ECON Exam 2 pt 2

The use of government taxation and expenditures to achieve macroeconomic goals is called a. cyclical policy. b. monetary policy. c. fiscal policy. d. industrial policy.

c. fiscal policy.

Which of the following is a correct statement? a. Fiscal policy is the use of tax and spending policies by Congress and the president. b. Fiscal policy involves the control of the money supply by the Federal Reserve Bank. c. Monetary policy involves the control of the money supply by Congress and the president. d. Monetary policy is the use of tax and spending policies by the Federal Reserve Bank.

a. Fiscal policy is the use of tax and spending policies by Congress and the president.

Which of the following helps explain why the aggregate demand curve slopes downward? a. If the price level increases, the purchasing power of the fixed quantity of money decreases, causing people to buy less. b. If the price level increases, the purchasing power of the fixed quantity of money increases, causing people to buy more. c. If domestic prices increase, we substitute domestic goods for imported goods. d. If domestic prices decrease, we substitute imported goods for domestic goods.

a. If the price level increases, the purchasing power of the fixed quantity of money decreases, causing people to buy less.

The population (age 16 and over) of Pageland is 50 million; 4 million are unemployed, and 36 million hold jobs. What are the rates of unemployment and labor force participation of Pageland? a. Unemployment is 10 percent, and labor force participation is 80 percent. b. Unemployment is 10 percent, and labor force participation is 75 percent. c. Unemployment is 11 percent, and labor force participation is 80 percent. d. Unemployment is 11 percent, and labor force participation is 90 percent.

a. Unemployment is 10 percent, and labor force participation is 80 percent

Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6 percent. Which of the following is true? a. Your real wage fell. b. Your nominal wage fell. c. Both your nominal and real wages decreased. d. Although your nominal wage fell, your real wage increased. e. Both nominal and real wages increased.

a. Your real wage fell.

The recessionary phase of the business cycle is characterized by a. decreasing real output and increasing unemployment. b. decreasing real output and declining unemployment. c. increasing real output and increasing unemployment. d. increasing real output and declining unemployment.

a. decreasing real output and increasing unemployment.

High and variable rates of inflation will a. distort the information delivered by market prices and create uncertainty that restrains economic growth. b. encourage people to spend more time producing and less time trying to protect their wealth. c. decrease the risks that accompany the undertaking of long-term investment projects. d. promote economic growth and the efficient use of resources.

a. distort the information delivered by market prices and create uncertainty that restrains economic growth.

Jacqueline, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top ten universities in her field. The type of unemployment she is experiencing is a. frictional b. structural c. seasonal d. cyclical e. underemployment

a. frictional

The type of unemployment resulting from the fact that labor market information is less than perfect is called a. frictional unemployment. b. natural unemployment. c. cyclical unemployment. d. structural unemployment.

a. frictional unemployment.

A decrease in aggregate demand and the subsequent cutbacks in production lead to a. frictional unemployment. b. cyclical unemployment. c. cost-push unemployment. d. structural unemployment. e. transitory unemployment.

b. cyclical unemployment.

During a boom, the actual rate of unemployment will be a. less than the natural rate of unemployment. b. greater than the natural rate of unemployment. c. equal to the natural rate of unemployment. d. unaffected by the economic expansion.

a. less than the natural rate of unemployment.

Controlling the money supply to achieve desired macroeconomic goals is called a. monetary policy. b. cyclical policy. c. fiscal policy. d. industrial policy.

a. monetary policy.

Which of the following will most likely increase the natural rate of unemployment? a. a decrease in the minimum wage b. an increase in unemployment benefits c. an increase in the number of people who stop looking for a job d. an increase in the proportion of prime-age workers as a share of the labor force

b. an increase in unemployment benefits

For an economy, aggregate demand equals a. consumption plus investment plus government purchases plus exports. b. consumption plus investment plus government purchases plus (exports minus imports). c. consumption plus investment plus (taxes minus transfers) plus (exports minus imports). d. consumption plus investment plus government purchases plus (imports minus exports).

b. consumption plus investment plus government purchases plus (exports minus imports).

At the beginning of a year, decision makers expect the general level of prices to increase at a 2 percent annual rate. The CPI increases from 150 to 154.5 during the year; this indicates that a. decision makers overestimated the rate of inflation during the year. b. decision makers underestimated the rate of inflation during the year. c. decision makers accurately forecast the rate of inflation during the year. d. the rate of inflation during the year was 4.5 percent.

b. decision makers underestimated the rate of inflation during the year.

Full employment a. exists when everyone in the economy has a job b. exists when everyone who wants a job has one c. exists when the unemployment rate is zero d. exists when everyone in the labor force has a job e. will always include some unemployment

b. exists when everyone who wants a job has one

The period of growth in real GDP between the trough of the business cycle and the next peak is called the a. recessionary phase. b. expansionary phase. c. contractionary phase. d. cyclical phase.

b. expansionary phase.

Other things constant, if the cost of labor goes up, the profits of firms will a. increase, and short-run aggregate supply will shift to the right. b. fall, and short-run aggregate supply will shift to the left. c. increase, and long-run aggregate supply will shift to the right. d. fall, and long-run aggregate supply will shift to the left.

b. fall, and short-run aggregate supply will shift to the left.

During a recession, the actual rate of unemployment will be a. less than the natural rate of unemployment. b. greater than the natural rate of unemployment. c. equal to the natural rate of unemployment. d. unaffected by the economic contraction.

b. greater than the natural rate of unemployment.

Toby loses his job and immediately begins looking for another. Other things the same, the unemployment rate a. increases, and the labor-force participation rate decreases. b. increases, and the labor-force participation rate is unaffected. c. is unaffected, and the labor-force participation rate increases. d. decreases, and the labor-force participation rate is unaffected.

b. increases, and the labor-force participation rate is unaffected.

Megan just graduated from college. In order to devote all her efforts to college, she didn't hold a job. She is going to cruise around the country on her BMW motorcycle for awhile before she starts looking for work. As a result, the unemployment rate a. increases, and the labor-force participation rate increases. b. is unaffected, and the labor-force participation rate is unaffected. c. increases, and the labor-force participation rate decreases. d. increases, and the labor-force participation rate is unaffected.

b. is unaffected, and the labor-force participation rate is unaffected.

The supply of resources, level of technology, and the quality of an economy's institutional arrangements (such as property rights and the rule of law) provide the constraint that determines the shape and position of the a. short-run aggregate supply curve. b. long-run aggregate supply curve. c. supply of loanable funds. d. aggregate demand curve.

b. long-run aggregate supply curve.

If resource prices are fixed and the product selling price rises, then a. profits will decrease. b. profits will increase. c. profits will remain constant. d. both profits and output will decrease.

b. profits will increase.

In a dynamic economy under ideal conditions, a. the unemployment rate should be near zero. b. some unemployment would be present due to workers temporarily being out of work while changing jobs. c. unemployment would tend to move upward slightly as prices increased. d. unemployment would tend to move slightly downward as unemployment compensation benefits increased.

b. some unemployment would be present due to workers temporarily being out of work while changing jobs.

Steve (now age 54) lost his job. He has very specialized skills that are no longer in demand because assembly-line automation made his job obsolete. Steve's unemployment is best classified as a. cyclical. b. structural. c. seasonal. d. frictional. e. voluntary.

b. structural.

If prices in the United States rose, which of the following could be directly attributed to the international substitution effect? a. Americans reduce their purchases of Japanese cars. b. Australians buy more American surfboards. c. Europeans purchase fewer American-made personal computers. d. Americans sell more wheat to India.

c. Europeans purchase fewer American-made personal computers.

Which type of unemployment is most closely connected with the saying "you can't teach an old dog new tricks"? a. Cyclical. b. Frictional. c. Structural. d. Voluntary. e. Seasonal.

c. Structural.

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve? a. The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run and, thereby, stimulate additional output.. b. The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. c. The higher prices will expand the economy's resource base and, thereby, stimulate additional output. d. The higher prices will improve technology and, thereby, stimulate additional output.

c. The higher prices will expand the economy's resource base and, thereby, stimulate additional output.

In the context of aggregate supply, the long run is defined as the period during which a. some prices are set by contracts and cannot be adjusted. b. prices can change, but neither aggregate supply nor aggregate demand can shift. c. individuals have sufficient time to modify their behavior in response to price changes. d. quantity changes cannot occur in response to changes in relative prices.

c. individuals have sufficient time to modify their behavior in response to price changes.

Economists usually use the term "recession" to refer to a. any slowdown in the growth of real GDP. b. zero real GDP growth. c. two or more consecutive quarters of declining real GDP. d. a reduction in nominal GDP lasting more than six months.

c. two or more consecutive quarters of declining real GDP.

The natural rate of unemployment a. is a temporary low rate that cannot be maintained. b. is fixed; it cannot be altered by public policy. c.is equal to the number of persons unemployed divided by the number in the labor force. d. is the unemployment rate accompanying the economy's maximum sustainable rate of output.

c.is equal to the number of persons unemployed divided by the number in the labor force.

The population (age 16 and over) of Econoland is 100 million; 5 million are unemployed, and 70 million hold jobs. The labor force participation rate in Econoland is a. 5 percent. b. 65 percent. c. 70 percent. d. 75 percent.

d. 75 percent.

In the figure above, the recession phase of the business cycle can be represented by point(s): a. CDE. b. BCD. c. EFG. d. A and E.

d. A and E.

Which of the following properly describes the interest-rate effect of aggregate demand? a. A higher price level leads to higher money demand, higher money demand leads to higher interest rates, a higher interest rate increases the quantity of goods and services demanded. b. A higher price level leads to higher money demand, higher money demand leads to lower interest rates, a higher interest rate reduces the quantity of goods and services demanded. c. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate reduces the quantity of goods and services demanded. d. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate increases the quantity of goods and services demanded.

d. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, a lower interest rate increases the quantity of goods and services demanded.

Which of the following would be classified as unemployed? a. mothers who choose to stay at home with their preschool-age children b. retirees who are no longer working at a job c. students attending school full time d. a 20-year old looking for her first job

d. a 20-year old looking for her first job

As the general price level in an economy rises, the aggregate quantity demanded of goods and services falls because a. the prices of domestic goods have risen relative to foreign goods, causing exports to fall and imports to rise. b. higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption. c. the value of money will fall, reducing the real wealth and, thus, the consumption of persons holding money balances. d. all of the above are correct.

d. all of the above are correct.

The expansionary phase of the business cycle is characterized by a. decreasing real output and increasing unemployment. b. decreasing real output and declining unemployment. c. increasing real output and increasing unemployment. d. increasing real output and declining unemployment.

d. increasing real output and declining unemployment.

Potential GDP a. is always less than actual GDP. b. is identical to actual GDP. c. measures inflation. d. is the output an economy could produce at full employment.

d. is the output an economy could produce at full employment.

Other things the same, an increase in the price level makes the dollars people hold worth a. more, so they are willing to spend more. b. more, so they are willing to spend less. c. less, so they are willing to spend more. d. less, so they are willing to spend less.

d. less, so they are willing to spend less.

The aggregate supply curve indicates the a. relationship between prices and the aggregate quantity of goods and services purchased by consumers, investors, governments, and foreigners (net exports). b. relationship between prices and the natural rate of unemployment. c. relationship between the real wage rate and the quantity of labor supplied by households. d. quantity of goods and services producers will supply at different price levels.

d. quantity of goods and services producers will supply at different price levels.

In the figure above, the recovery phase of the business cycle can be represented by points: a. A. b. C. c. E. d. C to E. e. E to G

e. E to G