Macro2013 Final Exam
A business produced $10 million of goods in 2007 but sold only $9 million. Is the $1 million increase in inventory counted as part of the 2007 gross domestic product? a. Yes, because these inventories are part of the output of the economy in 2007. b. No, because inventories are intermediate goods. c. No, because if these inventories were sold in 2008, they would be counted twice. d. Yes, but they will be added to the 2007 GDP only if they are sold in 2008.
a
A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called a. socialism. b. capitalism. c. a market economy. d. a corporate economy.
a
According to data on GDP growth between 1980 and 2009, which of the following statements is true? a. Many poor nations grew more rapidly than wealthy nations, while others continued to stagnate. b. Poor nations stagnated, while the rich nations continued to grow. c. Most of the world's rapidly growing countries were located in Africa. d. Poor nations grew rapidly, while the rich nations stagnated.
a
According to the Economic Freedom of the World measure, between 2000 and 2009 what happened to the economic freedom of the United States? a. It declined and its rank fell from third to tenth during this period. b. It decreased, but the U.S. was still the freest economy in the world in 2009. c. It was largely unchanged and the U.S. remained the third freest economy in the world, behind only Hong Kong and Singapore. d. It increased, and the U.S. became the freest economy in the world during this decade.
a
An unanticipated shift to a more restrictive monetary policy by the Fed will result in which of the following? a. An increase in interest rates and, thereby, reduced investment, current consumption, and aggregate demand. b. A reduction in interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand. c. An increase in interest rates, leading to higher asset prices that will stimulate aggregate demand. d. A reduction in interest rates which will stimulate investment, current consumption, and aggregate demand.
a
Anna, a U.S. citizen, works only in Germany. Where is the value she adds to production in Germany included? a. In German GDP, but it is not included in U.S. GDP. b. In U.S. GDP, but it is not included in German GDP. c. In both German GDP and U.S. GDP. d. In neither German GDP nor U.S. GDP.
a
Direct income transfers account for approximately what percentage of total government spending? a. 50 percent b. 10 percent c. 30 percent d. 60 percent
a
During 1960-1980, those with the highest incomes confronted federal marginal tax rates between 70 and 90 percent. Since 1986, the highest federal income tax rate has been less than 40 percent. Since 1986, the share of the personal income tax collected from the top one-half of one percent of earners has been a. higher than during the 1960s and 1970s. b. virtually the same as during the 1960s and 1970s. c. only slightly lower than during the 1960s and 1970s. d. substantially lower than during the 1960s and 1970s.
a
Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called a. countercyclical fiscal policy. b. new classical fiscal policy. c. supply-side fiscal policy. d. business cycle fiscal policy.
a
Full employment means which of the following is zero? a. cyclical unemployment b. aggregate unemployment c. frictional unemployment d. structural unemployment
a
If Harry Bartolini's Ford dealership sells Rosa Brown a new automobile for $30,000, economic analysis indicates that a. both parties to the transaction will gain. b. the well-being of both parties will be unchanged. c. Rosa Brown will gain from the transaction, while Mr. Bartolini will lose. d. Mr. Bartolini will gain from the transaction, while Rosa Brown will lose.
a
If changes in monetary policy are going to help stabilize the economy, they must a. be properly timed. b. stimulate aggregate demand. c. be restrictive. d. be expansionary. e. reduce the real rate of interest.
a
If inventory investment during a year was negative $6 billion, producers must have a. sold $6 billion more goods and services during the year than they produced. b. produced only $6 billion of new capital assets during the year. c. produced new capital assets that exceeded the depreciation allowance by $6 billion. d. added goods valued at $6 billion to their stock of unsold goods and raw materials.
a
If policy makers believe that an inflationary boom is about to begin, the Keynesian view indicates that they should a. decrease government spending and/or raise taxes. b. hold government spending constant and decrease taxes. c. increase the budget deficit. d. increase government spending and hold taxes constant.
a
In economics, actions by individuals and interest groups designed to influence public policy in a manner that will either directly or indirectly redistribute more income to themselves are known as a. rent seeking. b. logrolling. c. redistribution searching. d. influence peddling.
a
In the context of aggregate supply, the long run is defined as the period during which a. individuals have sufficient time to modify their behavior in response to price changes. b. prices can change, but neither aggregate supply nor aggregate demand can shift. c. quantity changes cannot occur in response to changes in relative prices. d. some prices are set by contracts and cannot be adjusted.
a
In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy? a. an increase in employment b. an increase in the velocity of money c. a decrease in employment d. an increase in prices proportional to the rise in the money supply
a
Jacqueline, a brilliant new Ph.D. in economics, has turned down many job offers because she hopes eventually to teach at one of the top ten universities in her field. What type of unemployment is she experiencing? a. Frictional b. Cyclical c. Underemployment d. Seasonal e. Structura
a
Mallory Trammell is a homemaker. Last week, she was busy with her normal household activities. How will she be classified by the Bureau of Labor Statistics? a. Not a member of the labor force. b. A discouraged worker who is not a member of the labor force. c. A member of the civilian labor force who is employed. d. A member of the civilian labor force who is unemployed. e. A member of the civilian labor force who is underemployed.
a
Matt loses his job and decides to sit on the beach rather than looking for work the next few months. Other things the same, what happens to the unemployment rate and labor-force participation rate? a. The unemployment rate increases, and the labor-force participation rate decreases. b. The unemployment rate decreases, and the labor-force participation rate increases. c. The unemployment rate decreases, and the labor-force participation rate decreases. d. The unemployment rate increases, and the labor-force participation rate is unaffected.
a
Obstacles that restrict trade, either domestic or international, will a. reduce output, income, and the general living standard of the populace. b. help promote high rates of economic growth. c. help people achieve higher income levels. d. encourage domestic business firms to expand output so they can achieve larger gains from the adoption of mass production techniques.
a
Other things constant, countries that invest more will grow a. more rapidly. b. at exactly 2% per year. c. at the same rate. d. less rapidly.
a
Other things constant, which of the following would you expect to increase the output growth rate of a country? a. An increase in the rate of investment as a share of total output b. Passage of regulations restricting international trade c. An increase in the rate of taxation on personal income d. Passage of regulations restricting domestic trade
a
Payments that users (consumers) are required to make if they want to receive certain services provided by the government are called a. user charges. b. sales taxes. c. tax deductions. d. transfer payments.
a
Suppose the official unemployment rate is 10 percent. Which of the following is a definite conclusion to draw? a. One of every ten people in the labor force is currently unemployed b. 10 percent of the people in the economy were each out of work for 10 percent of the year c. The same 10 percent of the people in the labor force were out of work for the entire year d. Every person in the labor force was out of work for 10 percent of the year e. The same 10 percent of the people in the economy were out of work for the entire year
a
The GDP figures fail to count labor services and other household production. Once this omission is taken into account, a. the income differences between the high and low income countries are still huge. b. the differences in living standards between the high and low income countries are small. c. the income differences between the high and low income countries are small. d. the life expectancy in the high and low income countries is approximately the same.
a
The law of comparative advantage implies that a nation, individual, or region should trade for those economic goods for which it a. is a high opportunity cost producer. b. has a comparative advantage. c. is a low opportunity cost producer. d. has an absolute advantage.
a
Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the house? a. The 2006 sale affected neither 2005 GDP nor 2006 GDP. b. The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP. c. The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP. d. The 2006 sale increased 2006 GDP by $225,000; furthermore, the 2006 sale caused 2005 GDP to be revised upward by $25,000.
a
What is logrolling? a. Vote trading among legislators. b. The power of well-organized interest groups. c. The tendency of legislators to favor the interests of the timber (logging) industry. d. The tendency of voters to free-ride on the payment for public goods.
a
When full employment is present in the United States, which of the following is true? a. Approximately 95 percent of the labor force will be employed. b. The rate of unemployment will fall to zero. c. Approximately 95 percent of the adult population will be employed. d. The actual rate of unemployment will be less than the natural rate of unemployment.
a
When the U.S. dollar appreciates, a. aggregate demand shifts leftward. b. U.S. imports decline. c. aggregate demand shifts rightward. d. U.S. exports rise.
a
When the rate of cyclical unemployment is zero, which of the following results? a. The economy is considered to be at full employment. b. The natural rate of unemployment must also be zero. c. The economy must have entered a recessionary stage. d. The rate of frictional unemployment must be negative.
a
Which of the following activities describes the opportunity cost of attending an economics class? a. the value of the highest valued alternative that must be forgone because of attending the class b. the cost of the gasoline needed to drive a car to campus c. the value of the time it takes to get to campus every day d. transportation costs plus the cost of tuition and textbooks for the course
a
Which of the following activities describes the opportunity cost of watching a play in a theater? a. the value of the highest valued alternative that must be forgone because of the time and money required to watch the play b. the cost of gasoline used in driving to the play c. the value of the time it takes to get to the play by car d. the cost of the ticket to the play
a
Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels? a. a higher rate of investment b. a smaller trade sector c. higher tax rates d. greater use of taxation to transfer income from the rich to the poor
a
Which of the following is most likely to increase the incentive to invest, produce, and employ others? a. a reduction in tax rates b. an increase in government expenditures that changes the composition of aggregate demand c. an increase in payments to unemployed workers financed by borrowing d. an increase in government expenditures to provide subsidies for large banks that made bad investment decisions
a
Which of the following is true about the value of money? a. It varies inversely with the general price level. b. It varies indirectly with output. c. It varies directly with the general price level. d. It remains constant during periods of inflation.
a
Which of the following is true for the developing countries that moved most rapidly toward economic freedom during 1980-2005 period? a. They experienced both more rapid rates of economic growth and larger reductions in poverty rates than countries that were less free. b. They achieved higher rates of economic growth, but the reductions in their poverty rates were smaller than those for countries that were less free. c. They grew less rapidly, but the reductions in the poverty rates were greater than those achieved in countries that were less free. d. They experienced both slower rates of economic growth and smaller reductions in poverty rates than countries that were less free.
a
Which of the following provides the best information about the direction of the government's fiscal policy? a. changes in the size of the federal government's budget deficit or surplus b. changes in the reserve requirements of the Federal Reserve c. changes in the Fed's holdings of U.S. government securities d. changes in the nation's trade balance
a
Which of the following will increase interest rates in the short run? a. the sale of bonds by the Federal Reserve in the open market b. a decrease in real GDP c. an decrease in reserve requirements d. an decrease in the price level
a
Which of the following will most likely be an unanticipated economic change? a. higher oil prices resulting from a revolution in an oil-exporting country b. a constant increase in the general level of prices over a lengthy period of time c. an increase in prime-age workers as a proportion of the labor force d. this year's increase in the labor force
a
Which of the following will most likely increase long-run aggregate supply? a. an increase in the rate of investment b. an increase in resource prices c. an increase in the expected inflation rate d. an increase in the minimum wage
a
Which one of the following transactions would be included in GDP? a. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident. b. Ms. Smith pays $5,000 to purchase 100 shares of Microsoft stock. c. Ms. Kim pays $50 for a used picture frame at a neighborhood garage sale. d. Mr. Doe donates $500 to his town's junior college scholarship fund.
a
Who would most likely be helped by an increase in the tariff on foreign-produced automobiles? a. The domestic producers of automobiles. b. Workers in the foreign automobile industry. c. Steel producers that sell most of their output to foreign producers of automobiles. d. Consumers looking for alternatives to domestic automobiles.
a
Why is the multiplier principle important? a. It shows why small shifts in investment have a powerful influence on national income. b. It illustrates why a small change in income causes a large change in saving. c. It was central to economic theory before Keynes. d. It implies that investment will help stabilize the economy.
a
A decrease in aggregate demand and the subsequent cutbacks in production lead to a. transitory unemployment. b. cyclical unemployment. c. cost-push unemployment. d. frictional unemployment. e. structural unemployment.
b
An abnormally large grain crop due to highly favorable weather conditions in the Midwest is an example of a. a technological improvement that will increase long-run aggregate supply. b. a supply shock that will increase short-run aggregate supply. c. an unexpected development that will lead to excess supply and widespread unemployment. d. an unexpected development that will reduce the natural rate of unemployment.
b
An improvement in technology would shift which of the following curve(s)? a. only the short-run aggregate supply b. short-run and long-run aggregate supply c. only the aggregate demand d. aggregate demand and short-run aggregate supply
b
Economic growth will have which of the following effects? a. Increase real output, but the real income level of the country will decline. b. Expand the production possibilities of an economy. c. Increase an economy's nominal income, but not its real income. d. Reduce the future real GDP of an economy.
b
Economists refer to the lack of incentive that voters have to search for and obtain information to help make better political choices as the a. shortsightedness effect. b. rational-ignorance effect. c. public-interest effect. d. free rider problem.
b
If Sean sells Tom a tennis racket for $50, we would expect a. Sean to gain from the transaction, while Tom loses. b. both parties to gain from this transaction. c. Tom to gain from the transaction, while Sean loses. d. the well-being of both parties to be unchanged.
b
If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, which of the following conclusions can be made? a. The country will be neither an exporter nor an importer of the good. b. The country will be an importer of the good. c. The country will be an exporter of the good. d. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither.
b
If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run? a. The demand for loanable funds will increase, which will exert upward pressure on the interest rate. b. The supply of loanable funds will decrease, which will exert upward pressure on the interest rate. c. The natural rate of unemployment will increase. d. The supply of loanable funds will increase, which will exert downward pressure on the interest rate.
b
If the dollar appreciates relative to the Yen, it can be said that a. the dollar increases in value within the United States. b. the Yen depreciates relative to the dollar. c. Japanese citizens respect the United States more. d. it takes more dollars to buy Yen
b
If the government owes $10.0 trillion and then borrows $700 billion more this year, this leads to a. a debt of $700 billion and a deficit of $10.7 trillion. b. a debt of $10.7 trillion and a deficit of $700 billion. c. a debt of $10.7 trillion and a deficit of zero. d. a debt of $9.3 trillion and a deficit of $700 billion. e. a debt of $10.0 trillion and a deficit of $9.3 trillion.
b
In a market economy, what determines whether an entrepreneur will continue in business or terminate the production of a new product? a. government regulations b. the profit or loss of the business c. the taxes paid to the government relative to the subsidies received d. licensing by industrial development agencies
b
In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated decrease in the money supply will be a. higher real interest rates and an increase in aggregate demand. b. higher real interest rates and a reduction in aggregate demand. c. lower real interest rates and a reduction in aggregate demand. d. lower real interest rates and an increase in aggregate demand.
b
Keynesian economists believed that the prolonged unemployment of the 1930s was the result of a. the double-digit inflation of the 1930s. b. insufficient aggregate demand and the failure of market forces to direct the economy back to full employment. c. the high interest rates of the 1930s. d. the sharp reduction in the supply of money during 1929-1933 and another monetary contraction in 1938.
b
Louise is unemployed due to a decrease in the demand for workers with a knowledge of a certain word processing language. This is an example of a. frictional unemployment. b. structural unemployment. c. cyclical unemployment. d. involuntary unemployment.
b
One-third of the world's population live in China and India. How did the growth rate of these two countries compare with the growth of high income industrial countries during 1980-2009? a. China grew more rapidly than the high income industrial countries, but India grew less rapidly. b. Per capita GDP increased more rapidly in China and India than in the high income industrial countries. c. Per capita GDP increased less rapidly in China and India than in the high income industrial countries. d. India grew more rapidly than the high income industrial countries, but China grew less.
b
Other things constant, a decrease in resource prices will lead to a. increased profits and a reduction in short-run aggregate supply. b. increased profits and an increase in short-run aggregate supply. c. reduced profits and a reduction in short-run aggregate supply. d. reduced profits and an increase in short-run aggregate supply.
b
Other things the same, when the interest rate rises a. people would want to lend less, making the supply of loanable funds decrease. b. people would want to lend more, making the quantity of loanable funds supplied increase. c. people would want to lend less, making the quantity of loanable funds supplied decrease. d. people would want to lend more, making the supply of loanable funds increase.
b
Sally wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Sally is currently spending all of her time efficiently, Sally can spend more time studying this week only if a. she also spends more time doing other things. b. she spends less time doing other things. c. Daylight Savings Time begins this week, so everyone moves their clocks ahead one hour. d. none of the above.
b
Since the mid-1980s, what has happened to the debt-to-income ratio of American households? a. It has remained about the same as the previous 25 years. b. It has rapidly increased. c. It has been slowly declining. d. It has fluctuated between about 55 and 70 percent of after-tax income.
b
The major categories of federal government spending are a. health care, public education, and highways. b. health care, national defense, Social Security, and other income transfers. c. law enforcement, environmental protection, and national defense. d. public education, garbage collection, and public parks.
b
What is mostly likely to happen if decreased government borrowing drives down real interest rates in the United States? a. Private investment will tend to decline. b. The dollar will depreciate leading to an increase in net exports. c. An inflow of capital will cause the dollar to depreciate. d. All of the above are true.
b
What usually happens after an adverse supply shock? a. Both prices and output rise. b. Prices rise and output falls. c. Growth accelerates and inflation slows. d. Prices fall and output rises.
b
What will most likely happen when a domestic currency appreciates? a. That country's net exports will rise and therefore decrease aggregate demand. b. That country's net exports will decline and therefore decrease aggregate demand. c. That country's net exports will rise and therefore increase aggregate demand. d. That country's net exports will decline and therefore increase aggregate demand.
b
What would opening trade between two nations do? a. Trade would shift their production possibilities curves inward. b. Trade would leave the production possibilities unchanged and increase their consumption possibilities. c. Trade would leave the production possibilities unchanged and decreased their consumption possibilities. d. Trade would shift their production possibilities curves outward.
b
When economists speak of changes in GDP measured in constant dollars, they mean that a. the price level is constant. b. a price index has been used to adjust money GDP for the effects of inflation. c. money GDP is constant. d. the growth rate of money GDP has been adjusted for changes in population.
b
When politicians support policies that benefit small interest groups at the expense of unorganized, widely dispersed groups, this is a reflection of the a. tragedy of interest. b. special-interest effect. c. shortsightedness effect. d. unorganized interest effect.
b
Which of the following about international trade is true? a. If one party to an international exchange gains, the other party must lose a similar amount. b. In recent decades, the volume of U.S. international trade has been increasing as a share of the economy. c. As transportation costs decline, the volume of international trade will also tend to decline. d. Most international trade is between the governments of different nations.
b
Which of the following about inventory changes and GDP is true? a. Inventory investment is subtracted from GDP because the goods were not sold during the period. b. Inventory investment adds to GDP because it represents goods produced during the current period. c. Inventory investment does not affect GDP because the goods were not sold during the period. d. Inventory investment does not affect GDP because it does not represent goods produced during the period.
b
Which of the following arguments in support of trade restrictions limiting U.S. dependence on foreign suppliers of petroleum and aircraft is most valid when applied to the United States? a. the comparative advantage argument b. the national defense argument c. the industrial diversity argument d. the infant-industry argument
b
Which of the following best describes the crowding-out effect? a. An increase in borrowing by the government will decrease the money supply and, thereby, reduce aggregate demand. b. An increase in borrowing by the government will push interest rates upward, which will lead to a reduction in private spending. c. An increase in government expenditures will cause the general level of prices to fall and, thereby, reduce aggregate demand and output. d. An increase in government expenditures will cause taxes to rise, which will reduce both aggregate demand and output.
b
Which of the following is most likely true when household debt as a share of income is abnormally high? a. Rapid growth of consumption is likely to lead economic recovery. b. The growth of consumption is likely to remain sluggish even as the economy begins to recover. c. Consumers will be in a strong position to deal with irregular expenses. d. The growth prospects of the economy will be excellent because high household debt is the key to a strong economy.
b
Which of the following is not included in aggregate demand? a. purchases by foreigners of consumer goods produced in the United States b. purchases of stock and bonds c. purchases of services such as visits to the doctor d. purchases of capital goods such as equipment in a factory
b
Which of the following is true with regard to the use of countercyclical fiscal policy as a stabilization tool? a. Successful fiscal policy is easier to achieve today because econometric forecasting models are highly accurate. b. Successful fiscal policy is difficult to achieve because Congress acts slowly and our ability to predict the future is limited. c. Successful fiscal policy would be easy to achieve if Congress had greater access to forecasting tools. d. Congress and the President have persistently altered fiscal policy in a stabilizing manner.
b
Which of the following is true? a. Real GDP is a measure of income, but not output. b. Growth of output is necessary for the growth of income. c. Real GDP is a measure of output, but not income. d. Real GDP is a measure of inflation.
b
Which of the following statements about economic growth is true? a. Countries with high marginal tax rates have generally had higher rates of economic growth than those with low tax rates. b. Countries with low marginal tax rates have generally had higher rates of economic growth than those with high tax rates. c. Countries that impose high marginal tax rates at low-income thresholds generally have high rates of economic growth. d. Tax rates do not influence economic growth.
b
Which of the following statements concerning economic growth is true? a. Most all countries with an abundance of natural resources have been able to achieve rapid growth and high levels of per capita income. b. Economic growth is primarily the result of gains from trade, discovery of better ways of doing things, and capital investment. c. Without foreign aid, poor countries are unable to break the cycle of poverty, low savings and investment, and economic stagnation. d. The United States is rich because it has democratic political institutions.
b
Which of the following will always be true when an economy is in long-run equilibrium? a. The level of prices will be constant (that is, inflation will be zero). b. The output of the economy will correspond with the full-employment output. c. Actual output will exceed the potential output. d. The actual rate of unemployment will be less than the natural rate of unemployment.
b
Which of the following will be most likely to cause the production possibilities curve for a country to shift inward? a. an increase in unemployment b. a decrease in the stock of physical capital c. an increase in the labor force d. development of an improved technological method of production
b
Which of the following will be the most likely impact of an unanticipated increase in the money supply? a. An increase in the real interest rate, which in turn stimulates investment and GDP. b. A decrease in the real interest rate, which in turn stimulates investment and GDP. c. A reduction in the general level of prices, which will increase the disposable income of households. d. An improvement in technology, which will stimulate both output and employment.
b
Which of the following would be most likely to cause the per capita income of less-developed countries to rise? a. an international minimum wage law b. investment expenditures that enhance the human capital of labor force participants c. more rapid population growth d. development of strong labor unions
b
Which one of the following economists has played a central role in the development of the "economics of collective decision making," better known as public choice analysis? a. John Maynard Keynes b. James Buchanan c. Milton Friedman d. Alfred Marshall
b
Which one of the following would count as investment in the national income accounts? a. buying a U.S. government bond b. a freight-hauling firm buying a new domestically produced truck c. buying an existing house d. buying 100 shares of Wal-Mart stock
b
Why do long lags make discretionary policy less effective? a. It is easier to forecast an expansion than a recession. b. By the time the impact of a policy is felt, the problem may have been corrected by market forces. c. Automatic stabilizers are subject to longer lags than are discretionary policies. d. It is easier to forecast a recession than an expansion.
b
Within the framework of the AD/AS model, in the long run, output a. will be less than the economy's long-run capacity. b. will converge toward the economy's long-run capacity. c. will exceed the economy's long-run capacity. d. must equal approximately 95 percent of the economy's long-run capacity.
b
According to the crowding-out effect, expansionary fiscal policy will lead to a. reduced interest rates, an appreciated dollar, and reduced net exports. b. higher interest rates, an appreciated dollar, and increased net exports. c. higher interest rates, an appreciated dollar, and reduced net exports. d. reduced interest rates, an appreciated dollar, and increased net exports.
c
An issue that generates substantial benefits to a small group of individuals while imposing a small cost on many others is called a a. commons policy. b. minority application. c. special-interest issue. d. national service.
c
An unanticipated increase in the money supply will lead to a. a decline in interest rates, an increase in investment, and a decline in aggregate demand. b. an increase in interest rates, an increase in investment, and an increase in aggregate demand. c. a decline in interest rates, an increase in investment, and an increase in aggregate demand. d. a decline in interest rates, a decline in investment, and a decline in aggregate demand. e. a decline in interest rates, a decrease in investment, and an increase in aggregate demand.
c
Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average, a. a large import sector. b. a large export sector. c. high rates of economic growth. d. low rates of economic growth.
c
During 2001-2011, what happened to the federal budget deficit? a. It declined and real government spending fell, indicating that fiscal policy was restrictive. b. It expanded and real government spending increased rapidly, indicating that fiscal policy was restrictive. c. It expanded and real government spending increased rapidly, indicating that fiscal policy was expansionary. d. It declined and real government spending fell, indicating that fiscal policy was expansionary.
c
Fiscal stimulus is most likely to direct resources into productive projects when spending decisions are left in the hands of a. Congress. b. government agencies. c. consumers. d. lobbyists and special-interest groups.
c
Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would a. rise by 50 percent. b. decrease by 100 percent. c. fall by 50 percent. d. increase by 100 percent.
c
Greg, a U.S. citizen, works only in Canada. Where is the value that his labor contributes to put in national income accounting? a. It is included in both U.S. GDP and U.S. GNP. b. It is included in neither U.S. GDP nor U.S. GNP. c. It is included in U.S. GNP, but it is not included in U.S. GDP. d. It is included in U.S. GDP, but it is not included in U.S. GNP.
c
If Asian economies suffer a serious economic slump, what will happen to U.S. net exports and Aggregate Demand (AD)? a. Net exports will decrease and AD will shift rightward. b. Net exports will increase and AD will shift leftward. c. Net exports will decrease and AD will shift leftward. d. Net exports will increase and AD will shift rightward.
c
If equilibrium is present in the foreign exchange market and a nation is experiencing a trade surplus, a. the nation's inflation rate must increase. b. the nation must be experiencing a net capital inflow. c. the nation must be experiencing a net capital outflow. d. the nation's interest rate must increase.
c
If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run? a. a decrease in real GDP b. an increase in the nominal interest rate c. a decrease in the real interest rate d. an increase in unemployment
c
In 2006, the American Association of Retired Persons (AARP) spent over $70 million on lobbying-related expenses in an attempt to get policies enacted that would benefit retirees. In economics, the term used to describe such activity is a. influence peddling. b. redistribution searching. c. rent seeking. d. logrolling.
c
International trade does all the following except a. allow a country to move to higher consumption levels. b. increase world output. c. reduce world output. d. allow a country to specialize in producing certain goods and services.
c
Other things constant, a decrease in aggregate demand will a. cause an increase in the general level of prices. b. reduce the rate of unemployment. c. lead to a decrease in the demand for resources. d. result in higher nominal wage rates.
c
Resource prices will fall and short-run aggregate supply will increase if a. current output exceeds the economy's full-employment level. b. the actual rate of unemployment is less than the natural rate of unemployment. c. current output is less than the economy's full-employment level. d. exports exceed imports.
c
Suppose people expect inflation to be 3 percent during the next several years. When the real interest rate is 5 percent, what will be the nominal (money) interest rate? a. 1 percent. b. 4 percent. c. 8 percent. d. 7 percent.
c
The larger the marginal propensity to consume, a. the higher the income level of the economy. b. the smaller the change in income derived from a given change in government spending. c. the larger the multiplier. d. the larger the marginal propensity to save.
c
The multiplier effect refers to the fact that a change in spending (aggregate demand) will a. cause prices to rise by some multiple of the initial increase in spending. b. increase the money supply. c. cause nominal output to rise by some multiple of the initial increase in spending. d. reduce prices by some multiple of the increase in spending.
c
Using a production possibilities curve, a technological advance that increases the amount of output for both goods while using the same amount of inputs would be illustrated by which of the following? a. A movement from one point to another point along the curve. b. A movement from a point on the curve to a point inside the curve. c. An outward shift of the curve. d. A flattening of the curve.
c
What happens during periods when the inflation rate fluctuates widely? a. All money prices increase at the same rate, leaving relative prices constant. b. Economic efficiency increases because decision makers pay closer attention to changes in money prices. c. Uncertainty about changes in relative prices causes a decrease in economic efficiency. d. All relative prices increase at the same rate, leaving money prices constant.
c
According to the Economic Freedom of the World measure, the United States was a. the freest economy in the world during 1980-2000. b. less free than the large economies of Western Europe throughout the 1980-2000 era. c. less free than Australia and Canada throughout the 1980-2000 era. d. the third freest economy in the world, behind only Hong Kong and Singapore during 1980-2000.
d
When an economy is temporarily operating at an output that is beyond its full-employment rate, which of the following is true? a. Excess supply in resource markets will eventually lead to lower resource prices, which will decrease costs and direct the economy toward full employment. b. Only restrictive fiscal policy will direct the economy back to full employment. c. Excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment. d. Lower wages and prices will quickly restore full employment.
c
Which of the following about trade is true? a. Protectionism (i.e., policies that limit trade in certain goods) promotes both economic prosperity and greater employment. b. Countries that have a lot of resources, like the United States, are always hurt by trade. c. Specialization and trade leads to mutual gains for countries. d. Countries will have a higher standard of living when they produce as many goods as possible domestically.
c
Which of the following best describes the economic conditions of the 1930s? a. Strong economic expansion and rapid growth of real output. b. High rates of inflation coupled with a low rate of unemployment. c. Depressed economic conditions and prolonged high rates of unemployment. d. Strong growth of real output even though the general level of prices was declining.
c
Which of the following does the crowding-out effect stress? a. An increase in government expenditures will stimulate aggregate demand and, thereby, help to prevent recessions. b. An increase in taxes will restrain aggregate demand and, thereby, help to control inflation. c. Additional government borrowing to finance a larger deficit will increase the demand for loanable funds, causing real interest rates to rise. d. A budget deficit is a highly effective tool with which to combat recessions. e. Both a (first option) and d (fourth option) are correct.
c
Which of the following is a private owner prohibited from doing? a. erecting a fence designed to keep others from using the property b. selling the property to another person c. using the property in a manner that invades or infringes on the property of another d. painting the property a color that others do not like
c
Which of the following is an example of an automatic stabilizer? a. A regressive income tax system reduces tax revenues (as a share of income) as income expands. b. Congress legislates lower tax rates to increase consumption and investment. c. Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted. d. Tax rates are increased during a recession to maintain a balanced budget.
c
Which of the following is true about fiscal policy? a. Both the crowding-out and new classical theories indicate that expansionary fiscal policy will exert a powerful impact on aggregate demand. b. Modern forecasting methods make it relatively easy to time fiscal policy changes in a manner that will help stabilize the economy. c. Proper timing of changes in discretionary fiscal policy is both crucially important and difficult to achieve. d. Legislative action is necessary if automatic stabilizers are going to smooth the ups and downs of the business cycle.
c
Which of the following is true in the aggregate demand and aggregate supply model? a. The factors that cause the individual supply curve to slope upward are the same as the factors that cause the short-run aggregate supply curve to slope upward. b. The upward-sloping aggregate demand curve intersects the downward-sloping short-run aggregate supply curve to determine the economy's price level and GDP. c. The upward-sloping short-run aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP. d. The factors that cause the individual demand curve to slope downward are the same as the factors that cause the aggregate demand curve to slope downward.
c
Which of the following is true when the federal government is running a budget deficit? a. Government revenues exceed government expenditures. b. The size of the national debt will decline. c. Government expenditures exceed government revenues. d. The economy must be in an economic recession.
c
Which of the following will most likely occur during the contractionary phase of a business cycle? a. Real GDP declines, and the rate of inflation rises. b. Inflation rises, and employment/population ratio falls. c. The sales of most businesses decline, and the unemployment rate rises. d. Real GDP rises, and the unemployment rate falls.
c
Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas? a. a decrease in inflation b. a decrease in unemployment c. an increase in the general level of prices d. a decrease in the general level of prices
c
Which of the following will occur once decision makers fully adjust to an increase in prices? a. The natural rate of unemployment will decline. b. Producers' profits will exceed their normal level. c. Competitive forces will restore the usual relationship between product prices and costs. d. Producers will expand output beyond the economy's potential.
c
Which of the following would generate a dollar demand for the euro? a. American exports to Europe. b. European demand for U.S. government bonds. c. American demand for European real estate. d. All of the above are correct.
c
Which one of the following is an area of continued disagreement among modern macroeconomists with regard to the use of fiscal policy? a. Automatic stabilizers help reduce the fluctuations in aggregate demand and output. b. It is difficult to time changes in discretionary fiscal policy in a manner that will promote stability. c. Budget deficits are a highly effective tool with which to combat a severe recession. d. Fiscal policy is much less potent than the early Keynesian view implied.
c
Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009? a. Monetary policy is unable to alter short-term interest rates. b. The Fed does not have the tools needed to alter the supply of money. c. The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable. d. It takes the Fed a long time to change the direction of monetary policy.
c
Suppose people anticipate inflation will be 3 percent during the next several years. If this is true, when the real interest rate is 4 percent, what will be the nominal (money) interest rate? a. 3 percent. b. 4 percent. c. 1 percent. d. 7 percent.
d
An analysis of countries experiencing rapid inflation indicates that inflation is generally a. caused by strong labor unions. b. caused by the impulse buying of consumers, who continue to buy the same goods even when prices rise. c. the result of restrictive macroeconomic policy, which pushes up interest rates. d. the result of rapid growth in the money supply.
d
Compared to those in low-income countries, the residents of countries with high per person incomes nearly always a. live longer. b. have a lower illiteracy rate. c. have a lower infant mortality rate. d. all of the above.
d
Compared to those with less economic freedom, countries with more economic freedom generally have ____ per capita GDP levels and ____ growth rates. a. lower; less rapid b. lower; more rapid c. higher; less rapid d. higher; more rapid
d
Countries with more economic freedom during 1980-2009 tended to do which of the following? a. Grow more rapidly, but the 2009 income levels of the freer economies were still lower than those that were less free. b. Achieve higher levels of income but the growth rates of the less free economies have been more rapid in recent years. c. Grow less rapidly and the 2009 income levels of the freer economies were lower than those that were less free. d. Achieve both more rapid growth and higher income levels than those that were less free.
d
Economically speaking, tariffs are a. the same as import quotas. b. a means to promote economic efficiency. c. necessary to keep the industries of an economy healthy. d. obstacles that limit voluntary exchange.
d
How does an open capital market affect a nation's economic growth? a. It channels capital into productive projects and away from wasteful projects. b. It rewards investors who find the most productive projects and invest in them. c. It makes the lowest-cost capital available from around the world. d. All of the above.
d
If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, which of the following conclusions can be made? a. The country will be an importer of the good. b. The country will be neither an exporter nor an importer of the good. c. Additional information is needed about demand to determine whether the country will be an exporter of the good, an importer of the good, or neither. d. The country will be an exporter of the good.
d
If a nation is going to achieve and sustain a high rate of economic growth, it must a. impose regulations that will limit the intensity of competition among domestic firms. b. have an abundant domestic supply of low cost energy resources. c. prohibit low-wage foreign producers from supplying goods to the domestic market. d. have a mechanism capable of attracting savings and channeling them into wealth-creating projects.
d
If an unanticipated decrease in aggregate demand results in an output below the economy's long-run capacity, long-run equilibrium will eventually be restored by a. an increase in the rate of inflation. b. higher resource prices and higher real interest rates. c. a decrease in the natural rate of unemployment. d. lower resource prices and lower real interest rates.
d
If borrowers and lenders expect a higher rate of inflation, what happens to interest rates? a. Nominal interest rates will tend to fall. b. Real interest rates will tend to rise. c. Real interest rates will tend to fall. d. Nominal interest rates will tend to rise.
d
If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur? a. Net foreign investment will decline, causing the dollar to appreciate and net exports to decrease. b. Net foreign investment will increase, causing the dollar to depreciate and net exports to increase. c. Net foreign investment will increase, causing the dollar to appreciate and net exports to decline. d. Net foreign investment will decline, causing the dollar to depreciate and net exports to increase.
d
If nominal GDP rises from one year to the next, then a. employment and productivity must be rising. b. prices at which goods and services are sold must be higher. c. the economy must be producing a larger output of goods and services. d. either output, or the general level of prices, or both must be rising.
d
If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur? a. an increase in the rate of unemployment b. a reduction in the price level c. an expansion in the federal budget deficit d. an increase in employment
d
If you wanted to compare the quantity of output of a country across time periods, which of the following would you use? a. the consumer price index b. nominal GDP c. the GDP deflator d. real GDP
d
In order to achieve a high economic freedom rating, a country must a. provide secure protection of privately owned property and evenhanded enforcement of contracts. b. refrain from creating barriers that limit domestic and international trade. c. rely more fully on markets rather than governments to allocate goods and resources. d. all of the above.
d
Measured as a share of GDP, what happened to the net federal debt between 1990 and 2011? a. It was virtually unchanged during the 1990s, but fell sharply during 2001-2011. b. It increased during the 1990s, but fell sharply during 2001-2011. c. It fell during the 1990s, but was virtually unchanged during 2001-2011. d. It fell during most of the 1990s, but rose sharply during 2001-2011.
d
Monetary and price instability will a. encourage businesses to invest and expand their future output. b. encourage domestic citizens to increase their rate of saving. c. make it easier for both individuals and businesses to plan wisely for the future. d. generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment.
d
Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country do which of the following? a. Encourage market exchange. b. Reward innovation. c. Protect people and their property. d. All of the above.
d
Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had a. $60.7 billion of imports and $52.4 billion of imports. b. $52.4 billion of imports and $44.1 billion of exports. c. $60.7 billion of exports and $52.4 of imports. d. $52.4 billion of exports and $44.1 billion of imports.
d
The government is pursuing an expansionary fiscal policy if it a. decreases government spending and increases taxes. b. increases government spending or increases taxes. c. decreases government spending or reduces taxes. d. increases government spending and/or reduces taxes.
d
The theory of comparative advantage suggests that nations should produce a good if they a. can produce more of the good than any other nation. b. have the lowest wages. c. have the most resources. d. have the lowest opportunity cost.
d
What basket of goods is used to construct the CPI? a. a random sample of all goods and services produced in the economy b. only food, clothing, transportation, entertainment, and education c. the least expensive and the most expensive goods and services in each major category of consumer expenditures d. the goods and services that are typically bought by consumers as determined by government surveys
d
What has income per person done during the past 200 years? a. It declined in the developed countries of Western Europe and North America, but increased in the rest of the world. b. It increased far less rapidly in both developed and less developed countries than during the centuries prior to 1800. c. It increased in the developed countries of Western Europe and North America, but declined in the rest of the world. d. It increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800.
d
When competition is present and property rights secure, people will be encouraged to a. plunder the resources of others. b. Invest in other countries where markets are less competitive and property rights less secure. c. pay the lowest possible wages. d. provide others with things that they value in exchange for income.
d
When private ownership rights are well-defined and enforced, owners of physical assets and resources will have an incentive to do which of the following? a. Use their assets in a way to impose harm on others. b. Abuse and degrade their assets. c. Ignore the desires of others when using their resources. d. Consider the wishes of others before using their resources.
d
When the Fed decreases the money supply, what will happen to nominal interest rates? a. They will rise and then fall. b. They will fall. c. They will fall and then rise. d. They will rise. e. They will be unaffected.
d
Which is more likely to stimulate aggregate demand in a timely manner? a. a tax cut, because households will increase their consumption by the full amount of their tax reduction b. a spending increase, because disbursement can take place quickly while a tax cut will be spread out over several years c. a spending increase, because it can be easily reversed once the economy has recovered d. a tax cut, because disbursement can take place quickly while spending increases are generally spread out over several years
d
Which of the following best characterizes the circular flow of income? a. Businesses buy resources from the government, and households buy goods and services from businesses. b. The government purchases resources from businesses and households and then sells goods and services to businesses and households. c. Households buy goods and services from businesses, and businesses sell goods and services to households. d. Businesses buy resources from households, and households use their income to buy goods and services from businesses.
d
Which of the following contributed to the financial crisis of 2008? a. the housing price boom (2002-2005), followed by a housing price bust (2007-2008) b. a sharp reduction in stock prices in 2008 c. a sharp increase in the price of crude oil from January 2007 to mid-year 2008 d. all of the above
d
Which of the following is a basic problem with the infant-industry argument? a. Domestic consumers will continue to buy the foreign products anyway, regardless of the tariff. b. Most industries need protection when they are mature, not when they are first established. c. The amount of the tariff is unlikely to have much impact on the success of an infant industry. d. Political pressure will likely prevent the withdrawal of the tariff when the industry matures.
d
Which of the following is a key characteristic of economic freedom? a. institutions and policies supportive of voluntary exchange b. freedom to compete c. protection of people and their property from aggressors d. all of the above
d
Which of the following is important if a country is going to achieve and sustain high rates of economic growth? a. investment in physical and human capital b. improvements in technology c. institutional and policy arrangements consistent with economic efficiency d. All of the above.
d
Which of the following is the best example of a supply shock? a. a decrease in the productivity of the labor force due to a decline in the average educational level of workers b. an increase in output as a result of an expansion in employment c. an increase in the availability of capital and machinery due to normal changes in business investment d. a decline in agricultural output due to a summer drought
d
Which of the following is true if the federal government is running a budget surplus? a. The U.S. Treasury will have to borrow additional funds in order to cover the surplus. b. Its expenditures must be greater than its revenues. c. The supply of money will decline. d. It will be able to reduce its outstanding debt.
d
Which of the following is true of modern technology? a. Improvements in technology have propelled the production possibilities and living standards of people in North America, Western Europe, and several other parts of the world. b. In low-income countries, proven technologies can be either emulated or imported at a low cost. c. Often, perverse institutions and policies in low-income countries undermine the gains from improvements in technology. d. All of the above.
d
Which of the following is true when collective decision making is utilized to resolve economic questions regarding the allocation of resources? a. Centralized decision making in all areas is inevitable. b. Economic efficiency will be assured. c. The preferences of individuals are of no importance. d. The role of markets will be replaced by political decision making.
d
Which of the following most accurately states the economic significance of exchange? a. Physical goods have value because they exist; exchange can neither increase nor decrease their value. b. Exchange reduces value since it consumes resources without adding to the physical supply of goods. c. Production of physical goods creates value; exchange merely redistributes this value. d. Exchange creates value by moving goods from parties who value them less to parties who value them more.
d
Which of the following provides the fuel for growth and achievement of high income levels? a. gains from trade b. entrepreneurial discovery c. capital formation d. all of the above
d
Which of the following transactions would be included in this year's GDP? a. Johnson purchases a five-year-old house from Smith. b. Johnson purchases an antique at Smith's garage sale. c. Johnson purchases 100 shares of AT&T stock from Smith. d. Johnson rents a five-year-old house from Smith.
d
Which of the following would be officially classified as unemployed? a. A 60-year-old former steel worker who would like to work but has given up actively seeking employment. b. A school administrator who has been working as a substitute teacher one day per week while looking for a full-time job in administration. c. A mathematician who returned to graduate school after failing to find a job the last four months. d. A laid-off construction worker waiting to return to a previous job.
d
Which one of the following persons would be classified as unemployed by the Bureau of Labor Statistics? a. Kim, who is working four hours each week at McDonald's while looking for a full-time job b. Sean, who is in the midst of a two-week vacation from his regular job c. Susan, who is unable to work her regular job this week because of illness d. Joe, who is on layoff waiting for better weather so he can return to his construction job
d
Why do political instability and insecure property rights retard economic growth? a. Fear that private property will be confiscated substantially reduces the incentive to invest and create wealth. b. When property rights are insecure, foreign investors will be reluctant to invest in the country. c. Savings will tend to flow out of a country if individuals fear their property is insecure. d. All of the above are correct.
d
Why is globalization becoming more of a worldwide phenomenon? a. Trade hurts workers in poor countries. b. Less-developed countries are increasing their trade restrictions. c. More countries want to become self-sufficient. d. Technological advancements are decreasing transportation costs.
d
Within the aggregate demand/aggregate supply framework, what does the quantity produced and purchased in the goods and services market represent? a. The interest rate. b. The consumer price index. c. Nominal output or nominal GDP. d. Real output or real GDP.
d
Within the framework of the Keynesian model, which of the following will occur if spending is abnormally low? a. The economy will be in equilibrium at full employment, but inflation will be high. b. The equilibrium output rate will exceed the economy's full-employment capacity. c. The actual rate of unemployment will be less than the natural rate of unemployment. d. Equilibrium output will be less than the full-employment rate of output.
d
Firms in a high-wage nation such as the U.S. can compete effectively with imports from low-wage nations if a. low-wage nations impose tariffs on U.S. made goods b. skill levels are identical in the nations c. labor productivity is higher in the low-wage nation d. the U.S. reduces tariffs on imports e. labor productivity is higher in the U.S.
e
