Unit 1-4 Exam Questions
Refer to the diagram. If this is a competitive market, price and quantity will move toward:
$40 and 150, respectively.
Refer to the table. Between years 2 and 3:
Alta's real GDP grew more rapidly than Zorn's real GDP.
Assuming competitive markets with typical supply and demand curves, which of the following statements is correct?
An increase in demand with no change in supply will result in an increase in sales.
Who is least likely to be hurt by unanticipated inflation?
An owner of a small business
Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?
Lehman Brothers
Money market deposit accounts are included in:
M2 only
Which of the following statements is true about risk management in market systems versus command systems?
Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions, where in command systems government decision makers don't bear those costs.
If there are no statistical discrepancies, NDP (net domestic product) is:
NI minus net foreign factor income.
The public debt is held as:
Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
In economics, the pleasure, happiness, or satisfaction received from a product is called:
Utility
The multiplier is defined as:
change in GDP/initial change in spending.
Wells Fargo, J.P. Morgan Chase, and Citibank are all primarily:
commercial banks
Refer to the diagram for a private closed economy. At the $400 level of GDP:
consumption is $300 and planned investment is $50 so that aggregate expenditures are $350.
The consumption schedule directly relates:
consumption to the level of disposable income.
The crowding-out effect suggests that:
government borrowing to finance the public debt increases the real interest rate and reduces private investment.
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will:
increase U.S. exports and decrease U.S. imports.
The four factors of production are:
land, labor, capital, and entrepreneurial ability
Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that:
larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.
The problems of aggregate inflation and unemployment are:
major topics of macroeconomics.
In constructing models, economists:
make simplifying assumptions
Increases in the value of a product to each user, including existing users, as the total number of users rises are called:
network effects
Refer to the diagram. A government-set price floor is best illustrated by:
price C.
The law of demand states that, other things equal:
price and quantity demanded are inversely related
In this market, economists would call a government-set maximum price of $40 a:
price ceiling.
Increases in the federal budget deficit from 2007 to 2009 were caused:
primarily by a combination of recession and expansionary fiscal policy
An important routine function of the Federal Reserve Bank is to:
provide facilities by which commercial banks and thrift institutions may collect checks.
The growth of GDP may understate changes in the economy's economic well-being over time if the:
quality of products and services improves
(Consider This) During the Great Recession of 2007-2009:
real interest rates and investment spending both declined.
An increase in net exports will shift the AD curve to the:
right by a multiple of the change in investment.
The percentage of U.S. adults with a high school education or has:
risen from 41 percent in 1960 to 88 percent in 2012.
If an economy wants to increase its current level of investment, it must:
sacrifice current consumption.
The aggregate supply curve:
shows the various amounts of real output that businesses will produce at each price level.
An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because:
some of the tax increase will be paid out of income that would otherwise have been saved.
If you place a part of your summer earnings in a savings account, you are using money primarily as a:
store of value.
Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:
structural unemployment.
The concept of opportunity cost:
suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.
An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the:
supply curve for cigarettes leftward.
Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then:
supply has decreased and equilibrium quantity has decreased.
At the point where the consumption schedule intersects the 45-degree line:
the APC is 1.00
If intermediate goods and services were included in GDP:
the GDP would be overstated.
(Last Word) Art Buchwald's article "Squaring the Economic Circle" is a humorous description of:
the multiplier.
(Consider This) Rising wages for women in the United States have increased:
the percentage of married women in the workforce.
Allocative efficiency refers to:
the production of the product-mix most wanted by society.
A lump-sum tax means that:
the same amount of tax revenue is collected at each level of GDP
An economy is enlarging its stock of capital goods:
when gross investment exceeds replacement investment.
If the price index rises from 200 to 250, the purchasing power value of the dollar:
will fall by 20%
Built-in stability means that:
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.
The division of labor means that:
workers specialize in various production tasks.
What is the difference between national income and personal income?
National income represents income earned by American-owned resources, while personal income measures received income, whether earned or unearned.
Which of the following is most closely related to recessions?
Negative real growth in output.
Refer to the budget line shown in the diagram. The absolute value of the slope of the budget line is:
PC/PD.
Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing:
a negative GDP gap.
The term "other things equal" means that:
a number of relevant variables are assumed to be constant
The U.S. recession of 2007-2009 provides a good example of:
a recessionary expenditure gap.
A surplus of a product will arise when price is:
above equilibrium with the result that quantity supplied exceeds quantity demanded.
If competitive industry Y is incurring substantial losses, output will:
contract as resources move away from industry Y.
Refer to the diagram. Assume that G and T1 are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a:
cyclically adjusted budget surplus and an actual budget surplus.
With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will:
decrease equilibrium price and quantity
Fiscal policy refers to the:
deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
Innovation lagged in the centrally planned economies because:
enterprises resisted innovation in fear that their production targets would be raised.
Other things equal, a decrease in the real interest rate will:
expand investment and shift the AD curve to the right.
The determinants of aggregate demand:
explain shifts in the aggregate demand curve.
Net exports are:
exports less imports
When aggregate demand declines, the price level may remain constant, at least for a time, because:
firms individually may fear that their price cut may set off a price war.
The natural rate of unemployment is the:
full-employment unemployment rate
A normative statement is one that:
is based on value judgments.
A nation's gross domestic product (GDP):
is the dollar value of all final output produced within the borders of the nation during a specific period of time.
The upward slope of the supply curve reflects the:
law of supply
Refer to the diagrams. Other things equal, an interest rate increase will:
leave curve A in place but shift curve B downward.
Refer to the table. If this nation's equilibrium price level is 125, its net exports will be:
minus $2 billion.
Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of:
moral hazard.
Refer to the diagram. Realized economic growth is best represented by a:
move from X on AB to Y on CD.
Refer to the diagram. A decrease in quantity demanded is depicted by a:
move from point y to point x.
On the basis of the information, it can be said that:
no coincidence of wants exists between any two states.
Supply shocks:
occur when sellers face unexpected changes in the availability and/or prices of key inputs.
Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:
opportunity costs.
Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy:
tax revenues vary directly with GDP, but government spending is independent of GDP.
If the economy has a cyclically adjusted budget surplus, this means that:
tax revenues would exceed government expenditures if full employment were achieved.
When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes:
the substitution effect.
Proponents of economic growth make all of the following arguments except:
there is a direct relationship between a growing real GDP and rising pollution.
Refer to the diagram. The equilibrium price and quantity in this market will be:
$1.00 and 200.
Refer to the given table. The total change in income resulting from the initial change in investment will be:
$100
Alejandro Scoobertini owns a store specializing in soccer jerseys. In 2012, he purchased $150,000 worth of jerseys from manufacturers, employed one worker for $40,000, purchased $20,000 worth of supplies from an office supply store, and sold jerseys for $280,000. Based on this information, what was the value added at Alejandro's store in 2012?
$70,000.
Refer to the table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be:
$9 and 60 units.
Refer to the tables. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be:
1/8 of a unit of capital goods
Use the list below to answer the following question: 1. Improvements in technology. 2. Increases in the supply (stock) of capital goods. 3. Purchases of expanding output. 4. Obtaining the optimal combination of goods, each at least-cost production. 5. Increases in the quantity and quality of natural resources. 6. Increases in the quantity and quality of human resources.Which set of items in the list would move an economy from a point inside its production possibilities curve to a point on its production possibilities curve?
3 and 4 only.
Between 1950 and 2012, U.S. real GDP grew at an average annual rate of about:
3.1 percent.
Refer to the data. The MPS is:
3/10
In 2009, approximately how much of the money on deposit was held by the three largest U.S. banks?
30 %
Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately:
44 percent.
If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is:
5
(Last Word) The combined cost of Social Security and Medicare programs was what percent of U.S. GDP in 2011?
8.5
Which of the following would increase GDP by the greatest amount?
A $20 billion increase in government spending
Refer to the figures. Which figure(s) represent(s) a situation where negative demand shocks can result in a recession?
B only.
In a mixed open economy, the equilibrium GDP exists where:
Ca + Ig + Xn + G = GDP.
Which of the following programs involves the Federal Reserve directly purchasing short-term lending instruments from corporations?
Commercial Paper Funding Facility.
(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective?
Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.
Which of the following is used to measure directly the average standard of living across countries?
GPD per person
What is the primary reason that changes in total spending lead to cyclical changes in output and employment?
Prices are sticky in the short run
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
Reductions in federal tax rates on personal and corporate income.
(Consider This) Since World War II:
South Korea's market economy has significantly outperformed North Korea's command economy.
If two goods are complements:
a decrease in the price of one will increase the demand for the other.
In the diagram, a shift from AS1 to AS2 might be caused by:
a decrease in the prices of domestic resources.
The period in the U.S. economy from 1995 to 2012 is characterized by:
a higher trend rate of productivity growth.
The phase of the business cycle in which real GDP declines is called:
a recession.
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the diagram produce:
an expansion of real output and a stable price level.
Inflation is defined as:
an increase in the overall level of prices
Refer to the data. If a new production technique is developed that enables a firm to produce 20 units of output with 3 units of land, 3 of labor, 1 of capital, and 2 of entrepreneurial ability, this technique would:
be adopted because it would lower production costs and increase economic profit.
According to the Bureau of Labor Statistics, to be officially unemployed a person must:
be in the labor force.
(Last Word) According to economist Donald Boudreaux, the world's tens of billions of individual resources get arranged productively:
because private property encourages people to consider the alternative uses of their resources and select those that provide the most rewards.
Real GDP per capita is found by
dividing real GDP by population
Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.
durable; instability
Transfer payments are:
excluded when calculating GDP because they do not reflect current production.
The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:
in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.
Gross domestic product (GDP) measures and reports output:
in dollar amounts and percentage growth.
Refer to the diagram. Arrows (3) and (4) represent:
incomes and consumer expenditures respectively.
Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3.Refer to the information. The per-unit cost of production in this economy is:
$0.10
Refer to the data. NDP (net domestic product) is:
$116
In February 2013, the supply of money (M1) in the United States was about:
$2,472 billion.
Refer to the information. If the real interest rate is 10 percent, the equilibrium GDP will be:
$300
Refer to the given data. If disposable income was $325, we would expect consumption to be:
$305.
Refer to the information. The value of the "near-monies" that are part of M2 is:
$350
If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:
$360 billion.
Refer to the data. NI is:
$402
Refer to the diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both:
$50
Refer to the given data. The size of the negative GDP gap as a percent of potential GDP for the economy is:
12 percent
Refer to the given information. The unemployment rate is:
12.5 percent.
If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately:
14 years.
If the MPC is .6, the multiplier will be:
2.5
In 1998, living standards in the United States were nearly ______ times higher than those in Africa.
20
What will be the effect of an excess of planned investment over saving in a private closed economy with unemployed resources?
A rise in the real GDP.
Refer to the table. In relation to column (3), a change from column (4) to column (5) would most likely be caused by:
an improvement in production technology.
The MPC and MPS in the economy:
are .6 and .4 respectively.
The invisible hand concept suggests that:
assuming competition, private and public interests will coincide.
Refer to the given diagram. The economy is dissaving:
at income level H.
A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:
beer and marijuana are complementary goods.
The amount by which government expenditures exceed revenues during a particular year is the:
budget deficit
In situations of sticky prices and negative demand shocks, we would expect firms to:
build up inventories before reducing production
Recurring upswings and downswings in an economy's real GDP over time are called:
business cycles.
The investment demand curve will shift to the right as the result of:
businesses becoming more optimistic about future business conditions.
Given the annual rate of inflation, the "rule of 70" allows one to:
calculate the number of years required for the price level to double.
In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X.Refer to the given information. If X is an inferior good, a decrease in income will:
increase D, increase P, and increase Q
Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will:
increase by more than $100 billion.
If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:
increasing taxes by $20 billion.
Tennis rackets and ballpoint pens are:
independent goods.
The consumption schedule is such that:
the MPC is constant and the APC declines as income rises.
The equilibrium price level and level of real output occur where:
the aggregate demand and supply curves intersect.
Opportunity costs exist because:
the decision to engage in one activity means forgoing some other activity.
A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:
the division of output is decided by central planning rather than by individuals operating freely through markets.
The Federal Open Market Committee (FOMC) is made up of:
the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.