ECO2013 Final Exam

The fundamental problem of economics is... - The law of increasing opportunity costs. - The scarcity of resources relative to human wants. - How to get government to operate efficiently. - How to create employment for everyone.

- The scarcity of resources relative to human wants.

The MPC + MPS must always equal.... a.) The slope of the consumption function. b.) 1. c.) The APC. d.) 0.

1

Which curve shifts and in which direction when the following events occur in the tax accounting market? b. A new software is developed that helps individuals file their taxes on their own. 1. Neither curve changes. 2. Demand decreases. 3. Demand increases. 4. Supply increases. 5. Supply decreases.

2. Demand decreases

Which curve shifts and in which direction when the following events occur in the tax accounting market? c. There is a change in the law and tax accountants now only need one year of training to prepare taxes. 1. Neither curve changes. 2. Demand decreases. 3. Demand increases. 4. Supply increases. 5. Supply decreases.

4. Supply increases.

Which curve shifts and in which direction when the following events occur in the tax accounting market? a. "It is almost tax day (April 15)!" 1. Supply increases. 2. Demand decreases. 3. Supply decreases. 4. Neither curve changes. 5. Demand increases.

5. Demand increases.

Banks make loans to which of the following? a.) Businesses for new plants and equipment. b.) Consumers for new homes and cars. c.) The government for its projects. d.) All of the choices are correct.

All of the choices are correct.

Which of the following will cause an increase in U.S. gross exports? a.) An increase in foreign consumer income. b.) A decrease in foreign business investment. c.) An increase in U.S. consumer income. d.) A decrease in foreign business income.

An increase in foreign consumer income.

A simple function can be described or illustrated by using... a. A line graph. b. An equation involving one or more variables. c. Simply stating the relationship between one or more variables. (Example: This grows 2 inches each hour.) d. All of these answers are ways to describe or illustrate a simple function

d. All of these answers are ways to describe or illustrate a simple function

True or False: A budget deficit occurs when tax revenues are less than government spending

True

True or False: All economies must make decisions concerning what to produce, how to produce it, and for whom to produce

True

True or False: An increase in the price of one good can cause the demand for another good to increase if the goods are substitutes.

True

True or False: Classical economists believe aggregate spending adjusts quickly to equal full-employment output.

True

True or False: Every time we use scarce resources in one way, we give up the opportunity to use them in other ways.

True

True or False: Favorable expectations about future sales will cause higher investment, ceteris paribus.

True

True or False: Government failure occurs when government intervention fails to improve economic outcomes or makes them worse.

True

True or False: Gross exports depend on the behavior of foreign businesses and consumers.

True

True or False: If the economy is inside the production possibilities curve, then more output can be produced using existing resources.

True

True or False: If you burn garbage in your backyard and the smoke damages a neighbor's house, the damage is considered an externality.

True

True or False: Scalping is likely to appear when a price is set below equilibrium price by the seller.

True

True or False: The GDP of the United States includes production by foreign-owned firms that are located in the United States.

True

True or False: The Latin phrase ceteris paribus refers to holding other variables constant.

True

True or False: The basic goals of total utility maximization, total profit maximization, and total welfare maximization explain most market activity.

True

True or False: The consumption and investment expenses of firms and producers of goods/services are part of aggregate demand because they must purchase factors of production on the factor market.

True

True or False: The essential feature of the market mechanism is the price signal.

True

True or False: The federal funds rate reflects the cost for banks to borrow from other banks.

True

True or False: The free-rider dilemma occurs in the provision of public goods because an individual can realize the benefits of someone else's purchase (consumption) of a public good.

True

True or False: The law of supply and the law of demand both rely on the concept of opportunity cost.

True

True or False: The marginal propensity to consume (MPC) is related to the marginal propensity to save (MPS) by the formula MPC = 1 - MPS.

True

True or False: The national debt is a stock of IOUs created by the summation of annual deficit and surplus flows.

True

True or False: The opportunity cost of the debt is the change in the mix of output that occurs when public sector spending crowds out private sector spending.

True

True or False: To calculate the slope of a line, find the vertical distance between two points and divide it by the horizontal distance between the same two points.

True

True or False: When a curve shifts, the underlying relationship between the two variables has changed.

True

Monetary stimulus will fail if... a.)Banks are reluctant to lend money. b.) The investment demand curve is fairly flat. c.) The money demand curve is fairly steep. d.) Consumers begin to spend more.

Which shift should occur if the Fed raises the discount rate? a.) The investment demand curve should shift rightward. b.) The aggregate supply curve should shift rightward. c.) The aggregate demand curve should shift leftward. d.) The aggregate demand curve should shift rightward.

What do the 2 and 10 define in the following function: 2 + 10(x) = y a. What y is for any value you plug in for x. b. How y changes as x changes. c. The relationship between x and y. d. All of these answers mean the same thing.

d. All of these answers mean the same thing.

When jobs are outsourced.. a. Unemployment increases significantly. b. Corporations lose money. c. The economy begins to collapse. d. Production possibilities expand.

d.

What is the supply-side strategy option for macro policy? a. Increase aggregate demand b. Increase in government spending c. Reduction in trade barriers to make imported inputs less expensive d. Deregulation to make it easier and cheaper to supply more output e. Tax incentives to encourage more work f. Laissez-faire g. Tax cuts so consumers can spend more h. Increase aggregate supply i. Market self-adjustment j. Lower interest rates to encourage spending and investment

Deregulation to make it easier and cheaper to supply more output, Increase aggregate supply, Reduction in trade barriers to make imported inputs less expensive, Tax incentives to encourage more work

The cost of holding money in the form of cash is... a.) Negative. b.) Always considered by non-economists when deciding how much money to hold. c.)Equal to whatever interest you would have received at the bank or other investment alternatives. d.) Nonexistent.

Equal to whatever interest you would have received at the bank or other investment alternatives.

True or False: Government goods are delivered "free," which means that they are costless.

False

True or False: If the prices of the factors used to produce a good change, both the demand curve and the supply curve of the good will shift.

False

True or False: If there is an inflationary spiral, GDP will fall as inventories rise.

False

True or False: Income transfers become part of aggregate demand as soon as they occur.

False

True or False: The market mechanism satisfies all consumer desires and maximizes business profits.

False

True or False: The slope of a production possibilities curve is positive.

False

True or False: The standard of living rises when population growth exceeds economic growth.

False

Capital, as economists use the term, refers to... - The cash needed to start a new business. - The costs of operating a business. - Shares of stock issued by businesses. - Final goods that are used to produce other goods and services.

Final goods that are used to produce other goods and services.

a. What is the classical strategy option for macro policy? a. Increase aggregate demand b. Increase in government spending c. Reduction in trade barriers to make imported inputs less expensive d. Deregulation to make it easier and cheaper to supply more output e. Tax incentives to encourage more work f. Laissez-faire g. Tax cuts so consumers can spend more h. Increase aggregate supply i. Market self-adjustment j. Lower interest rates to encourage spending and investment

Laissez-faire, Market self-adjustment

b. What is the Keynesian strategy option for macro policy? a. Increase aggregate demand b. Increase in government spending c. Reduction in trade barriers to make imported inputs less expensive d. Deregulation to make it easier and cheaper to supply more output e. Tax incentives to encourage more work f. Laissez-faire g. Tax cuts so consumers can spend more h. Increase aggregate supply i. Market self-adjustment j. Lower interest rates to encourage spending and investment

Tax cuts so consumers can spend more, Lower interest rates to encourage spending and investment, Increase in government spending, Increase aggregate demand.

Which of the following will cause the production possibilities curve (PPC) to shift inward? a. A decrease in the size of the labor force. b. An increase in the working-age population. c. A technological advance. d. An increase in knowledge.

a. A decrease in the size of the labor force.

A technological advance would best be represented by a. A shift outward of the production possibilities curve. b. A shift inward of the production possibilities curve. c. A movement from the production possibilities curve to a point inside the production possibilities curve. d. A movement from inside the production possibilities curve to a point on the production possibilities curve.

a. A shift outward of the production possibilities curve.

Which of the following groups is protected from a sudden increase in inflation? a. Borrowers who have loans at fixed interest rates. b. Fixed-income groups. c. Workers who receive fixed wages under multiyear contracts. d. People who rent their homes under short-term leases in comparison with those who own their homes.

a. Borrowers who have loans at fixed interest rates.

A nation's GDP is a. C + I + G + (X - M). b. The sum of value added at some stages of the production process. c. The total market value of all intermediate goods and services. d. The total amount of money in circulation.

a. C + I + G + (X - M).

During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs that are classified as... a. Cyclical. b. Structural. c. Frictional. d. Seasonal.

a. Cyclical

During a period of unanticipated inflation... a. Debtors are better off and creditors are worse off. b. Debtors and creditors are both better off because of lower real interest rates. c. Individuals on fixed incomes are better off. d. All individuals are worse off because of the level of uncertainty.

a. Debtors are better off and creditors are worse off.

Suppose there are 6 million unemployed workers actively seeking a job. After a period of time, 1,500,000 of these workers become discouraged and no longer look for employment. Ceteris paribus, the unemployment rate will.. a. Decrease. b. Increase. c. Remain unchanged until the unemployed find a job. d. Increase initially but decrease when the phantom unemployed receive unemployment benefits.

a. Decrease.

Discouraged workers a. Do not actively seek employment although they desire to be employed. b. Are part of the labor force. c. Are workers who are unhappy in their jobs. d. Are counted as part of total unemployment.

a. Do not actively seek employment although they desire to be employed.

To construct the Consumer Price Index, the Bureau of Labor Statistics must.. a. Find out what people buy with their incomes and how the prices of what they buy change. b. Find out why people buy, what they buy, and how the prices of what they buy change. c. Find out what is in the typical consumer market basket on the basis of what producers produce. d. Conduct producer surveys to determine how much prices rise.

a. Find out what people buy with their incomes and how the prices of what they buy change.

The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is... a. Frictional unemployment. b. Seasonal unemployment. c. Cyclical unemployment. d. Structural unemployment.

a. Frictional unemployment.

When money is used to acquire goods and services, it is functioning as a... a.) Medium of exchange. b.) Store of value. c.) Standard of account. d.) Equation of value.

a.) Medium of exchange.

Opportunity cost may be defined as the a. Goods or services that are forgone in order to obtain something else. b. Dollar prices paid for final goods and services. c. Dollar cost of producing a particular product. d. Difference between wholesale and retail prices.

a. Goods or services that are forgone in order to obtain something else.

If the market wage for fast-food restaurants is $4 and the government enforces a minimum wage of $7, the unemployment rate will... a. Increase as quantity of labor supplied increases and quantity of labor demanded decreases. b. Increase as quantity of labor supplied decreases and quantity of labor demanded increases. c. Increase as quantity of labor supplied increases and quantity of labor demanded increases. d. Not be affected by the minimum wage.

a. Increase as quantity of labor supplied increases and quantity of labor demanded decreases.

A private good... a. Is consumed by one person and excludes consumption by others. b. Experiences free riders. c. Results in market failure when provided in markets characterized by laissez faire. d. Is provided most efficiently by the government.

a. Is consumed by one person and excludes consumption by others.

The lowest level of unemployment compatible with price stability.. a. Is referred to as full employment. b. Is estimated at between 0 and 2 percent unemployment. c. Allows for some cyclical unemployment. d. Is equal to the natural rate of unemployment plus the inflation rate.

a. Is referred to as full employment.

The macro consequence of unemployment is.. a. Lost output for the economy. b. Lost income for the individual worker. c. A leftward shift in the production possibilities curve. d. A 1 percent decrease in GDP for every 1 percent decrease in unemployment.

a. Lost output for the economy.

Someone 18 years old who is not employed and is not actively seeking work is considered... a. Not in the labor force. b. In the labor force. c. Employed. d. Unemployed.

a. Not in the labor force.

The most desirable combination of output attainable with existing resources, technology, and social values is known as the.. a. Optimal mix of output. b. Efficient mix of output. c. Attainable mix of output. d. Efficient choice of production.

a. Optimal mix of output.

If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then... a. Price will increase until it reaches the equilibrium price. b. The demand curve will shift to the left to create equilibrium. c. The supply curve will shift to the right to create equilibrium. d. There is a surplus of the good.

a. Price will increase until it reaches the equilibrium price.

The four specific sources of market failure are... a. Public goods, market power, externalities, and inequity. b. Private goods, market power, externalities, and inequity. c. Public goods, market goods, externalities, and inequity. d. Private goods, market goods, externalities, and inequity.

a. Public goods, market power, externalities, and inequity.

What is a variable? a. Something that can change (or vary). b. Something that cannot change (is constant). c. A relationship between two things. d. A function.

a. Something that can change (or vary).

If some specific prices fall, some relative prices rise, and average prices remain unchanged, there has been a period of.. a. Stable price levels. c. Inflation. d. Deflation.

a. Stable price levels.

The slope of a curve at any point is given by this formula.. a. The change in y coordinates between two points divided by the change in their x coordinates. b. The change in x coordinates between two points divided by the change in their y coordinates. c. The percentage change in y coordinates between two points divided by the percentage change in their x coordinates. d. The percentage change in x coordinates between two points divided by the percentage change in their y coordinates.

a. The change in y coordinates between two points divided by the change in their x coordinates.

The equilibrium price in a market is found where... a. The market supply curve intersects the market demand curve. b. The market supply curve intersects the y-axis. c. The market demand curve intersects the y-axis. d. The market supply curve intersects the x-axis.

a. The market supply curve intersects the market demand curve.

Money illusion is the.. a. Use of nominal dollars rather than real dollars to gauge changes in one's income or wealth. b. Movement of taxpayers into higher tax brackets as nominal income increases. c. Focus on real dollars rather than nominal dollars to determine purchasing power over time. d. Uncertainty that occurs because of inflation.

a. Use of nominal dollars rather than real dollars to gauge changes in one's income or wealth.

Real GDP is the.. a. Value of final output produced, adjusted for changing prices. b. Value of final output produced, measured in current prices. c. Income earned by current factors of production. d. GDP minus depreciation.

a. Value of final output produced, adjusted for changing prices.

Structural unemployment occurs when... a. Workers do not have the skills required to fill the vacant positions in the job market. b. Firms fail in the normal course of business activity. c. An industry experiences a seasonal downturn. d. There is inadequate demand for labor.

a. Workers do not have the skills required to fill the vacant positions in the job market.

Of the following reasons for unemployment, which will increase most because of a recession? a. Workers that have lost their jobs. b. Workers that have reentered into the job market. c. New job market entrants. d. Workers that have left their jobs.

a. Workers that have lost their jobs.

The uncertainty that results from inflation causes changes in.. a. Consumption, saving, and investment behavior. b. Saving and investment behavior, but not consumption. c. Consumption, but not saving and investment behavior. d. Income, but not consumption.

a. a. Consumption, saving, and investment behavior.

What are the variables in the following function: 2 + 10(x) = y a. x and y b. x c. 2 and 10 d. There are no variables.

a. x and y

Determinants of macro performance work on macro outcomes through.. a.) Aggregate supply and demand. b.) International balances. c.) External shocks. d.) Internal market forces.

a.) Aggregate supply and demand.

The components of aggregate demand are.... a.) Consumption, government spending, net exports, and investment. b.) Consumption, exports, imports, and disposable income. c.) Consumption, inventory, government spending, and disposable income. d.) Exports, imports, investment, and disposable income.

a.) Consumption, government spending, net exports, and investment.

The basic money supply or M1 includes a.) Currency in circulation, transactions accounts, and traveler's checks. b.) Currency in circulation, transactions accounts, and savings accounts. c.) Currency in circulation, transactions accounts, traveler's checks, and money market mutual funds. d.) Currency in circulation, savings accounts, and credit card balances.

a.) Currency in circulation, transactions accounts, and traveler's checks.

According to Keynes, which of the following can be used to slow down an overheated economy? a.) Decrease government purchases. b.) Decrease taxes. c.) Make more money available. d.) Employ more people.

a.) Decrease government purchases.

The cost effect implies that.. a.) Higher costs are reflected in higher average prices. b.) The aggregate supply curve is linear. c.) Lower average prices result in greater quantity supplied. d.) The aggregate demand curve is downward-sloping.

a.) Higher costs are reflected in higher average prices.

If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then.. a. Increasing opportunity costs will occur with greater tank production. b. Decreasing opportunity costs will occur with greater automobile production. c. The production possibilities curve between tanks and automobiles will shift outward. d. The production possibilities curve between tanks and automobiles will appear as a straight line.

a.) Increasing opportunity costs will occur with greater tank production.

When the economy is at equilibrium... a.) Leakages equal injections. b.) Inventories must equal zero. c.) Leakages equal aggregate demand. d.) There are no leakages.

a.) Leakages equal injections.

The change in total spending from additional income is... a.) MPC. b.) MPS. c.) APC. d.) APS.

a.) MPC.

John Maynard Keynes argued that... a.) Macro failure is likely to occur, and it isn't likely to go away quickly. b.) Macro failure is unlikely to occur. c.) Macro failure is likely to occur but will go away quickly. d.) None of the choices are correct.

a.) Macro failure is likely to occur, and it isn't likely to go away quickly.

The total change in aggregate spending generated by increased government spending depends on the... a.) Marginal propensity to consume. b.) Size of the recessionary GDP gap. c.) AD shortfall. d.) AD excess.

a.) Marginal propensity to consume.

According to the classical view, if consumer demand slowed down.. a.) Prices would decrease, and the economy would return to its long-term growth trend. b.)Prices would increase, and the economy would return to its long-term growth trend. c.)Wages would increase, and the economy would return to its long-term growth trend. d.) Investment and government demand would increase, and the economy would return to its long-term growth trend.

a.) Prices would decrease, and the economy would return to its long-term growth trend.

Injections include all of the following except... a.) Saving. b.) Exports. c.) Government spending. d.) Investment.

a.) Saving.

If the investment demand curve shifts to the left, then a.) The AD curve will shift to the left. b.) The AD curve will shift to the right. c.) The AD curve will not be affected. d.) There will be upward movement along the AD curve.

a.) The AD curve will shift to the left.

Unlike the classical economists, Keynes asserted that.. a.) The economy was inherently unstable. b.) Laissez faire policies would lead to macro equilibrium. c.)Prices and wages were flexible. d.) Markets would naturally self-adjust.

a.) The economy was inherently unstable.

The production possibilities curve illustrates... a. The limitations that exist because of scarce resources. b. That there is no limit to what an economy can produce. c. That there is no limit to the level of output. d. The existence of unlimited wants and resources.

a.) The limitations that exist because of scarce resources.

Monetary policy involves the use of money and credit controls to a.)Shift the aggregate demand curve. b.) Shift the aggregate supply curve. c.) Move the economy along the aggregate demand curve. d.) Move the economy along the aggregate supply curve.

a.)Shift the aggregate demand curve.

The best definition of GDP is.. a. The sum of the physical amounts of goods and services in the economy. b. A dollar measure of final output produced during a given time period within a nation's borders. c. A measure of the per capita economic growth rate of the economy. d. A physical measure of the capital stock of the economy.

b. A dollar measure of final output produced during a given time period within a nation's borders.

The Consumer Price Index is.. a. A measure of changes in the average price of all goods and services. b. A measure of changes in the average price of consumer goods and services. c. Used to measure the impact of business speculation on consumers. d. The impact felt by consumers who move into a higher tax bracket because of inflation.

b. A measure of changes in the average price of consumer goods and services.

Average GDP per person is.... a. The value of the factors of production used to produce output in a country. b. Also known as per capita GDP. c. A measure of the economic growth rate of a country. d. Also known as GDP.

b. Also known as per capita GDP.

In a market economy, the people who receive the goods and services that are produced are those who.... a. Want the goods and services the most. b. Are able and willing to pay the highest price. c. Need the goods and services the most. d. Have the most political power.

b. Are able and willing to pay the highest price.

If consumers attempt to buy more goods than the economy can produce, the result is... a. Unemployment. b. Demand-pull inflation. c. Cost-push inflation. d. The wealth effect.

b. Demand-pull inflation.

If the government places a price ceiling on cancer-treating drugs, then a. Fewer people will die from cancer. b. Fewer cancer treating drugs will be available. c. There will be no change in the number of people who die from cancer. d. The supply of cancer-treating drugs will increase.

b. Fewer cancer treating drugs will be available.

When an economy is producing efficiently, it is.. a. Producing a combination of goods and services beyond the production possibilities curve. b. Getting the maximum goods and services possible from the available resources. c. Experiencing decreasing opportunity costs. d. Producing equal amounts of all goods.

b. Getting the maximum goods and services possible from the available resources.

The most desirable inflation rate is the rate that.. a. Equals the official goal of 3 percent. b. Has the least effect on the behavior of companies, investors, consumers, and workers. c. Maximizes the "wealth effect" of inflation. d. Coincides with an unemployment rate of 0 percent.

b. Has the least effect on the behavior of companies, investors, consumers, and workers.

What is the likely consequence of an unemployment rate falling below the rate at which "full employment" is achieved? a. The threat of recession. b. Increased inflationary pressures. c. An increase in discouraged workers. d. None of the choices are correct.

b. Increased inflationary pressures.

According to the law of demand, during a given period of time, the quantity of a good demanded... a. Increases as its price rises, ceteris paribus. b. Increases as its price falls, ceteris paribus. c. Decreases as its price falls, ceteris paribus. d. Does not change when price changes.

b. Increases as its price falls, ceteris paribus.

National income accounting is defined as the... a. Use of economic theory to predict future income. b. Measurement of aggregate economic activity c. Accounting cost associated with economic choices. d. Assessment of the distribution of output.

b. Measurement of aggregate economic activity.

During a period of deflation... a. The price level rises. b. People on fixed incomes are better off. c. People who hold cash are worse off. d. Lenders are worse off.

b. People on fixed incomes are better off.

The production possibilities curve illustrates which two of the following essential principles? a. Factors of production and price signals. b. Scarce resources and opportunity cost. c. Market mechanisms and laissez faire. d. Economic growth and market failure.

b. Scarce resources and opportunity cost.

When migrant workers seek employment after the crops have been picked, the unemployment rate goes up. This situation is an example of.. a. Frictional unemployment. b. Seasonal unemployment. c. Structural unemployment. d. Cyclical unemployment.

b. Seasonal unemployment.

What if someone without a high school diploma is unable to find work because all of the available jobs require a certain minimum reading skill level which they are not proficient in. Which of the following best characterizes these circumstances? a. A discouraged worker. b. Structurally unemployed. c. Phantom unemployed. d. Underemployed.

b. Structurally unemployed.

Alternating periods of economic growth and contraction in real GDP define a. Capitalism. b. The business cycle. c. Macro equilibrium. d. Say's Law.

b. The business cycle.

A point on a nation's production possibilities curve (PPC) represents a. Combinations of production that are unattainable, given current technology and resources. b. The full employment of resources to achieve a particular combination of goods and services. c. An undesirable combination of goods and services. d. levels of production that will cause both unemployment and inflation.

b. The full employment of resources to achieve a particular combination of goods and services.

Frictional unemployment could result from each of the following except... a. The reallocation of employees to growing industries. b. The inability of people to find work during certain seasons of the year. c. The opportunity for people to leave jobs in which they are underemployed. d. None of the choices are correct.

b. The inability of people to find work during certain seasons of the year.

A linear function can be distinguished by a. The continuous change in its slope. b. The same slope throughout the line. c. The changing relationship between the two variables. d. A shift in the function.

b. The same slope throughout the line.

Which of the following is a macro consequence of a sudden increase in the average level of prices? a. People on fixed incomes benefit. b. Uncertainty is greater. c. Nominal income falls by a smaller percentage than real income. d. People lengthen their time horizons.

b. Uncertainty is greater.

Individuals who are working part-time while seeking full-time employment are classified as a. Unemployed. b. Underemployed. c. Discouraged workers. d. Phantom unemployed.

b. Underemployed.

If your nominal income rises faster than the price level... a. Your real income has fallen. b. Your real income has risen. c. You can buy fewer goods and services. d. There must be deflation.

b. Your real income has risen.

Deflation is a/an ____________ in the average level of prices of goods and services. a. increase b. decrease c. stagnation d. increase followed by a decrease

b. decrease

If consumption is $2,000 and saving is $250, then disposable income... a. Is $2,000. b. Is $2,250. c. Is $1,750. d. Cannot be determined from the information given.

b.) $2,250

A drop in interest rates will cause... a.) A decline in investment spending as borrowing becomes more expensive. b.) A rise in investment spending as borrowing becomes cheaper. c.) Investment spending to remain constant. d.) Investment spending to be eliminated from the economy.

b.) A rise in investment spending as borrowing becomes cheaper.

The Federal Reserve holds deposits from... a.) Consumers. b.) Banks. c.) The U.S. Treasury. d.) Large corporations.

b.) Banks.

The consumption function implies that... a.) Disposable income inversely influences consumption. b.) Consumption increases as disposable income increases. c.) Autonomous consumption changes when people have low incomes. d.) None of the choices are correct.

b.) Consumption increases as disposable income increases.

One of the main functions of banks is... a.) Borrowing money and lending to savers. b.) Creating money. c.) Ownership of projects in which they invest. d.) Maintaining a constant money supply.

b.) Creating money.

The use of government taxes and spending to alter macroeconomic outcomes is known as... a.) Monetary policy. b.) Fiscal policy. c.) Income policy. d.) Foreign trade policy.

b.) Fiscal policy.

Which of the following is illustrated by the aggregate demand curve? a.) How real personal income varies with the inflation rate. b.) How total quantity of output demanded varies with the average price level. c.) How real output varies with the inflation rate. d.) How real personal income varies with the price level.

b.) How total quantity of output demanded varies with the average price level.

Payments to individuals for which no current goods or services are exchanged are known as... a.) Social Security payroll taxes. b.) Income transfers. c.) AD shortfalls. d.) AD excesses.

b.) Income transfers.

Demand-pull inflation can develop when.. a.) There is a shortage of investment and investors bid up interest rates. b.) Inventories shrink and consumers bid up prices. c.) There is a surplus of resources and so wages are bid up by employers. d.) Undesired investment occurs.

b.) Inventories shrink and consumers bid up prices.

Which of the following is true about the quantity of money in the U.S. economy? a.) It is equal to the amount of currency in circulation. b.) It is much greater than the amount of currency in circulation. c.) It is equal to the value of the government's gold reserves. d.) It is equal to the total amount of income.

b.) It is much greater than the amount of currency in circulation.

Which of the following economic perspectives focuses on the need for government to use spending and taxes to shift aggregate demand and thus correct problems of unemployment and inflation? a.) Supply-side. b.) Keynesian. c.) Classical. d.) Monetarists.

b.) Keynesian.

Effective expansionary monetary policy, according to Keynesian theorists, will do all of the following except... a.) Increase bank lending capacity. b.) Lower real output. c.) Encourage people to borrow and spend money. d.) Reduce interest rates.

b.) Lower real output.

Savings accounts are included in a.) M1 only. b.) M2 only. c.) M1 and M2.

b.) M2 only.

A production possibilities curve indicates the... a. Combinations of goods and services an economy is actually producing. b. Maximum combinations of goods and services an economy can produce given its available resources and technology. c. Maximum combinations of goods and services an economy can produce given unlimited resources. d. Average combinations of goods and services an economy can produce given its available resources and technology.

b.) Maximum combinations of goods and services an economy can produce given its available resources and technology.

The use of money and credit controls to achieve macroeconomic goals is.. a.) Fiscal policy. b.) Monetary policy. c.) Supply-side policy. d.) Eclectic policy.

b.) Monetary policy.

The aggregate demand curve is downward-sloping because, other things being equal.. a.) People buy fewer goods and services at lower average incomes. b.) People buy more goods and services at lower average prices. c.) A higher average price level will induce producers to offer more output than otherwise. d.) People buy more goods and services at higher average prices.

b.) People buy more goods and services at lower average prices.

The ratio of a bank's total reserves to its total transactions deposits is known as the.. a.) Required reserves. b.) Reserve ratio. c.) Excess reserves. d.) Deposit ratio.

b.) Reserve ratio.

Fiscal policy works primarily through... a.) Shifts of the AS curve. b.) Shifts of the AD curve. c.) The improvement of worker skills through subsidized training programs. d.) Shifts of both AD and AS, as a result of changes in the interest rate.

b.) Shifts of the AD curve.

Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment? a.) Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall. b.) The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap. c.) The government can increase taxes to create an additional increase in aggregate demand. d.) The price level is constant.

b.) The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.

Which of the following is true when an economy produces at full employment, but consumers, government, businesses, and the foreign sector do not buy all the output? a.) Inventories are depleted. b.) There is a recessionary gap. c.) Unemployment falls. d.) The price level rises.

b.) There is a recessionary gap.

When unwanted inventories pile up in retail stores, retail managers will take actions that lead to greater a.) Inflation. b.) Unemployment. c.) Wages. d.) Economic growth.

b.) Unemployment.

Deficit spending results whenever the government a.) Issues bonds to finance the debt. b.) Uses borrowed funds to finance expenditures that exceed tax revenue. c.) Refinances the debt. d.) None of the choices are correct.

b.) Uses borrowed funds to finance expenditures that exceed tax revenue.

If firms become more pessimistic about future sales, then.. a.) The AD curve will shift to the right. b.) The AD curve will shift to the left. c.) There will be a rightward movement along the AD curve. d.) There will be a leftward movement along the AD curve.

b.) the AD curve will shift to the left.

Ceteris paribus, the price level will decrease if the aggregate... a.) Supply curve shifts to the left. b.)Demand curve shifts to the left. c.)Demand curve shifts to the right. d.) Supply and demand curves both shift to the right.

b.)Demand curve shifts to the left.

Frictional unemployment goes up when... a. A student quits work to return to school at the end of the summer. b. A corporation transfers a worker to another city. c. A worker quits one job to search for another in the same line of work. d. There is inadequate demand for labor.

c. A worker quits one job to search for another in the same line of work.

In terms of the production possibilities curve, inefficiency is represented by a. All points on the curve. b. All points outside the curve. c. All points inside the curve d. A rightward shift of the curve.

c. All points inside the curve.

Changes in real GDP are best used to measure... a. Inflation. b. Price level changes. c. Business cycles. d. Population growth.

c. Business cycles.

Externalities measure a. Only costs of a market activity borne by a third party. b. Only benefits of a market activity borne by a third party. c. Either costs or benefits of a market activity borne by a third party. d. None of the choices are correct.

c. Either costs or benefits of a market activity borne by a third party.

A production possibilities curve (PPC) indicates the a. Combinations of goods and services an economy is actually producing. b. Average combinations of goods and services an economy can produce given its available resources and technology. c. Maximum combinations of goods and services an economy can produce given its available resources and technology. d. Maximum combinations of goods and services an economy can produce given unlimited resources.

c. Maximum combinations of goods and services an economy can produce given its available resources and technology.

When the relationship between two variables changes.... a. There is movement from one point on the curve to another point on the curve. b. The curve becomes linear. c. The entire curve shifts. d. All of the choices are correct.

c. The entire curve shifts.

In real terms, the cost of government spending is measured by... a. Combining the private sector output with the public sector output sacrificed when the government employs scarce resources. b. Subtracting private sector output from the public sector output sacrificed when the government employs scarce resources. c. The private sector output sacrificed when the government employs scarce resources. d. The public sector output sacrificed when the government employs scarce resources.

c. The private sector output sacrificed when the government employs scarce resources.

Net exports are.. a. Goods sold to foreigners. b. Not included in GDP. c. The value of exports minus the value of imports. d. Exports that ultimately are imported back into the United States.

c. The value of exports minus the value of imports.

The proportion of the labor force that is unemployed is the a. Employment index. b. Underemployed rate. c. Unemployment rate. d. Okun's Law.

c. Unemployment rate.

In terms of the production possibilities curve (PPC), inefficiency is represented by a.) A rightward shift of the curve. b.) All points outside the curve. c.) All points inside the curve. d.) All points on the curve.

c.) All points inside the curve.

Investment represents... a.) A leakage from the circular flow, similar to saving. b.) A leakage from the circular flow, similar to taxes. c.) An injection into the circular flow, similar to government spending. d.) An injection into the circular flow, similar to imports.

c.) An injection into the circular flow, similar to government spending.

According to classical theory a.) Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand." b.) Macro equilibrium might start out badly and get worse in the absence of government intervention. c.) Flexible wages and prices allow a laissez faire economy to adjust wages and prices to shifts in aggregate demand. d.) Business cycles are not relevant and do not occur.

c.) Flexible wages and prices allow a laissez faire economy to adjust wages and prices to shifts in aggregate demand.

A leakage is.. a.) An export from the economy. b.) A decline in the capacity of the economy to produce goods. c.) Income not spent directly on domestic output but instead diverted from the circular flow. . d.) A decrease in aggregate supply.

c.) Income not spent directly on domestic output but instead diverted from the circular flow. .

Which of the following occurs when the spending on final goods and services exceeds full-employment GDP? a.) Inventory accumulation. b.) Unemployment. c.) Inflationary gap. d.) Recessionary gap.

c.) Inflationary gap.

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint? a.) More government expenditure and higher taxes. b.) More government expenditure and lower taxes. c.) Less government expenditure and higher taxes. d.) Less government expenditure and lower taxes.

c.) Less government expenditure and higher taxes.

Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they... a.) Have time to learn how the Fed operates. b.) Are more likely to make politically acceptable decisions. c.) Make their decisions based on economic, rather than political, considerations. d.) Have enough time to travel to all 12 regional banks.

c.) Make their decisions based on economic, rather than political, considerations.

If wealth falls a.) There will be a movement to the left along the AD curve. b.) There will be a movement to the right along the AD curve. c.) The AD curve will shift to the left. d.) The AD curve will shift to the right.

c.) The AD curve will shift to the left.

Which of the following sets the legal minimum reserve ratio? a.) The commercial banks. b.) The U.S. Treasury. c.) The Federal Reserve. d.) Congress.

c.) The Federal Reserve.

If injections exceed leakages a.) Unemployment will rise. b.) Prices will fall. c.) The economy will expand. d.) Disposable income will fall.

c.) The economy will expand.

One of the essential functions a bank performs is that of a.) Creating money by lending required reserves. b.) Participating in the stock market. c.) Transferring money from savers to borrowers. d.) Purchasing government bonds.

c.) Transferring money from savers to borrowers.

Inflation is a. A rise in the price of every good but not any service. b. An increase in relative prices of all goods and services. c. A situation in which purchasing power increases. d. An increase in the average level of prices of goods and services.

d. An increase in the average level of prices of goods and services.

What does it mean if we say that there is a "relationship" between two variables? a. One variable is the cousin of the other. b. The variables are dating. c. The variables only see each other on Thanksgiving but never talk. d. As one variable changes so does the other.

d. As one variable changes so does the other.

A decrease in the price of bubble gum below equilibrium will a. Shift the bubble gum supply curve to the right. b. Shift the bubble gum demand curve to the right. c. Cause a surplus of bubble gum. d. Cause a shortage of bubble gum.

d. Cause a shortage of bubble gum.

Inflation affects production decisions because it a. Decreases input costs. b. Reduces speculation. c. Causes businesses to focus more on the future. d. Causes businesses to be more cautious since the future appears more uncertain.

d. Causes businesses to be more cautious since the future appears more uncertain.

Ceteris paribus, a consumer that purchases a sports car must consider the price of gasoline because these goods are... a. Substitutes in production. b. Complements in production; by-products. c. Substitutes in consumption. d. Complements in consumption

d. Complements in consumption.

When natural disasters, such as hurricanes on the U.S. Gulf Coast or an earthquake in Japan, disrupt supply chains and push up the costs of production, this may result in.. a. Labor-push inflation. b. Demand-pull inflation. c. Wage-pull inflation. d. Cost-push inflation.

d. Cost-push inflation.

If corn products are found to cause cancer, then the most immediate effect will be that the... a. Supply curve for corn will shift right. b. Supply curve for corn will shift left. c. Demand curve for corn will shift left. d. None of the choices are correct.

d. Demand curve for corn will shift left.

The natural rate of unemployment includes a. Seasonal and cyclical unemployment only. b. Cyclical and frictional unemployment only. c. Structural and seasonal unemployment only. d. Frictional and structural unemployment only.

d. Frictional and structural unemployment only.

According to the law of increasing opportunity costs, a. The more one is willing to pay for resources; the smaller will be the possible level of production. b. Increasing the production of a particular good will cause the price of the good to remain constant. c. In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly smaller amounts of alternative goods. d. In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

d. In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

Speculation during periods of inflation can result in all of the following except.. a. People buying resources for resale later, rather than using the resources for current production. b. A movement inward from the production possibilities curve. c. People buying gold, silver, jewelry, and the like instead of capital for production. d. More resources going into the production process.

d. More resources going into the production process.

When a surplus exists for a product... a. Producers increase supply. b. Consumers increase demand. c. Government purchases decrease. d. Producers reduce the level of output and reduce price.

d. Producers reduce the level of output and reduce price.

The current U.S. economy is based primarily on the production of a. Agricultural goods. b. Manufacturing goods. c. Goods for federal government use. d. Services.

d. Services

An increase in the price of gasoline will.. a. Shift the gasoline supply curve to the right. b. Shift the gasoline demand curve to the right. c. Shift the automobile supply curve to the left. d. Shift the automobile demand curve to the left.

d. Shift the automobile demand curve to the left.

The opportunity costs of studying for an economics test are a. Negative because it may improve your grade. b. The money you spent on tuition for the class. c. Zero because you knew when you registered for the class that studying would be required. d. The activities that are the alternative uses of your time.

d. The activities that are the alternative uses of your time.

The slope of a curve at any point is given by this formula A. The percentage change in y coordinates between two points divided by the percentage change in their x coordinates. B. The change in x coordinates between two points divided by the change in their y coordinates. C. The percentage change in x coordinates between two points divided by the percentage change in their y coordinates. D. The change in y coordinates between two points divided by the change in their x coordinates.

d. The change in y coordinates between two points divided by the change in their x coordinates.

When the relationship between two variables changes... a. All of the choices are correct. b. There is movement from one point on the curve to another point on the curve. c. The curve becomes linear. d.The entire curve shifts.

d. The entire curve shifts.

A point on a nation's production possibilities curve represents.. a. An undesirable combination of goods and services. b. Combinations of production that are unattainable, given current technology and resources. c. Levels of production that will cause both unemployment and inflation. d. The full employment of resources to achieve a particular combination of goods and services.

d. The full employment of resources to achieve a particular combination of goods and services.

A linear function can be distinguished by.. a. A shift in the function. b. The changing relationship between the two variables. c. The continuous change in its slope. d. The same slope throughout the line.

d. The same slope throughout the line.

Opportunity cost is... a. Measured only in dollars and cents. b. The total dollar cost to society of producing the goods. c. The difficulty associated with using one good in place of another. d. What is given up in order to get something else.

d. What is given up in order to get something else.

Which of the following results if at a particular price level, the aggregate quantity supplied exceeds the aggregate quantity demanded? a.) Aggregate demand shifts to the right. b.) Aggregate supply shifts to the left. c.) A surplus causes the price level to rise. d.) A surplus causes the price level to fall.

d.) A surplus causes the price level to fall.

What would cause the aggregate demand curve to shift? a.) Consumption and Government Spending b.) Consumption and Net Exports c.) Consumption and Investments d.) All Of The Above

d.) All Of The Above

Which of the following would depict a move along the aggregate demand curve? a.) Real Balance Effect b.) Foreign Trade Effect c.) Interest Rate Effect d.) All Of The Above

d.) All Of The Above

Which of the following fiscal policies cause a decrease in aggregate expenditures? a.) An increase in transfer payments and an increase in government spending. b.) An increase in transfer payments and a decrease in taxes. c.) A decrease in taxes and an increase in government spending. d.) An increase in taxes and a decrease in government spending.

d.) An increase in taxes and a decrease in government spending.

Equilibrium GDP could be upset by a change in a.) Investment only. b.) Injections only. c.) Leakages only. d.) Any leakage or injection.

d.) Any leakage or injection.

A bank may lend an amount equal to its a.) Required reserves. b.) Total reserves. c.) Total assets. d.) Excess reserves.

d.) Excess reserves.

The transactions demand for money is most closely associated with which of the following functions of money? a.) Standard of deferred payment. b.) Store of value. c.) Standard of value. d.) Medium of exchange.

d.) Medium of exchange.

The real balances effect says that an increase in the price level.. a.) Increases the price of U.S. produced goods, causing Americans to buy more imported goods. b.) Increases the price of U.S. produced goods, causing foreign consumers to buy fewer U.S. goods. c.) Increases the need to borrow, which drives up interest rates and reduces loan-financed purchases. d.) Reduces the real value of a fixed amount of savings, consequently reducing the quantity of goods and services purchased.

d.) Reduces the real value of a fixed amount of savings, consequently reducing the quantity of goods and services purchased.

Gross exports for the United States depend most directly on the.. a.) Level of U.S. GDP. b.) Spending behavior of U.S. consumers. c.) Spending behavior of U.S. government agencies. d.) Spending behavior of foreign consumers and businesses.

d.) Spending behavior of foreign consumers and businesses.

All of the following are tools available to the Fed for controlling the money supply except.. a.) The reserve requirement. b.) The discount rate. c.) Open market operations. d.) Taxes.

d.) Taxes.

If tax policies become more favorable, then... a.) The AD curve will not be affected. b.) There will be a movement to the right along the AD curve. c.) The AD curve will shift to the left. d.) The AD curve will shift to the right.

d.) The AD curve will shift to the right.

If the availability of credit increases, then.. a.) There will be a movement to the left along the AD curve. b.) There will be a movement to the right along the AD curve. c.) The AD curve will shift to the left. d.) The AD curve will shift to the right.

d.) The AD curve will shift to the right.

The marginal propensity to consume is... a.) Total consumption in a given period divided by total disposable income. b.) The percentage of total disposable income spent on consumption. c.) That part of the average consumer dollar that goes to the purchase of final goods. d.) The fraction of each additional dollar of disposable income spent on consumption.

d.) The fraction of each additional dollar of disposable income spent on consumption.

The primary method for controlling the money supply in the United States is to limit the.. a.) Amount of currency that is printed. b.) Amount of money that is spent by changing tax policy. c.) Amount of money that is spent by changing income transfers. d.) Volume of loans the banking system can make.

d.) Volume of loans the banking system can make.