Econ Cycle 1 exam

Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run?

The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run.

When the price of a candy bar is $6.00, which of the following is true?

The market does not clear because the price is higher than the equilibrium price and there will be a surplus in the market.

Jan works a 30-hour week for a minimum wage of $10 an hour. Suppose that last year is the base year for the Consumer Price Index (CPI). Which of the following is true about Jan's real wage if at the end of this year the CPI is 125 ?

Jan's real wage is $8 per hour at the end of the year.

Suppose Miguel wants to know the value of real gross domestic product (GDP) for 2011 in terms of the base year 1984 dollars. In 1984 nominal GDP was $10 billion. In 2011 nominal GDP was $15 billion and the price deflator was 200. Real GDP in 1984 dollars would be equal to which of the following?

$7.5 billion

The table above shows the daily production possibilities for China and Malaysia in producing trucks and coffee using the same amount of resources. Based on the data provided, which of the following terms of trade are mutually beneficial for the two countries?

1 ton of coffee for 4 trucks

Calculate Country X's nominal gross domestic product (GDP) for 2017 using the expenditures approach

19 billion dollars

A city government received a $1 million grant to build swimming pools and skating rinks for youth. Based on the data provided in the graph, what is the opportunity cost of building one swimming pool?

2 skating rinks

The economy of Fisherland is at full employment for which year in the above diagram?

2015

Which of the following represents an appropriate fiscal policy for the given economic conditions?

A contractionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.

According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following?

A greater-than-one-dollar increase in aggregate demand for goods and services

Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession?

Aggregate demand will decrease and the price level will decrease.

Which of the following will increase the market supply for new automobiles?

An increase in subsidies to automobile manufacturers

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping?

An increase in the price level will increase profits and production.

Which of the following changes will increase the demand for bicycles?

An increase in the price of scooters, a substitute good

Which of the following explains the relationship between the price level and real output along the aggregate demand curve?

At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods.

Suppose a nation opened its borders to the free flow of workers from other nations. How would this event likely affect the long-run aggregate supply (LRAS) curve and the production possibilities curve of the nation?

Both curves would shift to the right.

Assume that stock prices and home values have increased, raising household wealth. At the same time, productivity increased due to new technology. What is the likely short-run impact on the economy?

Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a higher output level and indeterminate price level.

Which of the following is true about gross domestic product (GDP)?

Calculations of GDP include the unsold inventories of goods produced within the borders of the country.

The government of Olympia is considering a fiscal policy action to slow the economy and curb inflation. If the marginal propensity to consume is 0.8, which of the following responses correctly identifies a policy action that would help the government achieve its goals and the impact of that action on Olympia's real gross domestic product (GDP)?

Decreasing government spending by $10 billion decreases real GDP by a maximum of $50 billion.

Which of the following terms describes a slowdown in the rate of increase in the consumer price index?

Disinflation

Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run?

Equilibrium real output can be above, equal to, or below full employment.

Suppose an economy is operating above full employment. Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment?

Increasing taxes, which will shift the AD curve leftward.

Which of the following describes a limitation of gross domestic product (GDP)?

It does not account for the distribution of income in a nation or income inequality.

Which of the following best describes the aggregate demand curve?

It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels.

What is an automatic stabilizer?

It is a program or policy that counteracts the business cycle without any new government action required.

Which of the following accurately describes the state of the macro-economy if it is operating at the intersection of the AD1 and SRAS2 curves?

It is operating below full employment and is in a short-run but not a long-run equilibrium.

The imposition by the United States of a tariff on imported steel from the European Union will likely have what impact on the short-run aggregate supply (SRAS) curve in the United States?

It will cause the (SRAS) curve to shift leftward.

Country X is a major buyer of Country Y's grains. Assume Country X's government announced an increase in taxes on its imports of Country Y's grains effective next month. How will this news likely affect consumers' demand for grains in Country X?

It will increase now because the tax on imported grains will increase the future price of grains.

Using the disposable income and consumption data in the table above, calculate the value of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS).

MPC=0.60 , MPS=0.40

Which of the following describes a difference between nominal gross domestic product (GDP) and real GDP?

Nominal GDP uses current prices to measure the value of final output, while real GDP uses constant prices.

Assume an economy is currently at full employment. Which of the following best describes the long-run adjustments that will occur in the economy following a negative aggregate demand shock with no government intervention?

Nominal wages will decrease and short-run aggregate supply will increase until full employment is restored in the long run.

If the natural rate of unemployment exceeds the actual rate of unemployment, which of the following will occur in the long run in the absence of government intervention?

Nominal wages will increase.

The shape of a PPC illustrates the type of opportunity costs involved in production. What type of costs do PPC1 and PPC2 illustrate?

PPC1 illustrates increasing opportunity costs and PPC2 illustrates constant opportunity costs.

Which of the following describes the relationship between price and quantity supplied according to the law of supply?

Positive relationship, illustrated by an upward-sloping supply curve

Matcha green tea is primarily cultivated by Japanese farmers. Suppose that Matcha green tea grows in popularity as its health benefits, namely its lower caffeine content, become known, and at the same time the government reduces taxes imposed on Japanese tea farmers. What is the likely effect on the equilibrium price and quantity in the Japanese Matcha tea market?

Price is indeterminate, and quantity increases.

Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion

Real output will increase by a maximum of $400 billion.

Which of the following is the correct calculation of Real Gross Domestic Product (GDP)

RealGDP=NominalGDP/GDPdeflator

Which of the following contributes to the economic problem of scarcity?

Resources have alternative uses

Which of the following is classified as a discouraged worker?

Sara has been unable to find a job and abandoned her job search.

Allie is shopping when she finds a pair of running shoes priced at $90. When Allie uses her debit card to pay, it is declined because her balance is insufficient to cover the cost of the running shoes. Allie's situation best illustrates which economic concept?

Scarcity

Based on the information in the table, which of the following is true?

Simone has an absolute advantage in trimming trees and mowing lawns

Which of the following is not a scarce resource?

Stocks

What type of unemployment describes the situation of factory workers displaced by automation?

Structural

Which of the following best explains how income taxes can moderate a business cycle during an expansion?

Tax payments increase automatically as gross domestic product (GDP) rises, which dampens consumption spending.

Given the labor market data above, what are the labor-force participation rate (LFPR) and the unemployment rate (UR) ?

The LFPR is 60% and the UR is 10.0%.

Suppose that the economy is in a recession. In the absence of government policy action to restore the economy to full employment, how will the economy adjust in the long run?

The SRAS2 curve shifts to the right as nominal wages decrease and full employment is restored.

As a measure of economic performance, the United States gross domestic product (GDP) accounts for which of the following?

The cleanup of an oil spill

The output gap is measured by which of the following?

The difference between actual and potential GDP.

Which of the following is true when an economy is operating at the intersection of the AD2 and SRAS2 curves?

The economy is in short-run and long-run equilibrium.

Which of the following illustrates the effect of a decrease in an economy's resources using a production possibilities curve (PPC)?

The economy's PPC will shift inward and to the left.

Assume household income has fallen dramatically in Country X and the cost of construction materials for building new houses has increased. How will these changes affect the equilibrium price and equilibrium quantity for new houses?

The equilibrium price will be indeterminate, and the equilibrium quantity will decrease.

Which statement is true about the approaches used to measure the value of a nation's gross domestic product (GDP) ?

The expenditure approach to calculating GDP sums consumption spending, investment spending, government spending, and net exports.

Suppose the consumer price index (CPI) was 100 on January 1st, 2017 and 110 on January 1st, 2018 with no changes in nominal wages. Which of the following is definitely true about the economy between January of 2017 and January of 2018?

The inflation rate was 10 percent

Which statement is true about the circular flow diagram of an economy?

The market for factors of production connects spending by firms to household income.

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)?

The maximum sustainable capacity

Country X is currently in long-run macroeconomic equilibrium. If the country's economy experiences a significant increase in the price of energy, a major input in production, which of the following will occur in the short run?

The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment

When an economy is at the trough of the business cycle, which of the following is then true about the state of the economy?

There is a recessionary gap.

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand in Euroland?

There will be a rightward shift in the ADAD curve.

In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level?

There will be an upward movement along the short-run aggregate supply curve and real output will increase.

How will automatic stabilizers affect the economy during a recession?

They will shift the aggregate demand curve to the right, increasing real output.

Two nations sign a trade agreement expecting to enjoy mutual gains from the trade of a certain good. How will this event likely affect the supply of the good in the two nations?

This event will likely cause an increase in the supply of the good in both nations

Which of the following will happen when the actual inflation rate exceeds the expected inflation rate?

This will harm lenders with fixed-interest rate loans

Labor unions negotiated a 3-year contract with employers in the automobile industry. They agreed to a 3 percent per year increase in pay over the 3 years. How would each group be affected by an actual inflation rate of 4% next year?

Workers would be worse off, and the employers would be better off.

Michael and Martha run a mechanic shop. In one hour Michael can perform eight oil changes or change ten tires. In one hour Martha can perform seven oil changes or change fourteen tires. Given this information which of the following is true?

Michael has an absolute and a comparative advantage in changing oil.

Last year, Myron purchased a $10,000 certificate of deposit with a 3% rate of interest from his bank. The government reported that prices, on average, have fallen by 5% during the current year. Which of the following can be concluded as a result of this transaction?

Myron gains, while the bank loses.

Which of the following describes the relationship between price and quantity demanded according to the law of demand?

Negative relationship, illustrated by a downward-sloping demand curve