Test 3

The unemployment rate equals

(labor force - employed) / labor force.

If Congress increases government spending, it is using

fiscal policy

The government wants to encourage consumer spending through cutting income taxes. This is an example of

fiscal policy

If 20 million workers are unemployed and 180 million workers are employed, then the unemployment rate is

10%

If the labor force is 500 and employment is 450, then the unemployment rate is

10%

if the labor force is 50 million and 48 million are employed then the unemployment rate is:

4%

The________ can change the quantity of money in the economy

Federal Reserve

Which of the following statements is FALSE?

Business cycles are always symmetric the length of an expansion is the same as the length of a contraction

The concept ofʺ market clearingʺ is adopted and defended by

Classical economists.

Which of the following is a CORRECT statement?

Shareholders earn dividends, but bondholders don't

Promissory notes issued by the federal government when it borrows money are known as

Treasury bonds.

Which of the following is an assumption used by Classical economists?

Wages adjust both upward and downward.

An example of a transfer payment is

a Social Security retirement benefit.

A transfer payment is

a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment.

In a business cycle, a trough represents the end of

a recession

Which of the following is a topic studied in Macroeconomics?

aggregate behavior of households and industries

A period when the economy shrinks is known as

all of the above.

In a business cycle, a peak represents the end of

an expansion.

In a business cycle, a peak represents the end of________ and a trough represents the end of

an expansion; a recession

A capital gain is

an increase in the value of an asset over the price initially paid for it.

Unemployment means that

at the going wage rate, there are people who want to work but cannot find work.

An increase in the value of an asset over the price initially paid for it is a

capital gain.

The diagram that shows the income received and payments made by each sector of the economy is the

circular flow diagram.

A promissory note issued by a corporation when it borrows money is a

corporate bond.

Dividends are

corporate profits distributed among shareholders.

According to the Classical model, unemployment

could not persist because wages would fall to eliminate the excess supply of labor.

To get the economy out of a slump, Keynes believed that the government should

decrease taxes and/or increase government spending.

In the circular flow diagram, firms________ labor and households________ goods and services

demand; demand

A prolonged and deep recession is called

depression

The portion of a corporation's profits that a firm pays out each period to its shareholders is a

dividend.

If output is rising and unemployment is falling, the economy MUST be in a(n)

expansion

The period in the business cycle from a trough to peak is called a(n)

expansion

A period during which aggregate output rises is known as a(n)

expansion.

Between a trough and a peak, the economy goes through a(n)

expansion.

Government policies regarding taxes and expenditures are called

fiscal policy

In the circular flow diagram, households demand________ and supply________.

goods and services; labor.

Which of the following is a topic studied in Macroeconomics?

gross domestic product

The demanders in the goods- and- services market are

households, the government, business firms, and the rest of the world.

A period of very rapid increase in the overall price level is known as

hyperinflation.

Inflation is a(n)

increase in the overall price level.

To bring the economy out of an inflationary period, Keynes argued that the government should

increase taxes and/or decrease government spending.

Suppose the economy suffers a high rate of unemployment. According to Keynesian economists, the government should increase employment by

increasing government spending.

An increase in the overall price level is known as

inflation.

According to the Classical economists, the economy

is self- correcting

Policies designed to affect the quantity of money are

monetary policy

The Federal Reserve affecting the supply of money is known as

monetary policy

If the central bank decreases the money supply, it is conducting

monetary policy.

In the goods- and- services market, households

only demand.

According to Classical models, the level of employment is determined primarily by

prices and wages.

Between a peak and a trough, the economy goes through a(n)

recession.

The period in the business cycle from a peak to a trough is a(n)

recession.

Unemployment generally________ during recessions and________ during expansions.

rises; falls.

A household that spends less than it receives in income during a given period is

saving.

The term business cycle refers to the

short- term ups and downs in the level of economic activity.

According to Classical economists, if the quantity of labor demanded exceeds the quantity supplied, there is a

shortage of labor and wages will rise.

Rapid increases in the price level during periods of recession or high unemployment are known as

stagflation.

The demand for corn has increased in May without any change in supply. Eight months later there still has been no change in corn prices. This is an example of a

sticky price.

The demand for massage therapists declined in the spring of 2007, but the starting wages paid to massage therapists was still the same at the end of 2007. This is an example of a

sticky price.

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are

sticky prices.

The government implements fiscal policy when it changes

taxes and/or spending.

Macroeconomic policies became more influenced by Keynesʹ theories starting with,

the Great Depression

Deflation occurs when

the average price level declines

Aggregate behavior is

the behavior of all households and firms together

In which basic market would DVDs be traded?

the goods and services market

According to Keynes, the level of employment is determined by

the level of aggregate demand for goods and services.

The trend of the economy is

the long run growth path of the economy.

In which of the following markets are funds demanded and supplied?

the money markets

A dividend is

the portion of a corporation's profits that the firm pays out each period to its shareholders.

Which of the following is NOT a topic studied in Macroeconomics?

the price of IBM computers

Stagflation occurs when the economy's inflation rate is high and

the unemployment rate is high.

Unemployment implies that in the labor market

there is an excess supply of labor

The major lesson of the circular flow diagram is that

total income in the economy must always equal total spending.

It has become conventional to classify an economic downturn as a recession when aggregate output declines for

two consecutive quarters

In the circular flow diagram, the different payments made by firms to households include

wages and profits.