UD ECON103 Smartwork Chapter 6
During the periods 2001-2002 and 2007-2009, the U.S. government engaged in ________ fiscal policy. The goal of this policy was to___________ aggregate demand.
expansionary increase
The graph shows the start of a timeline that tracks the real value of money over time. At time A, new money enters the economy. After this, there are no more changes to the money supply. What effect does this increased money supply have on money's real value over time? Give your answer by using the curved-line tool to draw a curve that begins at point A, ends at one of the three dots on the right, and uses one of the three dots in the center as the middle control point.
Adding more dollars to the amount of money in circulation makes each dollar worth less: everyone has more dollars and, therefore, one dollar has lower purchasing power. This effect drives each dollar's real value (i.e., its purchasing power) downward, but, over time, the real value stabilizes at a new, lower level.
Which of the following changes would represent an austerity measure? Choose one or more: A. an increase in public benefits, to reduce the severity of poor economic conditions B. a decrease in pension promises to public workers, to reduce government expenses C. a decrease in the number of public workers, to reduce government expenses D. an increase in the number of public workers, to reduce government expenses E. an increase in pension promises to public workers, to reduce the severity of poor economic conditions
B. a decrease in pension promises to public workers, to reduce government expenses C. a decrease in the number of public workers, to reduce government expenses
Sort the items into the correct categories.
Capital hammers machinery at a Ford factory bridges roads factories that make paint coffee-making machine at Seattle's Best Coffee Not capital bonds stocks
The short-run effects of quantitative easing are expected to be a(n) ___________ in the price level with a long-run __________ in the real value of money. Choose one: A. decrease, decrease B. decrease, increase C. increase, increase D. increase, decrease
D. increase, decrease
Bonita, age 30, used to work part-time in a local restaurant. This year she quit her job to take care of her five-month-old daughter. She is currently not looking for a job. The survey conducted by the Bureau of Labor Statistics will count Bonita today as Choose one: A. not in the working-age population. B. unemployed. C. employed. D. not in the labor force. E. a discouraged worker.
D. not in the labor force.
The impact of fiscal policy is limited by crowding-out. Which of the following events represent crowding-out with an expansionary fiscal policy? Choose one: A. As the government reduces its borrowing, the interest rate decreases and private investment increases. B. As the government borrows more, the interest rate and consumer borrowing are unaffected. C. As the government borrows more, the interest rate decreases and private investment decreases. D. As the government reduces its borrowing, the interest rate increases and private investment increases. E. As the government borrows more, the interest rate increases and private investment decreases.
E. As the government borrows more, the interest rate increases and private investment decreases.
Which of the following is included in government outlays?
Government outlay -bigger defense budget -unemployment benefits -research into technologies to fight global warming -the interest payment on government 10-year notes -increased spending on unemployment benefits Not government outlay -higher tax revenue
Which of the following are considered to be money?
Money money market mutual funds savings deposits checking deposits currency Not money credit cards checks
Will each scenario shift the long-run aggregate supply (AS) curve, the short-run AS curve, both, or neither?
Shifts long-run AS A firm expects to introduce driverless cars within the next five years Shifts short-run AS A hurricane wipes out the orange crop in Florida A new oil field is discovered that will provide a six-month supply of oil Shifts both New technology improves solar panels so that they are less expensive Shifts neither Federal government spending increases
According to the adaptive expectations theory, you are likely to underestimate inflation when the price level is increasing at a(n) _________ rate and to overestimate inflation when price level is increasing at a(n) __________ rate.
increasing decreasing
Suppose that you run the central bank of Fredonia. If you were concerned that monetary surprises may destabilize the economy, you would use __________ monetary policy. If you believed that unexpected monetary policy could stimulate the economy, you would use ___________ monetary policy
passive active
In which direction does the AD curve move if the government wants to engage in contractionary fiscal policy? Drag the curve in the correct direction.
shifts left
Which of the following situations represents commodity-backed money? Choose one: A. Coins are minted with gold and have a value based on the amount of gold the coin contains. B. Dollars are printed on paper and have value because the government says they have value. C. Dollars are printed on paper and have value because they can be converted at a fixed rate into a valuable commodity. D. Checks are printed on paper and can be cashed in for printed currency. E. Coins are minted with a type of metal that has little to no intrinsic value.
C. Dollars are printed on paper and have value because they can be converted at a fixed rate into a valuable commodity.
What is a difference between fiat and commodity money? Choose one: A. Tying an economy's money to a commodity has no dangers, whereas the use of fiat money is very dangerous. B. Fiat money has a higher intrinsic value than commodity money. C. Fiat money allows an economy to easily expand the money supply, whereas it is more difficult to expand the supply of commodity money. D. Fiat money resolves the double coincidence of wants, whereas commodity money does not. E. Inflation occurs only in an economy that relies on commodity money.
C. Fiat money allows an economy to easily expand the money supply, whereas it is more difficult to expand the supply of commodity money.
Which of the following can be responsible for a drop in the unemployment rate? Choose one or more: A. More people with full-time jobs become part-time workers. B. The labor force shrinks. C. More people become employed. D. There is an increase in the number of discouraged workers.
C. More people become employed. D. There is an increase in the number of discouraged workers.
During the Great Recession, the Federal Reserve made use of a new tool, quantitative easing, to adjust the money supply. Which of the following statements are true about quantitative easing? Choose one or more: A. Quantitative easing was designed to increase interest rates. B. During the Great Recession, quantitative easing was immediately successful in stimulating economic growth. C. Quantitative easing was designed to increase the money supply. D. Quantitative easing is a type of open market operation. E. Quantitative easing was designed to lower interest rates.
C. Quantitative easing was designed to increase the money supply. D. Quantitative easing is a type of open market operation. E. Quantitative easing was designed to lower interest rates.
Which of the following statements are true about technological change in the Solow model? Choose one or more: A. Technological change is driven by the incentives of the innovators. B. Technological change derives naturally from the expansion of capital stocks. C. Technological change is not due to any inherent characteristics of the economy. D. Technological change is random. E. Technological change occurs exogenously.
C. Technological change is not due to any inherent characteristics of the economy. D. Technological change is random. E. Technological change occurs exogenously.
In which of the following cases are you likely to be adversely affected by unexpected inflation? Choose one: A. You, the owner of an airline company, sign a two-year contract for airline fuel. B. You, the seller of very exclusive, specialty wines, charge the price of a rare cabernet as per the daily market rate. C. You deposit $50 in a bank account for five years for a fixed interest rate of 2%. D. You purchase a turkey sandwich every day at a local deli, which keeps its price fixed for the entire school year.
C. You deposit $50 in a bank account for five years for a fixed interest rate of 2%. Explanation: Inflation leads to a higher overall price level in the economy. Thus if inflation results in higher input prices (say for wine), you can also pass those costs on to your customers in the form of higher output prices. When you purchase the same item (a turkey sandwich) every day and the price is sticky, you are not affected by inflation. In the case where you own an airline, the higher fuel prices do not affect you because you are paying a fixed contractual price. But if you have a bank account paying a fixed interest rate, inflation causes your money to lose its purchasing power. In fact, if the inflation rate is any higher than your interest rate of 2%, you will earn a negative real interest rate, meaning that your account is worth less at the end of the five years than it was at the beginning. This is an adverse effect of inflation.
Recent news reports in the United States suggest a downward swing in the stock market. The result will be Choose one: A. an upward movement along the aggregate demand curve. B. a downward movement along the aggregate demand curve. C. a leftward shift of the aggregate demand curve. D. a rightward shift of the aggregate demand curve.
C. a leftward shift of the aggregate demand curve.
The main goal of monetary policy is to shift Choose one or more: A. short-run aggregate supply. B. long-run aggregate supply. C. aggregate demand.
C. aggregate demand.
According to the basic Solow growth model, which of the following is/are the primary source(s) of economic growth? Choose one or more: A. natural resources B. human capital C. physical capital D. institutions E. government policy
C. physical capitaL
Which of the following can lower the level of frictional unemployment over time? Choose one or more: A. stringent government labor-market regulations B. an increase in the level of unemployment benefits C. reducing the regulations on hiring practices in a country D. an increase in the number of online job search engines
C. reducing the regulations on hiring practices in a country D. an increase in the number of online job search engines
Which of the following statements describes a business cycle? Choose one: A. the time it takes the economy to return to a specific level of GDP B. a period of time when the economy is growing faster than usual C. short-run variations around a long-run real GDP growth trend D. a period of time when the economy is growing more slowly than usual
C. short-run variations around a long-run real GDP growth trend
Technological advancements in travel thanks to the EZ Pass (which pays tolls automatically) have led to its widespread use. As a result, many toll takers have become unemployed. This situation is an example of unemployment. Choose one: A. cyclical B. normal C. structural D. frictional
C. structural
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CHAPTER 6
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CHAPTER 9
Consider each situation and determine whether the person is structurally unemployed, frictionally unemployed, or cyclically unemployed.
Cyclical Unemployment Bob loses his job as the economy slips into a recession. Frictional Unemployment Julie graduates from college and is looking for a job as an accountant. Julie had to leave her old job when she moved to a new city. She works in customer service and is looking for a new job. Structural Unemployment Jim got laid off from his job at an auto manufacturer as the company became more automated.
Which of the following scenarios are macroeconomic in nature? Choose one or more: A. A town passes a law to make it illegal for homeowners to burn leaves. B. A firm is trying to decide whether it should expand into another state. C. Microsoft is considering buying another firm to help it expand its social media presence. D. The GDP of France has fallen to an inflation-adjusted low. E. The central bank of the United States increases interest rates by 0.5%. F. The U.S. unemployment rate falls to 8.5% in December.
D. The GDP of France has fallen to an inflation-adjusted low. E. The central bank of the United States increases interest rates by 0.5%. F. The U.S. unemployment rate falls to 8.5% in December.
Which of the following is a shortcoming of the unemployment rate? Choose one or more: A. Temporary workers are not counted as employed. B. If someone is working at a lower-paying job but is qualified for a higher-paying job, he/she is counted as unemployed. C. There are too few observations collected monthly. The small sample size causes inaccurate measurements. D. The unemployment rate does not include discouraged workers.
D. The unemployment rate does not include discouraged workers.
(1) You go to Greater's Ice Cream and see the price of a cone quoted as $3.00. (2) You buy the cone and pay with $3.00 in cash. In the first instance money serves as ___________, while in the second instance money serves as ___________. Choose one: A. a store of value; a medium of exchange B. a medium of exchange; a store of value C. a unit of account; a store of value D. a unit of account; a medium of exchange E. a medium of exchange; a unit of account F. a store of value; a unit of account
D. a unit of account; a medium of exchange
Federal funds are Choose one: A. deposits made by consumers and businesses at the Federal Reserve. B. deposits of the U.S. government with the Federal Reserve. C. funds earmarked by the U.S. government for relief operations for victims of natural disasters. D. deposits held by private banks on reserve at the Federal Reserve.
D. deposits held by private banks on reserve at the Federal Reserve.
You transfer $100 from your savings account to your checking account. As a result, M1 will ____________ and M2 will ____________. Choose one: A. remain unchanged; remain unchanged B. remain unchanged; decrease by $100 C. increase by $100; decrease by $100 D. increase by $100; remain unchanged E. increase by $100; increase by $100
D. increase by $100; remain unchanged
Different categories of expenditures are weighted differently in the consumer price index. Rank these items in from the highest share to the lowest share.
Highest share: 1. Housing 2. Transportation 3. Food and beverages 4. Medical Care 5. Recreation 6. Education Lowest share:
Which of the following are barriers to growth and which are not? Place each of the following items into the proper column.
Not a barrier to growth free markets low taxes Barrier to growth limited flow of funds into or out of a country corruption political instability restrictive trade policies
Which of these individuals are in the labor force and which are not?
Not in the labor force a former accountant who now stays at home to watch his children a college student who isn't working and isn't looking for a job a former executive who now is retired and living in Florida In the labor force a dishwasher at Denny's who wants a better job a person who got laid off from his job last week and has a job interview today the CEO of Coca-Cola
Although the Great Recession was far worse than typical U.S. recessions, it paled in comparison to the Great Depression. From 1929 to 1933, real GDP fell by nearly 30%, and unemployment increased from 2.2% to 25%. To examine the factors that contributed to the Great Depression, it helps to look at an aggregate demand-aggregate supply model. The figure below shows what happened between 1929 and 1933. PART 1 The figure indicates that the Great Depression was a result of a significant decline in aggregate demand. Although several factors led to the decrease in aggregate demand, one of the primary factors was _________ PART 2 Although the Great Depression was primarily caused by a significant decline in aggregate demand, ______________ led to a decrease in aggregate supply.
PART 1 failure of the government Certainly, the stock market crash and a decrease in expected future income led to a decrease in aggregate demand, but many economists believe that the worst part of the contraction could have been avoided if it were not for government policy errors. Both tighter money and the unwillingness of the government to lend to ailing banks led to a significant drop in aggregate demand. PART 2 The Smoot-Hawley Tarrif Act
PART 1 What effect would an increase in Americans' expected future incomes have on the U.S. aggregate demand curve? Shift the curve in the appropriate direction. PART 2 Which other factors would shift the U.S. aggregate demand curve in the same direction as an increase in Americans' expected future income? Choose one or more: A. an increase in tax rates B. an increase in the dollar's value on the world currency market C. an increase in government spending D. an increase in real wealth
PART 1 shift right PART 2 C. an increase in government spending D. an increase in real wealth
PART 1 Consider the case of electricity service. In Singapore, there are 20 providers of electricity service. On the other hand, in Uruguay , electricity service is largely regulated by the government with only one firm as the sole provider of this service. Under these circumstances, it is expected that Choose one: A. Singapore and Uruguay will have similar growth potential. B. Singapore will have lower growth potential than Uruguay . C. Singapore will have higher growth potential than Uruguay PART 2 Which institution explains your answer in Part 1? Choose one: A. private property B. stable money and property C. rule of law D. competitive markets
PART 1: C. Singapore will have higher growth potential than Uruguay . PART 2: D. competitive markets
Part 1: The figure below depicts a typical individual's income and consumption paths over his or her lifetime. Use the list on the right to label the diagram. Part 2: Suppose a large percentage of young workers move from their early earning years to their prime earning years. This change would cause Choose one: A. the supply of loanable funds to decrease and the interest rate to increase. B. the supply of loanable funds to increase and the interest rate to increase. C. the supply of loanable funds to decrease and the interest rate to decrease. D. the supply of loanable funds to increase and the interest rate to decrease. Part 3: Suppose a large percentage of workers in their prime earning years retire. This mass retirement would cause Choose one: A. the supply of loanable funds to increase and the interest rate to decrease. B. the supply of loanable funds to decrease and the interest rate to increase. C. the demand for loanable funds to decrease and the interest rate to decrease. D. the demand for loanable funds to increase and the interest rate to increase.
Part 1: B-Borrowing region C-Consumption path A-Income path E-Saving region D-Dissaving region Part 2: D. the supply of loanable funds to increase and the interest rate to decrease. Part 3: B. the supply of loanable funds to decrease and the interest rate to increase.
Economists have identified many concerns about inflation. Yet inflation isn't always bad. Which of the following are concerns you might see an economist cite?
Problems with inflation costs of changing prices on menus costs people incur to avoid holding cash when there is inflation money illusion wealth redistribution Not a problem decreased tax collection with inflation
Which of the following is true when the economy is at full employment?
True The cyclical rate of unemployment is zero. The unemployment rate is equal to the natural rate of unemployment. False The unemployment rate is equal to zero. The unemployment rate is equal to the cyclical rate of unemployment. The natural unemployment rate is equal to zero. The employment rate is 100%.
Indicate whether each statement is true or false with respect to the Great Depression.
True Unemployment rates were higher than during the Great Recession. Unemployment was as high as 25%. The Depression opened the door for Keynesian policy. False Recovery was faster than after the Great Recession. Macroeconomic policy addressed the problem quickly. It took 4 years for potential GDP to return to its pre-Depression level. Aggregate supply shocks were the primary cause.
Suppose there is an increase in the supply of loanable funds. a. We would expect the equilibrium quantity of savings and investment to _______ b. We would expect equilibrium interest rates to _______
a: increase b: decrease
Which of the following are reasons that the aggregate demand curve slopes downward? Choose one or more: A. the wealth effect B. the international trade effect C. the interest rate effect D. the substitution effect
A. the wealth effect B. the international trade effect C. the interest rate effect
An economist would describe a person who is 25 years old and not saving anything because she has no significant income as someone who is engaging in Choose one: A. dissaving. B. borrowing. C. saving.
B. borrowing.
What would be an appropriate way to calculate owner's equity for a bank? Choose one: A. assets divided by liabilities B. assets plus reserves C. assets minus liabilities D. liabilities minus reserves E. liabilities minus assets
C. assets minus liabilities
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CHAPTER 12
What is human capital? Choose one: A. the total number of people in an economy than can do jobs that were once done by machines B. the amount of "productive" labor in an economy, taking into account only workers who are good at their jobs C. the amount of total labor in an economy D. the quantity, knowledge, and skills of the workers in the economy
D. the quantity, knowledge, and skills of the workers in the economy
The idea of ____________ allows us to understand how a poor country like Cambodia could catch up to the U.S. economy's output level with less initial capital.
convergence
In 2015, the Consumer Price Index (CPI) was 238, whereas it was about 100 in 1982. Suppose that one of your parents had a job that paid $28,000 annually in 1982 and a job that paid $60,000 annually in 2015. Relative to 1982, we could say that your parent's nominal income __________ in 2015 and that your parent's real income _____________in 2015.
increased decreased
Suppose that the Federation of Rothsylvania, a small nation, has consumption, investment, government purchases, imports, and exports as follows. Consumption $110 Investment $50 Government purchases $45 Imports $25 Exports $25 Calculate the Federation of Rothsylvania's GDP.
$205
The macroeconomic data collection department for the country of the United Republic of Neverland reported the consumer price index as 217.5 in December 2011, and 256.6 in December 2015. By what percentage did the index increase from the end of 2011 to the end of 2015 (rounded to one decimal place)?
18% (year 2CPI- year 1 CPI)/(year 1 CPI) x100
__________ are on the demand side and __________ are on the supply side of the loanable funds market. Choose one: A. Firms and governments; households B. Banks; households C. Households; banks D. Households; firms and governments E. Firms and governments; banks
A. Firms and governments; households
During the 2007-2009 Great Recession, the Obama administration proposed several stimulus packages with a goal of helping the economy recover from the economic crisis. Which school of thought would most likely support the administration's policy prescriptions? Choose one: A. Keynesian B. neither Keynesian nor classical C. classical D. both Keynesian and classical
A. Keynesian
Which of the following is true of gross domestic product? Choose one: A. When determined on a per capita basis, it can give us guidance on the living standards of a nation. B. It only measures output. C. It only measures income. D. It is an exact measure of output. E. It can be used to measure a firm's output. F. It measures price inflation.
A. When determined on a per capita basis, it can give us guidance on the living standards of a nation.
Which of the following would be considered physical capital? Choose one: A. an oven used to bake bread B. wheat used in bread production C. knowledge acquired in culinary school D. a method or technique that improves bread production
A. an oven used to bake bread
Unable to borrow from other banks, University Bank is forced to turn to the Federal Reserve for needed funds. The interest rate that the Federal Reserve will charge University Bank is called the Choose one: A. discount rate. B. open market operation. C. required reserve ratio. D. simple money multiplier. E. federal funds rate.
A. discount rate. The discount rate is the interest rate that the Federal Reserve charges a bank when lending it money to fulfill its reserve requirements.
Which of the following represents frictional unemployment? i) The demand for refrigerators falls when the economy enters a recession, and refrigerator manufacturers lay off some of their workers. ii) Jayco, a maker of recreational vehicles, closes and moves its entire production line to Mexico because labor is cheaper there. iii) After quitting your job in Ohio to be closer to your family in California, you are now looking for a new job. iv) Joe's boss has to lay him off as the company is losing sales to competitors. Joe starts looking for a job the next day. Choose one: A. iii and iv B. i and iv C. ii, iii, and iv D. only iii E. ii and iii
A. iii and iv
Money is neutral in the long run, but not the short run, because Choose one: A. input prices are flexible in the long run. B. output prices are flexible in the long run. C. output prices are sticky in the long run. D. input prices are sticky in the long run.
A. input prices are flexible in the long run.
Which of the following is likely to happen if the Fed buys Treasury securities from banks? Choose one: A. interest rate falls, investment rises B. interest rate rises, investment rises C. interest rate rises, investment falls D. interest rate falls, investment falls
A. interest rate falls, investment rises
In 1200 BCE on this timeline, seashells are used to trade for a yard of linen. In this case, the seashells are used as a _______. Choose one: A. medium of exchange B. unit of account C. store of value D. all of the above
A. medium of exchange
An institution is a significant practice, relationship, or organization in a society. Institutions are the official and unofficial conditions that shape the environment in which decisions are made. Which of the following institutions do economists see as necessary for economic growth? Choose one or more: A. private property rights B. efficient taxes C. stable money and prices D. representative democracy
A. private property rights B. efficient taxes C. stable money and prices
Business cycles examine ______ time horizons while growth theory focuses on ________ time horizons. Choose one: A. short-run; long-run B. short-run; short-run C. long-run; short-run D. long-run; long-run
A. short-run; long-run
GDP measures which of the following? Choose one or more: A. whether the economy is expanding B. the well-being of each person in a country C. a nation's income D. economic growth E. whether the economy is contracting
A. whether the economy is expanding C. a nation's income D. economic growth E. whether the economy is contracting
Identify the parts of the business cycle in the graph below.
A: Peak B: Contraction C: Trough D: Expansion
a. When the money supply grows, the inflation rate b. When the money supply decreases, the inflation rate
A: increases B: decreases
Place each item in the correct category: (1) affects long-run aggregate supply (LRAS) or (2) does not affect LRAS.
Affects LRAS technology resources institutions Doesn't affect LRAS expected future prices the price level
Which of these factors cause a movement along the aggregate demand curve? Choose one or more: A. A foreign country discovers an oil field. With the country's increased wealth, its people purchase more products. B. A sudden increase in the price level affects a person whose income does not adjust with the inflation rate. C. An increase in the price level of domestic products causes more people to purchase foreign products. D. The government increases spending.
B. A sudden increase in the price level affects a person whose income does not adjust with the inflation rate. C. An increase in the price level of domestic products causes more people to purchase foreign products.
From the graphs shown here, select the appropriate illustration of how a production function changes (from F1 to F2) after a technological advancement.
B. Figure B
Which of the following statements are true about inflation and the cost of living? Choose one or more: A. The United States has not experienced deflation in the past 50 years. B. Governments sometimes choose to have high inflation rates when they owe large debts to other countries. C. A salary of $100,000 will give a person approximately the same purchasing power anywhere in the United States. D. In the past 50 years in the United States, the highest periods of inflation occurred in the 1970s.
B. Governments sometimes choose to have high inflation rates when they owe large debts to other countries. D. In the past 50 years in the United States, the highest periods of inflation occurred in the 1970s.
Several European countries spend less time working and more time on leisure activities than the United States. How is this greater leisure time accounted for in gross domestic product measurements? Choose one: A. Leisure time is added to GDP by using the average market wage for labor in that country. B. Leisure time doesn't factor into a country's GDP. C. A value for leisure time is added to a country's GDP by using a market wage that is a weighted average of the own-country's average hourly wage rate and the rest of the world's hourly wage rate.
B. Leisure time doesn't factor into a country's GDP.
Which of the following statements are true about M1 and M2? Choose one or more: A. M2 includes credit cards, whereas M1 does not. B. M2 is always larger than M1. C. M1 is always larger than M2. D. M1 includes less-liquid assets like savings deposits, whereas M2 includes liquid assets like currency. E. Everything counted in M1 is also counted in M2.
B. M2 is always larger than M1 E. Everything counted in M1 is also counted in M2.
Which of these statements about GDP are true? Choose one or more: A. GDP is the output produced by workers and resources owned by residents of a nation. B. Money received for services is included in GDP. C. GDP is calculated using market values.
B. Money received for services is included in GDP. C. GDP is calculated using market values.
Which of the following was responsible for slower economic growth prior to the Industrial Revolution? Choose one: A. There was no technological innovation. B. Population growth was consistent with the rate of technological innovation. C. The rate of technological innovation outpaced population growth. D. Technological growth was controlled by the government.
B. Population growth was consistent with the rate of technological innovation.
Which of the following statements is true? Choose one: A. Taxes on both consumers and businesses restrict economic growth; hence taxes on both consumers and businesses should be abolished to promote growth. B. Taxes on both consumers and businesses restrict economic growth; hence an efficient tax system is necessary to fund government activities without largely impeding production and consumption decisions. C. Taxes on businesses restrict economic growth; hence taxes on businesses should be abolished to promote growth. D. Taxes on consumers restrict economic growth; hence taxes on consumers should be abolished to promote growth.
B. Taxes on both consumers and businesses restrict economic growth; hence an efficient tax system is necessary to fund government activities without largely impeding production and consumption decisions.
What is the key difference between modern growth theory and Solow's growth theory? Choose one: A. Technological change is exogenous in modern growth theory while it is endogenous in the Solow theory. B. Technological change is endogenous in modern growth theory while it is exogenous in the Solow theory. C. There is no difference; technological change is exogenous in both these theories. D. There is no difference; technological change is endogenous in both these theories.
B. Technological change is endogenous in modern growth theory while it is exogenous in the Solow theory.
Which of the following statements are true about the velocity of money? Choose one or more: A. An increase in velocity, all else being equal, increases real GDP. B. Velocity is part of the equation of exchange. C. Velocity is the number of times a unit of currency exchanges hands in a given year. D. An increase in velocity, all else being equal, increases nominal GDP.
B. Velocity is part of the equation of exchange. C. Velocity is the number of times a unit of currency exchanges hands in a given year. D. An increase in velocity, all else being equal, increases nominal GDP.
Suppose that Venezuela has recently experienced an increase in its growth rate, although the total quantity of inputs in the country has remained unchanged. This growth may have been caused by Choose one or more: A. a decrease in exports. B. a change in technology. C. an increase in imports. D. the implementation of laws to protect private property. E. a random increase in demand.
B. a change in technology. D. the implementation of laws to protect private property.
Which of the following involves a downward movement along the aggregate demand curve? Choose one or more: A. an increase in the price level B. a decrease in the price level C. expectations of lower future price levels D. expectations of higher future price levels E. a decrease in capital productivity F. an increase in the country's wealth level G. a decrease in the country's wealth level
B. a decrease in the price level
The aggregate demand-aggregate supply model is used to study Choose one: A. the theory of why businesses fail. B. business cycles. C. why the price of the dollar has risen against the Euro. D. growth economics.
B. business cycles.
If the real GDP in a country is higher than full-employment output, which of the following are true? i) The unemployment rate is higher than the natural rate. ii) The unemployment rate is lower than the natural rate. iii) The cyclical unemployment rate is positive. iv) The cyclical unemployment rate is negative. Choose one: A. i and iii B. ii and iv C. i and iv D. ii and iii
B. ii and iv
If building new capital is costless and the capital depreciation rate is zero, then an economy will reach a steady state wherein Choose one: A. marginal product of capital is greater than zero. B. marginal product of capital is equal to zero. C. marginal product of capital is less than zero
B. marginal product of capital is equal to zero.
What is the correct definition of economic growth? Choose one: A. percentage change in GDP B. percentage change in real per capita GDP C. percentage change in both GDP and the employment rate D. percentage change in per capita GDP E. percentage change in the employment rate
B. percentage change in real per capita GDP
If you wanted to compare economic well-being over time and across countries, the data you would use is: Choose one: A. inflation B. real per capita GDP C. real GDP D. per capita GDP
B. real per capita GDP
What occurs when the loanable funds market is in equilibrium? Choose one: A. exports = imports B. savings = investment C. foreign investment = domestic investment D. inflation rate = interest rate
B. savings = investment
Consider this version of the equation for a production function: Y = A×F(natural resources, human capital, physical capital) In the Solow model, the letter A in this equation represents Choose one: A. the convergence rate, an exogenous change. B. technology, an exogenous change. C. technology, an endogenous change. D. the convergence rate, an endogenous change.
B. technology, an exogenous change.
We pay higher prices for TVs today than we paid 10 years ago. The higher prices today are likely due to Choose one or more: A. a monopoly in the TV industry. B. the higher quality of today's TVs. C. inflation.
B. the higher quality of today's TVs. C. inflation.
Consider the Solow growth model. When the economy has reached the point of ______ , it is said to have achieved _______
no new net investment, a steady state
CHAPTER 8
CHAPTER 8
By buying bonds, the central bank _________ the supply of money. This type of policy is known as ___________ monetary policy.
increases expansionary
Suppose the CPI level is 291.00 at the beginning of a year and 302.00 at the end of that year. What was the inflation rate for the year?
3.78 inflation rate formula: (year 2CPI- year 1 CPI)/(year 1 CPI) x100
Which of the following are key sources of economic growth? Select all that apply. Choose one or more: A. institutions B. labor C. government regulations D. land E. technology F. capital
A. institutions B. labor D. land E. technology F. capital
Which of these factors affect(s) the demand for loanable funds?
Affects demand increased investor confidence diminished investor confidence a technological advance that increases capital productivity Doesn't affect demand increased foreign incomes consumption smoothing more people entering retirement positive time preferences
CHAPTER 17
CHAPTER 17
Which of these statements is true about the U.S. national debt? Choose one: A. Annual interest payments on the national debt are now the highest government expense. B. Most of the debt is owed to foreigners. C. The ratio of publicly held debt to GDP is the highest in the world. D. Two-thirds of the debt is held domestically. E. The ratio of publicly held debt to GDP is the smallest in the world.
D. Two-thirds of the debt is held domestically.
Which of the following is the defining feature of a progressive income tax system? Choose one: A. The marginal tax rate is constant across income levels. B. The marginal tax rate is high at low income levels and gets progressively lower as income levels increase. C. The marginal tax rate is low at low income levels and gets progressively higher up to a point. At very high income levels, the marginal tax rate falls. D. All individuals pay the same amount of taxes. E. The marginal tax rate is low at low income levels and gets progressively higher as income levels increase.
E. The marginal tax rate is low at low income levels and gets progressively higher as income levels increase.
Which of the following led to the Great Depression? Choose one: A. a fall in both aggregate demand and long-run aggregate supply B. a fall in aggregate demand and a rise in long-run aggregate supply C. a fall in long-run aggregate supply D. a rise in aggregate demand and a fall in long-run aggregate supply E. a fall in aggregate demand
E. a fall in aggregate demand
Which of the following situations would increase U.S. aggregate demand, and which would decrease U.S. aggregate demand?
Increase U.S. AD an increase in federal government spending a decrease in taxes an increase in the value of the Chinese yuan (Chinese currency) Decrease U.S. AD U.S. consumers become less wealthy investors become less confident in U.S. companies relative to foreign companies
Place each item in the correct category.
Leads to growth an increase in the level of skills of the labor force an increase in the quantity of capital protection of private property rights existing workers in a country get trained to operate widely used accounting software more stay-at-home moms join the labor force Does not lead to growth instability in the money supply the military attempts a coup more immigrant workers move to a nation
Which of these factors shift(s) the supply curve of loanable funds?
Shifts supply curve increase in income increase in foreign income more people in midlife decrease in foreign income decrease in time preferences Does not shift investor confidence decreased productivity of capital increased productivity of capital
Which of the following are considered shortcomings of fiscal policy? Choose one or more: A. A person who receives a tax refund may decide to save most of it. B. It often takes several months to determine if the economy is in a recession or an expansion. C. The federal government wants to expand the economy and provides grants to states. Because of this funding, states then cut back on their spending. D. When the government decides to increase spending to expand the economy, it could spend different amounts on different projects.
A. A person who receives a tax refund may decide to save most of it. B. It often takes several months to determine if the economy is in a recession or an expansion. C. The federal government wants to expand the economy and provides grants to states. Because of this funding, states then cut back on their spending.
If the U.S. government raised the retirement age from 67 to 70, how would this change affect government entitlement programs like Social Security and Medicare? Choose one: A. It would decrease the government's burden of the entitlement programs. B. It would increase the government's burden of the entitlement programs. C. The government's burden of entitlement programs would remain unaffected.
A. It would decrease the government's burden of the entitlement programs.
Suppose the government of Spartania increased its spending by $300 million to fight a recession. If the government's budget was balanced before the recession, which of the following will be most likely to happen by the end of the year? (Assume there are no changes in the tax rate.) Choose one: A. The government will have a budget deficit of more than $300 million. B. The government will have a budget deficit of less than $300 million. C. The government will have a balanced budget. D. The government will have a budget deficit of exactly $300 million.
A. The government will have a budget deficit of more than $300 million.
The new classical critique of activist fiscal policy is theoretically different from the crowding-out critique. Crowding-out occurs when private spending __________ in response to government spending. Under the new classical critique, increased government spending leads people to __________ their current savings in order to help pay for higher taxes in the future, which increases the __________ of loanable funds. Choose one: A. decreases, increase, supply B. decreases, decrease, demand C. decreases, decrease, supply D. increases, increase, demand
A. decreases, increase, supply
Which of the following lags associated with fiscal policy will be alleviated by automatic stabilizers such as unemployment benefits? Choose one or more: A. recognition lags B. impact lags C. implementation lags
A. recognition lags C. implementation lags
Over time, it appears that the relationship between unemployment and inflation does not hold. What must occur for the trade-offs depicted by a short-run Phillips curve to exist? Choose one: A. unexpected monetary policy B. passive monetary policy C. rational expectations about inflation D. continually accelerating inflation rates
A. unexpected monetary policy
For each of the following fiscal policy proposals, determine whether the primary focus is on aggregate demand, aggregate supply, or both. a. a $1,000-per-person tax reduction: ___________ b. a 5% reduction in all tax rates: _____________ c. Pell Grants, which are government subsidies for college education: _________ d. government-sponsored prizes for new scientific discoveries: __________ e. an increase in unemployment compensation or benefits: ____________
A: demand side policy B:both C: supply-side D: supply-side E: both
Who are the demanders for loanable funds? Choose one: A. foreign entities and households B. firms and governments C. banks D. all of the options are correct
B. firms and governments
Which of the following are expansionary fiscal policies? Choose one or more: A. a decrease in government spending B. a decrease in taxes C. an increase in taxes D. an increase in government spending
B. a decrease in taxes D. an increase in government spending
Which of the following is true regarding the U.S. government's budget since the 1960s? Choose one: A. The percentage of mandatory spending in total outlays has decreased while that of discretionary spending has increased. B. The percentages of mandatory and discretionary spending in total outlays have remained the same. C. The percentage of mandatory spending in total outlays has increased while that of discretionary spending has decreased. D. The percentages of mandatory and discretionary spending in total outlays have increased.
C. The percentage of mandatory spending in total outlays has increased while that of discretionary spending has decreased.
When the United States decides to go to war, the Congress and the president have to fund the war. The money that is spent to fight the war represents what type of government spending? Choose one: A. transfer payment B. mandatory outlay C. discretionary outlay D. initially a mandatory outlay but then a discretionary outlay once Congress and the president authorize the war E. initially a transfer payment but then a discretionary outlay once Congress and the president authorize the war
C. discretionary outlay
The government has a budget surplus when Choose one: A. outlays exceed tax revenue. B. tax revenues are equal to outlays. C. tax revenue exceeds outlays.
C. tax revenue exceeds outlays.
CHAPTER 15
CHAPTER 15
CHAPTER 16
CHAPTER 16
Country Total Debt (billions of $) Nominal GDP (billions of $) Athens 12000 20000 Sparta 20000 40000 Based on the information provided in the table above, which statement is true about debt situation of the two countries, Athens and Sparta? Choose one: A. Athens and Sparta are equal in terms of their debt situation. B. Sparta has a more severe debt problem than Athens. C. More information is needed to answer this question. D. Athens has a more severe debt problem than Sparta.
D. Athens has a more severe debt problem than Sparta.
Suppose the country of Nexicovia experienced a striking increase in its birth rates in the 1970s. An increasing part of the population of Nexicovia would then enter into midlife around 2001. Which of the figures correctly depicts the change in savings behavior in Nexicovia in 2001? Choose one: A. Figure A B. Figure B C. Figure C D. Figure D
D. Figure D
Part 1: When fiscal policy is used to manage the economy, a number of factors can delay its impact. Which of the following is an example of a recognition lag? Choose one: A. After the policy takes effect, it takes time for its complete effects to ripple through the economy. B. After an elected official proposes to spend more money to stimulate economic growth, it takes time for other elected officials to agree and take action. C. After a law is passed that authorizes government spending, the bureaucracy within the government needs time to set up needed processes and procedures, and to identify areas that have the greatest need for federal spending. D. Although economic conditions seem bad enough to warrant government action, it takes time for economists to confirm that conditions are bad enough. E. A decision to alter tax rates might apply only after the current tax year is completed. Part 2: When fiscal policy is used to manage the economy, a number of factors can delay its implementation. Which of the following are examples of implementation lags? Choose one or more: A. After the policy takes effect, it takes time for its complete effects to ripple through the economy. B. After an elected official proposes to spend more money to stimulate economic growth, it takes time for other elected officials to agree and take action. C. After a law is passed that authorizes government spending, the bureaucracy within the government needs time to set up needed processes and procedures, and to identify areas that have the greatest need for federal spending. D. Although economic conditions seem bad enough to warrant government action, it takes time for economists to confirm that conditions are bad enough. E. A decision to alter tax rates might apply only after the current tax year is completed. Part 3: What is the consequence for the economy if recognition or implementation lags are shortened when an expansionary fiscal policy is enacted? Choose one: A. Economic growth would happen much faster. B. Economic growth would occur after a longer delay. C. There would be no macroeconomic effect.
Part 1: D. Although economic conditions seem bad enough to warrant government action, it takes time for economists to confirm that conditions are bad enough. Part 2: B. After an elected official proposes to spend more money to stimulate economic growth, it takes time for other elected officials to agree and take action. C. After a law is passed that authorizes government spending, the bureaucracy within the government needs time to set up needed processes and procedures, and to identify areas that have the greatest need for federal spending. E:A decision to alter tax rates might apply only after the current tax year is completed. Part 3: A. Economic growth would happen much faster.
A nation's central bank buys back 20-year bonds it had issued a couple of years before. What is the short-run effect on the nation's economy? Indicate your answer by dragging one of the curves in the graph below to a new position
The money that the central bank pays for the bonds is injected into the loanable funds market. The increased availability of loanable funds means that consumers wanting to make purchases, and firms wanting to make capital investments, have an easier time borrowing money in order to do so. The result is an increase in aggregate demand, indicated by a rightward shift of the AD curve.
Which of the following is the correct formula for calculating economic growth? (The symbol "%Δ" means "percentage change in.") Choose one: A. %Δ Nominal GDP + %Δ Price level - %Δ Population B. %Δ Nominal GDP - %Δ Price level + %Δ Population C. %Δ Nominal GDP - %Δ Price level - %Δ Population D. %Δ Real GDP - %Δ Price level - %Δ Population
C. %Δ Nominal GDP - %Δ Price level - %Δ Population
The major components of a country's economy are consumption (C), investment (I), government spending (G), exports, and imports. Which of the following is the correct equation for determining GDP? Choose one: A. C + I + G + exports - imports B. C + I + G C. C + I - G D. C + I + G - exports - imports E. C + I + G - exports + imports F. C + I + G + exports + imports
A. C + I + G + exports - imports