Exam 1 Econ
Between 1990 and 2010, the number of people in the world living in poverty has: A) stayed roughly the same. B) been cut in half. C) doubled. D) increased by 50%.
B
Most frozen foods are considered durable goods. A) True B) False
B
The consumer price index is a measure of the changes in the cost of production. A) True B) False
B
Which of the following strategies is an example of increasing the capital-to-labor ratio? A) replacing the roof on a factory building B) sending workers to training classes C) giving a construction crew more backhoes D) increasing the number of workers harvesting crops in a field
C
The 45-degree line in the Keynesian model represents: A) AE = C. B) AE = G. C) AE = I. D) AE = Y.
D
The GDP deflator shows that since the mid-1980s, the U.S. economy has had: A) deflation. B) hyperinflation. C) an increasing inflation rate. D) disinflation.
D
The nation of Workovia has a population of 15 million, of whom, 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is: A) 27%. B) 60%. C) 33%. D) 10%.
D
Which of the following statements is correct? A) Households supply both labor and non-labor resources. B) In the circular flow model, incomes and resources flow in the same direction. C) The four main factors of production are water, land, entrepreneurial ability, and energy. D) Owners of factors of production pay income to firms.
A
With respect to income, the investment schedule in the short run is: A) perfectly elastic. B) perfectly inelastic. C) relatively elastic. D) relatively inelastic.
A
_____ are almost 70% of GDP, while _____ are about 17% of GDP. A) Personal consumption expenditures; government expenditures B) Personal consumption expenditures; gross private domestic investments C) Government expenditures; gross private domestic investments D) Government expenditures; net exports
B
Suppose the government believes consumers should spend $1 billion more to get the economy out of a recession. The government wants to provide income to households by providing them with jobs and paying them directly. If the marginal propensity to consume is 0.8, the government should increase income by: A) $0.8 billion. B) $1 billion. C) $0.2 billion. D) This cannot be determined with the information given.
C
There are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. What is Marketstan's unemployment rate? A) 6.7% B) 1% C) 10% D) 11.1%
C
For which growth rate would the Rule of 70 be least accurate? A) 1% B) 15% C) 20% D) 30%
D
Generally, nations with the _____ economic freedom also have the _____ per capita GDP. A) most; mean B) least; highest C) most; lowest D) least; lowest
D
If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: A) $160. B) $180. C) $150. D) $140.
D
Changes in technology are a determinant of investment. A) True B) False
A
Firms decide how much to invest by comparing the rate of return on their projects with: A) their total profit. B) the productivity of the workers assigned to the projects. C) the interest rate. D) the before-tax rate of return.
C
GDP is $10 trillion in 2001. If the GDP deflator is 100 in 2000 and is 110 in 2001, what is real GDP? A) $10.0 trillion B) $11.1 trillion C) $9.09 trillion D) $110.0 trillion
C
Cancer treatments to ease lung cancer caused by smoking cigarettes are included in the GDP accounts. A) True B) False
A
During periods of inflation, which of the following events does NOT occur? A) Mortgage lenders seek inflation adjustments. B) Workers seek escalator clauses. C) People on a fixed income have increased standards of living. D) People on a fixed income have decreased standards of living.
C
If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output. A) $750 B) $1,000 C) $4,000 D) $7,500
C
(Table) The associated table provides a hypothetical bundle of goods. If 2014 is selected as the base year, the economy is experiencing _____ in 2017. A) inflation B) disinflation C) deflation D) hyperinflation
A
(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save? A) 0.5 B) -0.5 C) 1.5 D) -1.5
A
A cost-of-living index measures the amount of expenditures needed to maintain a certain standard of living, while a cost-of-goods index measures the amount of expenditures needed to purchase a given basket of goods. A) True B) False
A
Child care provided by a nanny is not included in the GDP if the parents pay the nanny "under the table." A) True B) False
A
Classical economists claim that _____ is the primary determinant of saving, and Keynes claimed that _____ is the primary determinant of saving. A) the interest rate; income B) income; the interest rate C) taxes; government spending D) GDP; disposable income
A
Developed nations tend to have: A) limited labor supplies but lots of capital. B) low capital-to-labor ratios. C) limited amounts of both labor and capital. D) large amounts of both labor and capital.
A
Economic growth is largely due to increases in labor, increases in capital, and improvements in technology. A) True B) False
A
Escalator clauses are important in times of rising inflation because they protect the real value of wages. A) True B) False
A
Excessive inflation or deflation: A) interferes with the price mechanism that brings a market to equilibrium. B) can be beneficial in the long run. C) has a neutral effect on the market. D) has a negative effect on the economy only if traders are aware of it.
A
Expenditures by individuals for durable goods, nondurable goods, and services are known as: A) personal consumption expenditures. B) total spending. C) personal calculated expenditures. D) personal computed expenditures.
A
Full employment is considered to be the equivalent of the natural rate of unemployment. A) True B) False
A
Full employment is typically defined as the level at which cyclical unemployment is zero or at the level associated with a low, nonaccelerating inflation rate. A) True B) False
A
In the United States, our principal measure of inflation is: A) the consumer price index. B) gross domestic product. C) the producer price index. D) the Leading Economic Index.
A
Increases in _____ often lead to economic growth. A) technology B) public goods C) the money supply D) government regulations
A
Kyle is working part-time as a bartender while he auditions for his dream job as a member of a ballet company. According to the Bureau of Labor Statistics, Kyle is employed. A) True B) False
A
Last year, the consumer price index (CPI) was 115 while the consumer price index for this year is 125. The rate of inflation is: A) 8.7%. B) 8%. C) 9.2%. D) 10.8%.
A
Patents and copyright laws are needed to promote invention and innovation. A) True B) False
A
Table) Look at the table (Macroeconomic Data for Econoland); when is Econoland experiencing a double dip recession? A) 2nd and 3rd quarters of 2016 B) 4th quarter of 2014 and 1st quarter of 2015 C) 2nd quarter of 2015 D) 1st quarter of 2014
A
The average propensity to save is calculated by dividing savings by income. A) True B) False
A
The development of social media has contributed to economic growth. A) True B) False
A
The field of macroeconomics was considered an extension of microeconomics prior to the Great Depression. A) True B) False
A
The idea of the spending multiplier is that: A) one person's spending becomes another person's income, which stimulates more spending. B) people spend money on some items, such as food and toiletries, multiple times. C) people tend to spend a greater amount in stores than they originally intended. D) when a person saves money in a bank, the bank lends it out to another person to be spent.
A
The marginal propensity to consume is equal to the change in consumption divided by the change in income. A) True B) False
A
To convert a nominal change to a real change in dollar terms, the base year index must be set at 100. A) True B) False
A
Unemployment statistics in the United States are generally used to gauge the state of the economy. A) True B) False
A
We should most likely expect a recession if the Leading Economic Index: A) falls for three months in a row. B) rises for three months in a row. C) rises for six months in a row. D) falls for six months in a row.
A
(Table) According to the table, the GDP deflator for 2012 is approximately: A) 40.9. B) 50.9. C) 60.9. D) 70.9.
B
A criticism of GDP per capita is that it: A) is hard to calculate. B) might not fully reflect the standard of living of a typical citizen. C) reduces the effect of outliers skewing averages. D) is only a hypothetical concept that cannot be measured.
B
A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The change in GDP would be: A) $30. B) $180. C) $270. D) zero, because wool suits are worthless.
B
A tax increase has a smaller impact on the economy than does a decrease in government spending of the same magnitude because: A) Congress is slow in passing tax increases. B) consumers pay for part of the tax increase by reducing their saving. C) tax changes have more of a direct impact on income than does an equivalent change in government spending. D) fiscal policy is weaker than monetary policy.
B
According to the production function, which of the following changes will NOT result in economic growth? A) improvements in the productivity of labor B) increases in consumption spending C) increases in capital D) improvements in technology
B
Changes in inventories are NOT included in the calculation of gross private domestic investment. A) True B) False
B
Disposable income equals: A) income minus government spending. B) income minus taxes. C) income plus government spending. D) income plus taxes.
B
Greenhouse gas emissions are included in the GDP accounts. A) True B) False
B
Gross private domestic investment is about 20% of GDP. A) True B) False
B
If a country's growth rate is 1.25%, then it will take about 40 years for its output to double. A) True B) False
B
If a country's population increases at a higher rate than the growth in its real GDP: A) GDP per capita has increased. B) the standard of living in the country has declined. C) average output per person remains constant. D) the country's rate of inflation has increased.
B
If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____. A) decreases; remains the same B) increases; remains the same C) increases; increases D) decreases; decreases
B
If the structural unemployment rate is 3%, the frictional unemployment rate is 2%, and the cyclical unemployment rate is 4%, then the natural rate of unemployment is 9%. A) True B) False
B
Investment in structures, equipment, software, and net inventory is known as: A) total business spending. B) gross private domestic investment. C) net business spending. D) net investment in durable goods.
B
New entrants into the labor force constitute the largest segment of the unemployed. A) True B) False
B
One important reason economists track business investment is that: A) it helps them decide which stocks to purchase. B) it is a leading indicator of the business cycle. C) business investment is an excellent proxy for government investment. D) it shows where the economy has been.
B
Personal consumption expenditures: A) constitute 30% of GDP. B) can be found by subtracting saving from disposable income. C) primarily depend on interest rates, according to Keynes. D) are very unstable as a percentage of GDP over time.
B
Suppose Robert has a wage contract subject to an escalator clause. He earned $22 per hour last year. In the same year, the consumer price index rose from 120.0 to 126.0. Based on the given information, what should his new wage be? A) $24 per hour B) $23.10 per hour C) $24.40 per hour D) $22.50 per hour
B
Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $40 billion. These economists would estimate that the marginal propensity to save is: A) 4. B) 0.25. C) 0.75. D) 30.
B
Suppose the National Activity Index of the Federal Reserve Bank of Chicago increased from -0.29 in May to -0.13 in June. Which of the following is the best interpretation of this finding? A) Economic activity improved slightly from May to June, but the economy is in a recession. B) Economic activity improved slightly from May to June, but the rate of economic growth is below its historical trend. C) The rate of economic growth declined in May and June. D) Economic activity declined from May to June, and the rate of economic growth is below its historical trend.
B
The household survey focuses on the payrolls of businesses and government agencies. A) True B) False
B
The marginal propensity to save is equal to the change in consumption divided by the change in income. A) True B) False
B
The multiplier effect relates a change in saving to the resulting change in investment. A) True B) False
B
The rental income component in the income approach to calculating GDP includes the incomes of real estate agents and brokers. A) True B) False
B
The use of tax receipts to modernize the air traffic control system promotes economic growth by: A) ensuring a stable legal system. B) enhancing physical and human capital. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.
B
When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP? A) GDP is unaffected by this change. B) GDP falls as a result of this change. C) GDP at first rises but then falls. D) GDP rises as a result of this change.
B
Which of the following is (are) true regarding the paradox of thrift? I. People intend to save less but their actions actually lead to an increase in savings. II. For the paradox of thrift to occur, investment must be positively related to income. III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings.
B
Which of the following technologies most strongly affected the growth in U.S. productivity in recent decades? A) railroads B) microcomputers C) ticker tape D) petrochemicals
B
Which one of the following would be included in GDP calculations? A) a windshield purchased by General Motors B) a hamburger purchased by a hungry restaurant patron C) petroleum purchased by a refiner from the company that drilled it D) nails purchased by a building contractor
B
Because it consists of _____ items, a nation's infrastructure is difficult to measure. A) only tangible B) only intangible C) tangible and intangible D) A nation's infrastructure is not difficult to measure.
C
Investment levels depend mainly on: A) high levels of consumption in the economy. B) strong government demand. C) the rate of return on capital. D) tax incentives.
C
Table) Look at the table of data for two countries; which country is likely to grow more rapidly? A) Econoland because it will have a larger total investment B) Macroland because it will have a larger total investment C) Econoland because it will have larger investment per capita D) Macroland because it will have larger investment per capita
C
The diagram that illustrates how households and businesses interact through product and resource markets is called the: A) product-resource diagram. B) economic agents graph. C) circular flow diagram. D) economic interactivity diagram.
C
What is your new salary if you earned $40,000 last year, the consumer price index increased from 120 to 125, and your salary is adjusted by the rate of inflation annually? A) $38,400 B) $41,600 C) $41,666.67 D) $40,125
C
Which of the following changes is likely to increase wages the most in a country? A) Drainage of swampy land allows 2% more land to be farmed. B) The labor force grows by 2%. C) The capital-to-labor ratio rises by 2%. D) Since the growth rate is 2% in all listed situations, wages would increase equally in all situations.
C
Given the form of a typical production function, which of the following would have the greatest impact on the output of a country? A) The amount of land increases by 13%. B) The amount of capital rises by 12%. C) The amount of labor rises by 12%. D) The entrepreneurial ability/technology increases by 12%.
D
People are considered employed if they are: A) unpaid family workers. B) on strike. C) on vacation. D) All of those listed are considered employed.
D
The nonaccelerating inflation rate of unemployment is the unemployment rate associated with ____ inflation and _____ unemployment. A) high; high B) high; low C) low; high D) low; low
D
What component of U.S. GDP is usually negative in boom years? A) consumption B) investment C) government spending D) net exports
D
What impact will a rising price level have on real GDP? A) Real GDP will fall. B) Real GDP will rise. C) Real GDP will fall and then rise. D) Changes in the price level do not impact real GDP.
D
Which of the following assumptions is NOT a problem in using the consumer price index (CPI) to accurately state the rate of inflation? A) The CPI assumes that people do not substitute goods. B) The CPI does not account for quality changes. C) The CPI does not include new products. D) The CPI does not deal with producer prices.
D
Which of the following does NOT increase productivity? A) research and development B) improvements in labor quality C) capital investment D) an increased money supply
D
Which of the following institutions is the best example of public capital? A) accounting network of a public utility B) shopping malls C) Department of Motor Vehicles D) highway systems
D
Which of the following statements is (are) true about Keynes's simple model of the economy? I. The aggregate price level is fixed. II. All savings are considered to be personal savings. III. There is considerable slack in the economy. A) I only B) II only C) III only D) I, II, and III
D
