Final Exam Review
To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.50, the government should increase spending by....
$50 billion
Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are....
$50,000
Suppose the consumption function is C = $300 + 0.80YD. If disposable income is $600, consumption is......
$780
If real GDP rises from $700 billion to $704 billion, the economic growth rate is....
($704 billion - $700 billion)/$700*100
Although the necessary role of government in the economy is highly debated, many people agree that it should.....
- Provide a legal framework. - Protect the environment. - Protect consumers and labor.
Suppose the consumption function is C = $100 + 0.85YD. If disposable income is $400, saving is
-$40.00
Given that C = $1,000 + 0.60YD, if the level of disposable income is $1,000, the level of saving is....
-$600
In providing a legal framework, the government....
-Protects patents to encourage entrepreneurship. -Protects copyrights to encourage textbook protection. -Protects the ownership of private property to encourage the private sector.
If the MPC is 0.9 and the APC is 0.95, the MPS equals....
0.1
Suppose a consumption function is given as C = $150 + 0.75YD. The marginal propensity to save is....
0.25
Suppose a consumption function is given as C = $175 + 0.65YD. The marginal propensity to save is.....
0.35
Suppose a consumption function is given as C = $500 + 0.70YD. The marginal propensity to consume is....
0.70
If disposable income increases from $9,000 billion to $11,000 billion, and consumption increases from $9,500 billion to $11,000 billion, the MPC must be....
0.75
Suppose a consumption function is given as C = $500 + 0.75YD. The marginal propensity to consume is....
0.75
The MPC + MPS must always equal....
1
As of the year 2000, agriculture accounted for what percentage of total U.S. output?
1 percent.
The formula for the multiplier is....
1/(1-MPC)
If consumers spend 90% of every extra dollar received, the multiplier is....
10
According to Okun's Law, if unemployment rises by 5 percent while imports and exports increase at roughly the same rate, the economy will lose output equal to.......
10 percent.
Suppose that in a population of 50 million persons, 40 million are in the labor force, 36 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is.....
10.0%
If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is....
13.6%
If real GDP rises from $500 billion to $510 billion, the economic growth rate is....
2%
Suppose a country has 1 billion people. 75 percent of its citizens are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent. Based on this information, by what percentage has real output failed to reach its potential according to the revised Okun's Law?
20 percent.
If a nation has GDP of $12.5 billion and GDP per capita of $62,500, what is the nation's population?
200 thousands
If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is.....
24.1%
On average, since 1900 U.S. output has grown by roughly ____ percent per year.
3
On average, since 1900 U.S. output has grown roughly ____ times faster than population growth.
3
If the anticipated inflation rate is 5 percent and the nominal interest rate is 9 percent, the real interest rate will be....
4%
If consumers spend 80 cents out of every extra dollar received, the multiplier is...
5
Suppose an economy can be described by the consumption function C = 250 + 0.80YD and I = $300. What is the multiplier?
5
According to Okun's Law, if unemployment rises by 2.5 percent while imports and exports increase at roughly the same rate, the economy will lose output equal to.....
5%
If the CPI increases from 300 to 315 for one year, the rate of inflation for that year is....
5%
If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent, the real interest rate is....
5%
Suppose that in a population of 100 million persons, 60 million are in the labor force, 57 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is.....
5%
The Board of Governors consists of...
7 members, appointed for 14-year terms.
Stagflation is the result of...
A decrease in aggregate supply.
Which of the following will cause the aggregate demand curve to shift to the left?
A decrease in consumer and business confidence because of a terrorist attack.
Monetary restraint is associated with all of the following except....
A decrease in interest rates.
Ceteris paribus, if buyers expect the price of airline tickets to fall in the future, then right now there should be....
A decrease in the demand for airline tickets.
If bagels and doughnuts are substitutes, then a decrease in the price of doughnuts will result in....
A decrease in the demand for bagels.
Ceteris paribus, which of the following is most likely to cause an increase in the quantity demanded of perfume?
A decrease in the price of perfume.
Ceteris paribus, if the price of a digital camera rises, then we can expect....
A decrease in the quantity demanded of digital cameras.
Ceteris paribus, if the price of a digital camera rises, then we can expect......
A decrease in the quantity demanded of digital cameras.
Which of the following will cause the production possibilities curve to shift inward?
A decrease in the size of the labor force.
After a fruitless two-year search for a job, a former executive gives up and decides to live off the land in the Rocky Mountains. This former executive is considered.....
A discouraged worker.
The best definition of GDP is....
A dollar measure of final output produced during a given time period within a nation's borders.
A lower quantity demanded of a good reflects, ceteris paribus,....
A higher price of the good.
The Phillips curve shows....
A historical (inverse) relationship between the rate of unemployment and the rate of inflation.
Required reserves represent....
A leakage from the flow of money.
Income not spent directly on domestic output is....
A leakage.
Which of the following will cause an increase in unemployment and inflation at the same time?
A leftward shift of aggregate supply.
Demand-side policies alone result in which of the following?
A movement along the Phillips curve.
Which of the following is included in the labor force?
A part-time store clerk who is looking for another job.
A tax cut has a smaller impact on aggregate demand than an increase in government purchases of the same size because...
A portion of the tax cut is saved.
A decline in total real output for two or more consecutive quarters is referred to as.......
A recession.
Which of the following is not a transactions account?
A savings account.
A technological advance would best be represented by.....
A shift outward of the production possibilities curve.
Economic growth would best be represented by a...
A shift outward of the production possibilities curve.
The price ceiling that the federal government placed on human organs caused...
A shortage.
If an economy experiences constant opportunity costs with respect to two goods, then the production possibilities curve between the two goods will be?
A straight, downward-sloping line.
Long-run economic growth can occur as the result of....
A technological advance.
Which of the following events would cause a rightward shift in the market supply curve for automobiles?
A technological improvement that reduces the cost of production.
A monetary stimulus is designed to shift the....
AD curve to the right.
The general formula for computing the desired stimulus is....
AD shortfall ÷ the multiplier.
Consumption expenditures.....
Account for over two-thirds of total spending.
To be officially counted as unemployed, one must be.....
Actively seeking employment and currently not working.
To calculate market supply, we....
Add the quantities supplied for each individual supply schedule horizontally.
If the government cuts taxes by $200 million and simultaneously decreases government spending by $200 million, then....
Aggregate demand will decrease by $200 million.
Determinants of macro performance work on macro outcomes through.....
Aggregate supply and demand.
The Federal Open Market Committee includes....
All 7 governors and 5 of the regional Reserve bank presidents.
In terms of the production possibilities curve, inefficiency is represented by......
All points inside the curve.
Cost-of-living adjustments....
Allow individuals to maintain their purchasing power during inflation.
A mortgage that adjusts the nominal interest rate to changing rates of inflation is.....
An ARM.
The MPC indicates the fraction of....
An additional dollar of disposable income that will be spent.
A COLA is....
An automatic adjustment of nominal income to the rate of inflation.
Air pollution best illustrates...
An external cost.
Which is the "guns versus butter" dilemma that all nations confront is that...
An increase in national defense implies more sacrifices of civilian goods and services.
Which of the following fiscal policies cause a decrease in aggregate expenditures?
An increase in taxes and a decrease in government spending.
Inflation is...
An increase in the average level of prices of goods and services.
Inflation is....
An increase in the average level of prices of goods and services.
Assume that pencils and pens are substitutes. If the price of pencils rises ceteris paribus, then we will see....
An increase in the demand for pens.
Peanut butter and jelly are complements. A decrease in the price of one will result in...
An increase in the demand for the other.
Ceteris paribus, which of the following would you expect to have no effect on the demand curve for new automobiles?
An increase in the price of new automobiles.
Investment represents....
An injection into the circular flow, similar to government spending.
An addition of spending to the circular flow of income is...
An injection.
Real GDP is used most effectively to.....
Analyze the growth rate of the economy over time.
Suppose Jason takes $150 he had in his wallet and deposits it into his checking account. The immediate result of this transaction is that M1.....
And M2 do not change.
The inflation rate is the....
Annual percentage rate increase in the average price level.
Equilibrium GDP could be upset by a change in....
Any leakage or injection.
Members of the Board of Governors are....
Appointed by the president and confirmed by the Senate.
Approximately how long would it take for real GDP to double if it grew at a constant annual rate of 2 percent?
Approximately 36 years.
People are not part of the labor force when they.....
Are old enough to work but choose not to work.
Externalities....
Are the costs or benefits of market activities that "spill over" onto third parties.
According to classical economists, market-driven economies....
Are typically self-adjusting.
Cost pressures are most intense......
As the economy approaches capacity.
If the structural deficit is zero,....
At full employment, the budget is balanced.
Which one of the answers below will shift the consumption function (Move the consumption line)?
Autonomous consumption changes.
When output growth exceeds population growth for a country,...
Average living standards will increase.
Inflation means....
Average prices are rising, but it is not certain what is happening to relative prices.
Assume the MPC is 0.80. The change in total spending for the economy due to a $200 billion government spending increase is...
$1 trillion
Given a consumption function of C = $2500 + 0.75YD, the average propensity to consume equals 1 when disposable income equals.....
$1,0000
If the MPC is 0.80 and disposable income increases from $20,000 billion to $22,000 billion, consumption will increase by....
$1,600 billion
If nominal GDP was $11,500 billion in 2003 and the price level in 2003 was 111.6, then real GDP would have been approximately.....
$10,305 billion.
Please select the answer which is not a factor of production?
$100,000 cash
Suppose the MPC in an economy is 0.9. The APC is initially 0.95 and disposable income is $4 billion. If disposable income increases to $14 billion, what is the new level of consumption?
$12.8 billion.
Suppose the MPC in an economy is 0.9. The APC is initially 0.95 and disposable income is $6 billion. If disposable income increases to $16 billion, what is the new level of consumption?
$14.7 billion
If a nation has a population of 100 million, a labor force of 60 million, and GDP of $200 billion, then GDP per capita must be......
$2,000.00
To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.80, the government should increase transfer payments by...
$25 billion
If the multiplier equals 2 and the AD shortfall is $6 million, the desired fiscal stimulus is.....
$3 million
Assume the MPC is 0.80. The change in total spending for the economy due COVID-19 to a $3 trillion government spending increase is....
$30 trillion
If the MPC for an economy is 0.90, a $4 billion increase in taxes will ultimately cause consumption to decrease by.....
$36 billion
Given that C = $0 + 0.60YD, if the level of disposable income is $1,000, the level of saving is.....
$400
Suppose iPhones cost consumers $200 and USB cables cost consumers $25. What contribution does the production of 2,000 iPhones and 1,200 USB cables make to GDP?
$430,000.
If the multiplier equals 2 and the AD shortfall is $10 million, the desired fiscal stimulus is...
$5 million
A nation's GDP is....
C + I + G + (X-M)
Which of the following measures changes in the average price of consumer goods and services?
CPI
Extreme monetarists assert that changes in the money supply....
Can affect only the price level.
Regional Fed banks are responsible for all of the following except....
Cashing checks for large nonfinancial corporations.
Inflation affects production decisions because it.....
Causes businesses to be more cautious since the future appears more uncertain.
Which of the following is purchased in a product market?
Cell phone service.
Which of the following countries had the highest average growth rate for per capita GDP from 2000 to 2009?
China
Which of the following would be included in U.S. GNP but not in U.S. GDP?
Chipsets produced by U.S.-owned firms operating in China.
Regional Fed banks....
Clear checks between private banks.
A proportional tax is one that...
Collects the same rate on every dollar of income.
In a market economy, producers will produce the goods and services that.....
Consumers demand.
The components of aggregate demand are...
Consumption, government spending, net exports, and investment.
The components of aggregate demand are....
Consumption, government spending, net exports, and investment.
Which of the following is an automatic stabilizer that reduces tax receipts during a recession?
Corporate and individual income taxes.
When natural disasters, such as hurricanes on the U.S. Gulf Coast or an earthquake in Japan, disrupt supply chains and push up the costs of production, this may result in....
Cost-Push Inflation
When a bank makes a loan, it....
Creates a transactions account balance for the borrower.
One of the main functions of banks is....
Creating money.
A decrease in private sector borrowing and spending caused by increased government borrowing is...
Crowding Out
A decrease in private sector borrowing and spending caused by increased government borrowing is.....
Crowding Out
The basic money supply or M1 includes....
Currency in circulation, transactions accounts, and traveler's checks.
Which of the following is not considered to be an important determinant of investment?
Current disposable income.
Which of the following caused a recession in the years immediately following World War II?
Cutbacks in defense production.
During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs that are classified as......
Cyclical
Which of the following unemployment categories is most directly related to the rate of growth in real GDP?
Cyclical
If the total budget deficit is $200 billion and the deficit at full employment is $120 billion, then the...
Cyclical deficit is $80 billion.
The Fed can use all of the following except ____________ to change the lending capacity of the banking system.
the excess reserve requirement
If the price of Bluetooth headsets rises 12 percent during a year when the level of average prices rises 13 percent, the relative price of Bluetooth headsets....
Decreases.
Inflation ________________ the purchasing power of money.
Decreases.
Which of the following is not an automatic stabilizer?
Defense spending.
Assume a series of forest fires reduces the supply of lumber, which is an input in the production of wooden bats. Baseballs and wooden bats are complements. If the price of wooden bats increases, we can expect the.....
Demand for baseballs to decrease.
If the economy is producing at capacity and consumers are willing and able to buy more even more goods, this may cause....
Demand-Pull Inflation
Aggregate demand is the total quantity of output....
Demanded at alternative price levels in a given time period.
Banks are required to keep a minimum amount of funds in reserve because....
Depositors may decide to withdraw funds at any time.
A "free rider" is an individual who reaps......
Direct benefits from someone else's purchase of a public good.
The rate of interest charged by Federal Reserve banks for lending reserves to member banks is the....
Discount Rate
The elements of the federal budget not determined by past legislative or executive commitments are.....
Discretionary Fiscal Spending
The measure of what households receive after personal income tax is deducted is.....
Disposable Income.
Which of the following forces did Keynes assert had the strongest influence on consumption decisions?
Disposable income
Discouraged workers.....
Do not actively seek employment although they desire to be employed.
Which of the following is an argument against balancing the federal budget?
Doing so may prevent the government from pulling the economy out of recession.
The market demand curve for money is....
Downward sloping to the right because people wish to hold less money at higher interest rates and more money at lower interest rates.
Firms in Colorado dump waste into the Colorado River and as a result, people in California and Mexico cannot use the water. What type of market failure is most likely involved?
Externalities.
The government's role in limiting smoking in many buildings is justified by considerations of.....
Externalities.
Which of the following contains the two sectors whose percentage contribution to the real GDP has declined since 1900?
Farming and manufacturing.
Which of the following is true about the U.S. federal government budget for the year 1998?
Federal government receipts were greater than federal government spending for the first time in a generation.
Which government sector has the ability to respond countercyclically to the economy?
Federal only.
The structural deficit represents....
Federal revenues minus federal expenditures at full employment under current fiscal policy.
If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion, the total deficit....
Fell by $25 billion.
If the government places a price ceiling on cancer-treating drugs, then...
Fewer cancer treating drugs will be available.
If the government places a price ceiling on cancer-treating drugs, then....
Fewer cancer treating drugs will be available.
The use of government taxes and spending to alter macroeconomic outcomes is known as....
Fiscal Policy
The use of government taxes and spending to alter macroeconomic outcomes is known as......
Fiscal Policy
A tax cut intended to increase aggregate demand is an example of.....
Fiscal Stimulus
The COVID related $1200 per person and additional $600 per week unemployment benefits intended to increase aggregate demand is an example of....
Fiscal Stimulus
The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is.....
Frictional Unemployment
The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is......
Frictional Unemployment
The measure of final goods and services produced in the United States is the....
GDP of the United States.
Which measurement is most useful for comparing the standard of living in different countries?
GDP per capita
If GDP grows more rapidly than population for a particular country over a period of time, then we can determine that.....
GDP per capita has increased.
The measure of GDP is....
Geographically focused.
From a Keynesian perspective, the way out of recession is to....
Get consumers to spend more on goods and services.
Which of the following is treated differently in computations of GNP as compared with GDP?
Goods produced by U.S. firms located in foreign countries.
Which one below fits an example if a city decides to limit smoking in public areas?
Government Intervention
Which of the following was not true in the early 1900s?
Government intervention was commonly used to stimulate the economy.
Ceteris paribus, if the AD shortfall equals $600 billion, then the federal government can close it by increasing....
Government spending by less than $600 billion.
Which of the following represents the use of fiscal policy to achieve a fiscal stimulus?
Greater government expenditure or lower taxes.
The best measure of net investment is....
Gross investment less depreciation.
In which of the following situations is the percentage change in real GDP always positive?
Growth Recession
All of the following can be used to measure macroeconomic performance except for the.......
Growth rate of population.
According to the law of demand, a demand curve....
Has a negative slope.
According to the law of demand, a demand curve......
Has a negative slope.
Automatic stabilizers....
Help to moderate the extremes of the business cycle.
The benefits to the United States of outsourcing include all of the following except......
Higher domestic labor cost for U.S. firms.
A rightward shift in a demand curve and a leftward shift in a supply curve both result in a....
Higher equilibrium price.
If business inventories decrease below desired levels, then it is most likely that a....
Higher price level will occur.
Keynesians would recommend....
Higher taxes when there is excess aggregate demand.
Economics can be defined as the study of....
How scarce resources are allocated.
Which of the following policies is a positive supply-side lever?
Human capital investment.
From an economic standpoint, government intervention may be justified.....
If the market mechanism fails to achieve the optimal mix of output.
Which of the following is a leakage?
Imports
A progressive income tax system is particularly effective as an automatic stabilizer because....
In a booming economy, taxpayers move into higher tax brackets, which restrains their spending.
According to the law of increasing opportunity costs,....
In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.
The labor force participation rate is the number.....
In the labor force divided by the working-age population.
By raising and lowering the discount rate, the Fed changes the....
Incentive for banks to borrow reserves.
A leakage is...
Income not spent directly on domestic output but instead diverted from the circular flow.
Payments to individuals for which no current goods or services are exchanged are known as....
Income transfers.
The consensus view...
Incorporates both the Keynesian and monetarist perspective.
Ceteris paribus, the quantities of money people are willing and able to hold....
Increase as interest rates fall.
Assume the MPC is 0.75, taxes increase by $100 billion, and government spending increases by $100 billion. Aggregate demand will.....
Increase by $100 billion.
Suppose Megan withdraws $75 from her savings account and deposits it into her checking account. This transaction causes M1 to....
Increase by $75 and M2 to remain the same.
Automatic stabilizers tend to stabilize the level of economic activity because they....
Increase spending during recessions and reduce spending during inflationary periods.
If a country moves from a point below the production possibilities curve to a point on the curve, it is experiencing.....
Increased capacity utilization.
If your rent increases from $1,000 to $2,000 over a period of one year and your income rises from $6,000 to $9,000, your nominal income has...
Increased, and your real income has decreased.
Per capita GDP will rise if GDP....
Increases more rapidly than the population increases.
If the price of iPods rises 10 percent during a year when the level of average prices rises 3 percent, the relative price of iPods compared with other goods.....
Increases.
If the United States decides to convert automobile factories to tank production, as it did during World War II, but finds that some auto manufacturing facilities are not well suited to tank production, then...
Increasing opportunity costs will occur with greater tank production.
Nearly half of the federal government's tax revenues come from....
Individual income taxes.
In the simple Keynesian model,...
Inflation becomes a problem only if demand increases at full employment.
Because the aggregate supply curve rises more steeply as the economy approaches full employment,....
Inflation tends to accelerate.
Which of the following policies is another positive supply-side lever?
Infrastructure development
A recession can be represented by a point....
Inside the production possibilities curve.
A recession can be represented by a point.....
Inside the production possibilities curve.
The federal funds rate is the interest rate for....
Interbank reserve loans.
Uncontrollable government spending includes....
Interest payments on the national debt.
There is a/an ________________ relationship between educational level of the labor force and the unemployment rate.
Inverse Relationship
A movement along the Phillips curve shows that the unemployment rate and inflation rate are....
Inversely related to each other.
If consumption is $340 and saving is $20, then disposable income....
Is $360.
If consumption is $500 and saving is $100, then disposable income...
Is $600
From the long-run perspective of economic growth, saving....
Is a basic source of investment financing.
Consumer spending....
Is affected by consumer confidence.
Economic growth.....
Is an increase in output or real GDP.
The definition of Economic growth...
Is an increase in output or real GDP.
The direct exchange of one good for another....
Is barter.
A private good....
Is consumed by one person and excludes consumption by others.
GDP per capita...
Is equal to a nation's GDP divided by its population.
A friend tells you that his income has risen every year by 5 percent. At the same time, prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend....
Is experiencing money illusion.
A public good....
Is subject to the free-rider dilemma.
The fiscal year....
Is the 12-month period used for federal government accounting purposes.
A recessionary gap....
Is the amount by which the rate of actual spending falls short of full-employment GDP.
Which of the following is not true about barter?
It allows people to obtain more goods than they would under a money payment system.
If an economy is producing inside the production possibilities curve, then....
It can produce more of one good without giving up some of another good.
When the Fed raises the discount rate, all of the following result except....
It expands the lending capacity of the banking system.
Which of the following is not true about the marginal propensity to consume?
It is always equal to or greater than 1.
Which of the following is not correct about the money kept in transactions accounts?
It is backed by gold held by the government.
One of the following answers below describes a potential problem at macro equilibrium. Which one is it?
It is inconsistent with the macroeconomic goals.
Which of the following explains why flood control is a public good?
It is not divisible and therefore cannot be kept from people who do not pay.
If nominal GDP rises from $550 billion to $600 billion, then....
It is not possible to determine if the economy has experienced economic growth or inflation.
Which of the following is true about an increase in the discount rate?
It signals the Federal Reserve's desire to restrain money growth.
If the real GDP in Haiti grew at an annual rate of 2 percent and the country's population grew at an annual rate of 4 percent, how long will it take for GDP per capita to double?
It will never double because population is increasing more rapidly than real GDP.
Which of the following is not a macroeconomic statement?
Jenny's wage rate rose, and in response, she decided to work more hours.
Which of the following is an example of barter?
Keisha takes care of the neighbor's children, and the neighbor mows Keisha's yard as repayment.
A horizontal aggregate supply curve below the level of full employment is most consistent with which of the following views of the economy?
Keynesian
The basic factors of production include....
Land, labor, capital, and entrepreneurship.
A factor market is any place or process where.....
Land, labor, or capital is bought and sold.
Which of the following may be used in an attempt to correct market failure?
Laws and regulations
The Great Depression did not.....
Lead to a high rate of inflation.
Market failure implies that the market mechanism....
Leads the economy to the wrong mix of output.
What is it mean "When the economy is at equilibrium"?
Leakages equal injections.
Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?
Less government expenditure and higher taxes.
If aggregate demand shifts to the left by $400 billion and aggregate supply is upward-sloping, then real output will decrease by.....
Less than $400 billion, and the price level will fall.
What is the the macro consequence of unemployment?
Lost output for the economy.
Savings accounts are included in....
M2 only.
If consumers spend 90 cents out of every extra dollar received, the.....
MPC is 0.90.
If, in the aggregate, consumers spend 75 cents of every extra dollar received, then the....
MPS is 0.25.
The combination of price level and real output that is compatible with both aggregate demand and aggregate supply is the definition of....
Macro equilibrium
John Maynard Keynes argued that....
Macro failure is likely to occur and it isn't likely to go away.
Which determinant of demand changes in the personal computer market as more individuals become interested in "surfing the Internet"?
Number of buyers.
The fiscal year for the federal government begins on....
October 1
To avoid counting the same output more than once, the calculation of GDP includes.....
Only the value of final goods.
Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
Open Market Operations
Given that resources are scarce,...
Opportunity costs are experienced whenever choices are made.
The Latin phrase ceteris paribus means....
Other things remain equal.
The redistributive mechanics of inflation include all of the following except....
Output Effects
Individuals hold precautionary balances in order to.....
Pay for emergency purchases.
The term transfer payments refers to....
Payments to individuals that are not in exchange for current goods and services being produced.
For the labor force to definitely increase,
People must turn from being discouraged workers into people actively seeking employment.
Generally speaking, which of the following groups would tend to gain real income from the wealth effects of inflation?
People who own assets that are appreciating faster than the inflation rate.
The phantom unemployed are...
People who report that they are actively seeking a job even when they have little or no intention of finding one.
The phantom unemployed are.....
People who report that they are actively seeking a job even when they have little or no intention of finding one.
If public goods were marketed like private goods, then
People would avoid paying for these goods.
If public goods were marketed like private goods, then...
People would avoid paying for these goods.
Which of the following is an indicator of how much output the average person would get if all output were divided up evenly among the population?
Per capita GDP
Those who are interested in assessing the relative standard of living of different countries over a given time period are most likely to look at....
Per capita GDP.
When the labor force participation rate is declining, the.....
Percentage of the working-age population that is willing and able to work is declining.
The largest single source of revenue for the federal government is....
Personal income taxes.
A 29-year-old stay-at-home son tells his parent he is looking for work but cannot find a job. When the parent finds the son a job, he refuses to take it. The 30-year-old can best be classified as.....
Phantom Unemployed
The official unemployment statistics may exaggerate the significance of unemployment by including the.....
Phantom Unemployed
Income inequality tends to be greatest in....
Poorest countries.
Internal market forces include....
Population growth, spending behavior, and invention.
Which answer below includes Internal market forces?
Population growth, spending behavior, and invention.
Which is not an example of external shocks?
Population growth.
Economists often define economic growth in terms of changes in....
Potential GDP
According to Keynes, when the economy falters, the government should do any of the following except.....
Practice a laissez faire policy approach.
Which of the following is not held constant along a given demand curve for a good?
Price of the good itself (own price).
A ballet performance had many empty seats. This implies that the....
Price of the tickets must have been above the equilibrium price.
If the quantity demanded of a good is greater than the quantity supplied of the good at the current price, then.....
Price will increase until it reaches the equilibrium price.
The determinants of macro outcomes include all of the following except.....
Prices.
The development of market power by a firm is considered to be a market failure because firms with market power will......
Produce less and charge a higher price than what would be socially optimal.
A market in which final goods and services are exchanged is a....
Product market.
Business firms supply goods and services to ____ and purchase factors of production in ____.
Product markets; Factor markets.
Suppose that if your income is $100,000, your tax is $20,000, but if your income is $200,000, your tax is $45,000. Such a tax is.....
Progressive.
Market failure may lead to....
Public goods being underproduced.
Which of the following explains what would likely happen if public goods were marketed like private goods?
Public goods would be underproduced.
Governments usually build highways because it is difficult to exclude individuals who don't pay for the highways from using them. What type of market failure is involved?
Public goods.
The federal government's role as the provider of national defense is justified by considerations of....
Public goods.
According to Keynes, which of the following should the government do when the economy overheats?
Raise taxes.
Based upon a Keynesian viewpoint, to stimulate the economy the government should do all of the following except.....
Raise taxes.
In order to decrease the money supply, the Fed can....
Raise the reserve requirement, increase the discount rate, or sell bonds.
A growth recession is said to occur when the economy grows at a.....
Rate less than the long-term average.
The inflation-adjusted value of all goods and services produced is....
Real GDP.
An increase in the money supply will....
Reduce interest rates and increase aggregate demand.
Supply-side tax cuts are designed to....
Reduce marginal tax rates.
Suppose that if your income is $50,000, your tax is $5,000, but if your income is $100,000, your tax is $8,000. Such a tax is.....
Regressive.
Suppose you volunteer to help clean up your neighborhood, and the only payment you receive is the sense of goodwill that develops with your neighbors. Your efforts cause the GDP of the economy to...
Remain unchanged.
The minimum amount of reserves a bank is required to hold is known as...
Required reserve ratio.
The ratio of a bank's total reserves to its total transactions deposits is known as the.....
Reserve ratio.
A change in the price of a good...
Results in a change in quantity supplied.
Suppose a friend claims he is helping the economy by throwing trash on the street rather than in trash cans because the extra expenditures necessary to clean up the streets will increase GDP. Your friend is.....
Right. GDP will increase, ceteris paribus.
Economic growth implies a....
Rightward shift of the long-run aggregate supply curve.
Which of the following is not true about M1?
Savings accounts makes up approximately one-third of it.
The production possibilities curve illustrates which two of the following essential principles?
Scarce resources and opportunity cost.
When migrant workers seek employment after the crops have been picked, the unemployment rate goes up. This situation is an example of.....
Seasonal Unemployment
After the harvest, some farmhands lose their jobs. They are considered to be...
Seasonally Unemployed
To illustrate the ultimate impact of the multiplier process when investment spending falls, we should....
Shift the AD curve leftward twice, once for the autonomous change and second for the multiplier effect.
Monetary policy involves the use of money and credit controls to...
Shift the aggregate demand curve.
How will a decrease in technology from a natural disaster such as a hurricane, ceteris paribus, affect an economy's production possibilities curve?
Shift the curve inward.
How will an increase in the level of human capital, ceteris paribus, affect an economy's production possibilities curve?
Shift the curve outward.
With respect to the aggregate demand curve, improved consumer confidence would....
Shift the curve rightward.
Fiscal policy works primarily through....
Shifts of the AD curve.
A long-run expansion in capacity....
Shifts the production possibilities curve rightward.
Which of the following functions are performed by changes in relative prices but not by changes in average prices?
Signaling changes in the desired mix of output.
A reduction in the discount rate....
Signals the Federal Reserve's desire for additional credit expansion.
What is possible result of government intervention in the market?
Society could be made better or worse off.
Money held to take advantage of future financial opportunities is the.....
Speculative demand for money.
Gross exports for the United States depend most directly on the.....
Spending behavior of foreign consumers and businesses.
In the absence of external shocks or government policy, an economy would....
Still experience business cycle fluctuations because of internal market forces.
When money serves as a mechanism for transforming current income into future purchases, it is functioning as a....
Store of value.
The speculative demand for money is related to money functioning as a.....
Store or value.
When there is a mismatch between the skills required for a job and the skills of job seekers, the unemployment that results is an example of.....
Structural Unemployment
When there is a mismatch between the skills required for a job and the skills of job seekers, the unemployment that results is an example of......
Structural Unemployment
Say's Law states that....
Supply creates its own demand.
Ceteris paribus, if the Fed sells bonds through open market operations, the money...
Supply curve should shift leftward.
Which of the following theorists believe a decrease in marginal tax rates will increase the incentives to work and invest?
Supply-Side Economists
Fiscal restraint is....
Tax hikes and/or spending cuts intended to reduce aggregate demand.
Which of the following is considered a service in the calculation of GDP?
Tax preparation
Disposable income is less than GDP due to....
Taxes by governments and income held back as saving by businesses.
The production possibilities curve....
Tends to increase as the population grows.
If there is a surplus at a given price, then....
That price is greater than the equilibrium price.
If there is a shortage at a given price, then...
That price is less than the equilibrium price.
If there is a shortage at a given price, then.....
That price is less than the equilibrium price.
If tax policies become less favorable, then....
The AD curve will shift to the left.
If the availability of credit increases, then....
The AD curve will shift to the right.
If wealth rises,...
The AD curve will shift to the right.
The amount of additional aggregate demand needed to achieve full employment after allowing for price level changes is.....
The AD shortfall.
Alternating periods of economic growth and contraction in real GDP define....
The Business Cycle
Which of the following is responsible for the Fed's daily activity in financial markets?
The FOMC.
The slope of the line described by the consumption function C = a + bYD will change its slope when.....
The MPC changes because b = MPC
If the desired fiscal restraint is $80 billion and the AD excess is $160 billion, we can conclude that....
The MPS is 0.50.
When consumer spending exceeds disposable income, all of the following are true except.....
The MPS is negative.
Which answer below is false when consumer spending exceeds disposable income?
The MPS is negative.
The United States has a larger real GDP than China because....
The U.S. population is smaller but works in capital-intensive jobs.
Unemployment is defined as.....
The active search and inability of labor force participants to find jobs.
The invisible hand refers to.....
The allocation of resources by market forces.
In periods of restrictive monetary policy, which of the following industries are likely to feel a disproportionately large impact of the policy?
The auto industry.
A buyer is said to have a demand for a good only when.....
The buyer is both willing and able to purchase the good.
The marginal propensity to consume can be found by dividing.....
The change in total consumption by the change in disposable income.
Which of the following is an accurate statement about the aggregate supply curve?
The consensus view is that it begins as horizontal, then starts to slope upward to the right as the economy approaches full employment, and eventually becomes vertical beyond full employment.
Which of the following shifts in the demand for money or the supply of money is most likely to occur as the result of a recession?
The demand curve shifts leftward.
If there are only two airlines that fly between Dallas and New Orleans, what will happen in the market for one airline if the other one goes out of business?
The demand curve will shift to the right.
If equilibrium GDP exceeds full-employment GDP,....
The difference is the inflationary GDP gap.
Per capita GDP is...
The dollar value of GDP divided by total population.
If leakages exceed injections,...
The economy is contracting.
If leakages exceed injections,....
The economy is contracting.
Which of the following is true when an economy is producing efficiently?
The economy is producing on the production possibilities curve.
According to the hybrid, or consensus, view of aggregate supply, the chance for an aggregate demand increase to cause inflation accelerates as...
The economy moves toward capacity.
Unlike the classical economists, Keynes asserted that.....
The economy was inherently unstable.
If injections exceed leakages,....
The economy will expand.
Which of the following is an example of a progressive tax?
The federal income tax.
Which of the following is directly included in the calculation of GDP?
The final sale of a brand new Cadillac.
The largest single holder of the U.S. national debt after the U.S. government is...
The foreign sector.
In order to reduce the U.S. debt,...
The government should spend less than it collects in tax revenues.
In order to reduce the U.S. debt,....
The government should spend less than it collects in tax revenues.
The percentage change in real GDP from one period to another is called....
The growth rate.
____________ is the price paid for the use of money.
The interest rate
Which of the following is purchased in a factor market?
The labor of a state university professor.
The production possibilities curve illustrates...
The limitations that exist because of scarce resources.
Which of the following scenarios would support the theory of public choice?
The local police chief fails to give the mayor a speeding ticket because the mayor might fire him.
Adam Smith's invisible hand is now called...
The market mechanism.
The equilibrium price in a market is found where....
The market supply curve intersects the market demand curve.
Which view of aggregate supply predicts that the outcomes of fiscal and monetary policy depend on how close the economy is to full employment?
The monetarist view.
If the Fed's objective is to stimulate the economy, which of the following gives the correct sequence of events?
The money supply increases, interest rates decrease, investment increases, and AD increases.
All of the following count as unreported income except....
The money you pay a private tutor who works for Tutors Inc.
All of the following count as unreported income except......
The money you pay a private tutor who works for Tutors Inc.
Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?
The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.
The real interest rate is....
The nominal interest rate minus the anticipated rate of inflation.
Market demand is determined by all of the following except.....
The number of potential sellers.
Macroeconomics focuses on the behavior of....
The overall economy.
If population growth is less than output growth for a country,....
The per capita living standard will increase.
Which of the following measures the growth rate of an economy?
The percentage change in real GDP from one period to another.
Tickets to a sporting event go on sale and sell out almost instantly. This suggests that...
The price for the tickets is below the equilibrium price.
Real GDP is better than nominal GDP for measuring growth because real GDP has been adjusted for changes in.....
The price level.
Relative price is....
The price of one good in comparison with the price of other goods.
Which of the following can change without shifting demand, ceteris paribus?
The price of the good itself.
If corn and wheat are alternative pursuits for a farmer, a change in the supply of corn will take place when, ceteris paribus,.....
The price of wheat changes.
If more teenagers stay in school longer rather than dropping out and entering the labor force,.....
The production possibilities curve shifts inward.
Your real income is.....
The purchasing power of the money you receive.
A market is said to be in equilibrium when.....
The quantity demanded equals the quantity supplied.
The fundamental problem of economics is...
The scarcity of resources relative to human wants.
Frictional unemployment can be distinguished from other types of unemployment in that we assume all of the following except......
The skills of the frictionally unemployed are no longer in demand.
A shift in supply is defined as a change in....
The supply curve because of a change in a determinant of supply.
A nation's GDP can be calculated as....
The total value added at all stages of production.
When an economy is operating at "full employment," as economists usually define the term,....
The unemployment rate is 4-6 percent.
In terms of the musical chairs analogy in the text, which of the following is a description of structural unemployment?
There are enough chairs, but some are not the right size.
In terms of the musical chairs analogy in the text, which of the following is a description of cyclical unemployment?
There are too few chairs.
Which of the following is not true for members of the Federal Reserve Board of Governors?
They usually serve two or three terms.
Which of the following is true about business cycles in the United States?
They vary greatly in length, frequency, and intensity.
Which of the following government policies or programs would be most appropriate to offset cyclical unemployment?
Those that stimulate more demand.
In most markets, the equilibrium price is achieved...
Through trial and error.
GDP per capita is...
Total GDP divided by total population.
The goal of the business firms in a market economy is to maximize....
Total profits.
The goal of the business firms in a market economy is to maximize.....
Total profits.
Given the MPS = 0.20, with no government and no foreign trade, a $10 billion increase in investment will eventually result in an increase in.....
Total spending by $50 billion.
A bank account that permits direct payment to a third party is a....
Transactions account.
The primary function of taxes is to....
Transfer command over resources from the private sector to the public sector.
Which of the following is not included in M2?
Treasury bills.
When calculating GDP, consumption makes up approximately.....
Two-thirds of total output.
All of the following contribute to greater deficits when unemployment rises and reduce the deficit during an inflationary gap except for.....
U.S. exports.
Individuals who are working part-time while seeking full-time employment are classified as....
Underemployed
Mr. Choe graduates from college with a mechanical engineering degree and is now employed to grade papers, answer the phone, and make copies-tasks that are below the graduate's capabilities. Mr. Choe can best be classified as....
Underemployed
Part-time workers who desire full-time employment are...
Underemployed but do not contribute to the unemployment statistic.
If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to.....
Underproduce goods that yield external benefits and overproduce those that generate external costs.
The phantom unemployed are....
Unemployed and cause the unemployment statistic to overstate the level of unemployment.
Phillips developed a curve that shows the trade-off between the...
Unemployment rate and inflation rates.
When unwanted inventories pile up in retail stores, retail managers will take actions that lead to greater....
Unemployment.
Which of the following countries (or regions) produces the most output annually?
United States
One In the News article titled "$2 Trillion in "Underground" Economy" reports that the underground economy is roughly 12 percent of total output. This is an example of.....
Unreported Income.
Money is functioning as a standard of value when you....
Use it to compare two houses that are different prices.
Money illusion is the.....
Use of nominal dollars rather than real dollars to gauge changes in one's income or wealth.
Real GDP is the.....
Value of final output produced in a given period, adjusted for changing prices.
Opportunity cost is....
What is given up in order to get something else.
Please select the answer which is not one of the three core economic issues that must be resolved?
What to produce with unlimited resources.
Which of the following is not one of the three core economic issues that must be resolved?
What to produce with unlimited resources.
Which one of the conditions described below would the APC equal the MPC at all levels of disposable income?
When autonomous consumption equals 0.
Spending for unemployment compensation and welfare benefits increase automatically....
When the economy goes into recession.
One In the News article titled "Fed to Expand Bond-Purchase Program" suggests that interest rates....
Will fall to encourage more borrowing for home mortgages and other loans.
Of the following reasons for unemployment, which will increase most because of a recession?
Workers that have lost their jobs.
The largest percentage of U.S. national debt to GDP occurred during.....
World War II
The banking system can lend the sum of its excess reserves because....
Banks are required to keep only a fraction of deposits on reserve.
According to cost-benefit analysis, a government project should be undertaken as long as the.....
Benefits exceed the opportunity costs.
Monetary policy is set by the....
Board of Governors
Transactions account balances are included in....
Both M1 and M2.
According to the consensus view, when demand increases near full employment,....
Both the price level and real GDP increase.
Changes in real GDP are best used to measure....
Business cycles.
Suppose Brian receives a check for $100 from a bank in Atlanta. He deposits the check in his account at a Dallas bank. The Dallas bank will most likely collect the $100 directly from the....
Dallas regional Federal Reserve Bank
If consumption and investment spending decline, then state and local government spending is likely to.....
Decline, leading to more economic instability.
A leftward shift of the market demand curve for HDTVs, ceteris paribus, causes equilibrium price to...
Decrease and quantity to decrease.
Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account. This transaction causes M1 to.....
Decrease by $100 and M2 to remain the same.
If the Fed sells $5 billion of U.S. bonds in the open market and the reserve requirement is 5 percent, M1 will eventually.....
Decrease by $100 billion.
According to Keynes, which of the following can be used to slow down an overheated economy?
Decrease government purchases.
Which of the following is a series of events that accurately describes the steps by which restrictive monetary policy is effective?
Decrease in M1, increase in interest rate, and decrease in investment.
If both aggregate supply and aggregate demand decrease, the level of real output will....
Decrease, but the price level is indeterminate.
Suppose there are 6 million unemployed workers actively seeking a job. After a period of time, 1,500,000 of these workers become discouraged and no longer look for employment. Ceteris paribus, the unemployment rate will......
Decrease.
National income accounts assist....
Economic policy makers in formulating policies and evaluating performance.
The purpose of antitrust policy in the United States is to....
Encourage competition among producers.
A tax that is placed on the quantity of the item being purchased, such as gallons of it, is called a(n)....
Excise Tax.
Ceteris paribus, which of the following is most likely to shift both the demand and the supply curves?
Expectations.
Injections include...
Exports
Injections include....
Exports.
Which of the following is not considered a macro outcome?
External shocks such as weather.
When inflation suddenly increases, ARMs....
Maintain a stable real interest rate.
The GDP per capita is the most practical way to...
Make international comparisons of the standard of living.
Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they....
Make their decisions based on economic, rather than political, considerations.
The total change in aggregate spending generated by increased government spending depends on the....
Marginal propensity to consume.
Any imperfection in the market mechanism that prevents optimal outcomes is known as.....
Market failure.
Antitrust activity addresses....
Market power.
A production possibilities curve indicates the.....
Maximum combinations of goods and services an economy can produce given its available resources and technology.
A progressive tax system....
Means higher marginal tax rates at higher income levels.
A change in demand means there has been a shift in the demand curve, and a change in quantity demanded...
Means that price has changed and there is movement along the demand curve.
National income accounting is defined as the....
Measurement of aggregate economic activity.
Which of the following is not a characteristic of money?
Mechanism for barter.
When money is used to acquire goods and services, it is functioning as a.....
Medium of exchange.
An aggregate supply curve that is always vertical is most consistent with which of the following views of the economy?
Monetarist
The government uses ______________ to regulate the amount of money banks lend.
Monetary Policy
The use of money and credit controls to achieve macroeconomic goals is....
Monetary Policy
The use of money and credit controls to change the macroeconomy is....
Monetary Policy
The term "nominal income" refers to....
Money income measured in current dollars.
Which of the following is generally considered a desirable outcome of fiscal policy?
More jobs.
Which of the following events would allow the production possibilities curve to shift outward?
More teenagers enter the labor force.
Much of each year's federal budget is considered "uncontrollable" because....
Most of the current revenues and expenditures are the result of decisions made in prior years.
Which of the following is a major goal of short-run macroeconomic policy?
Move toward the production possibilities curve and full employment.
Better short-run use of current capacity....
Moves the economy closer to the production possibilities curve, while long-run growth shifts that curve outward.
For an economy with only two goods, skate boards can be added to bicycles to compute the GDP by....
Multiplying output by price and adding the resulting dollar values.
If a nation experiences a year of unusually high immigration that increases the size of the labor force, we can conclude that the.....
Nation's production possibilities curve will shift outward.
As the U.S. economy relies more and more heavily on the production of services rather than goods,...
Nearly all future job growth will be in service-producing industries.
When the APC is greater than 1, the APS must be....
Negative.
At the equilibrium price, there are.....
No shortages or surpluses.
Real GDP is more accurate than nominal GDP in making comparisons of output over time because....
Nominal GDP may change simply because of price changes over time.
The value of final output produced in a given period, measured in current prices, is......
Nominal GDP.
The amount of income received in a given time period, measured in current dollars, is.....
Nominal Income
If a lender desires to earn a real return of 3 percent on a loan and the anticipated rate of inflation is 2 percent, the lender should charge a....
Nominal Interest rate of 5 percent.
Real income is....
Nominal income adjusted for inflation.
Jack graduated from college last month, but he has not yet started looking for a job. Jack is....
Not part of the labor force and is not counted in the unemployment rate.
