#2

34. Along the 45-degree line in the graph of consumption and disposable income: A) consumption is equal to disposable income. B) consumption is equal to total saving. C) consumption is equal to marginal saving. D) the interest rate is zero.

A) consumption is equal to disposable income.

1. An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle. A) expansion B) recovery C) contraction D) trough

A) expansion

33. When withdrawals equal injections, the economy: A) is losing money. B) still has to adjust to bring both down to zero. C) is in a recession. D) is in equilibrium.

D) is in equilibrium.

14. An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______. (Round the percentage to one decimal place; for example, 0.0436 is 4.4%.) A) 6.5% B) 21.0% C) 5.5% D) 21.1%

A) 6.5%

23. If a country's population increases at a slower rate than the growth in its real GDP: A) GDP per capita has increased. B) the standard of living in the country has declined. C) average output per person has decreased. D) the country's rate of inflation has decreased.

A) GDP per capita has increased.

31. At equilibrium in the simple Keynesian model, income is $6 million and consumption spending is $5 million. Which of the following is correct? A) Investment is $1 million. B) There is no saving in this economy. C) The economy will go into disequilibrium because consumption is not equal to income. D) The information provided is insufficient to determine the level of investment spending.

A) Investment is $1 million. B) There is no saving in this economy.

25. The natural gas deposits found in the United States over the past decade are an example of an increase in: A) land and natural resources. B) labor. C) physical capital. D) entrepreneurial ability, technology, and ideas.

A) land and natural resources.

40. Aggregate expenditures are equal to: A) the total of consumption plus investment plus government expenditures plus exports minus imports. B) the total of consumption plus investment plus government expenditures. C) the total of consumption plus investment plus government expenditures plus imports minus exports. D) consumption alone in a simplified Keynesian model.

A) the total of consumption plus investment plus government expenditures plus exports minus imports.

38. Which one of the following helps determine consumption and saving in the Keynesian model? A) wealth B) imports C) technology D) government regulations

A) wealth

19. Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is: A) 0%. B) 3%. C) 5%. D) 7%.

B) 3%.

28. Use of tax receipts to modernize the air traffic control system promotes economic growth by: A) ensuring a stable legal system. B) enhancing physical and human capital. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.

B) enhancing physical and human capital.

29. The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by: A) ensuring a stable legal system. B) enhancing physical and human capital. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.

B) enhancing physical and human capital.

17. Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered: A) structurally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) not in the labor force.

B) frictionally unemployed.

32. Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment? A) increase spending by $25 billion B) increase spending by $10 billion C) reduce spending by $25 billion D) reduce spending by $100 billion

B) increase spending by $10 billion.

30. Unanticipated _____ is detrimental to economic growth. A) inflation but not deflation B) inflation or deflation C) deflation but not inflation D) Neither inflation nor deflation is detrimental to economic growth.

B) inflation or deflation.

4. GDP can be found either by adding up all of the __________ or all of the __________ in the economy. A) spending; taxes B) spending; income C) investment; income D) net interest payments; taxes

B) spending; income

27. The following table shows data for four countries. Country Workers Capital Stock A 100 $4,000 B 50 $500 C 200 $1,000 D 150 $150 The table shows that the country with the most productive workers is: A) A. B) B. C) C. D) D.

C 200 $1,000

(Use the following to answer question 15: Population 500 Number employed 300 Number unemployed 50) 15. (Table) According to the table, what is the labor force of this economy? A) 50 B) 300 C) 350 D) 500

C) 350

39. If there is no government and no foreign sector in the economy: A) personal income and disposable personal income are unequal. B) international trade is an important part of total spending. C) GDP = C + I. D) budget and trade deficits are important parts of the model of the economy.

C) GDP = C + I.

8. Which of the following items would be included in the GDP accounts? A) personal time spent learning how to use accounting software B) personally rotating the tires on your neighbor's car C) caring for your aged grandmother at home D) $50 consultation on the phone with a psychic adviser

D) $50 consultation on the phone with a psychic adviser

16. The nation of Workovia has a population of 15 million, of whom 10 million are in the labor force and 9 million are working. Workovia's unemployment rate is: A) 27%. B) 60%. C) 33%. D) 10%

D) 10%

22. For which growth rate would the Rule of 70 be least accurate? A) 1% B) 15% C) 20% D) 30%

D) 30%

37. Decreases in government spending ____ equilibrium income, and increases in taxes ____ equilibrium income. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

D) decrease; decrease

20. The nonaccelerating inflation rate of unemployment is the unemployment rate associated with ____ inflation and ____ unemployment: A) high; high B) high; low C) low; high D) low; low

D) low; low

36. If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption? A) $5,655 B) $1,885 C) $10,053 D) $30,160

A) $5,655

12. Last year the consumer price index (CPI) was 115 and this year's CPI is 125. The rate of inflation is: A) 8.7%. B) 8%. C) 9.2%. D) 10.8%.

A) 8.7%.

11. What is real GDP in 2014 if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100? A) $9.1 billion B) $13,636 billion C) $14,010 billion D) $16.500 billion

B) $13,636 billion

35. Spending by federal, state, and local government has grown from ___ of GDP in the 1930s to more than _____ today. A) 5%; 50%. B) 10%; 30%. C) 30%; 70% D) 5%; 10%

B) 10%; 30%.

21. If the growth rate in an economy is 3.5%, then its GDP will double in about: A) 3.5 years. B) 20 years. C) 70 years. D) 245 years.

B) 20 years.

18. During the 1970s, when handheld calculators became popular and replaced slide rules in performing computations, workers in the slide rule industry lost their jobs. These workers' unemployment status is: A) frictional. B) cyclical. C) structural. D) natural.

C) structural.

6. If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: A) $160. B) $180. C) $150. D) $140.

D) $140.

2. Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year. What effect might this announcement have on the economy? A) The Federal Reserve will probably increase interest rates to fight the recession. B) Employers will probably trim payrolls in an effort to cut costs in the face of decreased demand for their products. C) Businesses will invest heavily in plant and equipment. D) Businesses will add shifts to prepare for the upcoming recovery.

B) Employers will probably trim payrolls in an effort to cut costs in the face of decreased demand for their products.

7. When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP? A) GDP is unaffected by this change. B) GDP falls as a result of this change. C) GDP at first rises but then falls. D) GDP rises as a result of this change.

B) GDP falls as a result of this change.

5. Which ONE of the following would be included in the GDP calculations? A) a windshield purchased by General Motors B) a hamburger purchased by a hungry restaurant patron C) petroleum purchased by a refiner from the company that drilled it D) nails purchased by a building contractor

B) a hamburger purchased by a hungry restaurant patron

26. Which of the following strategies is an example of increasing the capital-to-labor ratio? A) replacing the roof on a factory building B) sending workers to training classes C) giving a construction crew more backhoes D) increasing the number of workers harvesting the crop in a field

C) giving a construction crew more backhoes.

24. Human capital includes: A) physical capital. B) labor. C) the improvements to labor capabilities from training, education, and apprenticeship programs. D) pension plans that enable early retirement.

C) the improvements to labor capabilities from training, education, and apprenticeship programs.

13. Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is: A) 79.6. B) 120.0. C) 82.4. D) 121.4.

D) 121.4.

3. We are most likely to see a recession if interest rates on long-term bonds are __________ and interest rates on short-term bonds are _________. A) 8%; 6% B) 5%; 5% C) 7%; 7% D) 2%; 4%

D) 2%; 4%

9. If in the past you have always painted your own house but now you hire a painting contractor to do the work, what is the effect on GDP? A) GDP is unaffected by this change. B) GDP falls as a result of this change. C) GDP at first rises but then falls. D) GDP rises as a result of this change.

D) GDP rises as a result of this change.

10. Which of the following activities is an example of a nonmarket transaction? A) hiring a maid to clean your home B) employing a lawn service worker to trim your bushes C) hiring a nanny to take care of your kids D) growing your own food in a vegetable garden

D) growing your own food in a vegetable garden