 3% increase in the unemployment rate d.) a 3% increase in disposable income

a.) 3% increase in the price level

Suppose that a US citizen purchases a German car by giving dollars to a German car dealer. This would be recorded in the US balance of payments as a.) a debit to the current account, an a credit to the capital account b.) a credit to the capital account only c.) a credit to the current account and a debit to the capital account d.) a debit to the current account only e.) none of the above answers is correct As a result of the above transactions, the net wealth position of the United States has _______________.

a.) a debit to the current account, an a credit to the capital account decrease

since the ones to the industrial revolution in the mid 18th century, population growth has occurred at an unprecedented rate. The proximate cause of this dramatic increase has been a.) a drop in the mortality rate b.) a drop in the morbidity rate c.) an increase in the birth rate d.) an increase in the fertility rate

a.) a drop in the mortality rate

Beginning in England in the mid 18th century, technical change and capital accumulation sharply increased productivity in which two industries? a.) agriculture and textiles b.) agriculture and steel making c.) agriculture and railroading d.) agriculture and ship building

a.) agriculture and textiles

the vicious circle of poverty hypothesis states that poor countries a.) are unable to save and invest enough to accumulate capital stock that would help them grow b.) cannot develop because people don't consume due to lack of goods and services c.) cannot develop because their economic policies are ineffective d.) cannot develop because they lack the ability to educate their workers

a.) are unable to save and invest enough to accumulate capital stock that would help them grow

which of the following statements would be associated with Keynesian economics? a.) because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy b.) because there are significant lags in recognizing and implementing activist policies, the best government policy is nonintervention. c.) since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter d.) economic problems can best be addressed by reducing taxation and regulation and thus increasing incentives to save and invest

a.) because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy

the tendency for both human capital and financial capital to leave developing countries in search of higher returns elsewhere is known as a.) capital flight b.) emigration c.) counting abandonment d.) expatriation

a.) capital flight

according to supply side economics, when the economy is experiencing unemployment, the BEST course of action is to a.) cut taxes and increase incentives to save and invest b.) do nothing, the economy will return to equilibrium quickly on its own c.) increase the money supply through open market operations d.) increase government spending e.) continue to follow a monetary rule

a.) cut taxes and increase incentives to save and invest

according to new classical economics, when the economy is experiencing inflation, the BEST course of action is to a.) do nothing, the economy will return to equilibrium quickly on its own b.) cut taxes and increase incentives to save and invest, which will increase aggregate supply c.) reduce government spending or increase taxes d.) continue to follow a monetary rule e.) increase the money supply through open market operations

a.) do nothing, the economy will return to equilibrium quickly on its own

When a firm or industry sells products on the world market at prices below the cost of production, this known as a.) dumping b.) a tariff c.) an export subsidy d.) a quota

a.) dumping

the overall problem of economic development acquired a new dimension in the early 1980s as several large developing countries found themselves overwhelmed with a.) excessive external debt b.) an HIV/AIDS pandemic c.) meddling from developed countries d.) a population explosion

a.) excessive external debt

the existence of trade for country that has an abundance of natural resources is best explained by a.) factor endowments b.) Heckscher- Ohlin theorem c.) Economies of scale d.) acquired comparative advantage

a.) factor endowments

which of the following is NOT a point raised by those who argue against growth? a.) growth is required to improve conditions for the poor b.) rapid growth depletes resources and therefore inhabits future growth c.) growth requires that income be inequitably distributed d.) growth requires that consumer tastes be manipulated to create false needs

a.) growth is required to improve conditions for the poor

If the income effect is greater than the substitution effect, the labor supply curve a.) has a negative slope b.) has a positive slope c.) is horizontal d.) is vertical

a.) has a negative slope

Which of the following best describes the price feedback effect? a.) higher prices in Canada increases the price of imported inputs in the United States, which in turn raise the price of US exports to Canada. b.) higher import prices increase the demand for domestic goods, increasing aggregate demand and thus, inflation. c.) higher incomes in Canada increase imports from the United States which in turn increases US income and Canadian exports d.) higher prices for goods entering the Untied States increases the US price level e.) All of the above examples of the price feedback effect.

a.) higher prices in Canada increases the price of imported inputs in the United States, which in turn raise the price of US exports to Canada.

Which of the following is not part of the political argument against trade and current trade deficits? a.) international trade leads to less expensive goods sold in the US b.) international trade can lead to domestic job losses c.) international trade can force some domestic businesses to shut down d.) international trade can adversely affect local communities that are dependent on a large domestic employer

a.) international trade leads to less expensive goods sold in the US

which of the following would be considered a supply side policy a.) investment tax credits for businesses to encourage investment b.) an increase in government spending that would lead to increased aggregate demand c.) an increase in the minimum wage that would cause consumer spending to increase d.) a decrease in the growth of the money supply

a.) investment tax credits for businesses to encourage investment

Keynesian economics includes the idea that a.) labor markets don't always clear due to wage rigidities b.) the economy is basically stable c.) prices adjust to clear the markets d.) economic policies are ineffective

a.) labor markets don't always clear due to wage rigidities

which of the following is least likely to impact the productivity of a developing country's workforce? a.) labor's rate of unionization b.) expenditures on health and nutrition c.) the level of educational attainment d.) the quantity of physical capital

a.) labor's rate of unionization

it is difficult to empirically test alternative macroeconomics models against one another because a.) macroeconomic models differ in ways that are hard to standardize for b.) macroeconomic models cannot be expressed in mathematical terms c.) macroeconomic models are always expressed in scientific terms d.) macroeconomic models do not predict the same outcomes from policies

a.) macroeconomic models differ in ways that are hard to standardize for

the path of consumption over a lifetime is likely to be the path of income a.) much more stable than b.) completely unrelated to c.) about the same as d.) much less stable than

a.) much more stable than

the aggregate production function is the mathematical representation of the technological relationship between a.) national outputs and inputs b.) fiscal and monetary policy changes and national output c.) the rate of capital accumulation and national output d.) national output and fiscal policy

a.) national outputs and inputs

when looking at the world population, the poorest one- fifth of families earns about ______________ of total world income a.) one half of one percent b.) three percent c.) seven percent d.) twelve percent

a.) one half of one percent

A problem with comparing macroeconomic models is that a.) people may change how they react when economic policies are changed b.) macroeconomic models do not predict the same outcomes from policies c.)Macroeconomic models cannot be expressed in mathematical terms d.) macroeconomic models must meet government standards for uniformity

a.) people may change how they react when economic policies are changed

the average level of one's expected future income stream is a.) permanent income b.) disposable income c.) taxable income d.) gross income

a.) permanent income

As growth progresses and countries become richer, pollution a.) tends to fall b.) rise exponentially c.) levels double d.) rarely changes

a.) tends to fall

The velocity of money can be defined as a.) the average number of times a dollar changes hands during the year b.) the rate at which the Fed expands the money supply c.) the rate of money stock to real GDP d.) the effectiveness of monetary policy

a.) the average number of times a dollar changes hands during the year

According to those who argue against economic growth a.) the measurement of output overstates its value to society b.) a conspiracy exists to purposely overstate the value of output c.) things affecting the quality of life never come through the market d.) the measurement of output understates its value to society

a.) the measurement of output overstates its value to society

Oakum's law is a.) the theory, put forth by Arthur Okrun, that the unemployment rate decreases about 1% point for every 3% increase in real GDP. b.) the theory, put forth by Arthur Okrun, that the unemployment rate increases about 1% point for every 3% increase in real GDP. c.) the theory, put forth by Arthur Okrun, that the unemployment rate decreases about 1% point for every 2% increases in real GDP. d.) the theory, put forth by Alfred E. Kahn, that the unemployment rate decreases about 1% for every 3% increase in real GDP.

a.) the theory, put forth by Arthur Okrun, that the unemployment rate decreases about 1% point for every 3% increase in real GDP.

The new classical theoretical critique of the existing macroeconomic models is based on a.) the way people form their expectations b.) the nature of the trade off between inflation and growth c.) wages and labor market equilibrium d.)the link between the money market and the goods market

a.) the way people form their expectations

within a fully employed, centrally planned economy that provides basic housing, food, and clothing at very affordable levels for all a.) there is no need for unemployment insurance, welfare, or other social programs b.) there is a need for government to permit market- determined prices c.) there is a need for government to permit market determined wages d.) there is a real need for government social welfare programs

a.) there is no need for unemployment insurance, welfare, or other social programs

According to Milton Friedman, when the economy is experiencing inflation, the BEST course of action is to a.) use a monetary rule that accommodates real growth but not inflation b.) do nothing, the economy will return to equilibrium quickly on its own c.) cut taxes and increase incentives to save and invest, which will increase aggregate supply d.) increase the money supply through open market operations e.) reduce government spending or increase taxes

a.) use a monetary rule that accommodates real growth but not inflation

The existence of trade for country where capital is relatively abundant specializing in capital intensive goods might best be explained by a.) factor endowments b.) Heckscher- Ohlin Theorem c.) economies of scale d.) acquired comparative advantage

b.) Heckscher- Ohlin Theorem

Which of the following is part of the US demand for foreign exchange? a.) a swedish company wishes to purchase a US company b.) a US citizen wishes to buy stock in a Japanese corporation c.) a french citizen wishes to travel to the United States and stay in a hotel in New York City d.) a US citizen wishes to sell euros brought back from a European vacation e.) A Mexican citizen wishes to purchase stock in Kodak, a US company

b.) a US citizen wishes to buy stock in a Japanese corporation

the tendency for investment to increase when aggregate output increases is the result of the _____ effect a.) income b.) accelerator c.) substitution d.) multiplier

b.) accelerator

the existence of trade for country that has developed an expertise or reputation for quantity in the production of a particular good is best explained by a.) Heckscher- Ohlin Theorem b.) acquired comparative advantage c.) factor endowments d.) economies of scale

b.) acquired comparative advantage

Keynesian economics is primarily associated with which of the following concepts? a.) rational expectations b.) an activist federal government c.) a monetary rule d.) real business cycle

b.) an activist federal government

Governments, for many reasons, often intervene in international markets, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade. When a government makes a payment to domestic firms to encourage exports, this is known as a.) a tariff b.) an export subsidy c.) dumping d.) a quota

b.) an export subsidy

which of the following is NOT one of the choices a developing country typically faces? a.) agricultural development versus industrialization b.) an open economy versus a closed economy c.) import substitution versus export promotion d.) central planning versus market oriented decision making

b.) an open economy versus a closed economy

which of the following statements would be associated with monetarism a.) since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter b.) because their are no significant lags in recognizing and implementing activist policies, the best government policy is no intervention c.) economic problems can best be addressed by reducing taxation and regulation and thus increasing incentives to save and invest d.) because wages and prices are sticky an edit can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy.

b.) because their are no significant lags in recognizing and implementing activist policies, the best government policy is no intervention

In Polynomia, real GDP increase by 8% and the population increased by 3% in 2012. In 2012, polynomia experienced a.) economic growth, but not an increase in living standards b.) economic growth and an increase in living standards c.) an economic decline d.) no economic growth, but an increase in living standards

b.) economic growth and an increase in living standards

Which of the following statements is False? a.) the percentage of the labor force employed in urban areas is greater in developed nations than in developing nations b.) income tends to be more equally distributed in developing countries than in developed countries c.) developed nations account for only about one quarter of the world's population, but they consume about three quarters of the world's output d.) low productivity in the agricultural sector in developing countries leads to ta higher level of per capita GNI

b.) income tends to be more equally distributed in developing countries than in developed countries

The accelerator effect is the tendency for investment to ___________ when aggregate output increases and ___________ when aggregate output ____________,___________ the growth of decline of output a.) decrease, increase, decreases, accelerating b.) increase, decrease, decreases, accelerating c.) increase, decrease, increases, accelerating d.) increase, decrease, decreases, decelerating

b.) increase, decrease, decreases, accelerating

in developing countries a.) central banks are effective in controlling the macroeconomy b.) infant mortality is high c.) labor productivity in agriculture is high d.) financial markets are well developed

b.) infant mortality is high

In china, rural property is owned collectively by the village while being managed under long term contracts by individual farmers. This creates a problem in terms of optimal land management, use, and allocation because a.) the farmer can use the land for free b.) land cannot be transferred to its highest and best use c.) the village can charge the farmer excessively high rents. d.) alternative uses of land are not permitted

b.) land cannot be transferred to its highest and best use

the vicious circle of poverty hypothesis that has been advanced to explain the short supply of capital in developing countries hold that a.) rapid growth in rich nations necessitates slow growth in developing nations in order to keep resources abundant and cheap for the rich nations b.) low income makes saving difficult, which causes low investment (capital accumulation) and hence low productivity and income c.) excessive production of capital goods means too few consumption goods and hence relatively poor people d.) high rates of saving mean low consumption rates and hence low standards of living

b.) low income makes saving difficult, which causes low investment (capital accumulation) and hence low productivity and income

"poor countries are trapped in a vicious circle of poverty. For output to grow, they must accumulate capital, they must save (consume less than they produce). Because they are poor, they have little or no extra output available for savings it must all go to feed and clothe the present generation. Thus they are doomed to stay poor forever." If this argument were true a.) population growth would accelerate b.) no nation would ever develop c.) population growth would slow d.) developed countries should colonize poor countries

b.) no nation would ever develop

the unemployment rate is a.) the ratio of the labor force to the number of people unemployed b.) one minus the employment rate c.) one plus the employment rate d.) the difference between the number of people in the labor force and the number of people employed

b.) one minus the employment rate

There are two basic ways a firm can add to its capital stock. These methods are: a.) plant and equipment investment, which are purchases by firms of additional machines, factories, or buildings within a given period. And, stock investment which occurs when a firm produces more output than it sells within a given period. b.) plant and equipment investment which are purchases by firms of additional machines, factories, or buildings within a given period. And, inventory investment which occurs when a firm produces output than it sells within a given period. c.) plant and resource investment which are purchases by firms of additional machines, factories, or buildings within a given period. And, inventory investment which occurs when a firm produces more output than it sells within a given period d.) plant and equipment investment which are purchases by firms of additional machines, factories, or buildings within a given period. And, inventory investment which occurs when a firm produces less output than it sells within a given period.

b.) plant and equipment investment which are purchases by firms of additional machines, factories, or buildings within a given period. And, inventory investment which occurs when a firm produces output than it sells within a given period.

The wage rate that is adjusted for changes in the price level over time is the a.)money wage rate b.) real wage rate c.) nominal wage rate d.) expected future wage rate

b.) real wage rate

according to Keynesian economics, when the economy is experiencing inflation, the BEST course of action is to a.) cut taxes and increase incentives to save and invest, which will increase aggregate supply b.) reduce government spending or increase taxes c.) continue to follow a monetary rule d.) increase the money supply through open- market operations e.) do nothing; the economy will return to equilibrium quickly on its own.

b.) reduce government spending or increase taxes

the Laffer curve demonstrates that a.) if expectations are rational, markets will usually clear b.) reducing tax rates can increase tax revenues c.) reducing tax rates can increase aggregate demand d.) positive price surprises can increase output

b.) reducing tax rates can increase tax revenues

Productivity tends to a.) rise during contractions b.) rise during expansions c.) rise throughout the business cycle d.) fall during expansions

b.) rise during expansions

According to real business cycle theory, business cycles exist primarily because of a.) fluctuations in aggregate demand b.) shocks in production technology c.) lags in fiscal and monetary policy d.) animal spirits of investors

b.) shocks in production technology

which of the following statements would be associated with new classical economics? a.)economic problems can best be addressed by reducing taxation and regulation and thus increasing incentives to save and invest b.) since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter c.) because there are significant lags in recognizing the implementation activist policies, the best government policy is nonintervention d.) because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government, should intervene in the macroeconomy.

b.) since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter

Increases in income in the United States cause US citizens to buy more imports from the United States. This in turn increases US income The statement above is an example of a.) the price feedback effect b.) the trade feedback effect c.) the gains from trade d.) the open economy multiplier

b.) the trade feedback effect

The ratio of nominal GDP to the stock of money is the a.) real GDP b.) velocity of money c.) GDP deflator d.) money multiplier

b.) velocity of money

The aggregate production function is y= 5k0.5 L0.5 If there are 49 units of capital an 16 units of labor, aggregate output is a.) 60 units b.) 70 units c.) 140 units d.) 325 units

c.) 140 units

Which of the following is part of the US supply of foreign exchange? a.) a US company wishes to buy parts from a Canadian company b.) a Mexican citizen wishes to purchase stock in sony, a Japanese company c.) a French citizen wishes to travel to the United States and stay in a hotel in New York City d.) a US citizen wishes to buy stock in a Japanese corporation e.) a US citizen wishes to buy euros to spend on French champagne

c.) a French citizen wishes to travel to the United States and stay in a hotel in New York City

Governments, for many reasons, often intervene in international markets, off setting some of the efficiencies that may be realized with specialization based on comparative advantage and trade. When governments imposes a tax on imports, this is known as a.) an export subsidy b.) a quota c.) a tariff d.) dumping

c.) a tariff

which of the following has NOT been offered by economists as an explanation for the US productivity slowdown of the late 1970s and early 1980s? a.) increased regulation of businesses b.) a low saving rate c.) an American moral and spiritual crisis d.) diminished spending on R&D e.) high energy costs

c.) an American moral and spiritual crisis

the term "fourth world" is used to describe countries that a.) are closer to develop countries than transitional economies b.) are more developed than "third world" countries c.) are stagnant and have fallen far behind the economic advances of the rest of the world d.) have experienced rapid economic growth

c.) are stagnant and have fallen far behind the economic advances of the rest of the world

labor productivity increases when a.) output decreases and labor increases b.) labor and output increase proportionately c.) capital increases and labor remains constant d.) capital/labor ratio decreases

c.) capital increases and labor remains constant

the tragedy of commons relates to the idea that a.) central planning sets all production targets b.) central planning sets all distribution targets c.) common owned resources tend to be overused d.) all wages, prices, and interest rates are controlled by government

c.) common owned resources tend to be overused

A fundamental problem with the Bretton Woods system was that a.) countries with balance of payments deficits were forced to increase the value of their currencies, while countries with surpluses did not have to decrease the value of their currencies. b.) countries with balance of payments deficits were forced to drop out of the system c.) countries with balance of payments deficits were forced to decrease the value of their currencies, while countries with surpluses did not have to increase the value of their currencies. d.) countries with balance of payments surpluses were forced to drop out of the system.

c.) countries with balance of payments deficits were forced to decrease the value of their currencies, while countries with surpluses did not have to increase the value of their currencies.

Monetarists and Keynesians a.) disagree on how the Fed changes money supply b.) agree on the impact of fiscal policy on the economy c.) disagree on the speed at which wages change d.) agree on the usefulness of discretionary policy

c.) disagree on the speed at which wages change

the existence of trade for country that produces and sells on a large scale to a global market is best explained by a.) heckscher- ohlin theorem b.) factor endowments c.) economies of scale d.) acquired comparative advantage

c.) economies of scale

if a firm is able to produce the same amount of output been after reducing its labor workforce, this implies that the firm has a.) planned inventories b.) excess capital c.) excess labor d.) unplanned inventories

c.) excess labor

Thomas Malthus and David Ricardo believed that to increase agricultural output, people would be forced to a.) farm land more intensively, in which case the returns to successive increases in population would increase b.) farm land less intensively, in which case the returns to successive increases in population would diminish c.) farm land more intensively, in which case the returns to successive increases in population would diminish d.) farm land intensively, in which case the returns to successive increases in population would increase

c.) farm land more intensively, in which case the returns to successive increases in population would diminish

which of the following is often used as a crude index to measure the level of material well- being across nations a.) gross domestic product (GDP) per capita b.) Human development index (HDI) c.) gross national income (GNI) per capita d.) gross national product (GNP) per capita

c.) gross national income (GNI) per capita

which of the following is NOT a position held by the advocates of economic growth? a.) growth makes it possible for more to be done for the less fortunate b.) growth gives people more freedom- meaning more choices c.) growth often makes available goods of dubious usefulness d.) growth saves time for people

c.) growth often makes available goods of dubious usefulness

In the early 1980s, the United States economy was experiencing a severe recession. The Economic Recovery Act of 1981 sharply cut both personal and corporate income tax rates. President Reagan argued that these were supply side tax cuts would be to a.) increase the money supply by increasing velocity b.) reduce the size of the government budget deficit c.) increase work and investment incentives d.) reduce inflation by reducing costs to firms and consumers e.) increase consumption spending due to lower taxes

c.) increase work and investment incentives

the transformation away from an agrarian society that began in mid-18th century England is known as the a.) revolutionary upheaval of 1750 b.) great leap forward c.) industrial revolution d.) peasant uprising

c.) industrial revolution

which of the following is a true statement about inflation? a.) inflation only occurs when the velocity of money is not constant b.) inflation is always caused by changes in a money supply c.) inflation cannot continue indefinitely without increases in the money supply d.) inflation occurs when the growth rate of the money supply is less than the growth rate of real GDP

c.) inflation cannot continue indefinitely without increases in the money supply

During 2005, The Federal Reserve Bank raised interest rates in an effort to prevent an increase in the rate of inflation. What direct effects do lower interest rates have on household and firm behavior? a.) lower interest rates will expand the level of planned investment by business and decrease consumption by households are debtors b.) lower interest rates will expand the level of planned investment by business and may expand consumption by households if the households have positive wealth. c.) lower investment rates, on balance, increase household consumption behavior and expand the level of planned investment by business d.) lower interest rates, on balance, decrease household consumption behavior and expand the level of planned investment by business

c.) lower investment rates, on balance, increase household consumption behavior and expand the level of planned investment by business

In 2000, the United Nations unanimously adopted the __________, a set of quantifiable, time based targets for developing countries to meet a.) 21st century Equity initiative b.) global warming reduction act c.) millennium development goals d.) carbon footprint eradication measure

c.) millennium development goals

Economic growth allows a society to consume a.) exactly what it needs b.) more than it should c.) more goods per person d.) more than is sustainable

c.) more goods per person

productivity, or labor productivity is_____________ a.) output per worker hour; the amount of output produced by an average worker in 1 day b.) output per worker hour; the amount of output produced by an exceptionally skilled worker in 1 hour c.) output per worker hour; the amount of output produced by an average worker in 1 hour d.) consumption per worker hour, the amount of product consumed by an average worker in 1 hour

c.) output per worker hour; the amount of output produced by an average worker in 1 hour

rational expectations means that a.) people form expectations by averaging the difference between actual events and expected events b.) people know what will happen in the future and use this knowledge to form their expectations c.) people know the true model of the economy and use it to form their expectations of the future. d.) people form expectations by assuming that current conditions will continue

c.) people know the true model of the economy and use it to form their expectations of the future.

Which of the following in NOT an argument for protectionism in international trade? a.) protecting national security b.) protecting domestic jobs and employment c.) protecting a key source of government revenue d.) protecting infant industries

c.) protecting a key source of government revenue

With ___________, outcomes of specific interventions are determined by using the intervention in randomly selected subset of a sample and then comparing outcomes from the exposed and control group a.) manipulated experiments b.) natural experiments c.) random experiments d.) predetermined experiments

c.) random experiments

the argument for and against economic growth make it clear that a.) the "right answer" is that all economic growth has negative consequences b.) the search for a "right answer" is irrelevant since in the long run we are, as Keynes astutely noted, "all dead." c.) society must make some hard choices since there is no "right answer" d.) the "right answer" is that unchecked economic growth is the way to go

c.) society must make some hard choices since there is no "right answer"

Generally speaking, wealth a.) starts out zero, turns positive, then turns negative never the end of life b.) starts out negative, approaches zero, then turns negative again near the end of life c.) starts out negative, turns positive, then approaches zero near the end of the life d.) starts out positive, turns negative, then positive again near the end of life

c.) starts out negative, turns positive, then approaches zero near the end of the life

which agency money to countries to help them stabilize their exchange rates? a.) the Bureau de change b.) the World Bank c.) the International Monetary Fund d.) the Federal Reserve

c.) the International Monetary Fund

Keynes believed which of the following? a.) the government does not have a role to play in fighting inflation unemployment b.) the government has a role to play in fighting unemployment, but not in fighting inflation c.) the government has a role to play in fighting inflation and unemployment d.) the government has a role to play in fighting inflation, but not in fighting unemployment

c.) the government has a role to play in fighting inflation and unemployment

Increases in income in the United States cause US citizens to buy more imports from China. This in turn increases US income. The statement above is an example of a.) the gains from trade b.) the price feedback effect c.) the trade feedback effect d.) the open economy multiplier

c.) the trade feedback effect

people are said to have rational expectations if they a.) assume that this years inflation rate will be the same as last year's inflation rate b.) merely guess at the inflation rate c.) use all available information d.) assume that this year's inflation rate will be equal to the average inflation rate over the past 10 years

c.) use all available information

a discouraged worker is one a.) who does not desire a job b.) who is dissatisfied with efforts by the union to increase wages and working conditions c.) who would like a job but has stopped looking for one because the prospects seem so bleak d.) who would like a job and has intensified job search because the prospects seem so bleak

c.) who would like a job but has stopped looking for one because the prospects seem so bleak

A significant increase in consumption occurred immediately after World War II despite a major drop in household incomes in 2005, a series of devastating hurricanes all but totally destroyed New Orleans and other areas of the Gulf coast. In the aftermath of these disasters, over 400,000 households lost their jobs in the region it is clear that consumer spending did not drop as much as you would predict based on income figures for the states involved. Can you offer an explanation? a.) yes, the life- cycle theory of consumption which states that households make lifetime consumption decisions based on their expectations of current income b.) no, because permanent income is the average level of one's expected future income stream c.) yes, the life cycle theory of consumption which states that households make lifetime consumption decisions based on their expectations of lifetime income d.) yes, the life cycle theory of consumption which states that households make lifetime consumption decisions based their expectations of retirement income

c.) yes, the life cycle theory of consumption which states that households make lifetime consumption decisions based on their expectations of lifetime income

Nancy Nail salon employs five workers. Each worker works 8 hours per day. The five workers are able to serve 20 customers per day the labor productivity is therefore____ customer(s) per person/hour a.)4 b.)1 c.)0.5 d.) 2

c.)0.5

a velocity of_________ means money changes hands, on average, every 4 months a.) 0.25 b.) 1.25 c.) 3 4.) 4

c.)3

Which of the following transactions would be recorded as a credit in the US current account? a.) A US citizen purchases some french wine b.) a US exporter purchases shipping insurance from a German company c.) a Mexican citizen purchases stock in a US company d.) a US company receives profits from a foreign subsidiary e.) A Japanese company sells some cars to buyers in the Untied States.

d.) a US company receives profits from a foreign subsidiary

Currently, the world's exchange rate system can be best described as a.) the Bretton Woods system b.) a pure fixed exchange rate system c.) a floating exchange rate system d.) a managed floating system

d.) a managed floating system

Governments, for many reasons, often intervene in international markets, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade. When governments set a limit on the quantity of imports this is known as a.) an export subsidy b.) dumping c.) a tariff d.) a quota

d.) a quota

The transition to a market- oriented economy characterized by rising unemployment and higher prices suggests that a.) government must set wages, prices, and interest rates. b.) government must continue to centrally plan the distribution of all output into consumption c.) government must continue to centrally plan all resource allocations to production d.) a social safety net including unemployment compensation, and food, clothing, and housing subsidies for those in need will be politically popular

d.) a social safety net including unemployment compensation, and food, clothing, and housing subsidies for those in need will be politically popular

According to the Laffer curve a.) an increase in tax rates will always increase tax revenues b.) a decrease in the tax rates will always increase tax revenue c.) a decrease in tax rates will always decrease tax revenues d.) an increase in tax rates will have an inconstant effect on tax revenues

d.) an increase in tax rates will have an inconstant effect on tax revenues

The rational expectations hypothesis suggests that the forecasts that people make concerning future inflation rates a.) are always correct b.) consistently overestimate the actual rate of inflation in the future c.) consistently underestimate the actual rate of inflation in the future d.) are correct on average, but are subject to errors that are distributed randomly

d.) are correct on average, but are subject to errors that are distributed randomly

ownership and control of the means of production (land and capital) lie directly with the "people" in which economic system a.) capitalism b.) democracy c.) socialism d.) communism

d.) communism

If the substitution effect is greater than the income effect, decrease in interest rates will a.) increase both saving and consumption spending by households b.) increase saving and decrease consumption spending by households c.) decrease both saving and consumption spending by households d.) decrease savings and increase consumption spending by households

d.) decrease savings and increase consumption spending by households

With international trade, the availability of less expensive goods is the result of a.) each trading country specializing in production where it has an absolute advantage b.) the imposition of tariffs and taxes on imports c.) consumers demonstrating a preference for domestically produced goods d.) each trading country specializing in production where it has a comparative advantage

d.) each trading country specializing in production where it has a comparative advantage

the 40 year struggle between the united states and the soviet union was fundamentally a struggle between two a.) political systems b.) religious/ cultural heritages c.) military establishments d.) economic system

d.) economic system

which of the following is NOT generally viewed as having a positive impact upon the productivity of an input? a.) technological change b.) managerial knowledge c.) economies of scale d.) environmental rules

d.) environmental rules

Productivity figures can be misleading when used to diagnose the health of the economy over the short run, because business cycles can distort the meaning of productivity measurements. Output per worker ________ in ________ because firms________ excess labor during slumps. Output per worker _______ in_______ because firms put the excess labor back to work. a.) falls, expansions, hold, rises, recessions b.) rises, recessions, hold, falls, expansions c.) falls, recessions, layoff, rises, expansions d.) falls, recessions, hold, rises, expansions

d.) falls, recessions, hold, rises, expansions

The Russian transition to a market economy required a.) controls over wages and interest rates b.) controls over prices c.) controls planning overall production d.) market- supporting institutions such as developed banking system, functional financial markets, a code of commercial law, and developed processes for insurability of business activities

d.) market- supporting institutions such as developed banking system, functional financial markets, a code of commercial law, and developed processes for insurability of business activities

Okun's law has a.) proven to be correct over time in that as GDP increases by 3%, there has been a 1% point decline in unemployment b.) been proven to be completely incorrect - there isn't a negative relationship between GDP and the unemployment rate c.) been proven false, because there is a positive relationship between changes in GDP and the unemployment rate d.) not turned out to be a law- the relationship between changes in GDP and the Unemployment rate is more complex than Okun's law indicates

d.) not turned out to be a law- the relationship between changes in GDP and the Unemployment rate is more complex than Okun's law indicates

Per-capita output growth is the growth rate of output a.) of the entire economy b.) per worker in the economy c.) for capitalist economies d.) per person in the economy

d.) per person in the economy

according to the life cycle theory of consumption, people tend to ______ during their main working years a.) dissave b.) accumulate negative wealth c.) consume more than they earn d.) save

d.) save

much of the growth in _________ is due to export manufacturing, and __________ have based their growth on resource extraction a.) western Europe, the former soviet- bloc countries b.) south america, North American countries c.) sub- Saharan Africa; most central american nations d.) southeast Asia; many african nations

d.) southeast Asia; many african nations

According to predications made by the club of Rome in 1972, the collapse of the world economy will occur because of a.) the world's limited capacity to produce food b.) the ever increasing birthrate in developed countries c.) low saving rates and, therefore, low rates of capital accumulation d.) the depletion of nonrenewable resources

d.) the depletion of nonrenewable resources

which statement best describes the relationship between particular kinds of economic systems and particular kinds of political systems? a.) all socialist countries have totalitarian one party rule b.) all capitalist countries have democratic political systems c.) the association between economic and political systems appears to be purely random d.) there appears to be a correlation between capitalist economic systems and democracy

d.) there appears to be a correlation between capitalist economic systems and democracy

which of the following is NOT one of the realities facing most of the people living in the developing world? a.) shelter is primitive, with many usually sharing a small room b.) incomes are meager, barely providing the basic necessities c.) illiteracy is chronic for young and old alike d.) urban slums contain a majority of the population

d.) urban slums contain a majority of the population

which of the following is NOT a reason why developing country governments must be involved in the provision of social overhead capital? a.) when the free- rider problem is present b.) when conditions encourage a natural monopoly c.) when efficiency requires that projects be very large d.) when the political orientation of the private sector differs from that of the government

d.) when the political orientation of the private sector differs from that of the government

Which of the following transactions would be recorded as a debit to the US current account? a.) a US company sells some jam to supermarkets in the United Kingdom b.) a US investor receives dividends from holdings of stock in an Italian company c.) a US citizen receives a birthday gift of money from her grandmother in France. d.) a US citizen purchases stock in an Australian company e.) a US exporter purchases shipping insurance from a German company

e.) a US exporter purchases shipping insurance from a German company

Economic growth generally refers to the increase in productivity attributable to a.) capital accumulation b.) technological change c.) innovation d.) government management e.) a,b, and c are correct

e.) a,b, and c are correct

a basic economic concern of rapid population growth in the developing world is a.) lowered savings rates b.) reduced investment c.) heightened governmental responsibilities d.) slower advances in labor productivity e.) all of the above are concerns

e.) all of the above are concerns

According to the Lucas supply function, positive price surprises causes first to supply more in the sort run because a.) firms have lower costs when there are price surprise, so aggregate supply increases b.) firms know that prices will fall in the future, so they must sell as much as they can at the current high prices. c.) firms have an incentive to supply more when the price level increases d.) firms want to gain by increasing investment during a potential economic expansion e.) firms are fooled into thinking that relative prices have changed and that they are getting more for their output

e.) firms are fooled into thinking that relative prices have changed and that they are getting more for their output

excess labor excess capital

labor and capital that are not needed to produce the firm's current level of output

productivity or labor productivity

output per worker hour

As compared to a closed economy, the multiplier in an open economy will be ___________________. Which of the following best explains why the open economy multiplier is smaller than the closed economy multiplier? a.) the government is likely to spend less and tax more in an open economy b.) the marginal propensity to consume is likely to be smaller in an open economy c.) in a closed economy, the government budget must be balanced d.) in an open economy, increases in income also cause imports to rise.

relatively smaller d.) in an open economy, increases in income also cause imports to rise.

constrained supply of labor

the amount a household actually works in a given period at the current wage rate

unconstrained supply of labor

the amount a household would like to work within a given period at the current wage rate if it could find the work

real wage rate

the amount the nominal wage rate can buy in terms of goods and services

Permanent income

the average level of a person's expected future income stream

inventory investment

the change in the stock of inventories

adjustment costs

the costs that a firm incurs when it changes its production level- for example: the administration cost of laying off employees or the training costs of hiring new workers

discouraged- worker effect

the decline in the measured unemployment rate that results when people who want to work but can not find work grow discouraged and stop looking , dropping out of the ranks of the unemployed and the labor force.

desired optimal level of inventories

the level of inventory at which the extra cost (in lost sales) from lowering inventories by a small amount is just equal to the extra gain (in interest revenue and decreased storage costs)

accelerator effect

the tendency for investment to increase when aggregate output increases and to decreases when aggregate output decreases, accelerating the growth or decline of output

Okun's law

the theory, put forth by Arthur Okun, that in the short run the unemployment rate decreases about 1% point for every 3% increase in real GDP. Later research and data have shown that the relationship between output and unemployment is not as stable as okun's "law" predict

nonlabor, or nonwage, income

Any income received from sources other than working- inheritances, interest,dividends, transfer payments, and so on