Econ 203 Macroeconomics Hayes Ole Miss

C. moves the economy inward from its production possibilities curve.

Cost-push inflation A. is caused by excessive total spending. B. shifts the nation's production possibilities curve leftward. C. moves the economy inward from its production possibilities curve. D. is a mixed blessing because it has positive effects on real output and employment.

B. business cycles.

Recurring upswings and downswings in an economy's real GDP over time are called A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

Nominal GDP

the value of final goods and services evaluated at current-year prices

F

T/F Unanticipated inflation benefits creditors and savers.

Cyclical Unemployment

Unemployment that is caused by a decline in total spending

MPS (marginal propensity to save)

change in savings/change in income

A. encourages growth by allowing producers to make profitable investment decisions

A competitive market system A. encourages growth by allowing producers to make profitable investment decisions based on market signals. B. encourages growth by ensuring that everyone in society will receive a decent standard of living. C. discourages growth because firms busy competing have no time to innovate or invest. D. discourages growth unless government protects domestic firms from foreign competition.

D. leftward shift in the economy's aggregate demand curve.

A contractionary fiscal policy is shown as a A. rightward shift in the economy's aggregate demand curve. B. rightward shift in the economy's aggregate supply curve. C. movement along an existing aggregate demand curve. D. leftward shift in the economy's aggregate demand curve.

investment schedule

A curve or schedule that shows the amounts firms plan to invest at various possible values of real gross domestic product.

investment demand curve

A curve that shows the amounts of investment demanded by an economy at a series of real interest rates.

B. indicates the quantity demanded at each price in a series of prices.

A demand curve A. shows the relationship between price and quantity supplied. B. indicates the quantity demanded at each price in a series of prices. C. graphs as an upsloping line. D. shows the relationship between income and spending.

aggregate demand curve

A downward-sloping curve showing the relationship between the price level and the quantity of domestically produced goods and services all households, business firms, governments, and foreigners (net exports) are willing to purchase.

C. investment schedule upward.

All else equal, a large decline in the real interest rate will shift the A. investment demand curve leftward. B. investment demand curve rightward. C. investment schedule upward. D. investment schedule downward.

D. a tax rate increase.

An appropriate fiscal policy for severe demand-pull inflation is A. an increase in government spending. B. depreciation of the dollar. C. a reduction in interest rates. D. a tax rate increase.

D. some of the tax increase will be paid out of income that would otherwise have been saved.

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because A. the MPC is smaller in the private sector than it is in the public sector. B. declines in government spending always tend to stimulate private investment. C. disposable income will fall by some amount smaller than the tax increase. D. some of the tax increase will be paid out of income that would otherwise have been saved.

A. average propensity to consume falls.

As disposable income goes up, the A. average propensity to consume falls. B. average propensity to save falls. C. volume of consumption declines absolutely. D. volume of investment diminishes.

C. an excess of government expenditures over tax receipts.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward A. an equality of tax receipts and government expenditures. B. an excess of tax receipts over government expenditures. C. an excess of government expenditures over tax receipts. D. a reduction of subsidies and transfer payments and an increase in tax rates.

B. occurs when total spending exceeds the economy's ability to provide output at the existing price level.

Demand-pull inflation A. occurs when prices of resources rise, pushing up costs and the price level. B. occurs when total spending exceeds the economy's ability to provide output at the existing price level. C. occurs only when the economy has reached its absolute production capacity. D. is also called cost-push inflation.

A. deficits are incurred during recessions and surpluses during inflations.

Discretionary fiscal policy will stabilize the economy most when A. deficits are incurred during recessions and surpluses during inflations. B. the budget is balanced each year. C. deficits are incurred during inflations and surpluses during recessions. D. budget surpluses are continuously incurred.

B. that households are spending more than their current incomes.

Dissaving means A. the same thing as disinvesting. B. that households are spending more than their current incomes. C. that saving and investment are equal. D. that disposable income is less than zero.

A.either real GDP or real GDP per capita.

Economic growth is best defined as an increase in A.either real GDP or real GDP per capita. B. nominal GDP. C. total consumption expenditures. D. wealth in the economy.

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

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.

B. investment.

Exports have the same effect on the current size of GDP as A. imports. B. investment. C. taxes. D. saving.

A. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Fiscal policy refers to the A. deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. B. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand. D. fact that equal increases in government spending and taxation will be contractionary.

B. Okun's law.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of A. Taylor's rule. B. Okun's law. C. Say's law. D. the Coase theorem.

D. encourages growth by promoting the rapid spread of new inventions and innovations.

Free trade A. discourages growth by increasing competitive pressures on domestic firms. B. encourages growth by effectively eliminating all patent and copyright barriers to growth. C. discourages growth compared to situations where the government strongly controls foreign trade. D. encourages growth by promoting the rapid spread of new inventions and innovations.

B. consumption, investment, government purchases, and net exports.

GDP can be calculated by summing A. consumption, investment, government purchases, exports, and imports. B. consumption, investment, government purchases, and net exports. C. consumption, investment, wages, and rents. D. consumption, investment, government purchases, and imports.

B. monetary value of all final goods and services produced within the borders of a nation in a particular year.

GDP is the A. national income minus all nonincome charges against output. B. monetary value of all final goods and services produced within the borders of a nation in a particular year. C. monetary value of all economic resources used in producing a year's output. D. monetary value of all goods and services, final and intermediate, produced in a specific year.

C. the economy as a whole.

Macroeconomics is mostly focused on A. the individual markets within an economy. B. only the largest industries in the economy. C. the economy as a whole. D. why specific businesses fail.

A. an increase in the real rate of interest will reduce the level of investment.

Given the expected rate of return on all possible investment opportunities in the economy, A. an increase in the real rate of interest will reduce the level of investment. B. a decrease in the real rate of interest will reduce the level of investment. C. a change in the real interest rate will have no impact on the level of investment. D. an increase in the real interest rate will increase the level of investment.

A. rightward shift of the AD curve along an upsloping AS curve.

Graphically, demand-pull inflation is shown as a A. rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of the AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

B. lessens the burden of scarcity.

Growth is advantageous to a nation because it A. promotes faster population growth. B. lessens the burden of scarcity. C. eliminates the economizing problem. D. slows the growth of wants.

inversely related

How are bond prices and interest rates related?

an increase in money supply lowers the interest rate; an decrease in money supply raises the interest rate

How does interest rate and the expected rate of return determine investment?

A. the skills and knowledge that enable a worker to be productive.

Human capital refers to A. the skills and knowledge that enable a worker to be productive. B. machinery used by labor in production. C. the accumulated financial wealth of households. D. physical capital owned by households rather than businesses.

D. is too high for equilibrium.

If an unintended increase in business inventories occurs at some level of GDP, then GDP A. entails a rate of aggregate expenditures in excess of the rate of aggregate production. Bmay be either above or below the equilibrium output. C. is too low for equilibrium. D. is too high for equilibrium.

A. 20 percent higher than the average price in the base period 1982-84.

If the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was A. 20 percent higher than the average price in the base period 1982-84. B. about $120 per basket of consumer goods and services. C. 120 percent higher than the average price in the base period 1982-84. D. 20 percent higher than the average price of the preceding year.

B. investment schedule will shift downward.

If the expected rate of return on investment decreases, then most likely the A. investment schedule will shift upward. B. investment schedule will shift downward. C. consumption schedule will shift upward. D. consumption schedule will shift downward.

D. 20

In 1998, living standards in the United States were nearly ______ times higher than those in Africa. A. 3 B. 8 C. 14 D. 20

C. planned investment equals saving.

In a private closed economy, when aggregate expenditures equal GDP, A. consumption equals investment. B. consumption equals aggregate expenditures. C. planned investment equals saving. D. disposable income equals consumption minus saving.

D. does not change when real GDP changes.

In the aggregate expenditures model, it is assumed that investment A. automatically changes in response to changes in real GDP. B. changes by less in percentage terms than changes in real GDP. C. does not respond to changes in interest rates. D. does not change when real GDP changes.

C. level of total spending.

Most economists agree that the immediate determinant of the volume of output and employment is the A. composition of consumer spending. B. ratio of public goods to private goods production. C. level of total spending. D. size of the labor force.

A. the decision to engage in one activity means forgoing some other activity.

Opportunity costs exist because A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs.

C. reduce investment and shift the AD curve to the left.

Other things equal, a decrease in the real interest rate will A. expand investment and shift the AD curve to the left. B. expand investment and shift the AD curve to the right. C. reduce investment and shift the AD curve to the left. D. reduce investment and shift the AD curve to the right.

D. move the economy downward along its existing investment demand curve.

Other things equal, a decrease in the real interest rate will A. shift the investment demand curve to the right. B. shift the investment demand curve to the left. C. move the economy upward along its existing investment demand curve. D. move the economy downward along its existing investment demand curve.

C. shift the aggregate supply curve to the right.

Other things equal, an improvement in productivity will A. shift the aggregate demand curve to the left. B. shift the aggregate supply curve to the left. C. shift the aggregate supply curve to the right. D. increase the price level.

B. $417.

Personal Taxes $40 Social Security Contributions 15 Taxes on Production and Imports 20 Corporate Income Taxes 40 Transfer Payments 22 U.S. Exports 24 Undistributed Corporate Profits 35 Government Purchases 90 Gross Private Domestic Investment 75 U.S. Imports 22 Personal Consumption Expenditures 250 Consumption of Fixed Capital 25 Net Foreign Factor Income 10 Statistical Discrepancy 0 Refer to the accompanying data (all figures in billions of dollars). GDP is A. $390. B. $417. C. $422. D. $492

D. flexible upward but inflexible downward.

Prices and wages tend to be A. flexible both upward and downward. B. inflexible both upward and downward. C. flexible downward but inflexible upward. D. flexible upward but inflexible downward.

B. value of final goods and services produced within the borders of a country, corrected for price changes.

Real GDP measures the A. total dollar value of all goods and services produced within the borders of a country using current prices. B. value of final goods and services produced within the borders of a country, corrected for price changes. C. total dollar value of all goods and services consumed within the borders of a country, adjusted for price changes. D. value of all goods and services produced in the world, using current prices.

B. increased the opportunity cost of staying at home.

Rising real wages for women in the U.S. workforce since the 1960s have A. reduced access to job opportunities for women. B. increased the opportunity cost of staying at home. C. led to a rise in the number of lifetime births per woman. D. reallocated labor resources from urban to rural areas of the nation.

D. may involve a locational mismatch between unemployed workers and job openings.

Structural unemployment A. is also known as frictional unemployment. B. is the main component of cyclical unemployment. C. is said to occur when people are waiting to be called back to previous jobs. D. may involve a locational mismatch between unemployed workers and job openings.

T

T/F A recessionary expenditure gap in a mixed open economy can be measured as the extent to which aggregate expenditures (Ca + Ig + Xn + G) fall short of real GDP at the full-employment level of real GDP.

T

T/F A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i.

T

T/F Exports are added to, and imports are subtracted from, aggregate expenditures in moving from a closed to an open economy.

T

T/F Positive net exports increase aggregate expenditures beyond what they would be in a closed economy and thus have an expansionary effect on domestic GDP.

F

T/F The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes.

T

T/F The multiplier shows the relationship between changes in a component of spending, say, investment, and the consequent changes in real income and output.

T

T/F Unanticipated inflation benefits debtors at the expense of creditors.

D. shows the amount of real output that will be purchased at each possible price level.

The aggregate demand curve A. is upsloping because a higher price level is necessary to make production profitable as production costs rise. B. is downsloping because production costs decline as real output increases. C. shows the amount of expenditures required to induce the production of each possible level of real output. D. shows the amount of real output that will be purchased at each possible price level.

C. downsloping because of the interest-rate, real-balances, and foreign purchases effects.

The aggregate demand curve is A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises

C. downsloping because of the interest-rate, real-balances, and foreign purchases effects.

The aggregate demand curve is A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises.

C. what the size of the federal budget deficit or surplus would be if the economy was at full employment.

The cyclically adjusted budget tells us A. that in a full-employment economy, the federal budget should be in balance. B. that tax revenues should vary inversely with GDP. C. what the size of the federal budget deficit or surplus would be if the economy was at full employment. D. the actual budget deficit or surplus realized in any given year.

D. technological advances

The factor accounting for the largest increase in the productivity of labor in the United States has been A. the education and training of workers. B. improved resource allocation. C. the quantity of capital. D. technological advance.

C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

The interest-rate effect suggests that A. a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B. an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D. an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

C. businesses becoming more optimistic about future business conditions.

The investment demand curve will shift to the right as the result of A. the availability of excess production capacity. B. an increase in business taxes. C. businesses becoming more optimistic about future business conditions. D. an increase in the real interest rate.

A. producers will offer more of a product at high prices than at low prices.

The law of supply indicates that, other things equal, A. producers will offer more of a product at high prices than at low prices. B. the product supply curve is downsloping. C. consumers will purchase less of a good at high prices than at low prices. D. producers will offer more of a product at low prices than at high prices.

D. the level of income.

The most important determinant of consumer spending is A. the level of household borrowing. B. consumer expectations. C. the stock of wealth. D. the level of income.

B. level of income.

The most important determinant of consumption and saving is the A. level of bank credit. B. level of income. C. interest rate. D. price level.

C. may cause the official unemployment rate to understate the true amount of unemployment.

The presence of discouraged workers A. increases the size of the labor force but does not affect the unemployment rate. B. reduces the size of the labor force but does not affect the unemployment rate. C. may cause the official unemployment rate to understate the true amount of unemployment. D. may cause the official unemployment rate to overstate the true amount of unemployment.

A. the various combinations of two goods that can be produced when society employs all of its scarce resources.

The production possibilities curve shows A. the various combinations of two goods that can be produced when society employs all of its scarce resources. B. the minimum outputs of two goods that will sustain a society. C. the various combinations of two goods that can be produced when some resources are unemployed. D. the ideal, but unattainable, combinations of two goods that would maximize consumer satisfaction.

C. the federal government owes to holders of U.S. securities.

The public debt is the amount of money that A. state and local governments owe to the federal government. B. Americans owe to foreigners. C. the federal government owes to holders of U.S. securities. D. the federal government owes to taxpayers.

B. diminished if inflation occurs.

The size of the multiplier associated with an initial increase in spending will be A. the same whether or not inflation occurs. B. diminished if inflation occurs. C. zero if any increase in the price level occurs. D. enhanced if inflation occurs.

C. percentage of the labor force that is unemployed.

The unemployment rate is the A. ratio of unemployed to employed workers. B. number of employed workers minus the number of workers who are not in the labor force. C. percentage of the labor force that is unemployed. D. percentage of the total population that is unemployed.

B. a person cannot get a job but is willing to work and is actively seeking work.

Unemployment describes the condition where A. equipment and machinery are going unused. B. a person cannot get a job but is willing to work and is actively seeking work. C. a person does not have a job, regardless of whether or not he or she wants one. D. any resource sits idle.

Structural Unemployment

Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available.

B. unplanned decrease in inventories and GDP will increase.

When aggregate expenditure is greater than GDP, then there will be an A. unplanned increase in inventories and GDP will increase. B. unplanned decrease in inventories and GDP will increase. C. unplanned increase in inventories and GDP will decrease. D. unplanned decrease in inventories and GDP will decrease.

A. increase both taxes and government spending

Which combination of fiscal policy actions would most likely offset each other? A. increase both taxes and government spending B. decrease taxes and increase government spending C. increase taxes but make no change in government spending D. decrease government spending but make no change in taxes

C. growth of real GDP per capita

Which of the following best measures improvements in the standard of living of a nation? A. growth of nominal GDP B. growth of real GDP C. growth of real GDP per capita D. growth of national income

A. Built-in stability only partially offsets fluctuations in economic activity.

Which of the following statements is correct? A. Built-in stability only partially offsets fluctuations in economic activity. B. Built-in stability works in halting inflation, but it cannot alleviate unemployment. C. Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. D. Built-in stability has eliminated the need for discretionary fiscal policy.

B. Modern economic growth is characterized by sustained and ongoing increases in living standards

Which of the following statements is most accurate about modern economic growth? A. Economic historians mark modern economic growth as beginning around A.D. 1500. B. Modern economic growth is characterized by sustained and ongoing increases in living standards. C. Modern economic growth has virtually eliminated business cycle fluctuations. D. Modern economic growth has been distributed more or less equally across nations.

A. an increase in supply

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? A. an increase in supply B. an increase in demand C. a decrease in supply D. a decrease in demand

C. A typical consumer will receive less satisfaction from consuming the fourth hamburger than from the third hamburger in a week.

Which statement best illustrates the concept of diminishing marginal utility? A. As one consumes more hamburgers per week, one would be willing to pay a higher price for additional hamburgers. B. Some consumers will receive less satisfaction from consuming hamburgers than from consuming fried chicken. C. A typical consumer will receive less satisfaction from consuming the fourth hamburger than from the third hamburger in a week. D. A decrease in the price of hamburgers will cause consumers to buy more hamburgers because they can afford to buy more.

A. 1.0 minus 0.4.

With a marginal propensity to save of 0.4, the marginal propensity to consume will be A. 1.0 minus 0.4. B. 0.4 minus 1.0. C. the reciprocal of the MPS. D. 0.4.

MPC (marginal propensity to consume)

change in consumption/change in disposable income

Frictional Unemployment

search and wait unemployment; workers who are searching or waiting to take jobs

Aggregate Demand

the amount of goods and services in the economy that will be purchased at all possible price levels; a schedule or curve that shows the amount of a nation's out put that buyers collectively desire to purchase at each possible price level