ECN 142 Final Exam Practice Questions
In an open economy, government spending is $30 billion, consumption is $70 billion, taxes are $20 billion, GDP is $100 billion, and investment spending is $10 billion. As a result, there is a net capital inflow of __________
$10 billion
Real GDP is $3000, autonomous consumption is $500, and planned investment spending is $200. The marginal propensity to consume is 0.8. How much is unplanned inventory investment?
$100
Suppose that the consumption function is C = $500 + 0.8YD, where YD is disposable income. If income increases by $2000, consumption will increase by:
$1600
Assume a closed economy in which GDP is $110 billion. If government spending is $30 billion, consumption is $70 billion, taxes are $20 billion, and investment spending is $10 billion, then private savings are:
$20 billion
Boeing buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model at $10 million. The value added by Boeing is...
$3.5 million
2018 Output: Lemonade = 200 glasses, Cookies = 100 cookies 2018 Prices: Lemonade = $1 per glass, Cookies = $2 per cookie 2019 Output: Lemonade = 220 glasses, Cookies = 100 cookies 2019 Prices: Lemonade = $1 per glass, Cookies = $2.25 per cookie If 2018 is the base year, real GDP in 2019 was...
$420
Kenya's Economy in 2010 Aggregate output at the beginning of the year: $31 billion Population at the beginning of the year: 40 million Output growth: 5.2% Population growth: 2.6 % Aggregate output per capita at the beginning of 2010 was...
$775
The income expenditure model predicts that if the marginal propensity to consume is 0.75, and the federal government increases spending by $200 billion, real GDP will increase by...
$800 billion
If the consumer price index changes from 120 to 125 between December 2018 and December 2019, the inflation rate is...
4.2%
Maria and Jennifer are going to sell cupcakes and muffins at their third annual fundraiser bake sale. In one day, Maria can make 40 cupcakes or 20 muffins, and Jennifer can make 15 cupcakes or 15 muffins. What is Maria's opportunity cost of producing one cupcake?
0.5 muffin
If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your marginal propensity to consume is:
0.6
If the consumer price index is 160.6 for 2018 and 163.1 for 2019, what was the inflation rate between these two years?
1.56%
If the cost of the market basket in the base year is $1000, and the cost of the market basket in 2013 is $1050, the price index for 2013 is...
108
A survey reveals that, on a small island, 1000 people have jobs, 200 people don't have jobs but are looking for jobs, and 200 people are neither working nor looking for work. The unemployment rate on the island is ______ %
16.7
If the slope of the aggregate spending line is 0.75, the multiplier is:
4
Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The rate of interest is _____%
4
If the marginal propensity to consume is 0.9, and investment spending increases by $50 billion, the change in real GDP will be $_____ billion
500
Diminishing returns to physical capital suggest that...
at some point, increasing the amount of physical capital per workers is not worth the cost of the additional capital
A general increase in wages will result primarily in the ____ curve shifting to the _____
SRAS, left
An increase in the price of shoes would probably result in ___________ in the demand for shoelaces
a decrease
The difference between a budget deficit and government debt is that...
a deficit is the amount by which government spending exceeds tax revenues, whereas debt is the sum of money the government owes
A quota limit that is below the market equilibrium results in...
a demand price that exceeds the supply price
A decrease in inventories is....
a fall in investment spending
According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP
accelerator principle
The interest rate effect of a change in the aggregate price level causes the...
aggregate demand curve to be negatively sloped
In the long run, an increase in AD will result in...
an increase in aggregate output
Technological progress allows workers to produce more...
because it increases the amount of physical capital available
Unanticipated inflation helps _______ and hurts _________
borrowers, lenders
In the circular-flow diagram, the factor market is where...
businesses buy factors of production
Thinking in economic terms, when Abigail decides wether to eat another banana split, she...
compares all of the benefits and costs of eating another banana split
Suppose that Aisha has an accounting degree, but she lost her job two months ago when her company merged with another firm. Aisha hasn't been able to find another accounting job, so she has now taken a part-time job as a sales clerk at a clothing store. As a results of Aisha's changes in employment status, the official unemployment rate would...
have increased temporarily, then fell back to its original level
Consider the supply curve for wool sweaters. An increase in the price of wool will,,,
decrease the supply of wool sweaters
An automatic stabilizer in government tax revenue that occurs when GDP falls _______ the multiplier
decreases
A decrease in the overall level of prices is...
deflation
Intermediate goods are not counted in GDP because...
doing so would result in double counting
A recessionary gap will be eliminated because of _____ pressure on wages that shifts the _____
downward, SRAS curve rightward
An increase in government spending of $300 billion and a tax cut of $300 billion will have ____ on the budget balance and ____ effects on real GDP
equal, unequal
In factor markets...
firms buy resources
A transfer payment is a payment...
for which no services are rendered by the government
Braham quit his job in retail management and moved to Florida with his partner, a physician who has now opened a new practice there. He is not successful in his job search in the first four months in his new location. Braham's unemployment is...
frictional
If the interest rate rises, the opportunity cost of investment is ______
greater
If the price level decreases, and nominal income remains unchanged, then real income will...
increase
A decrease in the price of milk will cause an...
increase in the quantity of milk demanded
A major input in the production of vanilla ice cream is cream. A(n) _____ in the price of cream will _____ the quantity of vanilla ice cream supplied as well as _____ the supply of vanilla ice cream
increase, decrease, decrease
The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a _____ in the demand and a ______ in the supply of loanable funds in domestic markets
increase, increase
Short-run aggregate supply ____ when producers are willing to supply more at any given price level. This is shown graphically as a ______
increases; shift to the right
Contractionary fiscal policy includes...
increasing taxes
A decrease in demand and an increase in supply will lead to a _______ in the equilibrium quantity and a _____ in the equilibrium price
indeterminate change, decrease
The government saves when tax revenue...
is more than government spending
Farmers in developing countries want the United States to reduce the subsidies it provides for wheat to U.S. farmers because these subsidies...
lead to wheat surpluses and reduce prices for farmers in developing countries
When short-run aggregate supply decreases, the short-run aggregate supply curve shifts to the _____, and the quantity of aggregate output that producers are to supply ______
left, decreases
In the market for loanable funds, a decrease in private savings will shift the supply curve for loanable funds to the ______, causing the interest rate to ______
left, increase
If the economy is in a recessionary gap, actual output will be ______ potential output
less than
Assume that marginal propensity to consume is 0.8, and potential output is $800 billion. The tax multiplier is...
less than 5
Matcha Tea: Colombus = 40, Washington = 10 Cobo Salmon: Colombus = 20, Washington =10 Colombus has a comparative advantage in the production of...
matcha tea only
The key measure used to track economic growth is...
real GDP per capita
Stagflation is usually caused by a ______ shock
negative supply
The trade-off between equity and efficiency is seen in the fact that...
policies that promote equity often come at a cost of decreased efficiency
Whenever real GDP exceeds planned aggregate expenditure, unplanned investment is _____; whenever real GDP falls short of planned aggregate expenditure, unplanned investment is _____.
positive, negative
The long-run level of output is known as ____ output
potential
Efficiency wages are usually set by employers to...
provide an incentive for better performance
A business will be likely to borrow to fund projects if the...
rate of return on the project is at least as high as the interest rate on the loan
A contraction in the business cycle is a...
recession
All else equal, a nation that has a high rate of _____ will have a high rate of ______ and therefore a high growth rate of ______ capital
savings, investment, physcial
In the short run, wages and some prices are...
sticky
Aggregate demand will decrease if...
the government raises tax rates
An example of an automatic stabilizer is...
the increase in tax receipts when GDP rises
The value of the multiplier will be smaller:
the larger is the value of the marginal propensity to save
The crowding-out effect is...
the negative effect of government budget deficits on private investment spending
An example of investment spending is...
the purchase of a freezer in an ice cream parlor
Menu costs are...
the real cost of changing listed prices
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If GDP is $850 billion...
there is an inflationary gap
Medicaid and Medicare and Social Security are examples of...
transfer payments
Ralph is offered a free ticket to a Yankees game -- a ticket he cannot resell. His opportunity cost of going to the baseball game is...
whatever Ralph would have done had he not gone to the game
Marginal analysis is the study of how individuals decide...
whether to do a but more or a bit less of an activity
