Practice Test 2 Macro

Refer to the accompanying data (all figures in billions of dollars). NDP (net domestic product) is A. $116 B. $121 C. $126 D. $150

A. $116

From 33. The national income is A. $265 B. $223 C. $208 D. $346

A. $265

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is A. $510 billion B. $490 billion C. $10 billion D. $990 billion

A. $510 billion

Darcy and Rachel live down the hall from each other in the same dorm. Darcylikes to play her music loudly down the hall, and Rachel finds the musicannoying. A Coase theorem solution for this problem would be for A. Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music B. the director of housing to impose a fine on Darcy whenever she plays her music too loud C. the dorm government to set a payment schedule by which Rachel would compensate Darcy for making her play her music at a lower volume D. the college to ban the playing of music in dorms

A. Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music

Amanda buys a ruby for $330 for which she was willing to pay $340. Theminimum acceptable price to the seller, Tony, was $140. Amanda experiences A. a consumer surplus of $10, and Tony experiences a producer surplus of $190 B. a producer surplus of $200, and Tony experiences a consumer surplus of $10 C. a consumer surplus of $670, and Tony experiences a producer surplus of $200 D. a producer surplus of $10, and Tony experiences a consumer surplus of $190

A. a consumer surplus of $10, and Tony experiences a producer surplus of $190

Which of the following is a final good or service? A. a haircut purchased by a father for his 12-year-old son B. fertilizer purchased by a farm supplier C. diesel fuel bought for a delivery truck D. Chevrolet windows purchased by a General Motors assembly plant

A. a haircut purchased by a father for his 12-year-old son

Upon learning that his auto transmission is about to fail, Ray Roma sells his carto an unsuspecting buyer. This circumstance illustrates the A. adverse selection problem B. free-rider problem C. moral hazard problem D. principal-agent problem

A. adverse selection problem

Inflation is undesirable because it A. arbitrarily redistributes real income and wealth B. invariably leads to hyperinflation C. usually is accompanied by declining real GDP D. reduces everyone's standard of living

A. arbitrarily redistributes real income and wealth

Technological advance is tightly intertwined with A. capital formation B. household consumption C. government spending D. population growth

A. capital formation

Refer to the diagram of the market for product X. Curve S t embodies all costs(including externalities), and D t embodies all benefits (including externalities)associated with the production and consumption of X. Assuming theequilibrium output is Q 2 , we can conclude that the existence of external A. costs has resulted in an overallocation of resources to X B. benefits has resulted in an overallocation of resources to X C. costs has resulted in an underallocation of resources to X D. benefits has resulted in an underallocation of resources to X

A. costs has resulted in an overallocation of resources to X

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would A. decline B. increase C. increase in the short run but eventually decline D. be unchanged

A. decline

Demand-side market failures occur when A. demand curves don't reflect consumers' full willingness to pay for a good or service B. demand curves don't reflect the full cost of producing a good or service. C. government imposes a tax on a good or service. D. a good or service is not produced because no one wants it

A. demand curves don't reflect consumers' full willingness to pay for a good or service

When gross private domestic investment exceeds depreciation, it can be concluded that A. net investment is positive B. net investment is negative C. the economy is exporting more than it imports D. the economy is importing more than it exports

A. net investment is positive

The downward stickiness of wages serves like a _____ in the labor market A. price floor B. price ceiling C. demand determinant D. supply determinant

A. price floor

The figure depicts a situation where A. prices are sticky, but output is flexible B. prices are flexible, but output is constant C. prices and output are both flexible D. prices are sticky and output is constant

A. prices are sticky, but output is flexible

The debt-deflation spiral means that the ... value of debt ... because of ... price levels associated with an economic downturn. A. real; increases; lower B. real; decreases; lower C. nominal; increases; lower D. nominal; decreases; higher

A. real; increases; lower

Cost-push inflation A. reduces real ouput B. increases real output C. reduces the unemployment rate D. raises the natural rate of unemployment

A. reduces real ouput

Demand shocks A. refer to unexpected changes in the desires of households and businesses to buy goods and services B. refer to unexpected changes in the ability of firms to produce and sell goods and services C. always have a negative effect on the economy D. cause fewer short-run fluctuations than supply shocks

A. refer to unexpected changes in the desires of households and businesses to buy goods and services

Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost)level of 30 scratching posts per week. Kara's also maintains an inventory of 20scratching posts. If prices are sticky and there is a positive demand shock this week resulting in demand for 40 scratching posts, we would expect Kara's to A. sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs B. permanently expand production to 40 scratching posts per week C. raise prices on scratching posts D. introduce a new line of scratching posts

A. sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs

If intermediate goods and services were included in GDP, A. the GDP would be overstated B. the GDP would then have to be deflated for changes in the price level C. nominal GDP would exceed real GDP D. the GDP would be understated

A. the GDP would be overstated

"Net foreign factor income" in the national income accounts refers to the difference between A. the income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S B. the value of products sold by Americans to other nations and the value of products bought by Americans from other nations C. the value of investments that Americans made abroad and the value of investments made by foreigners in the U.S D. the income earned by Americans in the U.S. minus the income earned by foreigners in the U.S

A. the income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.

As it applies to insurance, the adverse selection problem is the tendency for A. those most likely to collect on insurance to buy it B. those who buy insurance to take less precaution in avoiding the insured risk C. sellers to price discriminate D. sellers to restrict output and charge high prices

A. those most likely to collect on insurance to buy it

In 2022, the consumer price index (CPI) is 292.7. In 2023, the CPI is 304.3. The economy experiences a A. 1.0% inflation B. 4.0% inflation C. 11.6% inflation D. 11.6% deflation

B. 4.0% inflation

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is A. $180 billion B. $190 billion C. $200 billion D. $210 billion

B. $190 billion

If the annual growth in a nation's productivity is 2.8 percent rather than 1.5percent, then the nation's standard of living will double in about A. 20 years instead of 40 years B. 25 years instead of 47 years C. 46 years instead of 70 years D. 55 years instead of 115 years

B. 25 years instead of 47 years

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009and 2010, the real GDP rose by approximately A. 160 percent B. 44 percent C. 37 percent D. 80 percent

B. 44 percent

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percentage of potential GDP is A. 4 percent B. 8 percent C. 10 percent D. 2 percent

B. 8 percent

Refer to the figures in 22. Which figure(s) represent(s) a situation where negative demand shocks can result in a recession? A. A only B. B only C. Both A and B D. Neither A nor B

B. B only

Refer to the figures. Which figure(s) represent(s) a situation where firms are likely to hold inventories to accommodate unexpected changes in demand? A. A only B. B only C. Both A and B D. Neither A nor B

B. B only

Which of the following statements is most accurate about advancedeconomies? A. Economies experience a positive growth trend over the short run but experience significant variability in the long run B. Economies experience a positive growth trend over the long run but experience significant variability in the short run C. Economies experience positive and stable growth over both the long run and short run D. Economies experience little long-run growth in output but can experience significant growth in the short run

B. Economies experience a positive growth trend over the long run but experience significant variability in the short run

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? A. military goods B. capital goods C. textile products D. agricultural commodities

B. capital goods

The phrase "too much money chasing too few goods" best describes A. the GDP gap B. demand-pull inflation C. the inflation premium D. cost-push inflation

B. demand-pull inflation

Transfer payments are A. excluded when calculating GDP because they only reflect inflation B. excluded when calculating GDP because they do not reflect current production C. included when calculating GDP because they are a category of investment spending D. included when calculating GDP because they increase the spending of recipients

B. excluded when calculating GDP because they do not reflect current production

By summing the dollar value of all market transactions in the economy, we would A. determine the market value of all resources used in the production process B. obtain a sum substantially larger than the GDP C. determine value added for the economy D. measure GDP

B. obtain a sum substantially larger than the GDP

Strong property rights are important for modern economic growth because A. they allow governments to extract the gains from private citizens' investments B. people are more likely to invest if they don't fear that others can take their returns on investment without compensation C. they ensure an equitable distribution of income. D. business cycle fluctuations will be smaller and less likely to disrupt investment patterns

B. people are more likely to invest if they don't fear that others can take their returns on investment without compensation

Suppose that Techno TV produces LCD televisions. At a price of $2,000 pertelevision, Techno determines that its optimal output is 3,000 television sets perweek. If prices are sticky and fears of a recession reduce demand for LCDtelevisions, we would expect Techno to A. reduce output in the long run B. reduce output in the short run C. raise prices in the short run to compensate for lost revenue D. lower prices in the short run to offset the reduced demand

B. reduce output in the short run

Innovations such as the microchip and the Internet lead to business cycle variations because A. they cause prices to be sticky B. significant innovations occur irregularly and unexpectedly C. the central bank will often change the money supply in response D. they cause prices to be flexible

B. significant innovations occur irregularly and unexpectedly

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called A. frictional unemployment B. structural unemployment C. cyclical unemployment D. compositional unemployment

B. structural unemployment

Supply-side market failures occur when A. supply curves don't reflect consumers' full willingness to pay for a good or service B. supply curves don't reflect the full cost of producing a good or service C. government regulates production of a good or service D. a good or service is not supplied because no one wants it

B. supply curves don't reflect the full cost of producing a good or service

Empirical studies suggest that A. labor productivity has declined throughout U.S. history B. technological advances account for about 40 percent of U.S. productivity growth C. achieving economies of scale is the most important factor in U.S. economic growth D. all U.S. economic growth from between 2001 and 2007 can be attributed to increases in the quantity of labor

B. technological advances account for about 40 percent of U.S. productivity growth

A positive externality or spillover benefit occurs when A. product differentiation increases the variety of products available to consumers B. the benefits associated with a product exceed those accruing to people who consume it C. a firm does not bear all of the costs of producing a good or service D. firms earn positive economic profits

B. the benefits associated with a product exceed those accruing to people who consume it

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle A. under the demand curve and below the actual price B. under the demand curve and above the actual price C. above the supply curve and above the actual price D. above the supply curve and below the actual price

B. under the demand curve and above the actual price

Official unemployment statistics A. understate unemployment because individuals receiving unemployment compensation are counted as employed B. understate unemployment because discouraged workers are not counted as unemployed C. include cyclical and structural unemployment but not frictional unemployment D. overstate unemployment because workers who are involuntarily working parttime are counted as being employed

B. understate unemployment because discouraged workers are not counted as unemployed

When unanticipated deflation occurs, A. both creditors and debtors benefit B. both creditors and debtors are hurt C. debtors are hurt, but creditors benefit D. creditors are hurt, but debtors benefit

C. debtors are hurt, but creditors benefit

The barter economy may emerge when the economy is in ... phases A. deflationary B. inflationary C. hyperinflationary D. zero-inflation

C. hyperinflationary

The table contains data for a hypothetical single-product economy. Real GDP in year 4 is A. $320 B. $450 C. $200 D. $800

C. $200

Refer to the accompanying data. All figures are in billions of dollars. The gross domestic product is A. $326 B. $282 C. $307 D. $300

C. $307

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about A. 2.8 percent B. 3.4 percent C. 1.6 percent D. 4.1 percent

C. 1.6 percent

People enjoy outdoor holiday lighting displays and would be willing to pay to see these displays but can't be made to pay. Because those who put up lights are unable to charge others to view them, they don't put up as many lights as people would like. This is an example of a A. Negative externality B. Supply-side market failure C. Demand-side market failure D. Government failure

C. Demand-side market failure

Suppose the total monetary value of all final goods and services produced in a particular country in 2015 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that A. GDP in 2015 is $450 billion B. NDP in 2015 is $450 billion C. GDP in 2015 is $500 billion D. inventories in 2015 fell by $50 billion

C. GDP in 2015 is $500 billion

What is an advantage of mild inflation according to some economists?' A. It helps to close the GDP gap B. It reduces the inflation premium C. It makes it easier for firms to adjust real wages downward as demand for their products falls D. It reduces frictional, structural, and cyclical unemployment in the economy to make the economy more productive

C. It makes it easier for firms to adjust real wages downward as demand for their products falls

Why are high rates of unemployment of concern to economists? A. Higher rates of unemployment generally lead to higher inflation rates B. Environmental destruction is more prevalent when unemployment rates are high C. There is lost output that could have been produced if the unemployed had been working D. All of these options are reasons why economists are concerned about high unemployment rates

C. There is lost output that could have been produced if the unemployed had been working

Cost-push inflation may be caused by A. a decline in per-unit production costs B. a decrease in wage rates C. a negative supply shock D. an increase in resource availability

C. a negative supply shock

The GDP gap measures the difference between A. NDP and GDP B. NI and PI C. actual GDP and potential GDP D. nominal GDP and real GDP

C. actual GDP and potential GDP

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the A. frictional unemployment rate is 5 percent B. cyclical unemployment rate and the frictional unemployment rate together are 5percent C. cyclical unemployment rate is 4 percent D. natural rate of unemployment will eventually increase

C. cyclical unemployment rate is 4 percent

Which of the following best defines national income? A. income received by households less personal taxes B. the before-tax income received by households C. incomes earned by U.S. resource suppliers plus taxes on production and imports D. the market value of the annual output net of consumption of fixed capital

C. incomes earned by U.S. resource suppliers plus taxes on production and imports

Supply factors in economic growth include the following, except A. improvements in technology B. expansion of capital stock C. increases in purchases of output D. better education and training

C. increases in purchases of output

Refer to the figure. Assuming this market is representative of the economy as a whole, this economy A. is highly susceptible to recessions and high unemployment B. faces regularly fluctuating output levels in response to demand shocks C. is capable of always producing at its optimal capacity D. can only lessen the impacts of business cycles through active government policy

C. is capable of always producing at its optimal capacity

A lender need not be penalized by inflation if the A. long-term rate of inflation is less than the short-term rate of inflation B. short-term rate of inflation is less than the long-term rate of inflation C. lender correctly anticipates inflation and increases the nominal interest rate accordingly D. inflation is unanticipated by both borrower and lender

C. lender correctly anticipates inflation and increases the nominal interest rate accordingly

Sharply rising oil prices are most likely to lead to a A. negative demand shock B. positive demand shock C. negative supply shock D. positive supply shock

C. negative supply shock

Supply shocks A. occur more frequently than demand shocks B. usually result from fiscal and monetary policy changes C. occur when sellers face unexpected changes in the availability and/or prices of key inputs D. have been responsible for most of the recessions in the United States since World War II

C. occur when sellers face unexpected changes in the availability and/or prices of key inputs

Which of the following would most likely move the economy into a recession in the short term? A. invention of a new product that most consumers want to buy B. innovations in management that enhance worker productivity C. the central bank printing less money than was anticipated D. Congress passing a reduction in personal income tax rates

C. the central bank printing less money than was anticipated

Economies of scale refers to A. the idea that proprietorships are less bureaucratic and therefore more efficient than corporations B. public investments in highways, schools, utilities, and such C. the fact that large producers may be able to use more efficient technologies than smaller producers D. the reallocation of labor from less-productive to more-productive uses

C. the fact that large producers may be able to use more efficient technologies than smaller producers

Consumer surplus arises in a market because A. the quantity supplied is greater than quantity demanded at the current market price B. the quantity demanded is greater than quantity supplied at the current market price C. the market price is below what some consumers are willing to pay for the product D. the market price is higher than what some consumers are willing to pay for the product

C. the market price is below what some consumers are willing to pay for the product

Core inflation measures A. changes in the prices of the most commonly used goods, including food and energy B. underlying changes in the CPI, after accounting for the price volatility of high-tech goods C. underlying increases in the CPI after removing volatile food and energy prices D. changes in key input prices

C. underlying increases in the CPI after removing volatile food and energy prices

Potential Real GDP = $200 billion Natural Rate of Unemployment = 6 Percent Actual Rate of Unemployment = 12 Percent 56. Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The amount of output being forgone by the economy is A. $12 billion B. $15 billion C. $18 billion D. $24 billion

D. $24 billion

If the frictional, cyclical, and structural rates of unemployment are 2%, 3%, and 4%, what is the best estimate of the natural rate of unemployment? A. 3% B. 4% C. 5% D. 6%

D. 6%

Refer to the figures. Which statement is correct? A. Figure A: price is sticky; economy is in the short run. Figure B: price is flexible; economy is in the long run B. Figure A: price is sticky; economy is in the long run. Figure B: price is flexible; economy is in the short run C. Figure A: price is flexible; economy is in the short run. Figure B: price is sticky; economy is in the long run D. Figure A: price is flexible; economy is in the long run. Figure B: price is sticky; economy is in the short run

D. Figure A: price is flexible; economy is in the long run. Figure B: price is sticky; economy is in the short run

Which of the following statements is correct? A. For a given real interest rate, the nominal interest must decrease if expected inflation increases B. For a given nominal interest rate, the real interest will decrease if inflation decreases. C. For a given expected inflation rate, the nominal interest must increase if real interest decreases D. For a given real interest rate, the nominal interest must increase if expected inflation increases

D. For a given real interest rate, the nominal interest must increase if expected inflation increases

A contraction in consumer demand more likely to cause ... in the short run, while trigger ... in the long run A. Inflation; unemployment B. Unemployment; inflation C. Deflation; unemployment D. Unemployment; deflation

D. Unemployment; deflation

Suppose a family's income increases by 5 percent at the same time that inflation is 6 percent. Then the family's living standard A. Will increase by 5 percent B. Will not change C. Will increase by 1 percent D. Will decrease

D. Will decrease

Graphically, producer surplus is measured as the area A. under the demand curve and below the actual price B. under the demand curve and above the actual price C. above the supply curve and above the actual price D. above the supply curve and below the actual price

D. above the supply curve and below the actual price

Which of the following will not increase the average productivity of labor? A. an increase in the stock of real capital B. improvement in the education and health of the population C. technological progress D. an increase in the size of the labor force

D. an increase in the size of the labor force

Refer to the diagram. Which of the following areas best represents the efficiency loss from underproduction? A. a + c B. e + f C. a + b + c + d D. b + d

D. b + d

Refer to the diagram of the market for product X. Curve S t embodies all costs(including externalities), and D t embodies all benefits (including externalities)associated with the production and consumption of X. Assuming the marketequilibrium output is Q 1 , we can conclude that the existence of external A. costs has resulted in an overallocation of resources to X B. benefits has resulted in an overallocation of resources to X C. costs has resulted in an underallocation of resources to X D. benefits has resulted in an underallocation of resources to X

D. benefits has resulted in an underallocation of resources to X

If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals A. disposable income B. personal income C. net domestic product D. gross domestic product

D. gross domestic product

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then A. both lenders and borrowers benefit B. both lenders and borrowers are hurt C. borrowers are hurt, but lenders benefit D. lenders are hurt, but borrowers benefit

D. lenders are hurt, but borrowers benefit

Refer to the figure in 19. Assuming this market is representative of the economyas a whole, a positive demand shock will A. increase both the price level and the quantity of output produced B. increase output but leave prices unchanged C. lower the price level but leave output unchanged D. raise the price level but leave output unchanged

D. raise the price level but leave output unchanged

Which of the following is used to measure directly the average standard of living across countries? A. real GDP B. nominal GDP C. purchasing power parity D. real GDP per person

D. real GDP per person

If an economy wants to increase its current level of investment, it must A. sacrifice future consumption B. print more money C. offer more stocks and bonds to financial investors D. sacrifice current consumption

D. sacrifice current consumption

If personal income exceeds national income in a particular year, we can conclude that A. transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and taxes on production and imports B. the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits exceeded transfer payments C. consumption of fixed capital and taxes on production and imports exceeded personal taxes D. transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits

D. transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits