A3

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The government's fiscal policy is its plan to influence aggregate demand by changing A. The money supply. B. Minimum wage levels. C. Sales taxes. D. Taxation and spending.

The idea of opportunity cost is relevant A. Only in consumption decisions B. Only in production decisions. C. Only in financial decisions. D. In almost any kind of decision.

The idea of opportunity cost is relevant A. Inly in consumption decisions. B. Inly in production decisions. C. Only in financial decisions. D. In almost any kind of decision.

The main purpose of expansionary monetary policy is to A. Expand Treasury borrowing B. Increase reserve requirements. C. Insure deposits. D. Reduce interest rates.

The nation's disposable income increases by $400 billion and, as a result, consumer spending increases by $320 billion. Therefore, the MPC equals A. 0.16. B. 0.20. C. 0.60. D. 0.80. E. 0.96.

The only factor that can cause movement along the aggregate supply curve is the A. Labor force. B. Capital stock. C. Availability of resources. D. Price level. E. All of the above are correct.

The primary goal of supply-side economics is to A. Balance the federal budget. B. Reduce the balance of payments deficit. C. Reduce the money supply. D. Reduce inflation and increase growth at the same time.

The real wage rate is defined as the wage rate divided by A. The interest rate. B. The money supply. C. Nominal GDP. D. The price level.

The relationship between consumption and disposable income is very unreliable and unpredictable. A. True B. False

False

To economists, investment means buying stocks and bonds. A. True B. False

False

Waiting in line to get a free ticket does not involve any opportunity cost. A. True B. False

False

Attempts by the government to reduce the rate of inflation often result in higher unemployment in the short run. A. True B. False

True

Bank runs are "contagious" in that they often spread to other banks. A. True B. False

True

Consumer income changes can shift market demand. A. True B. False

True

Contractionary monetary policy shifts the reserve supply schedule inward. A. True B. False

True

Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives. A. True B. False

True

Economic problems are made manageable by stripping away some of the unnecessary details. A. True B. False

True

Equilibrium is the point where total spending equals total output, or GDP. A. True B. False

True

Fiscal policy is the use of taxes and spending by the government to affect aggregate demand. A. True B. False

True

GDP in excess of potential GDP will shift the aggregate supply curve to the left and the price level will increase. A. True B. False

True

GDP is a measure of the total output of an economy. A. True B. False

True

Government controls over market prices frequently "backfire." A. True B. False

True

If U.S. consumers become more optimistic about their future income and wealth, the consumption function will shift upward. A. True B. False

True

If consumers receive an increase in income of $1,000, their spending will increase by a smaller amount. A. True B. False

True

If increases in government spending lead to inflation, the value of the multiplier is reduced. A. True B. False

True

If the economy experiences inflation and economic growth, this means that aggregate demand grows by more than aggregate supply. A. True B. False

True

If total spending is greater than current output, GDP will rise. A. True B. False

True

If wages or prices of other inputs change, the aggregate supply curve will shift to another position. A. True B. False

True

In economics the true cost of making a choice is the value of what must be given up. A. True B. False

True

In economics, abstraction from reality is necessary because of the complexity of the real world. A. True B. False

True

In her calculation of the cost of going to college, an economist would include the amount of forgone earnings over the years spent at college. A. True B. False

True

In macroeconomics, the vertical axis in a supply-demand model measures the price level rather than a particular product's price. A. True B. False

True

Inflation tends to redistribute real income from lenders to borrowers. A. True B. False

True

Input prices are fixed for a period of time and this causes firms to increase production as prices increase. A. True B. False

True

Money and income are used interchangeably by non-economists but mean different things. A. True B. False

True

Money is a concept that has a certain value at a point in time. A. True B. False

True

Open market operations affect the supply of reserves. A. True B. False

True

Profit per unit can be expressed as price - cost per unit. A. True B. False

True

Recessionary gaps are associated with output below potential and high unemployment rates. A. True B. False

True

Slope will vary along a curve (as opposed to a straight line). A. True B. False

True

Stabilization policy may be necessary to modify or counteract volatile changes in aggregate demand. A. True B. False

True

The Fed can drive up interest rates by selling government securities and decreasing the money supply. A. True B. False

True

The U.S. economy is relatively closed in terms of economic activity related to exports and imports. A. True B. False

True

The United States is an example of a mixed economy. A. True B. False

True

The aggregate supply curve shows how much the nation's businesses are willing and able to produce at each price level. A. True B. False

True

The creation of new bank reserves could lead to a multiple increase in the money supply. A. True B. False

True

The expenditure line includes the consumption function. A. True B. False

True

The majority of American workers are employed in the service sector of the economy. A. True B. False

True

The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in disposable income. A. True B. False

True

The money supply can be increased by decreasing the required reserve ratio. A. True B. False

True

The multiplier can be expressed as the ratio of the change in Y over the change in I. A. True B. False

True

The value of the oversimplified money multiplier is 1 divided by the required reserve ratio. A. True B. False

True

To increase the money supply, the Fed purchases government securities, paying for them with new reserves. A. True B. False

True

To protect themselves from the effects of inflation, lenders try to estimate the expected rate of inflation. A. True B. False

True

Total expenditures can be written as C + I + G + (X-IM). A. True B. False

True

Two of the most important macroeconomic issues are unemployment and inflation. A. True B. False

True

Unemployment in the United States varies considerably over time. A. True B. False

True

When people trade goods for money, money is being used as a medium of exchange. A. True B. False

True

When taxes are decreased, disposable income increases even though GDP is unchanged. A. True B. False

True

When you use the word income, you mean a value that must be qualified by a length of time. A. True B. False

True

If the economy is in equilibrium, it must be A. On the 45 degree line B. On the 60 degree line C. Below the 45 degree line D. Below the 60 degree line

One of the most important changes in the composition of the labor force in the United States has been A. The major increase in the number of women who work outside the home. B. The drop in the number of men who only work part-time. C. The steady decline in the number of women who work. D. The increase in the ratio of male workers to female workers. E. The major increase in the number of men who work away from the home or farm.

One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is A. Unemployment. B. Rising prices. C. Increasing production. D. Decreasing inventories.

The Fed conducts an open market purchase of Treasury bills of $10 million. If the required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier? A. $100 million B. $10 million C. 0 D. -$10 million E. -$100 million

People who failed to look for a job are classified as A. unemployed. B. underemployed. C. out of the labor force. D. part time employed.

C. Out of the labor force

When equilibrium real GDP falls short of potential GDP, there is a(n) A. inflationary gap. B. potential gap. C. recessionary gap. D. precautionary gap.

C. Recessionary gap

If consumers' expectations about future income are very optimistic, then we should expect A. the consumption function to shift downward. B. consumers to move up along the consumption function. C. the consumption function to shift upward. D. consumers to move down along the consumption function.

C. The CF to shift upward

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted? A. Japan's, because Honda is a Japanese company B. Japan's because that is where the car is purchased C. The GDP of the United States because that is where it was built D. Both Japan and the United States

C. The GDP of the US

3 Fiscal Policy Tools

Changes in government spending, taxes, and transfers.

If the U.S. government decides to increase military spending, one opportunity cost will be lower spending on education. A. True B. False

TRUE

If demand is inelastic:

an increase in price will increase total revenue

Markets

bring together buyers and sellers

Demand

quantities of a G & S that people are WILLING AND ABLE to BUY at alternative price during some time period

Equilibrium Quantity (Pe)

quantity at which the intentions of buyers and sellers match so Qd and Qs are equal

the-other-things-equal assumption

quantity demanded being purchased depends on price of soda, tea, water

Law of Supply

schedule or curve of higher prices of a good provide an incentive to producers to supply grater amounts of a good, ceteris parabis P increase = Q increase

total Revenue test

test determines elasticity by examining what happens to total revenue when Price changes

The price elasticity of demand is calculated as:

the % change in Qd / by the %e change in P

Total Revenue

total amount the seller receives form the sale of a product in a particular time period

The term opportunity cost refers to the

value of the best alternative given up when a good or service is produced

The multiplier can be expressed as the ratio of the change in Y over the change in I. A. True B. False

A. True

To protect themselves from the effects of inflation, lenders try to estimate the expected rate of inflation. A. True B. False

A. True

Total expenditures can be written as C + I + G + (X-IM). A. True B. False

A. True

Two of the most important macroeconomic issues are unemployment and inflation. A. True B. False

A. True

What is the unemployment rate if the number of people employed is 133 million and unemployed is 7 million? A. 5.26% B. 4% C. 5% D. 6%

The major cost of production in the economy is A. Interest expense. B. Capital costs. C. Rents. D. Profits. E. Wages.

Taxes and Subsidies on Production

1. Inc. Sub = inc P received = inc Supply 2. Inc. Tax = dec P received = dec Supply

Supply Shift Factors

1. resource price 2. tech 3. taxes subsidies 4. price of other goods (sell lattes, then tea) 5. Expected Price 6. # of sellers in the market

Demand Shift Factors

1.Consumer tastes 2. Income 3. Prices of related goods (tuition and textbooks)

An example of an abstraction used in macroeconomics is A. The price level. B. Total costs. C. The tax rate. D. The treasury bill rate. E. Proprietor's income.

Assume the required reserve ratio is 20 percent and the Fed orders an open market purchase of $100 million in government securities from member banks. If the oversimplified money multiplier is assumed, then the money supply will A. increase by $500 million. B. increase by $100 million. C. decrease by $100 million. D. decrease by $500 million.

Consumer income changes can shift market demand. A. True B. False

During economic fluctuations, markets tend to move A. Together. B. In random directions. C. In opposite directions. D. In many different directions.

Economic fluctuations are defined as A. Alternating periods of significant GDP growth and decline. B. Events only encountered in developing countries. C. Periods of stable economic growth. D. Alternating periods of unemployment falling above and below zero.

Full employment is defined by most economists as the minimization of A. Cyclical unemployment. B. Frictional unemployment. C. Seasonal unemployment. D. Structural unemployment.

If personal income tax rates are decreased in an attempt to stimulate spending, we should expect to see A. An increase in consumption and an increase in GDP. B. An increase in consumption and a decrease in GDP. C. A decrease in consumption and a decrease in GDP. D. A decrease in consumption and an increase in GDP.

If the Fed raises the reserve requirement on deposits from 15 percent to 20 percent, what would happen to the money supply? A. It would decrease. B. It would increase. C. It would remain unchanged. D. It depends on the value of interest rates.

If the Japanese economy is currently suffering from a recession we should expect U.S. exports to Japan to A. Decrease. B. Increase. C. Remain the same. D. Increase only if the Japanese Yen depreciates.

If the U.S. government decides to increase military spending, one opportunity cost will be lower spending on education. A. True B. False

The clearest sign of inflation would be a(n) A. Increase in the price level. B. Increase in the quantity of total final output. C. Decrease in the quantity of total final output. D. Simultaneous increase in both output and prices.

The statement "Resources employed in producing X are better suited to making Y" is another way of saying resources A. Are specialized. B. Are scarce. C. Are used inefficiently D. Are unproductive E. Have no opportunity cost

The statement "Resources employed in producing X are better suited to making Y" is another way of saying resources A. Are specialized. B. Are scarce. C. Are used inefficiently. D. Are unproductive. E. Have no opportunity cost.

To an economist, the cost of a college education A. Includes the income that the student could have earned during the time spent in college. B. Can be measured solely by the dollar cost of tuition, books, and other fees. C. Includes only the cost of schooling, not the cost of housing and food. D. Excludes financial aid in computation of the cost of schooling.

When the Fed wants to expand the money supply, it A. Buys government securities. B. Sells government securities. C. Buys common stock. D. Sells common stock.

Which of the following will shift the demand curve for milk? A. Change in the income of buyers of milk B. Change in the price of milk C. Change in input prices for milk D. All of the above are correct.

Why does quantity supplied increase when price increases? A. Producers find it more profitable to make the item. B. People "drop out" of the market, so buyers find it more abundant. C. As demand decreases with a high price, surpluses appear. D. All of the above.

Full employment is defined by most economists as the minimization of A. cyclical unemployment. B. frictional unemployment. C. seasonal unemployment. D. structural unemployment.

A. Cyclical Unemployment

If the Japanese economy is currently suffering from a recession we should expect U.S. exports to Japan to A. decrease. B. increase. C. remain the same. D. increase only if the Japanese Yen depreciates.

A. Decrease

The clearest sign of inflation would be a(n) A. increase in the price level. B. increase in the quantity of total final output. C. decrease in the quantity of total final output. D. simultaneous increase in both output and prices.

A. Increase in price level

If the economy is in equilibrium, it must be A. on the 45 degree line. B. on the 60 degree line. C. below the 45 degree line. D. below the 60 degree line.

A. On the 45 degree line

An example of an abstraction used in macroeconomics is A. the price level. B. total costs. C. the tax rate. D. the treasury bill rate. E. proprietor's income.

A. The price level

During economic fluctuations, markets tend to move A. together. B. in random directions. C. in opposite directions. D. in many different directions.

A. Together

Aggregate demand is the total demand for the final goods and services produced in an economy A. True B. False

A. True

Equilibrium is the point where total spending equals total output, or GDP. A. True B. False

A. True

Gross Domestic Product represents the money value of all final goods and services produced in the domestic economy within the year. A. True B. False

A. True

If U.S. consumers become more optimistic about their future income and wealth, the consumption function will shift upward. A. True B. False

A. True

If consumers receive an increase in income of $1,000, their spending will increase by a smaller amount. A. True B. False

A. True

If total spending is greater than current output, GDP will rise. A. True B. False

A. True

In macroeconomics, the vertical axis in a supply-demand model measures the price level rather than a particular product's price. A. True B. False

A. True

Inflation tends to redistribute real income from lenders to borrowers. A. True B. False

A. True

The expenditure line includes the consumption function. A. True B. False

A. True

The marginal propensity to consume is calculated by dividing the change in consumer spending by the change in disposable income. A. True B. False

A. True

One of the possible consequences of the expenditure schedule lying below the level of full employment GDP is A. unemployment. B. rising prices. C. increasing production. D. decreasing inventories.

A. Unemployment

. If supply increases, the equilibrium price will rise and the equilibrium quantity will fall. A. True B. False

. If wages rise by 12 percent at the same time prices rise by 3 percent, then the increase in real wages is equal to A. 12 percent. B. 9 percent. C. 6 percent. D. 3 percent.

. The total amount spent on final goods and services in the U.S. in 2009 was approximately ten trillion dollars. This total spending is referred to as A. Investment demand. B. Aggregate demand. C. Market demand. D. Consumption demand.

. When the expenditure level is above the full employment level of GDP, a possible consequence is A. Falling prices. B. Rising prices. C. Falling disposable income. D. High levels of unemployment.

A decrease in price of a certain good most likely will lead to A. An increase in quantity demanded and an increase in demand B. An increase in quantity demanded but no change in demand. C. An increase in demand but no change in quantity demanded. D. No change in demand and no change in quantity demanded.

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that A. Inventory stocks are building up. B. Inventory stocks are being depleted. C. Their profits are negative. D. Many of their workers have little to do.

A line that rises at a 45 degree angle has a slope of A. 0.45 B. 1 C. 45 D. 1/45

A price ceiling is only effective if it is above the market equilibrium. A. True B. False

A society which is inside its production possibilities frontier is efficient. A. True B. False

An automatic stabilizer is a feature of the economy that A. Makes prices "sticky." B. Reduces its sensitivity to shocks. C. Maximizes its volatility D. Automatically reduces recessionary trends.

An increase in wages will cause the aggregate supply curve to A. Shift outward. B. Shift inward. C. Become flatter. D. Become steeper.

An upward-sloping supply curve shows that A. Buyers are willing to pay more for a scarce product B. suppliers are willing to increase production of their goods if they can receive higher prices for them. C. buyers are unaffected by sellers' costs of production. D. the price of a product is not influenced by the price buyers are willing to pay. E. At higher prices, an envy effect begins to affect the demand curve.

An upward-sloping supply curve shows that A. Buyers are willing to pay more for a scarce product. B. Suppliers are willing to increase production of their goods if they can receive higher prices for them. C. Buyers are unaffected by sellers' costs of production. D. The price of a product is not influenced by the price buyers are willing to pay. E. At higher prices, an envy effect begins to affect the demand curve.

At an equilibrium price, quantity demanded A. Exceeds quantity supplied. B. Equals quantity supplied. C. Is less than quantity supplied. D. Any of the above is possible

At an equilibrium price, quantity demanded A. Exceeds quantity supplied. B. Equals quantity supplied. C. Is less than quantity supplied D. Any of the above is possible.

Congress is debating whether to raise taxes by $100 billion or decrease spending by $100 billion in order to eliminate a budget deficit. Which action will have the larger effect on equilibrium GDP? A. The increase in taxes B. The decrease in spending C. The effects will be equal D. Not possible to determine without knowing the multiplier

Consumer spending represents about what fraction of total spending in the economy? A. One-fifth B. Two-thirds C. One-third D. Two-fifths E. Three-fourths

Disposable income can be defined as national income A. minus federal and state taxes. A. Minus federal and state taxes B. Minus taxes plus transfers. C. Minus indirect taxes. D. Plus taxes plus transfers.

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves A. Are disliked by depositors. B. Means lower profits for banks. C. Are discouraged by government regulators. D. All of the above are correct.

Gross Domestic Product is calculated by adding together A. The number of goods and services produced in the economy. B. Money value of final goods and services. C. Number of workers employed in national production. D. All commodities but not services produced in the economy.

If input prices are fixed and the selling price rises, then A. Profits will decrease. B. Profits will increase. C. Profits will remain constant. D. Both profits and output will decrease.

If movement along a graph causes the value on the vertical axis to rise by 5 units and the value on the horizontal axis to fall by 10 units, the slope of the function is A. 5. B. -.5 C. -2 D. -72

If production involves constant opportunity cost, the production possibilities curve A. Is "bowed inward." B. Is a straight line. C. Is "bowed outward." D. Is a wavy line. E. Has an unpredictable shape.

If the Fed buys $5 million in government bonds, how much will the money supply change? A. It will increase by $5 million. B. It will increase by more than $5 million. C. It will decrease by $5 million. D. It will decrease by more than $5 million.

If the aggregate demand curve shifts to the left and the aggregate supply curve shifts to the right, the result will be a A. Decrease in the level of output. B. Decrease in the price level. C. Higher price level. D. Higher unemployment rate.

If the income tax rate is 20% and the MPC=0.75. What is the government spending multiplier? A. 1.25 B. 2.5 C. 3 D. 3.5 E. 4

If the price level does not fall or only falls very slowly, then the result will be a prolonged period of A. Inflation whenever supply increases. B. Production below potential GDP. C. Production above potential GDP. D. Rapid price increases when demand changes.

If the price of oil, a close substitute for coal, increases then the A. Supply curve for coal will shift to the right. B. Demand curve for coal will shift to the right. C. Equilibrium price and quantity of coal will not change. D. Demand curve for coal will shift to the left. E. Supply curve of coal will shift to the left.

If the required reserve ratio, m, is 20 percent, then the oversimplified money multiplier is A. 10. B. 5. C. 4. D. 2.

If you as a lender want an increase in purchasing power of 4 percent from making a loan and you set the nominal interest rate at 9 percent, then your A. Real rate of interest is 13 percent. B. Expected rate of inflation is 5 percent. C. Expected rate of inflation is 13 percent. D. Real rate of interest is 36 percent.

List the three coordination decisions made by every economy. A. Where? When? How? B. How? What? To whom? C. Why? Where? What? D. When? To Whom? Where?

Older people often reminisce about the "good old days" when prices were much lower. This is misplaced nostalgia primarily because in the "good old days," A. Prices were not really that low. B. Wages were much lower also. C. People worked longer hours. D. People had more leisure time

Open market operations have their initial effect on bank A. Lending. B. Reserves. C. Profits. D. Revenues.

Persons who have given up looking for work are classified as A. Unemployed. B. Discouraged workers. C. In the labor force. D. Temporarily unemployed

Recessionary gaps usually lead to A. Structural unemployment. B. Cyclical unemployment. C. Seasonal unemployment. D. Frictional unemployment.

Richard loses his job at the railroad due to a downturn in general business conditions. He is experiencing A. Structural unemployment. B. Cyclical unemployment. C. Seasonal unemployment. D. Frictional unemployment.

Some medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A ____ and the quantity sold ____. A. Rose; fell B. Rose; rose C. Fell; fell D. Fell; rose

Some medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A ____ and the quantity sold ____. A. Rose; fell B. Rose; rose C. Fell; fell D. Fell; rose

The central idea of supply-side tax cuts is that certain types of tax cuts will increase A. Aggregate demand. B. Aggregate supply. C. The supply of imports. D. The supply of money.

The clearest sign of economic growth is a(n) A. Increase in nominal GDP. B. Increase in real GDP. C. Decrease in nominal GDP. D. Increase in nominal GDP.

The correct chain of causation illustrating the changes caused by monetary policy is A. Money, interest rates, C + I + G + (X - IM), I. B. Money, interest rates, I, C + I + G + (X - IM). C. C + I + G + (X - IM), I, interest rates, money. D. I, C + I + G + (X - IM), money, interest rates.

The cost of students' budget in 1983 is $110 and in 2009 the cost increases to $143. Using 1983 as the base year, what is the 2009 price index for the students? A. 77 B. 130 C. 110 D. 143

The economic problem of scarcity A. Is unique to a capitalist economy. B. Requires that choices be made among alternatives. C. Disappears as technology advances. D. Affects only less-developed countries.

The equilibrium level of GDP is the level at which A. Aggregate demand exceeds output. B. Aggregate demand equals output. C. Aggregate demand is less than output. D. Inventories are being depleted to meet demand.

The horizontal axis on the aggregate demand-aggregate supply model measures A. The price of the specific product produced. B. The level of total output. C. The price level. D. The level of employment.

The production possibilities curve illustrates the basic principle that A. An economy's capacity to produce increases in proportion to its population B. If all resources of an economy are in use, more of one good can be produced only if less of another is produced. C. An economy will automatically seek that output at which all of its resources are employed. D. No opportunity cost exists in production.

The relationship between consumer spending and disposable income is called the A. Conjunction function. B. Consumption function. C. Aggregate demand function. D. Marginal spending function

The relationship between consumption and disposable income is such that as A. Consumption rises, disposable income falls. B. Disposable income rises, consumption rises. C. Disposable income rises, consumption falls. D. Disposable income rises, saving falls.

The reserve demand schedule is drawn on a graph that has the quantity of reserves on the horizontal axis and A. The price level is on the vertical axis. B. The federal funds rate is on the vertical axis. C. The price of bonds is on the vertical axis. D. Income is on the vertical axis.

To eliminate a recessionary gap, the expenditure schedule should be A. Shifted downward. B. Shifted upward. C. Made steeper. D. Made flatter

Using the standard 45-degree line diagram, how does an increase in investment spending effect the expenditure schedule? A. It shifts the expenditure schedule downward. B. It shifts the expenditure schedule upward. C. It increases the slope of the expenditure schedule. D. It decreases the slope of the expenditure schedule.

Waiting in line to get a free ticket does not involve any opportunity cost. A. True B. False

We observe that the price of food rises and the quantity purchased also rises. This means the A. Supply curve shifted to the left. B. Demand curve shifted to the right. C. Demand curve shifted to the left. D. Supply curve shifted to the right.

When you compare the effects of government spending on aggregate demand with the effects of taxes on aggregate demand, the effects of government spending are A. Smaller. B. Larger. C. The same. D. Impossible to predict.

Which of the following quotations best captures the idea of opportunity cost? A. "Opportunity knocks but once." B. "Every choice involves a sacrifice." C. "Let's not ask for the moon; we have the stars." D. "Fools rush in where wise men fear to tread." E. "All that glitters is not gold."

Which of the following transactions would be included in GDP for 2011? A. On January 5, 2011, Chris Carter sold 100 shares of stock in IBM Corporation. B. Bonita Delgado purchases a new 2011 Chevrolet on March 10, 2011. C. Nadav Daniel buys a used desk from the "Struggling Students Used Furniture" store on May 9, 2011. D. Levi Lathan purchases a 75-year-old penthouse on Lake Shore Drive in Chicago, Illinois, on June 23, 2011.

Which principle states that as the production of one good expands, the opportunity cost of producing another unit of this good generally increases? A. Principle of total cost B. Principle of increasing cost C. Principle of opportunity cost D. Principle of increasing marginal utility

While their respective subject matters differ greatly, both microeconomists and macroeconomists rely on the same basic tools; that is, both rely on A. Government contracts to promote research and publications. B. Demand-and-supply analysis. C. The economic theory of John Maynard Keynes. D. Consumer protection laws and antitrust legislation.

Why does unemployment tend to change when the level of output changes? A. Persons wish to buy things, and if output falls, people need to work less to earn the income to buy the smaller output. B. Labor is an input, and if output falls, employers need fewer workers to make it, so the employment falls. C. When output rises, persons are more interested in buying, and will work more to earn the income to buy things. D. Persons face the option of buying or working, so that when they do more of one, the other necessarily falls. E. When companies replace workers with machines, output rises, and people take time off from work to buy before returning to employment.

The cost of students' budget in 1983 is $110 and in 2009 the cost increases to $143. Using 1983 as the base year, what is the 2009 price index for the students? A. 77 B. 130 C. 110 D. 143

B. 130

If you as a lender want an increase in purchasing power of 4 percent from making a loan and you set the nominal interest rate at 9 percent, then your A. real rate of interest is 13 percent. B. expected rate of inflation is 5 percent. C. expected rate of inflation is 13 percent. D. real rate of interest is 36 percent.

B. 5 Percent

If wages rise by 12 percent at the same time prices rise by 3 percent, then the increase in real wages is equal to A. 12 percent. B. 9 percent. C. 6 percent. D. 3 percent.

B. 9

The total amount spent on final goods and services in the U.S. in 2009 was approximately ten trillion dollars. This total spending is referred to as A. investment demand. B. aggregate demand. C. market demand. D. consumption demand.

B. Aggregate demand

The equilibrium level of GDP is the level at which A. aggregate demand exceeds output. B. aggregate demand equals output. C. aggregate demand is less than output. D. inventories are being depleted to meet demand.

B. Aggregate demand equals output

Which of the following transactions would be included in GDP for 2011 A. On January 5, 2011, Chris Carter sold 100 shares of stock in IBM Corporation. B. Bonita Delgado purchases a new 2011 Chevrolet on March 10, 2011. C. Nadav Daniel buys a used desk from the "Struggling Students Used Furniture" store on May 9, 2011. D. Levi Lathan purchases a 75-year-old penthouse on Lake Shore Drive in Chicago, Illinois, on June 23, 2011.

B. Bonita Delgado

The relationship between consumer spending and disposable income is called the A. conjunction function. B. consumption function. C. aggregate demand function. D. marginal spending function.

B. Consumption function

Richard loses his job at the railroad due to a downturn in general business conditions. He is experiencing A. structural unemployment. B. cyclical unemployment. C. seasonal unemployment. D. frictional unemployment.

B. Cyclical Unemployment

The relationship between consumption and disposable income is such that as A. consumption rises, disposable income falls. B. disposable income rises, consumption rises. C. disposable income rises, consumption falls. D. disposable income rises, saving falls.

B. DI rises, C rises

If the aggregate demand curve shifts to the left and the aggregate supply curve shifts to the right, the result will be a A. decrease in the level of output. B. decrease in the price level. C. higher price level. D. higher unemployment rate.

B. Decrease in price level

While their respective subject matters differ greatly, both microeconomists and macroeconomists rely on the same basic tools; that is, both rely on A. government contracts to promote research and publications. B. demand-and-supply analysis. C. the economic theory of John Maynard Keynes. D. consumer protection laws and antitrust legislation.

B. Demand and supply analysis

Persons who have given up looking for work are classified a A. unemployed. B. discouraged workers. C. in the labor force. D. temporarily unemployed.

B. Discouraged Workers

A decrease in disposable income causes a shift in the consumption function. A. True B. False

B. False

A decrease in the price level causes a lower equilibrium quantity demanded. A. True B. False

B. False

Given the labor force, either more capital or better technology will shift the production function downward. A. True B. False

B. False

Gross Domestic Product accurately measures the environmental costs of producing all goods and services. A. True B. False

B. False

Gross Domestic Product includes the sale of intermediate goods and services. A. True B. False

B. False

If firms are experiencing falling inventories, one can expect that firms will cut production. A. True B. False

B. False

Real GDP values current output of goods and services at their current prices. A. True B. False

B. False

The relationship between consumption and disposable income is very unreliable and unpredictable. A. True B. False

B. False

To economists, investment means buying stocks and bonds. A. True B. False

B. False

ax reductions should also reduce the amount of consumer expenditures. A. True B. False

B. False

The clearest sign of economic growth is a(n) A. increase in nominal GDP. B. increase in real GDP. C. decrease in nominal GDP. D. increase in nominal GDP.

B. Increase in real GDP

A level of GDP cannot be at equilibrium when aggregate demand exceeds output because firms will notice that A. inventory stocks are building up. B. inventory stocks are being depleted. C. their profits are negative. D. many of their workers have little to do.

B. Inventory stocks are building up

Equilibrium GDP in excess of potential GDP eventually will cause the aggregate A. Demand curve to shift outward. B. Supply curve to shift outward. C. Supply curve to shift inward. D. Demand curve to become flatter.

B. It shifts the expenditure schedule upward

Disposable income can be defined as national income A. minus federal and state taxes. B. minus taxes plus transfers. C. minus indirect taxes. D. plus taxes plus transfers.

B. Minus taxes plus transfers

Gross Domestic Product is calculated by adding together A. the number of goods and services produced in the economy. B. money value of final goods and services. C. number of workers employed in national production. D. all commodities but not services produced in the economy.

B. Money value of final goods and services

When the expenditure level is above the full employment level of GDP, a possible consequence is A. falling prices. B. rising prices. C. falling disposable income. D. high levels of unemployment.

B. Rising prices

To eliminate a recessionary gap, the expenditure schedule should be A. shifted downward. B. shifted upward. C. made steeper. D. made flatter.

B. Shifted upward

The horizontal axis on the aggregate demand-aggregate supply model measures A. the price of the specific product produced. B. the level of total output. C. the price level. D. the level of employment.

B. The level of total output

Consumer spending represents about what fraction of total spending in the economy? A. one-fifth B. two-thirds C. one-third D. two-fifths E. three-fourths

B. Two thirds

Older people often reminisce about the "good old days" when prices were much lower. This is misplaced nostalgia primarily because in the "good old days," A. prices were not really that low. B. wages were much lower also. C. people worked longer hours. D. people had more leisure time.

B. Wages were much lower also

A severe freeze has once again damaged the Florida orange crop. The impact on the market for oranges will be a leftward shift in A. Demand as consumers try to economize because of the shortage. B. Both the supply and demand curves. C. The supply curve. D. The supply curve and a rightward shift in the demand curve, which will result in a higher price.

All of the points inside a production possibilities frontier are ____; all of the points outside the production possibilities frontier are ____. A. Efficient, inefficient B. Optimal, irrational C. Attainable, unattainable D. Rational, zero-cost E. Unattainable, efficient

At any given price level, equilibrium GDP on the demand side occurs when ____. A. Y = C + I + G - (X - IM) B. Y = C + I + G C. Y = C + I + G + (X - IM) D. Y = C + X + G + (X - IM)

Consumer spending accounts for what share of GDP? A. 20% B. 40% C. 70% D. 90%

Discouraged workers are included in the A. Labor force category. B. Unemployed category. C. Not in the labor force category. D. Employed category.

If an economy is growing, but experiences no inflation, this means A. Aggregate demand increased, but aggregate supply did not. B. Aggregate supply decreased, but aggregate demand did not. C. Aggregate demand and aggregate supply increased by the same amount. D. Aggregate demand and aggregate supply decreased by the same amount.

If businesses spend an additional $150 billion for investment projects in 2010, what will be the impact on national income (Y) if the multiplier is 2? A. Y will increase by $50 billion. B. Y will increase by $150 billion. C. Y will increase by $300 billion. D. Y will increase by $450 billion

If consumers' expectations about future income are very optimistic, then we should expect A. The consumption function to shift downward. B. Consumers to move up along the consumption function. C. The consumption function to shift upward. D. Consumers to move down along the consumption function.

If the Fed sells a T-bill to a commercial bank, how will this affect the money supply? A. It will increase the money supply. B. It will increase bank reserves. C. It will decrease the money supply. D. It will have no effect on the money supply.

If the MPC is .67, then the oversimplified multiplier is A. 7.60. B. 6.70. C. 3.00. D. 33.

If the income tax rate is 15% and the MPC=0.80. What is the tax multiplier? A. -1.17 B. -2 C. -2.5 D. -4 E. -5

If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been A. $110 billion B. $120 billion C. $130 billion D. $140 billion

If the supply curve for housing has the normal positive slope, rent controls will likely A. Increase the amount of housing. B. Improve the quality of housing. C. Aggravate the housing shortage. D. Help low-income families find suitable housing. E. Increase the demand for housing

If total spending exceeds total output, then A. Inventory levels will rise. B. Inventory levels will remain constant. C. Inventory levels will fall. D. Output will eventually decrease.

Most American workers A. Are employed in the goods-producing sector. B. Are employed by government. C. Are employed in the service-producing sector. D. Are employed in the agricultural sector.

People who failed to look for a job are classified as A. Unemployed. B. Underemployed. C. Out of the labor force. D. Part time employed.

Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2 percent. At the end of the six-month period, prices have risen by 4 percent. A. Purchasing power has been redistributed to Rachel. B. No purchasing power has been redistributed. C. Purchasing power has been redistributed to Phoebe. D. Both Rachel and Phoebe received extra purchasing power.

The banking industry is heavily regulated because A. Banking is a monopoly industry. B. Most banks are owned by government agencies. C. Bankers do what is best for their stockholders, not necessarily what is best for the economy. D. All of the above are correct.

The largest single portion of the federal budget is devoted to A. National defense. B. Medicare and Medicaid. C. Social Security and unemployment compensation. D. Education. E. Interest payments on the national debt.

The major drawback of a price ceiling is A. It causes a surplus. B. Government regulations of this kind are difficult to enforce. C. It causes a shortage. D. There is no drawback

The major drawback of a price ceiling is A. It causes a surplus. B. Government regulations of this kind are difficult to enforce. C. It causes a shortage. D. There is no drawback.

The most volatile component of aggregate demand is A. Consumption spending. B. Government spending. C. Investment spending. D. Net exports.

The multiplier principle is built on the premise that one person's spending is another person's A. Debt. B. Obligation. C. Income. D. Saving

The role of government in a market economy includes all of the following except A. Providing services such as national defense. B. Collecting taxes. C. Extensive ownership of productive resources. D. Making and enforcing laws.

The slope of a curved line differs from that of a straight line in that A. The numerical value of the slope of a straight line is different at every point, but is the same at every point for a curved line. B. The numerical value of the slope of a straight line is always higher than the numerical value of the slope of a curved line. C. The numerical value of the slope of a curved line is different at every point, but is the same at every point for a straight line. D. The numerical value of the slope of a curved line is an irrational number, but the numerical value of the slope of a straight line is always a rational number. E. Straight lines are more realistic, but curved lines are not descriptively accurate for the real world.

The slope of the aggregate supply curve is A. Perfectly vertical. B. Perfectly horizontal. C. Upward. D. Downward.

What does inflation do to the value of the oversimplified multiplier? A. Inflation increases the value of the multiplier above the value of the oversimplified formula. B. Inflation does not change the value of the multiplier. C. Inflation decreases the value of the multiplier below the value of the oversimplified formula. D. Inflation increases the value of the multiplier unless the level of unemployment also rises.

What mechanism assures that producers use inputs efficiently? A. Governmental regulations on use of resources B. altruism C. the desire for profit D. An innate desire to be efficient E. All of the above are correct.

What mechanism assures that producers use inputs efficiently? A. Governmental regulations on use of resources B. Altruism C. The desire for profit D. An innate desire to be efficient E. All of the above are correct.

When equilibrium real GDP falls short of potential GDP, there is a(n) A. Inflationary gap. B. Potential gap. C. Recessionary gap. D. Precautionary gap.

When the expenditure schedule is too low, the result is a(n) A. Unemployment surplus. B. Inflationary gap. C. Recessionary gap. D. Budgetary gap.

Which of the following is a drawback of FDIC insurance? A. It leads to excess industry profits. B. It has failed to arrest the trend of bank failures. C. It leads to the problem of moral hazard. D. It undercuts private insurance companies.

Which of the following is the best definition of openness? A. The average of imports expressed as a share of GDP. B. The average of goods traded in markets expressed as a share of GDP. C. The average of imports and exports expressed as a share of GDP. D. The average trade balance expressed as a share of GDP. E. The average of exports expressed as a share of GDP.

Which of the following is the most frequently used tool of monetary policy? A. Changing the discount rate B. Changing reserve requirements C. Open market operations D. Interest rate changes

Which of the following shows the relationship between national income (GDP) and total spending? A. Demand schedule B. Consumption curve C. Expenditure schedule D. Balance schedule

Which of the following would be most likely to cause an outward shift of the demand curve for electricity? A. A decrease in the price of electricity B. An increase in the price of air conditioners C. An increase in the price of heating oil D. A decrease in the price of natural gas

Which of the following would be most likely to cause an outward shift of the demand curve for electricity? A. A decrease in the price of electricity B. an increase in the price of air conditioners C. An increase in the price of heating oil D. A decrease in the price of natural gas

If the multiplier is 4 and real GDP increases by $520 billion, the increase in investment spending must have been A. $110 billion. B. $120 billion. C. $130 billion. D. $140 billion.

C. 130

If the MPC is .67, then the oversimplified multiplier is A. 7.60. B. 6.70. C. 3.00. D. 33.

C. 3.00

C. 300

What is the unemployment rate if the number of people employed is 133 million and unemployed is 7 million? A. 5.26% B. 4% C. 5% D. 6%

C. 5%

Which of the following shows the relationship between national income (GDP) and total spending? A. Demand schedule B. Consumption curve C. Expenditure schedule D. Balance schedule

C. Expenditure schedule

The multiplier principle is built on the premise that one person's spending is another person's A. debt. B. obligation. C. income. D. saving.

C. Income

If total spending exceeds total output, then A. inventory levels will rise. B. inventory levels will remain constant. C. inventory levels will fall. D. output will eventually decrease.

C. Inventory levels will fall

The most volatile component of aggregate demand is A. consumption spending. B. government spending. C. investment spending. D. net exports.

C. Investment spending

Discouraged workers are included in the A. labor force category. B. unemployed category. C. not in the labor force category. D. employed category.

C. Not in the labor force category

. A movement from one point to an another point on the same consumption function could be caused due to A. Changes in wealth. B. An increase in the general price level. C. Decrease in the real interest rates. D. Changes in disposable income.

A decrease in demand will have what effect on equilibrium price and quantity? A. Price will increase; quantity will decrease. B. Price will decrease; quantity will increase. C. Both price and quantity will increase. D. Both price and quantity will decrease.

A demand schedule is a table showing how the ____ of some product during a specified period of time changes as ____ changes, holding all other determinants of quantity demanded constant. A. Demand; the price of its complement B. Demand; the quantity supplied C. Quantity demanded; the price of its substitute D. Quantity demanded; the price of that product

A market will experience a ____ when the price is above equilibrium and a ____ when the price is below equilibrium. A. Shortage, shortage B. Surplus, surplus C. Shortage, surplus D. Surplus, shortage

A production possibilities curve always slopes downward to the right because A production possibilities curve always slopes downward to the right because resources A. Are not scarce. B. Have no opportunity cost. C. Are freely available. D. Are limited. E. Are not related to outputs.

A production possibilities curve always slopes downward to the right because resources A. Are not scarce. B. Have no opportunity cost. C. Are freely available. D. Are limited. E. Are not related to outputs.

Along with changes in the level of economic activity, measured by GDP, what other economic variable tends to rise and fall as a consequence? A. Precipitation B. Regulation C. Circulation D. Unemployment

An increase in the U.S. price level will A. Increase the slope of the expenditure schedule. B. Decrease the slope of the expenditure schedule. C. Shift the expenditure schedule upward. D. Shift the expenditure schedule downward.

Aneta has owned an Italian sports car for several years and now she wants to sell it. She paid $8,500 for it in 1993 and she has just sold it for $39,000 in 2011. How is this sale included in the GDP for 2011? A. $8,500 is included in 2011 GDP B. $39,000 is included in 2011 GDP C. The increase in value of $10,500 is included in 2011 GDP D. It is not included in 2011 GDP

Any reserves held by a bank above the amount of minimum legal reserves are called A. Total reserves. B. Required reserves. C. Fiat money. D. Excess reserves.

Assume an economy with an upward-sloping aggregate supply curve and an MPC of .80. An increase in investment spending of $50 billion will most likely increase total income by A. $200 billion B. $40 billion C. More than $200 billion D. More than $50 billion but less than $250 billion

Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment. Which of the following would achieve this objective? A. Decreasing taxes B. Increasing government spending C. Increasing transfer payments D. All of the above are correct.

Consider the following information regarding a person's decision to go to college: college tuition is $20,000 per year, room and board is $10,000 per year, and books and materials are $2,000 per year. Suppose that instead of going to college this person could have earned $18,000 working in a store. An economist would calculate the cost of going to college as A. $20,000 B. $30,000 C. $32,000 D. $50,000 E. $18,000

Consumption functions would shift downward if A. Disposable incomes fall. B. Disposable incomes rise. C. Price levels fall. D. Price levels rise.

How are the slope of a production possibilities frontier and the opportunity cost of the goods related? A. The slope is a graphical representation of the cost of expanding production of both goods. B. The slope is a graphical measure of the growth rate of the economy. C. The slope is a graphical representation of the cost of decreasing unemployment. D. The slope is a graphical representation of the rate of trade-off between the goods. E. The slope is a graphical representation of the cost of economic growth in the economy.

If a government enacts a rent control to protect apartment tenants, the result is likely going to be A. An increase in rents with a surplus of apartments. B. An increase in rents with a shortage of apartments. C. A decrease in rents with a surplus of apartments. D. A decrease in rents with a shortage of apartments.

If aggregate demand shifts outward over a long period of time, with aggregate supply held constant, the economy should experience A. Unemployment. B. Recession. C. Budget surpluses. D. Inflation.

If both borrowers and lenders anticipate the rate of inflation correctly, then A. Borrowers will lose real income. B. Lenders will lose real income. C. Both borrowers and lenders will lose real income. D. Neither borrowers nor lenders will lose real income.

If the Fed sells $5 million in government bonds, how much will the money supply change? A. It will increase by $5 million. B. It will increase by more than $5 million. C. It will decrease by $5 million. D. It will decrease by more than $5 million.

If the Fed sells a T-bill to an individual rather than to a commercial bank, how will this affect the money supply? A. It will increase the money supply. B. It will increase the checking account balance of the individual. C. It will have no effect on the money supply. D. It will decrease the money supply.

In 1963, government economists assumed that the MPC for the United States was approximately 0.90. If taxes were cut by $9 billion, then consumer expenditures would initially be expected to A. Decrease by $9.0 billion. B. Increase by $9.0 billion. C. Decrease by $8.1 billion. D. Increase by $8.1 billion.

In addition to fiscal policy, the other main tool used to affect aggregate demand is A. Trade policy. B. Industrial policy. C. Planning policy. D. Monetary policy.

In contrast to changes in government spending, tax changes affect spending A. Directly. B. In the same proportion. C. By a greater amount. D. Indirectly.

In terms of the production possibilities diagram, the principle of increasing cost simply asserts that the frontier is A. Downward sloping. B. Upward sloping. C. Bowed inward. D. Bowed outward. E. Undefined, because no market will exist in this case.

Investment increases by $200 million and the value of MPC is 0.75. What would be the total increase in spending? A. $200 million B. $266 million C. $750 million D. $800 million

Most people base their current consumption spending at least partially on A. Short-run debt. B. Long-run debt. C. Long-run real interest rates. D. Long-run income

National income is A. The sum of all wages and salaries, interest, rent, and profits in the economy. B. Equal to the money value of national output. C. The before-tax income of all individuals in the economy. D. All of the above are correct.

One of the justifications of government stabilization policy is that it may A. Increase the fluctuations in inflation and employment. B. Increase the multiplier effect of changes in autonomous spending. C. Increase the volatility of economic variables. D. Reduce the severity of inflation and unemployment.

One popular definition of economics is the study of A. How scarcity increases opportunities to meet ends. B. How markets overcome scarcity. C. One goal and three tasks. D. How to use limited means to meet unlimited wants. E. Wants versus needs.

Stabilization policy is the name given to government economic policies designed to A. Stabilize the price level. B. Shorten and/or prevent recessions. C. Diminish unemployment. D. All of the above are correct.

Suppose Tammy grew up on a farm and is very good at plowing. In addition suppose she is a popular country singer who earns $4,000 per performance. If her husband Bob can plow (but not as well as Tammy) but he can't carry a tune, then it would be most efficient if A. Tammy did both the plowing and the singing. B. Tammy specialized in plowing and Bob in singing. C. Bob did both the plowing and singing. C. Bob did both the plowing and singing D. Tammy specialized in singing and Bob in plowing. E. They both plowed and sang.

Suppose the economy is experiencing a recessionary gap of $15 billion dollars and the spending multiplier is 3. How much should the government spend to reach full employment? A. $2 billion B. $3 billion C. $4 billion D. $5 billion E. $6 billion

Taxes are the difference between A. GDP and net exports. B. GDP and consumer spending. C. Consumer spending and saving. D. GDP and disposable income.

The Bank of Mobile receives a new deposit of $2,500. The reserves requirement is 20 percent. How much can this bank loan out as a result of this deposit? A. $25,000 B. $12,500 C. $3,125 D. $2,000 E. $500

The CPI in 2009 is 214 and CPI in 2010 is 220, what is the inflation rate between 2009 and 2010? A. 2.5% B. 2.6% C. 2.7% D. 2.8%

The Fed relies on open market operations, which work A. With the Treasury in creating money to finance bonds. B. Through major stock exchanges to influence bond prices. C. Directly through the nonbank public to change their assets. D. Through the banking system by affecting their reserves.

The aggregate demand and aggregate supply curve intersect A. At potential GDP. B. Below potential GDP. C. Above potential GDP. D. At a point which may or may not be equal to potential GDP.

The amount by which equilibrium real GDP exceeds full-employment GDP is known as A. Stagflation. B. Employment. C. A recessionary gap. D. An inflationary gap.

The amount of goods and services the economy could produce if the labor force is fully employed is called A. Nominal GDP. B. Real GDP. C. Actual GDP. D. Potential GDP.

The banking system receives a new cash deposit of $250,000. Total deposits eventually rise by $1 million. The value of the reserve ratio is A. 25. B. 4. C. 0.50. D. 0.25. E. 0.20.

The basic idea behind the multiplier is that an increase in A. GDP brings about an additional, larger increase in GDP. B. Consumer spending causes a larger increase in investment spending. C. Government spending causes a larger increase in tax revenues. D. Spending will cause an even larger increase in equilibrium GDP.

The slope of a curved line at a particular point is A. Always greater than the slope of a straight line at the same point. B. Always smaller than the slope of a straight line at the same point. C. Defined as the slope of the straight line representing the average values for the entire curve. D. Defined as the slope of the straight line that is tangent to the curve at that point.

The term frictional unemployment refers to persons who are out of work A. Due to technological change. B. Due to strikes or lockouts. C. And have given up looking for work. D. Because they are between jobs.

The use of automated teller machines (ATMs) has caused some bank tellers to lose their jobs. This is an example of A. Cyclical unemployment. B. Seasonal unemployment. C. Frictional unemployment. D. Structural unemployment

To predict the effects of a tax cut on consumption spending, economists must have some estimate of the A. Income effect. B. Substitution effect. C. Relative price effect. D. Marginal propensity to consume.

When aggregate demand decreases rapidly, the economy is likely to experience A. Inflation. B. An economic boom. C. Economic growth. D. Recession.

Which of the following is most sensitive to monetary policy? A. Government expenditure B. Consumption spending C. Utility spending D. Investment spending

Which of the following is the most closed economy? A. The Netherlands B. The United States C. Germany D. Russia E. Canada

Which of the following would cause an increase in demand for Toyota automobiles? A. An increase in the price of Toyota automobiles B. A decrease in the price of Toyota automobiles C. A decrease in the price of Honda automobiles D. An increase in the price of Honda automobiles

Which of the following would cause an increase in demand for Toyota automobiles? A. an increase in the price of Toyota automobiles B. a decrease in the price of Toyota automobiles C. a decrease in the price of Honda automobiles D. an increase in the price of Honda automobiles

Why does a tax change affect aggregate demand? A. A tax change alters saving by an equal amount. B. A tax change alters imports and net exports. C. A tax change alters government spending by an equal amount. D. A tax change alters disposable income and consumption spending.

____ is the rate that applies when banks borrow and lend reserves to one another A. The repo rate B. The discount rate C. The coupon rate D. The federal fund rate

The nation's disposable income increases by $400 billion and, as a result, consumer spending increases by $320 billion. Therefore, the MPC equals A. 0.16. B. 0.20. C. 0.60. D. 0.80. E. 0.96.

D. 0.80

The CPI in 2009 is 214 and CPI in 2010 is 220, what is the inflation rate between 2009 and 2010? A. 2.5% B. 2.6% C. 2.7% D. 2.8%

D. 2.8%

Investment increases by $200 million and the value of MPC is 0.75. What would be the total increase in spending? A. $200 million B. $266 million C. $750 million D. $800 million

D. 800

National income is A. the sum of all wages and salaries, interest, rent, and profits in the economy. B. equal to the money value of national output. C. the before-tax income of all individuals in the economy. D. All of the above are correct.

D. All of the above are correct

Stabilization policy is the name given to government economic policies designed to A. stabilize the price level. B. shorten and/or prevent recessions. C. diminish unemployment. D. All of the above are correct.

D. All of the above are correct

The amount by which equilibrium real GDP exceeds full-employment GDP is known as A. stagflation. B. employment. C. a recessionary gap. D. an inflationary gap.

D. An inflationary gap

The term frictional unemployment refers to persons who are out of work A. due to technological change. B. due to strikes or lockouts. C. and have given up looking for work. D. because they are between jobs.

D. Because they are between jobs

A movement from one point to an another point on the same consumption function could be caused due to A. changes in wealth. B. an increase in the general price level. C. decrease in the real interest rates. D. changes in disposable income.

D. Changes in DI

In 1963, government economists assumed that the MPC for the United States was approximately 0.90. If taxes were cut by $9 billion, then consumer expenditures would initially be expected to A. decrease by $9.0 billion. B. increase by $9.0 billion. C. decrease by $8.1 billion. D. increase by $8.1 billion.

D. Increase by 8.1

If aggregate demand shifts outward over a long period of time, with aggregate supply held constant, the economy should experience A. unemployment. B. recession. C. budget surpluses. D. inflation.

D. Inflation

D. It is not included in 2011 GDP

Most people base their current consumption spending at least partially on A. short-run debt. B. long-run debt. C. long-run real interest rates. D. long-run income.

D. Long run income

To predict the effects of a tax cut on consumption spending, economists must have some estimate of the A. income effect. B. substitution effect. C. relative price effect. D. marginal propensity to consume.

D. MPC

If both borrowers and lenders anticipate the rate of inflation correctly, then A. borrowers will lose real income. B. lenders will lose real income. C. both borrowers and lenders will lose real income. D. neither borrowers nor lenders will lose real income.

D. Neither

The amount of goods and services the economy could produce if the labor force is fully employed is called A. nominal GDP. B. real GDP. C. actual GDP. D. potential GDP.

D. Potential GDP

Consumption functions would shift downward if A. disposable incomes fall. B. disposable incomes rise. C. price levels fall. D. price levels rise.

D. Price level rises

When aggregate demand decreases rapidly, the economy is likely to experience A. inflation. B. an economic boom. C. economic growth. D. recession.

D. Recession

An increase in the U.S. price level will A. increase the slope of the expenditure schedule. B. decrease the slope of the expenditure schedule. C. shift the expenditure schedule upward. D. shift the expenditure schedule downward.

D. Shift the expenditure schedule downward

The basic idea behind the multiplier is that an increase in A. GDP brings about an additional, larger increase in GDP. B. consumer spending causes a larger increase in investment spending. C. government spending causes a larger increase in tax revenues. D. spending will cause an even larger increase in equilibrium G

D. Spending will cause an even larger increase in equilibrium

The use of automated teller machines (ATMs) has caused some bank tellers to lose their jobs. This is an example of A. cyclical unemployment. B. seasonal unemployment. C. frictional unemployment. D. structural unemployment.

D. Structural Unemployment

The real wage rate is defined as the wage rate divided by A. the interest rate. B. the money supply. C. nominal GDP. D. the price level.

D. The price level

What are the effects of an open market sale of government securities?

Decrease in aggregate demand, increase in federal funds reserve, decrease in investment, decrease in money supply, increase in nominal interest rate, decrease in real GDP, decrease in reserves.

What are the effects of an increase in the Required Reserve Ratio?

Decrease in aggregate demand, increase in federal funds reserve, decrease in investment, decrease in money supply, increase in nominal interest rate, decrease in real GDP.

Surplus

Drives prices down

A recession is a period during which A. Aggregate demand, production, and unemployment rises. B. Aggregate demand, production, and unemployment falls. C. Aggregate demand, production, and unemployment remain the same. D. Aggregate demand and production rises while unemployment remains the same. E. Aggregate demand and production falls while unemployment rises.

For a given production possibilities frontier, which points are attainable? A. Points inside the frontier B. Points outside the frontier C. Points on or outside the frontier D. Points on the frontier only E. Points on or inside the frontier

Money as defined by M1 includes A. Coins. B. Paper money. C. Checking deposits. D. Travelers' checks. E. All of the above are correct.

Probably the most important source of efficiency in production is A. Investing in more capital goods B. Consuming rationally C. Expanding the production possibilities frontier D. Increasing inputs of energy and raw materials E. The specialization of labor

Probably the most important source of efficiency in production is A. Investing in more capital goods. B. Consuming rationally. C. Expanding the production possibilities frontier. D. Increasing inputs of energy and raw materials. E. The specialization of labor.

The difference between disposable income and consumption spending is A. Transfer payments. B. Personal taxes. C. Net exports. D. Personal investment. E. Personal saving.

When a demand schedule is drawn as a graph, A. Price is measured on the vertical axis. B. Quantity is measured on the horizontal axis. C. The resulting curve has a negative slope. D. The other variables (besides price and quantity) are held constant. E. All of the above are correct.

Which of the following is likely to affect the position and shape of society's production possibilities frontier? A. Volume of physical resources B. Level of labor skills C. Level of technology D. Amount of factories on hand E. All of the above are correct.

A recession is a period during which A. aggregate demand, production, and unemployment rises. B. aggregate demand, production, and unemployment falls. C. aggregate demand, production, and unemployment remain the same. D. aggregate demand and production rises while unemployment remains the same. E. aggregate demand and production falls while unemployment rises.

The difference between disposable income and consumption spending is A. transfer payments. B. personal taxes. C. net exports. D. personal investment. E. personal saving.

E. Personal saving

A decrease in disposable income causes a shift in the consumption function. A. True B. False

False

A decrease in the price level causes a lower equilibrium quantity demanded. A. True B. False

False

A horizontal line always has a slope of one. A. True B. False

False

A line that slopes downward from left to right has a positive slope. A. True B. False

False

A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases. A. True B. False

False

A price ceiling is only effective if it is above the market equilibrium. A. True B. False

False

A price level lower than equilibrium will cause quantity supplied to exceed quantity demanded. A. True B. False

False

A society which is inside its production possibilities frontier is efficient. A. True B. False

False

A vertical line always has a slope of one. A. True B. False

False

Banks try to keep their excess reserves at a maximum in order to maximize profits. A. True B. False

False

Given the labor force, either more capital or better technology will shift the production function downward. A. True B. False

False

Government production accounts for about half of all GDP in the United States. A. True B. False

False

Gross Domestic Product accurately measures the environmental costs of producing all goods and services. A. True B. False

False

Gross Domestic Product includes the sale of intermediate goods and services. A. True B. False

False

If firms are experiencing falling inventories, one can expect that firms will cut production. A. True B. False

False

If supply increases, the equilibrium price will rise and the equilibrium quantity will fall. A. True B. False

False

It is impossible for both nations to gain when trading with one other. A. True B. False

False

Lower inflation rates are usually correlated with lower unemployment rates. A. True B. False

False

Real GDP values current output of goods and services at their current prices. A. True B. False

False

Tax reductions should also reduce the amount of consumer expenditures. A. True B. False

False

The multiplier is increased when income taxes are included. A. True B. False

False

The price elasticity of demand measures:

How responsive quantity demanded for a good or service is to a change in its price.

What are the effects of an open market purchase of government securities?

Increase in aggregate demand, decrease in federal funds reserve, increase in investment, increase in money supply, decrease in nominal interest rate, increase in real GDP, increase in reserves.

What are the effect of a decrease in the Required Reserve Ratio?

Increase in aggregate demand, decrease in federal funds reserve, increase in investment, increase in money supply, decrease in nominal interest rate, increase in real GDP.

Price Ceilings

Max legal price that may be charged for a good or service (rent, utility rates, interest rate, wages) - fairness - to control inflation

Price Floors

Minimum legal price that may be charged for a good or service (Farm support prices, min wage) -income security -fairness

Shifts in Supply

Movement along curve (Change in Qsupplied) Shift of the curve (Change in supply)

Shifts of Demand Curve

Movement along the curve (Change in Qd) Shift of the Curve (Change in DEMAND)

Types of Markets

Product Markets Factor Markets National Markets

What are some government policies that can eliminate an inflationary gap?

Reduce government spending, increase taxes, and reduce transfers.

3 monetary policy tools

Sales and purchases in open market operations, changes in the reserve requirements, discount lending.

Desire to max returns from economic activity leads to ________ and _______

Specialization and Change

A market is said to be in equilibrium when:

The quantity demanded equals the quantity supplied.

. Aggregate demand is the total demand for the final goods and services produced in an economy A. True B. False

True

. Gross Domestic Product represents the money value of all final goods and services produced in the domestic economy within the year. A. True B. False

True

A change in the aggregate price level moves the economy along a given aggregate supply curve. A. True B. False

True

A recession is a period of time in which the total output of the economy falls. A. True B. False

True

Abstraction ignores many details in order to focus on the most important elements of a problem. A. True B. False

True

An increase in the money supply should cause the expenditure schedule to shift upward. A. True B. False

True

An inflationary gap exists when consumers and businesses are demanding more output than the economy is capable of producing at full employment. A. True B. False

True

An open economy is one in which exports and imports constitute a large share of GDP. A. True B. False

True

As a student, one of the costs of sleeping in rather than going to class is likely to be a lower grade in the class. A. True B. False

True

Shortage

excess demand

Demand Curve

law of demand is illustrated by downward slope of demand curve

Price Controls

market inteventions to regulate prices at which G&S exchange in market

Law of Demand

other things equal, as price falls, the quantity demand (Qd) rises, and as prices rise f(p) the Qd rises Qd = f(p)

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