Economics test 2 review

The supply of labor is _____ because at higher wages more people are willing to work.

positively sloped

The price index that serves as an "early warning signal" for inflation in the United States is:

producer price index

_____ are the rights of owners of valuable goods to dispose of them as they choose.

property rights

The key statistic used to track economic growth is

real GDP per capita

Which is NOT a problem that a financial system solves in a cost-effective way? reducing transactions costs reducing inflation reducing risk providing liquidity

reducing inflation

_____ is spending used to create and implement new technologies.

research and development

Ann is willing to expend more resources to avoid losing $1000 than she is to gain $1000. Ann is:

risk averse

infrastructure

roads, power lines, ports, information networks, and other underpinnings for economic activity

savings-investment spending identity

savings and investment spending are always equal for the economy as a whole.

__________ is the process of pooling individual loans and selling shares in that pool

securitization

life insurance company

sells policies that guarantee a payment to a policy holder's beneficiaries when the policy holder dies

Research and development

spending to create and implement new technologies

The financial assets with the highest returns are usually:

stocks

inventories

stocks of goods held to satisfy future sales

actual rate of unemployment

sum of all three types of unemployment

total factor productivity

the amount of output that can be achieved with a given amount of factor inputs

Cyclical unemployment

the deviation of the actual rate of unemployment from the natural rate.

budget balance

the difference between tax revenue and government spending

budget deficit

the difference between tax revenue and government spending when government spending exceeds tax revenue

budget surplus

the difference between tax revenue and government spending when tax revenue exceeds government spending

transaction costs

the expenses of negotiating and executing a deal

Bureau of Labor Statistics

the federal agency that calculates the official unemployment rate

U.S. census Bureau

the federal agency that collects data on unemployment

Marginal Propensity to Consume (MPC)

the increase in consumer spending when disposable income rises by $1

Marginal Propensity to Save (MPS)

the increase in household savings when disposable income rises by $1

nominal interest rate

the interest rate actually paid for a loan

planned investment spending

the investment spending that businesses intend to undertake during a given period

income-expenditure equilibrium GDP

the level of real GDP at which real GDP equals planned aggregate spending

True or False? The demand for labor is negatively sloped because firms are willing to hire more workers if wages are low.

true

True or False? The marginal propensity to consume is the proportion of a change in disposable income that is consumed.

true

True or False? The natural rate of unemployment is lower today than it was in the 1970s because the labor force as a whole is more experienced today.

true

True or False? The rate at which countries add to their human capital is largely a result of government policies.

true

True or False? There is little evidence that the convergence hypothesis is true for very poor countries.

true

True or False? Uncertainty about inflation discourages people from entering into long-term contracts

true

You have the opportunity to make a $400 investment today that will pay you back $575 in two years. What is the net present value of this investment if the relevant interest rate is 10%?

$75

GDP is $20 trillion. Consumption is $15 trillion, and government spending is $3 trillion. Taxes are $2 trillion, and the net capital inflow is $1 trillion. What is the government budget balance?

-1 trillion

If the multiplier is 10, the marginal propensity to consume must be:

.9

Real GDP in the country of Esperano has grown at 4 percent per year for the last 30 years. The labor force has grown at 1 percent per year and the quantity of physical capital has grown at 5 percent per year. A 1 percent increase in average physical capital per worker (all other things being equal) raises productivity by 0.5 percent. Average education has not changed. How much has technological progress contributed to productivity growth?

1%

If the marginal propensity to save is 0.1, the multiplier is:

10

If the U.S. real GDP per capita is now $50,000 and is growing at 2 percent annually, how much will GDP per capita be in 35 years?

100000

If the marginal propensity to save is 0.25, an increase in investment spending of $300 will result in an increase in real GDP of:

1200

if the MPC is 0.9 and planned investment expenditures decrease by $50 million, what is the new equilibrium GDP if the old equilibrium GDP amount was $2000 million?

1500

GDP is $20 trillion. Consumption is $15 trillion, and government spending is $3 trillion. Taxes are $2 trillion, and the net capital inflow is $1 trillion. National savings is ______ trillion dollars.

2

In a closed economy with no government, if the consumption function is C = 250 + 0.75 ˟ YD, real GDP is $2000 and planned investment spending is $500, then planned aggregate spending is:

2250

If the economy of the United States grows at 5 percent per year, in ________ years the size of the economy will quadruple.

28

GDP is $15 trillion. Consumption is $10 trillion, and government spending is $2.5 trillion. Taxes are $1 trillion and the net capital inflow is $0.5 trillion. Total savings for the economy is ____ trillion dollars.

3

GDP is $15 trillion. Consumption is $10 trillion, and government spending is $2.5 trillion. Taxes are $1 trillion, and the net capital inflow is $0.5 trillion. Investment is ______trillion dollars.

3

GDP is $20 trillion. Consumption is $15 trillion, and government spending is $3 trillion. Taxes are $2 trillion, and the net capital inflow is $1 trillion. Investment is ______trillion dollars.

3

GDP is $20 trillion. Consumption is $15 trillion, and government spending is $3 trillion. Taxes are $2 trillion, and the net capital inflow is $1 trillion. Total savings for the economy is ____ trillion dollars.

3

GDP is $20 trillion. Consumption is $15 trillion, and government spending is $3 trillion. Taxes are $2 trillion, and the net capital inflow is $1 trillion. How much is private savings?

3 trillion

GDP in the country of Esperano has grown at 4 percent per year for the last 30 years. The labor force has grown at 1 percent per year and the quantity of physical capital has grown at 5 percent per year. A 1 percent increase in average physical capital per worker (all other things being equal) raises productivity by 0.5 percent. Average education has not changed. How much has productivity grown? Please choose the correct answer from the following choices, and then select the submit answer button.

3%

If Jim loans Sam $1000 at 5 percent interest and inflation is 2 percent, Jim's real interest rate is:

3%

If planned investment spending is $3 trillion and unplanned inventory investment is $0.75 trillion, then actual investment is _______ trillion dollars.

3.75

You have heard about a new light bulb that is costly to purchase but uses less electricity and thus allows you to save money on your utility bill. Suppose the new light bulb costs $10 today, but next year your electricity bill will be $50 lower. If the interest rate is 10%, what is the net present value of buying this new light bulb and using it for one year, assuming that the $50 savings will be realized at the end of the year? $55 $35.45 -$45.45 $40

35.45

In a closed economy with no government, if the consumption function is C = 300 + 0.8 ˟ YD, real GDP is $3000 and planned investment spending is $800, then planned aggregate spending is:

3500

In a closed economy with no government, if the consumption function is C = 250 + 0.75 ˟ YD and real GDP is $4000 and planned investment spending is $500, then planned aggregate spending is:

3750

If the marginal propensity to save is 0.25, a decrease in investment spending of $100 will result in a decrease in real GDP of:

400

If Brazil's real GDP per capita is $10,000, and its annual growth rate is 7 percent, its real GDP per capita will be $_______ in 20 years

40000

In a closed economy with no government, if the consumption function is C = 600 + 0.75 ˟ YD, real GDP is $4000 and planned investment spending is $500, then planned aggregate spending is:

4100

If the marginal propensity to save is 0.2, the multiplier is:

5

If structural unemployment is 2 percent and frictional unemployment is 3 percent, and cyclical unemployment is 4 percent, the natural rate of unemployment is:

5 %

Your friend wants to borrow $2,000 and pay it back in one year. She is someone who keeps her word. She agrees to repay you $2,100 in one year.

5%

If the actual unemployment rate is 9.2 percent, and the natural unemployment rate is 4 percent, cyclical unemployment is:

5.2 %

The Bureau of Labor Statistics estimates that about ____ percent of the productivity in the economy in the past 70 years can be explained by technological progress

50

If the marginal propensity to save is 0.2, a decrease in investment spending of $100 will result in a decrease in real GDP of:

500

If the real interest rate is 4 percent and inflation is 2 percent, the nominal interest rate is

6%

If the nominal interest rate is 10 percent and inflation is 3 percent, the real interest rate is

7 %

If you have $925 you want to invest today so that you will receive $1000 one year from now, the minimum interest rate you need to earn is: 8.2%. 5.5% . 7.3%. 6.0 % .

8.2%

If structural unemployment is 2 percent and frictional unemployment is 3 percent, and cyclical unemployment is 4 percent, the actual rate of unemployment is

9 %

minimum wage

A government mandated floor on the price of labor

Rule of 70

A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.

_____ is the amount that a household would spend if it had zero disposable income.

autonomous consumer spending

labor unions

An organization formed by workers to strive for better wages and working conditions

hawks

Fed officials who are always ready to pounce on any sign of inflation

Explain the following. a. Frictional unemployment always exists.

Frictional unemployment is unemployment due to the time workers spend searching for jobs. It is inevitable because workers may leave one job in search of another for a variety of reasons. Furthermore, there will always be new entrants into the labor force who are seeking a first job. During the search process, these individuals will be counted as part of the frictionally unemployed.

Consumer Price Index

an index of the cost of all goods and services to a typical consumer

The ___________ is the increase in household savings when disposable income rises by $1.

MPS

Rosa, an older worker, has been laid off and gave up looking for work months ago.

Not counted as unemployed because not actively looking for work, but counted in broader measures of labor underutilization as a discouraged worker.

Anthony, a schoolteacher, is not working during his three-month summer break.

Not counted as unemployed—considered employed because the teacher has a job.

Natasha, a graduate student, went back to school because jobs were scarce.

Not unemployed, but considered "marginally attached." Counted in broader measures of labor underutilization.

Sergio, a classically trained musician, can only find work playing for local parties.

Not unemployed, but underemployed: working part-time for economic reasons. Counted in broader measures of labor underutilization.

The widespread use of technology has revolutionized the banking industry, making it much easier for customers to access and manage their assets. Does this mean that the shoe-leather costs of inflation are higher or lower than they used to be? Explain.

Shoe-leather costs as a result of inflation will be lower because it is now less costly for individuals to manage their assets in order to economize on their money holdings. ATM machines, for example, give customers 24-hour access to cash in thousands of locations. This reduction in the cost of obtaining money translates into lower shoe-leather costs.

Unit-of-account costs

arise from the way inflation makes money a less reliable unit of measurement

True or False? Information technology began to impact productivity when people used the new technology to change their way of doing business, such as replacing letters and phone calls with e-mai

TRUE

U6

The broadest measure of unemployment and underemployment is the sum of these three measures plus the unemployed; it is substantially higher than the rate usually quoted by the news media.

low unemployment and price stability

The two primary goals of macroeconomic policy

The broadest measure of unemployment is ______.

U6

Grace, an investment banker, has been laid off and is currently searching for another position.

Unemployed: not working, actively looking for work.

A financial asset that pays a fixed sum of interest each year and then repays the principal on a given date is called a a. bond. b. stock. c. mutual fund. d. loan. e. loan-backed security.

a

A person who moved to a new state and took two months to find a new job experienced which type of unemployment? a. frictional b. structural c. cyclical d. natural e. none of the above

a

Actual investment spending in any period is equal to a. planned investment spending + unplanned inventory investment. b. planned investment spending − unplanned inventory investment. c. planned investment spending + inventory decreases. d. unplanned inventory investment + inventory increases. e. unplanned inventory investment − inventory increases.

a

Both lenders and borrowers base their decisions on a. expected real interest rates. b. expected nominal interest rates. c. real interest rates. d. nominal interest rates. e. nominal interest rates minus real interest rates.

a

Economic growth is easier with: a. well-written and enforced laws and stable political systems. b. complete educational systems c. corruption d. good laws and private business

a

Financial assets that are less risky: a. usually offer a lower rate of return. b. are usually issued by new corporations. c. are not usually purchased by risk-averse people. d. usually offer a higher rate of return.

a

Frictional unemployment is inevitable because: Please choose the correct answer from the following choices, and then select the submit answer button. a. new workers are constantly entering the job market, and jobs are being created and destroyed. b. the recession phase of the business cycle leads to increases in unemployment. c. the expansion phase of the business cycle leads to increases in unemployment. d. many wages are above the equilibrium wage for that market.

a

If government savings is positive, then a. tax revenues exceed government spending. b. net exports must be positive. c. national savings must be greater than investment spending. d. there is a trade surplus. e. the budget balance is negative.

a

If national savings is less than investment spending, then a. net capital inflow is positive. b. net capital inflow is negative. c. there is a budget deficit. d. there is a budget surplus. e. there is a trade surplus.

a

If the minimum wage is set above the market equilibrium wage rate, then: a. the government has established a binding price floor with the minimum wage. b. there is a shortage of labor at the minimum wage. c. the government will decrease the unemployment rate. d. more workers are demanded than supplied at the minimum wage.

a

Inflows of funds are: a. foreign savings that finance investment spending in that country. b. consumption spending in another country. c. domestic consumption financed by another country.

a

Mike Konczal argues that people are unemployed because the economy is weak, not because they don't have relevant skills. He thinks the economy is suffering from ______ unemployment. A. cyclical B. seasonal C. structural D. frictional

a

Most physical capital is created by _______, and most human capital is created by _______. Please choose the correct answer from the following choices, and then select the submit answer button. a. business; government b. government; business c. exports; imports d. consumption; exports

a

Owner Drew Greenblatt says he needs "...very nimble, very agile people. They have to be able to do, you know, welding one day and bending the next day, or, you know, setting up this robot this day, then setting up a different robot the next day." The fact that he is not finding them suggests ____________ unemployment. A. structural B. frictional C. cyclical D. seasonal

a

The United States became the world's leading economy in part because: a. American firms were among the first to make research and development a part of their operations. b. the United States spends very little money on secondary and university level education. c. the very low savings rate by households and government contributed to a very low rate of investment. d. most of the research and development was directed and paid for by the public sector.

a

The difference between tax revenue and government spending is equal to a. the budget balance. b. national savings. c. net exports. d. the trade balance. e. investment spending.

a

The federal government is said to be "dissaving" when a. there is a budget deficit. b. there is a budget surplus. c. there is no budget surplus or deficit. d. savings does not equal investment spending. e. national savings equals private savings.

a

The increased transaction costs caused by inflation are known as

a

The marginal propensity to consume measures the a. increase in consumer spending when disposable income rises by $1. b. increase in consumer spending when investment spending rises by $1. c. increase in consumer spending when taxes rise by $1. d. increase in disposable income when consumer spending rises by $1. e. increase in disposable income when investment spending rises by $1.

a

Which is a reason for Latin America's slow economic growth? a. lack of emphasis on education b. government budgets that are balanced c. too much spending on infrastructure d. too much government spending on education

a

Which of the following is an example of physical capital? a. machinery b. healthcare c. education d. money e. all of the above

a

Which of the following is true of sustainable long-run economic growth? a. Long-run growth can continue in the face of the limited supply of natural resources. b. It was predicted by Thomas Malthus. c. Modern economies handle resource scarcity problems poorly. d. It is less likely when we find alternatives to natural resources. e. All of the above are true.

a

You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose: a. $5 million today, since it would be worth more than $10 million after 10 years if the $5 million earned interest at the rate of 10% per year. b. $10 million after 10 years, since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%. c. $10 million after 10 years, since it is the larger amount. d. $10 million after 10 years, since that is a larger amount than the present value of $5 million paid after 10 years.

a

bank deposit

a claim on a bank that obliges the bank to give the depositor his or her cash when demanded

physical asset

a claim on a tangible object that gives the owner the right to dispose of the object as he or she wishes

Keynesian Cross

a diagram that identifies income-expenditure equilibrium as the point where the planned aggregate spending line crosses the 45-degree line.

deflation

a falling overall price level

mutual fund

a financial intermediary that creates a stock portfolio and then resells shares of this portfolio to individual investors

bank

a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investment spending needs of borrowers

accelerator principle

a higher growth rate of real GDP leads to higher planned investment spending, but a lower growth rate of real GDP leads to lower planned investment spending

aggregate production function

a hypothetical function that shows how productivity (real GDP per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology

loanable funds market

a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders

market basket

a hypothetical set of consumer purchases of goods and services

aggregate price level

a measure of the overall level of prices in the economy

financial asset

a paper claim that entitles the buyer to future income from the seller

jobless recovery

a period in which the GDP growth rate is positive but the unemployment rate is still rising.

liability

a requirement to pay income in the future

pension fund

a type of mutual fund that holds assets in order to provide retirement income to its members

The _____is a single number that represents the overall price level

aggregate price level

technological progress

an advance in the technical means of the production of goods and services.

Current Population Survey

an annual survey of approximately 60,000 families and unrelated individuals undertaken by the U.S. Bureau of the Census, which is used to obtain information on income and other personal characteristics

loan backed security

an asset created by pooling individual loans and selling shares in that pool

liquid

an asset that can be quickly converted into cash with relatively little loss of value

consumption function

an equation showing how an individual household's consumer spending varies with the household's current disposable income

fisher effect

an increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged

A financial intermediary that provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers is called a a. mutual fund. b. bank. c. corporation. d. pension fund. e. life insurance company.

b

A person who is unemployed because of a mismatch between the quantity of labor supplied and the quantity of labor demanded is experiencing what type of unemployment? a. frictional b. structural c. cyclical d. natural e. none of the above

b

Assuming no taxes and no trade, the multiplier is equal to: a. MPC b. 1/ 1- MPC c. 1/ 1+ MPC d. 1/MPC e. 1 − MPC

b

Borrowers can lose in a loan contract if: a. there is unexpected inflation. b. actual inflation turns out to be lower than expected inflation. c. actual inflation turns out to be higher than expected inflation. d. expected inflation and actual inflation are equal.

b

Consider the demand and supply for skilled labor. Brandon Melton complained that, "We don't have enough applicants at the middle-skill level and above," and Drew Greenblatt said, "We have a deficit of skilled workers." The existence of shortages of skilled workers suggests that A. prevailing wages are equal to the equilibrium wage rate. B. prevailing wages are below the equilibrium wage rate. C. prevailing wages are above the equilibrium wage rate. D. the minimum wage should be increased.

b

Consider the demand and supply for unskilled labor. The existence of unemployment among unskilled workers suggests that A. the minimum wage should be increased. B. prevailing wages are above the equilibrium wage rate. C. prevailing wages are below the equilibrium wage rate. D. prevailing wages are equal to the equilibrium wage rate.

b

Frictional unemployment is unemployment due to: a. the fact that there are more people seeking jobs than jobs available. b. the time workers spend searching for jobs. c. the institution of the minimum wage in a labor market. d. the deviation of the unemployment rate from the natural rate of unemployment.

b

Given the consumption function c = $16,000 + 0.5 yd, if individual household current disposable income is $20,000, individual household consumer spending will equal a. $36,000. b. $26,000. c. $20,000. d. $16,000. e. $6,000.

b

If a country's real GDP per capita doubles in 10 years, what was its average annual rate of growth of real GDP per capita? a. 3.5% b. 7% c. 10% d. 70% e. 700%

b

If inflation causes people to frequently convert their dollars into other assets, the economy experiences what type of cost? a. price level b. shoe-leather c. menu d. unit-of-account e. monetary

b

If real GDP is less than planned aggregate spending then a. unplanned inventory investment is positive. b. unplanned inventory investment is negative. c. unplanned inventory investment is zero. d. firms will reduce production. e. planned aggregate spending will fall to match real GDP.

b

If the marginal propensity to consume is 0.5, then a $100 million increase in investment spending will increase real GDP by a. $100 million. b. $200 million. c. $50 million. d. $150 million. e. $300 million.

b

In income-expenditure equilibrium a. consumption spending equals investment spending. b. unplanned inventory investment is zero. c. inventory investment is zero. d. investment spending is zero. e. consumption spending equals real GDP.

b

In response to the high inflation of the late 1970s and early 1980s, policymakers caused a ______________ and the economy experienced ____________. a. recession; moderate unemployment b. rapid disinflation; high unemployment c. rapid disinflation; low unemployment d. recession; low unemployment

b

Long-run economic growth depends almost entirely on a. technological change. b. rising productivity. c. increased labor force participation. d. rising real GDP per capita. e. population growth.

b

Outflows of funds are: a. foreign savings that finance investment spending in that country. b. domestic savings that finance investment spending in another country. c. domestic consumption financed by another country. d. consumption spending in another country.

b

The base period for the Consumer Price Index is: a. 1992 -1994. b. 1982 - 1984. c. 2002- 2004. d. 2012- 2014.

b

The convergence hypothesis a. states that differences in real GDP per capita among countries widen over time. b. states that low levels of real GDP per capita are associated with higher growth rates. c. states that low levels of real GDP per capita are associated with lower growth rates. d. contradicts the Rule of 70. e. has been proven by evidence from around the world.

b

The real interest rate equals the a. nominal interest rate plus the inflation rate. b. nominal interest rate minus the inflation rate. c. nominal interest rate divided by the inflation rate. d. nominal interest rate times the inflation rate. e. federal funds rate.

b

The unemployment problem in an economy may be understated by the unemployment rate due to a. people lying about seeking a job. b. discouraged workers. c. job candidates with one offer but waiting for more. d. overemployed workers. e. none of the above.

b

The value of a price index in the base year is a. 0. b. 100. c. 200. d. the inflation rate. e. the average cost of a market basket of goods.

b

When economists talk about diminishing returns to physical capital, they mean that a. an increase in physical capital per worker will cause a reduction in real GDP per worker. b. an increase in physical capital per worker will lead to smaller and smaller increases in real GDP per worker. c. over time physical capital wears out. d. increasing physical capital per worker has no effect on real GDP per worker. e. increasing physical capital is not a source of economic growth.

b

Which is an example of infrastructure? a. department stores b. the interstate highway system c. taxes d. transfer payments.

b

Which of the following statements is TRUE? a. The future value of a payment will be more if the interest rate is lower. b. The present value of a future payment will be lower if the payment is smaller. c. People generally prefer to receive money later rather than sooner. d. Interest is a payment made by lenders to borrowers.

b

if your wage doubles at the same time as the consumer price index goes from 100 to 300, your real wage a. doubles. b. falls. c. increases. d. stays the same. e. cannot be determined.

b

The financial assets that are the most liquid are usually:

bank deposits

The financial assets with the least risk are usually:

bank deposits

_____ are IOUs issued by borrowers.

bonds

According to the Rule of 70, if a country's real GDP per capita grows at a rate of 2% per year, it will take how many years for real GDP per capita to double? a. 3.5 b. 20 c. 35 d. 70 e. It will never double at that rate.

c

At Marlin Steel in Baltimore, engineers design the baskets the company makes, but robots do most of the heavy lifting. The net loss of jobs at this plant would be considered _______ unemployment. A. cyclical B. frictional C. structural D. seasonal

c

Changing the listed price when inflation leads to a price increase is an example of which type of cost? a. price level b. shoe-leather c. menu d. unit-of-account e. monetary

c

If the consumer price index increases from 80 to 120 from one year to the next, the inflation rate over that time period was a. 20%. b. 40%. c. 50%. d. 80%. e. 120%.

c

If your nominal wage doubles at the same time as prices double, your real wage will a. increase. b. decrease c. not change. d. double. e. be impossible to determine.

c

Jeffrey Sachs and economists at the World Health Organization believe that Africa's poverty is due to: a. its minimum wage being too high. b. government corruption. c. unfavorable geographic conditions. d. high taxes.

c

Planned aggregate spending a. always equals real GDP. b. never equals real GDP. c. equals real GDP if unplanned inventory investment is zero. d. equals real GDP if inventory investment is zero. e. equals consumption plus investment spending.

c

Suppose there is a $200 million increase in autonomous planned aggregate spending. This will cause the planned aggregate spending line to shift upwards by __________ and real GDP will increase by ____________. a. $200 million; $200 million b. $200 million; less than $200 million c. $200 million; more than $200 million d. more than $200 million; more than $200 million e. more than $200 million; $200 million

c

The aggregate consumption function shows the relationship between a. disposable income and saving. b. saving and consumption spending. c. disposable income and consumption spending. d. consumption and investment spending. e. disposable income and planned aggregate expenditure.

c

The empirical evidence for the convergence hypothesis: a. holds true for the world as a whole. b. holds true among nations with differing education levels. c. holds true for wealthy nations. d. does not hold true under any circumstances. [[The convergence hypothesis does hold conditionally. Conditional convergence seems to hold when other things that affect economic growth, such as education and infrastructure, are held constant.

c

The intercept of planned aggregate spending is: a. the marginal propensity to consume. b. the marginal propensity to consume plus the marginal propensity to save. c. autonomous consumption plus planned investment. d.autonomous consumption.

c

The slope of a family's consumption function is equal to a. the real interest rate. b. the inflation rate. c. the marginal propensity to consume. d. the rate of increase in household current disposable income. e. the tax rate.

c

What type of unemployment is created by a recession? a. frictional b. structural c. cyclical d. natural e. none of the above

c

When income is $1,000, the level of consumption spending is equal to $850. When income rises to $1,200, the level of consumption spending is equal to $1,000. In this case the value of the marginal propensity to consume is a. 0.85. b. 0.83. c. 0.75. d. 0.50. e. 0.80.

c

When unemployment is low, the duration of unemployment for a majority of worker lasts: Please choose the correct answer from the following choices, and then select the submit answer button. a. 9 months. b. a year. c. less than 4 months. d. over a year.

c

Which of the following assets is the most diversified? a. stock in a company b. a bond issued by a company c. shares in a mutual fund d. a loan to a company e. a physical asset, such as a house

c

Which of the following is the key statistic used to track economic growth? a. GDP b. real GDP c. real GDP per capita d. median real GDP e. median real GDP per capita

c

Which of the following statements is true of environmental quality? a. It is typically not affected by government policy. b. Other things equal, it tends to improve with economic growth. c. There is broad scientific consensus that rising levels of carbon dioxide and other gases are raising the planet's overall temperature. d. Most economists believe it is not possible to reduce greenhouse gas emissions while economic growth continues. e. Most environmental success stories involve dealing with global, rather than local, impacts.

c

Which of the following will increase the supply of loanable funds? a. an increase in perceived business opportunities b. decreased government borrowing c. an increased private saving rate d. an increase in the expected inflation rate e. a decrease in capital inflows

c

the U.S. unemployment rate was about 9%. If the U.S. natural rate of unemployment is about 5%, then ______________ unemployment was about 4% at this time. A. seasonal B. frictional C. cyclical D. structural

c

physical capital

consists of human-made resources such as buildings and machines

The ________ measures the cost of the market basket of a typical urban American family

consumer price index

According to the ________ hypothesis, international differences in real GDP per capita tend to narrow over time.

convergence

A nonprofit institution collects the savings of its members and invests those funds in a wide variety of assets in order to provide its members with income after retirement. This describes a a. mutual fund. b. bank. c. savings and loan. d. pension fund. e. life insurance company.

d

Because dollars are used as the basis for contracts, inflation leads to which type of cost? a. price level b. shoe-leather c. menu d. unit-of-account e. monetary

d

Changes in which of the following lead to a shift of the aggregate consumption function? I. expected future disposable income II. aggregate wealth III. current disposable income a. I only b. II only c. III only d. I and II only e. I, II, and III

d

Countries that do the following tend to be economic success stories. a. inest in physical capital, increase education levels, and lower taxes b. increase education levels, lower taxes, and increase technological progress c. increase education levels, raise standards of living, and increase technological progress d. invest in physical capital, increase education levels, and increase technological progress

d

Decreasing which of the following is a task of the financial system? I. transaction costs II. risk III. liquidity a. I only b. II only c. III only d. I and II only e. I, II, and III

d

If the cost of a market basket of goods increases from $100 in year 1 to $108 in year 2, what is the consumer price index in year 2 if year 1 is the base year? a. 8 b. 10 c. 100 d. 108 e. 110

d

In order to finance the purchase of a motorcycle , you could borrow $4,000from a bank at an annual interest rate of 5%. If a relative offers to lend you the same amount but suggests a lower interest rate, this would mean that you: a. can decrease the present value of what you owe by borrowing from the bank.. b. would pay the same amount under either option. c. would end up paying lessif you borrow from the bank. d. would end up paying more if you borrow from the bank.

d

human capital

improvement in labor created by the education and knowledge embodied in the workforce.

Many economists believe that the consumer price index: a. systematically understates the level of inflation. b. is a better measure of unemployment than inflation. c. provides a highly accurate measure of inflation. d. systematically overstates the level of inflation.

d

The convergence hypothesis states that relatively poor countries: a. will never converge to the growth rates of real GDP per capita experienced by rich countries. b. will eventually have much higher rates of growth of real GDP per capita as compared to rich countries. c. should always have lower rates of growth of real GDP per capita as compared to rich countries. d. should eventually have rates of growth of real GDP per capita that approach those of rich countries.

d

The first rise or fall in aggregate spending is called: a. a change in aggregate consumption. b. the multiplier. c. an autonomous change in aggregate consumption. d. an autonomous change in aggregate spending.

d

The following statement describes which area of the world? "This area has experienced growth rates unprecedented in history and now looks like an economically advanced country." a. North America b. Latin America c. Europe d. East Asia e. Africa

d

The level of planned investment spending is negatively related to the a. rate of return on investment. b. level of consumer spending. c. level of actual investment spending. d. interest rate. e. all of the above.

d

The natural rate of unemployment would decrease if: a. the minimum wage is increased. b. the economy is in a recession. c. the labor force is younger. d. the labor force is older.

d

The prime reason most countries grow is because they have ________ that they achieve by drawing upon ________. a. high rates of investment; low rates of domestic savings b. low rates of investment; low rates of foreign capital c. high rates of investment; high rates of foreign capital d. high rates of investment; high rates of domestic savings

d

The role of financial markets and institutions in achieving long-run growth is to: a. channel investment spending into savings. b. decrease taxes. c. decrease the budget deficit. d. channel savings into investment spending.

d

To fight structural unemployment, the government could A. use fiscal policy to stimulate spending. B. use monetary policy to encourage economic growth. C. lengthen the duration of unemployment benefits. D. provide subsidies for education and training.

d

Which of the following is true of the natural rate of unemployment? I. It includes frictional unemployment. II. It includes structural unemployment. III. It is equal to 0%. a. I only b. II only c. III only d. I and II e. I, II, and III

d

Which of the following is true regarding growth rates for countries around the world compared to the United States? I. Fifty percent of the world's people live in countries with a lower standard of living than the U.S. in 1900. II. The U.S. growth rate is six times the growth rate in the rest of the world. III. China has only just attained the same standard of living the U.S. had in 1900. a. I only b. II only c. III only d. I and III only e. I, II, and III `

d

Which will cause the natural rate of unemployment to decrease? a. changes in the number of recessions for any time period b. increasing unionization of the labor force c. an increase in the generosity of unemployment insurance benefits d. an increase in the median age of the labor force

d

The process of bringing down the inflation rate is called

disinflation

A $100 million increase in investment spending will cause real GDP to a. decrease by $100 million. b. increase by $100 million. c. decrease by less than $100 million. d. increase by less than $100 million. e. increase by more than $100 million.

e

If the interest rate falls, then the present value of any given project __________ and total investment spending will __________. a. rises : remain unchanged b. rises : decrease c. falls : decrease d. falls : increase e. rises : increase

e

In an open economy a. national savings is equal to investment spending. b. national savings is equal to net capital inflow. c. net capital inflow is equal to investment spending. d. there is a budget deficit. e. investment spending is equal to national savings plus net capital inflow.

e

To be considered unemployed, a person must I. not be working. II. be actively seeking a job. III. be available for work. a. I only b. II only c. III only d. II and III e. I, II, and III

e

What explains the different growth rates economies experience? I. savings and investment spending II. research and development III. government policies a. I only b. II only c. III only d. I and II only e. I, II, and III

e

Which of the following can affect the natural rate of unemployment in an economy over time? a. labor force characteristics such as age and work experience b. the existence of labor unions c. advances in technologies that help workers find jobs d. government job training programs e. all of the above

e

Which of the following can lead to increases in physical capital in an economy? a. increased investment spending b. increased savings by domestic households c. increased savings from foreign households d. an inflow of foreign capital e. all of the above

e

Which of the following is a source of increased productivity growth? I. increased physical capital II. increased human capital III. technological progress a. I only b. II only c. III only d. I and II only e. I, II, and III

e

Which of the following is cited as an important factor preventing long-run economic growth in Africa? a. political instability b. lack of property rights c. unfavorable geographic conditions d. poor health e. all of the above

e

Underemployed

people who work part time because they cannot find full-time jobs.

Which of the following is true of the CPI? I. It is the most common measure of the price level. II. It measures the price of a typical market basket of goods. III. It currently uses a base period of 1982-1984. a. I only b. II only c. III only d. I and II only e. I, II, and III

e

Which of the following is true regarding prices in an economy? I. An increase in the price level is called inflation. II. The level of prices doesn't matter. III. The rate of change in prices matters. a. I only b. II only c. III only d. II and III only e. I, II, and III

e

_____ are wages set above equilibrium wages as an incentive for workers to deliver better performance.

efficiency wages

_____ is the number of people currently employed in the economy, either full time or part time.

employment

growth accounting

estimates the contribution of each major factor in the aggregate production function to economic growth

True or False? A financial system reduces inflation in a cost effective way.

false

True or False? A reduction in union membership increases the natural rate of unemployment.

false

True or False? An important advantage of bonds is that they offer higher rates of return than stocks.

false

True or False? As the marginal propensity to consume gets larger, the marginal propensity to save increases.

false

True or False? At the income-expenditure equilibrium, unplanned inventory investment is positive.

false

True or False? Currently China has a very high rate of economic growth. This has occurred solely because it has invested heavily in physical capital.

false

True or False? Frictional unemployment is caused by the minimum wage.

false

True or False? Frictional unemployment means that there is a persistent surplus of labor.

false

True or False? Gold is a financial asset.

false

True or False? If a country experiences increases in technology, then less output will be produced using the same inputs.

false

True or False? If inflation is lower than expected, borrowers will benefit.

false

True or False? If the government establishes a minimum wage below the equilibrium wage, structural unemployment will result.

false

True or False? In periods of unexpected deflation, borrowers benefit because the money they repay has less purchasing power than the money they borrowed.

false

True or False? Maintaining infrastructure is not as important as simply having infrastructure.

false

True or False? The economic gap between North America, Western Europe, and parts of Asian and the rest of the world is shrinking.

false

True or False? The estimate of the effects of technological progress on economic growth is the effect left over after accounting for growth from human capital

false

True or False? The producer price index usually is slower to respond to price changes than the consumer price index.

false

True or false? The price index for 2012 is the value of the market basket in 2012 divided by the value of the market basket in 2011

false

True or false? Unexpected inflation benefits lenders and hurts borrowers

false

True or false? When firms pay efficiency wages the result is a pool of workers who don't want to work.

false

doves

fed officials who warned that the economy was still fragile and that raising rates too soon would risk condemning the economy to a further stretch of high unemployment

Money is channeled from savings to investment in the ______ system

financial

GDP deflator

for a given year is 100 times the ratio of nominal GDP to real GDP in that year

natural unemployment =

frictional unemployment + structural unemployment

Ashley graduated last month with a major in economics. She has two job offers and is deciding which one to accept. Currently she is classified as:

frictionally unemployed

Ed is a teacher who recently quit his job in Houston to move to San Francisco, where his wife will be employed as a surgeon. Ed has several interviews for teaching positions in San Francisco. Ed is classified as:

frictionally unemployed

diminishing returns to physical capital

in an aggregate production function when the amount of human capital per worker and the state of technology are held fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity.

Real income

income divided by the price level

Inflation causes nominal interest rates to

increase

shoe leather costs

increased costs of transactions caused by inflation

_______ is an increase in the overall level of prices.

inflation

convergence hypothesis

international differences in real GDP per capita tend to narrow over time

diversification

investing in several different things so that the possible losses are independent events

Japan enjoyed a rapid growth rate in the 1960s because it spent a very large share of its GDP on: infrastructure. research and development investment. education.

investment

Labor unions will threaten _____ so workers have greater bargaining power.

labor strikes

An asset created by pooling individual loans and selling shares of the pool is called a:

loan-baked security

_____ are lending agreements between an individual lender and an individual borrower

loans

sustainable long-run economic growth

long-run growth that can continue in the face of the limited supply of natural resources and the impact of growth on the environment

federal reserve board of governors

makes US monetary policy

producer price index

measures changes in the prices of goods purchased by producers

price index

measures the cost of purchasing a given market basket in a given year. The index value is normalized so that it is equal to 100 in the selected base year

structural unemployment

more people are seeking jobs in a particular labor market than there are jobs available at the current wage rate.

Savings in an economy is equal to:

national savings plus capital inflow

Actual unemployment =

natural unemployment + cyclical unemployment

The relationship between the growth rate of real GDP and the unemployment rate is:

negative

A _____ is a cost that individuals or firms impose on others without having to offer compensation

negative externality

The _____ present value of a project is equal to the present value of all revenues minus the present value of all costs associated with it.

net

discouraged workers

nonworking people who are capable of working but have given up looking for a job due to the state of the job market.

illiquid

not convertible to cash quickly or without a penalty

default

occurs when a borrower fails to make payments as specified by the loan or bond contract

crowding out

occurs when a government deficit drives up the interest rate and leads to reduced investment spending

unplanned inventory investment

occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories

high unemployment rate

one of the most important issues in both the 2008 and 2012 presidential elections

A(n) _____ economy is one in which goods and money can flow into and out of the economy.

open

labor productivity

output per worker

unemployed

people are actively looking for work but aren't currently employed

employed

people are currently holding a job in the economy, either full time or part time

The economy of Ft. Myers, Florida, in the 2000s is an example of the impact of: the multiplier. government budget surpluses. global warming on the environment. taxes that are too low.

the multiplier

real interest rate

the nominal interest rate minus the rate of inflation

inflation rate

the percent change per year in a price index, typically the CPI

labor force participation rate

the percentage of the population aged 16 or older that is in the labor force

unemployment rate

the percentage of the total number of people in the labor force who are unemployed

disinflation

the process of bringing the inflation rate down

menu costs

the real costs of changing listed prices

aggregate consumption function

the relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending

labor force

the sum of employed and unemployed workers in the economy

actual investment spending

the sum of planned investment spending and unplanned inventory investment

national savings

the sum of private savings and the budget balance, is the total amount of savings generated within the economy

natural rate of unemployment

the sum of structural unemployment and frictional unemployment.

planned aggregate spending

the total amount of planned spending in the economy

net capital inflow

the total inflow of funds into a country minus the total outflow of funds out of a country

unemployment and inflation

the two great evils of macroeconomics

natural rate of unemployment

the unemployment rate that arises from the effects of frictional plus structural unemployment.

inventory investment

the value of the change in total inventories held in the economy during a given period

real wage

the wage rate divided by the price level

True or False? A limited amount of frictional unemployment may be good for the economy because it allows workers to take time to match their skills to jobs where they are the most productive.

true

True or False? After the energy crisis in the 1970s and the reduction in the use of oil, the U.S. economy continued to grow. Is World Growth Sustainable?

true

True or False? Burning fossil fuels releases carbon dioxide into the atmosphere which creates a greenhouse effect, which causes climate change

true

True or False? Cyclical unemployment is the result of the business cycle.

true

True or False? Discouraged workers are not included in the labor force.

true

True or False? If Jim loans Sam $1000 at 5 percent interest and there is an unexpected inflation of 2 percent, then Sam benefits

true

True or False? If an employed person retires and no one is hired to replace him, the unemployment rate will increase.

true

True or False? Initially electricity had very little impact on productivity

true

True or False? Long-run economic growth in successful economies has been possible because of political stability.

true

True or False? Most economic analysts think that East Asian growth was possible because it was able to quickly adopt technological advances from other countries.

true

True or False? Stocks are usually more risky than bonds.

true

True or False? The consumer price index, the producer price index, and the GDP deflator usually move closely together

true

True or False? The convergence hypothesis explains why high-income countries usually have slower growth rates than lower-income countries.

true

True or false Suppose the university offered the following payment plan: Either you can pay $80,000 when first enrolling as a freshman or you can pay $25,000 at the beginning of your freshman year and $25,000 at the beginning of every year for the next 3 years. True or False? If the annual interest rate is 5%, then you should take option 1 and pay $80,000 at the beginning of your first year.

true

True or false? From 1980 to 2001, Zimbabwe had negative growth of real GDP per capita.

true

True or false? Government policies designed to help workers who lose their jobs can lead to structural unemployment.

true

True or false? Labor unions use collective bargaining to win higher wages from employers than employees could bargain individually

true

True or false? The base period for the Consumer Price Index is 1982- 1984.

true

True or false? The persistent high unemployment rate that afflicts many European countries is called Eurosclerosis.

true

financial risk

uncertainty about future outcomes that involve financial losses and gains

Frictional unemployment

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves the deviation of the unemployment rate from the natural rate of unemployment.

_____ occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories.

unplanned inventory investment

wealth

value of a household accumulated savings

efficiency wages

wages that employers set above the equilibrium wage rate as an incentive for better employee performance.

income-expenditure equilibrium

when aggregate output, measured by real GDP, is equal to planned aggregate spending

marginally attached workers

would like to be employed and have looked for a job in the recent past but are not currently looking for work.