Econ exam 3 study material

Cap-and-trade systems

-issue a limited number of tradable pollution permits -allow less polluting companies to sell their permits to more polluting companies -limit pollution by forcing companies to pay for the right to pollute

Which of the following trends is generally true globally?

-life expectancy has been rising -the number of children per family has been falling -societies are getting older

A recipe for growth includes

-well established private property rights -free trade -peace

In the macroeconomic short run, Selected Answer: actual real GDP may be less than or more than potential real GDP

actual real GDP may be less than or more than potential real GDP

Demand-pull inflation starts with

an increase in aggregate demand

According to the supply side economists, a cut in income tax rates would result in ________ in the supply of labor and ________ in the supply of capital. A) an increase; an increase B) an increase; a decrease C) a decrease; a decrease D) a decrease; an increase

an increase; an increase

Monetary policy affects real GDP by -changing aggregate demand. -creating budget deficits. -changing aggregate supply. -creating budget surpluses.

changing aggregate demand.

________ economists believe that the economy is self-regulating and always at full employment

classical

An inflationary gap means that actual GDP

exceeds potential GDP

If the Fed raises the interest rate, then imports ________ and exports ________. -decrease; decrease -decrease; increase -increase; increase -increase; decrease

increase; decrease

A recessionary gap means that actual GDP

is less than potential GDP.

The long-run aggregate supply (LAS) curve

is vertical and determines the level of potential GDP

The forces that generate long-term economic growth are those that shift the

long-run aggregate supply curve rightward

________ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic.

monetarist

If wages adjust slower than prices, we would expect expansionary monetary policy to be A) less likely to reduce the natural unemployment rate. B) more likely to reduce inflation. C) more effective at reducing the unemployment rate. D) more likely to result in a vertical short-run Phillips curve.

more effective at reducing the unemployment rate.

Factors that influence labor productivity include ________

physical capital, human capital, and technology

The main sources of cost-push inflation are increases in

rising costs of production

A change in the capital stock ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A) does not shift; does not shift B) does not shift; shifts C) shifts; shifts D) shifts; does not shift

shifts; shifts

An increase in the amount of human capital ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve

shifts; shifts

18. Dollar appreciation A) decreases aggregate demand. B) increases the aggregate quantity demanded. C) decreases the aggregate quantity demanded. D) increases aggregate demand.

A

24. In the long run, the Federal Reserve can affect only which of the following? A) the price level B) the unemployment rate C) the growth rate of real GDP in the economy D) the natural rate of unemployment

A

28. An expansionary monetary policy in the United States can A) increase AD through higher net exports. B) cause the dollar to appreciate. C) decrease the dollar price of imports. D) decrease net exports.

A

The determinants (shifters) of SAS and LAS include A the quantities of labor, capital, resources, and the state of technology. B the total expenditures of consumers, investors and government. C the sum of wages, salaries, corporate profits, rents and interest. D only the state of technology.

A

The real wage rate falls if the nominal wage rate ________. A rises more slowly than the price level B and the price level change by the same proportion C rises more rapidly than the price level D is constant and the price level falls

A

26. Models that focus on factors such as technology shocks rather than ʺmonetaryʺ explanations of fluctuations in real GDP are called A) nonmonetary business cycle models. B) real business cycle models. C) rational expectations models. D) short-run macroeconomic models.

B

27. What models tend to be skeptical about the potency of monetary policy even in the short run? A) nonmonetary business cycle models. B) rational expectations models. C) real business cycle models. D) short-run macroeconomic models.

B

A decrease in unemployment compensation payments (assuming no crowding out) A increases aggregate demand. B decreases aggregate demand. C decreases the aggregate quantity demanded. D increases the aggregate quantity demanded.

B

A recessionary gap means that actual GDP A equals full-employment GDP. B is less than potential GDP. C is more than full-employment GDP. D may be less than, more than, or the same as full-employment GDP depending on the level of potential GDP.

B

A technological advance ________ the long-run aggregate supply curve and ________ the short-run aggregate supply curve. A does not shift; does not shift B shifts; shifts C does not shift; shifts D shifts; does not shift

B

An increase in government expenditure on goods and services (assuming no crowding out) A decreases the aggregate quantity demanded. B increases aggregate demand. C decreases aggregate demand. D increases the aggregate quantity demanded.

B

Closing of the income gap has been most dramatic between A Africa and the United States. B Hong Kong and the United States. C the Central European countries and the United States. D South America and the United States.

B

During the 1990s, which of the following countries experienced the slowest rate of growth in real GDP per person? A United States B Japan C Canada D France

B

Factors that influence labor productivity include ________. A physical capital, the real wage rate, and technology B physical capital, human capital, and technology C the inflation rate, the real wage rate, and the exchange rate D the labor demand curve

B

Full employment A cannot occur if the production function is shifting upward. B occurs when actual GDP is equal to potential GDP C can happen only when real GDP exceeds potential GDP. D means that resources are allocated efficiently

B

The aggregate supply/aggregate demand model is used to help understand all of the following except A growth of potential GDP. B the aggregate value of stock traded in the stock market. C business cycle fluctuations. D inflation.

B

The forces that generate long-term economic growth are those that shift the A aggregate demand curve leftward. B long-run aggregate supply curve rightward. C long-run aggregate supply curve leftward. D None of the above answers are correct.

B

The long-run aggregate supply (LAS) curve A is negatively sloped. B is vertical at the level of potential GDP. C is horizontal at the level of potential GDP. D is positively sloped.

B

The main sources of cost-push inflation are increases in A consumption and investment. B the cost of production, which decreases SAS. C the money supply. D aggregate demand and real wage rates.

B

The neoclassical growth theory developed by Robert Solow predicts that A capital is constant over time. B the growth rates of all nations will eventually converge to the same low rate. C output is constant over time. D the growth rates of all nations will diverge.

B

The short-run aggregate supply (SAS) curve is vertical. has a positive slope. has a negative slope. is horizontal.

B

________ economists believe that the economy is self-regulating and always at full employment. A Keynesian B Classical C All D Monetarist

B

Most recently, the country with the highest level of real GDP per person is

the United States

19. A change in the capital stock ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A) does not shift; does not shift B) does not shift; shifts C) shifts; shifts D) shifts; does not shift

C

20. Technological progress will A) not shift either the LAS or the SAS curve. B) shift the SAS curve rightward but will not shift the LAS curve. C) shift both the LAS and SAS curves rightward. D) shift the LAS curve rightward but will not shift the SAS curve.

C

22. In the above figure, the economy is initially at point B. If taxes increase, there is A) a movement to point C. B) a shift to AD1. C) a shift to AD2. D) a movement to point A.

C

25. If wages adjust slower than prices, we would expect expansionary monetary policy to be A) less likely to reduce the natural unemployment rate. B) more likely to reduce inflation. C) more effective at reducing the unemployment rate. D) more likely to result in a vertical short-run Phillips curve.

C

The aggregate supply/aggregate demand model is used to help understand all of the following except

the distribution of income

The neoclassical growth theory developed by Robert Solow predicts that

the growth rates of all nations will eventually converge to the same low rate

The unemployment rate at full employment is ________

the natural unemployment rate

Which of the following is true about global poverty over the last several decades?

the poverty rate has generally fallen

18. In the long run, the Federal Reserve can affect only which of the following? A) the price level B) the unemployment rate C) the growth rate of real GDP in the economy D) the natural rate of unemployment

the price level

The determinants (shifters) of SAS and LAS include

the quantities of labor, capital, resources, and the state of technology

In the macroeconomic long run, A) there is full employment with no unemployment. B) output always is above potential GDP. C) there is full employment and real GDP is equal to potential GDP. D) GDP always is below potential GDP.

there is full employment and real GDP is equal to potential GDP.

In the macroeconomic long run,

there is full employment and the economy is at potential GDP

29. Other things being equal, relatively poor countries tend to grow A) slower than relatively rich countries; this is called the poverty trap. B) slower than relatively rich countries; this is called the fall-behind effect. C) faster initially than relatively rich countries, but eventually they will slowdown in growth. D) faster than relatively rich countries; this is called the constant-returns-to-scale effect.

C

3. In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD0 to AD1. If the Fed wants to offset this change, it would ________. A. increase government expenditures B. lower taxes C. purchase government bonds on the open market D. sell government securities on the open market

C

35. A short-run macroeconomic equilibrium with cyclical unemployment is best described by: A) The GDP gap B) An inflationary gap C) A recessionary gap D) The Inflation Premium

C

4 Which of the following does NOT shift the aggregate demand curve: A) an increase in investment B) a decrease in the quantity of money C) an increase in the price level D) a decrease in taxes

C

5 An increase in expected future income A) decreases aggregate demand B) decreases the aggregate quantity demanded C) increases aggregate demand D) increases the aggregate quantity demanded

C

6. A rise in the expected future inflation rate A) decreases the aggregate quantity demanded. B) increases the aggregate quantity demanded. C) increases aggregate demand. D) decreases aggregate demand.

C

An increase in expected future income A increases the aggregate quantity demanded. B decreases aggregate demand today. C increases aggregate demand today. D decreases the aggregate quantity demanded

C

An inflationary gap means that actual GDP A equals full-employment GDP. B is less than full-employment GDP. C exceeds potential GDP. D may be less than, more than, or the same as full-employment GDP depending on the level of potential GDP

C

Demand-pull inflation starts with A a decrease in aggregate demand. B a decrease in short-run aggregate supply. C an increase in aggregate demand. D an increase in short-run aggregate supply.

C

Expectation of rising wages ________ the long-run aggregate supply curve and ________ the short-run aggregate supply curve. A shifts; does not shift B shifts; shifts C does not shift; shifts D does not shift; does not shift

C

In the macroeconomic short run, A the unemployment rate is zero. B the economy is always moving away from full employment. C actual real GDP may be less than or more than potential real GDP. D actual real GDP always equals potential GDP.

C

Most recently, the country with the highest level of real GDP per person is A Canada. B Japan. C the United States. D Germany.

C

One reason that the aggregate demand curve has a negative slope is because A people earn more money when output rises. B The premise of the question is wrong because the aggregate demand curve has a positive slope. C people buy fewer goods when the price level rises. D firms produce more when the price rises.

C

Technological progress A has no effect on employment. B decreases labor productivity. C increases potential GDP. D lowers the real wage rate.

C

The unemployment rate at full employment is ________. A between 0 and 1 percent B zero C the natural unemployment rate D continually decreasing as the economy grows

C

________ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic. A All B Keynesian C Monetarist D Classical

C

1. Other things being equal, relatively poor countries tend to grow A) slower than relatively rich countries; this is called the poverty trap. B) slower than relatively rich countries; this is called the fall-behind effect. C) faster initially than relatively rich countries, but eventually, they will slow down in growth. D) faster than relatively rich countries; this is called the constant-returns-to-scale effect.

C) faster initially than relatively rich countries, but eventually they will slowdown in growth.

13. In the macroeconomic short run, A) the unemployment rate is zero. B) the economy is always moving away from full employment. C) actual real GDP always equals potential GDP. D) actual real GDP may be less than or more than potential GDP.

D

2. If the Fed raises the interest rate, then imports ________ and exports ________. A. decrease; decrease B. decrease; increase C. increase; increase D. increase; decrease

D

23. Which of the following best describes supply-side economics? A) Labor productivity affects aggregate supply. B) Education affects labor productivity which affects aggregate supply. C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply. D) Lower tax rates can increase the incentive to work and invest, shifting aggregate supply to the right.

D

32. The Monetarist school of thought claims that A) expansionary monetary policy often plants the seeds of the next business cycle. B) fiscal and monetary policies have a long-run effect on the economy. C) fiscal and monetary policies have only short term effect on the economy. D) monetary policy should aim at maintain price stability and be conducted by a rule rather than discretion.

D

33. Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up? A) The poor country has anti-trade policies. B) The poor country has unstable money supply. C) The poor country does not enforce property rights. D) All of the above are correct.

D

7. A permanent tax hike on labor income A) decreases potential GDP. B) weakens the incentive to work. C) increases potential GDP because people work more to pay the higher taxes. D) Both answers A and B are correct.

D

A change in physical capital ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A does not shift; shifts B does not shift; does not shift C shifts; does not shift D shifts; shifts

D

A decrease in the quantity of money A increases the aggregate quantity demanded. B increases aggregate demand. C decreases the aggregate quantity demanded. D decreases aggregate demand.

D

Economics became known as the "Dismal Science" because of the A neoclassical growth theory prediction that growth would not persist in the long run. B trouble students have earning good grades in their Introductory Economics classes. C tendency of competitive markets to keep prices and profits low. D Malthusian prediction of subsistence living in the long run.

D

Holding everything else constant, a rise in the wage rate (i.e. production costs) A decreases the long-run aggregate supply. B increases the long-run aggregate supply. C increases the short-run aggregate supply. D decreases the short-run aggregate supply.

D

Over the last 100 years, the average U.S. growth rate in real GDP per person was about A 1 percent per year. B 6 percent per year. C 12.5 percent per year. D 2 percent per year.

D

The endogenous growth theory predicts that A economic growth is eroded by changes in taxes. B economic growth is only temporary. C government policies can do nothing to foster increased growth. D economic growth can last indefinitely.

D

Which of the following is true about the long-run aggregate supply (LAS) curve? A It does not shift in response to temporary factors or changes in aggregate demand. B It is vertical at the level of potential GDP. C It shows that changes in money supply and price level are neutral in the long run. D All of the above are true.

D

________ economists believe that active fiscal and monetary policy is needed to insure that the economy is operating at full employment. A Monetarist B All C Classical D Keynesian

D

In the macroeconomic short run, A) the unemployment rate is zero. B) the economy is always moving away from full employment. C) actual real GDP always equals potential GDP. D) actual real GDP may be less than or more than potential GDP.

D) actual real GDP may be less than or more than potential GDP.

The Monetarist school of thought claims that A) expansionary monetary policy often plants the seeds of the next business cycle. B) fiscal and monetary policies have a long-run effect on the economy. C) fiscal and monetary policies have only short term effect on the economy. D) monetary policy should aim at maintain price stability and be conducted by a rule rather than discretion.

D) monetary policy should aim at maintain price stability and be conducted by a rule rather than discretion.

Why do economically free countries tend to have cleaner environments?

Economic freedom makes countries richer, and richer countries can afford cleaner air and water

1. Which model predicts the possibility of persistent growth even in developed countries? A) Malthusian growth model. B) Kremerian growth model. C) Solow growth model. D) Endogenous growth model.

Endogenous growth model.

Closing of the income gap has been most dramatic between

Hong Kong and the United States

During the 1990s, which of the following countries experienced the slowest rate of growth in real GDP per person?

Japan

________ economists believe that active fiscal and monetary policy is needed to ensure that the economy is operating at full employment

Keynesian

Over the last 100 years, the average U.S. growth rate in real GDP per person was about

2 percent per year

1 Monetary policy affects real GDP by: A) changing aggregate demand B) creating budget deficits C) changing aggregate supply D) creating budget surpluses

A

10. In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD0 to AD1. To offset this change, Congress should A. increase government expenditures. B. increase taxes. C. purchase government securities on the open market. D. sell government securities on the open market.

A

15. A decrease in government expenditure on goods and services A) decreases aggregate demand. B) decreases the aggregate quantity demanded. C) increases the aggregate quantity demanded. D) increases aggregate demand.

A

30. Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes A) your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. B) your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. C) your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. D) your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

A

31. The Austrian school of thought claims that A) expansionary monetary policy often plants the seeds of the next business cycle. B) fiscal and monetary policies have a long-run effect on the economy. C) fiscal and monetary policies have only short term effect on the economy. D) monetary policy should aim at maintaining price stability and be conducted by a rule rather than discretion.

A

34. In the short-run, a decrease in the quantity of money will shift the ____ curve ____ and ____ real GDP. A) aggregate demand; leftward; decrease B) aggregate demand; rightward; increase C) aggregate supply; rightward; increase D) aggregate supply; leftward; increase

A

36. Demand pull inflation comes from a shift of the A) AD curve rightward. B) AD curve leftward. C) SAS curve rightward. D) SAS curve leftward.

A

8. The supply side effects of a cut in income tax rates include ________ in the supply of labor and ________ in the supply of capital. A) an increase; an increase B) an increase; a decrease C) a decrease; a decrease D) a decrease; an increase

A

9. An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A) rightward; leftward B) leftward; rightward C) leftward; leftward D) rightward; rightward

A

A rise in the expected future inflation rate A increases aggregate demand today. B increases the aggregate quantity demanded. C decreases the aggregate quantity demanded. D decreases aggregate demand today.

A

An increase in the amount of human capital ________ the short-run aggregate supply curve and ________ the long-run aggregate supply curve. A shifts; shifts B shifts; does not shift C does not shift; does not shift D does not shift; shifts

A

Depreciation of the dollar A increases aggregate demand. B increases the aggregate quantity demanded. C decreases the aggregate quantity demanded. D decreases aggregate demand.

A

In the macroeconomic long run, A there is full employment and real GDP is equal to potential GDP. B GDP always is below potential GDP. C output always is above potential GDP. D there is full employment with no unemployment.

A

Stagflation is the combination of a ________ and ________. A rise in the price level; a decrease in real GDP B rise in inflation; a decrease in real GDP C fall in inflation; an increase in real GDP D fall in the price level; an increase in real GDP

A

1. A short-run macroeconomic equilibrium with cyclical unemployment is best described by: A) The GDP gap B) An inflationary gap C) A recessionary gap D) The Inflation Premium

A recessionary gap

1. An expansionary monetary policy in the United States can A) increase AD through higher net exports. B) cause the dollar to appreciate. C) decrease the dollar price of imports. D) decrease net exports.

A) increase AD through higher net exports.

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes A) your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased. B) your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased. C) your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. D) your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased.

A) your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.

1. Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up? A) The poor country has anti-trade policies. B) The poor country has an unstable money supply. C) The poor country does not enforce property rights. D) All of the above are correct.

A)The poor country has anti-trade policies. B) The poor country has unstable money supply. C) The poor country does not enforce property rights.

12. If the economy is at the natural unemployment rate, A) real GDP > potential GDP. B) real GDP = potential GDP. C) real GDP < potential GDP. D) All of the above can occur when the economy is at the natural unemployment rate.

B

16. Lower taxes A) decrease the aggregate quantity demanded. B) increase aggregate demand. C) increase the aggregate quantity demanded. D) decrease aggregate demand.

B

17. A decrease in the quantity of money A) decreases the aggregate quantity demanded. B) decreases aggregate demand. C) increases aggregate demand. D) increases the aggregate quantity demanded

B

21. A decrease in the nominal wage rate, holding price level constant, A) decreases the long-run aggregate supply. B) increases the short-run aggregate supply. C) increases the long-run aggregate supply. D) decreases the short-run aggregate supply.

B

A permanent tax hike on labor income -decreases potential GDP. - weakens the incentive to work. - increases potential GDP because people work more to pay the higher taxes. -Both answers A and B are correct

Both answers A and B are correct

11. In the macroeconomic long run, A) there is full employment with no unemployment. B) output always is above potential GDP. C) there is full employment and real GDP is equal to potential GDP. D) GDP always is below potential GDP.

C

14. The aggregate supply curve is a function of A) the total expenditures of consumers, investors and government. B) the sum of wages, salaries, corporate profits, rents and interest. C) the quantities of labor, capital and the state of technology. D) only the state of technology.

C

Which of the following best describes supply-side economics? A) Labor productivity affects aggregate supply. B) Education affects labor productivity which affects aggregate supply. C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply. D) Lower tax rates can increase the incentive to work and invest, shifting aggregate supply to the right.

Lower tax rates can increase the incentive to work and invest, shifting aggregate supply to the right.

1. Which model predicts mass starvation due to uncontrollable population growth? A) Malthusian growth model. B) Kremerian growth model. C) Solow growth model. D) Endogenous growth model.

Malthusian growth model.

Economics became known as the "Dismal Science" because of the

Malthusian prediction of subsistence living in the long run

Which macroeconomic school of thought argues in favor of stimulating the economy through policies that aim to expand the productive ability of the economy? A) Keynesian. B) Classical. C) Monetarist. D) Supply-side.

Supply side

A decrease in money supply

decreases aggregate demand

A decrease in unemployment compensation payments (assuming no crowding out)

decreases aggregate demand

The endogenous growth theory predicts that

economic growth can last indefinitely

If the economy is operating below potential GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in A) the money supply and a decrease in interest rates. B) government purchases of goods and services. C) oil prices. D) taxes. C) oil prices. D) taxes.

government purchases of goods and services.

The short-run aggregate supply (SAS) curve

has a positive slope

An increase in government expenditure on goods and services (assuming no crowding out)

increases aggregate demand

Depreciation of the domestic currency

increases aggregate demand

Technological progress

increases potential GDP

A decrease in the nominal wage rate, holding price level constant, A) decreases the long-run aggregate supply. B) increases the short-run aggregate supply. C) increases the long-run aggregate supply. D) decreases the short-run aggregate supply.

increases the short-run aggregate supply.

Which resources are we running out of?

nothing

full employment

occurs when actual GDP is equal to potential GDP

Taxes on fossil fuels are an example of ________ taxes

pollution Pigouvian corrective

The term for the legally established titles to the ownership, use, and disposal of factors of production and private property is

property rights.

1. What theory tends to be skeptical about the potency of monetary policy even in the short run? A) Keynesian theory. B) rational expectations theory. C) monetarist theory. D) classical theory.

rational expectations theory.

If the economy is already at the natural rate of unemployment, A) real GDP > potential GDP. B) real GDP = potential GDP. C) real GDP < potential GDP. D) All of the above can occur when the economy is at the natural unemployment rate.

real GDP = potential GDP.

1. Models that focus on factors such as technology shocks rather than ʺmonetaryʺ explanations of fluctuations in real GDP are called A) nonmonetary business cycle models. B) real business cycle models. C) rational expectations models. short-run macroeconomic models.

real business cycle models.

Stagflation is the combination of a ________ and ________

rise in the price level; a decrease in real GDP

The real wage rate falls if the nominal wage rate ________

rises more slowly than the price level