Econ 202 Exam 2

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In recent years, the average retiree has been paid ____ per month in social security benefits.

$1,200

As of 2014, the U.S. government's debt held by the public was around

$13 trillion

At an 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5%?

$190 billion

Which of the following is an example of an "earmark" expenditures?

$2 million for a tennis program in a national highway appropriations bill

In 2013, the U.S. federal government received about ____ in tax revenue.

$2.8 trillion

If zero-coupon bonds are available with an implied interest rate of 5% and a face value of $30,000, what is the approximate purchase price for those bonds?

$28,571.43

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the total tax payment for a person earning $25,000 is approximately

$4,500

There are three voters and two representatives in a democracy. Voter 1 supports government spending of $20. Voter 2 supports government spending of $60. Voter 3 supports government spending of $70. According to the median voter theorem, politicians will converge upon a spending bill of

$60

If you receive a capital gain of $2,000 from selling a stock but also incur a capital loss of $1,500 from selling another stock, the total amount of tax you pay based on a 15% capital gain tax rate is

$75

As of 2013, the level of per capita federal taxes collected in teh United States was about

$9,000

If a special interest group represents 10% of society and gets a public policy passed that costs society $1 million and benefits that special interest group $1 million, the net payoff for the special interest group will be

$900,000

If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be

-1%

If = 5%, = -3%, and = 2%, then must equal

0%

If = 4%, = 3%, and = 2%, then must equal

1%

What percent of the federal budget is spent on foreign aid?

1%

Since teh mid-1950s, federal government spending has been about ____ of GDP.

20%

If a zero-coupon bond with a face value of $1,000 costs $800, then the rate of return if held to maturity would be

25%

The top 1% of all income earners pay about ____ of all federal taxes in the United States

25% ​​ The objective of the alternative minimum tax is to: prevent the rich from not paying any income taxes

According to the median voter theorem, what percentage of the tax dollars will be spent on the military under the following conditions

25% of voters want to spend 20% of their tax dollars on the military; 20% of voters want to spend 15% of their tax dollars on the military; 15% of voters want to spend 10% of their tax dollars on the military; and 10% of voters want to spend 5% of the tax dollars on the military; while 30% of voters do not want to spend any tax dollars on the military. : 10%

Households in the top 20% of the income distribution pay approximately what percent of their income in federal taxes?

25.5%

If the growth rate of the money supply in an economy is 5%, the growth rate of output is 2%, and the velocity of money is constant, what will the inflation rate in this economy be?

3%

For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is

4%

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is

4%

Approximately what percentage of banks failed between 1930 and 1932?

40%

As the baby boom generation retires, Social Security payments will have to increase approximately ____ in order to maintain the level of promised benefits.

40%

If nominal spending growth is 5% and the economy is in recession at -1% real growth rate, what is the inflation rate?

6%

A saver buys a $10,000 zero-coupon government bond for $9,375. When it matures a year from now, what will be the approximate implied interest rate?

6.67%

If you buy a %500,000 house with %50,000 down, the leverage ratio is

9

Which statement is TRUE?

A bond is like an IOU

The main reason that government legislation on sugar quotas passes is that

A large number of consumers bear small economic costs while a small number of domestic sugar producers receive its benefits

Which of the following provides the most reasonable explanation for why agriclultural interests lobby for higher farm subsidies and prices supports?

Agricultural interests seek a redistribution of income favoring themselves

Which of the following best represents time preference?

Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road becasue of his smoking habit

Which statement best describes one of the profound effects of the 1973 oil crisis on the U.S. economy?

Consumer preferences moved away from big cars and toward smaller cars

Suppose you are married person with one child but your whole family earns less that $20,000 a year. Which of the following will supplement your income?

Earned Income Tax Credit

The Social Security program in the United States is financed by

FICA tax revenue

Which of the following statements seems to be that of a rationally ignorant person?

I am not sure which of the soups are more nutritious and I'm in a hurry, so I will opt for the one with more vegetables in it

Why is rational ignorance important from an economic standpoint? I. Voters might not make informed choices. II. Voters will make decisions based on incorrect or incomplete information. III. Special interest groups may control economic outcomes if they are the only ones who are not rationally ignorant.

I, II, and III

The diffusion of costs and concentration of benefits

I. leads to rational ignorance on the part of voters. II. is the formula to which the sugar quota owes its existence. III. is a formula for reelection to political office. : I,II,and III

The theory of the median voter may not work if

I. voters do not vote. II. voters do not vote for the policy closest to their own positions. III. there is only a single dimension over which the voting occurs. : I and II only

Which of the following represents a change that has been made since the individual income tac was first levied in 1913?

In 1969, the alternative minimum tax was introduced to prevent the rich from paying no taxes

What is the most harmful consequence to GDP from interest rate ceilings?

Investment falls, dragging down GDP and future growth

Most of the increase in planned spending over the next 50 years comes from

Medicare and Medicaid

Whereas ____ covers the elderly, ____ covers the poor and the disabled.

Medicare; Medicaid

Why is the demand for loanable funds downward sloping?

More people borrow money when interest rates are low than when they are high

Suppose that a special interest group makes up 2% of the population. If a policy transfers $600 to the special interest at a cost of $100,000 to society, will the special interest group lobby for this policy?

No, the benefits of $600 are less than the costs of $2,000

Just before the 1972 election, _____ sent a letter to 24 million Social Secuity recipients informing them of automatic cost of living increases in the future.

Richard Nixon

As a result of an increase in expected inflation, the

SRAS curve shifts up and to the left

Which of the following can be defined as saving according to economics?

Sandra purchases a certificate of deposit from a bank

In 2013, the largest component of government spending was

Social Security

Of the following, which is the largest part of the United States budget? Foreign aid, interest on the federal debt, Social security, welfare

Social Security

The largest spending program for the U.S. federal government is

Social Security

Which of the following statements about Medicare and Medicaid is NOT correct?

Social Security and Medicare together make up about 15% of the federal budget

The purpose of FICA taxes is to fund

Social Security payments

Which of the following best explains why special interest groups maintain so much power in the United States political process?

Special interest groups stand to gain millions if particular laws are passed and lobby very hard for them; whereas voters stand to lose only a little and don't find opposing them worth their effort

Which of the following best explains why special interest groups maintain so much power in the United States political process?

Special interest groups stand to gain millions if particular laws are passed and lobby very hard for them; whereas woters stand to lost only a little and don't find opposing them worth their effort

What demographic change in the United States will cause government spending to increase in the next 50 years?

The population older than 65 will grow

When a war breaks out in the Middle East and causes an oil shock, what makes the shock so costly to deal with?

The shock is unexpected

Which of the following is NOT a reason firms and individuals borrow?

They desire to have equal income and spending every period

Which is NOT a reason people save during their working lifetimes?

They save to match income and spending from year to year

Which of the following is NOT the reason why ignorance about political matters is important?

Voters who are well informed would perceive politics as entertainment

Which of the following is a negative real shock that occurred during the Great Depression?

WIdespread bank failures led to a reduction in the productivity of financial intermediation

Which of the following statements about the Social Security program is correct?

Women, who generally live longer than men, benefit more from the system

Rational ignorance can not be seen in which of the following scenarios?

You have to fly urgently; however, you do extensive research for over an hour to find the best deal

The Fanjul brothers are

a Democrat and a Republican

If investors become less optimistic about the economy, which of the following best describes behavior in the loanable funds market?

a decrease in demand results in a decrease in the interest rate

In the basic model that includes the AD and LRAS curves only, a shock that reduces the velocity of money by 2 percentage points causes

a decrease of the inflation rate by 2 percentage points

The main reason that government legislation on sugar quotas passes is that

a large number of consumers bear small economic costs while a small number of domestic sugar producers receive its benefits

The consumption-smoothing theory implies that a country whose people have a very low life expectancy has

a low savings rate

According to the quantity theory of money, if both the growth rate of the money supply and the velocity of money are fixed, then a higher inflation rate means

a lower real growth rate

The main reason people save during their working years is

a preference toward a smooth consumption path over time

The United States federal government has

a progressive income tax system

A significant, widespread decline in real income and employment is called

a recession

Which of the following real shocks would likely have the largest impact on U.S. GDP?

a reduction in the overall supply of oil

Buying stock in a company is

a transfer of ownership rights

The long-run aggregate supply curve is

a vertical line

An incumbent president can take advantage of voters' myopia to win a reelection by

applying policies with small immediate gains but large costs in the future

In the basic model that includes the AD and LRAS curves only, aggregate demand shocks caused by changes in the growth of money supply

are neutral in both the short run and long run

Personal disposable income peaks

at largely random points in time

According to the text, the 1974 famine in Bangladesh was largely a result of

bad government policies

Financial intermediation can break down as a result of

bank panics

Which of the following best describes the role of banks in the loanable funds market?

banks act as profit-seeking institution, taking the supply of loanable funds from households and distributing them to borrowers

In order to be binding, an interest rate ceiling must

be placed below equilibrium

Much of public choice argues that what the public wants isn't reflected in elected officials' actions. Yet there is a strong connection between famine prevention and democracy (more democracy means less famine), and this "exception" is completely consistent with ideas from public choice. Why?

because voters have a strong incentive to be informed

In the lifecycle theory of savings, the sequence of behavior is an follows

borrow, save, dissave

The issuer of a bond is a

borrower

In financial markets, which group best represents the demand side of the market?

borrowers

Based on the discussion in the textbook, the Great Depression was caused by

both aggregate demand shocks and real shocks

People smooth their consumptions over their lifetime by

both borrowing and saving

The Smoot-Hawley Tariff of 1930 raised tariff rates on tens of thousands of imported goods, and the results were that

both exports and productivity fell, thereby reducing aggregate demand and aggregate supply

Which of the following representts loaning money to a firm?

buying a bond

The median voter theorem states that

candidates whose policies reflect the preferences of the median voter are more likely to win an election

The Solow growth rate is the rate of economic growth given existing

capital, labor, and technology

Government ownership of the media

causes an even greater degree of rational ignorance than private ownership

Democracy typically brings about more efficient outcomes because

citizens in democracies are better informed and have power to vote

Something of value that by agreement becomes the property of the lender if the borrower defaults is called

collateral

The shadow banking system includes each of the following except

commercial banks

Which of the following is an exempt of a financial intermediary?

commercial banks

According to the text, one formula for political success is to

concentrate benefits and diffuse costs

One way to achieve political success is to

concentrate benefits and diffuse costs

A seasonal worker saves more when her income rises and saves less when her income falls. This behavior is referred to as

consumption smoothing

Which of the following statements is NOT true?

corporate bonds have no interest rate risk in the long run

Sugar quotas

cost the typical family about $6 per year but provide millions of dollar of benefits Florida sugar producers

Higher interest rates typically ____ borrowing, ceteris paribus.

decrease

If the demand for loanable funds decreases, ceteris paribus, the quantity of loanable funds exchanged will

decrease

If the interest rises from 5% to 9%, the number of new businesses will

decrease

An increase in the capital gains tax will most likely

decrease investment

A decrease in investment demand

decreases both the amount saved and the interest rate

When business firms become more pessimistic about the state of the economy, the interest rate ____ and the quantity of borrowing and lending ____.

decreases; decreases

When individuals become more willing to save because their incomes have increased, the interest rate ____ and the quantity of borrowing and lending ____.

decreases; increases

At lower interest rates, the cost of investing ____ and the quantity of funds demanded for investment ____.

decreases;increases

The potential of a bond issuer not being able to repay the bond holder is called

default risk

Which of the following government programs is the largest in terms of spending? Health care, defense, foreign aid, welfare

defense

Which of the following is the largest part of the United States budget? Defense, interest on the federal debt, foreign aid, welfare

defense

Which of the following programs are the two largest sources of the United States government budget?

defense and Social Security

A corporation is planning to finance the construction of new offices, ut it has limited funds. The corporation is likely to

demand loanable funds by selling bonds.

When the business firms become more pessimistic about the state of teh economy, the

demand to borrow shifts inward

Which three variables have been shown to have strong predictive power for election results?

disposable income, the inflation rate, and years in office for the party in power

Prices are especially sticky in the

downward direction

A surplus of savings in the loanable funds market will

drive market interest rates down

A shortage of savings in the loanable funds market will

drive market interest rates up

Political business cycles occur when

economic conditions tend to improve immediately before elections but then worsen afterwards

Who appears to pay the FICA tax?

employees and employers in equal amounts

The loanable funds market is the market where

equilibrium interest rates are determined by the actions of borrowers and lenders

What is a service that banks specialize in providing?

evaluating the quality of investment opportunities

Ignorance about political matters is important for the economy for each of the following reasons, except

everyone is rationally ignorant so that no one in society will make appropriate economic decisions

In the United States, the marginal tax rate for married couples

exceeds the average tax rate for most income levels

The costs of many government projects (such as bridges, roads, and museums) create

external costs because taxpayers around the country pay for construction

If spending grows by 2%, real GDP growth is 5%, and velocity is stable, then prices will be ____ at a rate of ____ according to the aggregate demand curve.

falling; 3%

If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be ____ at a rate of ____ according to the aggregate demand curve.

falling;2%

Which of the following institutions channels loanable funds from savers to borrowers?

financial intermediaries

If π < πe

firms will reduce their output

If π > πe

firms' profits will increase

In response to a negative oil price shock, real GDP growth

first falls and then rises back to its initial level

The Solow growth rate is the rate of economic growth that would occur given

flexible prices and the existing real factors of production

The AD-AS model is most useful for explaining what causes

fluctuations in GDP growth around its trend rate

According to Nobel Prize-winning economist Amartya Sen, Famine would never take place in a

functioning democracy

According to Nobel Prize-winning economist Amartya Sen, famine would never take place in a

functioning democracy

What is a reason why markets should be free and unregulated?

good incentives

Financial intermediation can break down as a result of

government controls on interest rates

Evidence from an important study of media ownership concludes that

government ownership of the press restricts information flows to the public, which reduces the quality of the government

Evidence from an important study of medio ownership concludes that

government ownership of the press restricts information flows to the public, which reduces the quality of the government

During election years personal disposable income _____ more than at other times, while inflation tends to _____.

grows; fall

In the equation , what does stand for?

growth in the money supply

Business fluctuations are fluctuations in the

growth rate of real GDP around its trend growth rate

The aggregate demand curve shows the relationship between the

growth rate of real output and the inflation rate

According to the consumption-smoothing theory, people with a longer life expectancy

have higher savings rates in their lifetimes than those with shorter life expectancy

Under a regressive tax, people with higher incomes

have lower average tax rates

Social Security benefits are NOT based on

how wisely a person's FICA contributions are invested

Other things being equal, a person typically has the largest pool of savings

immediately before retirement

The Social Security payment system began issuing Social Security checks

in 1940

Bond prices and bond interest rates move

in opposite directions

Evidence suggest that voters are myopic, meaning they are responsive to economic conditions

in the year of an election

Savings is defined as

income not spent on consumption goods

Saving is

income that is not spent on consumption goods

An increase in the demand for borrowing will cause the equilibrium quantity of borrowing to

increase

An increase in the supply of saving curve will cause the equilibrium quantity of borrowing to

increase

An increase in the supply of saving curve will cause the equilibrium quantity of saving to

increase

Higher interest rates typically ____ saving, ceteris paribus.

increase

If he supply of loanable funds increases, ceteris paribus, the quantity of loanable funds exchanged will

increase

If the demand for loanable funds increases, ceteris paribus, interest rates will

increase

If the demand for loanable funds increases, ceteris paribus, the quantity of loanable funds exchanged will

increase

If the supply of loanable funds decreases and the demand for loanable funds increases at the same time, interest rates will

increase

The tax deduction for interest paid on home mortgages tends to

increase housing prices

Which of the following would cause the AD curve to shift to the left?

increased growth in imports

What economic activity did many South Korean citizens engage in during the 1960s and 1970s to help their country increase its growth rate?

increased their saving

According to the inflation parable discussed in the text, a positive shock to spending

increases output at first but in the long run only increases price

As income rises, the average tax rate for married couples

increases smoothly

President Nixon increase his popularity just before the 1972 election by

increasing Social Security benefits

President Nixon increased his popularity just before the 1972 election by

increasing Social Security benefits

Which of the following accounts for the largest source of tax receipts for the U.S. federal government?

individual income tax

What are the three largest sources of tax revenue for the U.S. federal government?

individual income tax, Social Security/Medicare taxes, and corporate income tax

In the equation , what does stand for?

inflation

The aggregate demand curve shows all the combinations of ____ that are consistent with a specified rate of spending growth.

inflation and real GDP growth rates

For any given expected inflation rate, the short-run aggregate supply curve shows the relationship between

inflation and the growth rate of output

The aggregate demand curve shows all the combinations of ____ and ____ that are consistent with a specified rate of ____.

inflation; real GDP growth; spending growth

Which of the following is the smallest component of U.S. federal government spending?

interest payments on government debt

Which of the following is NOT a role of commercial banks?

issue government bonds

The U.S. federal government finances most of its new spending by

issuing bonds

If a baker observes an increase in demand for bread, should the baker increase output or raise prices?

it depends on whether the change in demand is driven by inflation or by a stronger preference for bread

The alternative minimum tax has become an added tax burden on many upper-middle class families because

it is not indexed to inflation

Which of the following was the main cause of the 1974 famine in Bangladesh?

lack of economic and political freedoms

During a recession

land, labor, and capital are not fully utilized What type of shock could be responsible for an increase in growth and a decrease in the inflation rate? : a positive real shock

A negative real shock causes the long-run aggregate supply curve to shift

left

The buyer of a bond is a

lender

The political business cycle is

less apparent in GDP data than in personal disposable income data

Social Security has become ____ over time

less generous and more progressive

Compared to most developed nations, the U.S. total government spending as a percentage of GDP is

less than that of many countries

Ignorance is rational when the benefits of being informed are

less than the costs of becoming informed

A bond is a(n)

liability for the issuer

There is a strong correlation between economic freedom and

living standards

The "long run" is a period of time

long enough that prices and wages are fully flexible

When Lehman Brothers went bankrupt, most of Lehman's managers

lost some money but still ended up being very rich

The U.S. stock of physical capital was

lower in 1940 than in 1930

Which of the following explains why extreme candidates rarely win political elections?

median voter theorem

The main cause of higher government spending in the future will be

medicare, medicaid, and social security

Which of the following is an explanation for why prices may be sticky in the short run?

menu costs

Which of the following public policies does NOT fit the diffused costs and concentrated benefits story?

minimum wage

Because the alternative minimum tax (AMT) is not indexed to inflation

more American families have become subject to the AMT over time

If you are a married man, you can expect

more in social security benefits than a single man

All else being equal, a working-age person who has more patience tends to have

more savings

The term "business fluctuations" refers to

movement in real GDP around its long-term trend

After the first oil shock in 1973, the U.S. auto industry had a difficult time adjusting because

much of the physical capital in an auto factory is specialized

When bond prices increase, interest rates

must decrease

Political business cycles are due primarily to ____ voters.

myopic

When the text refers to the current U.S. national debt, it means the

national debt held by the public

In 2011, the major earthquake and tsunami in Japan destroyed much of the capital infrastructure in Japan. Those natural disasters were examples of a

negative shock to the long-run aggregate supply curve

The government spends more on foreign aid than health care, welfare, social security

none of the answers is correct

Deflations can cause the economy's aggregate demand curve to shift inward because debt contracts are

not adjusted for inflation

Government spending in the United States is

not likely to fall in the future, given the aging population

Which of the following does NOT represent a shock that can affect GDP?

oil shocks

The U.S. corporate income tax rate is

one of the highest in the world

Which of the following is NOT considered saving?

paying tuition for a college education

The supply of savings is positively sloped because

people are enticed to forgo consumption when interest rates are higher

A country has two income tax brackets

people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's average tax rate?: 13.3%

Public choice is the study of

political behavior in the context of economics

The medicaid program offers health-care benefits for the

poor and disabled

A decrease in oil prices is an example of a ____ productivity shock.

positive

A real shock is any shock that increases or decreases the growth rate of

potential GDP

Economist Franco Modigliani's lifecycle theory of savings proposes that in order to maximize lifetime satisfaction, consumers

practice consumption smoothing by borrowing and saving

Menu costs are the costs associated with changing

prices

The "Solow" growth rate is the rate of economic growth that occurs when

prices and wages are flexible

Voter myopia refers to the fact that voters

primarily consider economic conditions in the year of the election

A tax with higher rates applies to people with higher incomes is called

progressive

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, then the income tax system is

progressive

If the U.S. government decides to decrease the budget deficit in the future, it could

raise taxes, decrease Social Security payments, or reduce health-care spending

Deflation

raises the real value of debts

An aggregate demand shock is a

rapid and unexpected shift in spending

In the AD-AS model, represents the

rate of money supply growth

If the costs of informing oneself are greater than the benefits, then ignorance is

rational

Which of the following statements is TRUE?

rational ignorance is bad because it leads to uninformed voters making decisions

Wiht respect to the sugar quota, the people who are harmed are ____ and the people who benefit are ____

rationally ignorant; rationally informed

If spending growth is 6% and inflation is also 6%, this means that

real GDP did not increase

A negative shock to the long-run aggregate supply curve will cause

real growth to fall, bu the inflation rate will rise

A recession is defined as a widespread decline in

real income (GDP)

Business fluctuations are variations in

real income (GDP) growth around its trend growth rate

Which of the following is NOT consistent with points along the long-run aggregate supply curve?

real output growth is negatively related to inflation

A major hurricane hitting the East Coast of the United States is an example of a

real shock

Financial intermediaries

reduce the costs of moving savings from savers to borrowers and investors

For savers, the role of financial intermediaries is to

reduce the default risk on money they save and lend

Which of the following describes the process through which a major decline in the stock market leads to a change in aggregate demand?

reductions in consumer wealth produce a negative AD shock

The U.S. Social Security tax (FICA) is an example of a

regressive tax

An increase in expected inflation will cause the economy's long-run aggregate supply curve to

remain unchanged

An increase in spending growth causes a ____ the aggregate demand curve.

rightward shift of

Fluctuations in income cause most people to

save

When a person's income is greater than her spending on consumption goods, then she is

saving

The supply of loanable funds comes from ____, and the demand for loanable funds comes from ____.

saving; investment

What do we call income that is NOT spent on consumption goods?

savings

Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to

shift outward

Other things held constant, an increase in the velocity of money will cause the aggregate demand curve to

shift outward

Sticky wages and prices are incorporated in the AD-AS model by the

short-run aggregate supply curve

When voters are myopic, politicians will prefer policies that generate

small benefits now and large costs later

When voters are myopic, politicians will prefer policies that genreate

small benefits now and large costs later

Which of the following statements is FALSE?

small nondemocratic elites are more likely to consider the welfare of larger groups

Let's check on whether you are rationally ignorant. Which of the following four items is the biggest expenditure in the federal government's budget? Social security, welfare, foreign aid, health care

social security

The single item on which the U.S. federal government spent the most in 2013 was

social security

Wages that do not respond quickly to changes in the inflation rate are

sticky wages

The burden of the corporate income tax ultimately falls on the corporation's

stockholders, workers, and customers

When individuals become more willing to save, the

supply of savings shifts outward

For a given aggregate demand curve, the specified rate of spending growth is the growth rate of money

supply plus the growth in velocity

If the growth rate of spending increases from 3% to 5%, then

the aggregate demand curve will shift to the right

Which of the following does NOT contribute to an economy's long-run potential growth rate?

the average rate of inflation

Under a flat tax

the average tax rate is the same for people with different income levels

Which of the following do economists consider an investment?

the construction of a new factory

It is rational to be ignorant when

the costs of becoming informed are greater than the benefits of being informed

The decrease in private consumption and investment that occurs when the government borrows more is called

the crowding-out effect

Crowding-out is

the decrease in private consumption and investment that occurs when government borrows more

Current projections regarding the debt-to-GDP ratio are that

the federal debt will grow much faster than the economy over the long run

A higher leverage ratio means that

the firm is at a greater risk for becoming insolvent

In 1940, Ida May Fuller received the first Social Security check after contributing only $24.75 in Social Security taxes before she retired and lived to be 100 years old. Her case is an example of how

the first social security recipients benefitted much more from the program than will workers entering the program today

An initial public offering is

the first time a corporation sells stock to the public in order to raise capital

According to public choice theory, people do not always make informed choices because

the incentives to become informed are low as compared with the costs of being informed

Which of the following conditions best predicts when the incumbent party will NOT win the presidential election?

the incumbent party has been in power for too many terms in a row

The largest source of revenue for the U.S. federal government is

the individual income tax

In the graph of the AD-AS model, what is measured on the vertical axis?

the inflation rate

The demand to borrow shows the relationship between borrowing and

the interest rate

The price of savings is

the interest rate

Which of the following would shift the long-run aggregate supply curve to the right?

the invention of a new computer chip that makes assembly production twice as fast

The most important tax for determining an individual's incentive to work is

the marginal tax rate

According to the median voter theorem, policy changes only whenever the ideal point of

the median voter changes

Most individuals save during

the middle and later years of life before retirement

Bill Clinton's administration experienced a federal budget surplus. Which of the following is therefore correct?

the national debt held by the public decreased

Which of the following explains why the sugar quota is a winning policy for politicians?

the people who are harmed by the quota are rationally ignorant

A $10,000 face value bond costs $9,250 and matures in one year. IF the interest rate on similar bonds rises by 2%, what is the approximate price change for this bond?

the price of the bond falls to $9,082

Investment is defined as

the purchase of new capital goods

If the government imposes an interest rate ceiling below the equilibrium interest rate in the loanable funds market, then

the quantity of savings supplied will be less than the quantity of loanable funds demanded

Which of the following statements is NOT true about the sugar quota imposed by the United States government?

the quota is imposed to protect both sugar consumers and producers

An unexpected outward shift of the economy's AD curve will cause real GDP growth to increase in

the short run only

Individual savings contriburtes to

the supply of loanable funds

The marginal tax rate is

the tax rate paid on an additional dollar of income

Arguably, one of the best ways to explain why Americans seemingly know very little about current government policies or the state of the economy is that

the time and resources it costs to attain and process this information is more than the benefit received from having this information

Nearly 70% of all U.S. federal income taxes are paid by

the top 20% of income earners

The average tax rate is

the total tax payment divided by total income

Workers bear at least a majority, if not all, of the burden of the employers' share of FICA and Medicare tax payments because

the workers would have earned higher wages without the tax payments

When the government makes it possible to externalize the cost of a good

there will be too much of the good

Which of the following is NOT a reason firms and individuals borrow?

they desire to have equal income and spending every period

Which of the following functions is NOT performed by commercial banks?

they organize initial public offerings for firms

If bond prices fall, what happens to interest rates?

they will rise

Stalin

took government control of the farms in Ukraine, leading to the starvation of millions of people

Who pays the most federal taxes?

top 20% of income earners

In the AD-AS model, changes in the growth rates of C,I,G, and NX are interpreted as changes in

velocity growth

Evidence suggests that voters will vote for a political party based on the economic conditions that prevail in the year of the election. This behavior is known as

voter myopia

A simple logic underlying the apparent chaos of seemingly unique and momentous elections is that

voters are so responsive to economic conditions that the winner of a presidential election can be predicted with considerable accuracy

Which of the following is NOT the reason why ignorance about political matters is important?

voters who are well informed would perceive politics as entertainment

In the AD-AS model, money is not neutral in the short run if

wages and prices are sticky

The effect of a shock on the economy is larger when

wages and prices are sticky

Why is the SRAS curve steeper above its intersection with the long-run aggregate supply curve?

wages are less sticky in the upward direction

Nominal wage confusion occurs when

workers respond to their nominal wage instead of their real wage

Rational ignorance can not be seen in which of the following scenarios?

you have to fly urgently; however, you do extensive research for over an hour to find the best deal

A negative real shock leads to

an increase in the inflation rate but a decrease in the real GDP growth rate

If nominal spending growth equals 6% and the real growth rate equals 4%, what is the inflation rate?

2%

Which of the following would be the most likely to cause an increase in the demand for loanable funds?

an increase in government borrowing

If wages are not as flexible as prices int eh AD-AS model, an increase in money growth will lead to

an increase in inflation and in the profits of firms

During the Internet revolution in the late 1990s, a positive real shock shifted the long-run aggregate supply curve to the right, which led to

an increase in real growth rate and decrease in the inflation rate

Which of the following would result from a positive productivity shock?

an increase in teh economy's long-run potential growth rate

Suppose you pay $450 for a zero-coupon bond with a face value of $500. The rate of return for this bond at maturity is

11.1%

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the average tax rate for a person earning $25,000 is

18%

Since the mid-1950s, federal government taxation has been about ____ of GDP.

18%

When did the first oil shock occur in the United States?

1973

How do banks engage in specialization and division of labor?

Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to assure that the funds are safely used

Which of the following is most likely the result of rational ignorance?

Better-looking candidates tend to get more votes

Why are special interest groups so powerful?

Both A and B are correct

Which of the following best describes the conditions during the Great Depression?

Both real GDP growth and inflation were negative

On average, U.S. households with incomes in the top 20% pay

about 25% of their income in federal income tax

The aggregate demand curve shows the relationship between real GDP growth and the

actual inflation rate

The short-run aggregate supply curve shows the relationship between the real growth rate and the

actual inflation rate

Histroically, rainfall shocks in India correlate well with India's

agricultural output and real GDP

Which of the following factors would NOT cause aggregate demand to increase?

an advance in technology

If prices are completely flexible, then a positive aggregate demand shock will lead to

an immediate upward shift of the SRAS curve

According to the AD-AS model, if the economy is initially at its long-run potential growth rate, then a temporary increase in the growth rate of investment spending will cause

an increase in both the inflation and real growth rates in the short run


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