ECON MACRO TEST #3

If −→v = 4%, −→P = 3%, and −→YR = 2%, then −→M must equal: (a) 1%. (b) 1.5%. (c) 7%. (d) 6%.

(a) 1%. (#24 PT#1)

In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the average price level is 2. What is the velocity of money? (a) 4 (b) 2 (c) 2.5 (d) 7.5

(a) 4

What is the unemployment rate of the country? (a) 5% (b) 4% (c) 3% (d) 6%

(a) 5% (# 7 PT #2 for Figure)

What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage? (a) 50% (b) 20% (c) 25% (d) 100%

(a) 50% (#12 PT 2 for Figure)

What is the labor force participation rate of this country? (a) 76% (b) 72% (c) 85% (d) 93%

(a) 76% (#6 PT #2 for Figure)

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be: (a) 8.33%. (b) 7.69%. (c) 10%. (d) 9.23%.

(a) 8.33%.

Which of the following individuals can be counted as unemployed? (a) Jean, who left her job to search for a higher-paying position (b) Stewart and Susan, who are currently housed in a mental institution (c) Jason and Jill, who have not looked for work for the last 2 years (d) Hannah and Harold, who are serving time for armed robbery

(a) Jean, who left her job to search for a higher-paying position

Which of the following statements about the employment-at-will doctrine is TRUE? (a) The doctrine helps lower labor hiring and firing costs, leading to lower unemployment rates. (b) The doctrine helps raise labor hiring and firing costs, leading to higher unemployment rates. (c) The doctrine helps raise labor hiring and firing costs, leading to lower unemployment rates. (d) The doctrine helps lower labor hiring and firing costs, leading to higher unemployment rates.

(a) The doctrine helps lower labor hiring and firing costs, leading to lower unemployment rates.

Which of the following is a case of frictional unemployment? (a) Timothy is looking for a job where he can apply his expertise in computer programming. (b) Thomas recently quit his job to start his own business. (c) Tina was laid off temporarily while her company downsized. (d) Terrance is one of more than a dozen applicants for a position teaching high school math.

(a) Timothy is looking for a job where he can apply his expertise in computer programming.

Inflation is: (a) an increase in the average level of prices. (b) a decrease in the average level of prices. (c) the average number of times a dollar is spent on final goods and services in a year. (d) when people mistake changes in nominal prices for changes in real prices.

(a) an increase in the average level of prices.

In which of the following years did this country experience disinflation? (a) both 2001 and 2002 (b) 2002 only (c) neither 2001 nor 2002 (d) 2001 only

(a) both 2001 and 2002 (#19 PT 2 for Figure)

An unemployed person is one who: (a) does not have a job but is actively looking for one. (b) stays at home and is not looking for work. (c) works for a job that pays less than he or she expected. (d) is not willing to work even though he or she is able to.

(a) does not have a job but is actively looking for one.

What allows an employee to quit at any time and an employer to fire at any time for any reason? (a) employment-at-will (b) contractual autonomy (c) termination sovereignty (d) right-to-hire

(a) employment-at-will

If π > πe : (a) firms' profits will increase. (b) there will be no change in real GDP growth because it is determined by real factors. (c) firms' profits will decrease. (d) money growth will cause the short-run aggregate supply curve to shift.

(a) firms' profits will increase. (#35 PT 2)

If employers can fire an employee for any reason, other things being equal: (a) it will be easier for job seekers to find employment. (b) it will be more difficult for job seekers to find employment. (c) the long-term unemployment rate will be higher. (d) labor markets will be less flexible and dynamic.

(a) it will be easier for job seekers to find employment.

The position of the long-run aggregate supply curve shows the economy's: (a) potential growth rate given by the real factors of production. (b) rate of money growth plus velocity growth. (c) expected inflation rate. (d) long-run inflation rate.

(a) potential growth rate given by the real factors of production.

Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to: (a) shift outward. (b) not shift at all. (c) shift inward. (d) shift randomly

(a) shift outward.

Sticky wages and prices are incorporated in the AD-AS model by the: (a) short-run aggregate supply curve. (b) aggregate demand curve. (c) long-run aggregate supply curve. (d) both the aggregate demand and short-run aggregate supply curves.

(a) short-run aggregate supply curve.

Which of the following individuals can be counted as part of the labor force? (a) someone who is collecting unemployment benefits (b) someone who is on active military duty in Afghanistan (c) someone who just celebrated a fifteenth birthday (d) someone who retired 4 months ago

(a) someone who is collecting unemployment benefits

Which of the following does NOT contribute directly to the persistence of structural unemployment? (a) work tests (b) unemployment benefits (c) employment protection laws (d) unions

(a) work tests

In a small economy, the money supply is $600,000, and the velocity of money is 2. The current average price level in the economy is 3. What is the level of nominal GDP in this economy? (a) $133,333 (b) $1.2 million (c) $400,000 (d) $1.6 million

(b) $1.2 million

In which of the following years did this country experience deflation? (a) both 2001 and 2002 (b) 2002 only (c) neither 2001 nor 2002 (d) 2001 only

(b) 2002 only (#20 PT 2 for Figure)

In which year was the inflation rate the highest? (a) 2007 (b) 2008 (c) 2006 (d) 2009

(b) 2008 (#15 on PT #1)

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid? (a) 2% (b) 3% (c) 5% (d) 7%

(b) 3%

For an aggregate demand curve with −→M = 10% and −→v = 0%, if inflation is 6%, then real growth is: (a) 16%. (b) 4%. (c) -6%. (d) -4%.

(b) 4%. (#30 PT 2)

Suppose that Congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors? (a) It is impossible to tell. (b) It would increase. (c) It would decrease. (d) It would remain the same.

(b) It would increase.

Why could very high rates of inflation cause velocity to increase? (a) The more people earn, the faster they spend it. (b) The more money loses its value, the faster people try to spend it. (c) The more people earn, the faster prices rise. (d) The more inflation there is, the more there is to buy.

(b) The more money loses its value, the faster people try to spend it.

Which of the following occurs in the long run? (a) Workers confuse real wages with nominal wages. (b) Unexpected inflation is absent. (c) Prices are sticky. (d) The SRAS curve intersects the AD curve at an output growth rate higher than the Solow growth rate.

(b) Unexpected inflation is absent.

The consumer price index measures the prices of: (a) introductory, intermediate, and final goods. (b) a basket of goods bought by a typical American consumer. (c) all final goods bought by American consumers. (d) intermediate as well as final goods.

(b) a basket of goods bought by a typical American consumer.

Which type of unemployment is likely to be higher when real GDP growth is lower? (a) natural unemployment (b) cyclical unemployment (c) structural unemployment (d) frictional unemployment

(b) cyclical unemployment

If the inflation rate falls from 4% in 2005 to 2% in 2006, then: (a) the average price level has declined. (b) disinflation has occurred. (c) the value of money has increased. (d) deflation has occurred.

(b) disinflation has occurred.

If π > Eπ, (a) firms' profits will decrease. (b) firms' profits will increase. (c) there will be no change in real GDP growth because it is determined by real factors. (d) money growth will cause the short-run aggregate supply curve to shift.

(b) firms' profits will increase.

Business fluctuations are fluctuations in the: (a) growth rate of nominal GDP around its trend growth rate. (b) growth rate of real GDP around its trend growth rate. (c) level of nominal GDP around its long-term trend. (d) level of real GDP around its long-term trend.

(b) growth rate of real GDP around its trend growth rate.

When workers lose their jobs and become officially unemployed, the unemployment rate: (a) decreases. (b) increases. (c) becomes difficult to predict. (d) remains constant.

(b) increases.

The aggregate demand curve shows all the combinations of _____ and _____ that are consistent with a specified rate of _______. (a) prices; real GDP; spending (b) inflation; real GDP growth; spending growth (c) prices; GNP; money supply (d) inflation; nominal growth; money supply

(b) inflation; real GDP growth; spending growth

Wages are sticky when: (a) they are set according to inflation expectations that end up being correct. (b) labor unions set wage contracts for a certain period of time. (c) prices are flexible. (d) prices are sticky

(b) labor unions set wage contracts for a certain period of time.

Refer to the figure above. If the economy is initially at Point A and expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by: (a) first moving to Point C and then to Point B. (b) moving along SRAS1 to Point B. (c) moving directly to Point C. (d) first moving to Point D and then moving along SRAS2 to Point C.

(b) moving along SRAS1 to Point B. (#34 PT #1)

An increase in inflation will cause the long-run aggregate supply curve to: (a) shift inward. (b) not shift at all. (c) shift outward. (d) shift randomly.

(b) not shift at all.

Deflation: (a) lowers the nominal value of debts. (b) raises the real value of debts. (c) raises the nominal value of debts. (d) lowers the real value of debts.

(b) raises the real value of debts.

When workers lose their jobs and become officially unemployed, the number of people in the labor force: (a) becomes difficult to predict. (b) remains constant. (c) decreases. (d) increases.

(b) remains constant.

Suppose the nominal interest rate is 4% and the inflation rate is 5%. The real interest rate is: (a) 9%. (b) 1%. (c) -1%. (d) 0%.

(c) -1%.

Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience deflation? (a) neither 2007 nor 2009 (b) 2007 only (c) 2009 only (d) both 2007 and 2009

(c) 2009 only (#16 on PT #1)

Refer to the figure below. Point B on this aggregate demand curve represents an inflation rate of: (a) 3%. (b) 7%. (c) 4%. (d) 5%

(c) 4%. (#29 PT 2 for Figure)

According to the accompanying labor data, the unemployment rate is: (a) 0.7%. (b) 7%. (c) 7.5%. (d) 5.6%

(c) 7.5%

According to the accompanying labor data, the labor force participation rate is: (a) 69.4%. (b) 60.4%. (c) 75%. (d) 99.3%.

(c) 75%

Which of the following is part of the labor force? (a) a full-time student (b) a retiree (c) a person who was laid off and is now looking for work (d) a homemaker

(c) a person who was laid off and is now looking for work

The aggregate demand curve shows the relationship between real GDP growth and the: (a) interest rate. (b) expected inflation rate. (c) actual inflation rate. (d) long-run inflation rate.

(c) actual inflation rate.

How can people who are laid off from work due to a recession eventually turn into structurally unemployed people? (a) by failing to file for unemployment benefits (b) by becoming discouraged workers (c) by staying unemployed so long that their skills become outdated (d) by receiving food stamps

(c) by staying unemployed so long that their skills become outdated

If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will: (a) cause more unemployment among hotel workers than restaurant workers. (b) have no effect in either market. (c) cause more unemployment among restaurant workers than hotel workers. (d) cause the same amount of unemployment in both markets.

(c) cause more unemployment among restaurant workers than hotel workers.

What is the term for workers who have given up looking for a job but would still like one? (a) jobless workers (b) laid off workers (c) discouraged workers (d) discarded workers

(c) discouraged workers

The long-run aggregate supply curve shows that long-run economic growth: (a) does not depend on factors such as capital, labor, and ideas. (b) depends on the rate of inflation. (c) does not depend on the rate of inflation. (d) is neutral.

(c) does not depend on the rate of inflation.

When the government monetizes its debt, the results are: (a) higher inflation and benefits for holders of government bonds. (b) lower inflation and benefits for holders of government bonds. (c) higher inflation and losses for holders of government bonds. (d) lower inflation and losses for holders of government bonds.

(c) higher inflation and losses for holders of government bonds.

The invention of birth control in pill form substantially ________ labor force participation. (a) increased male (b) decreased female (c) increased female (d) decreased male

(c) increased female

During recessions the unemployment rate: (a) decreases. (b) fluctuates randomly. (c) increases. (d) remains relatively constant.

(c) increases.

Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead: (a) both lenders and borrowers on existing fixed rate loans will gain. (b) both lenders and borrowers on existing fixed rate loans will lose. (c) lenders on existing fixed rate loans will gain while borrowers will lose. (d) borrowers on existing fixed rate loans will gain while lenders will lose.

(c) lenders on existing fixed rate loans will gain while borrowers will lose.

An unexpected increase in export growth is a: (a) factor that has no impact on AD in the short run. (b) shock that is always matched by an equal decrease in import growth. (c) positive AD shock. (d) negative AD shock.

(c) positive AD shock.

Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused: (a) real growth to be unchanged and inflation to increase. (b) real growth to be unchanged and inflation to decrease. (c) real growth to increase and inflation to decrease. (d) real growth to decrease and inflation to increase.

(c) real growth to increase and inflation to decrease.

Over the past few decades, the U.S. economy has switched from a primarily manufacturing economy to a service economy. Many individuals working in manufacturing positions lost their jobs, and many new jobs opened up in services. For those who lost jobs in manufacturing, this is an example of: (a) cyclical unemployment. (b) industry unemployment. (c) structural unemployment. (d) frictional unemployment.

(c) structural unemployment.

What is the Fisher effect? (a) the tendency of nominal interest rates to fall with higher expected inflation rates (b) the tendency of real interest rates to fall with higher expected inflation rates (c) the tendency of nominal interest rates to rise with higher expected inflation rates (d) the tendency of real interest rates to rise with higher expected inflation rates

(c) the tendency of nominal interest rates to rise with higher expected inflation rates

Nominal wage confusion occurs when: (a) workers respond to their real wage instead of to their nominal wage. (b) real wage is much greater than the nominal wage. (c) workers respond to their nominal wage instead of to their real wage. (d) nominal wage is much greater than the real wage.

(c) workers respond to their nominal wage instead of to their real wage.

What is the number of people who are employed at the market wage? How many people end up unemployed due to the implementation of a $10 minimum wage? (a) 40; 20 (b) 40; 40 (c) 60; 20 (d) 60; 40

(d) 60; 40 (#11 PT 2 for Figure)

As a result of an increase in expected inflation, the: (a) LRAS curve shifts to the right. (b) SRAS curve shifts down and to the right. (c) LRAS curve shifts to the left. (d) SRAS curve shifts up and to the left.

(d) SRAS curve shifts up and to the left.

A real shock causes: (a) a shift of the aggregate demand curve. (b) a movement along the long-run aggregate supply curve. (c) a shift of both the long-run aggregate supply curve and the aggregate demand curve. (d) a shift of the long-run aggregate supply curve.

(d) a shift of the long-run aggregate supply curve.

The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called: (a) cyclical unemployment. (b) structural unemployment. (c) seasonal unemployment. (d) frictional unemployment.

(d) frictional unemployment.

In a nonrecession year, the majority of U.S. unemployment is: (a) structural. (b) recurrent. (c) cyclical. (d) frictional.

(d) frictional.

Long-lasting unemployment benefits tend to: (a) increase the rate of frictional unemployment. (b) decrease the rate of structural unemployment. (c) decrease the rate of frictional unemployment. (d) increase the rate of structural unemployment.

(d) increase the rate of structural unemployment.

In the long run, the quantity theory of money says that the growth rate of the money supply will be approximately equal to the: (a) growth rate of real GDP. (b) velocity of money. (c) price level. (d) inflation rate.

(d) inflation rate.

Menu costs are the costs associated with changing: (a) expected inflation. (b) jobs. (c) wages. (d) prices.

(d) prices.

The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in: (a) cyclical unemployment. (b) frictional unemployment. (c) seasonal unemployment. (d) structural unemployment.

(d) structural unemployment.

What is the Fisher effect? (a) the tendency of real interest rates to rise with higher expected inflation rates (b) the tendency of real interest rates to fall with higher expected inflation rates (c) the tendency of nominal interest rates to fall with higher expected inflation rates (d) the tendency of nominal interest rates to rise with higher expected inflation rates

(d) the tendency of nominal interest rates to rise with higher expected inflation rates