Econ Study guide

25. Fiscal policy refers to the: A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B. manipulation of 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.

A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

29. Recessions have contributed to the public debt by: A. reducing national income and therefore tax revenues. B. increasing real interest rates. C. increasing the international value of the dollar. D. increasing national saving.

A. reducing national income and therefore tax revenues.

35. Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

34. The basic policy-making body in the U.S. banking system is the: A. Comptroller of the Currency. B. Board of Governors of the Federal Reserve. C. Federal Monetary Authority. D. Council of Economic Advisers.

B. Board of Governors of the Federal Reserve.

27. The amount by which government expenditures exceed government revenues during a particular year is the: A. public debt. B. budget deficit. C. full-employment. D. GDP gap.

B. budget deficit.

23. The determinants of aggregate supply: A. are consumption, investment, government, and net export spending. B. explain why real domestic output and the price level are directly related. C. explain the three distinct ranges of the aggregate supply curve. D. include resource prices and resource productivity.

B. explain why real domestic output and the price level are directly related.

22. The aggregate supply curve (short-run): A. graphs as a horizontal line. B. is steeper above the full-employment output than below it. C. slopes downward and to the right. D. presumes that changes in wages and other resource prices match changes in the price level.

B. is steeper above the full-employment output than below it.

28. Since 2002, the United States has had: A. large Federal budget surpluses. B. large Federal budget deficits. C. modest trade surpluses. D. a rising natural rate of unemployment.

B. large Federal budget deficits.

15. The practical significance of the multiplier is that it: A. equates the real interest rate and the expected rate of return on investment. B. magnifies initial changes in spending into larger changes in GDP. C. keeps inflation within tolerable limits. D. helps to stabilize the economy.

B. magnifies initial changes in spending into larger changes in GDP.

10. 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.

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

2. Strong property rights are important for modern economic growth because: A. they allow governments to extract the gains from private citizens' investments. B. people are less likely to invest if they are fearful that others can take their returns on investment without compensation. C. they ensure an equitable distribution of income. D. business cycle fluctuations will be smaller and less likely to disrupt investment patterns.

B. people are less likely to invest if they are fearful that others can take their returns on investment without compensation.

5. Labor productivity is measured by: A. the ratio of capital to labor. B. real output per worker hour. C. real output per capita. D. the ratio of worker hours to real GDP

B. real output per worker hour.

8. Official unemployment statistics: A. understate unemployment because individuals receiving unemployment compensation are counted as employed. B. understate unemployment because discouraged workers are not counted as unemployed. C. include cyclical and structural unemployment, but not frictional unemployment. D. overstate unemployment because workers who are involuntarily working part time are counted as being employed.

B. understate unemployment because discouraged workers are not counted as unemployed.

19. Which of the following is correct? A. Government expenditures and taxes both increase GDP. B. Government expenditures and taxes both decrease GDP. C. Government expenditures increase, but taxes decrease, GDP. D. Government expenditures decrease, but taxes increase, GDP.

C. Government expenditures increase, but taxes decrease, GDP.

7. What is the primary reason that changes in total spending lead to cyclical changes in output and employment? A. Government is unable to respond by changing the amount of money in circulation. B. Changes in total spending cause supply shocks that cause cyclical variation. C. Prices are sticky in the short run. D. Prices are flexible in the long run.

C. Prices are sticky in the short run.

1. 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

C. growth of real GDP per capita

24. Graphically, cost-push inflation is shown as a: A. leftward shift of the AD curve. B. rightward shift of the AS curve. C. leftward shift of AS curve. D. rightward shift of the AD curve.

C. leftward shift of AS curve.

21. The aggregate supply curve: A. is explained by the interest rate, real-balances, and foreign purchases effects. B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

C. shows the various amounts of real output that businesses will produce at each price level.

9. Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon where she anticipates that a new job will be available. We can say that Susie is faced with: A. secular unemployment. B. cyclical unemployment. C. structural unemployment. D. frictional unemployment

C. structural unemployment.

13. In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the: A. Keynes effect. B. interest-rate effect. C. wealth effect. D. multiplier effect.

C. wealth effect

3. Which of the following institutional structures is most likely to promote growth? A. A well-enforced system of patents and copyrights. B. A competitive market system. C. An educational system that produces large numbers of literate, well-educated graduates. D. All of these.

D. All of these.

30. The largest proportion of the public debt is held by: A. the U.S. public (individuals, businesses, financial institutions, etc.) and state and local governments. B. foreign individuals and institutions. C. the Federal Reserve System. D. U.S. government agencies.

D. U.S. government agencies.

17. If the US dollar appreciates relative to foreign currencies, we would expect: A. the multiplier to decrease. B. US exports and imports to both fall. C. US net exports to rise. D. US net exports to fall.

D. US net exports to fall.

31. Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of these.

D. all of these.

12. The MPC can be defined as that fraction of a: A. change in income that is not spent. B. change in income that is spent. C. given total income that is not consumed. D. given total income that is consumed.

D. given total income that is consumed.

26. An economist who favored expanded government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

D. increases in government spending during recession and tax increases during inflation.

14. The immediate determinants of investment spending are the: A. expected rate of return on capital goods and the real interest rate. B. level of saving and the real interest rate. C. marginal propensity to consume and the real interest rate. D. interest rate and the expected price level.

D. interest rate and the expected price level

6. A recession is a period in which: A. cost-push inflation is present. B. nominal domestic output falls. C. demand-pull inflation is present. D. real domestic output falls.

D. real domestic output falls.

20. 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.

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

11. 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.

D. the level of income.

16. If unintended increases in business inventories occur, we can expect: A. a decline in GDP and rising unemployment. B. inflation. C. an increase in consumption. D. an offsetting increase in planned investment.

A. a decline in GDP and rising unemployment.

33. The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar with gold and silver. D. dollar-for-dollar with gold bullion.

A. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

32. In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A. coins, paper currency, and checkable deposits.

4. 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.

A. encourages growth by allowing producers to make profitable investment decisions based on market signals

18. If the multiplier in an economy is 5, a $20 billion increase in net exports will: A. increase GDP by $100 billion. B. reduce GDP by $4 billion. C. decrease GDP by $100 billion. D. increase GDP by $20 billion.

A. increase GDP by $100 billion.