ECON 2006 Test 1 Chapter 6

In the circular flow diagram, households demand ______ and supply ______. A) goods and services; labor B) goods; services C) labor; good and services D) labor; labor

goods and services; labor

If the central bank decreases the money supply, it is conducting: A) supply side policy B) incomes policy C) fiscal policy D) monetary policy

monetary policy

The economic policy that is designed to increase the productivity of workers is known as: A) supply-side policy. B) monetary policy C) demand-management policy. D) fiscal policy

supply-side policy

When President Reagan proposed tax rates cuts to promote investment and increase productivity, he was proposing a change in: A) supply-side policy. B) fiscal policy. C) demand-management policy. D) monetary policy.

supply-side policy

In which of the following markets are funds demanded and supplied? A) the labor market B) the money market C) the goods and services market D) All of the above

the money market

Proponents of supply-side policies argue that the best way to: A) to increase government production so that public-sector employment increases B) to stimulate the supply of labor and capital and increase investment C) for the government to directly control prices and wages. D) to increase the supply of money in the economy.

to stimulate the supply of labor and capital and increase investment

The major lesson in the circular flow diagram is that: A) taxes must always be greater than government expenditures B) saving must always be less than investment C) total income in the economy must always equal total spending D) All of the above

total income in the economy must always equal total spending

The total supply of goods and services in an economy is known as: A) Total Demand B) Aggregate Supply C) Supply Side Economics D) Aggregate Demand

Aggregate Supply

A period when the economy shrinks is known as: A) a slump. B) a contraction. C) recession D) all of the above

All of the above

In the circular flow diagram, the different payments made by firms to households are: A) interest and dividend payments B) wages and profits C) profits and rent D) All of the above

All of the above

Which of the following is a topic studied in Macroeconomics? A) Inflation B) Unemployment C) Output growth D) All of the above

All of the above

In a business cycle, a peak represents the end of: A) trough. B) sticky prices. C) an expansion D) a recession

An expansion

In a business cycle, a peak represents the end of ________ and a trough represents the end of ________. A) an expansion; a recession B) a depression; an expansion C) a recession; an expansion D) a trough; a peak

An expansion; a recession

A capital gain is: A) an increase in the value of an asset over the price initially paid for it. B) the portion of a corporation's profits that the firm pays out each period to its shareholders C) the difference between an individual's economic income and money income D) a financial instrument that gives the holder a share in the ownership of a firm and therefore the right to share in the profits of the firm.

An increase in the value of an asset over the price initially paid for it

To get the economy out of a slump, Keynes believed that the government should: A) increase both taxes and government spending. B) cut both taxes and government spending. C) decrease taxes and/or increase government spending. D) increase taxes and/or decrease government spending.

Decrease taxes and/or increase government spending

In the circular flow diagram, firms _______ labor and households _______ goods and services. A) Supply; demand B) demand; demand C) demand; supply D) supply; supply

Demand; demand

A period during which aggregate output rises is known as a(n): A) recession. B) expansion. C) hyperinflation. D) inflation

Expansion

The period in the business cycle from a trough to peak is called a(n) A) recession. B) depression. C) slump. D) expansion.

Expansion

The ________ can change the quantity of money in the economy. A) Federal Reserve B) Treasury Department C) Congress D) Banking Commission

Federal Reserve

If Congress increases government spending, it is using: A) incomes policy. B) fiscal policy C) monetary policy. D) supply-side policy

Fiscal policy

The aggregate demand curve shows the total quantity demanded by all sectors in the economy at different: A) Wage Rates B) General Price Levels C) Interest Rates D) Exchange Rates

General Price Levels

Which of the following is a topic studied in Macroeconomics? A) The wage of auto workers B) The price of IBM computers C) Gross Domestic Product D) The amount of pizza produced

Gross Domestic Product

A period of very rapid increase in the overall price level is known as: A) depression. B) stagnation. C) stagflation D) hyperinflation.

Hyperinflation

Suppose the economy suffers a high rate of unemployment. According to Keynesian economists, the government should increase employment by: A) balancing the budget. B) not doing anything. C) increasing government spending. D) decreasing money supply.

Increasing Government Spending

An increase in the overall price level is known as: A) deflation B) stagflation C) inflation. D) recession.

Inflation

According to the Classical economists, the economy: A) has sticky prices in many industries. B) is self-correcting. C) requires fine-tuning to reach full employment. D) will never be at full employment.

Is self-correcting

John purchased a 1965 Ford Mustang in 2004 for $20,000 and a year later he sold it for $23,000. Due to these transactions: A) John earned a capital loss of $3,000 B) John earned a capital gain of $3,000 C) John earned a dividend of $300 D) John earned a dividend of $3,000

John earned a capital gain of $3,000

(Figure 5.1) Refer to Figure 5.1. The line labeled B is: A) Aggregate Output B) The Overall Price Level C) Aggregate Supply D) Aggregate Demand

(Figure 5.1) Aggregate Demand

(Figure 5.1) Refer to the information in Figure 5.1. The line labeled A is: A) Aggregate Supply B) Aggregate Output C) The overall price level D) Aggregate Demand

(Figure 5.1) Aggregate Supply

The unemployment rate equals: A) (labor force - employed)/labor force B) unemployed/employed C) labor force/population D) (employed - unemployed)/labor force

(labor force - employed)/ labor force

If 10 million workers are unemployed and 90 million workers are employed, then the unemployment rate is A) 11%. B) 90%. C) 89%. D) 10%

10%

If the labor force is 100 and employment is 95, then the unemployment rate is A) 0% B) 100% C) 95% D) 5%

5%

A prolonged and deep recession is called: A) a depression. B) a business cycle. C) hyperinflation D) stagflation

A depression

The total demand for goods and services in an economy is known as: A) Aggregate Demand B) Total Demand C) Gross National Product D) Gross Domestic Product

Aggregate Demand

Bill purchased 100 autographed Alex Rodriguez baseball cards when he was 15 years old for a total cost of $200 and then sold those baseball cards 10 years later for $1000. Due to these transactions: A) Bill earned a dividend of $800 B) Bill earned a capital gain of $800 C) Bill earned a capital gain of $1000 D) Bill earned a dividend of $1000

Bill earned a capital gain of $800

If Aaron purchases a share of stock for $100 and two years later sells it for $110, he will realize a: A) capital loss of $10 B) dividend of $10 C) dividend of $190 D) capital gain of $10

Capital gain of $10

If Aaron purchase a share of stock for $50 and two years later sells it for $125, he will realize a: A) Capital gain of $50 B) dividend of $25 C) capital gain of $75 D) dividend of $100

Capital gain of $75

The concept of "market clearing" is adopted and defended by: A) Keynesian economists. B) demand-side economists. C) fine-tuning economists. D) Classical economists.

Classical economists

Aggregate demand in the economy is the total demand by A) consumers only. B) the government and firms only. C) consumers, firms, the government, and the rest of the world. D) firms only.

Consumers, firms, the government, and the rest of the world

According to the Classical model, unemployment: A) could be eliminated through fiscal and monetary policies. B) could not persist because wages would fall to eliminate the excess supply of labor. C) could not persist because wages would rise to eliminate the excess supply of labor. D) could be eliminated only through government intervention.

Could not persist because wages would fall to eliminate the excess supply of labor

Between a peak and a trough, the economy goes through a(n): A) inflation. B) expansion. C) recession D) boom

Recession

The period in the business cycle from a peak to a trough is a(n) A) inflation. B) expansion. C) recession. D) boom.

Recession

A household that spends less than it receives in income during a given period is: A) running a deficit B) saving C) receiving transfer payments D) dissaving

Saving

The aggregate demand curve: A) Is horizontal B) Slopes upward to the right C) Is vertical D) Slopes downward to the right

Slopes downward to the right

Rapid increases in the price level during periods of recession or high unemployment are known as: A) stagflation. B) inflation. C) depression D) stagnation

Stagflation

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are A) regulatory prices. B) sticky prices C) market prices. D) administered prices

Sticky prices

Suppose the government reduced corporate profit taxes to encourage investment. This policy is in line with: A) Classical economics. B) supply-side or growth economics. C) Keynesian economics. D) the macrofoundations of microeconomics.

Supply-side or growth economics

Government policies that focus on increasing production rather than stimulating aggregate demand are known as A) incomes policies. B) monetary policies C) fiscal policies. D) supply-side policies

Supply-side policies

If Congress decreases taxes on business, it is using: A) supply-side policy. B) incomes policy. C) monetary policy D) fiscal policy.

Supply-side policy

If government regulations imposed on businesses that reduce productivity are eliminated, the government is attempting to use: A) monetary policy B) supply-side policy C) fiscal policy D) incomes policy

Supply-side policy

You purchase 100 share of stock for $40,000. A year later the stock is valued at $42,000. Instead of selling the stock, you hold onto it for another year. Which of the following is TRUE? A) To determine the capital gain, it is first necessary to know the normal rate of return on capital B) The $2,000 increase in the value of the stock represents an unrealized capital gain C) The $2,000 increase in the value of the stock represents a dividend D) None of the above

The $2,000 increase in the value of the stock represents an unrealized capital gain

Which of the following statements is FALSE? A) The downward slope of the aggregate demand curve is related to what goes on in the money (financial) market. B) The aggregate supply curve is based on the assumption of fixed prices. C) The aggregate demand curve slopes downward and to the right. D) When analyzing the behavior of aggregate demand, the availability of substitutes is irrelevant.

The aggregate supply curve is based on the assumption of fixed prices.

A deflation is when: A) the unemployment rate declines. B) the average price level declines C) the economic growth rate declines. D) economic activity declines

The average price level declines

Aggregate behavior is: A) the behavior of each individual. B) the behavior of all households and firms together. C) the behavior of each household and firm. D) none of the above.

The behavior of all households and firms together

A deficit in the federal budget exists when: A) the total amount of money the government owed by the federal government shrinks. B) the difference between the level of federal tax revenues and federal expenditures in a year is positive. C) the total amount of money owed by the federal government is zero. D) the difference between the level of federal tax revenues and federal expenditures in a year is negative.

The difference between the level of federal tax revenues and federal expenditures in a year is negative

A surplus in the federal budget exists when: A) the total amount of money owed by all levels of government exceeds total federal tax revenues. B) the total amount of money owed by the federal government is zero. C) the ratio of federal tax revenues to federal expenditures in a year equals to one. D) the difference between the level of federal tax revenues and federal expenditures in a year is positive.

The difference between the level of federal tax revenues and federal expenditures in a year is positive

According to Keynes, the level of employment is determined by: A) price and wages. B) flexible wages and prices. C) the level of aggregate demand for goods and services. D) interest rates.

The level of aggregate demand for goods and services

A dividend is: A) the difference between the interest rate a bank pays on deposits and the interest rate it charges for loans B) an increase in the value of an asset over the purchase price initially paid for it C) a promissory note issued by corporations when they borrow money D) the portion of a corporation's profits that the firm pays out each period to its shareholders

The portion of a corporation's profits that the firm pays out each period to its shareholders

Which of the following is NOT a topic studied in Macroeconomics? A) The price of IBM computers B) The inflation rate C) The unemployment rate D) Gross Domestic Product

The price of IBM computers

Stagflation occurs when the economy's inflation rate is high and: A) employment is high. B) the rate of change in economic activities is positive. C) the unemployment rate is low. D) the unemployment rate is high.

The unemployment rate is high

Unemployment implies that in the labor market: A) there are too few workers for the jobs available. B) there is an excess demand for labor. C) quantity demanded of labor exceeds quantity supplied. D) there is an excess supply of labor.

There is an excess supply of labor

Promissory notes issued by the federal government when it borrows money are known as: A) treasury bonds B) treasury shares C) treasury stocks D) None of the above

Treasury bonds

Which of the following is an assumption used by Classical economists? A) Wages adjust both upward and downward. B) Wages are inflexible. C) Wages adjust downward but not upward. D) Wages adjust upward but not downward.

Wages adjust both upward and downward

A cut in the tax rate designed to encourage investment is an example of: A) a supply-side policy B) incomes policy C) fiscal policy D) monetary policy

a supply-side policy

Government policies regarding taxes and expenditures are called A) monetary policy. B) fiscal policy C) supply-side policy. D) income policies

fiscal policy

Inflation is a(n): A) decrease in the overall level of economic activity. B) increase in the overall level of economic activity. C) decrease in the overall price level. D) increase in the overall price level.

increase in the overall price level

Policies designed to affect the quantity of money are: A) government spending policies B) fiscal policies C) monetary policies D) supply side or growth policies

monetary policies

In the goods-and-services market, households demand ______ and supply ______. A) only demand B) only supply C) both supply to and demand D) neither supply to nor demand

only demand

It has become conventional to classify an economic downturn as a recession when aggregate output declines for: A) three consecutive quarters. B) a year C) two consecutive quarters. D) six consecutive quarters

two consecutive quarters

The unemployment rate equals: A) unemployed/labor force. B) (employed - unemployed)/labor force C) labor force/population. D) unemployed/employed

unemployed/labor force