Econ 201 Final

GDP excludes A. the market value of unpaid work in the home. B. the production of services. C. the production of nondurable goods. D. positive changes in inventories.

A

If Fred's annual real income rises by 8 percent each year, his annual real income will double in about: A. 8-9 years B. 10-11 years C. 5-6 years D. 19-20 years

A

If Z is an inferior good, an increase in money income will shift the: A. demand curve for Z to the left B. demand curve for Z to the right C. supply curve for Z to the left D. supply curve for Z to the right

A

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: A. $510 billion B. $490 billion C. $10 billion D. $990 billion

A

An appropriate fiscal policy for a severe recession is a. appreciation of the dollar. b. a decrease in government spending. c. a decrease in tax rates. d. an increase in interest rates. Clear my choice

C

The phase of the business cycle in which real GDP is at a minimum is called A. the peak B. a recession C. the trough D. the underside

C

A large underground economy results in an A. understated GDP B. overstated GDP C. understated GDP price index D. overstated GDP price index

A

A nation can increase its production possibilities by: A. improving labor productivity B. shifting resources to produce more consumer goods and less investment goods C. eliminating unemployment D. shifting resources from private goods to public goods

A

A price floor means that A. government is imposing a minimum legal price that is typically above the equilibrium price B. inflation is severe in this particular market C. government is imposing maximum legal price that is typically below the equilibrium price D. sellers are artificially restricting supply to raise price

A

An unexpected increase in total spending will cause an increase in GDP: A. if prices are sticky B. if prices are fully flexible C. regardless of whether prices are sticky or fully flexible D. only if prices are stuck in the long term

A

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand? A. diminishing marginal utility B. the rationing function of prices C. the substitution effect D. the income effect

A

Black markets are associated with: A. ceiling prices and the resulting product shortages B. ceiling prices and the resulting product surpluses C. price floors and the resulting product shortages D. price floors and the resulting product surpluses

A

During the Great Recession of 2007-2009, real interest rates a. declined to about zero, and investments also declined sharply. b. increased sharply, and investments declined significantly. c. declined to about zero, and investments increased sharply. d. increased sharply, and investments also rose significantly.

A

In a simple circular flow model A. households are on the selling side of the resource market and on the buying side of the product market B. households are on the buying side of both product and resource markets C. businesses are on the selling side of both product and resource markets businesses are on the buying side of the product market and on the selling side of the resource market

A

In the flow of income and spending, saving and investment are, respectively, a. a leakage and an injection. b. income and wealth. c. an injection and a leakage. d. wealth and income.

A

Markets, viewed from the perspective of the supply and demand model: A. assume many buyers and many sellers of a standardized product B. do not exist in the real-world economy C. assume market power so that buyers and sellers bargain with one another D. are approximated by markets in which a single seller determines price

A

Private Property A. encourages owners to maintain their property to preserve or enhance value B. discourages innovation, as people are often afraid to risk losing their own property C. discourages cooperation because people don't want to part with what they own D. does everything indicated by the other answers

A

The labor force includes A. employed workers and persons who are officially unemployed B. employed workers but excludes persons who are officially unemployed\ C. full-time workers but excludes part-time workers D. permanent employees but excludes temporary employees

A

The study of economics is primarily concerned with: A. choices that are made in seeking the best use of resources B. demonstrating that capitalistic economies are superior to socialistic economies C. keeping private businesses from losing money D. determining the most equitable distribution of society's output

A

What combination of changes would most likely decrease equilibrium price? A. when the demand decreases and supply decreases B. when the supply decreases and demand increases C. when the demand increases and supply increases D. when the supply increases and demand decreases

A

Which of the following is the best example of economic investment? A. Apple builds a new plant to manufacture iPads B. Your college purchases a 5-year-old building in order to have more classrooms C. A retiree purchases U.S. government bonds D. A company, like Bank of America, acquires another company, like Merrill Lynch

A

decrease in consumer spending can be expected to shift the a. aggregate expenditures curve downward and the aggregate demand curve leftward. b. aggregate expenditures curve upward and the aggregate demand curve rightward. c. aggregate expenditures curve downward and the aggregate demand curve rightward. d. aggregate expenditures curve upward and the aggregate demand curve leftward. Clear my choice

A

A lump-sum tax means that a. tax revenues vary inversely with GDP. b. the same amount of tax revenue is collected at each level of GDP. c. the tax only applies to one time period. d. tax revenues vary directly with GDP.

B

According to economists, economic self-interest A. has the same meaning as selfishness B. is the reality that underlies economic behavior C. is usually self-defeating D. means that people never make wrong decisions

B

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that: A. prices of oranges will fall B. amount of oranges that will be available at various prices has declined C. keeping private businesses from losing money D. determining the most equitable distribution of society's output

B

Digital cameras and memory cards are: A. independent goods B. complementary goods C. substitute goods D. inferior goods

B

Economic efficiency is the primary guide in answering which of the fundamental questions in a market economy? A. Who is to receive the output? B. How will the output be produced? C. What will be produced? D. How can the system accommodate change?

B

Financial institutions reward savers with the following except A. interest B. wages C. dividends D. capital gains

B

GDP tends to overstate economic well-being because it takes into account A. improvements in product quality of over time B. expenditures undertaken to correct pollution C. illegal activities of individuals and businesses D.v nonmarket activities, such as the productive work of homemakers

B

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause a. a $4 billion upshift in the consumption schedule. b. an $8 billion downshift in the consumption schedule. c. a $12 billion downshift in the consumption schedule. d. a rightward shift in the investment demand schedule. Clear my choice

B

In the market system, employees and suppliers A. are generally subject to as much risk as firm owners but get to share in the profits B. are usually shielded from risk, but at the cost of not sharing in the profits of the firm C. are usually shielded from risk and share in the profits of the firm D. bear as much risk as firm owners but don't get to share in the profits

B

The production of durable goods varies more than the production of nondurable goods because A. purchases of durable goods are not postponable B. purchases of durable goods are postponable C. the producers of nondurable goods have monopoly power D. producers of durable goods are high competitive

B

Opportunity costs exist because A. wants are scarce relative to resources B. the decision to engage in one activity means forgoing some other activity C. most decisions do not involve sacrifices or trade-offs D. households and businesses make rational decisions

B

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that: A. increases in the demand for computer memory have exceeded increases in supply B. increases in the supply of computer memory have exceeded increases demand C. decreases in the demand for computer memory have exceeded increases in supply D. decreases on the supply of computer memory have exceeded increases in demand

B

Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions B. business cycle C. output yo-yos D. total product oscillations

B

Running shoes and Staplers are A. inferior goods B. independent goods C. substitute goods D. complementary goods

B

Specialization in production is economically beneficial primarily because it A. guarantees full employment B. permits the production of a larger output with fixed amounts of resources C. facilitates trade by bartering

B

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should a. reduce taxes by $200 billion. b. increase government expenditures by $50 billion. c. increase government expenditures by $100 billion. d. reduce taxes by $50 billion.

B

The aggregate cost of unemployment can be measured by the A. amount by which actual GDP exceeds potential GDP B. amount by which potential GDP exceeds actual GDP C. excess of real GDP over nominal GDP D. excess of nominal GDP over real GDP

B

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the a. Federal Reserve. b. budget surplus. c. budget deficit. d. public debt.

B

The effect of expansionary fiscal policy is shown as a a. movement along an existing aggregate demand curve. b. rightward shift in the economy's aggregate demand curve. c. leftward shift in the economy's aggregate supply curve. d. leftward shift in the economy's aggregate demand curve.

B

The phrase too much money chasing too few goods best describes A. the GGDP gap B. demand-pull inflation C. the inflation premium D. cost-push inflation

B

The presence of market failures implies that A. command systems are superior to market systems in the allocation of resources B. there is an active role for government, even in a market system C. money is not an effective tool for exchange in a market system D. individuals and firms should strive to be self-sufficient rather than specialize

B

When economists refer to "investment," they are describing a situation where: A. people are buying shares of corporate stock B. resources are devoted to increasing future output C. money is saved in a bank account D. financial assets are purchased

B

he aggregate supply curve (short run) is upsloping because a. wages and other resource prices match changes in the price level. b. per-unit production costs rise as the economy moves toward and beyond its full-employment real output. c. the price level is flexible upward but inflexible downward. d. wages and other resource prices are flexible upward but inflexible downward.

B

A change in the amount saved due to a change in income is represented by a a. change in the marginal propensity to save. b. shift of the entire saving schedule. c. movement along the saving schedule. d. change in the marginal propensity to consume.

C

A higher rate of investment now will generate A. more saving now B. more future consumption C. more future production D. more future inflation

C

A large negative GDP gap implies A. an excess of imports over exports B. a low rate of unemployment C. a high rate of unemployment D. a sharply rising price level

C

An increase in investment spending caused by higher expected rates of return will a. shift the aggregate expenditures curve downward and the aggregate demand curve to the left. b. move the economy up along an existing aggregate demand curve. c. shift the aggregate expenditures curve upward and the aggregate demand curve to the right. d. shift the aggregate supply curve to the left.

C

Banks and other financial institutions: A. are the primary investors in equipment, factories, and other capital goods B. lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity C. promote economic growth by helping to direct household savings to businesses that want to invest D. often hinder economic activity by creating barriers between household savers and firms wanting to invest in capital goods

C

C = 26 + 0.75 Y Ig = 60 X = 24 M = 10 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. The equilibrium GDP for the open economy is a. $320. b. $375. c. $400. d. $390.

C

Core inflation measures A. changes in the prices of the most commonly used goods, including food and energy B. underlying changes in the CPI, after accounting for the price volatility of high-tech goods C. underlying increases in the CPI after removing volatile food and energy prices D. changes in key input prices

C

Exports have the same effect on the current size of GDP as a. taxes. b. saving. c. investment. d. imports.

C

GDP tends to overstate economic well-being because it takes into account A. all of the illegal activities conducted by organized crime in the economy B. spending on intermediate goods that are used to produce finals goods C. total spending to deal with adverse health effects of some products D. the personal labor time that car owners spend working on car repairs and maintenance of their vehicles

C

Gordon sells narcotics on the street. This type of illegal activity A. would be considered double counting in calculating GDP B. is estimated and included in GDP figures C. is excluded from GDP figures D. causes GDP to be overstated

C

If products A and B are complements and the price of B decreases the: A. demand for A will decline and the demand for B will increase B. demand curves for both A and B will shift to the left C. demand for A will increase and the quantity for B demanded will increase D. amount of B purchased will increase, but the demand curve for A will not shift

C

If the government wishes to increase the level of real GDP, it might reduce a. its purchases of goods and services. b. transfer payments. c. taxes. d. the size of the budget deficit.

C

If the price level decreases, then the aggregate expenditures schedule will shift. This translates into a a. shift in aggregate demand to the left. b. shift in aggregate demand to the right. c. movement down along the aggregate demand curve. d. movement up along the aggregate demand curve.

C

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A. frictional unemployment rate is 5 percent B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent C. cyclical unemployment rate is 4 percent D. natural rate of unemployment will eventually increase

C

Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is: A. cyclically unemployed B. structurally unemployed C. frictionally unemployed D. not a member of the labor force

C

Purposeful behavior means that A. decision-makers do not make mistakes when weighing costs and benefits B. people are selfish in their decision making C. people weigh costs and benefits to make decisions D. people are immune from emotions affecting their decisions

C

Savings are transferred from savers to borrowers through the following intermediaries except A. mutual funds B. Pension Funds C. real estate brokers D. insurance companies

C

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia: A. should only buy muffins B. should only buy lattes C. can buy 5 lattes or 10 muffins if she chooses to buy only one or the other D. can buy 5 lattes and 10 muffins with her $20 gift card

C

The four factors of production are A. land, labor, capital, and money B. labor, capital, technology, and entrepreneurial ability C. land, labor, capital, and entrepreneurial ability D. labor, capital, entrepreneurial ability, and money

C

The market system's answer to the fundamental question "What will be produced?" is essentially: A. Low-cost goods and services B. Goods and services that possess lasting value C. Goods and services that are profitable D. Goods and services that can be produced using large amounts of capital

C

The natural rate of unemployment is A. higher than the full-employment rate of unemployment B. lower than the full-employment rate of unemployment C. that rate of unemployment occurring when the economy is at its potential output D. found by dividing total unemployment by the size of the labor force

C

What is the primary reason that changes in total spending lead to cyclical changes in output and employment? A. government is unable to respond by changing the amount of money in circulation B. changes in the total spending cause supply shocks that cause cyclical variation C. prices are sticky in the short run D. prices are flexible in the long run

C

Which of the following is not a typical characteristic of a market system? A. private property B. competition in product and resources market C. government ownership of most property resources D. freedom of enterprise

C

Which of the following will cause a decrease in the market equilibrium price and an increase in the equilibrium quantity? A. an increase in demand B. a decrease in demand C. an increase in supply D. a decrease in supply

C

With a downward-sloping curve and an upsloping supply curve for a product, a decrease in resource will A. decrease equilibrium price and quantity B. increase equilibrium price and quantity C. decrease equilibrium price and increase equilibrium quantity D. increase equilibrium price and decrease equilibrium quantity

C

f the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by a. $1 billion. b. $0.75 billion. c. $3 billion. d. $4 billion.

C

(Advanced analysis) If S = −60 + 0.25 Y and Ig = 60, where S is saving, Ig is gross investment, and Y is gross domestic product (GDP), then the equilibrium level of GDP is a. $320. b. $200. c. $360. d. $480.

D

A recession is defined as a period in which: A. cost-push inflation is present B. nominal domestic output falls C. demand-pull inflation is present D. real domestic output falss

D

An effective price ceiling will A. induce new firms ti enter the industry B. clear the market C. result in a product surplus D. result in a product shortage

D

Environmental pollution is accounted for in A. GDP B. PI C. DI D. none of the above

D

GDP understates the amount of economic production in the United States because it excludes A. spending for the military B. transfer payments C. purchases of stocks and bonds D. work performed by people for their own benefit

D

If aggregate expenditures exceed GDP in a private closed economy, a. unplanned investment in inventories will occur. b. leakages will exceed injections. c. saving will exceed planned investment. d. planned investment will exceed saving.

D

If the price of gasoline increases significantly, then we'd expect the demand curve for large trucks and SUVs to A. become upward-sloping B. shift to the right C. no shift, but there will be a movement along the demand curve D. shift to the left

D

If there is a shortage of product x, and the price is free to change A. fewer resources will be allocated to the production of this good B. the supply curve will shift to the left and the demand curve to the right, eliminating the shortage C. the price of the product will decline D. the price of the product will rise

D

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the a. interest-rate effect. b. multiplier effect. c. Keynes effect. d. wealth effect. Clear my choice

D

Investment happens when A. current income is greater than current spending B. current consumption is greater than current output C. resources are devoted toward increasing current output D. resources are devoted toward increasing future output

D

Investment spending in the United States tends to be unstable because a. expected profits are highly variable. b. capital goods are durable. c. innovation occurs at an irregular pace. d. all of the factors mentioned in other answers contribute to the instability. Clear my choice

D

Okun's Law A. measures the trade-off between the rate of inflation and the rate of unemployment B. indicates the number of years it will take for a constant rate of inflation to double the price level C. quantifies the relationship between nominal and real incomes D. shows the relationship between the unemployment rate and the size of the negative GDP Gap

D

Planned investment plus unintended increases in inventories equals a. consumption minus saving. b. unintended saving. c. consumption. d. actual investment.

D

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is a. $0.50. b. $1. c. $5. d. $2.

D

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? a. A congressional proposal to incur a federal surplus to be used for the retirement of public debt. b. Postponement of a highway construction program. c. Reductions in agricultural subsidies and veterans' benefits. d. Reductions in federal tax rates on personal and corporate income. Clear my choice

D

The aggregate expenditures model and the aggregate demand curve can be reconciled because, other things equal, in the aggregate expenditures model, a. changes in the price level have no effect on the equilibrium level of GDP. b. an increase in the price level increases the real value of wealth. c. the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level. d. the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level. Clear my choice

D

The annual rate of inflation can be found by subtracting: A. the real income from the nominal income B. last year's price index from this year's price index C. this year's price index from last year's price index and dividing the difference by this year's price index D. last years price index by from this years price index and dividing the difference by last years price index

D

The basic truth that underlies the study of economics is the fact that we all face A. death B. taxes C. risk D. scarcity

D

The demand curve shows the relationship between: A. consumer tastes and quantity demanded B. price and production costs C. money income and quantity demanded D. price and quantity demanded

D

The economizing model is: A. how to distribute resources equally among all members of society B. that people's means often exceed their wants C. that people do not know how to rationally allocate resources D. the need to make choices because economic wants exceed economic needs

D

The industries or sectors of the economy in which business cycle fluctuations tend to affect output A. military goods and capital goods B. services and nondurable consumer goods C. clothing and education D> capital goods and durable consumer goods

D

The law of demand states that other things equal, A. consumers will buy more of a product at high prices than lower prices B. the larger the number of buyers in a market, the lower the product will be priced C. price and quantity demanded are directly related D. price and quantity demanded are inversely related

D

Which of the following groups is the principle source of savings in an economy? A. banks B. government C. businesses D. households

D

Which of the following is not seen by economists as an underlying cause of business cycle fluctuations? A. unexpected financial bubbles that eventually burst B. shocks to the money supply by the nation's central bank C. supply shocks caused by major innovations D. All of the above

D

T/F Economists refer to purchases of stocks and bonds as investment

False

T/F Real GDP accounts for changes in product quality; nominal GDP does not

False

T/F A nation's stock of capital is the collection of human-made resources that help to produce goods and services and are divided into two broad categories that are referred to as tools and recipes

True

T/F Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.

True

T/F The statistic called Gross Output is bigger than GDP because GO sums up the values in all stages of a productive economy whereas GDP accounts only for the final stage

True