AP Economics 1-3 Exam Review

Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to which of the following? A $1,500 billion B $2,000 billion C $2,500 billion D $3,000 billion E There is not enough information to answer the question.

$2,500 billion

The country's gross domestic product is A $220 billion B $282 billion C $304 billion D $309 billion E $347 billion

$220 Billion

The table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929 ? A $25 B $100 C $125 D $250 E $300

$300

Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars? A $4,500 B $4,700 C $4,900 D $5,150 E $5,950

$4,500

Between points X and Y on the PPC, the opportunity cost of one unit of peaches is which of the following? A 2 units of apples B 1 unit of apples C 2 units of peaches D 1 unit of peaches E 10 units of apples

1 unit of apples

If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B? A 0.5 B 1 C 5 D 10 E 20

10

The table above gives population and labor-market data for an economy. The unemployment rate in this economy is A 3.3% B 5% C 10% D 33.3% E 50%

10%

The population of Country X is 250,000, and the labor force is 200,000 persons. If 175,000 people are employed, what is the unemployment rate? A 10% B 12.5% C 20% D 80% E 87.5%

12.5%

If two coats are currently being produced, the opportunity cost of producing the third coat is A 85 belts B 75 belts C 40 belts D 15 belts E 10 belts

15 belts

Assume that an economy produces just two goods, X and Y, as shown in the table above. If year 1 is the base year, the consumer price index for year 2 in this economy is A 57.1 B 66.7 C 100 D 175 E 250

175

The graph above shows the production possibilities curve for a small township that is deciding to build parks and gymnasiums. Which of the following combinations of parks and gymnasiums is unattainable given the township's available resources? A 5 parks and 6 gymnasiums B 5 parks and 8 gymnasiums C 10 parks and 6 gymnasiums D 15 parks and 4 gymnasiums E 20 parks and 4 gymnasiums

20 parks and 4 gymnasiums

If the consumer price index increases from 200 to 240 in a one-year period, then the inflation rate is A 16.67 percent B 20 percent C 25 percent D 40 percent E 140 percent

20 percent

The economy of Galactica is expanding and the actual unemployment rate exceeds the natural rate of unemployment for which year in the above diagram? A 1992 B 1996 C 2002 D 2007 E 2011

2002

If an automobile was manufactured in 2006 and sold to a consumer in 2007, what was the effect on gross domestic product in 2006 and 2007? A 2006No change. 2007Increase B 2006Decrease. 2007Increase C 2006Increase. 2007No change D 2006Increase. 2007Decrease E 2006No change. 2007No change

2006Increase. 2007No change

Based on the information in the table above, what is the unemployment rate for Country X? A 3.3% B 4.0% C 6.0% D 6.38% E 7.5%

6.0%

An economy is currently producing $250 billion of output. The full-employment output is $260 billion, and the marginal propensity to consume is 0.75. Assuming no crowding out and a horizontal aggregate supply curve, what level of additional spending is necessary to achieve full employment? A) $2.5 billion B) $5 billion C) $10 billion D) $25 billion E) $40 billion

A

An increase in which of the following would cause an increase in aggregate supply? A) Labor productivity B) The wage rate C) Prices of imports D) Consumer spending E) Interest rates

A

Assume that the economy is at full-employment equilibrium in the diagram shown above. Which of the following would lead to stagflation? A) A leftward shift of the short-run aggregate supply curve only B) A rightward shift of the short-run aggregate supply curve only C) A leftward shift of the aggregate demand curve only D) A rightward shift of the aggregate demand curve only E) A rightward shift in both the short-run aggregate supply curve and the aggregate demand curve

A

How will automatic stabilizers affect the economy during a recession? A) They will shift the aggregate demand curve to the right, increasing real output. B) They will shift the aggregate demand curve to the left, decreasing real output. C) They will shift the long-run aggregate supply curve to the right, increasing potential output. D) They will shift the short-run aggregate supply curve to the left, increasing real output. E) They will shift the short-run aggregate supply curve to the right, decreasing real output.

A

If a large increase in total spending has no effect on real gross domestic product, it must be true that A) the price level is rising B) the economy is experiencing high unemployment C) The spending multiplier is equal to 1 D) the economy is in short-run equilibrium E) aggregate supply has increased

A

If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production? A) Government spending increases. B) Government spending decreases. C) Personal income taxes are increased. D) The Federal Reserve sells bonds on the open market. E) The Federal Reserve buys bonds on the open market.

A

If the marginal propensity to save is 0.25, a $15 billion increase in government spending will lead to an increase in national income by a maximum of A) $60 billion B) $45 billion C) $15 billion D) $11.25 billion E) $3.75 billion

A

If, at full employment, the government wants to increase its spending by $100 billion without increasing inflation in the short run, it must do which of the following? A) Raise taxes by more than $100 billion. B) Raise taxes by $100 billion. C) Raise taxes by less than $100 billion. D) Lower taxes by $100 billion. E) Lower taxes by less than $100 billion.

A

In the measurement of gross domestic product, investment includes spending by A) businesses on capital goods and changes in inventories B) businesses on stocks, bonds, and other financial assets C) individual households on stocks, bonds, and other financial assets D) the federal government to purchase bonds issued by the Federal Reserve E) the Federal Reserve to buy government bonds

A

In the short run, a restrictive fiscal policy will cause aggregate demand, output, and the price level to change in which of the following ways? A) Aggregate Demand - Decrease, Output - Decrease, Price Level - Decrease B) Aggregate Demand - Decrease, Output - Increase, Price Level - Increase C) Aggregate Demand - Increase, Output - Decrease, Price Level - Decrease D) Aggregate Demand - Increase, Output - Increase, Price Level - Increase E) Aggregate Demand - Not change, Output - Not change, Price Level - Not change

A

Refer to the income and consumption data presented in the table below. Assume a closed economy with no government and a marginal propensity to consume of 0.80. DISPOSABLE INCOME $620, $640, $660, $680, $700, $720, $740, $760 CONSUMPTION $624, $640, $656, $672, $688, $704, $720, $736 Dissaving occurs when disposable income is A) $620 B) $640 C) $660 D) $700 E) $1,000

A

Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run? A) The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run. B) The long-run aggregate supply curve is vertical and there is a trade-off between inflation and unemployment in the long run. C) The long-run aggregate supply curve is horizontal and there is a trade-off between inflation and unemployment in the long run. D) Real output is always greater than full employment in the long run. E) Real output is always less than full employment in the long run.

A

The aggregate demand curve is downward sloping because as the price level increases the A) purchasing power of wealth decreases B) demand for imports decreases C) demand for interest-sensitive expenditures increases D) demand for domestically produced substitute goods increases E) real value of fixed assets increases

A

The short-run aggregate supply curve is likely to shift to the left when there is an increase in A) the cost of productive resources B) productivity C) the money supply D) the federal budget deficit E) imports

A

The short-run aggregate supply curve would be vertical if A) nominal wages adjust immediately to changes in the price level B) nominal wages adjust slowly when there is unemployment C) both nominal wages and prices adjust slowly to changes in aggregate demand D) the spending multiplier is very low E) investment demand is very responsive to changes in interest rates

A

Which of the following best explains how income taxes can moderate a business cycle during an expansion? A) Tax revenues increase automatically as gross domestic product (GDP) rises, which dampens consumption spending. B) Tax revenues decrease automatically as GDP rises, which increases short-run aggregate supply. C) Tax revenues increase automatically as GDP falls, which decreases short-run aggregate supply. D) Tax revenues increase automatically as GDP falls, which prevents the economy from experiencing a downturn. E) Tax revenues decrease automatically as GDP falls, which dampens consumption spending.

A

Which of the following best explains the increase in national income that results from equal increases in government spending and taxes? A) Consumers do not reduce their spending by the full amount of the tax increase. B) The government purchases some goods that consumers would have purchased on their own anyway. C) Consumers believe all tax cuts are transitory. D) The increase in government spending causes a decrease in investment. E) Consumers are aware of tax increases but not of increases in government spending.

A

Which of the following is an example of fiscal policy? A) Increasing government expenditures to build highways B) Increasing the money supply to increase income C) Decreasing the discount rate to lower unemployment and inflation D) Decreasing the policy rate to stimulate investment E) Decreasing the reserve ratio to increase bank reserves

A

Which of the following is true of supply shocks? A) They tend to change both relative prices and the general price level in the economy. B) They affect only the general price level. C) They can be anticipated and offset with appropriate fiscal policy. D) They can be anticipated and offset with appropriate monetary policy. E) They make the aggregate supply curve vertical.

A

What is an automatic stabilizer? A) It is a program or policy that counteracts the business cycle with discretionary fiscal policy. B) It is a program or policy that counteracts the business cycle without any new government action required. C) It is a tax or spending program that is enacted to balance the federal budget. D) It is the change in consumption spending resulting from a given change in disposable income. E) It is a part of a market economic system that ensures that markets achieve equilibrium in the long run.

B

What would be the effect of a large increase in labor productivity on the real gross domestic product and the price level? A) Real Gross Domestic Product - Increase, Price Level - Increase B) Real Gross Domestic Product - Increase, Price Level - Decrease C) Real Gross Domestic Product - No effect, Price Level - Increase D) Real Gross Domestic Product - Decrease, Price Level - Increase E) Real Gross Domestic Product - Decrease, Price Level - Decrease

B

Which of the following best explains why equilibrium income will rise by more than $100 in response to a $100 increase in government spending? A) Incomes will rise, resulting in a tax decrease. B) Incomes will rise, resulting in higher consumption. C) The increased spending raises the aggregate price level. D) The increased spending increases the money supply, lowering interest rates. E) The higher budget deficit reduces investment.

B

Which of the following changes would cause an economy's aggregate demand curve to shift to the right? A) An increase in spending on imports B) An increase in autonomous consumption spending C) An increase in interest rates D) A decrease in the money supply E) A decrease in the overall price level in the economy

B

Which of the following events will most likely cause an increase in both the price level and real gross domestic product? A) The prime rate increases. B) Exports increase. C) Income taxes increase. D) Crude oil prices decrease. E) Inflationary expectations decrease.

B

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)? A) The multiplier effect B) The maximum sustainable capacity C) The trade-off between inflation and unemployment D) Sticky wages and prices E) Business cycles

B

Which of the following is true about the marginal propensity to consume? A) It is the percentage of total income that is spent on consumption. B) It determines the size of the simple spending multiplier. C) It increases as incomes increase because increases in income cause people to spend more. D) It is the same as the money multiplier. E) It is equal to the average propensity to consume for people with low incomes.

B

Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States? A) There will be no change in aggregate demand because United States aggregate demand depends only on the income of United States consumers. B) Aggregate demand will decrease because the demand for United States exports decreases. C) Aggregate demand will decrease because the value of the United States dollar decreases relative to the Japanese yen. D) Aggregate demand will increase because a decrease in income in Japan causes an increase in income in the United States. E) Aggregate demand will increase because interest rates in the United States decrease.

B

Which of the following statements concerning economic growth is true? A) If the population is growing faster than potential output, real gross domestic product per capita will definitely increase. B) With long-run economic growth, there is an increase in aggregate supply. C) The gap between rich and poor must widen with long-run economic growth. D) Increasing potential output necessarily increases the economic welfare of the average citizen. E) Long-run economic growth is only possible with demand management policies.

B

Which of the following will happen if the actual inflation rate is greater than the expected inflation rate? A Lenders of fixed interest rate loans will be better off. B Lenders of variable interest rate loans will be worse off. C Borrowers of fixed interest rate loans will be worse off. D Borrowers of fixed interest rate loans will be better off. E Borrowers of variable interest rate loans will be better off.

Borrowers of fixed interest rate loans will be better off.

Which of the following allows an individual to gain from unexpected inflation? A Living on a fixed income B Working at the minimum wage C Lending money at a fixed interest rate D Borrowing money at a fixed interest rate E Saving money in a fixed-interest-rate savings account

Borrowing money at a fixed interest rate

A change in which of the following will cause the short-run aggregate supply curve to shift? I. The price level II. Government spending III. The cost of all inputs A) I only B) II only C) III only D) I and II only E) I, II, and III

C

A decrease in the prices of inputs will cause which of the following to occur in the short run? A) An increase in the aggregate demand and an increase in the price level B) A decrease in the aggregate demand and an increase in the price level C) An increase in the short-run aggregate supply and a decrease in the price level D) An increase in the short-run aggregate supply and an increase in the price level E) A decrease in the short-run aggregate supply and a decrease in the price level

C

Aggregate demand may be measured by adding A) consumption, investment, savings, and imports B) savings, government spending, and business inventories C) consumption, investment, government spending, and net exports D) domestic private expenditures and government spending E) domestic expenditures and imports

C

An inflationary gap could be reduced by A) an increase in government spending B) an increase in the supply of money C) an increase in the income tax rate D) a decrease in the discount rate E) a decrease in the reserve requirement

C

Assume that the marginal propensity to consume is 0.75, net exports decline by $10 billion, and government spending increases by $20 billion. Given that there is no crowding out, the equilibrium gross domestic product can increase by a maximum of A) $7.5 billion B) $15.5 billion C) $40 billion D) $80 billion E) $120 billion

C

The diagram above shows a nation's short-run aggregate supply curve (SRAS), long-run aggregate supply curve (LRAS), and aggregate demand curve (AD). Based on the diagram above, which of the following describes the short-run equilibrium? A) The economy is operating at full employment. B) The economy is operating below full employment. C) The economy is operating above full employment. D) There will be downward pressure on the price level. E) There is a recessionary gap.

C

The diagram below shows two points on the short-run aggregate supply curve. The movement from point g to point h is best described as which of the following? A) A decrease in full employment output B) A decrease in aggregate demand C) An increase in real output due to an increase in the price level D) An increase in real output due to technological change E) An increase in unemployment

C

The intersection of the aggregate supply curve and the aggregate demand curve occurs at the economy's equilibrium level of A) real investment and the interest rate B) real disposable income and unemployment C) real national output and the price level D) government expenditures and taxes E) imports and exports

C

Use the graph to answer the question. Which of the following accurately describes the state of the macro-economy if it is operating at the intersection of the AD1 and SRAS2 curves? A) It is operating at full employment and is in both a short-run and long-run equilibrium. B) It is operating above full employment and is in both a short-run and long-run equilibrium. C) It is operating below full employment and is in a short-run but not a long-run equilibrium. D) It is not in short-run equilibrium because output is below full employment. E) It is in long-run equilibrium because the economy is at full employment.

C

Which of the following best describes the aggregate demand curve? A) It is a curve that shows the relationship between consumer spending and income. B) It is a curve that shows the amount of goods and services domestic consumers will buy from domestic and foreign firms. C) It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels. D) It is a curve that shows only the level of government spending at different price levels. E) It is a curve that shows the level of spending by all factors of production at different price levels.

C

Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run? A) An increase in exports of $100 B) An increase in government spending of $100 C) A decrease in taxes of $100 D) A decrease in imports of $100 E) A decrease in savings of $100

C

Which of the following statements about the simple circular flow model of a market economy is correct? A) Households are on the demand side of the product market and the supply side of the resource market. B) Business firms are on the supply side of both the product market and the resource market. C) Households receive income in the form of wages, and business firms receive income in the form of investment. D) Exports and investment expenditures are examples of leakage from the circular flow, whereas imports and savings are injections. E) Circular flow models are used primarily to explain why money is necessary in any economic system.

A

Which of the following will most likely occur as a result of an increase in labor productivity in an economy? A) An increase in output and a decrease in inflation B) An increase in interest rates and a decrease in investment C) A decrease in both money demand and money supply D) A decrease in exports and an increase in unemployment E) A leftward shift in the short-run aggregate supply curve and a decrease in output

A

Which of the following is most likely to benefit from unexpected inflation? A A lender making new loans B A borrower paying fixed interest payments on debt C A lender collecting fixed interest payments on loans D A retiree with a fixed income E A saver who owns a certificate of deposit

A borrower paying fixed interest payments on debt

The value of which of the following is counted in the United States gross domestic product? A Clean air B Child care a father provides for his child C An automobile produced in Sweden by a United States firm D A car produced in the United States and sold in Europe E Medical services not provided due to preventative health care

A car produced in the United States and sold in Europe

Which of the following is an example of frictional unemployment? A A former mayor doing volunteer work B A factory worker who loses her job because of recession C A college student working part-time at the campus bookstore D A college graduate interviewing for two available positions E An architect whose job is replaced by computer software that designs buildings

A college graduate interviewing for two available positions

Which of the following will cause a movement along the demand curve for chicken, a normal good, resulting in an increase in the quantity demanded? A An increase in consumers' income B An increase in the price of fish, a substitute good C An increase in the price of barbecue sauce, a complementary good D A decrease in the price of chicken E A decrease in the number of consumers of chicken

A decrease in the price of chicken

Which of the following changes will most likely result in a movement from point X to point Y along the demand curve D1 ? A A decrease in the number of buyers B A decrease in the price of video games C A decrease in the expected future price of video games D An increase in the negative effects of video games on players E An increase in the use of video games for educational purposes

A decrease in the price of video games

Which of the following would best explain an inward shift of the production possibilities curve? A An increase in the labor-force participation rate B An increase in the rate of savings C A decrease in the quantity of inputs required to produce a unit of output D A decrease in the quality of human capital E A decrease in the government's budget deficit that leads to lower real interest rates

A decrease in the quality of human capital

Assume an economy produces two goods, capital goods and consumer goods. If the production of capital goods increases in the current period, which of the following will occur for the current and future production possibilities curve (PPC) for consumer goods and capital goods? A A movement along the current PPC and a leftward shift of the future PPC B A movement along the current PPC and a rightward shift of the future PPC C A rightward shift of the current PPC and a leftward shift of the future PPC D A rightward shift of the current PPC and a rightward shift of the future PPC E A movement along the current PPC with no shift of the future PPC

A movement along the current PPC and a rightward shift of the future PPC

The value of which of the following would be included in the United States gross domestic product? A Time spent volunteering at a local hospital B A United States savings bond received as a birthday gift C A movie ticket purchased at a local theater D A new handbag made in Italy by a United States firm E A used car sold at the same price paid for it

A movie ticket purchased at a local theater

Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product? A Government bonds B Shares of a company stock C Corporate bonds D A new car for personal use E A newly constructed home

A newly constructed home

Which of the following is an example of frictional unemployment? A A person quits a job to search for another job. B A person lacks the skills to fill any of the available jobs. C A person loses a job because of a recession. D A person retires from the workforce. E An unemployed person stops looking for a job.

A person quits a job to search for another job.

Which of the following individuals is classified as unemployed? A A fifteen-year-old high school student who is looking for a babysitting job B A laid-off computer programmer who has given up looking for a new job C A parent who works in an after-school day care center for 15 hours a week D A recent college graduate who is looking for her first job E A mayor who lost an election and retired

A recent college graduate who is looking for her first job

Frictional unemployment occurs when which of the following happens? A A worker is replaced by robots on factory assembly lines. B A worker voluntarily quits a job to search for a better one. C A worker is laid off because of a downturn in economic activity. D A worker undergoes on-the-job training. E A worker switches from working full-time to part-time.

A worker voluntarily quits a job to search for a better one.

Which of the following is included in the computation of gross domestic product? A Government transfer payments, such as unemployment benefits B Purchases of used goods, such as used cars C Child care tasks performed by househusbands D Total value of business inventories E Additions to business inventories

Additions to business inventories

Which of the following is most likely included in gross domestic product? A Matt gives his secondhand bicycle to his brother. B Sal paints his own bicycle. C Ali buys a new bicycle. D Mike buys a share of stock in a bicycle firm. E Daniel bikes to school every day.

Ali buys a new bicycle

Which of the following is an example of structural unemployment? A A computer programmer who leaves her job to move to Florida B A worker who loses his job during a recession C An autoworker who is replaced by a robot D A construction worker who is always unemployed during the winter months E A worker who is engaged in unproductive work

An autoworker who is replaced by a robot

Which of the following changes will most likely cause a shift of the demand curve from D1 to D2 as shown in the diagram? A An increase in consumers' income, assuming that video games are a normal good B An increase in the price of game consoles, a complementary good C A decrease in the price of mobile games, a substitute good D A decrease in the number of buyers in the market E A decrease in the price of video games

An increase in consumers' income, assuming that video games are a normal good

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted? A The economy is in long-run equilibrium. B The aggregate demand curve will shift to the left to restore long-run equilibrium. C The long-run aggregate supply curve will shift to the right to restore long-run equilibrium. D Without a fiscal policy stimulus, the economy will remain in a recession. E As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

A favorable supply shock, such as a decrease in energy prices, is most likely to have which of the following short-run effects on the price level and output? A) Price Level - Decrease, Output - No effect B) Price Level - Decrease, Output - Increase C) Price Level - Increase, Output - Increase D) Price Level - Increase, Output - Decrease E) Price Level - No effect, Output - No effect

B

An increase in energy costs will most likely cause the price level and real gross domestic product to change in which of the following ways? A) Price Level - Increase, Real Gross Domestic Product - Increase B) Price Level - Increase, Real Gross Domestic Product - Decrease C) Price Level - Increase, Real Gross Domestic Product - Not change D) Price Level - Decrease, Real Gross Domestic Product - Increase E) Price Level - Decrease, Real Gross Domestic Product - Decrease

B

An increase in the marginal propensity to consume causes an increase in which of the following? A) Marginal propensity to save B) Spending multiplier C) Savings rate D) Exports E) Aggregate supply

B

An increase in which of the following will increase aggregate demand? A) Taxes B) Government spending C) The federal funds rate D) Reserve requirements E) The discount rate

B

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by A) $4,000 B) $8,000 C) $9,000 D) $10,000 E) $14,000

B

Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by A) $44 B) $56 C) $70 D) $80 E) $100

B

Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession? A) Aggregate demand will increase and the price level will increase. B) Aggregate demand will decrease and the price level will decrease. C) Short-run aggregate supply will decrease and the price level will decrease. D) Short-run aggregate supply will increase and the price level will increase. E) Short-run aggregate supply will decrease and the price level will increase.

B

If the central bank holds interest rates constant, an autonomous decrease of $10 million in investment spending will most likely result in A) a decrease of exactly $10 million in gross domestic product B) a decrease of more than $10 million in gross domestic product C) an increase of $10 million in taxes to offset the decrease in investment D) an increase of $10 million in aggregate supply to offset the decrease in investment E) an increase in the cost of loans for investment purposes

B

If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur? A) Aggregate demand will be unchanged. B) Aggregate demand will increase. C) Interest rates will decrease. D) The money supply will decrease. E) The money supply will increase.

B

If the marginal propensity to consume is 0.9, the government increases purchases by $100, and net exports decline by $60, the equilibrium level of real gross domestic product will A) decrease by up to $400 B) increase by up to $400 C) increase by up to $600 D) decrease by up to $1,600 E) increase by up to $1,600

B

In a closed economy with lump sum taxes, if the marginal propensity to consume increased from 0.5 to 0.75, the simple spending multiplier and the marginal propensity to save (MPS) would change in which of the following ways? A) Multiplier - Increase, MPS - Increase B) Multiplier - Increase, MPS - Decrease C) Multiplier - No change, MPS - Decrease D) Multiplier - Decrease, MPS - Increase E) Multiplier - Decrease, MPS - Decrease

B

In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level? A) There will be a downward movement along the short-run aggregate supply curve to a lower real output level. B) There will be an upward movement along the short-run aggregate supply curve to a higher real output level. C) The short-run aggregate supply curve will shift to the right and real output will increase. D) The short-run aggregate supply curve will shift to the left and real output will decrease. E) The aggregate demand curve will shift to the right and real output will increase.

B

Suppose a nation opened its borders to the free flow of workers from other nations. How would this event likely affect the long-run aggregate supply (LRAS) curve and the production possibilities curve of the nation? A) The LRAS curve would shift to the right, and the production possibilities curve would not shift. B) Both curves would shift to the right. C) Neither curve would shift. D) Both curves would shift to the left. E) The LRAS curve would shift to the left, and the production possibilities curve would shift to the right.

B

The graph above depicts an economy's aggregate demand and aggregate supply curves. If aggregate demand remains constant, the equilibrium price levels in the short run and in the long run will be which of the following? A) Short Run - 0A, Long Run - 0A B) Short Run - 0B, Long Run - 0A C) Short Run - 0B, Long Run - 0C D) Short Run - 0C, Long Run - 0A E) Short Run - 0C, Long Run - 0C

B

Under which of the following conditions would consumer spending most likely increase? A) Consumers have large unpaid balances on their credit cards. B) Consumers' wealth is increased by changes in the stock market. C) The government encourages consumers to increase their savings. D) Social security taxes are increased. E) Consumers believe they will not receive pay increases next year.

B

Which of the following means of reducing military spending would have the greatest positive impact on gross domestic product for the United States? A) Combining two domestic military bases into one overseas base B) Cutting retirement benefits to military personnel C) Closing overseas military bases and relocating those operations to the United States D) Closing overseas military bases and laying off military personnel E) Canceling contracts with domestic producers for new airplanes

C

Which of the following is correct according to the circular flow model of an economy? A Taxes received from the public equal government spending. B Imports equal exports. C Total spending equals total income. D Consumption plus saving equals investment. E Saving plus investment equals imports plus exports.

Total spending equals total income

Which of the following describes scarcity? A Wants are limited. B Wants exceed resources. C Resources are unlimited. D Resources are fully employed. E Resources are allocated efficiently.

Wants exceed resources.

Which of the following transactions would represent an addition to a nation's current gross domestic product? A) Ms. Smith purchases a share of stock in an automobile company. B) A retailer increases her stock of imported shoes. C) The government increases its domestic purchases of food for use by the military. D) A corporation sells shoes from last year's inventory. E) A mother sells her car to her daughter.

C

Which of the following will happen if the government raises both taxes and spending by $100 million and the marginal propensity to consume is 0.8? A) Aggregate demand will decrease, and real GDP will decrease by a maximum of $500. B) Aggregate demand will decrease, and real GDP will decrease by a maximum of $400. C) Aggregate demand will increase, and real GDP will increase by a maximum of $100. D) Aggregate demand will increase, and real GDP will increase by a maximum of $400. E) Aggregate demand will increase, and real GDP will increase by a maximum of $500.

C

Which of the following will most likely cause the short-run aggregate supply curve to shift to the left? A) A decrease in nominal wages B) A decrease in the expected rate of inflation C) An increase in energy prices D) An increase in the price level E) An increase in the size of the labor force

C

Which of the following will remain unchanged when the price level decreases? A) Inflationary expectations B) Aggregate quantity demanded C) Long-run aggregate supply D) Nominal wages E) Nominal output

C

Which of the following would most likely cause a rightward shift in an economy's aggregate supply curve? A) An increase in interest rates B) A tax increase of 50 cents per gallon for gasoline C) An across-the-board reduction of wages in the manufacturing sector D) The passage of legislation mandating a reduction in automobile pollution E) The shutdown of plants and movement of production of goods abroad

C

Which of the following is an example of a factor of production? A A want B A bank C A bond D Capital E Stock

Capital

Which of the following statements exemplifies the concept of structural unemployment? A New entrants into the labor force have trouble finding jobs. B Workers leave their current jobs to find better jobs. C Workers are laid off because aggregate demand has declined. D Workers are fired because consumers have reduced their total expenditures. E Workers are fired because their skills are no longer in demand.

Workers are fired because their skills are no longer in demand.

Which of the following will most likely decrease the unemployment rate? A Workers become discouraged and drop out of the labor force. B Workers lose jobs when their skills become obsolete. C Workers switch from full-time to part-time jobs. D Workers are not allowed to work from home. E Workers continue to work after reaching the retirement age.

Workers become discouraged and drop out of the labor force.

The recent popularity of job search Web sites that enable job seekers and potential employers to more efficiently contact each other is most likely to cause A a reduction in the labor force participation rate B a reduction in structural, but not in frictional, unemployment rates C a reduction in the frictional unemployment rate D an increase in the overall unemployment rate E a reduction in cyclical, but not in frictional, unemployment rates

a reduction in the frictional unemployment rate

Automatic stabilizers can do which of the following? A Offset the destabilizing influence of changes in tax revenues B Aid the economy to move away from the full-employment output level C Allow policymakers to formulate a set of rules flexible and comprehensive enough to eliminate discretionary actions D Cause tax revenues to decrease when gross domestic product (GDP) decreases and to increase when GDP increases E Allow policymakers to prescribe public works programs during inflationary periods because expenditures for unemployment and welfare have correspondingly decreased

Cause tax revenues to decrease when gross domestic product (GDP) decreases and to increase when GDP increases

Gross private domestic investment includes which of the following? A Changes in business inventories B National defense spending C New durable goods purchased by households D Transfer payments E Depreciation of government goods

Changes in business inventories

Which of the following is accounted for in the calculation of a country's gross domestic product? A Sales of stocks and bonds B Changes in inventories C Changes in product quality D The underground economy E Nonmarket activities

Changes in inventories

Which of the following types of unemployment is caused by a recession? A Hidden B Frictional C Seasonal D Structural E Cyclical

Cyclical

Which type of unemployment would increase if workers lost their jobs because of a recession? A Cyclical B Frictional C Seasonal D Search E Structural

Cyclical

A major advantage of automatic stabilizers in fiscal policy is that they A) reduce the public debt B) increase the possibility of a balanced budget C) stabilize the unemployment rate D) go into effect without passage of new legislation E) automatically reduce the inflation rate

D

An increase in spending in an economy will cause a multiplied increase in gross domestic product because A) government spending is greater than zero B) investment is greater than zero C) investment increases as income decreases D) consumption increases as income increases E) taxes increase as income increases

D

An increase in taxes on businesses in the United States will likely have what impact on the short-run aggregate supply SRAS curve in the United States? A) It will cause a movement along the SRAS curve to a higher real output. B) It will cause a movement along the SRAS curve to a lower real output. C) It will have no impact on the SRAS curve. D) It will cause the SRAS curve to shift leftward. E) It will cause the SRAS curve to shift rightward.

D

An increase in which of the following will increase the value of the spending multiplier? A) The supply of money B) Equilibrium output C) Personal income tax rates D) The marginal propensity to consume E) The required reserve ratio

D

An unanticipated decrease in aggregate demand when the economy is in equilibrium will result in A) a decrease in voluntary unemployment B) a decrease in the natural rate of unemployment C) a decrease in aggregate supply D) an increase in unplanned inventories E) an increase in the rate of inflation

D

As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in A) the production of military goods B) the production of antipollution devices C) crime prevention services D) household production E) legal services

D

REAL DISPOSABLE INCOME $18,000; $22,000; $26,000 CONSUMPTION $19,000; $22,000; $25,000 According to the income and consumption schedules shown above, the marginal propensity to consume is A) 1.33 B) 0.90 C) 0.80 D) 0.75 E) decreasing as real disposable income increases

D

Refer to the income and consumption data presented in the table below. Assume a closed economy with no government and a marginal propensity to consume of 0.80. DISPOSABLE INCOME $620, $640, $660, $680, $700, $720, $740, $760 CONSUMPTION $624, $640, $656, $672, $688, $704, $720, $736 The marginal propensity to save for this economy is A) 4.0 B) 1.0 C) 0.8 D) 0.2 E) 0

D

Stagflation is caused by A) an increase in imports B) an increase in aggregate demand C) a decrease in aggregate demand D) a decrease in aggregate supply E) an increase in aggregate supply

D

Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200, consumption spending will increase by A) $1,600 B) $1,360 C) $1,200 D) $960 E) $400

D

Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of A) $0.5 million B) $1.5 million C) $2.0 million D) $8.0 million E) $15.0 million

D

The table below shows the level of household savings at various levels of disposable income in a country. Savings - $2,000; Disposable Income - $10,000 Savings - $2,200; Disposable Income - $12,000 Based on the data on savings and disposable income in the table above, what are the income tax multiplier and the spending multiplier? A) The tax multiplier is −0.1 and the spending multiplier is 0.9. B) The tax multiplier is 0.2 and the spending multiplier is −0.8. C) The tax multiplier is −2 and the spending multiplier is 8. D) The tax multiplier is −9 and the spending multiplier is 10. E) The tax multiplier is 10 and the spending multiplier is −1.

D

Unexpected increases in inventories usually precede A) increases in inflation B) increases in imports C) stagflation D) decreases in production E) decreases in unemployment

D

A lender will realize unexpected benefit when the A actual inflation rate is higher than the anticipated inflation rate B actual inflation rate is lower than the anticipated inflation rate C rate of interest is greater than the actual rate of inflation D rate of interest is less than the actual rate of inflation E rate of interest equals the actual rate of inflation

actual inflation rate is lower than the anticipated inflation rate

If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has A approximately decreased by 10% B approximately decreased by 20% C approximately increased by 10% D approximately increased by 20% E not changed

approximately increased by 10%

Use the graph to answer the question. Suppose that the economy is in a recession. In the absence of government policy action to restore the economy to full employment, how will the economy adjust in the long run? A) The SRAS1 curve shifts to the left as nominal wages decrease and full employment is restored. B) The SRAS1 curve shifts to the right as nominal wages increase and full employment is restored. C) The SRAS2 curve shifts to the left as nominal wages increase and full employment is restored. D) The SRAS2 curve shifts to the right as nominal wages decrease and full employment is restored. E) The AD2 curve shifts to the left as nominal wages decrease and full employment is restored.

D

When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is A) equal to the cyclical rate B) greater than the natural rate C) less than the natural rate D) equal to the natural rate E) equal to zero

D

Which of the following is true about both the long-run aggregate supply curve and the production possibilities curve? A) Both curves represent unemployment and inflation. B) Points to the left of either curve represent efficient use of resources. C) Points to the right of either curve represent inefficient use of resources. D) Both curves represent the maximum sustainable capacity given the economy's resources. E) Both curves represent fluctuations of real gross domestic product around its potential level over time.

D

Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run? A) Equilibrium real output is always above full employment. B) Equilibrium real output is always below full employment. C) Equilibrium real output is always equal to full employment. D) Equilibrium real output can be above, equal to, or below full employment. E) Equilibrium real output is always indeterminate.

D

Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses? A) Unemployment will be eliminated and prices will be stable. B) The national debt will increase. C) Business cycles will become more stable. D) The automatic stabilizing effect of fiscal policy will be eliminated. E) The government will be forced to spend less when there are surpluses.

D

Which of the following would cause the production possibilities curve shown above to shift outward? A Reopening steel plants that had been closed B Rehiring laid-off steelworkers C Using machinery for missile production instead of steel production D Using machinery for steel production instead of missile production E Developing a more efficient steelmaking process

Developing a more efficient steelmaking process

Which of the following would cause the official unemployment rate to understate the problem of unemployment? A Workers receiving unemployment compensation B Cyclically unemployed workers C Discouraged workers D Recent college graduates looking for work E Retirees

Discouraged workers

A contractionary supply shock would most likely result in A) an increase in aggregate demand B) an increase in national income C) an increase in gross domestic product D) a decrease in the general price level E) a decrease in employment

E

A high marginal propensity to consume implies which of the following? A) A small change in consumption when income changes B) A high savings rate C) A high marginal tax rate D) An equilibrium level of income near full employment E) A low marginal propensity to save

E

According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following? A) A one-dollar increase in government spending B) A greater-than-one-dollar increase in government spending C) A one-dollar increase in the production of goods and services D) A one-dollar increase in aggregate demand for goods and services E) A greater-than-one-dollar increase in aggregate demand for goods and services

E

According to the graph above, which of the following will necessarily result in a decrease in output? A rightward shift of the aggregate demand curve A leftward shift of the aggregate demand curve A rightward shift of the aggregate supply curve A leftward shift of the aggregate supply curve A) I only B) III only C) I and III only D) II and III only E) II and IV only

E

Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion? A) Real output will increase by a maximum of $75 billion. B) Real output will increase by a maximum of $100 billion. C) Real output will increase by a maximum of $175 billion. D) Real output will increase by a maximum of $300 billion. E) Real output will increase by a maximum of $400 billion.

E

Based on the diagram above, what effect will an increase in the world supply of oil have on real gross domestic product and the price level? A) Real Gross Domestic Product - Decrease, Price Level - Increase B) Real Gross Domestic Product - Decrease, Price Level - Decrease C) Real Gross Domestic Product - Increase, Price Level - Increase D) Real Gross Domestic Product - Increase, Price Level - No change E) Real Gross Domestic Product - Increase, Price Level - Decrease

E

Faced with a large federal budget deficit, the government decides to decrease expenditures and tax revenues by the same amount. This action will affect output and interest rates in which of the following ways? A) Output - Increase, Interest Rates - Increase B) Output - Increase, Interest Rates - Decrease C) Output - No change, Interest Rates - Decrease D) Output - Decrease, Interest Rates - Increase E) Output - Decrease, Interest Rates - Decrease

E

If the federal government decreases its expenditures on goods and services by $10 billion and decreases taxes on personal incomes by $10 billion, which of the following will occur in the short run? A) The federal budget deficit will increase by $10 billion. B) The federal budget deficit will decrease by $10 billion. C) Aggregate income will remain the same. D) Aggregate income will increase by up to $10 billion. E) Aggregate income will decrease by up to $10 billion.

E

In a closed economy with only lump-sum taxation, if the marginal propensity to consume is equal to 0.75, a $70 billion increase in government spending could cause a maximum increase in output of A) $52.5 billion B) $70 billion C) $122.5 billion D) $210 billion E) $280 billion

E

Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following? A) Consumption - $420, Savings - $280 B) Consumption - $600, Savings - $400 C) Consumption - $660, Savings - $320 D) Consumption - $660, Savings - $440 E) Consumption - $760, Savings - $340

E

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run? A) Falling wages will shift the aggregate demand curve to the right, producing full employment. B) Rising wages will shift the aggregate demand curve to the right, producing full employment. C) The economy will remain at point A. D) Rising wages will shift the aggregate supply curve to the right, producing full employment. E) Falling wages will shift the aggregate supply curve to the right, producing full employment.

E

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand (AD) in Euroland? A) There will be a movement along the AD curve to a lower real output. B) There will be a movement along the AD curve to a higher price level. C) There will be no change in the AD curve. D) There will be a leftward shift in the AD curve. E) There will be a rightward shift in the AD curve.

E

Which of the following will lead to an increase in the United States gross domestic product? A More individuals prepare their own personal income tax forms. B Some citizens begin working abroad as computer programmers. C The government prohibits the sale of alcoholic beverages. D Foreign companies build new assembly plants in the United States. E A million United States households sell their used cars to their children.

Foreign companies build new assembly plants in the United States.

Melanie quits her job to look for a better one that has opportunity for advancement. Melanie will be classified in which category of unemployment? A Frictional B Hidden C Seasonal D Structural E Cyclical

Frictional

The production possibilities curve illustrates which of the following relationships? A The production of peaches decreases as apple production decreases. B The production of peaches increases as apple production increases. C The opportunity cost of peach production decreases as apple production decreases. D Fruitland cannot produce a combination of 5 units of peaches and 10 units of apples. E Fruitland can produce only the combinations of peaches and apples illustrated by points X and Y.

Fruitland cannot produce a combination of 5 units of peaches and 10 units of apples.

Which of the following is true according to the circular flow model? A Firms are suppliers in both the product and factor markets. B Firms are demanders in the product markets and suppliers in the factor markets. C Households are demanders in both the product and factor markets. D Households are demanders in the product markets and suppliers in the factor markets. E The government is a demander in the product market only.

Households are demanders in the product markets and suppliers in the factor markets.

For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production? A Households are producers of goods and services and consumers of resources. B Households are users of resources, and businesses are sources of saving. C Households are suppliers of resources and consumers of goods and services. D Businesses are users of taxes, and households are sources of taxes. E Businesses are suppliers of resources and consumers of goods and services.

Households are suppliers of resources and consumers of goods and services.

On the basis of the diagram above showing an economy's production possibilities curve for two goods, which of the following statements must be true? I. The opportunity cost of moving from point P to point R is 10 units of Y. II. The opportunity cost of moving from point R to point P is 8 units of X. III. The opportunity cost of moving from point Q to point R is 0 units of Y. A I only B III only C I and II only D II and III only E I, II, and III

I, II, and III

The circular flow of economic activity between consumers and producers includes which of the following? I. Households buy factor services from firms. II. Households sell factor services to firms. III. Households buy outputs from firms. IV. Households sell outputs to firms. A III only B IV only C I and II only D II and III only E III and IV only

II and III only

Which of the following groups of people would benefit from unanticipated inflation? I. Savers II. Borrowers III. Lenders A I only B II only C III only D I and II only E I and III only

II only

A short-run increase in national income could be caused by a decrease in which of the following? A Consumption B Investment C Imports D Government spending E Exports

Imports

Which of the following represents a leakage from the circular flow in an economy? A Consumption spending B Government spending C Investment spending D Unemployment benefits E Imports

Imports

According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways? A IncomeDecrease. EmploymentDecrease B IncomeDecrease. EmploymentIncrease C IncomeNo change. EmploymentIncrease D IncomeIncrease. EmploymentDecrease E IncomeIncrease. EmploymentIncrease

IncomeIncrease. EmploymentIncrease

Which of the following will most likely result from deflation? A Increased nominal interest rates B Increased business profits C Increased real value of fixed incomes D Decreased purchasing power of cash E Decreased real wealth

Increased real value of fixed incomes

Which of the following groups would most likely gain from unanticipated inflation? A Landlords who own apartments in cities with rent controls B Individuals who have fixed retirement incomes C Individuals who earn high incomes D Individuals who have borrowed money at fixed interest rates E Banks that have loaned all excess reserves at a fixed interest rate

Individuals who have borrowed money at fixed interest rates

An increase in inventories will increase which component of gross domestic product? A Personal consumption expenditures B Investment expenditures C Government purchases D Exports E Imports

Investment expenditures

Which of the following can be concluded about the consumer price index (CPI) for this individual from 1993 to 1994 ? A It remained unchanged. B It decreased by 25%. C It decreased by 20%. D It increased by 20%. E It increased by 25%.

It increased by 25%.

Which of the following statements is true of unanticipated inflation? A It decreases the economic well-being of all members of society proportionately. B It decreases the economic well-being of all members of society equally. C It increases the economic well-being of net creditors. D It increases the economic well-being of net debtors. E It increases the economic well-being of workers with long-term labor contracts.

It increases the economic well-being of net debtors.

Which of the following would most likely benefit from unexpected deflation? A Lenders B Borrowers C Retail shop owners D Governments in debt E Automobile manufacturing firms

Lenders

In an economy, the price index in 2006 was 100 and the real gross domestic product (GDP) was $1,000. In 2010, the price index was 110 and the nominal GDP was $2,200. Based on that information, which of the following can be inferred about the economy's nominal GDP in 2006 and real GDP in 2010 ? A Nominal GDP in 2006=$2,000; Real GDP in 2010=$1,000 B Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,000 C Nominal GDP in 2006=$1,100; Real GDP in 2010=$2,420 D Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,420 E Nominal GDP in 2006=$1,100; Real GDP in 2010=$2,200

Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,000

n 2017 Sabrina earned an annual salary of $100,000 as an engineer. In 2018, her income rose to $105,000. The inflation rate in 2018 was 2%. How did Sabrina's nominal income and real income change in 2018 compared to 2017? A Nominal income decreased and real income decreased. B Nominal income decreased and real income did not change. C Nominal income increased and real income decreased. D Nominal income increased and real income did not change. E Nominal income increased and real income increased.

Nominal income increased and real income increased

How does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when current real GDP is above potential GDP? A Nominal wages fall, shifting the short-run aggregate supply curve to the right. B Nominal wages fall, shifting the short-run aggregate supply curve to the left. C Nominal wages do not change, shifting the short-run aggregate supply curve to the right. D Nominal wages rise, shifting the short-run aggregate supply curve to the right. E Nominal wages rise, shifting the short-run aggregate supply curve to the left.

Nominal wages rise, shifting the short-run aggregate supply curve to the left.

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways? A Number of Workers EmployedDecrease. Unemployment RateDecrease B Number of Workers EmployedDecrease. Unemployment RateIncrease C Number of Workers EmployedDecrease. Unemployment RateNo change D Number of Workers EmployedNo change. Unemployment RateDecrease E Number of Workers EmployedNo change. Unemployment RateIncrease

Number of Workers EmployedNo change. Unemployment RateDecrease

Which of the following individuals is considered officially unemployed? A Chris, who has not worked for more than three years and has given up looking for work B Kim, who is going to school full-time and is waiting until graduation before looking for a job C Pat, who recently left a job to look for a different job in another town D Leslie, who retired after turning 65 only five months ago E Lee, who is working 20 hours per week and is seeking full-time employment

Pat, who recently left a job to look for a different job in another town

Which of the following describes a typical business cycle in the correct sequence? A Peak, trough, recession, and expansion B Peak, trough, expansion, and recession C Peak, recession, trough, and expansion D Peak, recession, expansion, and trough E Peak, expansion, trough, and recession

Peak, recession, trough, and expansion

Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation? A Inflation had been underpredicted. B The real interest rate had exceeded the nominal interest rate. C The real interest rate had been negative. D People who borrowed funds at the nominal interest rate during this time period would lose. E The economy would expand because of the increased investment and spending.

People who borrowed funds at the nominal interest rate during this time period would lose.

If an economy is experiencing deflation, which of the following is most likely to happen? A People consume more in the present. B The government decreases its spending. C People who took a fixed-rate loan become worse off. D The real interest rate is lower than the nominal interest rate. E The nominal interest rate increases.

People who took a fixed-rate loan become worse off.

An increase in the number of which of the following will lead to an increase in the unemployment rate? A Discouraged workers B Business start-ups C Self-employed persons D Persons working 30 instead of 40 hours per week E Persons quitting part-time jobs to look for full-time ones

Persons quitting part-time jobs to look for full-time ones

Which of the following will be counted as unemployed by the United States Bureau of Labor Statistics? A Persons who quit their previous jobs to stay at home to care for sick parents B Persons who were laid off from their previous jobs and have not applied for a job in two years C Persons who were fired from their previous jobs and are actively applying for work D Persons who have given up looking for jobs after long searches E Persons who quit their previous jobs to start their own businesses

Persons who were fired from their previous jobs and are actively applying for work

If a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run? A Price LevelNo change. Real OutputIncrease B Price LevelIncrease. Real OutputNo change C Price LevelIncrease. Real OutputDecrease D Price Level]Decrease. Real OutputNo change E Price LevelDecrease. Real OutputDecrease

Price LevelDecrease. Real OutputDecrease

Which of the following is an example of how the consumer price index (CPI) exhibits bias in its estimates of changes in the cost of living? A Energy prices have a higher impact on inflation than other input costs do. B New products are always overrepresented in the CPI. C The CPI assigns greater weight to measures of welfare than it does to economic activity. D Product improvements are not always fully reflected in the calculation of the CPI. E The CPI adjusts for the substitution of less expensive goods by consumers.

Product improvements are not always fully reflected in the calculation of the CPI.

In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways? A Real GDP Decrease. Price Level Decrease B Real GDP Decrease. Price Level Increase C Real GDP No change. Price Level Decrease D Real GDP Increase. Price Level Decrease E Real GDP No change. Price Level Increase

Real GDP No change. Price Level Decrease

Which of the following necessarily occurs during an economic recession? A Cost-push inflation decreases. B Real gross domestic product decreases. C Cyclical unemployment decreases. D Demand-pull inflation increases. E Nominal wages increase.

Real gross domestic product decreases.

Inflation occurs when there is a sustained increase in which of the following? A Real gross domestic product B The average price level C The price of any commodity D Labor productivity E The unemployment rate

The average price level

The consumer price index measures which of the following? A The change over time of the weighted prices of a particular group of goods and services B The change over time of the weighted wholesale price index C The change over time of the difference between the gross domestic product deflator and the wholesale price index D Inflation corrected for changes in the real gross domestic product E Inflation corrected for changes in the wholesale price index

The change over time of the weighted prices of a particular group of goods and services

Potential gross domestic product will decrease under which of the following conditions? A The growth rate of the population increases more rapidly than the growth rate of gross domestic product. B Nominal gross domestic product increases more than real gross domestic product. C The natural rate of unemployment decreases. D The country's annual depreciation is greater than its annual gross investment. E The monetary authorities adopt an easy monetary policy.

The country's annual depreciation is greater than its annual gross investment.

Gross domestic product has been criticized as a measure of well-being because it fails to take into account which of the following? A The distribution of income B The value of services C The value of intermediate goods D The value of financial transactions and sales of used items E The value of government services

The distribution of income

The figure above shows data for actual real GDP and potential real GDP from year 1 to year 6 for an economy. Which of the following is true based on this figure? A The economy is in expansion from year 1 to year 3. B The economy is in recession from year 3 to year 5. C There is an inflationary gap from year 2 to year 4. D The economy is at full employment in year 5. E The economy is in long-run equilibrium in year 2.

The economy is in long-run equilibrium in year 2.

The term "value added" for a firm is best defined as which of the following? A The firm's sales B The firm's sales minus depreciation C The firm's sales minus its losses D The firm's sales minus the cost of inputs purchased from other firms E The firm's profits from its sales

The firm's sales minus the cost of inputs purchased from other firms

In the circular flow diagram of a market economy, which of the following supplies the factors of production? A The business sector B The government C The household sector D Financial sector E The foreign sector

The household sector

Using 2010 as the base year, the gross domestic product (GDP) deflator in 2011 was 97. Which of the following must be true? A The inflation rate in 2011 was positive. B The inflation rate in 2011 was negative. C The inflation rate in 2011 was zero. D The purchasing power of a dollar decreased by 3 percent. E The real output increased by 3 percent.

The inflation rate in 2011 was negative.

Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true? A The borrower would benefit. B The lender would benefit. C The real interest rate would be lower than expected. D The nominal interest rate would be higher than expected. E The nominal interest rate would increase.

The lender would benefit.

If an economy is at the peak of the business cycle, then which of the following is true about the state of the economy? A There is a recessionary gap. B There is an inflationary gap. C The economy is producing at its potential output level. D The economy is producing below its potential output level. E The unemployment rate is higher than the natural rate of unemployment.

There is an inflationary gap

Which of the following is true if the economy is producing at the full-employment level of output? A The unemployment rate is zero. B No person is receiving unemployment compensation from the government. C There is frictional unemployment. D The government's budget is balanced. E The balance of trade is in equilibrium.

There is frictional unemployment.

Which of the following best describes an economy at full employment? A The rate of unemployment is zero. B There is only structural and cyclical unemployment. C There is only cyclical unemployment. D There is cyclical, but not structural, unemployment. E There is frictional, but not cyclical, unemployment.

There is frictional, but not cyclical, unemployment.

The circular flow model illustrates the equality of which of the following? A Total expenditure and total income B Savings and consumption C Total income and government spending D Total expenditure and wages E Exports and imports

Total expenditure and total income

Which of the following explains the relationship between the price level and real output along the aggregate demand curve? A) At a lower price level, people need more money to spend and therefore deposit less money in banks, which lowers interest rates and increases real output. B) At a lower price level, the real value of savings decreases which causes an increase in spending. C) At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods. D) At a lower price level, real incomes decrease which causes an increase in spending. E) At a lower price level, the purchasing power of consumers' income decreases which causes an increase in spending.

C

Which of the following explains why the long-run aggregate supply curve corresponds to the production possibilities curve? A) Both curves are downward sloping. B) Both curves illustrate flexible wages and prices. C) Both curves illustrate the maximum sustainable capacity. D) Both curves illustrate the trade-off between inflation and unemployment. E) Both curves illustrate short-run macroeconomic equilibrium.

C

Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT A borrowers B workers with fixed incomes C savers holding non-interest-bearing money D taxpayers shifted into higher tax brackets E people whose incomes are not adjusted for inflation

borrowers

The aggregate demand curve assumes that A as the price of a good or service increases, nominal wages decrease B as the domestic price level increases, consumers substitute domestic goods for foreign goods C all prices and total consumer incomes are constant D changes in the price level affect real wealth E nominal interest rates increase as the price level decreases

changes in the price level affect real wealth

The consumer price index (CPI) is designed to measure changes in the A spending patterns of urban consumers only B spending patterns of all consumers C wholesale price of manufactured goods D prices of all goods and services produced in an economy E cost of a select market basket of goods and services

cost of a select market basket of goods and services

An increase in the number of discouraged workers causes the unemployment rate to A decrease along with the labor-force participation rate B increase while the labor-force participation rate decreases C stay the same because the workers are still unemployed D decrease while the labor-force participation rate stays the same E increase along with the labor-force participation rate

decrease along with the labor-force participation rate

People who have given up looking for jobs are classified as A cyclically unemployed B frictionally unemployed C structurally unemployed D discouraged workers E underemployed workers

discouraged workers

The measured unemployment rate is often criticized for understating the level of joblessness because A individuals working in the underground economy are counted as employed B individuals working more than one job are counted more than once C discouraged workers are counted as unemployed D discouraged workers are not counted in the labor force E part-time workers are counted as unemployed

discouraged workers are not counted in the labor force

The best combination of belts and coats for this economy to produce is A 95 belts and 1 coat B 85 belts and 2 coats C 70 belts and 3 coats D 40 belts and 4 coats E indeterminate with the available information

indeterminate with the available information

A continuous increase in the consumer price index (CPI) is A deflation B stagflation C inflation D recession E disinflation

inflation

A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's A labor force B potential gross domestic product C number of employed D working-age population E total population

labor force

On the graph above, stagflation will be caused by a A leftward shift in the short-run aggregate supply curve only B rightward shift in the short-run aggregate supply curve only C leftward shift in the aggregate demand curve only D rightward shift in the aggregate demand curve only E rightward shift in both the short-run aggregate supply and aggregate demand curves

leftward shift in the short-run aggregate supply curve only

An increase in the labor force participation rate will A increase investment and decrease savings B increase savings and decrease investment C have no effect on unemployment D make it easier to reduce unemployment E make it more difficult to reduce unemployment

make it more difficult to reduce unemployment

In one year, spending on consumption, investment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if A the money supply increased B net exports were positive C net exports were negative D the government ran a budget surplus E the government had a balanced budget

net exports were negative

If purchases of education and medical care were counted as investment rather than consumption, gross domestic product would A not change, because there is no change in total expenditures B increase, because investment is included in gross domestic product but consumption is not C increase, because consumption is included in gross domestic product but investment is not D decrease, because investment is weighted more heavily than consumption in calculating gross domestic product E decrease, because consumption is weighted more heavily than investment in calculating gross domestic product.

not change, because there is no change in total expenditures

Olivia volunteers full time at an animal shelter and will not accept any offers for a paid job for the next six months. Olivia is A cyclically unemployed B not in the labor force C employed D structurally unemployed E a seasonal worker

not in the labor force

According to the business cycle represented in the diagram above, the actual rate of unemployment equals the natural rate of unemployment when the economy is A in expansion B in contraction C at the peak D at the trough E on the potential line

on the potential line

A criticism of the consumer price index as a measure of the cost of living is that it A understates the rate of inflation because the base year is outdated B understates the rate of inflation because it only considers spending by typical urban consumers C understates the rate of inflation because it reflects the increase in prices due to the introduction of new goods D overstates the rate of inflation because it ignores consumers' ability to substitute among similar items when prices change E overstates the rate of inflation to compensate for statistical errors in data collection

overstates the rate of inflation because it ignores consumers' ability to substitute among similar items when prices change

An industry historically used employees with specific skills. If this industry experiences technological advances that require new skills, there will most likely be A cyclical unemployment B frictional unemployment C seasonal unemployment D structural unemployment E no change in unemployment

structural unemployment

Structural unemployment is best described as unemployment arising from A the elimination of jobs as a result of technological change B an increase in the number of workers searching for better-paying jobs C an increase in the number of jobs demanding unskilled labor D the temporary reduction of jobs during a downturn in the business cycle E the reduction in jobs due to seasonal changes in demand

the elimination of jobs as a result of technological change

Nominal gross domestic product is best defined as A the market value of all goods and services consumed in a nation in a given year B the market value of final goods and services produced in a nation in a given year C the base-year value of total goods and services produced in a nation in a given year D the base-year value of final goods and services produced in a nation in a given year E the market value of all goods and services produced and consumed in a nation in a given year

the market value of final goods and services produced in a nation in a given year

The unemployment rate is calculated as A the number of people not working divided by the population B the number of people not working divided by the number of people working both full-time and part-time C the number of people working part-time but actively seeking full-time employment divided by the number of people in the labor force D the number of people not working but actively seeking employment divided by the number of people in the labor force E the number of people in the labor force divided by the population

the number of people not working but actively seeking employment divided by the number of people in the labor force

The official unemployment rate is not an accurate indicator of actual unemployment in the economy because A structural unemployment is greater than cyclical unemployment at the going wage rate B full employment is greater than natural unemployment C the unemployment rate is less than natural unemployment D the official rate does not include persons who have given up looking for work E the official rate does not reflect the number of people receiving unemployment compensation

the official rate does not include persons who have given up looking for work

Suppose that the consumer price index rises from 100 to 200. From this information we may conclude that A each person's real income is cut in half B consumer incomes are doubled C the prices in an average consumer's market basket are doubled D all consumer goods prices are doubled E all prices in the economy are doubled

the prices in an average consumer's market basket are doubled

The natural rate of unemployment is the unemployment rate when A all workers seeking employment have taken jobs B all the unemployed are only structurally unemployed C there is no frictional unemployment D there is no cyclical unemployment E there are no new unemployed individuals

there is no cyclical unemployment

The official unemployment rate understates the unemployment level in the economy because the official unemployment rate A ignores the duration of unemployment B ignores underemployed and discouraged workers C includes jobs created by the underground economy D excludes all unemployed teenagers E excludes frictionally unemployed workers

ignores underemployed and discouraged workers

The consumer price index (CPI) does not measure the true cost of inflation because A improvements in the quality of goods or services are not fully reflected B lenders are better off when actual inflation is less than anticipated inflation C borrowers are better off when actual inflation is greater than anticipated inflation D changes in consumers' real income are not accounted for E consumers may substitute toward more expensive goods without being significantly worse off

improvements in the quality of goods or services are not fully reflected

As an indicator of an impending recession, inventories will most likely A decrease as a result of a decrease in consumption B increase as a result of a decrease in consumption C increase as a result of a decrease in aggregate supply D decrease as a result of an increase in aggregate supply E remain constant as a result of economic uncertainty

increase as a result of a decrease in consumption

Country X is currently in long-run macroeconomic equilibrium. If the country's economy experiences a significant increase in the price of energy, a major input in production, which of the following will occur in the short run? A) The aggregate demand curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment. B) The aggregate demand curve will shift to the left, and there will be an inflationary gap. C) The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment. D) The short-run aggregate supply curve will shift to the left, and the price level will fall. E) The short-run aggregate supply curve will shift to the left and cause an inflationary gap.

C

If the economy was in a severe recession, the most expansionary fiscal policy would be to A) decrease both personal income taxes and government spending by equal amounts B) decrease both the reserve requirement and government spending by the same proportion C) decrease personal income taxes and increase government spending by equal amounts D) increase the money supply and increase government spending by the same proportion E) increase social security taxes and increase government spending by equal amounts

C

If the natural rate of unemployment exceeds the actual rate of unemployment, which of the following will occur in the long run in the absence of government intervention? A) There will be cyclical unemployment. B) Input prices will decrease. C) Nominal wages will increase. D) The aggregate demand curve will shift to the left. E) The short-run aggregate supply curve will shift to the right.

C

In an economy the marginal propensity to consume is 0.90, and gross domestic product (GDP) is $100 billion. If gross private domestic investment declines by $2 billion, then GDP will A) decrease by a maximum of $1.8 billion B) decrease by a maximum of $2 billion C) decrease by a maximum of $20 billion D) increase by a maximum of $1.8 billion E) increase by a maximum of $20 billion

C

In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true? A) When consumption increases by $5, investment increases by a maximum of $1. B) When consumption increases by $5, savings increase by a maximum of $1. C) When investment increases by $1, income increases by a maximum of $5. D) When investment increases by $1, consumption increases by a maximum of $5. E) When income increases by $1, investment increases by a maximum of $5.

C

In the graph above, AD denotes the aggregate demand curve, SRAS the short-run aggregate supply curve, and LRAS the long-run aggregate supply curve. If no policy action were taken, which of the following changes would move the economy to its long-run equilibrium? A) An increase in aggregate demand B) An increase in exports C) An increase in wages D) A decrease in wages E) A decrease in the expected price level

C

Suppose an economy is operating above full employment. Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment? A) Increasing government spending, which will shift the AD curve rightward. B) Decreasing government spending, which will shift the AD curve rightward. C) Increasing taxes, which will shift the AD curve leftward. D) Decreasing taxes, which will shift the AD curve leftward. E) Increasing transfer payments, which will shift the AD curve leftward.

C

Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion. If the economy's marginal propensity to consume is 0.75 and there is no crowding out, the government should do which of the following? A) Increase spending by $2,400 billion. B) Increase spending by $600 billion. C) Increase spending by $150 billion. D) Decrease taxes by $150 billion. E) Decrease taxes by $600 billion.

C

Assume an economy is currently at full employment. Which of the following best describes the long-run adjustments that will occur in the economy following a negative aggregate demand shock with no government intervention? A) Short-run aggregate supply will decrease, offsetting the initial aggregate demand shock and restoring full employment in the long run. B) The aggregate demand shock will result in a multiplier effect on real output moving the economy farther away from full employment in the long run. C) The price level will decrease and aggregate demand will increase until full employment is restored in the long run. D) Nominal wages will decrease and short-run aggregate supply will increase until full employment is restored in the long run. E) Real income will decrease and consumption spending will decrease moving the economy farther away from full employment in the long run.

D

Assume that stock prices and home values have increased, raising household wealth. At the same time, productivity increased due to new technology. What is the likely short-run impact on the economy? A) The aggregate demand (AD) curve shifts right and the short-run aggregate supply (SRAS) curve shifts left, resulting in a higher price level and no change in the real output level. B) The aggregate demand (AD) curve shifts left and the short-run aggregate supply (SRAS) curve shifts right, resulting in a lower price level and no change in the real output level. C) The aggregate demand (AD) curve shifts right and the short-run aggregate supply (SRAS) curve shifts left, resulting in a higher real output level and lower price level. D) Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a higher real output level and indeterminate price level. E) Both the aggregate deman

D

Assume that the marginal propensity to consume is 0.8. If the government increases its purchases of goods and services by $200 and exports decline by $50, at most the equilibrium level of income will A) decrease by $250 B) decrease by $1,000 C) increase by $150 D) increase by $750 E) increase by $1,250

D

Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ? A) GDP will increase by a maximum of $200 million. B) GDP will increase by a maximum of $180 million. C) GDP will decrease by a maximum of $200 million. D) GDP will decrease by a maximum of $180 million. E) GDP will decrease by a maximum of $20 million.

D

Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand? A) Aggregate demand will decrease by $900 billion. B) Aggregate demand will decrease by $500 billion. C) Aggregate demand will decrease by $400 billion. D) Aggregate demand will decrease by $100 billion. E) Aggregate demand will not change.

D

Given the graph of the short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves above, which of the following is true? A) At point Z, the economy has cyclical unemployment. B) At point Z, the economy is in long-run equilibrium but not in short-run equilibrium. C) At point Y, the natural rate of unemployment is zero. D) At point X, the economy is experiencing a recessionary gap. E) At point X, there is no frictional unemployment.

D

If AD and AS represent aggregate demand and aggregate supply curves, respectively, and the arrows indicate the movement of the curves, which of the following graphs best illustrates long-run economic growth? A) Graph A B) Graph B C) Graph C D) Graph D E) Graph E

D

If an economy's aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the A) real level of output B) price level C) interest rate D) unemployment rate E) government's budget deficit

D

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping? A) A decrease in the price level will increase profits and production. B) A decrease in the price level will decrease profits and increase production. C) An increase in the price level will increase real wages and production. D) An increase in the price level will increase profits and production. E) An increase in the price level will decrease real wages and decrease production.

D

If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of A) $40.00 B) $100.00 C) $133.33 D) $400.00 E) $500.00

D

If the marginal propensity to consume is 0.8, an increase of $20,000 in government spending will change the real gross domestic product by a maximum of A) $16,000 B) $20,000 C) $80,000 D) $100,000 E) $120,000

D

In the AD−AS model, which of the following is true? A) The economy is in an inflationary gap when the short-run equilibrium real output is below the long-run equilibrium real output. B) The economy is in an inflationary gap when the short-run equilibrium real output is at the long-run equilibrium real output. C) The economy is in a recessionary gap when the short-run equilibrium real output is at the long-run equilibrium real output. D) The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output. E) The economy is in a recessionary gap when the short-run equilibrium real output is above the long-run equilibrium real output.

D

The government of Olympia is considering a fiscal policy action to slow the economy and curb inflation. If the marginal propensity to consume is 0.8, which of the following responses correctly identifies a policy action that would help the government achieve its goals and the impact of that action on Olympia's real gross domestic product (GDP)? A) Increasing taxes by $10 billion increases real GDP by a maximum of $50 billion. B) Decreasing taxes by $10 billion decreases real GDP by a maximum of $50 billion. C) Increasing taxes by $10 billion increases real GDP by a maximum of $40 billion. D) Increasing government spending by $10 billion increases real GDP by a maximum of $50 billion. E) Decreasing government spending by $10 billion decreases real GDP by a maximum of $50 billion.

E

The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what range of real gross domestic product is the economy currently producing? A) Less than Y1 B) At Y1 C) At Y2 D) Greater than Y1 and less than Y2 E) Greater than Y2

E

The table below shows the level of household savings at various levels of disposable income in a country. Savings - $2,000; Disposable Income - $10,000 Savings - $2,200; Disposable Income - $12,000 Based on the level of savings and disposable income data in the table above, which of the following must be true? A) The marginal propensity to save is 0.2. B) The marginal propensity to save is 0.9. C) When disposable income is $12,000, consumption is $10,000. D) The marginal propensity to consume is 0.1. E) The marginal propensity to consume is 0.9.

E

The value of the spending multiplier decreases when A) tax rates are reduced B) exports decline C) imports decline D) government spending increases E) the marginal propensity to save increases

E

Use the graph to answer the question. Which of the following is true when an economy is operating at the intersection of the AD2 and SRAS2 curves? A) The economy is facing a recessionary gap. B) The economy is facing an inflationary gap. C) The natural rate of unemployment is less than the actual unemployment rate. D) The natural rate of unemployment is greater than the actual unemployment rate. E) The economy is in short-run and long-run equilibrium.

E

Use the table to answer the question. Disposable Income - $10,000; Consumption Spending - $6,000 Disposable Income - $11,000; Consumption Spending - $6,600 Using the disposable income and consumption data in the table above, calculate the value of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). A) MPC = 0.04⁢ , MPS = 0.96 B) MPC = 0.10 , ⁢⁢MPS = 0.90 C) MPC = 0.20 , MPS = 0.80 D) MPC = 0.50 , MPS = 0.50 E) MPC = 0.60, MPS = 0.40

E

Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment? A) The government increases spending without increasing taxes. B) The government increases taxes without increasing spending. C) Inflationary expectations decline. D) Women and teenagers stay out of the labor force. E) Negative supply shocks cause factor prices to increase.

E

Which of the following must be true in the long run? A) Production increases when prices increase. B) An increase in the price level reduces aggregate demand. C) The natural rate of unemployment is not affected by changes in production capacity. D) Full employment increases when price level decreases. E) Prices and wages are flexible.

E

Which of the following represents an appropriate fiscal policy for the given economic conditions? A) An expansionary fiscal policy is appropriate to reduce unemployment when there is an inflationary gap. B) An expansionary fiscal policy is appropriate to reduce inflation when there is a recessionary gap. C) An expansionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap. D) A contractionary fiscal policy is appropriate to reduce unemployment when there is a recessionary gap. E) A contractionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.

E

Which of the following will cause a rightward shift of the short-run aggregate supply curve? A) An increase in consumption spending B) An increase in nominal wages C) An increase in income taxes D) A decrease in the price level E) A decrease in the costs of production

E

Which of the following will most likely result from a decrease in government spending? A) An increase in output B) An increase in the price level C) An increase in employment D) A decrease in aggregate supply E) A decrease in aggregate demand

E

Which of the following will result in the greatest increase in aggregate demand? A) A $100 increase in taxes B) A $100 decrease in taxes C) A $100 increase in government expenditures D) A $100 increase in government expenditures, coupled with a $100 increase in taxes E) A $100 increase in government expenditures, coupled with a $100 decrease in taxes

E

Which of the following typically occurs during an expansionary phase of a business cycle? A Nominal interest rates decrease. B Income taxes decrease. C The price level decreases. D Government transfer payments increase. E Employment increases.

Employment increases

The nominal gross domestic product of China in 2010 is a measure of the total value of which of the following in 2010 ? A Financial assets, including stocks, in China B Firms located within the borders of China C Final goods and services consumed in China D Final goods and services produced within the borders of China E Final goods and services exported by China to the rest of the world

Final goods and services produced within the borders of China

Which of the following best explains why transfer payments are not included in the calculation of gross domestic product? A Transfer payments are used to pay for intermediate goods, and intermediate goods are excluded from gross domestic product. B Transfer payments are a government expenditure, and government expenditures are excluded from gross domestic product. C Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments. D Recipients of transfer payments are usually children, and income earned by children is excluded in gross domestic product. E Recipients of transfer payments are sometimes not citizens of the United States.

Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments.

All societies face a trade-off for every decision for which of the following reasons? A A decision entails zero opportunity cost. B Resources are scarce. C Some resources are always unemployed. D Resources have no alternative uses. E Resources are not allocated efficiently.

Resources are scarce.

Which of the following can be considered a leakage from the circular flow of economic activity? A Investment B Government expenditures C Consumption D Exports E Saving

Saving

According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation? A Short RunR to N. Long RunM to N B Short RunR to M. Long RunR to N C Short RunR to Q. Long RunQ to N D Short RunR to M. Long RunR to Q E Short RunR to N. Long RunN to Q

Short RunR to M. Long RunR to N

As a measure of economic performance, GDP accounts for which of the following? A Used books donated to a local library B Depletion of durable consumer goods C Increased leisure time D Souvenir gifts purchased by tourists domestically E Cash transactions in the underground economy

Souvenir gifts purchased by tourists domestically

If 2012 is the base year, which of the following is true? A The inflation rate from 2012 to 2013 is 10%. B The CPI in year 2013 is 110. C The CPI in year 2013 is 120. D Based on the CPI, the average real weekly wage rate increased by 10% from 2012 to 2013. E Based on the CPI, the average real weekly wage rate decreased by 20% from 2012 to 2013

The CPI in year 2013 is 120.

Assume the economy is in a short-run equilibrium at point L. In the absence of any fiscal or monetary policy actions, what will happen in the long run? A The AD curve will shift to the right, and the economy will be in long-run equilibrium at point J. B The AD curve will shift to the right, and the economy will be in long-run equilibrium at point M. C The AD curve will shift to the right, the SRAS curve will shift to the left, and the economy will be in long-run equilibrium at point M. D The SRAS curve will shift to the left, and the economy will be in long-run equilibrium at point M. E The SRAS curve will shift to the right, and the economy will be in long-run equilibrium at point K.

The SRAS curve will shift to the right, and the economy will be in long-run equilibrium at point K.

Which of the following situations will benefit lenders of fixed interest rate loans? A The actual inflation rate is equal to the natural rate of unemployment. B The actual inflation rate is less than the expected inflation rate. C The actual inflation rate is equal to the fixed interest rate. D The consumer price index is greater than 100. E There is no cyclical unemployment.

The actual inflation rate is less than the expected inflation rate.

If a nation's actual real GDP is less than potential real GDP, which of the following must be true? A The economy is in expansion B The economy is in recession. C There is no cyclical unemployment. D There is no frictional unemployment. E The actual rate of unemployment exceeds the natural rate of unemployment.

The actual rate of unemployment exceeds the natural rate of unemployment

The natural rate of unemployment can be defined as the A unemployment rate consistent with accelerating inflation B unemployment rate of the least-skilled workers C economy's long-run equilibrium rate of unemployment D labor force participation rate plus the unemployment rate E labor force participation rate minus the unemployment rate

economy's long-run equilibrium rate of unemployment

During recessions caused by changes in aggregate demand, the economy typically experiences A rising income and a rising price level B rising income and rising employment C rising income and a falling price level D falling income and falling employment E falling income and a rising price level

falling income and falling employment

The circular-flow model indicates that final goods are produced by A firms and sold in the factor markets B firms and sold in the product markets C firms and sold in the resource markets D households and sold in the factor markets E households and sold in the product markets

firms and sold in the product markets

Alice, who has left her job in New York, is moving to Atlanta and looking for a job. In terms of employment status, Alice can most accurately be described as A involuntarily unemployed B cyclically unemployed C seasonally unemployed D frictionally unemployed E not in the labor force

frictionally unemployed

Ying has just graduated from college and is now interviewing for jobs. Ying would best be described as A cyclically unemployed B frictionally unemployed C structurally unemployed D not in the labor force E a discouraged worker

frictionally unemployed

The consumer price index (CPI) is criticized for A overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change B overstating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change C understating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change D understating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change E overstating the true burden of inflation because it reflects the prices of both intermediate goods and final goods

overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change

The unemployment rate measures the percentage of A people in the labor force who do not have jobs B people in the labor force who have a part-time job but are looking for a full-time job C people who do not have jobs and have given up looking for work D people in the adult population who do not have jobs E people in the adult population who have temporary jobs

people in the labor force who do not have jobs

The consumer price index (CPI) measures the A value of current gross domestic product in base-year dollars B prices of all consumer goods and services produced in the economy C prices of selected raw materials purchased by firms D prices of a specific group of goods and services purchased by consumers E prices of imports, but not exports

prices of imports, but not exports