Econ 213 Test 2

If marginal propensity to consume is 0.6, and income increases from $30,000 to $40,000, how much will consumption increase by? A. $6,000 B. $10,000 C. $18,000 D. $24,000 E. $75,000

A. $6,000

Hooray! You hit your sales number for the quarter and are awarded a $3,000 bonus. You spend $2,100 on a new living room TV and entertainment system and save the rest. What is your MPC and MPS? a) MPC = 0.21; MPS = 0.09 b) MPC = 0.3; MPS = 0.21 c) MPC=0.7;MPS=0.3 d) MPC = 0.3; MPS = 0.09 e) MPC = 0.21; MPS = 0.3

C) MPC = 0.7; MPS = 0.3

At this level of income (Y*), what is the value of I? a) $1,000 b) $4,000 c) $5,000 d) $6,000 e) $7,000

a) $1,000

At this level of income (Y*), what is the value of S? a) $1,000 b) $4,000 c) $5,000 d) $6,000 e) $7,000

a) $1,000

What is the tax multiplier? a) -2 b) -0.67 c) 0 d) 2 e) 3

a) -2

What is the marginal propensity to save (MPS) in Hypothetica: a) 1/10 (0.1) b) -9/10 (-0.9) c) 9 d) -9 e) 10

a) 1/10 (0.1)

Under completely free trade, what is the new Consumer Surplus? a) D b) DCF c) DCFA d) DCFAE e) DCFAEGB

a) D

Assume that Econland is closed and does not trade. What is the Total Surplus? a) DCFGB b) DCFA c) DCFGBA d) AE e) DCFGBAE

a) DCFGB

Which of the following would be an example of contractionary AD fiscal policy? a) Decreasing Government spending and raising household tax rates b) Decreasing Government spending and decreasing the nation's money supply c) Increasing interest rates and increasing household tax rates d) Increasing Government spending and lowering household tax rates e) Decreasing interest rates and raising business tax rates

a) Decreasing Government spending and raising household tax rates

Given that the domestic price of shoes is $60, and the world price of shoes is $80, which statement is true? a) Econland has a comparative advantage (CA) in shoes and should export them b) Econland has a CA in shoes and should import them c) Econland does not have a CA in shoes and should export them d) Econland does not have a CA in shoes and should import them e) Econland has an absolute advantage in shoes and should export them

a) Econland has a comparative advantage (CA) in shoes and should export them

Assume that Econland is closed and does not trade. What is the Producer Surplus? a) GB b) GBC c) GBCF d) GBCFA e) GBCFAE

a) GB

Consider the following events: I) There is an increase in the productivity of labor II) There is a decrease in the labor force participation rate III) There is an increase in government spending on U.S. goods/services IV) There is an increase in the nation's stock of physical capital V) Unrest in the Middle East causes a disruption in the supply of oil to the U.S. VI) There is an advance in technology of production Which of the above events would cause an increase in the potential level of real GDP? a) I,IV and VI b) I, II, III and IV c) II, III and IV d) I, III, IV and VI e) All of the above events would increase the potential level of GDP.

a) I,IV and VI

What is the opportunity cost of a computer in Vietnam? What is the opportunity cost of a computer in Thailand? a) In Vietnam, one computer costs 5/2 phones; In Thailand one computer costs 1 phone b) In Vietnam, one computer costs 5/2 phones, In Thailand, one computer costs 3 phones c) In Vietnam, one computer costs 1 phone, in Thailand, one computer costs 1/3 phones d) In Vietnam, one computer costs 2/5 phone; in Thailand, one computer costs 1 phone e) In Vietnam, one computer costs 2/5 phone, in Thailand, one computer costs 3 phones

a) In Vietnam, one computer costs 5/2 phones; In Thailand one computer costs 1 phone

What is going on with output (real GDP) and unemployment? a) Output (real GDP) is higher than its potential (full-employment) amount: unemployment is below its natural rate b) Output is higher than its potential amount; unemployment is above its natural rate c) Output is equal to its potential amount; unemployment is at its natural rate d) Output is less than its potential amount; unemployment is above its natural rate e) Output is less than its potential amount; unemployment is below its natural rate

a) Output (real GDP) is higher than its potential (full-employment) amount: unemployment is below its natural rate

What is the formula for the savings function (S)? a) S = -$75,000 + 1/10(Y - T) b) S = -$25,000 -1/10(Y - T) c) S = $75,000 - 1/10(Y - T) d) S = -$75,000 - 9/10(Y - T) e) S = -$75,000 + 9/10(Y - T)

a) S = -$75,000 + 1/10(Y - T)

In the complete Aggregate Expenditure model, which functions are considered withdrawals? a) Taxes (T), Savings (S) and Imports (M) b) Taxes (T) and Government spending (G) c) Exports (X) and Imports (M) d) Investment (I), Government Spending (G) and Exports (X) e) Savings (S) and Consumption (C)

a) Taxes (T), Savings (S) and Imports (M)

REFER TO DIAGRAM ON NEXT 3 QUESTIONS What is going on with total spending and total production? a) Total spending equals total production b) Total spending has fallen below total production c) Total spending has risen about total production d) Potential GDP has risen above its long-run trend

a) Total spending equals total production

At this level of equilibrium real GDP (Y*), Consumption = ____ and Savings + _____. a) Consumption = $75,000; Savings = -$75,000 b) Consumption = $885,000; Savings = $15,000 c) Consumption = $810,000; Savings = $165,000 d) Consumption = $846,000; Savings = $19,000 e) Consumption = $25,000; Savings = -$25,000

b) Consumption = $885,000; Savings = $15,000

Assume that Econland is closed and does not trade. What is the Consumer Surplus? a) D b) DCF c) DCFA d) DCFAE e) DCFAEGB

b) DCF

At this level of equilibrium real GDP (Y*), what is the level of disposable income (Y - T)? a) $75,000 b) $810,000 c) $900,000 d) $940,000 e) $1,450,000

c) $900,000

What is equilibrium real GDP (Y*)? a) $75,000 b) $810,000 c) $940,000 d) $900,000 e) $1,450,000

c) $940,000

What is the Marginal Propensity to Consume (MPC)? a) 0.25 b) 0.33 c) 0.5 d) 0.67 e) 0.75

c) 0.5

What is the marginal propensity to consume (MPC) in Econlandia? a) 0 b) 0.33 c) 0.67 d) 1.5 e) 3

c) 0.67

Suppose that in the far away land of Braavos, the government increases is spending by $15 million, and this results in an increase in real GDP of $120 million. What is the MPC of the country? a) $15 b) 8 c) 0.875 d) 0.125 e) 6

c) 0.875

How much is this expressed as debt-to-GDP for the U.S.? a) 5% b) 75% c) 100% d) 200% e) 350%

c) 100%

Over a 55-year average, about how much does the U.S. federal government collect in taxes each year, as a % of GDP? a) 5% b) 10% c) 17% d) 25% e) 35%

c) 17%

At the end of the year, what is Econostani's debt to GDP ratio? a) 200% b) 112% c) 50% d) 14.7% e) 7.5%

c) 50%

What is the marginal propensity to consume (MPC) in Hypothetica? a) 0 b) 1/10 (0.1) c) 9/10 (0.9) d) 9 e) 10

c) 9/10 (0.9)

Given your answer above, what effect would that have on Winterfell's overall economy (overall prices - P, real GDP - Y, and unemployment - U)? a) NoeffectonP,YorU b) A rise in P, no effect on Y or U c) A fall in P , a fall in Y, and an increase in U d) A rise in P, a fall in Y and an increase in U e) A fall in P, a rise in Y and a fall in U

c) A fall in P , a fall in Y, and an increase in U

In economic news, the housing market is mentioned quite often. 'New housing is up 5% over last year', or 'New housing is down 8% from last year.' Economically, why is this such a big deal? a) Because everyone should have a place to live b) Because they are big and expensive c) Because there is so many parts, materials and labor involved, a change in construction rates can have significant spillover effects into other parts of the economy d) Because the government helps to subsidize some of the costs for new homes e) Because on slow news days, newscasters don't have anything else to talk about

c) Because there is so many parts, materials and labor involved, a change in construction rates can have significant spillover effects into other parts of the economy

Under completely free trade, what is the new Producer Surplus? a) GB b) GBCF c) GBCFA d) GBCFAE e) GBCFAD

c) GBCFA

Given the scenario above, what would happen to equilibrium output (Y*) if Investment increased by 1,000 (to 8,000) and holding everything else the same? a) Y* would increase by $1,0000 b) Y* would increase by $666.67 c) Y* would increase by $3,000 d) Y* would decrease by $2,000 e) Y* would decrease by $333.33

c) Y* would increase by $3,000

Return to the original scenario. What would happen to y* if G increased by 3,000 and T also increased by 3,000 (and holding everything else the same)? a) Y* would increase by 9,000 b) Y* would increase by 6,000 c) Y* would increase by 3,000 d) Y* would decrease by 1,000 e) Y* would decrease by 2,000

c) Y* would increase by 3,000

If the terms of trade between the U.S. and Mexico is one half a laptop per ton of avocados, which set of prices make sense: a) avocados = $500/ton, laptop = $1000 b) avocados = $500/ton, laptop = $300 c) avocados = $1000/ton, laptop = $500 d) avocados = $500/ton, laptop = $500 e) not enough information to answer

c) avocados = $1000/ton, laptop = $500

Suppose that a small country, Kardashia, does not have an absolute advantage in the production of any good or service. This means that Kardashia _____ a) cannot benefit from fair trade in any way b) can only benefit from trade if its trading partners take pity on it and offer it special trade arrangements c) can still gain from trade if it specializes in the goods/services where it has a comparative advantage d) can specialize in the production of a good/service, but it won't gain by trading e) is the victim of illegal trade policies (dumping, tariffs, quotas, etc.) by other countries

c) can still gain from trade if it specializes in the goods/services where it has a comparative advantage

In the AE model, which of the following are true in equilibrium? i) C = S ii) C + S= X+M iii) C + S= Y -T iv) Aggregate Expenditures (AE) = output/income (Y) v) X=M vi) G + I+ X= S+ T+M vii) I + X= G+ T a) iandiv b) i, ii, iv and v c) iii, iv and vi d) i, iii, v and vii e) All of the equations above are true at equilibrium

c) iii, iv and vi

Looking at the big picture, one could generalize that the overall goal of Aggregate Demand Fiscal Policy is to _____, while the overall goal of Aggregate Supply Fiscal Policy is to ____. a) set the LRAS on a new, lower trajectory; set the LRAS curve on a new, higher trajectory b) set the LRAS on a new, higher trajectory; smooth out the normal business fluctuations c) smooth out the normal business fluctuations; set the LRAS on a new, higher trajectory d) smooth out the normal business fluctuations; set the LRAS on a new, lower trajectory e) set the LRAS on a new, lower trajectory; smooth out the normal business fluctuations

c) smooth out the normal business fluctuations; set the LRAS on a new, higher trajectory

What is equilibrium real GDP (Y*) a) $25,000 b) $40,000 c) $93,000 d) $108,000 e) $183,000

d) $108,000

What is the total outstanding U.S. government debt, roughly? a) $20 billion b) $200 billion c) $3.5 trillion d) $20 trillion e) $200 trillion

d) $20 trillion

How much did the U.S. federal government spend for fiscal year ending 2017? a) $4 million b) $400 million c) $4 billion d) $4 trillion e) $40 trillion

d) $4 trillion

LOOK AT GRAPH ON PRACTICE SET PROBLEMS FOR QUESTIONS 7-13 Incorporating just Consumption and Investment spending, what is the equilibrium level of Y (Y*)? a) $1,000 b) $4,000 c) $5,000 d) $6,000 e) $7,000

d) $6,000

At the end of the year, what is Econostani's new total government debt? a) $850 million, the same at the beginning of the year b) $125 million c) $975 million d) $835 million e) $710 million

d) $835 million

What is the tax multiplier? a) 1/10 (0.1) b) -9/10 (-0.9) c) 9 d) -9 e) 10

d) -9

Over a 55-year average, about how much does the U.S. federal government spend, as a % of GDP? a) 5% b) 10% c) 15% d) 20% e) 30%

d) 20%

Using #85 and #89 above, did the U.S. run a budget deficit or surplus in 2017? How much, roughly? a) The U.S. ran a balanced budget last year b) A budget surplus of $2.75 trillion c) A budget deficit of $350 million d) A budget deficit of $700 billion e) A budget deficit of $17.5 trillion

d) A budget deficit of $700 billion

Suppose that in Econlandia, the government increases spending by $40 Billion. As a result, GDP of the country increases by $200 Billion. Use that information to answer the next two questions. What is the implied AE multiplier? What is the tax multiplier? a) AE multiplier is -5; tax multiplier is 6 b) AE multiplier is 4; tax multiplier is -5 c) AE multiplier is 5; tax multiplier is -6 d) AE multiplier is 5; tax multiplier is -4 e) AE multiplier is 4; tax multiplier is 5

d) AE multiplier is 5; tax multiplier is -4

Suppose that the U.S. imposes a tariff on imported car tires from China. Who would lose from this policy? a) American tire industry and the American government b) Chinese and American tire workers c) Chinese tire buyers and d) American tire buyers and Chinese tire industry e) There would be no losers from this policy

d) American tire buyers and Chinese tire industry

Deficits and surpluses tend to run in cycles. In general, when an economy is contracting or in a recession, government revenue tends to _____, while government spending tends to ____. Combined, these tend to make deficits _______. a) Fall, fall; stay the same b) Rise; rise; worse c) Rise; fall; smaller d) Fall; rise; smaller e) Fall; rise; worse

e) Fall; rise; worse

Suppose that prices dropped in Econlandia. As a result, consumers feel (and are) more wealthy and as a result increase spending. This would cause ___________. a) an increase in the short-run aggregate supply (SRAS) curve (shift right) b) a decrease in the SRAS curve (shift left) c) an increase in the aggregate demand (AD) curve (shift right) d) a decrease in the AD curve (shift left) e) No shift, a movement down along the given AD curve

e) No shift, a movement down along the given AD curve

In the Aggregate Expenditure model, MPC + MPS equals _________ A. C (consumption spending) B. Y (equilibrium output) C. Disposable income (Y - T) D. 1 E. 100

D. 1

The formula for the AE multiplier is ________ a) 1-MPC b) (MPC/1) + 1 c) 1/MPC d) 1/(1 - MPC) e) (MPC + 1)/1

D. 1/( 1-MPC)

How has this percentage changed? Is your number above about normal, or higher or lower than normal? a) U.S. debt to GDP is higher than it has been since World War II. b) U.S. debt to GDP has risen, but only slightly. It is at a moderate level. c) U.S. debt to GDP has decreased over the last 50 years, but only moderately. d) U.S. debt to GDP has not increased or decreased in over 50 years; it remains the same every year e) U.S. debt to GDP has decreased significantly over the last 30 years; it is now at a record low.

a) U.S. debt to GDP is higher than it has been since World War II.

Return to the original scenario and numbers. What would happen to equilibrium real GDP (Y*) if imports fell $10,000 (down to $50,000)? a) Y* would rise by $100,000 b) Y* would fall by $100,000 c) Y* would rise by $10,000 d) Y* would fall by $10,000 e) Y* would fall by $9,000

a) Y* would rise by $100,000

For the fiscal year, Econostani ________. a) decreased its total outstanding debt by $15 million b) decreased its total outstanding debt by $140 million c) increased its total outstanding debt by $125 million d) increased its total outstanding debt by $15 million e) neither increased nor decreased its total outstanding debt

a) decreased its total outstanding debt by $15 million

When a country has an absolute advantage in a certain good, it means that they _____ a) have the ability to produce more of that good than another country over some time period b) have the ability to produce less of that good than another country over some time period c) have the ability to produce that good at a higher opportunity cost than another country d) have the ability to produce that good at a lower opportunity cost than another country e) offer more favorable trade policies with its friends/neighbors than with other countries

a) have the ability to produce more of that good than another country over some time period

Consider the differences between Classical and Keynesian economists. According to the Classical model, the primary determinant of savings is _______, while according to the Keynesian model, the primary determinant of savings is ______. a) interest rates; income b) consumption; interest rates c) inflation rates; consumption d) income; inflation rates e) consumption; income

a) interest rates; income

At this level of equilibrium real GDP (Y*), how much is disposable income? a) $108,000 b) $102,000 c) $72,360 d) $68,000 e) $25,000

b) $102,000

What is the marginal propensity to save (MPS) in Econlandia? a) 0 b) 0.33 c) 0.67 d) 1.5 e) 3

b) 0.33

Given your answer above, shat is the implied MPC of the country? a) 0.9 b) 0.8 c) 0.75 d) 0.5 e) 0.2

b) 0.8

What do we call this particular situation? What is the specific problem? a) A contraction or recession; possible inflation b) A contraction or recession; unemployment c) The economy is in long-run macroeconomic equilibrium d) Overheating; possible inflation e) Overheating; unemployment

b) A contraction or recession; unemployment

Consider the U.S. economy. Suppose that there is a tremendous fall in the stock market and home values. Using the Aggregate Demand and Supply model to answer the next three questions. A drawing may be very helpful... What curve would this affect and which way? a) Aggregate Demand (AD), shift right b) AD, shift left c) Aggregate Supply (AS), shift right d) AS, shift left e) Both AD and AS, both shift right

b) AD, shift left

Suppose that the U.S. imposes a tariff on imported car tires from China. Who would benefit from this policy? a) Chinese and American tire workers b) American tire industry and the American government c) Chinese tire industry and the Chinese government d) The Chinese and American governments e) American tire buyers and the Chinese government

b) American tire industry and the American government

Which of the following would NOT shift the Consumption Function in the Aggregate Expenditure model (but would in the Aggregate Demand model)? a) An increase in the value of your retirement savings due to a soaring stock market b) An increase in your monthly income due to a long overdue raise c) A change in your tax rate d) A worsening expectation about future economic conditions e) A lowering of your current level of debt

b) An increase in your monthly income due to a long overdue raise

At this equilibrium level of real GDP (and income), consumption C = ______ and savings S = ________. a) C = $75,000; S = $25,000 b) C = $93,000; S = $9,000 c) C = $25,000; S =- $25,000 d) C = $97,000; S = 11,000 e) C = $68,000; S = $34,000

b) C= $93,000; S= $9,000

Suppose that France has an absolute advantage over Germany in the production of cheese. This means that, given their current resources and available technology _____ a) Germany must have an absolute advantage over France in the production of some other good b) France can produce more cheese than Germany c) France has the absolute advantage over Germany in production of all goods and services d) France much have the comparative advantage over Germany in the production of cheese e) Germany must have a comparative advantage over France in the production of cheese

b) France can produce more cheese than Germany

What are the two main tools used in Aggregate Demand fiscal policy? a) Government spending (G) and business regulations b) Government spending and (household) tax rates c) Household and business tax rates d) Changing the nation's money supply and interest rates e) Government spending and the money supply

b) Government spending and (household) tax rates

Consider the following actions: I) The government decreases tax rates II) There is a fall in nominal interest rates III) There is rising consumer confidence IV) The government reduces its spending on U.S. goods and services V) There is a fall in foreign wealth VI) There is a fall in household debt levels VII) There is a fall in consumer wealth Which of the above would cause an increase in Aggregate Demand? a) I, II and III b) I, II, III and VI c) II, III and VII d) I, II, III, IV and V e) II, V, VI and VII

b) I, II, III and VI

Suppose we take action to remedy the situation. What would be the appropriate AD fiscal policies? i) Raise taxes on households ii) Lower taxes on households iii) Increase government spending iv) Decrease government spending v) Increase the money supply vi) Decrease the money supply a) Raise taxes only b) Lower taxes and increase government spending c) Raise taxes, decrease the money supply d) Increase government spending, decrease the money supply e) Lower taxes, increase government spending, increase the money supply

b) Lower taxes and increase government spending

What is the largest source of U.S. Government revenue? a) Excise Taxes b) Personal Income Taxes c) Tariffs (taxes on imports) d) Corporate taxes e) Airline baggage fees

b) Personal Income Taxes

Which of the following describes the national security argument for protectionism? a) Nearly all industries can make some claim to strategic importance so such trade restrictions can get out of hand b) Some goods should be insulated from foreign competition to ensure an adequate supply of these goods in the event of an international conflict c) Increases in economic surplus outweigh the decreases in consumer surplus that result from protectionism d) Private companies (for example, Coca-Cola) should not be forced to reveal their trade secrets to foreign companies e) Resources used for trade should be devoted to the military

b) Some goods should be insulated from foreign competition to ensure an adequate supply of these goods in the event of an international conflict

Tariffs and quotas are tools that countries can use to restrict/reduce trade. What are they? a) Tariffs are subsidies (tax breaks) on exported goods/services, while quotas are taxes on imported goods/services b) Tariffs are taxes on imported goods/services, while quotas are limits on the number imported c) Tariffs are taxes on exported goods/services, while quotas are limits on the number exported d) Tariffs are limits on the number of imported goods/services while quotas are taxes on them e) Tariffs are limits on the number of exported goods/services while quotas are taxes on them

b) Tariffs are taxes on imported goods/services, while quotas are limits on the number imported

USE THE DIAGRAM FOR NEXT 3 QUESTIONS (62-64) What is going on with total spending and total production? a) Total spending equals total production b) Total spending has fallen below total production c) Total spending has risen about total production d) Potential GDP has fallen below its long-run trend

b) Total spending has fallen below total production

56. Consider the following events: I) There is an increase in the productivity of labor II) There is an increase in the labor force participation rate III) There is an increase in the supply of labor IV) There is an advance in the technology of production V) There is an increase in the nation's amount of human capital VI) Unrest in the Middle East causes a disruption in the supply of oil to the U.S. Which of the above events would cause a decrease in the potential GDP? a) II, III and V b) VI only c) II, V and VI d) None of the above events would decrease the potential level of GDP. e) All of the above events would decrease the potential level of GDP.

b) VI only

Consider a hypothetical country Econostan that uses the dollar as its currency. For the fiscal year, the Econostani government spent $125 million, and collected $140 million. At the beginning of the year, Econostan had total debt outstanding of $850 million. Econostani's total GDP for the year was $1,670 million. Use this information to answer the next several questions (78 - 81) For the fiscal year, we would say that the Econostani government experienced a ______ of ________ amount. a) balanced budget; $0 b) budget surplus; $15 million c) budget surplus; $125 million d) budget deficit; $140 million e) budget deficit; $850 million

b) budget surplus; $15 million

How much did the U.S. federal government receive in tax payments for fiscal year ending 2017? a) $3.6 million b) $3.6 billion c) $3.3 trillion d) $360 trillion e) $3.6 quadrillion (the number after trillion!)

c) $3.3 trillion

At this level of income (Y*), what is the value of C? a) $1,000 b) $4,000 c) $5,000 d) $6,000 e) $7,000

c) $5,000

Given the information above, the GDP gap is _____ and the recessionary gap is _______ a) $60,000; $6,000 b) $6,000; $6,000 c) $6,000; $1,200 d) $1,200; $7,500 e) $7,500; $6,000

c) $6,000; $1,200

Consider the following actions: I) The government decreases tax rates II) There is a fall in nominal interest rates III) There is rising consumer confidence IV) There is falling investor/business confidence V) The government reduces its spending on U.S. goods and services VI) There is a fall in foreign wealth VII) The Federal Reserve increases the money supply Which of the above would cause a decrease in Aggregate Demand? a) I, II, IV and VI b) I, II, III and VII c) IV, V, VI d) II, IV, V, VI, and VII e) All of the above actions would decrease Aggregate Demand

c) IV, V, VI

Which of the following would be an example of expansionary AD fiscal policy? a) Increasing Government spending and increasing household tax rates b) Decreasing government spending and increasing the nation's money supply c) Increasing Government spending and decreasing household tax rates d) Decreasing interest rates and also decreasing household tax rates e) Decreasing government spending and decreasing business tax rates

c) Increasing Government spending and decreasing household tax rates

Compared to other countries, how is the current U.S. government debt to GDP ratio? a) The U.S. debt to GDP ratio is very low, compared to other countries b) It is about average c) It is quite high, higher than most other advanced economies d) It is the highest of all advanced economies

c) It is quite high, higher than most other advanced economies

Suppose that for a given year, a government sets programs in place (agriculture, food safety, military, roads, schools, etc.) costing $500 million. For that same year, it collects $400 million in revenue. What does it typically do? a) It still runs all its programs, but it just doesn't pay for the last $100 million of them b) It cuts $100 million out of it normal programs c) It prints $100 million of bonds, sells them, and uses that to pay for the last $100 million of programs d) It sets higher, emergency taxes on its population to collect another $100 million e) Government officials immediately begin blaming everyone except themselves for this problem

c) It prints $100 million of bonds, sells them, and uses that to pay for the last $100 million of programs

As a % of U.S. GDP, how much did the U.S. federal government collect in taxes for fiscal year 2017? a) It was far, far below its 55-year average b) It was significantly below its 55-year average c) It was near its 55-year average (very slightly below) d) It was significantly above its 55-year average e) It was much, much higher than its average

c) It was near its 55-year average (very slightly below)

As a % of U.S. GDP, how much did the U.S. federal government spend fiscal year 2017? a) It was far, far below its 55-year average b) It was significantly below average c) It was very close to its average (just a bit above) d) It was significantly higher than average e) It was much, much higher than average

c) It was very close to its average (just a bit above)

Which of the following would be an appropriate trade rate that would benefit both Vietnam and Thailand? a) One computer for ½ phone b) One computer for ¾ phone c) One computer for 1.5 phones d) One computer for 3 phones e) All of the above trade rates would benefit both countries

c) One computer for 1.5 phones

What is going on with output (real GDP) and unemployment? a) Output (real GDP) is higher than its potential (full-employment) amount: unemployment is below its natural rate b) Output is higher than its potential amount; unemployment is above its natural rate c) Output is equal to its potential amount; unemployment is at its natural rate d) Output is less than its potential amount; unemployment is above its natural rate e) Output is less than its potential amount; unemployment is below its natural rate

c) Output is equal to its potential amount; unemployment is at its natural rate

Assume that Econland is closed, that is, it does not trade. What is the equilibrium price (P*) for shoes and the equilibrium quantity (Q)*? a) P* = 85; Q* = 275 b) P* = 85; Q* = 200 c) P* = $65; Q* = 275 d) P* = $65; Q* = 200 e) P* = $65; Q* = 325

c) P* = $65; Q* = 275

Deficits and surpluses tend to run in cycles. In general, when an economy is growing/expanding government revenue tends to _______, while government spending tends to _____. Combined, these tend to make deficits _______. a) Fall; fall; stay the same b) Rise; rise; worse c) Rise; fall; smaller d) Fall; rise; smaller e) fall; rise; worse

c) Rise; fall; smaller

Suppose that the president of a country wishes to lower personal income and business taxes. Suppose further that the country was already running budget deficits consistently (aka - the U.S). If nothing else changes, what will happen to the government's finances? a) Nothing with change; lowering taxes has no effect on a government's budget b) Since the government will begin collecting more money than before, the budget deficit will turn to a surplus; the total debt of the country will shrink c) Since even less money is coming in before, and if the government spends the same as before, then the government will begin to run even larger deficits; the total debt of the country will increase d) All problems will immediately disappear and rainbows will appear, because lowing taxes fixes everything!

c) Since even less money is coming in before, and if the government spends the same as before, then the government will begin to run even larger deficits; the total debt of the country will increase

For the next five questions, use the following information. Suppose that Vietnam and Thailand can produce both computers and cell phones. In one month, Vietnam can produce 20 thousand computers or 50 thousand phones, or some combination. Also in one month, Thailand and produce 30 thousand computers or 30 thousand phones or some combination. Which statement is true about absolute advantage (AA)? a) Thailand has the AA in both computers and phones b) Vietnam has the AA in both computers and phones c) Thailand has the AA in computers and Vietnam has the AA in phones d) Vietnam has the AA in computers and Thailand has the AA in phones e) Thailand has the AA in phones and neither has the AA in computers

c) Thailand has the AA in computers and Vietnam has the AA in phones

What do we call this particular situation? What is the specific problem? a) A contraction or recession; inflation b) A contraction or recession; unemployment c) The economy is in long-run macroeconomic equilibrium; no problem d) Overheating; inflation e) Overheating; unemployment

c) The economy is in long-run macroeconomic equilibrium; no problem

USE DIAGRAM FOR QUESTIONS 65-67 What is going on with total spending and total production? a) Total spending equals total production b) Total spending has fallen below total production c) Total spending has risen about total production d) Potential GDP has risen above its long-run trend

c) Total spending has risen about total production

What are the differences in assumptions between Classical and Keynesian economists about how market participants behave and how quickly markets (and prices) can adjust to changes? a) There is no difference between the two schools regarding this issue. b) Classical economists believe that all market participants and all markets adjust quickly while Keynesian economists believe that all market participants and all markets are slow to adjust. c) Classical economists believe that most market participants and markets are slow to adjust while Keynesian economists believe that all market participants and markets are quick to adjust. d) Classical economists believe that market participants and markets adjust quickly while Keynesian economists believe that some market participants and markets can be slow to adjust e) Classical economists believe that market participants and markets are unable to adjust at all, while Keynesian economists believe that only some participants and markets are slow to adjust

d) Classical economists believe that market participants and markets adjust quickly while Keynesian economists believe that some market participants and markets can be slow to adjust

Under completely free trade, what is the new Total Surplus? a) DCG b) DCFGB c) DCFAE d) DCFAGB e) DCFAEGB

d) DCFAGB

Given your answer above, what would be the short-term effect on the economy (prices - P, GDP - Y, unemployment - U)? a) No effect on P, Y or U b) Rise in all three c) Fall in all three d) Fall in P, fall in Y, rise in U e) Fall in P, rise in Y, fall in U

d) Fall in P, fall in Y, rise in U

What is the opportunity of a phone in Vietnam? What is the opportunity cost of a phone in Thailand? a) In Vietnam, one phone costs ½ computer; in Thailand, one phone costs 3 computers b) In Vietnam, one phone costs 5/2 computers; in Thailand, one phone costs 1 computer c) In Vietnam, one phone costs 1 computer, in Thailand, one phone costs 1/3 computer d) In Vietnam, one phone costs 2/5 computer, I Thailand, one phone costs 1 computer e) In Vietnam, one phone costs 5/2 computers, in Thailand, one phone costs 3 computers

d) In Vietnam, one phone costs 2/5 computer, I Thailand, one phone costs 1 computer

Suppose that the economy is operating at a point less than the full-employment level of output. Suppose that the MPC is estimated to be 0.6. Suppose further that the government would like to increase Aggregate Demand by $200 billion. Which of the policies below would be appropriate? a) Increase government spending by $333.33 billion b) Increase government spending by $200 billion c) Increase government spending by $120 billion d) Increase government spending by $80 billion e) Decrease government spending by $200 billion

d) Increase government spending by $80 billion

In the complete Aggregate Expenditure model, which functions are injections? a) Government spending (G) and Taxes (T) b) Exports (X) and Imports (M) c) Investment (I), Savings (S) and Taxes (T) d) Investment (I), Government Spending (G) and Exports (X) e) Taxes (T), Savings (S) and Consumption, C

d) Investment (I), Government Spending (G) and Exports (X)

Who is known as the 'father of modern macroeconomics'? a) Adam Smith b) Milton Friedman c) Simon Kuznets d) John M. Keynes e) Karl Marx

d) John M. Keynes

Compared to most other developed nations, how much does the U.S. government (federal, state and local) spend, in proportion to its economic size (% of GDP)? As a proportion of its size, the U.S. government spends ________. a) Far, far more than most other advanced countries b) Substantially more than most other advanced countries c) About the same as other advanced countries d) Less than most other advanced countries

d) Less than most other advanced countries

What is going on with output (real GDP) and unemployment? a) Output (real GDP) is higher than its potential (full-employment) amount: unemployment is below its natural rate b) Output is higher than its potential amount; unemployment is above its natural rate c) Output is equal to its potential amount; unemployment is at its natural rate d) Output is less than its potential amount; unemployment is above its natural rate e) Output is less than its potential amount; unemployment is below its natural rate

d) Output is less than its potential amount; unemployment is above its natural rate

What do we call this particular situation? What is the specific problem? a) A contraction or recession; possible inflation b) A contraction or recession; unemployment c) The economy is in long-run macroeconomic equilibrium d) Overheating; possible inflation e) Overheating; unemployment

d) Overheating; possible inflation

Many economists criticize protectionism because it causes losses to consumers and eliminates jobs in domestic industries that use protected products. Why, then, do some people support protectionism? a) The criticisms of economists are based on theory only. In fact, protectionism increases consumer and producer surplus as well as employment. b) Supporters of protectionism believe free trade will cause their countries to lose their comparative advantage c) Supporters of protectionism believe that free trade will lead to inflation d) Supporters of protectionism in high-income countries believe that wages will fall as a result of competition with firms from developing countries e) Protectionist policies lower prices within the country and benefit consumers.

d) Supporters of protectionism in high-income countries believe that wages will fall as a result of competition with firms from developing countries

Assuming the government runs a balanced budget, what would be the value for T? a) T = $40,000 + 1/10Y b) T = $10,000 + 9/10Y c) T = $65,000 d) T = $40,000 e) T = $10,000

d) T = $40,000

Suppose that a country consistently runs budget deficits (aka - the U.S.) What are the only ways for the government to halt this practice and fix its finances? a) The government can lower taxes to fix the deficit problem b) The government can lower taxes and/or increase spending on its citizens c) The government can borrow more, and then use that money to pay off what it owes! d) The government must either raise taxes, or spend less on its citizens, or both e) Click your heels together three times, repeating 'There's no place like home'

d) The government must either raise taxes, or spend less on its citizens, or both

Given your answer above, how many shoes will Econland import or export? a) Econland will import 200 pairs of shoes b) Econland will import 125 pairs of shoes c) Econland will export 325 pairs of shoes d) Econland will export 75 pairs of shoes e) Econland will export 125 pairs of shoes

e) Econland will export 125 pairs of shoes

Suppose that the government of Spendlotsvia has a total outstanding debt of $250 billion. The government of Frugalia has a total outstanding debt of $100 billion. What can we say about the fiscal health of these two countries? a) Frugalia's fiscal health is in much better shape, their total government debt is less than half of Spendlotsvia b) Both countries must have run a budget deficit this year c) Frugalia is paying more interest on its debt than Spendlotsvia d) Without more information, we can't make any judgements about the fiscal health of either country e) The only way to eliminate the debt is to have a balanced budget going forward

d) Without more information, we can't make any judgements about the fiscal health of either country

Consider the two countries above. What if GDP for Spendlotsvia was around $500 billion, while GDP for Frugalia was around $75 billion. Does that change your answer from above? a) No, Spendlotsvia is still in worse fiscal health b) Yes, Frugalia is better off because their debt is only 75% of GDP c) Yes, Spendlotsvia is worse off because their debt is twice their GDP d) Yes, Spendlotsvia is better off because their debt is only ½ of their GDP e) Yes, the fiscal health of both countries is the same because the debt to GDP ratio for both countries is the same

d) Yes, Spendlotsvia is better off because their debt is only ½ of their GDP

The wealth effect, the interest-rate effect and the export effect all explain why: a) short-run aggregate supply is upward sloping. b) short-run aggregate supply is vertical. c) long-run aggregate supply is vertical. d) aggregate demand is downward sloping. e) aggregate demand is upward sloping

d) aggregate demand is downward sloping.

When a county has a comparative advantage in a certain good, it means that they _____ a) have the ability to produce more of that good than another country over some time period b) have the ability to produce less of that good than another country over some time period c) have the ability to produce that good at a higher opportunity cost than another country d) have the ability to produce that good at a lower opportunity cost than another country e) offer more favorable trade policies with its friends/neighbors than with other countries

d) have the ability to produce that good at a lower opportunity cost than another country

Suppose you were the top economic adviser to the President of Econlandia. Consider the following remedies below. Which of them would you recommend to her in order to close the GDP gap? i. Increase G by 6,000 ii. Increase G by 1,200 iii. Increase G by 6,000 and increase T by 6,000 iv. Decrease T by 1,500 v. Decrease T by 4,000 vi. Increase G by 2,400 and decrease T by 1,500 a) i, and iv b) iii and vi c) i, iii and v d) ii, iii and iv e) ii, iv and vi

d) ii, iii and iv

Compared to most other developed nations, how 'taxed' is the US., in proportion to its economic size (% of GDP)? As a proportion of its size, Americans are taxed ______. a) way, way more than most other advanced countries b) substantially more than most other advanced countries c) about the same as more other advanced countries d) less than most other advanced countries

d) less than most other advanced countries

What is the Aggregate Expenditure (AE) multiplier? a) 0 b) 1/10 (0.1) c) 9/10 (0.9) d) 9 e) 10

e) 10

What is the AE multiplier? a) 10 b) 8 c) 5 d) 4 e) 2

e) 2

What is the AE multiplier? a) -2 b) 0 c) 0.67 d) 1 e) 3

e) 3

The national debt of a country represents _______. a) The cumulative effect of all past budget deficits and surpluses b) The total amount the federal government owes to all bond holders c) The sum of all personal debt owed by its citizens d) All of the above e) A and b are true

e) A and b are true

Consider the hypothetical country of Econlandia. Suppose that the projected full-employment level of real GDP is $60,000. Also suppose that the current equilibrium level of real GDP is $54,000. Finally suppose that the MPC = 0.8. Use that for the next several questions (41 - 43). 41. Given the information above, the AE multiplier is _______ and the tax multiplier is _______ a) AE multiplier is 0.8; tax multiplier is 0.2 b) AE multiplier is 4; tax multiplier is -5 c) AE multiplier is 4; tax multiplier is 5 d) AE multiplier is 5; tax multiplier is 6 e) AE multiplier is 5; tax multiplier is -4

e) AE multiplier is 5; tax multiplier is -4

Consider the potential level of real GDP for an economy (Ŷ). Graphically, it ________ a) is upward sloping. b) is vertical. c) is horizontal. d) does not depend on the general price level. e) Both b and d are correct.

e) Both b and d are correct.

Which country is the largest foreign holder of United States debt? (Who does the U.S. government owe the most to?) a) China b) France c) The U.K. d) Japan e) China and Japan are very close, they both hold much more than any other country

e) China and Japan are very close, they both hold much more than any other country

Suppose that Econland opens up to free trade (no restrictions). How many total shoes do the citizens of Econland now buy? How many total shoes do Econland shoe producers make and sell? a) Citizens now buy 275 pairs of shoes; Producers supply 275 pairs of shoes b) Citizens now buy 325 pairs of shoes; Producers supply 200 pairs c) Citizens now buy 325 pairs of shoes; producers supply 275 pairs d) Citizens now buy 200 pairs of shoes; producers supply 275 pairs e) Citizens now buy 200 pairs of shoes; producers supply 325 pairs

e) Citizens now buy 200 pairs of shoes; producers supply 325 pairs

Given your previous answers, which statement below is true regarding winners and losers from trade? a) Both Econland shoe consumers and producers gain after trade; the country as a whole gains b) Both Econland shoe consumers and producers lose after trade; the country as a whole loses c) Econland shoe consumers gain while producers lose; the net effect is a wash - the country neither gains nor loses d) Econland shoe consumers gain while producers lose; consumers gain more than producers lose and the country as a whole gains e) Econland shoe consumers lose while producers gain; producers gain more than consumers lose and the country as a whole gains

e) Econland shoe consumers lose while producers gain; producers gain more than consumers lose and the country as a whole gains

Return to the original scenario and numbers. What would happen to equilibrium real GDP (Y*) if government spending (G) decreased by $10,000 and taxes (T) also would fall by $10,000 (assuming a balanced budget). What would be the overall net effect on real GDP? a) Real GDP (Y*) would decrease by $9,000 b) Real GDP (Y*) would increase by $100,000 c) No change in real GDP (Y*), the changes in G and T would simply cancel each other out d) Real GDP (Y*) would increase by $10,000 e) Real GDP (Y*) would decrease by $10,000

e) Real GDP (Y*) would decrease by $10,000

Consider a hypothetical economy of Winterfell. Suppose that Winterfell begins in long-run Macroeconomic Equilibrium. Now suppose that Winterfell's two biggest trading partners, Casterly Rock and Dorne both suffer significant economic slowdowns. Use this to answer the next two questions. 57. Consider the economy of Winterfell. How would we model the effects of Casterly Rock and Dorne on Winterfell? a) The SRAS and the LRAS would both shift left b) The SRAS and the LRAS would both shift right c) The SRAS only would shift left d) The AD would shift right e) The AD would shift left

e) The AD would shift left

Which of the following would be an example of automatic stabilizers? a) The U.S. passes a large spending bill upgrading its infrastructure b) The progressive U.S. tax code c) Unemployment insurance d) All of the above are automatic stabilizers e) The progressive tax code and unemployment insurance only

e) The progressive tax code and unemployment insurance only

Given your answer to the previous two questions, what can we say about the comparative advantage (CA) between the two countries? a) Vietnam has the CA in both phones and computers b) Thailand has the CA in both phones and computers c) Vietnam has the CA in phones, neither has the CA in computers d) Vietnam has the CA in computers, Thailand has the CA in phones e) Vietnam has the CA in phones, Thailand has the CA in computers

e) Vietnam has the CA in phones, Thailand has the CA in computers

Given the scenario above, what would happen to equilibrium real GDP (Y*) if investment spending (I) were to decrease $5,000 (down to $20,000)? a) Y* would increase by $4,500 b) Y* would increase by $5,000 c) Y* would decrease by $5,000 d) Y* would decrease by $45,000 e) Y* would decrease by $50,000

e) Y* would decrease by $50,000

Return to the original scenario. What would happen to Y* if exports decreased by 2,000 (down to 8,000) and holding everything else the same? a) Y* would increase by 2,000 b) Y* would increase by 6,000 c) Y* would decrease by 2,000 d) Y* would decrease by 1,333 e) Y* would decrease by 6,000

e) Y* would decrease by 6,000

What is the formula for disposable income? a) Y b) Y-C c) C-S d) C-T e) Y-T

e) Y-T

Holy cow! The giant manufactory company Whamazon is considering your city to locate its new factory. You are the mayor of the city. Suppose that you estimate the MPC of your city to be 0.6. Suppose further that Whamazon estimates the immediate new Investment impact upon your city will be $350 million. Whamazon is asking for a tax subsidy of $750 million to locate there. Should you take the offer? a) Absolutely not. Your city would end up in the hole $450 million ($750 cost - $350 investment) b) No, your city would end up in the behind $750 million (the $750 subsidy) c) Yes, your city comes out ahead $450 million ($750 subsidy - $350 investment) d) Yes, your city comes out ahead $1,100 ahead ($750 subsidy + $350 investment) e) Yes, your city comes out ahead $125 million ($875 new economic development - $750 cost)

e) Yes, your city comes out ahead $125 million ($875 new economic development - $750 cost)

Consider the situation of many less developed countries (such as Thailand or India) where labor costs are very low, and that of many developed countries (such as the U.S. or Germany) where labor costs can be much higher. Given that, we can say that the less developed countries will have _____. a) an absolute advantage in the production of all goods/services b) an absolute advantage in the production in none of the goods/services c) a comparative advantage in the production in all goods/services d) a comparative advantage in the production in none of the goods/services e) a comparative advantage in the production of some goods/services

e) a comparative advantage in the production of some goods/services

Protectionism a) is the use of cheap labor to protect firms from paying high wages b) refers to reductions in tariffs and other barriers that protect consumers from paying high prices c) refers to the use of copyright and trademark laws to protect inventors and artists from losing the rights to their creative efforts d) can only be achieved by cutting of all imports to protect domestic companies e) is the use of trade barriers to protect domestic firms from foreign competition

e) is the use of trade barriers to protect domestic firms from foreign competition