Macroeconomics Ch. 6-7 & 9-10 Test 2

Linda earns an income of $3,000 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her consumption per month?

$2700

Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 7%, what is your real wage increase?

-1%

Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption from $2.5 trillion to $2.6 trillion. The marginal propensity to consume (MPC) is _____

0.5

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals _____

1

Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 5%, what is your real wage increase?

1%

If income increases by $100 and saving increases by $25, the slope of the consumption function equals _____.

3/4

If the marginal propensity to consume (MPC) is 4/5, the value of the simple multiplier is _____

5

Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is _____.

60%

If the CPI in the United States was 150 in 2003 and 160 in 2004, the inflation rate over the year was_____

7%

Consider an economy made up of 100 people who are sixteen years of age and older, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is _____

70

If the marginal propensity to consume (MPC) is 7/8, the simple spending multiplier is _____

8

If 2016 is the base year and the price index in 2017 is 109, then prices in 2017 are _____ than prices in 2016.

9 percent higher

If the consumer price index (CPI) is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately _____

9.4%

Suppose the total population of an economy is 150 million, the labor force is 100 million, and the number of unemployed workers is 94 million. The unemployment rate is _____.

94%

If consumption = $2,000, investment = $600, government purchases = $500, net exports = −$40, and transfer payments = $340, then _____

GDP = $3,060.

If consumption = $5,000; investment = $800, government purchases = $700, exports = $30, imports = $60, and transfer payments = $340, then _____

GDP = $6,470.

If the price index is 90 in the first year, and 80 in the next year, what happened to prices?

Prices decreased by about 11%.

If the price index is 100 in the base year, and 200 in the next year, what happened to prices?

Prices increased by 100%.

What is correct if GDP is $20.5 trillion and spending is $20 trillion?

Spending is less than output by $0.5 trillion.

An upward shift of the consumption function might be caused by _____

a decrease in the price level.

In the aggregate demand-aggregate supply model, which of these changes is most likely when the cost of production increases in the long run?

a leftward shift of the short-run aggregate supply curve

Does an expansionary gap or a recessionary gap exist if short-run output is $20.0 trillion and potential output is $21.0 trillion?

a recessionary gap

If the inflation rate in an economy is higher than expected, which of the following groups in the society would be most likely to gain?

borrowers

In aggregate spending, investment does not include _____

buying stocks and bonds.

A technological change that positively affects business expectations will _____

cause a rightward shift of the investment demand curve.

The potential output of an economy is the level of output produced when the _____

expected price level equals the actual price level.

A decrease in a person's real wage necessarily means _____

lower purchasing power

Cyclical unemployment results from _____

prolonged decline in business activity

An increase in the market interest rate, other things equal, will _____

reduce the amount invested because the opportunity costs of investing will be higher.

A decrease in stock prices will _____ the net wealth of households and _____ consumption.

reduce; decrease

The type of unemployment most likely to be experienced by a touring professional golfer is _____

seasonal unemployment.

If households save $30 billion more at each level of income and the marginal propensity to consume (MPC) is 0.9, the aggregate expenditure line will _____

shift downward by $30 billion.

A higher interest rate will _____

shift the consumption function downward.

If households save $40 billion less at each level of income and the marginal propensity to consume (MPC) is 0.8, the aggregate expenditure line will _____

shift upward by $40 billion.

In recent times, there has been a decline in the sale of newspapers in the United States as people prefer to read the news on the internet. This has caused many newspaper journalists to lose their jobs. This is an example of _____

structural unemployment.

What approach to GDP adds up spending on all final goods and services produced in the United States during the year?

the expenditure approach

What is an example of an intermediate good?

the flour that Amy orders each month for the bakery she manages

The fraction of a change in income that is spent on consumption is known as _____

the marginal propensity to consume.

When actual output exceeds potential output, _____

prices tend to increase.

Define GDP

the market value of all final goods and services produced by resources located within the country

If 2016 is the base year and the price index in 2017 is 100, prices in 2017 are _____ than prices in 2016.

unchanged

The existence of the underground economy causes gross domestic product (GDP) statistics to _____

understate the true volume of economic activity.

Full employment _____

will always include some unemployment.

If the marginal propensity to consume (MPC) equals 0.9, the multiplier is _____

10

If 2016 is the base year and the price index in 2017 is 90, prices in 2017 are _____ from prices in 2016.

10% lower

The price index in the base year always equals _____

100

Suppose a loaf of bread sold for $3.00 in 2016. The price of bread then increases to $3.60 in 2017. The price index for bread in 2017, considering 2016 as the base year, is _____.

120

Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of unemployed persons is _____.

15

If the consumer price index (CPI) is 200 one year and 206 the next year, the annual rate of inflation as measured by the CPI is approximately _____.

3%

If the marginal propensity to save (MPS) is 0.25, the simple multiplier is _____

4

Which of the following best describes aggregate expenditure?

C + I + G + (X − M)

What is true of disposable income?

It equals consumption expenditures plus saving

What is a problem associated with gross domestic product (GDP) as a measure of social welfare?

It excludes the value of leisure time.

What is not true about gross domestic product (GDP)?

It includes transfer payments such as Social Security.

What does aggregate supply reflect?

It reflects billions of production decisions made by millions of individual resource suppliers and firms in the economy.

What is a true short-run aggregate supply curve?

It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.

Rhonda sells a house she has owned for 15 years and starts living in a rented apartment. To make the house more marketable, she buys carpeting that she has professionally installed and buys wallpaper that her daughter hangs. Which items would be included in this year's gross domestic product (GDP)?

The purchase price of the carpet and wallpaper and the installation fee for the carpet.

After graduating from Harvard Law School, Anne started looking for a job. She could not find a job after looking for one week. Which of the following is true in this case?

This is an example of frictional unemployment.

"Discouraged workers" comprise the percentage of those in the _____

adult population who want to be employed but have given up the search for a job.

The potential output of an economy is _____

also referred to as the natural rate of output.

Does an expansionary gap or a recessionary gap exist if short-run output is $18.2 trillion and potential output is $18.0 trillion?

an expansionary gap

An expansionary gap in the short run results in _____

cost-push inflation in the long run.

The inflation experienced in the United States during the 1970s as a result of OPEC oil price increases is an example of _____

cost-push inflation.

If the actual price level is less than the expected price level reflected in long-term contracts, _____

firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied.

What type of unemployment is likely to exist in an economy that is at its potential output level?

frictional, structural, and seasonal unemployment

What is not a cost of unemployment?

higher annual inflation rates

The circular-flow model shows that _____

households are on the supply side of the resource market and the demand side of the product market.

If the economy is experiencing extremely high increases in the price level, it is called _____

hyperinflation.

Net exports have averaged a minus 3 percent of GDP during the last decade. This means that _____

imports exceeded exports.

Which approach adds up earnings during the year by those who produce all that output?

income approach

Assume an economy is in equilibrium at a real GDP of $5 trillion. If aggregate expenditure (AE) increases by $1 trillion, the economy's equilibrium real GDP is likely to _____

increase by more than $1 trillion.

An increase in net wealth will _____

increase consumption and decrease saving.

A decrease in net wealth will _____

increase saving and decrease consumption

In the income-expenditure framework, if planned aggregate expenditures are less than real gross domestic product (GDP), _____

inventories will increase.

The best example of a frictionally unemployed worker is one who _____

is in the process of voluntarily switching jobs.

The most important determinant of a household's consumption spending is _____

its disposable income

If a household's income rises from $46,000 to $46,700, and its consumption spending rises from $35,800 to $36,400, then its _____

marginal propensity to consume is 0.86.

The immediate effect of a purchase of a government bond on the gross domestic product (GDP) is _____

nonexistent, since no real goods and services have been produced.

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy, then consumption spending will increase by _____

$14 billion

If the consumer price index (CPI) is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately _____.

-4.6%

Which of the following formulas is correct for aggregate income?

Aggregate income = DI + NT

The value of the films starring Charlie Chaplin, produced in the United States and still aired, will not be included in this year's U.S. gross domestic product (GDP) because _____

Charlie Chaplin did not make the films this year.

_____ is a measure of inflation based on the cost of a fixed market basket of goods and services.

Consumer price index

_____ is measured in terms of current-year prices.

Nominal Gross Domestic Product (GDP)

Which of the following will not shift the consumption function?

a change in household disposable income

What is an example of a final good or service?

a cup of coffee bought at a restaurant

What will shift the consumption function upward?

a lower interest rate

Juanita worked for a defense contractor in the United States. During the 2008 recession, the government cut spending and Juanita and ninety-nine others were laid off. In such a case, the unemployment Juanita is experiencing is _____.

cyclical

When an economy produces its potential output, _____ is zero.

cyclical unemployment

The unemployment rate will decrease whenever there is a(n) _____

decrease in the number of unemployed persons relative to the size of the labor force.

The inflation experienced in the United States during the late 1960s as a result of the spending on the Vietnam War is an example of _____

demand-pull inflation.

The consumption function relates consumption spending to _____

disposable income

If the actual price level is higher than the expected price level in an economy, the economy will _____

expand output in the short run.

In the income-expenditure model, if autonomous investment increases by $10 billion, _____

the aggregate expenditure line shifts upward by $10 billion.

In the income-expenditure model, if autonomous saving decreases by $15 billion, _____

the aggregate expenditure line shifts upward by $15 billion.

The unemployment rate does not reflect the true extent of the unemployment problem. Which of the following groups is not counted as unemployed in the official unemployment statistics?

the underemployed and discouraged workers