Econ -Test 2
How much is the output gap if short-run output is $18.0 trillion and potential output is $18.0 trillion?
$0
If the real GDP of a country in 2017 was $300 billion, its price index was 108.3, and its population was 150 billion, then real GDP per capita for that year was _____
$2 billion
Linda earns an income of $3,000 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her disposable income per month?
$3,000
Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What are her savings per month before the increase income and after the increase in income?
$300;$350
Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging and other expenses. So far, she has managed to save $20,000. What is the change in her saving per month after the increase in income?
$50
How much is the output gap if short-run output is $21.0 trillion and potential output is $20.0 trillion?
+$1.0 trillion
How much is the output gap if short-run output is $20.0 trillion and potential output is $21.0 trillion?
-$1 trillion
If the consumer price index (CPI) is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately
-4.6 percent
Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 5%, what is your real wage increase?
1 percent
If the marginal propensity to consume (MPC) equals 0.9, the multiplier is
10
Refer to Table 6.3, which shows the current and base-year prices of different goods in a market basket. The market basket in the current year is _____ higher than the price of the market basket in the base year.
100 percent
Consider an economy made up of 100 people who are sixteen years of age and older, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is
70
what reflects the relationship between the economy's price level and aggregate output demanded
Aggregate demand
Which of these changes is observed in an economy when a recessionary gap is closed in the long run?
An increase in the level of output and a decrease in the price level
Real gross domestic product (GDP) is measured in terms of the
Base-year prices
One of the most widely reported measures of inflation is the
Consumer price index
Identify the correct statement: a. In period of low inflation, real wages are constant but nominal wages decline. b. If the price level increases, real wages will increase. c. If the price level increases, nominal wages will fall. d. In periods of high inflation, real wages change even if nominal wages remain constant. e. If the inflation rate is high, real wages and nominal wages change by the same amount.
D.
If the United States made the sale of a legal drug illegal, GPD would
Decrease
An increase in the interest rate, other things constant, will
Decrease the quantity of loanable funds demanded
_____ is counting an item's value more than once
Double-counting
Which of the following statements about U.S. business cycles since 1945 is true?
Expansions are longer and recessions are shorter
________ are goods and services sold to final, or end, users
Final goods and services
Which of the following equations equals aggregate expenditure?
GDP=C+I+G+(X-M)
The marginal propensity to consume
Is the change in consumption relative to a change in disposable income
If costs increase, what happens to the aggregate supply curve?
It shifts leftward
If costs decrease, what happens to the aggregate supply curve?
It shifts rightward
The term, supply-side economics, refers to
Macroeconomics policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes to increase production incentives.
Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. To the left of Y1,
Output levels are less than the economy's potential
Refer to Exhibit 5.1, which shows the aggregate demand and supply curves for the United States. From the beginning of period 1 to the end of period 2,
Real GDP decreased and then increased
Refer to Exhibit 9.1, which shows the income-expenditure model. Which of the following best describes the situation at point B?
Real GDP exceeds aggregate expenditure
A decrease in the price level will
Shift the consumption function upward
Which pf the following is correct if real GDP is $20 trillion and spending is $20 trillion?
Spending and GDP are in equilibrium
Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At a price of P3, firms will,
Supply more than potential output
Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. If output is at Y1,
The economy produces its potential output and unemployment is at the natural rate
Economists use the price index to eliminate year-to-year changes in GDP caused solely by changes in
The price level
Which of the following is true of the labor force participation rates in the United States since the 1950s?
The rate for men has fallen; the rate for women has increased
If the marginal propensity to consume (MPC) in your classmate's country is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true?
The spending multiplier is smaller in your classmate's country than in your country
The final market value of a good is
The sum of the value added at all stages of production
When do firms buy capital goods?
When firms expect the investment to yield a higher return than other possible uses of their funds
The global financial panic is September 2008 led to a sharp fall in business investment spending and consumer spending can be viewed as
a sharp decrease in aggregate demand
What do most economists agree was the trigger of the Great Depression?
a stock market crash
Which of the following is most likely to happen if the aggregate demand curve for an economy (which was initially in equilibrium) shifts to the left, aggregate supply remaining unchanged? a. the equilibrium real GDP will decrease b. the equilibrium price level in the economy will increase c. the aggregate supply curve will shift rightward d. the aggregate supply curve will shift leftward e. the economy will experience an expansion
a. The equilibrium real GDP will decrease
Which of the following is an effect of an increase in the price level in an economy? a. The real value of dollar-denominated assets will fall b. The aggregate expenditure line will shift upward c. the equilibrium real gross domestic product will increase d. there will be a downward movement along the aggregate demand curve of the economy e. The aggregate demand curve of the economy will shift rightward.
a. The real value of dollar-denominated assets will fall
Which of these is not assumed to be constant along a short-run aggregate supply curve? a. the actual price level b. the state of technology c. the sizer and quality of the labor force d. the expected price level e. the size and quality of the capital stock
a. the actual price level
The benefits paid by the largest pension program in the United States are
adjusted for changes in the price level
The long run is the period of time during which
all resource prices are variable
Economic fluctuations or business cycles
are fluctuations in the level of economic activity relative to a long-term growth trend
Which of the following is true of a lower price level? a. The lower the price level, any given money wage purchases less, so the wage is less attractive to workers. b. The lower the price level, any given money wage purchases more, so the wage is more attractive to workers. c. The lower the price level, any given money wage purchases more, so the wage is less attractive to workers. d. The lower the price level, any given money wage purchases less, so the wage is more attractive to workers. e. There is no relationship between the price level and money wages.
b. The lower the price level, any given money wage purchases more, so the wage is more attractive to workers.
Which of the following occurred during the Great Depression? a. Unemployment and prices increased, while output decreased. b. Unemployment increased, while output and prices decreased. c. Unemployment and prices decreased, while output increased. d. Unemployment and output decreased, while prices increased. e. Unemployment and output increased, while prices decreased.
b. Unemployment increased, while output and prices decreased.
Which of the following will shift the consumption function upward? a. a decrease in stock prices b. a increase in stock prices c. a higher price level d. a lower disposable income e. a higher disposable income
b. a increase in stock prices
Which of the following is an example of an injection into the circular flow of income and expenditure? a. consumption b. exports c. taxes d. savings e. government borrowing
b. exports
Which of the following is an example of a leakage from the circular flow of income and expenditure? a. government purchases of goods and services b. taxes c. investment d. exports e. consumption expenditures
b. taxes
Which of the following, if true, would suggest that an expansionary gap exists in an economy? a.rapid inflation during a period when plant capacity utilization is below average b. a steady price level coupled with a 5 percent unemployment rate c. an unemployment rate below its natural rate and an unexpected increase in the consumer price index d. sluggish growth in the rate of inflation and an exceptional increase in the Dow Jones average e.a modest increase in the number of new unemployment claims and a lower-than-expected price level
c. an unemployment rate below its natural rate and an unexpected increase in the consumer price index
When an economy is operating at full employment,
cyclical unemployment does not exist
Identify the correct statement, a. During a recession, investment decreases while consumption increases. b. During a recession, investment increases while consumption decreases. c. During a recession, investment is constant while consumption increases. d. Annual variations in investment are larger than annual variations in consumption. e. Annual variations in investment are smaller than annual variations in consumption.
d. Annual variations in investment are larger than annual variations in consumption
Identify the correct statement. a. In periods of low inflation, real wages are constant but nominal wages decline. b. If the price level increases, real wages will increase. c. If the price level increases, nominal wages will fall. d. In periods of high inflation, real wages change even if nominal wages remain constant. e. If the inflation rate is high, real wages and nominal wages change by the same amount.
d. In periods of high inflation, real wages change even if nominal wages remain constant.
Which of the following is not a component of aggregate expenditure? a. Consumption expenditures b. investment c. imports d. rent e. government purchases
d. rent
Suppose the price level increases by 5 percent and the nominal wages of workers increase by 3 percent during a particular year. This implies that the real wage has
declined by 2 percent
If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will
decrease by 3 percent per year
An increase in the price level in an economy will
decrease the quantity of real gross domestic product (GDP) demanded
If the economy is experiencing a sustained decrease in the price level, it is called
deflation
The consumption function relates consumption spending to
disposable income
Which of these is the best measure of the average standard of living in an economy? a. The unemployment rate b. Nominal income c. Real GDP d. National debt e. Real GDP per capita
e. Real GDP per capita
You would rather be a lender when
expected inflation is low and the interest rate is high
If the price level in the current year is much lower than the expected price level in an economy,
firms will increase production beyond the economy's potential level
The Keynesian approach to government economic policy
highlights the role of aggregate demand
Net exports have averaged a minus 3 percent of GDP during the last decade. This means that
imports exceed exports
Which of the following factors makes the official unemployment rate an overstatement of the actual level of unemployment in an economy?
inclusion of those who pretend to look for work in order to qualify for welfare programs
For a given aggregate supply curve, an increase in aggregate demand will
increase real GDP
Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24. Based on this information, we can conclude that the price level has
increased by 20 percent
an increase in a person's nominal wage necessarily
is not important until it is adjusted for inflation
Any diversion of income from the domestic spending stream is known as
leakages
In terms of the aggregate demand and aggregate supply framework, the Great Depression can be viewed as a
leftward shift of the aggregate demand curve
An expansionary gap is closed in the long run by a(n)
leftward shift of the short-run aggregate supply curve.
The fraction of an increase in income that is saved is referred to as the
marginal propensity to save
The nominal wage is
measured in current dollars rather than in constant dollars
The official unemployment rate disguises the extent pf the unemployment problem because
people overqualified for their current jobs are not considered unemployed
When the actual price level is in economy turns out to be lower than expected in the short run, firms,
produce less than the economy's potential output
Which relationship is shown on the income-expenditure model?
real GDP and aggregate expenditures
Historically, consumption spending in the United States has
remained approximately constant as a percentage of income
A decrease in net wealth will
shift the consumption function downward
problems with CPI do not include
that it does not allow for some substitution within narrow categories
An expansionary gap is equal to
the actual short-run output minus potential output
Which of the following is an example of an intermediate good?
the flour that Amy orders each month for the bakery she manages
Refer to Exhibit 10.5, which shows the short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is currently producing Y2 level of output, long-run equilibrium will be established if
the short-run aggregate supply curve shifts to the left to remove the expansionary gap.
The nominal wage represents
the wage measured in terms of the dollar value of the goods and services a worker can purchase with it.
Unanticipated inflation penalizes
those who are saving
Gross domestic product (GDP) is not a perfect measure of welfare because it
treats a dollar spent on guns the same as a dollar spent on education
If 2016 is the base year and the price index in 2017 is 100, prices in 2017 are _____ than prices in 2016.
unchanged
A(n) _____ involves market transactions that go unreported either because they are illegal or because people involved want to evade taxes.
underground economy
The existence of the underground economy causes gross domestic product (GDP) statistics to
understate the true volume of economic activity
Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At Y2,
unemployment is higher than the natural rate