Midterm 2

An underemployed person is one who is: a. retired or outside of the labor force. b. employed in the underground economy. c. working but whose skills are not fully utilized. d. cyclically unemployed.

C

If the interest rate is 5%, what is the approximate future value of $500 in three years? a. $525 b. $431 c. $579 d. $530

C

In order to lower output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. a. expansionary; raises; lowers b. contractionary; raises; lowers c. contractionary; lowers; raises

C

The Fed decides to increase the money supply. Which of the following is most likely to happen? a. Aggregate supply shifts to the right b. Money demand shifts out c. Price level increases d. Investment decreases

C

If Larry is a hand-to-mouth consumer and has just received a gift of $350, we can expect Larry to exhibit: a. no change in MPC. b. a large change in consumption. c. a large change in saving. d. a small change in consumption.

B

Expansionary monetary policy is intended to lead to: a. higher investment spending b. lower GDP c. lower aggregate demand d. higher interest rates

A

The law of diminishing returns means that: a. additional investments in physical capital do not boost output in wealthier countries with already existing large capital stocks. b. additional investments in physical capital are not as productive as additional investments in human capital. c. additional investments in physical capital will significantly boost output in wealthier countries with already existing large capital stocks. d. the economic growth rates of wealthier countries must always exceed the economic growth rates of poorer countries.

A

When the economy is operating below the full-employment level of output, the appropriate fiscal policy is to: a. increase government spending b. decreasing government spending c. buy bonds d. sell bonds

A

The reserve requirement is increased by the Federal Reserve Board of Governors. As a result _______. a. money demand shifts left b. money supply shifts left c. money demand shifts right d. money supply shifts right

B

Why does a temporary change in income lead to only a small change in consumption for a consumption smoother? a. The consumer prefers to focus on current consumption rather than future consumption. b. The MPC always tends to be low. c. The consumer tends to spread a temporary spike in income over the lifetime of the consumer. d. Temporary increases in income are heavily taxed.

C

You have four friends. Which of your friends can be described as "structurally unemployed"? a. Dolly, a recent graduate who is looking for the job that best suits her qualifications b. Kirstie, who was fired for being inefficient at her job c. Marty, who cannot find a job, though he is willing to accept less than the existing wage d. Kevin, who does not like the company he works for

C

. The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation? a. There has been an increase in government spending b. Productivity has increased c. Expected return on investment has increased d. Input prices have increased

D

Which of the following is an example of someone who is experiencing money illusion? a. The CPI in an economy has decreased by 5%, but Vivian will not accept lower nominal wages because she believes this is unfair. b. Prices have not changed in the economy, so your boss does not give you a raise. c. The CPI in an economy has increased by 2.3%, and Paul's nominal wage is increased by 2.3%. d. Darren sees that prices in the economy have risen by 2% and that the nominal interest rate on his savings account rose 0.5%. So Darren knows he is experiencing a 1.5% decrease in his real interest earnings.

A

What happens to the investment line if the government institutes a tax break for funds invested? a. The investment line shifts to the left. b. The investment line shifts to the right. c. There is a movement down and to the right along the same investment line. d. There is a movement up and to the left along the same investment line.

B

When a U.S. consumer buys Canadian maple syrup at the grocery store, this purchase is: a. a transfer payment. b. an import. c. an export. d. gross domestic product.

B

Which of the following would lead to a rise in economic growth? a. a decrease in human capital b. an increase in female employment in an economy c. a decrease in the labor force participation rate in an economy d. an increase in the dependency ratio

B

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on a proposed project. Up-front cost: $350,000 Next year's revenue: $45,000 Real interest rate: 8% Depreciation rate: 10% How much profit does the project yield, and should your client invest in this project? a. Yes, the client should invest because the project yields a $305,000 profit. b. No, the client should not invest because the project yields a $100,000 loss. c. Yes, the client should invest because the project yields a $100,000 profit. d. No, the client should not invest because the project yields a $305,000 loss.

B

Total consumption is $1,800 when income is $2,000, and total consumption increases to $2,600 when income is $3,000. What is the marginal propensity to consume? a. 0.2 b. 1.25 c. 0.8 d. 0.5

C

Consider and economy that is in long-run equilibrium. Because of increased consumer optimism, consumer spending increases in this economy. As a result ______. To correct this, the government could use ______ fiscal policy. a. AD shifts right; expansionary b. AD shifts left; contractionary c. AS shifts left; expansionary d. AD shifts right; contractionary

D

Consider the following basket of goods: 50 hamburgers, 10 textbooks, eight T-shirts, and 100 bottles of water. Suppose that in 2015, each hamburger was $3.50, each textbook was $89.99, each T-shirt was $14, and each bottle of water was $1.50. In 2016, each hamburger was $3.60, each textbook was $95, each T-shirt was $13, and each bottle of water was $1.65. What was the approximate inflation rate in 2016? a. 4% b. 4.4% c. -4.7% d. 4.7%

D

Which of the following shows the medium of exchange function of money? a. Wilma wants to sell her old car, and she values it at $2,400. b. Darius goes window shopping. c. Mena saves his money in a certificate of deposit at the bank. d. Daniela goes to the store and purchases roses with U.S. dollars.

D

You own a factory that makes wasabi peas. Last month, you purchased $560,000 worth of wasabi paste, peas, cane sugar, palm oil and sea salt. Using these inputs, you made and sold 1 million snack bags of wasabi peas at $3.49 each. How much did GDP change? a. GDP rises by $4,050,000. b. GDP rises by $560,000. c. GDP rises by $2,930,000. d. GDP rises by $3,490,000.

D