Exam 2 Macroeconomics

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: A. 11 percent. B. 33 percent. C. 91 percent. D. 10 percent.

A. 11 percent.

Which of the following institutional structures is most likely to promote growth? A. A well-enforced system of patents and copyrights. B. A tightly regulated market system. C. A system of tariffs and other trade barriers to protect domestic companies. D. All of these.

A. A well-enforced system of patents and copyrights.

Which of the following would most likely occur during the expansionary phase of the business cycle? A. Demand-pull inflation B. Cost-push inflation C. Structural inflation D. Frictional inflation

A. Demand-pull inflation

DATA QUESTION Refer to the above data. The national income is: A. $265. B. $223. C. $208. D. $346.

A. $265.

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: A. $510 billion. B. $490 billion. C. $10 billion. D. $990 billion.

A. $510 billion.

Which of the following is a final good or service? A. a haircut B. fertilizer purchased by a farm supplier C. diesel fuel bought for a delivery truck D. Chevrolet windows purchased by a General Motors assembly plant.

A. a haircut

A shortcoming of the aggregate expenditures model is that it does not: A. account for cost-push inflation. B. explain how demand-pull inflation can arise. C. explain how cyclical unemployment can arise. D. detail the components of aggregate spending.

A. account for cost-push inflation.

Inflation is undesirable because it: A. arbitrarily redistributes real income and wealth. B. invariably leads to hyperinflation. C. usually is accompanied by declining real GDP. D. reduces everyone's standard of living.

A. arbitrarily redistributes real income and wealth.

A nation's gross domestic product (GDP): A. can be found by summing C + Ig + G + Xn. B. is the dollar value of the total output produced by its citizens, regardless of where they are living. C. can be found by summing C + S + G + Xn. D. is always some amount less than its NDP.

A. can be found by summing C + Ig + G + Xn.

Economic growth is best defined as an increase in: A. either real GDP or real GDP per capita. B. nominal GDP. C. total consumption expenditures. D. wealth in the economy.

A. either real GDP or real GDP per capita.

A competitive market system: A. encourages growth by allowing producers to make profitable investment decisions based on market signals. B. encourages growth by ensuring that everyone in society will receive a decent standard of living. C. discourages growth because firms busy competing have no time to innovate or invest. D. discourages growth unless government protects domestic firms from foreign competition

A. encourages growth by allowing producers to make profitable investment decisions based on market signals.

When aggregate demand declines, the price level may remain constant, at lease for a time, because: A. firms individually fear that their price cut may set off a price war. B. menu costs rise. C. price cuts tend to increase efficiency wages. D. product markets are highly competitive.

A. firms individually fear that their price cut may set off a price war.

An unexpected increase in total spending will cause an increase in GDP: A. if prices are sticky. B. if prices are fully flexible. C. regardless of whether prices are sticky or fully flexible D. only if prices are stuck in the long term

A. if prices are sticky.

The GDP is the: A. monetary value of all final goods and services produced within a nation in a particular year. B. national income minus all nonincome charges against output. C. monetary value of all economic resources used in producing a year's output. D. monetary value of all goods and services, final and intermediate, produced in a specific year.

A. monetary value of all final goods and services produced within a nation in a particular year.

In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are: A. not counted. B. counted as investment spending. C. counted as government spending. D. counted as consumption spending.

A. not counted.

The ratchet effect is the tendency of: A. the price level to increase but not to decrease. B. nominal GDP to increase more rapidly than real GDP. C. real interest rates to fall more rapidly than nominal interest rates. D. consumption to rise year after year regardless of what happens to disposable income.

A. the price level to increase but not to decrease.

Human capital refers to: A. the skills and knowledge that enable a worker to be productive. B. machinery used by labor in production. C. the accumulated financial wealth of households. D. physical capital owned by households rather than businesses.

A. the skills and knowledge that enable a worker to be productive.

DATA TABLE QUESTION Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Costpush inflation is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only. D) panels (B) and (C).

B) panel (B) only.

DATA QUESTION Refer to the above data. The net domestic product is: A. $233. B. $255. C. $230. D. $348.

B. $255

DATA QUESTION Refer to the above information. The labor force in Scoob is: A. 95 million. B. 102 million. C. 105 million. D. 145 million.

B. 102 million.

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? A. Frictional and cyclical unemployment. B. Structural and frictional unemployment. C. Cyclical and structural unemployment. D. Frictional, structural, and cyclical unemployment.

B. Structural and frictional unemployment.

Who is least likely to be hurt by unanticipated inflation? A. a disabled laborer who is living off accumulated savings B. an owner of a small business C. a secretary D. a pensioned steelworker

B. an owner of a small business

Critics of economic growth: A. contend that growth and industrialization reduce pollution. B. argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth. C. point out that growth results in greater economic security for workers. D. say that its benefits accrue nearly exclusively to white males.

B. argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth.

Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B. business cycles.

Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B. business cycles.

"Too much money chasing too few goods" best describes: A. the GDP gap. B. demand-pull inflation. C. the inflation premium. D. cost-push inflation.

B. demand-pull inflation.

The production of durable goods varies more than the production of nondurable goods because: A. durables purchases are nonpostponable. B. durables purchases are postponable. C. the producers of nondurables have monopoly power. D. producers of durables are highly competitive.

B. durables purchases are postponable.

The production of durable goods varies more than the production of nondurable goods because: A. durables purchases are nonpostponable. B. durables purchases are postponable. C. the producers of nondurables have monopoly power. D. producers of durables are highly competitive.

B. durables purchases are postponable.

Because every transaction has a buyer and a seller A. GDP is more closely associated with an economy's income than it is with an economy's expenditure. B. every transaction contributes equally to an economy's income and to its expenditure. C. the number of firms must be equal to the number of households in a simple circular-flow diagram. D. firms' profits are necessarily zero in a simple circular-flow diagram.

B. every transaction contributes equally to an economy's income and to its expenditure.

In the aggregate expenditures model, an increase in government spending may: A. decrease real GDP. B. increase output and employment. C. shift the aggregate expenditures schedule downward. D. reduce the size of the inflationary gap.

B. increase output and employment.

Growth is advantageous to a nation because it: A. promotes faster population growth. B. lessens the burden of scarcity. C. eliminates the economizing problem. D. slows the growth of wants.

B. lessens the burden of scarcity.

Suppose there are constant returns to scale. Now suppose that over time a country doubles its workers, its natural resources, its physical capital, and its human capital, but its technology is unchanged. Which of the following would double? A, both output and productivity B. output, but not productivity C. productivity, but not output D. neither productivity nor output

B. output, but not productivity

If aggregate expenditures exceed GDP in a private closed economy: A. leakages will exceed injections. B. planned investment will exceed saving. C. unplanned investment in inventories will occur. D. saving will exceed planned investment.

B. planned investment will exceed saving.

For a nation's real GDP per capita to rise during a year: A. consumption spending must increase. B. real GDP must increase more rapidly than population. C. population must increase more rapidly than real GDP. D. investment spending must increase

B. real GDP must increase more rapidly than population.

An increase in input productivity will: A. shift the aggregate supply curve leftward. B. reduce the equilibrium price level, assuming downward flexible prices. C. reduce the equilibrium real output. D. reduce aggregate demand.

B. reduce the equilibrium price level, assuming downward flexible prices.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes: A. the output effect. B. the foreign purchases effect. C. the real-balances effect. D. the shift-of-spending effect.

B. the foreign purchases effect.

DATA QUESTION Refer to the above data. The gross domestic product is: A. $326. B. $282. C. $307. D. $300.

C. $307.

Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services? A. Search unemployment B. Wait unemployment C. Cyclical unemployment D. Frictional unemployment.

C. Cyclical unemployment

One of the basic economic defenses of economic growth rests on the conclusion that: A. Growth makes workers less obsolete and more secure in employment B. Growth reduces the cost to society of "common property" resources C. Growth makes the gap between unlimited wants and scarce resources less acute D. A growth-oriented society confers a "work and look to the future" attitude on the members of society

C. Growth makes the gap between unlimited wants and scarce resources less acute

What is the primary reason that changes in total spending lead to cyclical changes in output and employment? A. Government is unable to respond by changing the amount of money in circulation. B. Changes in total spending cause supply shocks that cause cyclical variation. C. Prices are sticky in the short run. D. Prices are flexible in the long run.

C. Prices are sticky in the short run.

Which of the following would most likely move the economy into a recession in the short term? A. Invention of a new product that most consumers want to buy. B. Innovations in management that enhance worker productivity. C. The central bank printing less money than was anticipated. D. The central bank printing less money than was anticipated.

C. The central bank printing less money than was anticipated.

Which of the following institutional arrangements is most likely to promote growth? A. Patents and copyrights that expire quickly and are loosely enforced. B. Strong government control over resource allocation decisions. C. Unrestricted trade between nations. D. All of these

C. Unrestricted trade between nations.

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because: A. government spending is more employment-intensive than is either consumption or investment spending. B. government spending increases the money supply and a tax reduction does not. C. a portion of a tax cut will be saved. D. taxes vary directly with income.

C. a portion of a tax cut will be saved.

The GDP gap measures the difference between: A. NDP and GDP. B. NI and PI. C. actual GDP and potential GDP. D. nominal GDP and real GDP.

C. actual GDP and potential GDP.

In which of the following sets of circumstances can we confidently expect inflation? A. aggregate supply and aggregate demand both increase B. aggregate supply and aggregate demand both decrease C. aggregate supply decreases and aggregate demand increases D. aggregate supply increases and aggregate demand decreases

C. aggregate supply decreases and aggregate demand increases

If intermediate goods and services were included in GDP: A. the GDP would then have to be deflated for changes in the price level. B. nominal GDP would exceed real GDP. C. the GDP would be overstated. D. the GDP would be understated.

C. the GDP would be overstated.

In national income accounting, consumption expenditures include: A. purchases of both new and used consumer goods. B. consumer durable goods and consumer nondurable goods, but not services. C. consumer durable goods, consumer nondurable goods, and services. D. changes in business inventories.

C. consumer durable goods, consumer nondurable goods, and services.

DATA QUESTION Refer to the above information. If the natural rate of unemployment in Scoob is 5 percent, then: A. structural unemployment is about 3 percent. B. frictional unemployment is about 2 percent. C. cyclical unemployment is about 2 percent. D. hidden unemployment is about 5 percent.

C. cyclical unemployment is about 2 percent.

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase.

C. cyclical unemployment rate is 4 percent.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: A. real-balances, interest-rate, and foreign purchases effects. B. determinants of aggregate supply. C. determinants of aggregate demand. D. sole determinants of the equilibrium price level and the equilibrium real output.

C. determinants of aggregate demand.

The achievement of full employment through time will: A. diminish labor productivity. B. reduce the level of investment as a percentage of GDP. C. increase the realized rate of economic growth. D. have no impact on the rate of economic growth.

C. increase the realized rate of economic growth.

Inflation means that: A. all prices are rising, but at different rates. B. all prices are rising and at the same rate. C. prices in the aggregate are rising, although some particular prices may be falling. D. real incomes are rising.

C. prices in the aggregate are rising, although some particular prices may be falling.

Tom Atoe grows tomatoes for home consumption. This activity is: A. excluded from GDP in order to avoid double counting. B. excluded from GDP because an intermediate good is involved. C. productive but is excluded from GDP because no market transaction occurs. D. included in GDP because it reflects production

C. productive but is excluded from GDP because no market transaction occurs.

A nation's infrastructure refers to: A. its ability to realize economies of scale. B. its stock of technological knowledge. C. public capital goods such as highways and sanitation systems. D. the productivity of its labor force

C. public capital goods such as highways and sanitation systems.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will: A. fall by about 20 percent. B. fall by about 2 percent. C. rise by about 15 percent. D. rise by about 25 percent.

C. rise by about 15 percent.

The aggregate supply curve (short-run): A. slopes downward and to the right. B. graphs as a vertical line. C. slopes upward and to the right. D. graphs as a horizontal line.

C. slopes upward and to the right.

DATA QUESTION Refer to the above information. The unemployment rate in Scoob is: A. 2.5 percent. B. 3.2 percent. C. 5.0 percent. D. 6.9 percent.

D. 6.9 percent.

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of: A. 2 percent. B. 3 percent. C. 5 percent. D. 7 percent

D. 7 percent

GDP is not a perfect measure of well-being; for example, A. GDP excludes the value of volunteer work. B. GDP does not address the distribution of income. C. GDP does not address environmental quality. D. All of the above are correct.

D. All of the above are correct.

Rising per-unit production costs are most directly associated with: A. frictional unemployment. B. structural unemployment. C. demand-pull inflation. D. cost-push inflation.

D. cost-push inflation.

In the treatment of U.S. exports and imports, national income accountants: A. subtract exports, but add imports, in calculating GDP. B. subtract both exports and imports in calculating GDP. C. add both exports and imports in calculating GDP. D. add exports, but subtract imports, in calculating GDP.

D. add exports, but subtract imports, in calculating GDP.

If the economy's real GDP doubles in 18 years, we can: A. not say anything about the average annual rate of growth. B. conclude that its average annual rate of growth is about 5.5 percent. C. conclude that its average annual rate of growth is about 2 percent. D. conclude that its average annual rate of growth is about 4 percent.

D. conclude that its average annual rate of growth is about 4 percent.

Real income is found by: A. dividing nominal income by 70. B. multiplying nominal income by 1.03. C. dividing the price index (in hundredths) by nominal income. D. dividing nominal income by the price index (in hundredths)

D. dividing nominal income by the price index (in hundredths)

GDP is a A. stock because it measures income for the entire country. B. stock because it measures wealth at a distinct point in time. C. flow because dollar values are used. D. flow because it measures income over a period of time.

D. flow because it measures income over a period of time.

The determinants of aggregate supply: A. are consumption, investment, government, and net export spending. B. explain why real domestic output and the price level are directly related. C. explain the three distinct ranges of the aggregate supply curve. D. include resource prices and resource productivity.

D. include resource prices and resource productivity.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A. shift the aggregate demand curve leftward. B. shift the aggregate supply curve leftward. C. decrease U.S. exports and increase U.S. imports. D. increase U.S. exports and decrease U.S. imports.

D. increase U.S. exports and decrease U.S. imports.

If the United States wants to increase its net exports, it might take steps to: A. increase its GDP. B. reduce existing tariffs and import quotas. C. decrease the dollar price of foreign currencies. D. increase the dollar price of foreign currencies.

D. increase the dollar price of foreign currencies.

Other things equal, if a full-employment economy reallocated a substantial quantity of its resources to capital goods, we would expect: A. present consumption to rise. B. future consumption to fall. C. a lower rate of growth of real GDP. D. labor productivity to rise.

D. labor productivity to rise.

Suppose that an economy's labor productivity and total workerhours each grew by 3 percent between year 1 and year 2. We could conclude that this economy's: A. real GDP remained constant. B. capital stock increased by 3 percent. C. production possibilities curve shifted inward. D. production possibilities curve shifted outward.

D. production possibilities curve shifted outward.

A recession is defined as a period in which: A. cost-push inflation is present. B. nominal domestic output falls. C. demand-pull inflation is present. D. real domestic output falls.

D. real domestic output falls.

The largest contributor to increases in the productivity of American labor is: A. the reallocation of labor from agriculture to manufacturing. B. improvements in labor quality. C. increases in the quantity of capital. D. technological advance.

D. technological advance.

During a severe recession, we would expect output to fall the most in: A. the healthcare industry. B. the clothing industry. C. agriculture. D. the construction industry.

D. the construction industry.