Macroeconomics Final

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As the real wage decreases, the quantity of labor demanded ________ and the quantity of labor supplied ________.

increases; decreases

When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

make more loans.

Corey has the absolute advantage in:

making pizza.

On a graph of a production possibilities curve, an inefficient point is:

necessarily an attainable point.

The three functions of money are:

serving as a medium of exchange, unit of account, and store of value.

The extra costs incurred to avoid holding cash when there is inflation are called the:

shoe leather costs.

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

1 percent.

Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

4

Which of the following is not classified as a final good?

Fresh vegetables purchased by a restaurant

Public Saving is:

Net Taxes - Government Purchases

Which of the following is an example of the precautionary motive for saving?

Jordan sets aside $200 per month in case she has to pay for a new roof for her house.

National Saving is:

Private Saving + Public Saving

Which of the following is a flow?

Saving

Which of the following expenditures would increase the consumption component of U.S. GDP?

You buy a pizza.

If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as:

a unit of account.

A country's actual output ________ its potential output.

can only temporarily exceed

The two main responsibilities of the Federal Reserve System are to ________ and to ________.

conduct monetary policy; oversee financial markets

The four components of planned aggregate expenditure are:

consumption, planned investment, government purchases, and net exports

As disposable income decreases, consumption:

decreases.

Susan Suarez would like to work forty hours per week, but can only find twenty hours per week of work. In the official employment statistics, Susan is classified as:

employed.

Short-run equilibrium output is the level of output at which actual output:

equals planned aggregate expenditure.

Firms that extend credit to borrowers using funds from raised from savers are called:

financial intermediaries.

Banks help savers find productive uses for their funds because banks are specialized in:

gathering information about and evaluating potential borrowers.

An open-market purchase of government securities by the Fed will:

increase bank reserves, and the money supply will increase.

Velocity is determined by:

payments methods and technology.

In the long run, output gaps are eliminated by:

price changes.

In reference to short-term economic fluctuations, the "peak" refers to:

the high point of economic activity prior to a downturn.

The effect on short-run equilibrium output of a one-unit increase in autonomous expenditure is called:

the income-expenditure multiplier.

The money supply will increase by a multiple of the increase in bank reserves created by the central bank unless:

there is 100 percent reserve banking.

Public saving is negative when:

there is a government budget deficit

If the output gap equals -3.2 percent, then:

there is a recessionary gap.

If the output gap equals 1.8 percent, then:

there is an expansionary gap.

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by:

$0.03 to $0.07.

Assume an economy produces only hamburgers and hotdogs and the base year is 2005. Given the data in the table above, what is the value of real GDP in 2006?

$10,000

In Macroland, 500,000 of the 1 million people in the country are employed. Average labor productivity in Macroland is $20,000 per worker. Real GDP per person in Macroland totals:

$10,000.

The economy of Omega operates according to Okun's law. In Omega, the actual and the natural rates of unemployment both equal 5 percent, and potential GDP equals $10 trillion. What is real GDP in Omega?

$10.0 trillion

The economy of Omega operates according to Okun's law. In Omega, the actual and the natural rates of unemployment equal 5 percent, and real GDP equals $10 trillion. What is potential GDP in Omega?

$10.0 trillion

A labor contract provides for a first-year wage of $10 per hour, and specifies that the wage will rise by the amount of inflation. The CPI is 1.07 in the first year, and 1.15 in the third year. What dollar wage must be paid in the second year?

$10.75

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then real GDP equals:

$102 trillion.

If the desired reserve/deposit ratio equals 0.10, then every dollar of currency in bank reserves supports ________ of deposits and the money supply, while every dollar of currency held by the public contributes ________ to the money supply.

$10; $1

If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government expenditure equal $10 billion, then public savings equal:

$115 billion

Assume an economy produces only footballs and baseballs and the base year is 2005. Given the data in the table above, what is the value of real GDP in 2006?

$12,000

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The explicit cost of going to the movies is:

$15.

Pat earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund. Pat's saving is ________, and Pat's saving rate is ________.

$150; 15%

The CPI equals 1.00 in year one and 1.15 in year two. If the nominal wage is $15 in year one and a contract calls for the wage to be indexed to the CPI, what will be the nominal wage in year two?

$17.25

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: What is the sum of the value added of all the firms?

$2.50

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ________ or net taxes must be decreased by ________.

$20 billion; more than $20 billion

There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:

$20,000,000

In Econoland in 2005, people with incomes between $20,000 and $30,000 paid 12% of their income in taxes and people with incomes between $30,001 and $40,000 paid 15%. In 2005, the CPI in Econoland equaled 1.20, and it increased to 1.26 in 2006. If the government of Econoland wants to keep households with a given real income from being pushed up into a higher tax bracket by inflation, the $20,000-to-$30,000 bracket will be changed in 2006 to:

$21,000-to-$31,500

In the short-run Keynesian model, if the mpc equals 0.8, then to decrease planned aggregate spending by $30 billion at any output level, government spending must be decreased by ________ or net taxes must be increased by ________.

$30 billion; more than $30 billion

An economy produces 500,000 tables valued at $100 each. Households purchase 100,000 tables, of which 50,000 are imported. Businesses purchase 200,000 domestically produced tables, the government purchases 100,000 domestically produced tables, and 50,000 domestically produced tables are sold abroad. At the end of the year, the table manufacturers hold the unsold tables in inventory.What is value of the investment component of GDP?

$30 million

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35.

Suppose the stock market crashed, wiping out $5 trillion of household wealth. Consistent with economic models based on historical trends, consumption spending might fall by as much as, but probably not more than:

$350 billion.

The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The total labor cost with 4 employees is:

$38,000.

Suppose when you are 21 years old, you deposit $1,000 into a bank account that pays annual compound interest, and you do not withdraw from the account until your retirement at the age of 65, 44 years later. How much more will be in your account if the interest rate is 6 percent rather than 5 percent?

$4,428

If the desired reserve/deposit ratio is 0.25 and the banking system receives an additional $10 million in reserves, bank deposits will increase by:

$40 million.

If you left $2,500 on deposit with a bank promising to pay you a 6 percent compound annual rate of interest, then after 50 years your deposit would be worth approximately:

$46,050

In Macroland there is $12,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ________ and the money supply equals ________.

$48,000,000; $54,000,000

In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10%, deposits in Macroland equal ________ and the money supply equals ________.

$50,000,000; $55,000,000

If real GDP per person in a country equals $20,000 and 40 percent of the population is employed, then average labor productivity equals:

$50,000.

In 2015, Janice Quinn sells a five-year-old car to Used Car, Inc. for $3,000. In the same year, Used Car, Inc. resells the car to Hilda Goner for $3,500. What is the contribution of these transactions to GDP in the year 2015?

$500

Chris earns $1,500 per week and spends $1,000 per week on living expenses, puts $200 in a savings account, and buys $300 worth of shares in a stock mutual fund. Chris's saving is ________, and Chris's saving rate is ________.

$500; 33.3%

The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The total value of donations raised by three employees is:

$51,963.

Based on the following information, the value of the M1 measure of the money supply is ________ and the value of the M2 measure of the money supply is ________.

$530 billion; $4,230 billion M1 consists of currency, demand deposits, travelers' checks and other checkable deposits, which sum to $530 billion. If you total all these assets you get M2, which is $4,230 billion. Note that everything included in M1 is by definition also included in M2.

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 worth of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave's Mirror Company equals ________ and planned investment equals ________.

$650,000; $550,000

If real GDP per person in a country equals $40,000 and 60 percent of the population is employed, then average labor productivity equals:

$66,667.

Suppose that the total production of an economy consists of 10 oranges and 5 candy bars, each orange sells for $0.20, and each candy bar sells for $1.00. What is the market value of production in this economy?

$7.00

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ________ increase in consumption.

$75

Suppose the most you would be willing to pay for a plane ticket home is $250. If you buy one for $175, then your economic surplus is:

$75.

Refer to the table below. The marginal cost of the 4th unit of activity is:

$8

Refer to the table below. The average benefit of 4 units of activity is:

$9

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ________ and the money supply will increase by ________.

$9,000; $10,000

In Macroland, a country whose economy operates according to Okun's law, potential GDP equals $10 trillion, the actual rate of unemployment is 8 percent, and the natural unemployment rate is 6 percent. What is real actual GDP in Macroland?

$9.6 trillion

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then real GDP must be:

$98 trillion.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Which of the turning points are peaks?

(A), (C), and (E)

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Which of the turning points are troughs?

(B) and (D)

If M stands for the money stock, P for the price level, and Y for real GDP, then velocity, V, equals:

(P×Y) ÷ M.

If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals:

-1 percent.

If potential output for an economy equals $8 billion and actual output equals $7 billion, then this economy's output gap should be expressed as:

-12.5 percent.

According to Okun's law, when cyclical unemployment increases from 1 percent to 2 percent, the recessionary gap increases from ________.

-2 percent to -4 percent

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then the output gap equals:

-2 percent.

According to Okun's law, when cyclical unemployment increases from 2 to 3 percent, the recessionary gap widens from ________.

-4 percent to -6 percent

The CPI in 1931 equaled 0.15. The CPI in 1932 equaled 0.14. The rate of inflation between 1931 and 1932 was ________ percent.

-6.7

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. The opportunity cost of making a calculator for Smith is ________ and for Jones it is ________.

0.10 computers; 0.05 computers

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the expenditure line is:

0.75

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals:

0.75Y

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Induced expenditure equals:

0.80

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the expenditure line is:

0.80

Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

0.9

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals:

0.9

Refer to the figure below. What would be a mutually advantageous trading ratio?

1 bag of trash for 4 bulbs

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. Suppose Smith and Jones begin by producing 16 computers and 0 calculators per hour. If they wish to produce 14 computers and 40 calculators per hour efficiently, then Smith should spend ________, and Jones should spend ________.

1 hour on computers; 40 minutes on computers and 20 minutes on calculators

Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

1,000; 3,000

Refer to the figure below. Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ________ and induced expenditure equals ________.

1,000; 3,000

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

1,160

The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2010, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2015, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2015 on Planet Econ equals (remember that you need to use a fixed basket of goods):

1.25

If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals:

1.5.

Corey's opportunity cost of making of a pizza is delivering:

1/2 of a pizza.

Refer to the figure below. For Pat, the opportunity cost of planting one bulb is removing:

1/5 of a bag of trash.

Refer to the figure below. Moving from point B to point A, the opportunity cost of 25 more salads is:

10 pizzas.

If the real interest rate is 3% and the inflation rate is 7%, then the nominal interest rate equals:

10%

If planned aggregate expenditure in an economy can be written as: PAE = 1000 + .9 Y, what is the short-run equilibrium level of output in this economy?

10,000

Based on the information in the table, what is the unemployment rate?

10.0%

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then taxes must be increased by approximately ________ to eliminate any output gap.

111

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then transfers must be decreased by approximately ________ to eliminate any output gap.

111

A consumer expenditure survey reports the following information on consumer protein spending: Using 2005 as the base year, by how much does a "cost of protein" index increase between 2005 and 2006 (remember to use a fixed basket of goods)?

13.4 percent

A consumer expenditure survey reports the following information on consumer protein spending: Using 2005 as the base year, by how much does a "cost of protein" index increase between 2005 and 2006?

13.4 percent

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. What is the unemployment rate in this town?

13.7 %

Based on the table below and the principle of diminishing returns to capital, then total packages wrapped when a fourth machine is installed must be less than ________ packages.

15,000

Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y) is equal to:

16,000

Smith and Jones comprise a two-person economy. Their hourly rates of production are shown below. If Smith and Jones devote all of their resources to producing computers, then the maximum number of computers they can produce in an hour is:

16.

The Federal Reserve System first began operations in:

1914.

Lou and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The table below shows the number of rooms they can each clean and the number of meals they can each cook in an hour. For Alex, the opportunity cost of cleaning one room is making ________ meal(s); for Lou the opportunity cost of cleaning one room is making ________ meal(s).

1; 4/5

Based on the figure, the income-expenditure multiplier equals:

2

If the money supply equals 1,000, velocity equals 5, and real GDP equals 2,500, then the price level equals:

2

The following table provides information about production at the XYZ-TV Company. How many workers will the XYZ-TV Company hire if the going wage for TV production workers is $32,000 and the price of TVs is $1,000?

2

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then the output gap equals:

2 percent.

If the cyclical unemployment equals 2%, the frictional unemployment equals 2% and the actual rate of unemployment equals 6%, then structural unemployment equals:

2%

The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal ________.

200

Based on the figure, if a union contract requires that workers be paid $25 per hour, there will be ________ unemployed workers.

21

Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

24,000

If potential output equals $8 billion and actual output equals $10 billion, then this economy's output gap should be expressed as:

25 percent.

Suppose that the share of population employed in Country C is 50 percent, and that Countries C and D have the same real GDP per capita. Based on the information in the table, what share of Country D's population must be employed?

25.0 percent

Data for an economy show that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are employed in this economy?

282 million

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Autonomous expenditure equals:

290

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The vertical intercept of the expenditure line is:

290

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Planned aggregate expenditure equals:

290 + 0.75Y.

The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The Chair of the Economics Department at State U says that fundraising employees should be hired as long as their marginal benefit exceeds their marginal cost. If the University follows this advice, then ________ employee(s) will hired, and the net benefit (total donations minus total labor costs) will be ________.

2; $25,426

Refer to the table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out?

3

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent above potential output?

3 percent

The economy of Alpha operates according to Okun's law. In Alpha, potential GDP equals $500 billion, actual GDP equals $520 billion, and the natural rate of unemployment is 5 percent. What is the actual rate of unemployment in Alpha?

3 percent

Refer to the figure below. If this restaurant makes 75 salads in one hour, then what's the maximum number of pizzas it can make in that same hour?

30

The following table provides information about production at the XYZ-TV Company. What is the marginal product of labor for the 3rd worker?

31

Both islands specialize exclusively in the product for which they have a comparative advantage. You have agreed to give 350 coconuts to the other island in exchange for 1,300 fish. After the trade the other island has a total of ________ coconuts and ________ fish.

350; 1,200

High Tech, Inc. produces plastic chairs that sell for $10 each. The following table provides information about how many plastic chairs can be produced per hour. How many workers will be hired if the hourly wage for workers is $30?

4

Refer to the figure below. Based on the figure, the income-expenditure multiplier in the economy illustrated equals:

4

Suppose the actual rate of unemployment is 4 percent. What is the natural rate of unemployment if actual output equals potential output?

4 percent

Refer to the figure below. Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals:

400

If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2, then what is velocity if the money stock equals 2,000?

5

Refer to the figure below. For Pat, the opportunity cost of removing one bag of trash is planting:

5 bulbs.

In Okunland, a country whose economy operates according to Okun's law, real GDP equals $7,520 billion, potential GDP equals $8,000 billion, and the actual unemployment rate is 8 percent. What is the natural rate of unemployment in Okunland?

5 percent

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent below potential output?

5 percent

If the nominal interest rate is 8% and the real interest rate is 3%, then the inflation rate equals:

5%

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

5%.

Based on these data, the short-run equilibrium level of output is:

5,000

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 10%. If the Central Bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from ________ econs to ________ econs, assuming that the public does not wish to change the amount of currency it holds.

5,000; 7,000

The economy of Omega operates according to Okun's law. In Omega, potential GDP and real GDP both equal $7 trillion, and the natural rate of unemployment equals 6 percent. What is the actual rate of unemployment in Omega?

6.0 percent

Suppose the natural rate of unemployment is 6 percent. What is the actual rate of unemployment if actual output is 2 percent below potential output?

7 percent

The economy of Alpha operates according to Okun's law. In Alpha, potential GDP equals $500 billion, actual GDP equals $480 billion, and the natural rate of unemployment is 5 percent. What is the actual rate of unemployment in Alpha?

7 percent

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal:

7 percent.

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

7%.

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ________ and the money supply is ________.

800; 1,200

Suppose the following information describes the economy: Private saving equals ________; public saving equals ________; national saving equals ________.

800; 200; 1,000

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted them.What is the participation rate in this town?

81.1%

Given the following data for the economy, compute the value of GDP.

90

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure equals:

900

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:

900

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals:

900 + 0.80Y

In the figure, a business cycle trough is shown by which point(s)?

A and C and E

Which of the following would increase the net export component of U.S. GDP?

A bottle of California wine is purchased in London.

Which of the following is an example of an investment in human capital?

A firm pays for workers to take college classes.

Which of the following is an example of an investment in physical capital?

A firm purchases new equipment for a manufacturing process.

Which of the following would increase the investment component of U.S. GDP?

A laundry in Seattle purchases a new clothes-washing machine produced in the U.S.

In the figure, which interval represents a business cycle expansion?

A to B

Who from among the following would be classified as out of the labor force?

Amanda Pie, a full-time homemaker.

In the figure, a business cycle peak is shown by which point(s)?

B and D

In the figure, which interval represents a business cycle recession?

B to C

Planned aggregate expenditure (PAE) equals:

C + Ip + G + NX

Which of the following assets has the greatest liquidity?

Checking account

Refer to the figure below. If Pat and Chris were to specialize in the task in which each has a comparative advantage:

Chris would remove trash and Pat would plant bulbs.

Which of the following workers is most likely to lose his/her job during a recession?

Construction worker

National income is:

Consumption + Investment + Government Purchases

________ has the comparative advantage in making pizza, and ________ has the comparative advantage in delivering pizza.

Corey; Pat

Assume that the share of population employed in all countries is 50 percent. Based on the information in the table, which country has the highest real GDP per capita?

Country E

The increase in the unemployment rate during a recession is associated with which type of unemployment?

Cyclical unemployment

Which of the following does not describe a characteristic of short-term economic fluctuations?

Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

Which of the following events would increase the unemployment rate, if nothing else changed?

Employed workers leave the labor force.

Which of the following is an example of frictional unemployment?

Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his skills, but now has a job that requires the expertise he gained in college.

Which of the following transactions would be included in the GDP of the United States?

Honda produces cars in Ohio.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. The economy experienced a recession that lasted from:

July 1953 to May 1954.

Lou and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The table below shows the number of rooms they can each clean and the number of meals they can each cook in an hour. Which of the following is true?

Lou has a comparative advantage over Alex in cleaning.

Lou and Alex live together and share household chores. They like to cook some meals ahead of time and eat leftovers. The table below shows the number of rooms they can each clean and the number of meals they can each cook in an hour. If Alex and Lou work out an efficient arrangement for these two chores, then under that arrangement:

Lou would do all of the cleaning, while Alex would do all of the cooking.

The M2 measure of money consists of the sum of:

M1, savings deposits, small time deposits, and money market mutual funds.

M1 differs from M2 in that:

M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1.

Who from among the following would be classified as employed?

Mario Faubert, a NHL hockey player at home sick with the flu.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. The economy experienced an expansion that lasted from:

May 1954 to April 1957.

Moe divides his time between studying Physics and studying Economics. His production possibilities curve for his final grade in each class is shown below. Both of Moe's professors require at least a 65 to pass and a 90 to earn an A. Which of the following is true?

Moe can pass both classes.

Which of the following is a liability of a family?

Mortgage

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

National Bureau of Economic Research

Private Saving is:

National Income -Consumption - Net Taxes

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Which of the following periods was an expansion?

November 1970 through November 1973

The proposition each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output, is known as:

Okun's law.

Which of the following is an example of the life-cycle motive for saving?

Pat puts $400 per month in his 401(k) retirement account.

Which of the following workers is least likely to lose his/her job during a recession?

Police officer

Which of the following is most likely to occur in the labor market during a recession?

The growth rate of real wages declines.

Which of the following is a real quantity?

The number of tons of steel produced in 2005

Where Y is GDP, C is consumption, I is investment, G is government spending, and there is no international trade, national saving equals:

Y - C - G.

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals:

Y - T - C.

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that:

Y = PAE.

Which of the following would increase the consumption component of U.S. GDP?

You purchase a vacation at Disney World in Florida.

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ________ in short-run equilibrium output.

a greater than $1 billion increase

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ________ in short-run equilibrium output.

a greater than $5 billion decrease

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

a medium of exchange.

When a baker exchanges a pie for dollars, this is an example of dollars serving as:

a medium of exchange.

A depression is:

a particularly severe and protracted recession.

A boom is:

a particularly strong and protracted expansion.

Recessions begin at ________ and end at ________.

a peak; a trough

An expansion is:

a period in which the economy is growing at a rate significantly above normal.

If actual output equals potential output, unusually slow potential output growth would tend to result in:

a recession.

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

a recessionary gap.

Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is ________, and ________ could return the economy to potential output (Y*).

a recessionary gap; an increase in autonomous expenditures of 1,000

Refer to the figure below. Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is ________, and ________ could return the economy to potential output (Y*).

a recessionary gap; an increase in autonomous expenditures of 1,000

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as:

a store of value.

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as:

a store of value.

If a nation can produce a more computers per year than any other nation, that nation has a(n) ________ advantage in the production of computers.

absolute

If you offer to give the other island 1 coconut for every 4 fish they give you, then they will:

accept your offer because their opportunity cost of a coconut is greater than 4 fish.

Cyclical unemployment is equal to zero when:

actual GDP and potential GDP are equal.

After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the:

actual reserve/deposit ratio is equal to the desired reserve/deposit ratio.

Contrary to behavior that would be required to eliminate output gaps, many firms in the economy:

adjust their prices only periodically.

One drawback in using fiscal policy as a stabilization tool is that fiscal policy:

affects potential output as well as planned aggregate expenditure.

The Scarcity Principle applies to:

all decisions.

The marginal propensity to consume (mpc) is the:

amount by which consumption increases when disposable income increases by $1.

Choosing to study for an exam until the extra benefit (e.g., improved score) equals the extra cost (e.g., the value of foregone activities) is:

an application of the Cost-Benefit Principle.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has:

an expansionary gap.

Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ________, and ________ could return the economy to potential output (Y*).

an expansionary gap; a decrease in autonomous expenditures of 1,000

Money is:

any asset used to make purchases.

Credit card balances are not considered to be money primarily because they:

are not part of people's wealth.

The components of M2 that are not also in M1:

are usable for making payments, but at a greater cost or inconvenience than currency or checks.

Entrepreneurs contribute to increased average labor productivity in each of the following ways except by:

assigning workers to jobs.

Empirical studies indicate that the maximum amount of air pollution occurs ________ levels of real GDP per person.

at "middle-income"

Provisions in the law that automatically increase government spending or decrease taxes when real output declines are called:

automatic stabilizers.

The portion of planned aggregate expenditure that is independent of output is called ________ expenditure.

autonomous

The vertical intercept of the consumption function equals ________ and the slope equals ________.

autonomous consumption; the mpc

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals ________ and the slope of the expenditure line equals ________.

autonomous expenditures; the mpc

The two parts of planned aggregate expenditure are ________ expenditures and ________ expenditures.

autonomous; induced

Long-run increases in living standards, as measured by real GDP per person, are primarily the result of increases in:

average labor productivity.

The CPI is a measure of the:

average level of prices relative to prices in the base year.

When an individual deposits currency into a checking account:

bank reserves increase, which allows banks to lend more and increases the money supply.

The direct trade of goods and services for other goods and services is called:

barter.

Real GDP is measured in ________ prices; nominal GDP is measured in ________ prices.

base-year; current

Saving done for the purpose of leaving an inheritance is called ________ saving.

bequest

In an open-market purchase the Federal Reserve ________ government bonds from the public and the supply of bank reserves ________.

buys; increases

An individual has an absolute advantage in producing pizzas if that individual:

can produce more pizzas in a given amount of time than anyone else.

Bank reserves are:

cash and similar assets held to meet depositor withdrawals or payments.

Changes in autonomous consumption could be the result of:

changes in housing prices.

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm:

changes production levels to meet the demand.

Menu costs are the costs of:

changing prices.

If a society's consumption possibilities are identical to its production possibilities, that society has a(n)

closed economy

Indicators of economic activity that move at the same time as the overall economy are called ________ indicators.

coincident

Industrial production, total sales, nonfarm employment, and after-tax household income are examples of ________ indicators of economic activity.

coincident

In general, individuals and nations should specialize in producing those goods for which they have a(n):

comparative advantage.

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

conducting open-market operations.

The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the:

consumer price index.

The largest component of planned aggregate expenditure is:

consumption.

Government policies intended to decrease planned spending and output are called ________ policies.

contractionary

The decision about whether to change prices frequently or infrequently is an application of the:

cost-benefit principle.

The M1 measure of money consists of the sum of:

currency, checking deposits, and travelers' checks.

Okun's law expresses the relationship between:

cyclical unemployment and the output gap.

According to Okun's law, each extra percentage point of ________ unemployment is associated with a ________ widening of a negative output gap, measured in relation to potential output.

cyclical; 2 percent

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ________ to eliminate any output gap.

decrease by 100

A fiscal policy action to close an expansionary gap is to:

decrease government purchases.

Government regulations that increase the cost to the employer of hiring workers will:

decrease the demand for labor.

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

decrease.

In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ________.

decrease.

A war destroys much of the capital stock in the country of Omega. As a result, holding other factors constant, the real wage in Omega will ________ and employment in Omega will ________.

decrease; decrease

Holding other factors constant, if food prices decline relative to the prices of other products, then the real wages of agricultural workers will ________ and employment of agricultural workers will ________,

decrease; decrease

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

decrease; decrease

Holding other factors constant, if a larger proportion of the population enters the labor force as a result of a growing social acceptance of women working, then the real wages of workers will ________ and employment of workers will ________,

decrease; increase

Holding other factors constant, if a tax increase moves the government budget from deficit to surplus, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________.

decrease; increase

Initially, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As a result of these changes, wages in the shoe industry ________ and wages in the computer industry ________.

decrease; increase

In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, government purchases must be:

decreased by $1 billion.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, taxes must be:

decreased by $1.33 billion.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, transfers must be:

decreased by $1.33 billion.

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

decreased by less than $10 billion.

If the CPI equaled 1.00 in 1995 and 1.65 in 2005 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 1995 and 2005, real household income:

decreased.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be ________ by approximately ________ to eliminate any output gap.

decreased; 250

When the central bank sells $1,000,000 worth of government bonds to the public, the money supply:

decreases by more than $1,000,000.

When housing prices decrease, household wealth ________, and consumption ________.

decreases; decreases

To the extent that households are target savers who save to reach a specific goal, an increase in the interest rate ________ household saving and a decrease in the interest rate ________ household saving.

decreases; increases

A decrease in stock prices alters the consumption function by:

decreasing the vertical intercept.

To compare the purchasing power of nominal wages in two different years, one must:

deflate both quantities by a common price index.

The situation when the price of most goods and services are falling over time is called:

deflation.

The following table provides information about production at the XYZ-TV Company. If the price of TVs produced by the XYZ-TV Company falls from $1,000 to $750 per TV set, then the:

demand for labor by the XYZ-TV Company decreases.

Induced expenditure is the portion of planned aggregate expenditure that:

depends on output.

One hundred percent reserve banking refers to a situation in which banks' reserves equal 100 percent of their:

deposits

Liabilities of the commercial banking system include:

deposits.

Changes in government purchases affect planned spending:

directly, by changing autonomous expenditures.

Changes in government purchases affect planned spending ________, and changes in taxes and/or transfers affect planned spending ________.

directly; indirectly

Two groups of workers not counted as unemployed in the official unemployment statistics are ________ workers.

discouraged and involuntary part-time

In the Keynesian model, consumption depends on:

disposable income.

The consumption function is relationship between consumption and:

disposable income.

The two parts of the Keynesian consumption function are consumption that depends on ________ and consumption that depends on ________.

disposable income; factors other than disposable income

If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving ________ and public saving ________.

does not change; increases

Finding both parties to a trade who have something the other party wishes to trade for is called a:

double coincidence of wants.

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:

drink a third glass of soda if the extra benefit of doing so is positive.

Money serves as a basic yardstick for measuring economic value (a unit of account), allowing:

easy comparison of the relative prices of goods and services.

Suppose Mary is willing to pay up to $15,000 for an used Ford pick-up truck. If she buys one for $12,000, her ________ would be ________.

economic surplus; $3,000

If firms maintain preset prices in the short run, then the primary cause of output gaps is changes in:

economy-wide spending.

The slope of the consumption function:

equals the marginal propensity to consume.

Money market mutual funds are ________ the M1 measure of money and ________ the M2 measure of money.

excluded from; included in

Savings deposits are ________ the M1 measure of money and ________ the M2 measure of money.

excluded from; included in

Defenders of limits on economic growth are concerned that continued economic growth will eventually:

exhaust natural resources.

A period in which the economy is growing at a rate significantly above normal is called a(n):

expansion.

Economic activity moves from a trough into a period of ________ until it reaches a ________ and then into a period of ________.

expansion; peak; recession

Government policies intended to increase planned spending and output are called ________ policies.

expansionary

If potential output equals $8 billion and actual output equals $9 billion, then this economy has a(n):

expansionary gap.

When actual output is greater than potential output there is a(n):

expansionary gap.

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):

expansionary output gap.

For an economy starting at potential output, an increase in planned investment in the short run results in a(n):

expansionary output gap.

If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ________ gap that can be closed by ________.

expansionary; decreasing government purchases

In the Keynesian cross diagram, the ________ line shows the relationship between planned aggregate expenditure and output, and the ________ line represents the condition that planned aggregate expenditure and output are equal.

expenditure; 45-degree

The basic Keynesian model is built on the key assumption that:

firms meet the demand for their products at preset prices.

When actual investment is greater than planned investment:

firms sold less output than expected.

When actual investment is less than planned investment:

firms sold more output than expected.

Empirical studies suggest that as real GDP per person increases the level of pollution:

first increases then decreases.

"Smart" vending machines, which adjust prices automatically according to changes in demand factors (like time of day or outside temperature), are examples of:

flexible price-setting.

Saving is a(n) ________ and wealth is a(n) ________.

flow; stock

Recessions tend to be ________ by ________ the rate of inflation.

followed; a decrease in

Compared to older workers, younger workers change jobs more frequently, so they are more prone to ________ unemployment; also, younger workers have fewer skills, so they are more prone to ________ unemployment.

frictional; structural

Martha did not like her job as a receptionist, so she quit and is looking for one that better suits her artistic talents. Ting Pei would like to work, but employers are not willing to hire him because he does not speak English. Martha is ________ unemployed and Ting Pei is ________ unemployed.

frictionally; structurally

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower ________ and the lender ________.

gains; loses

Two explanations for increasing wage inequality are ________ and ________.

globalization; skill-biased technological change

An example of a government policy to enhance technological progress is:

government support for basic research.

Larry has a comparative advantage over his classmates in writing term papers if he:

has a lower opportunity cost of writing term papers than his classmates.

If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it:

has too many reserves and will increase its lending.

In the long run, countries with higher rates of money growth usually have:

higher rates of inflation.

The "true" costs of inflation to an economy include all of the following except:

higher relative prices.

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

higher than

Increasing wage inequality results when international trade leads to ________ wages for workers in exporting industries and ________ wages for workers in importing industries.

higher; lower

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

A legal limit on the quantity of a good that may be imported is called a(n) ________.

import quota

In order to promote growth, the poorest countries-in contrast to the middle-level and rich countries-need most to:

improve their legal and political environments.

Educational services provided by public schools are:

included in GDP at cost.

Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop). This type of behavior is ________.

inconsistent with the key assumption upon which the basic Keynesian model is built.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ________ to eliminate any output gap.

increase by 200

A fiscal policy action to close a recessionary gap is to:

increase government purchases.

Holding other factors constant, a higher relative price of a firm's output will:

increase investment.

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

increase production.

An increase in net taxes (taxes paid by the private sector to the government less transfer payments and interest payments made by the government to the private sector) will:

increase public saving.

A fiscal policy action to close an expansionary gap is to:

increase taxes.

The introduction of a new technology that increases the productivity of labor will:

increase the demand for labor.

A fiscal policy action to close a recessionary gap is to:

increase transfer payments.

If the public switches from using cash for most transactions to using checks instead, then all else equal, the money supply will:

increase.

If the existence of alternative opportunities makes people become less willing to work in poultry processing plants, then the real wage of unskilled workers in poultry processing plants is predicted to ________ and the employment of unskilled workers in poultry processing plants is predicted to ________.

increase; decrease

Holding other factors constant, if Congress passes a 5% investment tax credit under which a firm receives $5 in tax refunds from the government for every $100 it spends on new capital equipment, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________.

increase; increase

Holding other factors constant, if the education and skills of the typical worker in an economy increases, then the real wages of workers will ________ and employment of workers will ________,

increase; increase

The introduction of credit cards and debit cards has ________ velocity.

increased

In a short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, government purchases must be:

increased by $1 billion.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be:

increased by $1.33 billion.

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, taxes must be:

increased by $1.33 billion.

If the price of motel rooms increases by 10% while the prices of other goods and services increase by 5% on average, the relative price of motel rooms has:

increased by 5%.

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

increased by less than $1 billion.

The benefits of economic growth are ________, while the costs of economic growth are ________.

increased output per person; the consumption sacrificed in exchange for capital formation

The price of a gallon of gasoline was $0.35 in 1972 when the CPI equaled 0.418. The cost of a gallon of gasoline was $2.25 in 2005 when the CPI equaled 1.68. The real cost of a gallon of gasoline between 1972 and 2005:

increased.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ________ by approximately ________ to eliminate any output gap.

increased; 250

The increasing availability of temporary job placement agencies and online job services has ________ the efficiency of matching workers and jobs, and has therefore ________ the natural rate of unemployment in the United States.

increased; decreased

Usually an abundance of natural resources ________ average labor productivity.

increases

According to the quantity equation, if velocity and real GDP are constant, and the Federal Reserve increases the money supply by 5 percent, then the price level:

increases by 5 percent.

When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:

increases by more than $1,000,000.

In the long run, increases in output per person arise primarily from:

increases in average labor productivity.

An increase in the size of the working-age population:

increases labor supply.

According to the principle of diminishing returns to labor, if the amount of capital and other inputs are held constant, employing additional workers:

increases output at a decreasing rate.

In the basic Keynesian model, a tax cut:

increases short-run equilibrium output.

In the basic Keynesian model, an increase in government purchases:

increases short-run equilibrium output.

In the basic Keynesian model, an increase in transfer payments:

increases short-run equilibrium output.

As disposable income increases, consumption:

increases.

An increase in the government's budget deficit ________ the real interest rate and ________ the equilibrium quantity of national saving.

increases; decreases

As the real interest rate increases, the quantity of saving supplied ________ and the quantity of investment (saving demanded) ________.

increases; decreases

Automatic stabilizers are provisions in the law which create automatic ________ in government spending or ________ in taxes when real output declines.

increases; decreases

An economic expansion in the United States ________ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ________ output gap in Mexico.

increases; expansionary

The introduction of new technologies ________ the real interest rate and ________ the equilibrium quantity of national saving.

increases; increases

High rates of saving and investing in the private sector promote economic growth by:

increasing physical capital.

To prevent people paying a higher percentage of their income in taxes even when their real incomes have not changed, Congress:

indexed the income tax brackets to the CPI.

Changes in taxes and transfers affect planned spending:

indirectly, by changing disposable income and, consequently, consumption.

When real output decreases, planned aggregate expenditures decrease because:

induced expenditures decrease.

When real output increases, planned aggregate expenditures increase because:

induced expenditures increase.

A rapidly growing supply of money will lead to:

inflation.

In the long run, total spending only influences:

inflation.

All of the following would be included in planned aggregate expenditure except:

interest paid on the government debt.

The real costs of inflation to society include:

interference with long-term planning.

The investment demand curve indicates that there is a(n):

inverse relationship between the real interest rates and the level of investment spending, all other things equal.

Spending on new capital goods, new homes, and the addition of unsold goods to company inventories is included in:

investment spending.

Short-term economic fluctuations are ________ in length and severity and ________ to predict.

irregular; difficult

The substitution bias in the CPI arises because the CPI:

is based on a fixed basket of goods and services.

If firms sell more output than expected, planned investment:

is greater than actual investment.

Autonomous expenditure is the portion of planned aggregate expenditure that:

is independent of output.

If prices in the current year are higher on average than in the base year, real GDP in the current year ________ nominal GDP in the current year.

is less than

If firms sell less output than expected, planned investment:

is less than actual investment.

According to Okun's law, when cyclical unemployment is positive, the output gap:

is negative.

According to Okun's law, when the output gap is positive, cyclical unemployment:

is negative.

The value of unpaid childcare services provided by a stay-at-home dad ________ included in GDP; the value of daycare services purchased from a licensed childcare provider ________ included in GDP.

is not; is

According to Okun's law, when cyclical unemployment is negative, the output gap:

is positive.

According to Okun's law, when the output gap is negative, cyclical unemployment:

is positive.

In a recession, cyclical unemployment:

is rising.

The quantity equation is always true because it:

is the definition of velocity rewritten.

Firms do not change prices frequently because:

it is costly to do so.

Money serves as a medium of exchange when:

it is used to purchase goods and services.

Structural unemployment is increased when the wage is kept above the market-clearing wage by:

labor unions.

Extremely rapid rates of money growth are usually the result of:

large government budget deficits.

The larger the mpc, the ________ the income-expenditure multiplier and the ________ the effect of a change in autonomous spending on short-run equilibrium output.

larger; larger

Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will increase output ________ in Alpha compared to Beta, holding other factors constant.

less

In a fractional-reserve banking system the reserve/deposit ratio equals:

less than 100 percent.

Refer to the figure above. Based on the Keynesian cross diagram, PAE = 200 +.5Y, if output equals 1,200 planned aggregate expenditure is _____ output and firms will ____ production.:

less than; decrease.

The key variable in determining changes in a country's standard of living is the:

long-run rate of economic growth.

Structural unemployment is:

long-term and chronic unemployment that exists even when the economy is producing at a normal rate.

Moe divides his time between studying Physics and studying Economics. His production possibilities curve for his final grade in each class is shown below. The Principle of Increasing Opportunity Cost is reflected in the fact that the opportunity cost going from 70 to 80 in economics is:

lower than the opportunity cost of going from 80 to 90 in economics.

Countries with high real GDP tend to have ________ infant mortality rates and ________ literacy rates than countries with low real GDP.

lower; higher

Gross domestic product (GDP) equals the ________ of final ________ produced within a country during a given period of time.

market value; goods and services

Double coincidence of wants is avoided if money is used as a:

medium of exchange.

Varying the quantity of output produced and sold at preset prices is called:

meeting demand.

On a graph of a production possibilities curve, if a point is attainable, then it:

might or might not be efficient.

When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:

money is created.

The quantity equation states that:

money times velocity equals nominal GDP.

Workers in durable-goods industries are ________ workers in service industries to lose their jobs during a recession.

more likely than

During recessions, the change in real GDP is:

most often negative, but occasionally positive.

In an expansion, the cyclical rate of unemployment is often:

negative.

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has:

no output gap.

An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:

normative economics.

When there is a recessionary gap, capital and labor resources are:

not being fully utilized.

Involuntary part-time workers are:

not counted as unemployed.

Fiat money is

only backed by government decree

The most important tool of monetary policy is:

open-market operations.

The main disadvantage of using money as a store of value is that:

other assets pay relatively higher rates of interest than money.

Jim Brown would like to work, but has not looked for work in the past four weeks because he does not believe any jobs are available. In the official employment statistics, Jim is classified as:

out of the labor force.

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the:

output gap.

If all prices adjusted immediately to balance the quantities supplied and demanded for all goods and services:

output gaps would not exist.

In the short run, total spending affects ________, and in the long run total spending affects ________.

output; prices

When statisticians fail to allow for the possibility that consumers switch from products with rising prices to those whose prices are stable or falling, the CPI will tend to ________ the rate of inflation.

overstate

Suppose manufacturers introduce a new model car to replace a car currently included in the CPI basket. The price of the new car is 10 percent higher than the discontinued model, but the new car has additional safety features and amenities. In this situation the CPI will tend to ________ inflation as a result of ________ bias.

overstate; quality adjustment

The duration of a recession is measured from:

peak to trough.

Economic activity moves from a period of expansion to a ________ and then moves into a period of ________ until it reaches a ________.

peak, recession; trough

The beginning of a recession is called the:

peak.

If all the world's resources were to magically increase one hundredfold, then:

people would still have to make trade-offs.

Because of diminishing returns to capital, there is a limit to the increases in average labor productivity that can be gained from additional or improved ________.

physical capital

C + Ip + G + NX equals

planned aggregate expenditure

In the basic Keynesian model all of the following are true except:

planned investment always equals actual investment.

Unplanned inventory investment equals zero when:

planned investment equals actual investment.

In the short run, with predetermined prices, when output is less than planned aggregate expenditure:

planned investment is greater than actual investment.

In the short run, with predetermined prices, when output is greater than planned aggregate expenditures:

planned investment is less than actual investment.

Planned aggregate expenditure is total:

planned spending on final goods and services.

Contractionary policies are government stabilization policies intended to decrease:

planned spending.

Expansionary policies are government stabilization policies intended to increase:

planned spending.

Suppose a retail store was offering 10% off list prices on all goods. The benefit of the 10% savings is:

positively related to the list price of the good.

If the actual rate of unemployment equals the natural rate of unemployment, then:

potential output equals real GDP.

An expansion occurs when ________, when ________, or when both of these occur.

potential output grows rapidly; actual output rises above potential output.

A recession occurs when ________, when ________, or when both of these occur.

potential output grows slowly; actual output falls below potential output

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect ________ as well as aggregate demand and that fiscal policy is ________.

potential output; not flexible enough

The costs of investment depend on the ________ and the ________.

price of new capital goods; real interest rate

When economists use market values to aggregate output, they sum the:

price times the quantity of each item produced.

In the long run, total spending affects ________, and output is determined by ________.

prices; inputs and productivity

In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ________, which led to ________.

printed large quantities of paper money; hyperinflation

Three equivalent ways to measure GDP are total ________, total ________, and total ________.

production; income; expenditure

Capital income includes:

profits, rent, and interest.

When recessions are the result of slowing growth in potential output, the government's best policy is to:

promote saving and investment.

The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming the values of the currency held by the public and the desired reserve/deposit ratio do not change, if the Central Bank of Macroland wishes to increase the money supply to 3,000, then it should conduct an open-market ________ government bonds.

purchase of 50

Globalization ________ the wages of workers in the exporting industries and ________ the wages of workers in the import-competing industries.

raises; lowers

The key indicator of a country's living standard and economic well-being is:

real GDP per person.

In the market for labor, the price of labor is the:

real wage.

A period in which the economy is growing at a rate significantly below normal is called a(n):

recession.

If potential output for an economy equals $8 billion, and actual output equals $7 billion, then this economy has a(n):

recessionary gap.

When actual output is less than potential output there is a(n):

recessionary gap.

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n):

recessionary output gap.

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n):

recessionary output gap.

In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion. Macroland has a(n) ________ gap equal to ________ percent of potential GDP.

recessionary; -4

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ________ gap that can be closed by ________.

recessionary; increasing government purchases

Crowding out is the tendency for increased government deficits to:

reduce investment spending.

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will:

reduce production.

Higher future living standards require:

reduced rates of current consumption.

In the basic Keynesian model, a decrease in government purchases:

reduces short-run equilibrium output.

In the basic Keynesian model, a decrease in transfer payments:

reduces short-run equilibrium output.

In the basic Keynesian model, a tax increase:

reduces short-run equilibrium output.

A recession in Japan ________ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) ________ output gap in the East Asian countries.

reduces; recessionary

A recession in the United States ________ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ________ output gap in Canada.

reduces; recessionary

If the other island's delegate offers to give you 2 fish for every 1 coconut you give them, you will:

refuse their offer because the opportunity cost to you of a coconut is more than 2 fish.

If all prices, including the price of beef, increase by 3%, then the relative price of beef has ________ and inflation ________,

remained constant; has occurred

Assets of the commercial banking system include:

reserves and loans.

When the Fed sells government securities, the banks':

reserves will decrease and lending will contract, causing a decrease in the money supply.

Typically, the unemployment rate ________ during a recession and ________ during an expansion.

rises; falls

Business managers are people who:

run businesses on a day-to-day basis.

In an open-market sale the Federal Reserve ________ government bonds and the supply of bank reserves ________.

sells; decreases

An increase in an economy's productive resources towards all goods produced will lead the production possibilities curve to:

shift outward.

When prices are predetermined, the level of output that equals planned aggregate expenditure is called ________ output.

short-run equilibrium

Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for:

short-term economic fluctuations.

Normative economic principles are concerned with how people ________ make decisions while positive economic principles are concerned with how people ________ make decisions.

should; do

The smaller the mpc, the ________ the income-expenditure multiplier and the ________ the effect of a change in autonomous spending on short-run equilibrium output.

smaller; smaller

Government purchases include all of the following except:

social security benefits paid by the federal government.

The total market value of production in an economy must equal total:

spending on final goods and services.

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

spending.

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, are called ________ policies.

stabilization

A measure defined at a point in time is called a(n) ________ variable.

stock

The natural rate of unemployment is equal to the unemployment rate when there is only:

structural and frictional unemployment.

Arthur is an unskilled worker who is currently unemployed. He has been offered a job that pays $40 a day, but he is currently receiving unemployment insurance benefits equal to $50 a day, so he chooses not to accept the job and to continue looking for a better job. Arthur is ________ unemployed.

structurally

One potential problem with using fiscal policy to close recessionary output gaps is that:

sustained government deficits can be harmful to long-run economic growth.

Most economists agree that ________ are the single most important source of productivity improvements.

technological advances

Most economists agree that for developed countries ________ are the single most important source of productivity improvements.

technological advances

The inflation rate can be calculated as the percentage change in:

the CPI.

Two examples of governments that printed large quantities of paper currency to finance massive budget deficits, causing hyperinflation, are ________ and ________.

the Confederacy during the American Civil War; Germany after World War I

The central bank of the United States is:

the Federal Reserve System.

If actual GDP equals potential GDP, then:

the actual unemployment rate equals the natural rate of unemployment.

If real GDP is less than potential GDP, then:

the actual unemployment rate is greater than the natural rate of unemployment.

If real GDP is greater than potential GDP, then:

the actual unemployment rate is lower than the natural rate of unemployment.

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ________ is built.

the basic Keynesian model

The Federal Reserve System is:

the central bank of the United States

The amount of money in the United States is determined by:

the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

the costs will be understated.

Liabilities are:

the debts one owes.

The changing age structure of the US population and more efficient labor markets are both possible explanations for:

the decline in the natural rate of unemployment.

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because:

the direct changes in spending change the income of producers which leads to additional changes in spending.

Firms will invest in new equipment whenever:

the expected cost of the equipment is less than the expected benefit.

The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the:

the less an additional unit of capital adds to production.

The three broad reasons for saving, as identified by economists, relate to:

the life-cycle, precaution, and bequests.

The link between the money supply and prices is strongest in:

the long run.

In reference to short-term economic fluctuations, the "trough" refers to:

the low point of economic activity prior to a recovery.

The demand for labor depends on ________ and ________.

the marginal product of labor; the price of output produced

The production possibilities curve shows:

the maximum production of one good for every possible production level of the other good.

Potential output is:

the maximum sustainable amount of output.

Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ________ in Alpha than in Beta.

the money stock is smaller

According to the quantity equation, if velocity and output are constant, then an increase in the money supply leads to ________ in inflation.

the same percentage increase

Human capital is:

the talents, training, and education of workers.

If firms sell less than expected, actual investment increases because ________, which is counted as investment.

the unsold goods are added to inventory

The expected benefit of investment equals:

the value of the marginal product of capital.

Commercial banks create new money:

through multiple rounds of lending.

Real GDP per person equals average labor productivity:

times the share of population employed.

Banks hold reserves:

to meet depositor withdrawals and payments.

In the short run, ________ determines output, and in the long run ________ determines output.

total spending; potential output

The duration of an expansion is measured from:

trough to peak

The end of a recession is called the:

trough.

An informal definition of a recession is at least ________ consecutive quarters of declining real GDP.

two

A person 16 years or older who does not work, but is actively looking for work, is officially classified as:

unemployed.

Planned investment may differ from actual investment because of:

unplanned changes in inventories.

Intermediate goods and services are ________ production and ________ counted in GDP.

used up in the process of; are not

The demand for labor increases when the:

value of the marginal product of labor increases.

Nominal GDP divided by the money stock equals:

velocity.

The speed at which money circulates is called:

velocity.

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ________ because it generates a ________ economic surplus.

wash clothes; bigger

For policymakers, the problem with a recessionary gap is ________ and the problem with an expansionary gap is ________.

wasted resources; a tendency for inflation to increase

The tendency of changes in asset prices to affect spending on consumption goods is called the ________ effect.

wealth

The Principle of Increasing Opportunity Costs states that:

when increasing production, resources with the lowest opportunity costs should be used first.

Recessions in the United States typically are:

widely felt outside the United States.

According to Okun's law, when cyclical unemployment increases by one percentage point, the recessionary gap ________ by ________ percent of potential output.

widens; two

If workers and employers agree to a three-year wage contract under the expectation of 3% inflation, and inflation turns out to be 5%, then:

workers lose and employers gain.

If you have a comparative advantage in a particular task, then:

you give up less to accomplish that task than do others.


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