Practice Test 2

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's labor force participation rate is:

55%

Which of the following is the best example of frictional unemployment?

Allison, a recent high-school graduate with high aspirations, is seeking a job as the CEO of a Fortune 500 company. wrong college?

Structural unemployment is more persistent in France than in the United States because:

French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher.

The main reason people save during their working years is:

a preference toward a smooth consumption path over time.

Which of the following is an example of an unemployed person?

a recent college graduate looking for her first job

The long-run aggregate supply curve is:

a vertical line

Most economists expect labor force participation rates in the United States to:

decrease over time.

The quantity theory of money:

describes the general relationship between money, velocity, real output, and prices.

If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

falling, 2%

An unexpected increase in money growth increases both inflation and real growth in the long run.

false

Economic growth is a smooth process.

false

In the short run, money is neutral.

false

The bundle of goods used to calculate the consumer price index remains constant over time.

false

The AD-AS model is most useful for explaining what causes:

fluctuations in GDP growth around its "normal" rate.

The short-term unemployment caused by the ordinary difficulties of matching employee to employer is called:

frictional unemployment.

The implicit tax on working is less than 1% in the United States and over 2% in Belgium. Given this fact, we would expect:

higher labor force participation in the United States.

The Fisher effect indicates that an increase in the expected inflation rate will cause the real rate of interest to:

increase by the same amount. wrong

Sticky wages and prices:

increase the impact of positive shocks.

An investment tax credit will cause the interest rate to _____ and borrowing to _____.

increase; increase

Which of the following is NOT considered saving?

paying tuition for a college education

The Solow growth rate represents an economy's _____ growth rate.

potential

Economist Franco Modigliani's lifecycle theory of savings proposes that in order to maximize lifetime satisfaction, consumers:

practice consumption smoothing by borrowing and saving.

When the government of Zimbabwe ran out of money, President Robert Mugabe:

printed more money.

What two components of the quantity theory of money are assumed to be stable over time?

real GDP and the velocity of money

Using a graph of the AD and LRAS curves, the Internet revolution of the 1990s caused:

real growth to increase and inflation to decrease.

When using the quantity theory of money to analyze the relation between inflation, money, real output, and prices, we typically assume that:

real output and the velocity of money are constant.

Firms raise money by using which two methods?

selling stocks and issuing corporate bonds

The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in:

structural unemployment.

If a certain country's inflation rate is 3% and savings accounts are earning 2% interest, then:

the nominal value of funds in savings accounts is rising by 1% per year. wrong 3% instead?

A real price is the price:

that has been corrected for inflation.

Crowding out is:

the decrease in private consumption and investment that occurs when government borrows more

Table: Consumer Price Index Year CPI Value 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 Reference: Ref 12-1 (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010?

1.68 percent

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's labor force is:

110 million

This figure shows how real output growth reacts to a shock of a 10% increase in the price of oil. How long does it take for the economy to return to normal?

2.5 years

Suppose the money supply equals $100 million, the average price level equals 40, and real GDP equals $50 million. Given this information, the velocity of money equals:

20

Using the inflation data in the table, assume that all loan contracts have fixed nominal interest rates of 10% and mature after 1 year. In which year did lenders gain relative to borrowers?

2003

What is the unemployment rate for a nation with 6 million employed and 2 million unemployed?

25%

Using the data in the table, what is the natural unemployment rate for this country in the year 1995?

4.0%

Suppose the nominal interest rate is 4% and the inflation rate is 3%. What is the real interest rate?

7% wrong

Between 1960 and 1990, Argentina's money supply grew at approximately 80%. According to the quantity theory of money, inflation rates in Argentina should have been approximately _____ during this period.

80%

_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.

Deflation; disinflation

Which of the following contributed to the deep economic downturn of the Great Depression?

Money growth declined dramatically. wrong investment?

According to the textbook, one major reason for the increase in the female labor force participation rate after World War II was:

an increase in the incentive to work.

In India, shocks to the weather:

are becoming less economically important over time.

The consumer price index measures the:

average price of all goods and services included in GDP. wrong average in something else?

The Smoot-Hawley Tariff of 1930 raised tariff rates on tens of thousands of imported goods, and the results were that:

both exports and productivity fell, thereby reducing aggregate demand and aggregate supply.

Which of the following combinations would be on an aggregate demand curve with a spending growth rate of 6%?

inflation rate of 8%, real growth rate of -2%

Trading in the market for loanable funds determines the equilibrium:

interest rate wrong

The GDP deflator:

measures the average price of all final goods and services produced.

Money illusion occurs when people:

mistake changes in nominal prices for changes in real prices

The situation in which the government pays off its debts by printing money is called:

monetizing the debt.

When economists state that "money is neutral," they mean that the:

money supply does not affect real GDP or unemployment.

The figure shows the AD-AS model with two SRAS curves. If the economy is initially at point A and the expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by:

moving along SRAS1 to point B.

In economics, investment refers to the:

the purchase of new capital goods

"Animal spirits" can cause a shock to c

true

A positive shock to spending will shift the aggregate demand curve to the right and increase output in the short run, but not in the long run.

true

Monetizing the debt occurs when the government pays off its debts by printing money.

true

Money is always neutral in the long run in the AD-AS model.

true

The Black Plague is an example of a real shock.

true

The persistently higher unemployment rates among European countries compared to the United States reflect higher structural unemployment in Europe.

true

The quantity theory of money predicts that if the money supply doubles, the price level will also double.

true

In the Marshmallow Test, children who _____ ended up _____ later in life.

were willing to wait to get twice as many marshmallows; earning higher grades