Ch 1 Review E300
Firms are able to expand their operations by acquiring funds from households. They can do this directly through financial markets such as ________, or indirectly through financial intermediaries such as ________. A. banks; bond markets B. stock markets; banks Your answer is correct. C. stock markets; bond markets D. bond markets; stock markets
B
If you were building a macroeconomic model that explores the effect of an increase in income tax rates on the size of the labor force, the endogenous variable(s) would be A. income tax rates. B. the size of the labor force. Your answer is correct. C. both income tax rates and the size of the labor force. D. neither income tax rates nor the size of the labor force.
B
If you were building a macroeconomic model that explores the effect of an increase in income tax rates on the size of the labor force, the exogenous variable(s) would be A. the size of the labor force. B. income tax rates. Your answer is correct. C. both income tax rates and the size of the labor force. D. neither income tax rates nor the size of the labor force.
B
In building an economic model, variables that will be explained by the model are referred to as ________ variables. A. fluctuating B. endogenous Your answer is correct. C. exogenous D. demonstrative
B
Over the past 20 years, foreign financial investment in the United States has A. remained fairly consistent. B. increased significantly. Your answer is correct. C. decreased significantly. D. become negative.
B
Which of the following is an example of a monetary policy? A. The federal government increases income tax rates on people earning more than $250,000. B. The duration of unemployment benefits is extended to 99 weeks. C. The Federal Reserve increases interest rates. Your answer is correct. D. Congress authorizes a cut in spending on education.
C
Long-run economic growth is: A. the expansion of the population over time. B. represented by increases in the money supply. C. the process by which productivity raises the average standard of living. Your answer is correct. D. the expansion of nations through colonization
C
All of the following are part of an economic model except A. assumptions. B. data. C. hypotheses. D. opinions.
D
In the United States, periods of deflation A. were virtually nonexistent until after 1980. B. only occurred before the Civil War. C. primarily occurred during times of war. D. were relatively common prior to 1930.
D
The openness of the U.S. economy has A. decreased over time. B. decreased over the past 30 years, following a 50 year increase. C. remained fairly consistent over time. D. increased over time.
D
The quantity of goods and services that can be produced by one worker or by one hour of work is known as A. real domestic output. B. per−capita GDP. C. the labor force participation rate. D. labor productivity.
D
The average rate of growth of U.S. real GDP is approximately 3%, as measured over long periods of time. China has been averaging growth rates that are considerably higher than 3% for much of the last two decades, while some sub-Saharan African countries have experienced growth rates that are considerably lower than 3% or even negative. The income gap between the United States and China is ______________. The income gap between the United States and these African countries is ______________. In general, for lower-income countries to "catch up" to higher-income countries, in terms of growth rates, the growth rate of the lower-income countries must be ______________ the growth rate of the higher-income countries.
Narrowing, Increasing, Greater Than
An exogenous variable is __________, while an endogenous variable is __________.
taken as given, explained by the model
Most periods of high inflation have been during ______________. In the last 50 years, periods of deflation have been uncommon ______________.
wartime, uncommon
What is the difference between normative analysis and positive analysis? Positive analysis is concerned with ___________, and normative analysis is concerned with ____________. Economics is concerned primarily with ________________.
what is, what ought to be, positive
For the following statement, identify whether it would be a testable hypothesis. Immigration is bad for society. This hypothesis would/would not be testable.
would not
The process by which productivity raises the average standard of living is referred to as A. the economic prosperity hypothesis. B. population growth analysis. C. long−run economic growth. Your answer is correct. D. labor productivity.
C
A hypothesis in an economic model is a statement that ________ about an economic variable. A. may be either correct or incorrect Your answer is correct. B. is correct C. cannot be proven either correct or incorrect D. is incorrect
A
Economists build models: A. in order to better analyze real-world issues. Your answer is correct. B. because they are more complex versions of reality. C. because theories cannot be related to the real world. D. in order to analyze every variable that could possibly influence a particular economic concept.
A
From 1950 to 2007, the United States experienced ________ business cycle expansions, followed by ________ recessions. A. long; brief Your answer is correct. B. long; long C. brief; long D. brief; brief
A
In building an economic model, variables that are taken as given are referred to as ________ variables. A. exogenous Your answer is correct. B. endogenous C. presumptive D. concrete
A
The average inflation rate in the United States over the last 25 years has generally been: A. less than 5%. Your answer is correct. B. less than 10% but greater than 5%. C. zero. D. negative.
A
The best measure of the standard of living is generally considered to be A. real GDP per capita. Your answer is correct. B. the labor force participation rate. C. labor productivity. D. the average duration of a typical business cycle.
A
The economic analysis of extending the duration of unemployment benefits to 99 weeks involves both positive and normative analysis. Consider the following consequences of extending the duration of unemployment benefits: a. Extending the duration of unemployment benefits to 99 weeks will create less incentive for some unemployed workers to seek employment. b. Extending the duration of unemployment benefits to 99 weeks will increase the total amount of government expenditure on unemployment benefits. c. The benefits received by those collecting unemployment benefits should be valued more highly than the increase in government expenditure needed to pay the benefits. d. By extending the duration of unemployment benefits to 99 weeks, the unemployed will have more time to acquire new skills before reentering the workforce. Which of the consequences above are positive statements and which are normative statements? A. a, b, and d, are positive statements; only c is a normative statement. Your answer is correct. B. Only b is a positive statement; a, c, and d are normative statements. C. a and b are positive statements; c and d are normative statements. D. a and d are positive statements; b and c are normative statements.
A
The labor force is A. the sum of the employed and unemployed workers in an economy. Your answer is correct. B. the percentage of employed people divided by the population. C. the total number of employed people in an economy. D. the total number of people in an economy who are over the age of 16.
A
Long-run economic growth is measured by increases in: A. real GDP per capita. Your answer is correct. B. the rate of investment. C. real GDP. D. the growth rate of the population.
A
According to a recent study, college students who graduate during an economic recession end up accepting jobs that, on average, pay ________ less than the jobs accepted by students who graduate during economic expansions, and will continue to earn less for ________ after they graduate. A. 4%; 3 to 5 B. 9%; 8 to 10 years Your answer is correct. C. 17%; 12 to 15 D. 26%; 5 years
B
As a percentage of GDP, U.S. imports have been ________ and U.S. imports have been ________ since 1950. A. declining; declining B. growing; growing Your answer is correct. C. declining; growing D. growing; declining
B
Changes in ________ that are intended to achieve macroeconomic policy objectives refer to fiscal policy. A. the money supply B. government taxes and purchases Your answer is correct. C. interest rates D. exchange rates
B
Economists measure the "openness" of an economy in terms of A. how often it holds free elections. B. how much it trades with other economies. Your answer is correct. C. the percentage of foreign−born workers in its labor force. D. its immigration policies.
B
What has happened to the severity of the U.S. business cycle since 1950? A. There has been less economic stability, with sharper fluctuations in real GDP, shorter expansions, and longer recessions. B. There has been greater economic stability, with smaller fluctuations in real GDP, longer expansions, and shorter recessions. Your answer is correct. C. There has been greater economic stability; however, the tradeoff has been higher peak unemployment rates during recessions. D. There has been less economic stability, marked by fewer but deeper recessions, with higher peak unemployment rates.
B
What is a business cycle? A. Fluctuations in the rate of investment that causes a decrease in demand. B. Alternating periods of economic expansion and economic recession. Your answer is correct. C. Two consecutive quarters of negative real GDP growth. D. Any period in which real GDP deviates from its potential.
B
What problems might this increased spending pose? The result is a funding crisis that countries can solve by: A. increasing expenditures on all other programs. B. reducing government payments to retired workers. Your answer is correct. C. lowering the taxes paid by current workers. D. all of the above.
B
Which of the following is a normative economic statement? A. When the price of gasoline rises, transportation costs rise. B. The government should decrease spending on foreign aid to lower the federal deficit. Your answer is correct. C. Despite government stimulus spending, the unemployment rate remained above 9% in 2010. D. Income tax revenues decreased during the recession.
B
Which of the following is a positive economic statement? A. The government should increase spending on infrastructure to lower the unemployment rate. B. Rising global demand for gasoline has led to an increase in the price of oil. Your answer is correct. C. Income tax rates for the rich should be increased. D. The Federal Reserve should not increase interest rates until the unemployment rate falls below 7%.
B
Which of the following is an example of a fiscal policy? A. Businesses begin to export and import more products and services. B. The federal government increases income tax rates on people earning more than $250,000. Your answer is correct. C. The Federal Reserve takes action to greatly decrease the money supply. D. The Federal Reserve increases interest rates.
B
[Related to the Chapter Opener] According to an economic study, "Increasing evidence suggests that even short [recessions] can have substantial...effects on workers' careers." Source: Philip Oreopoulos, Till von Wachter, and Andrew Heisz, "The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates," IZA Discussion Paper No. 3578, June 2008. Why might graduating when there is a weak labor market have a substantial effect on a college graduate's career even after the economy has recovered and the job market has improved? A. Searching for a job or starting a new business is a lot easier during a recession than during an expansion. B. Workers who graduate in bad economies are unable to fully shift into better jobs after the economy picks up. Your answer is correct. C. Students who search for jobs in periods of high unemployment are less likely to take a lower-ranked position. D. Students who graduate into a weak labor market take jobs that do not match their skill level, which can mean lower wages in the short term and a less arduous upward mobility path once the economy recovers, as they will already have experience in their field.
B
________ refers to alternating periods of economic expansion and economic recession in an economy. A. Positive economic analysis B. The business cycle Your answer is correct. C. Fiscal policy D. Labor productivity
B
Are inflation rates roughly the same in countries around the world? Briefly explain. A. No, the inflation rate in Germany, for instance, has been much higher during 2010 than the inflation rate in Venezuela. B. No, the inflation rate varies across countries, but the deflation rate is roughly the same in countries around the world. C. No, the inflation rate varies significantly across countries because of differences in monetary and fiscal policies. Your answer is correct. D. Yes, inflation rates are roughly the same in countries around the world.
C
Article Summary According to the Office for National Statistics, consumer price inflation in Great Britain rose to 4.4% in February 2011, its highest level in more than two years, and the broader measure known as retail price inflation rose to a level unseen since 1991. In February, a majority of the Bank of England's Monetary Policy Committee voted to maintain interest rates, but the February inflation figures and the forecast of continued increases in inflation have many speculating that interest rates will soon rise. Public sector net borrowing also increased in February to 10.28 billion pounds, more than 2 billion pounds above economists' median forecasts. Source: David Milliken and Christina Fincher, 'Inflation revives talk of early interest rate rise,' Reuters, March 22, 2011. Refer to the Article Summary. Based on the information in the article summary, which of the following would make a reasonable hypothesis to test? A. An inflation rate above 4.4% is dangerous for the British economy. B. Increases in inflation are worse for the British economy than are increases in public sector net borrowing. C. As interest rates increase, eventually the inflation rate will decline. Your answer is correct. D. Rising inflation is bad for the British economy.
C
Economic models do all of the following except A. simplify some aspect of economic life. B. answer economic questions. C. portray reality in all its minute details. Your answer is correct. D. make economic ideas explicit and concrete for use by decision makers.
C
If you were building a macroeconomic model that explores the effect of the aging population on the needed expenditure for Social Security and Medicare, the exogenous variable(s) would be the A. needed expenditure on Medicare. B. needed expenditure on Social Security. C. aging population. Your answer is correct. D. needed expenditure on both Social Security and Medicare.
C
In the short run, macroeconomic analysis focuses on ________, while in the long run, the focus is on ________. A. short−run economic growth; population demographics B. fiscal policy; monetary policy C. the business cycle; long−run economic growth Your answer is correct. D. unemployment; inflation
C
Since 1900, real GDP per capita in the United States has ________ in the short run and has ________ in the long run. A. grown at a stable and consistent rate; wildly fluctuated B. decreased more often than it has increased; increased more often than it has decreased C. fluctuated; displayed a strong upward trend Your answer is correct. D. remained fairly stagnant; grown considerably
C
The actions that the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives refer to A. Federal Reserve transparency. B. fiscal policy. C. monetary policy. Your answer is correct. D. quantitative analysis.
C
The business cycle is usually illustrated using movements in A. the size of the labor force. B. labor productivity. C. real GDP. Your answer is correct. D. the inflation rate
C
The business cycle is usually illustrated using movements in A. the size of the labor force. B. labor productivity. C. real GDP. Your answer is correct. D. the inflation rate.
C
Which of the following statements about economic analysis is true? A. Economics is primarily about normative analysis, which measures the costs and benefits of different courses of action. B. Unlike positive economic analysis, normative economic analysis can be tested. C. Normative economic analysis is concerned with "what is", whereas positive economic analysis is concerned with "what ought to be". D. There is much more disagreement among economists over normative economic analysis than over positive economic analysis.
D
Which of the following statements would make a reasonable hypothesis to test? A. An unemployment rate below 4 percent is bad for the economy. B. Higher real GDP per capita figures lead to happier citizens. C. Deflation is worse than inflation in any economy. D. As tax rates increase, eventually tax revenues will decline.
D
Why is spending on government retirement programs increasing in the United States and other high-income countries? A. Since economic growth has not kept pace with inflation, real revenues have decreased. B. Because the average retirement age is decreasing, there are more years to pay benefits. C. Because governments are increasing the generosity of retirement benefits. D. Since populations are aging, there are fewer workers to fund the programs.
D
During the 2007-2009 recession and financial crisis, the following program was implemented: New credit facilities were created to allow banks to borrow funds. Identify whether this program represents monetary or fiscal policy. This program represents ____________ policy.
Monetary
