Economic practice questions from quizzes for test #2
As disposable income decreases, consumption
And saving both decrease
Inflation is a rise in
The general level of prices over time
which of the following factors will shift AD1 to AD3
a decrease in consumer wealth
In the Keynesian model, a $1 billion increase in autonomous consumption leads to------ in equilibrium output
a greater than $1 billion increase
According to the short-run Phillips curve, which of the following would result in low rates of unemployment
a higher inflation rate
The short run Phillips Curve shows there is----- relationship between the u employment rate and the rate of inflation
a negative
which of the diagrams best portrays the effects of an increase in foreign spending on U.S. products and expansion
graph 3
An inflationary expenditure gap is the equilibrium level of real GDP is
greater than full-employment real GDP
Over time, an increase in the real output and incomes of the trading partners of the United States will mostly likely
increase U.S. exports
An increase in expected future income will
increase aggregate demand
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to
increase aggregate demand
an increased in productivity will----
increase aggregate supply
if the national incomes of trading partners increase, then our aggregate demand-------
increase because net exports increase
Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by an
increase in government regulation
As disposable income increases, consumption:
increases
The CPI compiled by the Bureau of Labor Statistics is used in the computations for the
inflation rate
The best example of a :frictionally unemployed" worker is one who
is in the process of voluntarily switching jobs
The economy's long-run aggregate supply curve
is vertical
The following information items describe the response of four individuals to a Bureau of Labor statistics(BLS) survey of employment Mollie just graduated from college and is now looking for work, She has had three job interviews in the past month but still has not gotten a job offer George used to work in an automotive assembly plant.He was laid off six months ago as the economy weakend. He expects t return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal Governemnt cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. which individual is structurally unemployed
jeantte
Each week jim buys the same market basket composed of a case of ramen noodles, two bottles of coke, and three bags of tortilla chips. Jim has found that it takes more of his wages to buy this market basket than before. Wee can say
jims real wage has gone down
The larger the MPC, the------the expenditure multiplier and the ------- the effect of a change in expenditure on equilibrium output.
larger and larger
Assume that an increase in a household'd disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to 41,000. This means that the households
marginal propensity to consume is .75
The presence of discouraged workers
may cause the official unemployment rate to understate the true amount of unemployment.
Full employment refers to the situation when there is
no cyclical unemployment
To calculate the consumer price index, the BLS surveys
over 10,000 households
In the diagrams, AD1 and AS1 are the "before" curves. Assuming Q1 is full-employment output a recession is depicted by
panel A only
In the diagrams Ad1 and AS1 are the "before" curves. Stagflation is depicted by
panel B only
The level of real GDP in the long run is
potential GDP
Potential GDP refers to the level of
real GDP in the long run
An increase in input productivity will:
reduce the equilibrium price level, assuming downward flexible prices
Inflation
reduces the buying power of people on fixed incomes
Which would most likely shift the aggregate supply curve? A change in the prices of
resources
An increase in production costs is most likely to shift the
short-run aggregate supply curve to the left
The multiplier effect relates changes in
spending to changes in real GDP
A mismatch between the geographic location of workers and the location of job openings would result in which type of unemployment
structural
Kevin has lost his job in an automobile plant because the company switched to robots for its welding step in the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is
structural
Manual is retired and receives a fixed payment from his pension each month. Where there is inflation
the buying power of his pension will fall
If the CPI declines from one year to the next, then which one of the following statements is not true
the cpi turns negative in the next year
The long-run aggregate supply curve will shift to the right if
the economy experiences technological change
Changes in ----- do not affect the level of aggregate supply in the long run
the price level
Ahmed bought the same goods and services this year as last year. But he has experienced inflation. This means
the prices of goods and services has increased in general
Barbara buys the same market basket each week and spends $60 on it. This week Barbara brought $60 to the store but could not buy her usual market basket. One explanation for this is
there was inflation
The long-run aggregate supply curve is
vertical
In the long run, the Phillips curve is a ------ at ------
vertical line, the natural rate of unemployment
The long-run aggregate supply curve is----while the long-run Phillips curve is ------
vertical, also vertical
The upward slope of the short-run aggregate supply curve is based on the assumption that
wages and other resource prices do not respond to price level changes
The goods and services used to calculate the consumers price index represent
what households, businesses and government purchase in total
If aggregate demand increases and aggregate supply decreases, the price level:
will increase, but real output may increase, decrease, or remain unchanged
A worker would be hurt least by inflation when the:
worker is protected by a cost of living adjustment clause in an employment contract
In the Classical model, high unemployment
would cause wages to fall
In which year did prices go down?
year 3
An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be------ and the multiplier is -------
0.75 and 4
If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively:
0.8 and 5.0
Answer the next question on the basis of the following information about the hypothetical economy of Asland. All figures are in millions. Unemployed-7 Total population-145 Employed-95 Discouraged workers-3
102 million 95+7
Using Year 1 as the base year, the country's consumer price index in year 2 is
106.25
Full-time employed=80 Part-time employed=25 unemployed=15 discouraged workers=5 Members of underground economy=6 Consumer price index=110 The unemployed rate is
12.5
A consumer price index of 120 for a certain year means that the average price of consumers items in that year was
20% higher than the average price in the base period 1982-84
The total adult population of an economy is 175 million, the number of employed is 122 million, and the number of unemployed is 17 million. The percentage of adults who are not in the labor force ix
20.6%
Which line represents the long-run supply curve
4
In the digram, the economy's relevant aggregate demand and long-run aggregate supply curves, respectively, are lines-----
4 and 1
If the consumer price index was 170 in one year and 180 in the next year, then the rate of inflation is approximately
5.9%
A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate?
6%
Inflation for the year 2008 is
71%
Which of the following statements is correct?
An increase in exports will tend to increase, and increase, and an increase in imports will tend tend to decrease, the equilibrium real GDP
the economy's long-run AS curve assumes that wages and other resource prices
Eventually rise and fall to match upward or downward changes in the price level
Two basic determinants of investment spending are:
Expected returns and real interest rates
Assume the economy is initially on AD0 and AS0. An increase in resource prices would result in price ------ and real domestic output --------
G:B
Which of the diagrams best portrays the effects of a substantial reduction in governments spending
Graph 4
If the economy is initially at full-employment, which of the diagrams best portrays a recession resulting from a decrease in government purchase?
Grapph 4
If the economy were experiencing a recession, which of the following would Keynes be in favor of?
Households should save less and consume more goods and services
The largest component of the consumer price index is
Housing
The natural rate of unemployment
Is equal to the total of frictional and structural unemployment
Melita heard that there had been inflation last month. She laughed and did not believe it. When asked why not, she said that last week she spend less at the grocery store because the cost of food had come down. Which of the following is the correct response?
Melita is wrong food prices may have fallen but other prices have risen so the average price of goods is higher
The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?
Net exports exports have increased
Generally speaking, the greater the MPS, the
Smaller would be the increase in income which results from an increase in consumption spending
A decrease in aggregate supply means
The real domestic output would decrease and the price level would rise
If the real interest rate increases:
There will be a movement upward along the investment demand curve
Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nominal income through collective bargaining. Could the union statement be correct?
Yes because real income may fall if price increases are proportionately greater than the increase in nominal income
An MPC value of less than 1.0 indicates that as income increases consumption
also increases, though not as much as income
which of the following factors will shift As1 to AS3
an increase in input prices
Which of the following effects best explains the downward slope the aggregate demand curve?
an interest-rate effect
The unemployment are those people who
are not employed but are seeking work
The long-run aggregate supply analysis assumes that -------
both input and product prices are variable
The level of aggregate supply in the long run is not affected by
changes in the price level
If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:
consume is 0.75
The four components of aggregate expenditure are
consumption, investment, government purchases, and net exports
In calculating the unemployment rate, part-time workers are
counted as employed because they are receiving payment for work
A headline sates: Real GDP falls again as the economy slumps. This condition is most likely to produce what type of unemployment
cyclical
Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would:
decline
An increase in personal income taxes will cause a(n)
decrease (or shift left) in aggregate demand
A decrease in government spending will cause a(n):
decrease aggregate demand
Other things being equal, a decrease in an economy's esports will
decrease domestic aggregate. expenditures and the equilibrium level of GDP
an increase in aggregate demand is most likely to be caused by an
decrease in the tax rates on household income
Changes in the price level
decrease the level of aggregate supply in the long run
If the dollar appreciates in value relative to foreign currencies, aggregate demand
decreases because net exports decreases
The U.S. was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate
demand increased and aggregated supply increased
In the short run, the Phillips Curve is ------
downward sloping
Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as:
employed
In calculating the unemployed rate,"discouraged" workers who are not actively seeking employed are
excluded from the labor force
If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve
expansionary monetary policy is ineffective
Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is:
frictionally unemployed
The labor force includes
full-time workers but excludes part-time workers
Part-time workers who want full-time work are counted as:
fully employed and therefore the official unemployment rate may understate the level of unemployment
