Econ 202 Exam 2
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