Econ Review Quiz Practice

An increase in government spending initially and primarily shifts

aggregate demand to the right.

Society has an understanding of the best ways to produce goods and services. Through education, training, and experience workers have acquired knowledge and skills.

The first sentence defines technology; the second sentence defines human capital.

t/f Over time technological progress shifts the aggregate supply curve to the right making the inflation rate higher than otherwise.

false

t/f The labor force participation rate equals the number of people working divided by the adult population

false

If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower

in the short run but not the long run.

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

increase government expenditures or increase the money supply

In the long run, if the Fed increases the rate at which it increases the money supply

inflation will be higher

(t/f) A 2% rate of growth in real GDP per person implies that average income doubles about every 35 years.

true

(t/f) The group of goods and services used to compute the GDP deflator changes automatically over time.

true

according to the quantity theory the primary cause of inflation is growth in the money supply.

true

Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 4,000, consumption equals 10,000, and government expenditures equal 3,000. What are private saving and public saving?

1,000 and 1,000

Your grandmother tells you that she earned $3.15 an hour at her summer job as a freight handler in 1964. Since then prices have risen 490%. In order to keep her purchasing power constant, what would her wage rate be today?

18.59

Suppose that the real interest rate is 4%, the inflation rate is 2%, and the tax rate is 25%. According to the Fisher Effect, what is the after-tax real interest rate?

2.5%

Suppose that the Fed buys $5 million in U.S. government securities from bond traders. What is the total effect on the money supply if the required reserve ratio is 20 percent and banks hold no excess reserves?

25 million

Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more expansionary monetary policy?

3% unemployment and 5% inflation

Based on the Equation of Exchange (Quantity Equation), if P = 2, Y = 600, and M = 200, then V =

6

If the price level now is 129 and was 120 a year ago, what was the inflation rate?

7.5%

Suppose that in some state the civilian, non-institutionalized adult population is 4 million, the labor force participation rate is 75%, and 250,000 people are unemployed. What is the unemployment rate (to the nearest tenth)?

8.3%

Suppose a stock market crash makes people feel poorer. In the AD-AS model, this would shift

Ad left

Unemployment would decrease and prices increase if

Ad shift right

Deborah and Greg make ice cream. Deborah works five hours a day and makes 100 pints. Greg works 8 hours a day and makes 120 pints.

Deborah's productivity is greater than Greg's but her production is less.

If aggregate demand shifts because of a wave irrational exuberance, those who favor a policy that "leans against the wind" would advocate the

Federal Reserve decrease the money supply or the government increase taxes.

During the 1990s, France posted an average unemployment rate of 10.9%, compared to the U.S. rate of 5.8% for the same period. What of the following most likely explains this difference? Correct! France has more generous unemployment compensation and stronger unions. France has less generous unemployment compensation and stronger unions. France has more generous unemployment compensation and weaker unions. France has less generous unemployment compensation and weaker unions.

France has more generous unemployment compensation and stronger unions

Harry buys a bond issued by Dell, Inc., which uses the funds to buy new machinery for one of its factories. In the language of macroeconomics,

Harry is saving, Dell is investing

shift in AD

It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2

the vertical curve on graph comparing unemployment rate and inflation rate is

LRPC

All of the following are arguments against stabilization policy except: Fiscal policy must go through a long political process. Long lags may cause stabilization policies to in fact destabilize the economy. Economic forecasting is highly imprecise. Monetary policy affects aggregate demand by changing interest rates.

Monetary policy affects aggregate demand by changing interest rates.

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then

SRPC shift down

Which of the following is not an argument against requiring the government to balance its budget? The effect of deficit spending on future generations depends in part on what the government buys. Per-capita debt is small relative to lifetime income. Some economists believe that rules are better than discretion. Other government policies also redistribute income across generations.

Some economists believe that rules are better than discretion

Which of the following is not money? A check A quarter A Federal Reserve note A bank deposit

a check

In 1896, when gold served as money, prospectors on the Klondike River discovered gold. This discovery caused

an increase in the price level which transferred wealth from creditors to debtors.

Which of the following causes the short-run aggregate supply curve to shift left?

an increase in the price of oi (not: a decrease in the price level a decrease in the money supply an increase in the productivity of labor )

Suppose that the money supply increases. In the short run, this increases prices according to

both the short-run Phillips curve and the aggregate demand and aggregate supply model.

(T/F) The CPI gives greater weights to goods that consumers purchase more of.

true

If money is neutral and the money supply rises, which of the following rise?

dollar wages

If over time the nominal wage rises and the real wage falls, then

dollar wages rose but the price level rose by a larger percentage.

Art transfers $5000 from his checking account to his savings account. This transaction will

decrease M1 and not change M2

Suppose the price of gasoline rises rapidly because of supply problems and consumers respond consistent with the law of demand. Then consumers would

decrease the quantity of gasoline consumed. So, the CPI inflation rate would overstate the rate of inflation.

During periods of greater uncertainty, the non-bank public tends to hold relatively more in currency and relatively less in deposits. This action

decreases the expansion of deposits from lending and decreases the money supply

The wealth effect stems from the idea that a higher price level

decreases the real value of households' money holdings

In the short run, output responds to changes in the aggregate

demand for goods and services.

The misperceptions theory of the short-run aggregate supply curve says that output supplied will increase if the price level

is higher than expected so that firms believe the relative price of their output has increased.

A reduction in U.S net exports would shift U.S. aggregate demand

leftward. In an attempt to stabilize the economy, the government could cut taxes.

The recession of 2008-2009 could have been the result of

losses in the financial market which caused AD to shift to the left.

According to the political business cycle theory, if the Fed wanted to see a President re-elected, prior to the election it might

lower the discount rate and buy bonds.

Which of the following is an example of physical capital? Correct! machinery in a bottling factory the knowledge an auto mechanic has obtained stocks and bonds issued by a corporation All of these answers are correct.

machinery in a bottling factory

Which of the following would transfer wealth from old to young?

more generous education subsidies

Government purchases are said to have a

multiplier effect on aggregate demand.

In the short run unemployment and inflation are

negatively related. In the long run they are largely unrelated problems

What is wrong with inflation? Makes everyone worse off. Neither 1 nor 2. Both 1 and 2. Increases our cost of living so we can't buy as much.

neither

If money is neutral, can FOMC monetary policy help us get out of a recession?

no

Lt. Dan is in the Army. Lt. Dan is officially:

not in labor force

The time inconsistency of monetary policy means that

once people have formed expectations of low inflation based on a promise by the central bank, the central bank is tempted to raise inflation to lower unemployment

According to classical macroeconomic theory,

output is determined by the supplies of capital and labor and the available production technology.

If the minimum wage increased, then at any given rate of inflation

output would be lower and unemployment would be higher.

Other things constant, if the government increases its expenditures but not taxes

public saving will fall and the interest rate will rise

By raising aggregate demand more than anticipated, policymakers

reduce unemployment for awhile.

Consider the money market with the value of money on the vertical axis. If the Federal Reserve buys bonds, then the money supply curve shifts

right causing prices to rise

If the government raises government expenditures, then in the short run prices

rise and unemployment falls

If the central bank increases the money supply, in the short run, output

rises so unemployment falls

In the language of macroeconomics, a higher interest rate induces people to

save more, so the supply of loanable funds slopes upward.

M1 is

smaller than M2 but more liquid than M2.

Who would the BLS include in the labor force?

someone who worked without pay for their family's business part-time workers people who are not employed but looked for employment in the past four weeks

In the last few years the U.S. government budget deficit has increased; other things the same, this means the

supply of loanable funds shifted left

Other prices the same, an increase in the price of French wine would increase

the CPI but not the GDP deflator.

Assume a central bank follows a rule that requires it to take steps to keep the price level constant. If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged, then

the central bank would have to decrease the money supply which would decrease output.

According to the theory of liquidity preference

the demand for money is represented by a downward-sloping line on a supply-and-demand graph.

During the recession in 2009 some people became discouraged and quit looking for work. Other things the same, as they quit looking for work, according to the BLS

the labor force and the unemployment rate would both fall

The government of Tsiratenom considers two policies. Policy A would shift AD right by 200 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve policy A will lead

to a higher unemployment rate and lower inflation rate than policy B

Phillips found a negative relation between

wage inflation and unemployment

During the last twelve months country A had a population of 20,000, 15,000 workers who each worked 8 hours, and production of 2,400,000 goods. Country B had a population of 16,000, 12,000 workers who each worked 8 hours a day and produced 2,112,000 goods. Which of the following is correct?

Country B had the highest productivity and the highest real GDP per person.

Marissa lost her job in the typewriter factory when her company went out of business because people quit buying typewriters, substituting computers and printers instead. This represents

frictional unemployment

Which of the following shifts aggregate demand to the right?

government expenditures increase (not: the price level decreases an investment tax credit is repealed the money supply decreases )

According to the wealth effect, one of the reasons for the slope of the aggregate demand curve is that falling prices

increase the value of money holdings so consumer spending increases.

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

increasing the money supply, which lowers interest rates.

What part of real GDP fluctuates most over the course of the business cycle?

investment

If the price level increases,

investment demand decreases and interest rates increase

t/f As money flows from person to person in the economy, it facilitates production and trade, thereby allowing each person to specialize in what he or she does best and so raising everyone's standard of living.

true

t/f Deflation makes it harder for debtors to pay off their debt.

true

t/f Frictional unemployment is often the result of changes in the demand for labor among different firms.

true

t/f Other things the same, an increase in the price level, leads to an increase in the interest rate which leads to an appreciation of the dollar.

true

t/f To a large extent, the acceptance of fiat money depends as much on expectations and social conventions as on government decree.

true