MGMT 4B Midterm
The burden accompanying a budget deficit can be eased as the economy experiences a rise in the inflation rate, eroding the total debt value. True False
True
The long-term profits from dumping can offset the initial losses of a company. True False
True
The replication of existing factory systems will cause a nation's standard of living to stagnate. True False
True
The theft of intellectual property is an example of a mercantilist tool used in international trade. Such methods are designed to steal the trade secrets of foreign competitors to reduce R&D costs and rapidly expand the economy. True False
True
Understanding a set of leading economic indicators allows you, as forecaster, to anticipate movements in each of the GDP growth drivers. True False
True
The key function of a central bank is to Set the tax rate Control bank reserves Dictate the desired MPS to aid in investment purposes
Control bank reserves
What is one response to dumping? Regulatory reforms Export subsidies An increase in the tax rate Countervailing tariffs
Countervailing tariffs
The area HIJK showcases Domestic production (extra profits) Government winners (tariff revenues) American food "losers" Consumer loss
Government winners (tariff revenues)
Interest paid to bondholders often signals ____, which can distort resource allocation and cause a loss in production efficiency. Increased foreign investment Higher taxes A fall in real income Additional debt
Higher taxes
"Cherry picking" is a Master Cyclist strategy that applies to what functional area?
Human Resource Management
The "yield curve":
Compares the yield of short term debt to the yield of long term debt
Suppose the U.S. permanently decreases defense spending by $100 billion after troops pull out of Afghanistan. How much will GDP be reduced assuming an MPC of 0.75? NOT SURE $100 billion $200 billion $300 billion $400 billion $500 billion
$400 billion
A reserve requirement of 12 % requires a bank to hold _____ of the $5845 deposited. $487.08 $708.33 $70.14 $701.40
$701.40
A country that finds its currency significantly overvalued will: Find it difficult to sell its export Be overwhelmed by cheap imports See its trade deficit fall All of these 1 & 2 only
1 & 2 only
Living standards are primarily determined by: 1. The growth of a country 2. The level of worker productivity 3. Nominal wages 1 & 2 only
1 & 2 only
What is the slope of the consumption function? 1. MPC 2. 1- MPS 3. MPS All three 1 & 2 only
1 & 2 only
Examples of the "opportunity cost" of holding money include: 1. The interest that could have been earned by lending the money. 2. The rate of return that could have been earned by investing the money in stocks 3. The increase in value from holding money during inflation All these 1 and 2 only
1 and 2 only
Which governmental policy is capable of rectifying demand-pull inflation? 1. Expansionary fiscal policyc1 2. Tax policy 3. Regulatory reforms 4. Contractionary monetary policy 5. 1 and 4 only
1 and 4 only
Dumping is a strategic corporate strategy to Seize the market share Use their monopoly power to raise prices later Promote small business entrance into a profitable industry sector Ride a company of excess inventory and remain in business during an economic downturn All of the above 1, 2 and 4 above
1, 2 and 4 above
The central bank is capable of raising interest rates to rein in inflation. What consequences, either direct or indirect, result from this rate hike? 1. A reduction in business investment 2. Currency appreciation 3. increase in exports 4. Reduced imports 5. Higher levels of foreign investment 6. Rapid GDP growth 1, 2 and 5 only All of the above
1, 2 and 5 only
A fiscal stimulus during a cyclical budget deficit will Increase the pace of economic growth Shift the aggregate supply curve outward as forecasts reveal an oncoming expansion Shift aggregate demand inward, revealing a fall in consumer confidence Result in lower taxes and higher levels of government spending 1, 2, and 4 only All of above
1, 2, and 4 only
Which of the following causes a change in the exchange rate? Differing GDP growth rates Differing recessionary rates Change in relative interest rates Trade balances Trade agreement alterations Currency speculation Political stability, geopolitical risk, and exogenous shocks All of the above 1, 3, 5, and 6 only 4, and 7 only
1, 3, 5, and 6 only
David owns a home in the OC area unlike his best friend, Nathan, who rents his house on the outskirts of downtown Los Angeles. If both David and Nathan are farmers, how would they most effectively utilize their land? 1. David, who owns his piece of land, would have more of an incentive to care for the land with additional equipment, irrigation systems, and proper soil tillage 2. Nathan, a mere renter of the land, would be less enthusiastic about working the soil knowing that a portion of his produce and income would be given to his wealthy "landlord" 3. Nathan would have a greater incentive to monitor the soil's condition considering it will be providing him with his daily sustenance 4. David would choose to rent his land to Nathan to increase his production levels while reducing his time working the land 1, 3, and 4 only All of the above
1, 3, and 4 only
Three major ways to finance a budget deficit include: e 1. Lower taxes 2. Borrow money 3. Print money All of the above 2 & 3 only
2 & 3 only
What is the opportunity cost for the production of one unit of clothing as opposed to one unit of food for the US 0.5 units of food (it may be this one butidk) 0.75 units of food 1.5 units of food 2 units of food
2 units of food
A fall in the ISM manufacturing index below 50 is very effective at signaling:
2. An investment-led recession
A big problem for both the corporate sector and the implementation of fiscal policy with financing government deficits through bond financing is:
2. Crowding Out of Investment
When you hold cash rather than invest it in stocks or bonds and wait for a better price, such speculation is an example of what kind of demand for money? 1. Asset demand 2. Transactions demand 3. Withdrawal demand All three 1&2 only
1. Asset demand
Why is the business cycle so hard to predict using historical data?
1. Duration/length varies 2. Depth/amplitude varies
Those who endorse Keynesian economics are members of which party? 1. Ideological conservatives 2. Ideological liberals 3. Moderates 4. Both 1 and 2
2. Ideological liberals
Calculate the Keynesian multiplier when given a marginal propensity to consumer of 0.33. (Round to the nearest tenth) 3 4 5 6
3
The money multiplier equals: 1/RR 1/MPS 1/RR-MPC
1/RR
A fall in interest rate has what effect on both foreign and domestic investment? 1. Investment will fall 2. Investment will rise 3. Both 1 and 2
3. Both 1 and 2
The government runs and finances a budget deficit with an increase in the tax rate. What is a resulting indirect consequence from this mode of action? 1. Adding to a business' bottom line 2. Increasing the household income tax 3. Higher interest rate resulting in "crowding out" 4. A fall in consumer demand for certain goods 5. Both 2 and 4 6. All of the above
3. Higher interest rate resulting in "crowding out"
Describe the "deadweight loss." 1. Captures the loss in economic efficiency when a tariff is introduced 2. Concept found primarily in microeconomic studies 3. Loss differs when quota is used rather than a tariff 4. 1 and 2 only 5. All of the above
4. 1 and 2 only
How should an executive team react if their forecast reveals an economic recovery in the following quarter? 1. Expand their inventory levels 2. Purchase inputs early at a lower price 3. Decrease their production as demand increases to allow them to raise the price of their goods 4. 1 and 2 only 5. All of the above
4. 1 and 2 only
The natural rate of unemployment 1. Is the lowest unemployment rate an economy can sustain without causing inflation ye 2. Is projected in the Monetarists' Phillip's Curve theory 3. The average rate of unemployed persons during the course of one year 4. 1 and 2 only 5. All of the above
4. 1 and 2 only
The theory of rational expectations, the ability to apply past experiences to current assumptions, was developed by 1. Robert Barro of Harvard University 2. Robert Lucas of the University of Chicago 3. Thomas Sargent of Stanford University 4. All of the above 1 and 2 only 2 and 3 only
4. All of the above
Fiscal policy relies on: 1. Changes in government expenditures 2. Changes in taxes 3. Changes in the money supply 4. Both 1 and 2 5. Both 2 and 3
4. Both 1 and 2
Cyclical deficits are the cause of ___ and ___ a(n) _____. A decline in tax revenues and increased spending for welfare programs are sources of a cyclical deficit. 1. Recessions and expansions 2. Slow growth and economic downturn 3. Automatic stabilizers and built-in fiscal stimuli 4. Both 2 and 3 5. Both 1 and 2
4. Both 2 and 3
Define capital deepening. 1. The total debt needed to be paid for the purchase of capital equipment 2. Increasing the capital-to-labor ratio 3. A rise in productivity till a certain point 4. Both 2 and 3 5. 1 and 2 only
4. Both 2 and 3
The Phillips curve was created by A.W. Philips as he studied years of unemployment data and wages within the UK. After analyzing the statistics, he determined that with increased GDP growth 1. Demand for goods and services rises 2. Production levels fall as a result of a shortage of supplies 3. Inflation falls 4. The rate of employment increases 5. Both 3 and 4
4. The rate of employment increases
Define price elasticity. 1. The sensitivity of product demand to price changes 2. A small percentage increase in the price of a good or service will lead to an even greater percentage decline in the quantity demanded 3. A price increase will result in a decline in total revenues 4. 2 and 3 only 5. All of the above
5. All of the above
Describe the effects of a fiscal stimulus during a recession to drive down the natural rate of unemployment. 1. The economy will experience a brief growth in real GDP 2. The price of goods will rise 3. Economic growth will cease and only a higher inflation rate will remain 4. The unemployment rate will return to its natural rate at a higher price level 5. All of the above 6. Both 1 and 4 7. 1, 3, and 4
5. All of the above
What is a contributing factor to the difference in interest rates for elastic goods? 1. Liquidity- the ability of an asset to be converted into cash quickly is labelled as liquid 2. Default risk- the higher the risk, the higher the interest rate 3. Loan Maturity- longer loan terms signal greater interest rate payments 4. Only 1 and 2 5. All of the above
5. All of the above
Identify the "losers" within the figure above The lowers are the American food industry show in the CJLE and KDMF regions The losers are the European consumers in CHID The losers are the European government in HIJK The losers are the domestic producers in BCHG Both 1 and 2
5. Both of 1 and 2
Calculate the real interest rate when given a nominal interest rate of 10% and an inflation rate of 4%. 14% 40% 6% 2.5%
6%
The government can ____ to finance a deficit. 1. Raise taxes 2. Borrow 3. Print money 4. Raise interest rates 5. Increase the money supply 6. 1, 2, and 3 only 7. 1, 3, 4, and 5 only
6. 1, 2, and 3 only
Each country is given 600 hours of labor to produce either clothing or food. How many units of clothing can be gained if America trades a 100 units of food with Europe? (Hint: focus on a clothing-to-food ratio for only ONE unit 50 100 75 150
75
How much would the government need to cut taxes in order to close a recessionary gap of $400 million given a marginal propensity to consume of 0.8? 55 million 75 million 80 million 100 million
80 million
Monetary policy relies on what two key tools to stimulate or control an over-heated economy? Interest Rates Taxes?? Money Supply Government spending B and C only e5 A and C only 1&3 All tools are used by the Federal Reserve
A and C only 1&3
Define open market operations and the results from selling bonds. Involves the buying and selling of government securities to expand or contract the money supply; expands the money supply Involves the selling and buying of government securities to reduce the money supply; contracts the money supply Involves the buying of government securities to increase the money supply; expands the money supply Involves the buying and selling of government securities to expand or contract the money supply; lower interest rates A and D
A and D
In a fixed exchange rate system: A country will allow its currency to freely move in response to market conditions A country will peg the value of its currency to the value of another Both 1 & 2
A country will peg the value of its currency to the value of another
A balanced budget amendment would require the government to balance the budget during a recession by increasing taxes or by cutting spending. The result would be: A faster recovery No effect on growth A deeper recession
A deeper recession
An increase in the tax rate, as depicted by the Laffer Curve, will result in A growth in real GDP A fall in tax revenue Increased worker productivity Steady economic growth
A fall in tax revenue
Suppose the economy is in an expansionary mode and the yield curve inverts. This is typically a clear sign of:
A likely recession
Deficit hawks view deficits as ____. In contrast, deficit doves argue that debt is ____. Harmless; a serious threat A natural part of the business cycle; caused by unnecessary government intervention A serious threat; harmless
A serious threat; harmless
As the government imposes strict environmental regulations, such as proper waste disposal to reduce chemical run-off into the water, manufacturing plants are forced to abide by these laws and alter production processes. How will regulatory reforms affect aggregate demand and aggregate supply? AD will significantly increase as consumers will prefer purchasing more expensive supplies from a environmentally friendly company; AS will decrease as production costs soar AD will fall as prices increase for the same amount of goods; AS will decrease as firms will need to spend more for the production of each product AD will remain unchanged as consumer demand is highly inelastic; AS will remain unchanged due to demand's consisting nature
AD will fall as prices increase for the same amount of goods; AS will decrease as firms will need to spend more for the production of each product
______ advantage is a flawed theory due to its counterpart, ___ advantage Comparative; absolute Absolute; comparative
Absolute; comparative
The theory of absolute advantage was created by John Maynard Keynes Adam Smith David Ricardo Jean-Baptiste Say
Adam Smith
The theory of free, arable land to explain economic development was created by Thomas Malthus David Ricardo Adam Smith Jean-Baptiste Say
Adam Smith
In 2011, the average inflation rate was approximately 3% while in 2012 it was 2%. Using this data to predict future events is an example of Forecasting Adaptive expectations Rational expectations Inflationary expectations
Adaptive expectations
A recession is often a great time to Purchase large-capital equipment Increase a firm's level of advertising Seize the market share Hire talented employees for cheap All of the above
All of the above
As a neighboring nation implements a contractionary monetary policy, the home country may face both positive and negative growth. Describe such outcomes. The level of exports will increase as the home country's currency depreciates relative to its trading partner's A rise in overseas interest rates draws domestic investors away from their current shares The trading partner will experience faster GDP growth All of the above
All of the above
As the government attempts to sell its Treasury bonds to finance its deficit, crowding out occurs, which significantly reduces business investment. In spite of this fall in the GDP growth driver, what is a positive contribution from an increase in the interest rate? It attracts foreign investors The value of the domestic currency is driven up Imports rise All of the above
All of the above
Describe the effect of a drop in Europe's interest rates from 2% to 1% and Brazil's rise from 3% to 5%. European investors will shift their investment funds to Brazil Purchase of capital in Europe will increase as businesses take advantage of the low interest rates Demand for the Brazilian real will rise, causing it to appreciate Imports will become cheaper for Brazil's populace while the level of exports in Europe will skyrocket All of the above
All of the above
Describe the natural resource curse. Predicts resource pillaging by corrupt officials in developing nations Difficult to correct Requires extensive research and analysis by business executives considering to allocate their funds and machinery to such locations All of the above
All of the above
If the government faces a budget deficit, that is, total expenditures surpass available funds, they can return to a state of balance by Printing more money Decreasing the rate of government spending on public services, such as highway construction Raising taxes Issuing bonds to domestic and foreign investors All of the above
All of the above
In order to achieve a Master Cyclist corporation's superior performance, which of the following actions should a developing firm take? Forecast the business cycle Apply well-timed business cycle management strategies Build the Master Cyclist organization All of the above
All of the above
Mercantilist practices Lead to wealth for a nation or firm through unfair trade with other nations Protect domestic markets with tariffs and quotas Artificially stimulate exports through currency manipulation and illegal sudsidies Trigger chronic trade surplus All of the above
All of the above
Reactive Cyclists tend to lower their advertising funds in the midst of a recession as a means of reducing "unnecessary costs." In contrast, a Master Cyclist will increase their level of advertising during a recession. Explain why this strategy could be considered more profitable in the long run. Purchasing ads in a recession is much cheaper As rivals begin to cut costs, there are less competing messages on television or the radio exposed to consumers Master Cyclist firms are able to grab a larger portion of the market share in a given industry Allows a company to build brand awareness All of the above
All of the above
The Dollar Standard established at Bretton Woods, New Hampshire, USA was: Was a partially fixed or adjustable peg system Replaced the gold standard with a US dollar standard Designated the US dollar as the world's key currency Set fixed exchange rate parities in both gold and dollar terms All of the above 1, 2, &3 only
All of the above
The Federal Reserve Is the lender of last resort Controls the money supply and interest rates Prevents the occurrence of another bank run similar to the Financial Panic of 1907 All of the above
All of the above
Trade can lead to mutual gains for two or more partners, but can also harm various domestic industries and agricultural processes. If America has a comparative advantage in crop production and Europe has a comparative advantage in the production of clothing, the exchange will 1. Harm American clothing manufacturers 2. Destroy European crop productions 3. Cause political unrest as domestic producers call for embargoes and tariffs to be placed on foreign goods 4. Lead to various protectionist measures 1 and 2 only All of the above
All of the above
What will be the outcome if an executive team fails to properly forecast movements in the economy? 1. Factories will produce too many units 2. Bloated inventories 3. Heavy losses 4. Plunging stock prices 3 and 4 only All of the above
All of the above
Which of the following is an example of a non-tariff barrier? Sanctions Embargoes Environmental regulations Product restrictions 3 and 4 only try this next All of the above
All of the above
The Deficit Hawks argue that: 1. Internal debt leads to higher taxes 2. Internal debt redistributes income from the poor to the rich 3. Servicing the debt cuts government services All of these 2 & 3 only
All of these
"Animals spirits" in the Keynesian model is important because: If businesses are bearishly pessimistic on the economy, they will cut back on investment If businesses are bullishly optimistic on the economy, they will increase investment If businesses believe the economy will go bad, it could become a self-fulfilling prophecy All three 1 and 2 only
All three
The goldsmiths of several hundred years ago accounted for the first: 1. Bank Interest 2. Paper money 3. Fractional reserve banking All three 1 and 2 only
All three
The two economists that wrote the primary macroeconomic textbooks of the 20th century were? Adam Smith and John Maynard Keynes Alvin Hansen and Paul Samuelson David Ricardo and Jean-Baptiste Say Robert Solow and Thomas Malthus
Alvin Hansen and Paul Samuelson
Define interest rate Price of money Payment made for the use of money Amount of money paid per unit of time- written as the percentage of the amount borrowed All of above
Amount of money paid per unit of time- written as the percentage of the amount borrowed
Government bondholders tend to be wealthier than taxpayers. This group has substantial funds to aid in deficit financing and, as a result, are paid a higher interest. What does the scenario above depict? (Hint: Select the BEST answer) A method of deficit financing by the government An unfair redistribution of income from the poor to the rich Inefficient resource allocation
An unfair redistribution of income from the poor to the rich
In the Intermediate range of the economy, there is Any increase in output results in an increase in the price level Any increase in output results in a decrease in the price level Any increase in output has no impact on the price level
Any increase in output results in an increase in the price level
In the investment function in the Keynesian model, expenditures: Are independent of income Fall with income Rise with income
Are independent of income
Lucy is an avid Disney enthusiast attempting to purchase the company's stock. However, the current stock price is well above her given budget, causing her to withhold her purchases until it reaches a more favorable price level. This phenomenon is known as ___ The exchange rate Asset demand for money A standard of value Transactions demand
Asset demand for money
Cost-push inflation is caused by: A. "Too much money chasing too few goods." B. Supply-side shocks like drought and oil price hikes C. A rise in the savings rate
B. Supply-side shocks like drought and oil price hikes
Corporate strategy classes at most business schools usually explain the benefits of acquisitions, but usually ignore the importance of the business cycle and underlying stock market cycle. For any given acquisition, which phase of the stock market cycle is best?
Bearish
Suppose the economy is relatively weak and retail sales come out unexpectedly strong. The underlying analysis indicates that the increase in retail sales is solely due to rising gasoline prices at the pump. This news is what for the stock market?
Bearish
In a period of sluggish growth and easy monetary policy, the jobs report indicates weak job growth that is lower than expected. This is likely to be:
Bearish for the stock market and bullish for the bond market
If the European Central Bank chooses to match an interest rate hike by the US, will the economy enter a bearish or bullish state? (CHOOSE the BEST answer.) Bearish state because higher interest rates depress the investment component of GDP growth, causing a decline in economic expansion Bullish state because an increase in the interest rate will prevent domestic investors from transferring their funds to the US
Bearish state because higher interest rates depress the investment component of GDP growth, causing a decline in economic expansion
Which statement is true? Expansionary policies stimulate a recessionary economy - but cause inflation. Contractionary policies fight inflation- but can trigger unemployment and recession. Both Neither
Both
Donations, financial assistance, or sending money to a family living overseas are examples of Unilateral transfers Current transfers Currency blocs Gliding pegs Both 1 and 2
Both 1 and 2
The Keynesian model is also referred to as? The multiplier model The aggregate production, aggregate expenditures model Both 1 and 2
Both 1 and 2
An economic recovery signals for an investment team to 1. Buy stock 2. Sell stock 3. Buy bonds 4. Long the stock market Both 1 and 4 Both 1 and 3
Both 1 and 4
Countercyclically increasing advertising expenditures in a recession will
Build the brand name
The expression "go long" means Purchase long-term stocks and bond at a lower interest rate Buy a stock or currency on the assumption that the price will go up Exchange rates will determine the pattern of trade in the long-run
Buy a stock or currency on the assumption that the price will go up
To avoid crowding out, the Federal Reserve "accommodates" the Treasury's expansionary fiscal policy by: Buying Treasury securities Selling Treasury securities Contracting the money supply
Buying Treasury securities
Match each of the stock market investing terms with their appropriate definition. Buying stock or currency in anticipation of an economic expansion and, thus, an increase in value - "Go long" Selling of stocks in anticipation of a recession - "Go short"
Buying stock or currency in anticipation of an economic expansion and, thus, an increase in value - "Go long" Selling of stocks in anticipation of a recession - "Go short"
A flatter long-term growth trend line signals a a. Constant growth in real GDP over time b. Rapid growth in nominal GDP c. Slower growth in real GDP
C. Slower growth in real GDP
Suppose GDP falls by 2%. By Okun's law, how much will unemployment rise? 1% 2% 3% Can't be determined
Can't be determined
When private investment falls due to an increase in government spending, _________ occurs. A rise in the interest rate A recession Crowding out Inflation
Crowding out
The Gold Specie Flow Mechanism dictates that trade between partners should always return to a state of balance in a floating exchange rate system where money is traded freely. Who first developed this monetary adjustment mechanism? David Hume Nicolas Baudeau Adam Anderson Bernard Mandeville
David Hume
____ measures a nation's ability to pay its debt. Nominal budget deficits Debt-to-GDP Okun's Law National deficits
Debt-to-GDP
Suppose you are the Chief Financial Officer of your company and you believe the economy is likely to begin an expansion cycle. You will:
Decrease your ratio of short to long term debt
As aggregate demand falls, price ____ and quantity produced ____. They are ____ to each other. Decreases; Decreases; Proportional Increases; Decreases; Inversely proportional Increases; Increases; Proportional Decreases; Increases; Inversely Proportional
Decreases; Decreases; Proportional
As aggregate demand falls, price ____ and quantity produced _____. They are _______ to each other. Decreases; Decreases; Proportional Increases; Decreases; Inversely proportional Increases; Increases; Proportional Decreases; Increases; Inversely proportional
Decreases; Decreases; Proportional
Budget deficits can cause trade deficits if: Deficit financing raises interest rates and raises the value of the dollar Deficit financing raises interest rates and lowers the value of the dollar Deficit financing lowers interest rates and raises the value of the dollar
Deficit financing raises interest rates and raises the value of the dollar
A Keynesian stimulus in the Classical range causes Cost-push inflation An increase in real output Demand-pull inflation All of the above
Demand-pull inflation
Suppose that a new study comes out showing that Brazilian coffee has a higher cancer risk than other countries around the world. Will the Brazilian real appreciate or depreciate relative to the euro? Depreciate Appreciate No change
Depreciate
What is induced consumption dependent on? The marginal propensity to consume The marginal propensity to save Disposable income Autonomous consumption
Disposable income
A "Buy and Hold" portfolio
Does not protect an investor from business cycle risk
To review the overall health of the investment function, it is critical to monitor the ISM Manufacturing Index. A score of 56 indicates Economic expansion Recessionary territory "Break even" point
Economic expansion
To reduce a structural budget deficit, it is best to employ Contractionary fiscal policies Contractionary monetary policies Expansionary fiscal policies Expansionary monetary policies
Expansionary fiscal policies
Government intervention in the export of goods is a component in _______. This process allows the manufacturer to make a profit on their goods and services without altering their production methods to become more efficient. Export subsidies Currency manipulation Countervailing-tariffs Dumping
Export subsidies
A country with a relatively higher exchange rate will see a slow in growth as ____ begin to fall. Consumption Investment Government spending Imports Exports
Exports
Suppose the economy is at full employment and the CPI indicates an unexpected increase. Holding other events constant, the stock market will most likely:
Fall
When new workers are added to a fixed supply of land, the marginal product of each additional worker is likely to: Fall Rise Stay constant
Fall
When an economy is in a bearish state, stock prices will ______ and bond prices will ______. Fall; fall Rise; fall Rise; rise Fall; rise
Fall; rise
Suppose the inflation rate exceeds the rate of growth in income. That would mean that purchasing power is: Falling Rising Staying the same
Falling
A country with a floating exchange rate will peg its currency to another country's or a basket of goods. In contrast, a fixed exchange rate is determined by the market. True False
False
A durable good has a relatively short lifespan, approximately a few years or less. True False
False
Fiat or paper money is capable of holding its value unlike commodity money whose face value falls when inflation intensifies. True False
False
Leading economic indicators are capable of seeing an oncoming downturn before the broader economy has taken into account the recessionary signals. True False
False
Leading economic indicators often change after movements in the business cycle occur and depict plausible growth outcomes. True False
False
Poor or developing nations will never experience technological innovations due to their low savings rate. True False
False
The cost of large equipment, labor, and raw materials will be lower during an expansion than during a recession because demand for a firm's product will begin to rise, bringing in more revenue. True False
False
To "inflate the debt" requires government officials to decrease the inflation rate, a public financing strategy that utilizes higher price levels to repay debt with money that is worth less than its actual value. True False
False
When two nations act in accordance with David Ricardo's Theory of Comparative Advantage, the result will be a division of the populace into two groups, consumers who benefited from trade and those who lost potential profits due to cheaper imports. True False
False
import substitution is used primarily to reduce a nation's level of exports and reduce their reliance on foreign goods by creating domestic production facilities. True False
False
Suppose you are a hedge fund manager and the latest round of economic indicators convinces you that a recession will occur soon. Your best speculation (as opposed to gamble) is to:
Go short the stock market and long the bond market
In a bearish economy Business executives increase their level of investment, taking advantage of the low interest rates Firms attempt to decrease their inventory levels The unemployment rate reaches double digits, often near 13% Consumer spending on interest sensitive goods rises
Firms attempt to decrease their inventory levels
Between 1879 and 1914, $100 could be exchanged for 4.8 ounces of gold. This is an example of the____, where currency could be converted to or redeemed in a set amount of gold. Dollar standard Gold standard Fixed rate parities Competitive devaluation "Beggar thy neighbor" policy
Fixed rate parities
Okun's Law dictates that For every 1% drop in a nation's GDP, the unemployment rate rises by 2% For every 1% drop in the unemployment rate, a nation's GDP rises by 2% For every 1% drop in the inflation rate, a nation's GDP falls by 2% For every 1% rise in consumer savings rate, investment rises by 2%
For every 1% drop in the unemployment rate, a nation's GDP rises by 2%
Which type of unemployment is the least of the macroeconomist's worries Cyclical Frictional Persistent Structural
Frictional
Which types of bonds have the lowest risk? Junk bonds Government securities Corporate bonds
Government securities
If the US Federal Reserve wanted to lower the long-term interest rates on elastic purchases, such as homes or certain bonds, what course of action would they take in order to achieve the desired outcome? Raise short-term interest rates Hike up interest rates Implement a quantitative easing program Decrease the money supply in circulation
Implement a quantitative easing program
As an expansion peaks and begins to plummet toward a recessionary trough, interest rates and stock prices start to fall. Companies purchase bonds to finance their spending and, as a result, the debt-to-equity ratio ________. Increase Decrease Remains constant
Increase
When a cheating nation "wins" at the expense of another, this is known as a zero sum game. The cheating country will see a(n) _____ in the growth and employment rate as opposed to the cheated trading partner. Increase Decrease No change Steady growth
Increase
Under the gold standard, a country that ran a trade surplus would: Increase its gold reserves Decrease its gold reserves Experience no change in its gold reserves
Increase its gold reserves
The government uses contractionary fiscal policy to rein in inflation. Which action can the government take to slow an over-heated economy? Increase taxes or decrease government spending Decrease taxes or increase government spending Decrease both taxes and government spending Increases taxes and government spending
Increase taxes or decrease government spending
As economy experiencing the effects of inflation will be more likely to see a(n) ______ in the ______. (One blank can hold more than one word) Increase; interest rate Decrease; exchange rate Increase; tax rate Decrease; money supply
Increase; interest rate
2. The Law of Diminishing Returns dictates that a(n) ______ in the number of laborers _______ the available land to work with. As a result, the level of output begins to ______ with each additional worker. Increase; reduces; fall Decrease; increases; rise Growth; reduces; increase
Increase; reduces; fall
The elasticity of demand for most products
Increases in a recesson
The _____ argument describes the temporary shielding of young domestic firms from major competitors, allowing them to mature into more efficient producers. Consumer surplus loss Infant industry National security "Save our jobs "Defense against dumping"
Infant industry
Define the inertial rate of inflation. Expectations consumers and firms have about future inflation Inflation that persists at the same rate over time until it encounters a demand or supply side shock Play an important role in determining the wage level Core of rate inflation
Inflation that persists at the same rate over time until it encounters a demand or supply side shock
Define the inertial rate of inflation. Expectations consumers and firms have about future inflation Inflation that persists at the same rate over time until it encounters a demand or supply side shock Play an important role in determining the wage level Core rate of inflation
Inflation that persists at the same rate over time until it encounters a demand or supply side shock
The "core or inertial" rate of inflation is defined as The inflation that exists all a time Inflation that tends to persist at the same rate until a demand or supply side shock changes things The inflation that exists before Keynesian stimulus
Inflation that tends to persist at the same rate until a demand or supply side shock changes things
China utilized methods of reverse engineering, purchase of foreign technology, and application of efficient production processes within their own industries to quicken the growth rate and improve living standards. However, such importation of information can cause a nation or industry to bypass its competitors and claim a significant portion of market share. This event caused the protection of ____ and caution in international trade to come into effect. Intellectual property Cyber espionage Development strategies
Intellectual property
The discount rate Is the interest rate the central bank charges various branches for borrowing additional funds Is the interest rate state officials charge various branches for borrowing additional funds is the interest rate banks charge large corporations for borrowing funds
Is the interest rate the central bank charges various branches for borrowing additional funds
The rate of inflation is important in the Always a Winner Forecasting model because:
It influences the conduct of monetary policy
Name the three ranges of the economy. Keynesian, Intermediate, Classical Development, Rapid growth, Decline Recessionary trough, Growth, Expansionary pea
Keynesian, Intermediate, Classical
The quality of a company's _____ is the most important component in economic growth. Without it, investments and advancements made by the firm are not used to their full potential. Human Resource department Forecasters Environmental regulations Labor force
Labor force
Label each as either an injection or leakage. Consumer savings Exports Business Investment Taxes Imports Government expenditures
Leakage Injection Injection Leakage Leakage Injection
Consumer surplus" loss indicates Total deadweight loss The inefficient use of raw materials to produce a final good Less units consumed due to loss of product satisfaction
Less units consumed due to loss of product satisfaction
Match the descriptions with either a market-oriented economy or a state-run economy. Lower taxes Favorable regulatory climate Traditional practices Socialist or Communist style of government Endorsement of individual entrepreneurship Individual self-interest
Lower taxes - Market-oriented Favorable regulatory climate - Market-oriented Traditional practices -State-run Socialist or Communist style of government -State-run Endorsement of individual entrepreneurship - Market-oriented Individual self-interest -State-run
As signs of an oncoming recession begin to appear, a company should respond by ______ their prices. Once the market begins to pick up, a firm should rapidly ______ their prices in anticipation of a rise in consumer confidence and aggregate demand. Raising; decreasing Raising; increase Lower; decreasing Lowering; increase
Lowering; increase
An increase in available machinery for a firm's workforce signals a rise in _______, directly affecting the amount of real wages gained. Marginal productivity The marginal propensity to consume The marginal propensity to save Aggregate supply
Marginal productivity
The basic determinant of transactions demand is: Nominal GDP Normalized GDP Real GDP
Nominal GDP
The value of the balanced budget multiplier is equal to Zero One Two
One
Three quarters of the world's population are found in various developing countries. Many industrialized nations take advantage of the potential workforce and cheap labor by building factories or relocating jobs to these areas. The process of transferring work to overseas suppliers is known as Insourcing Absolute advantage Outsourcing The deadweight loss
Outsourcing
Two or more nations can engage in either fair or unfair trading practices. A scenario where both nations benefit from the exchange of goods and services is known as _____. Regardless of the potential GDP growth of those involved, economic or political disruption may occur as the importation and exportation of goods increases. Zero sum game Protectionism Insourcing Positive sum game
Positive sum game
According to Keynesians, what course of action should be taken to end an inflationary spiral? Implementing a tax policy Inducing a recession Price and wage controls
Price and wage controls
It is possible to avoid crowding out by Raising taxes Decreasing government expenditures Printing money
Printing money
Stagflation is defined as Simultaneous unemployment and wage declines Simultaneous inflation and wage declines Simultaneous unemployment and inflation
Simultaneous unemployment and inflation
If a country runs a trade deficit, it's GDP will, holding other things constant, grow:
Slower than it otherwise would
What happens when the inflation rate exceeds the rate of wage growth? Wages are increasing Purchasing power is declining Real, inflation-adjusted income is rising Consumer demand has surpassed available supply
Purchasing power is declining
The rate of growth in real, inflation-adjusted GDP is measured on a ____ basis. Monthly Quarterly Yearly
Quarterly
Define exchange rates Rate at which one nation's currency trades for another's Ratio of export prices to import prices Fixed currency rate Simultaneous purchase and sale of an asset to profit from the price difference
Rate at which one nation's currency trades for another's
What is the correct formula for the Real Deficit? Real Deficit = Nominal Deficit - (Inflation * Total Debt) Real Deficit = Nominal Deficit + (Inflation * Total Debt) Real Deficit = Nominal Deficit - (Inflation * Average Annual Debt)
Real Deficit = Nominal Deficit - (Inflation * Total Debt)
If you want to adjust for inflation when evaluating an investment, you would rely on the: Real interest rate Nominal interest rate Normalized interest rate
Real interest rate
As interest rates fall, bond prices will ____ Fall Rise Remain Constant Cannot be determined without further information
Rise
Bond prices
Rise as bond yields fall
The neoclassical growth model was pioneered by: Robert Solow Adam Smith David Ricardo
Robert Solow
____ developed the Neo-Classical Growth Model Robert Solow William D. Clark George Akerlof Marcel Boyer
Robert Solow
El Pollo Loco was attempting to increase its total revenue in spite of the economic downturn. Normally, favoring to sell white meat chicken breast, an American preference over dark meat, they shifted to a supplier of dark meat. What wark meat is considerably cheaper than its white counterpart, allowing them to endorse a family combo that brought in more hungry consumers and increased profits. Selling value Selling style
Selling value
If the long-term growth trend line is flattening, a nation's growth rate is ______. If the trend line's slope is steepening, growth will occur at _____. Slowing; a slower pace Rapidly increasing; steady pace Slowing; a rapid pace Becoming more constant and predictable; faster pace
Slowing; a rapid pace
Which of the four wheels of growth does a country significantly rely on to increase its level of production? Human Resources Natural Resources Rate of Capital Formation State of Technology
State of Technology
If a country runs a trade ___ in its current account, it must balance that with an equal ___ in its capital account- capital ____. Deficit; surplus; inflows Surplus;deficit; inflows Surplus; deficit; outflows Deficit; surplus; outflows
Surplus; deficit; outflows
As a nation's imports increase relative to its export the _____ have caused a change in the exchange rate. Currency speculation Trade imbalances Geopolitical risks Terms of trade
Terms of trade
The European governments impose a strict tariff on American-made goods : EU get the tax revenues... Political effect after avoiding confrontation between the two trading nations : Farmers do not demand... The european government imposes a set quota on America products: American farmers capture revenue; avoid trade war Economic effect after avoid confrontation between the two trading nations: Farmer losses offset by...
The European governments impose a strict tariff on American-made goods : EU get the tax revenues... Political effect after avoiding confrontation between the two trading nations : Farmers do not demand... The european government imposes a set quota on America products: American farmers capture revenue; avoid trade war Economic effect after avoid confrontation between the two trading nations: Farmer losses offset by...
Who controls monetary policy? The government The Federal Reserve Congress State representatives
The Federal Reserve
In the usual forecasting scenario, which peaks first?
The Stock Market Cycle
Accretive to earnings refers to A corporate strategy to acquire a rival during a bullish economic state when it is the most profitable and sell during a recession when its value begins to fall The ability to make a higher rate of return after a purchase The inclusive nature of an organization that allows for a higher degree of economic and financial market literacy
The ability to make a higher rate of return after a purchase
Which of these investments would have the lowest interest paid out? The bonds of the US government The bonds of countries with large oversea debt and unstable political system The "junk bonds" of business close to bankruptcy The municipal bonds of cities with shrinking tax bases
The bonds of the US government
The Laffer Curve is backward bending, showcasing that the more people are taxed the less people will work. The result will be a fall in total tax revenue. True False
True
In the absence of technological change, why does capital deepening not lead to a proportional increase in output? The law of diminishing returns The law of decreasing costs Economies of scale
The law of diminishing returns
Which of the two production possibility frontiers depicts Adam Smith's and Thomas Malthus' process of growth and decline? The figure on the left is the Malthusian expansion versus Smith's gloom on the right The left PPF reveals Smith's thriving model while on the right is Malthus' dark depiction of a growing population None of these are accurate depictions of the above production possibilities frontie
The left PPF reveals Smith's thriving model while on the right is Malthus' dark depiction of a growing population
The "natural rate of unemployment" refers to: The minimum unemployment rate consistent with steady inflation The unemployment rate that must be achieved in order to reduce inflation The unemployment rate associated with an economy that has failed to yet reach its full level of industrialization
The minimum unemployment rate consistent with steady inflation
What do economists typically use to plot the course of the business cycle over time?
The percent change in the real GDP
The Phillips curve was created by A.W. Phillips as he studied years of unemployment data and wages within the UK. After analyzing the statistics, he determined that with increased GDP growth 1. Demand for goods and services rises 2. Production levels fall as a result of a shortage of supplies 3. Inflation falls 4. The rate of employment increases 5. Both 3 and 4
The rate of employment increases
The "Law of One Price" predicts that exchange rate must adjust to insure that: The nominal price of an identical good produced in two different countries must be the same. The real, inflation-adjusted price of an identical good produced in two different countries must be the same. Both 1 & 2
The real, inflation-adjusted price of an identical good produced in two different countries must be the same.
According to the theory of the Phillips Curve, what happens to prices when unemployment rises? They fall They rise They stay the same
They fall
Poverty is normally associated with lower education and literacy levels that prevents technological improvements to occur. True False
True
Your Master Cyclist executive team uses the Always a Winner model to forecast an impending recession. Your company will begin to:
Tighten credit
Some firms choose to forego laying off employees due to its ability to hinder the development of a positive organizational culture. Instead, they choose to cross-train their employees. Define this term. To allow a new team member to shadow an experienced executive or department leader in order to fully understand their responsibilities The ability to generate a healthy return from trade To increase employee effectiveness by training them to be able to complete more than one specific job function
To increase employee effectiveness by training them to be able to complete more than one specific job function
In Thomas Malthus's growth model, population pressures will drive wages: To a steady-state To subsistence levels Steadily upward
To subsistence levels
The ___ is the largest component within the current account Net transfers Investment incomes Trade in services Trade in goods
Trade in goods
What determines a consumer's actual demand for money? Consumer confidence in the market Aggregate supply Transactions demand The rate of inflation
Transactions demand
16th century mercantilism is closely related to modern protectionism. True False
True
A good that is highly price elastic is easier to sell when the economy is in a bullish state. During this time, consumer confidence in the market is high, leading to an increase in consumption and a decrease in savings in the GDP growth formula. True False
True
Adam Smith's theory dictated that real wages would equal national income after removing the cost of rent for utilizing the land and the interest on capital equipment needed to work it. True False
True
An organizational culture is critical to strategy implementation before an economic downturn or coming expansion. True False
True
China broke its agreement to abide by free and fair trade conduct as it relied heavily on sweatshops and a lack of environmental regulatory reforms to sell its goods at a lower price than its competitors. True False
True
Classical economists argue that a chronic budget deficit is detrimental to the growth of a nation and should be avoided at all cost, except in times of political turmoil. In contrast, the Keynesian school of economics argues that a deficit is a necessary byproduct of a fiscal stimulus designed to return the economy back to full employment. True False
True
Competitive devaluation is used to stimulate net exports and, thus, GDP growth and the employment rate. True False
True
Each nation follows the same expansionary pattern to reach economic prosperity by relying on the four wheels of growth. True False
True
Fiscal policy is more effective during an economic downturn while monetary policy is the preferred tool to reign in an overheated economy. True False
True
In general, government expenditures exhibit much less volatility than investment -- although episodic events such as wars and natural disasters can lead to huge fluctuations. True False
True
When the government sells IOUs or Treasury bonds to finance a deficit, they are competing with private corporations in the capital market. As they continue to sell their bonds and bills, interest rates will rise, but the level of investment within the GDP growth formula will fall as a result. True False
True
A big difference between the gold standard and the dollar standard was that: Under the dollar standard, exchange rates were partially fixed and could be periodically adjusted to reflect changes in currency values Under the dollar standard, currencies floated once a year in the currency markets Under the gold standard, exchange rates were partially fixed and could be periodically adjusted to reflect changes in currency
Under the dollar standard, exchange rates were partially fixed and could be periodically adjusted to reflect changes in currency values
In Adam Smith's growth model, what was the most critical assumption in allowing national output to double as population doubled? Unlimited capital Unlimited labor Unlimited land
Unlimited land
Do lower interest rates weaken, strengthen, or allow a nation's exchange rate to remain stable? Strengthen Weaken Remain constant
Weaken
A central bank intervenes within foreign exchange markets in order to maintain a fixed peg. Selling currency ____ it and purchasing additional money _____ it. Strengthens; weakens Weakens; strengthens
Weakens; strengthens
Which statement is true? a. The aggregate demand curve slopes downward b. The aggregate demand curve is a horizontal line c. The aggregate demand curve slopes upward
a. The aggregate demand curve slopes downward
As the secular trend line begins to slowly flatten, unemployment _______. Lessens Worsens Returns to the natural rate of unemployment
Worsens
When a country has a pure floating exchange rate system, that is market-determined exchange rates, the official reserve will equal to One Cannot be determined with the given information Zero Two
Zero
The Classical Price Adjustment Mechanism will return the economy to full employment at: a. A lower price level b. A higher price level c. With no impact on the price level
a. A lower price level
Mainstream economists believe that the economy is not always self-correcting and requires government intervention to either stimulate the economy out of a recession or reign in inflation. Which is an example of expansionary fiscal policy? a. Additional government spending b. Increasing taxes c. Decreasing interest rates d. Increasing the money supply
a. Additional government spending
Will a shift in the aggregate demand curve or aggregate supply curve prove more favorable when measuring economic growth? a. An outward shift in the AS curve because the inflation rate falls b. An outward shift in the AD curve because demand increases, allowing for an increase in prices c. An inward shift in the AS curve because firms are able to charge higher prices for supplying a smaller quantity of goods d. None of the above
a. An outward shift in the AS curve because the inflation rate falls
By implementing the _____ (Latin name) assumption, economists are able to separate the causes for shifts in aggregate supply or aggregate demand. a. Ceteris paribus b. Caveat venditor c. Semper fidelis d. Caveat emptor
a. Ceteris paribus
The government often implements a change within the tax rate to either stimulate an economic downturn or curb inflation. What component in the GDP growth equation is directly affected by a tax cut (fiscal stimulus)? a. Consumption (C) b. Investment (I) c. Only government spending is affected (G) d. Net exports (X-M)
a. Consumption (C)
Which of these components of the aggregate expenditure function is not represented by a horizontal line? a. Consumption function b. Government function c. Investment function
a. Consumption function
Which type of unemployment do economists primarily focus on curing? a. Cyclical b. Frictional c. Structural d. Pervasive
a. Cyclical
The amount of money left after paying taxes to the government is referred to as: a. Disposable income b. Disposable consumption c. Induced consumption
a. Disposable income
The Classical versus Keynesian controversy is primarily a dispute about: a. How economies adjust and find their way back to full employment b. How the free market works c. Whether tax cuts or increased government spending should be used to stimulate an economy
a. How economies adjust and find their way back to full employment
If the government wants to use fiscal policy to stimulate the economy, it will: a. Increase government spending and cut taxes b. Increase government spending and increase taxes c. Cut government spending and raise taxes d. Cut government spending and cut taxes
a. Increase government spending and cut taxes
If actual output is above potential output, we run the risk of: a. Inflation b. Recession c. Stagflation d. Armageddon
a. Inflation
Supply side economics promises to: a. Lower taxes to lower the budget deficit b. Raise taxes to lower the budget deficit c. Lower taxes to increase the budget deficit d. Raise taxes to increase the budget deficit
a. Lower taxes to lower the budget deficit
In the event of unemployment, Classical economists believe that ________, ________, and ________ would all fall, causing an increase in consumption, production, investment, and a return to full employment. a. Prices, wages, and interest rates b. Income, savings, and wages c. Government spending, net exports, and prices
a. Prices, wages, and interest rates
The veil of money assumption means that: a. Real output is not influenced by the money supply b. Increasing M will increase Q c. Nominal output is not influenced by the money supply
a. Real output is not influenced by the money supply
Say's Law says that: a. Supply creates its own demand b Demand creates its own supply c. Supply must always exceed demand to curb inflation
a. Supply creates its own demand
If the cost of labor increases, will the AS or AD curve shift? In which direction will it move? a. The AS curve will shift inward b. The AS curve will shift outward c. The AD curve will shift inward d. The AD curve will shift outward
a. The AS curve will shift inward
Which type of inflation index measures changes in the cost of important raw materials? a. The PPI b. The CPI c. The FBI
a. The PPI
The Classical economists believed that: a. The economy is self-correcting b. The economy needs fiscal or monetary stimulus to recover from a recession c. The economic cycle depends on the phases of the moon d. The 56 Chevy is the best classic car ever built
a. The economy is self-correcting
An adjustable rate mortgage would only prove advantageous over a fixed rate mortgage if a. The fixed rate mortgage was higher b. The inflation rate rose c. The inflation rate remained stable d. The fixed rate mortgage was lowered
a. The fixed rate mortgage was higher
An adjustable rate mortgage would only prove advantageous over a fixed rate mortgage if a. The fixed rate mortgage was higher b. The inflation rate rose c. The inflation rate remained stable d. The fixed rate mortgage was lowered
a. The fixed rate mortgage was higher
Who stated this critique of Say's Law: "If people don't spend all of their money, there will be a glut of goods and people would be out of work." a. Thomas Malthus b. Adam Smith c. David Ricardo
a. Thomas Malthus
Conservatives favor individual responsibility and less government intervention while liberals prefer a larger, more involved government. a. True b. False
a. True
Learning the principles of macroeconomics can help you make better decisions in both your personal and professional life. a. True b. False
a. True
John Maynard Keynes believed that: a. Unemployment would be solved through government expenditures b. Unemployment would be solved through adjustments in wages and prices c. Unemployment would be solved by tax increases
a. Unemployment would be solved through government expenditures
The aggregate expenditures curve is ______ sloping and is calculated by combining the four elements of the GDP growth formula: ________, ________, ________, and _________. a. Upward; Consumption, Investment, Government Expenditures, Net Exports b. Downward; Consumption, Investment, Government Expenditures, Net Exports c. Upward; Price level, Real output, Aggregate demand, Aggregate supply d. Downward; Inflation, Imports, Exports, Stock prices
a. Upward; Consumption, Investment, Government Expenditures, Net Exports
Fiscal policy: a. Uses changes in government expenditures and taxes to stimulate the economy b. Uses changes in the money supply to stimulate or contract the economy c. Uses changes in the size of the trade deficit to stimulate or contract the economy.
a. Uses changes in government expenditures and taxes to stimulate the economy
The difference between actual and potential GDP is known as ______. It measures the total output an economy sacrifices when it does not use its resources efficiently and to its full productive potential. a. An inflationary gap b. A recessionary gap c. Opportunity cost
b. A recessionary gap
A solution to a macroeconomic problem, such as slow growth, is a. Regulatory reforms b. Expansionary fiscal policy c. Contractionary monetary policy d. Trade reforms
b. Expansionary fiscal policy
Microeconomics deals with the much larger picture of how national economies and the broader global economy perform. In contrast, macroeconomics deals with the individual markets 'and consumers that make up the economy. a. True b. False
b. False
The goal of quantitative easing is to drive up long-term interest rates to curb inflation. a. True b. False
b. False
The government's use of fiscal policy to reign in inflation or stimulate a recession is accomplished by changing either ______ or _______. a. Money supply or interest rates b. Government spending or taxes c. Interest rates or government spending d. Taxes or the money supply
b. Government spending or taxes
Consumer theory, production theory, and market price equilibrium are all areas of analysis in a. Macroeconomics b. Microeconomics
b. Microeconomics
In order to increase real output, under the veil of money assumption, how much money does the government need to print? a. The amount of money to be printed should be equal to the total cost of goods in demand b. Monetary policy is ineffective c. The government needs to print twice as much as current production d. A fiscal policy should be used in place of monetary policy to stimulate real output, consumption, and real GDP growth
b. Monetary policy is ineffective
The formula for the unemployment rate is a. One divided by the consumption rate b. Number of unemployed people divided by labor force c. One divided by the reserve ratio d. Number of employed people divided by total population
b. Number of unemployed people divided by labor force
No two recessionary patterns are alike. A V-shaped recessionary dip in the business cycle indicates a _____. A U-shaped dip signals a _____. a. Short recovery before entering a second recession; Recession that can last for years at a time with little change b. Short and deep recession; Shallow or deep recession that lasts longer than usual
b. Short and deep recession; Shallow or deep recession that lasts longer than usual
Keynesian fiscal and monetary policies are ineffective in curing a. Deflation b. Stagflation c. Inflation d. Budget deficits
b. Stagflation
Aggregate supply within the circular flow diagram equals a. Consumption + investment b. Wages + rent + interest + profits c. Wages - consumption d. (Investment - interest) + profits
b. Wages + rent + interest + profits
Why is the aggregate expenditures curve flatter than the aggregate production curve? a. Because MPC is greater than one b. Both curves are parallel to each other c. Because the MPC is less than one d. Because money is re-spent over and over again
c. Because the MPC is less than one
A fall in the price level is defined as a. Inflation b. Stagflation c. Deflation d. Demand-pull inflation e. Cost-push inflation
c. Deflation
_______ favor tax cuts as opposed to increased government spending. a. Ideological liberals b. Moderates c. Ideological conservatives
c. Ideological conservatives
A leakage is defined as ______. An example being ______. a. Addition of income to the circular flow; Saving b. Income not directly spent on domestic output; Investment c. Income not directly spent on domestic output; Savings d. Addition of income to the circular flow; Investment
c. Income not directly spent on domestic output; Savings
What makes forecasting the business cycle so difficult? a. Its regular pattern of recessions and expansions b. The lack of early signals from leading economic indicators c. Its lack of periodicity d. Forecasting is relatively simple with a strong background in macroeconomics
c. Its lack of periodicity
The famous quote "in the long run we're all dead" was said by a. Jean Baptiste Say b. Thomas Malthus c. John Maynard Keynes d. Adam Smith
c. John Maynard Keynes
If the economy enters a recession, automatic stabilizers will naturally adjust and provide additional funding for _________. This includes unemployment compensation for those lacking stable and secure work. a. Discretionary expenditures b. Pension Funds c. Non-discretionary expenditures d. Energy efficient production processes
c. Non-discretionary expenditures
Although rigorous environmental standards promote clean air and water for an entire nation, such regulations take a heavy toll on a firm's annual expenses. How are a business's annual expenses affected when an entire industry attempts to clean up its production process? a. Business expenses remain constant as they change suppliers b. Expenses decrease as they begin to purchase resources in bulk, leading to economies of scale where the cost of production decreases up until a certain point c. Overhead costs increase as a result of changing to sustainable and biodegradable resources or renewable sources of energy
c. Overhead costs increase as a result of changing to sustainable and biodegradable resources or renewable sources of energy
A recession is often a great time for an executive team to implement strategic development programs. What are the advantages of a corporate expansion during an economic downturn? a. Interest rates tend to be low, lowering the cost of borrowing funds b. Recessions allow for the acquisition of rival companies at a relatively cheap price c. Large-scale capital can be purchased during a recession at low cost d. All of the above e. A and B only
d. All of the above
Why does the aggregate demand curve slope downward? a. The "wealth effect" b. The "interest rate effect" c. The "net export effect" d. All of the above
d. All of the above
Forecasting the business cycle is important to: a. Business executives interested in implementing their plans and strategies b. Policymakers interested in fighting recession or inflation c. Stock market investors interested in allocating funds to various assets d. All these
d. All these
Through the Quantity Theory of Money, Classical economists deduce that by stimulating real GDP through additional printing of money, ________, the outcome will result in _______ rather than an increase in purchasing power and, thus, consumption. a. Tax policy; stagflation b. Fiscal policy; deflation c. Trade policy; an increase in the price level d. Monetary policy; inflation
d. Monetary policy; inflation
A flatter long-term growth trend line signals a a. Constant growth in real GDP over time b. Constant growth in real GDP over time c. Rapid growth in nominal GDP d. Slower growth in real GDP
d. Slower growth in real GDP
The equation for productivity is a. Total inputs divided by total output b. Price multiplied by money supply c. Price multiplied by quantity d. Total output divided by total inputs
d. Total output divided by total inputs
When a nation is said to export more than it imports, it is running a ______. In contrast, if a country imports more than it exports, it is entering a ______. a. Trade deficit; trade surplus b. Budget deficit; budget surplus c. Budget surplus; budget deficit d. Trade surplus; trade deficit
d. Trade surplus; trade deficit
The diagram below depicts the relationship between GDP and the unemployment rate. Which arrow (black trough or red peak) depicts a recessionary gap and describe its effect on the unemployment rate. 1. Red peak; a larger recessionary gap means a lower unemployment rate 2. Black trough; a smaller recessionary gap indicates a lower unemployment rate 3. Red peak; a smaller recessionary gap means a higher unemployment rate 4. Black trough; a larger recessionary gap signals an increase in the unemployment rate 5. 2 and 4 only 6. 1 and 3 only
e. 2 and 4 only
What happens when economists misinterpret changes within the various leading economic indicators, such as consumer confidence or trade reports? a. Excess inventory may build up b. Firms may be unable to meet the demand for their goods c. The unemployment rate will increase d. The economy will slow down e. All of the above
e. All of the above
Which items are incorporated within the Producer Price Index (PPI)? a. Food b. Medical Care c. College Tuition d. Energy e. a and d f. a, b and d
e. a and d
Classical economists believe that a. Recession is a natural occurrence within the business cycle b. Unemployment is an unusual phenomenon throughout the business cycle c. The economy is self-correcting d. There is no need for government intervention in the free market e. All of the above f. A, C and D only
f. A, C and D only
