econ 102 practice tests achieve trost
In 1995, when the consumer price index was 152.38, women earned a median income of $12,130 per year. If the consumer price index in 2015 was 236.99, how much was $12,130 in 2015 dollars? $12,130 $7,799 $16,259 $18,865
$18,865
Consider the data shown in the table. Assume that the economy produces only frozen fish. What is the real GDP for last year using this year as the base year? $185,000 $180,000 $191,625 $194,250
$185,000
Below is U.S. economic data for 2018. What was total spending? (consumption = $13.999 trillion) ( investment = $3.628 trillion) (gov spending = $3.591. trillion) (exports = $2.510 trillion) (imports = $3.148 trillion) $21.22 trillion $21.86 trillion $23.73 trillion $20.58 trillion
$20.58 trillion
Consider the data shown in the table. Assume that the economy produces only textbooks. What is the nominal GDP for last year? ( last year 5000 at $50) (this year 5250 at $55) $288,750 $275,625 $250,000 $262,500
$250,000
In 2010, Canada's GDP was approximately $1,357 billion, and its population was about 34.12 million. What was Canada's approximate GDP per person in 2010? $39,770 $46,060 $3,980 $26,246
$39,770
The table below shows data for Central African Republic (CAR). What was this country's real GDP per person in 2010? $471.63 $487.95 $504.75 $336.93
$487.95
Based on the following statistics, how much are net exports? -$0.575 trillion $20.67 trillion $0.575 trillion $2.357 trillion
-$0.575 trillion
What is Sri Lanka's GDP deflator if its nominal GDP is $88.9 billion (in current US$) and the real GDP is $59.34 billion? 100 136.5 149.8 66.7
149.8
Suppose a labor market is described by the demand equation, Qd = 60 - 2w, and the supply equation, Qs = -10 + w, where Qd is the quantity demanded of labor, Qs is the quantity supplied of labor, and w is the wage (in dollars). If the government institutes a minimum wage of $25, how many workers will be willing to work in this market? 5,000,000 15,000,000 20,000,000 10,000,000
15,000,000
In May 2019, there were approximately 68,980,000 people in Japan's labor force. About 1,650,000 people were unemployed. What was the unemployment rate? 1.8% 5.0% 6.1% 2.4%
2.4%
What is the difference between spending from a microeconomic standpoint versus spending from a macroeconomic standpoint? In microeconomics, spending refers to expenditure on consumer goods only, whereas in macroeconomics, spending refers to business expenditures only. In microeconomics, spending refers to one individual's spending, whereas in macroeconomics, spending refers to government expenditure. In microeconomics, spending refers to spending by you, or your family, or your company, whereas in macroeconomics, spending refers to the spending by all consumers, all businesses, and the government in the economy. In microeconomics, spending refers to domestic spending, whereas in macroeconomics, spending refers to foreign spending.
In microeconomics, spending refers to spending by you, or your family, or your company, whereas in macroeconomics, spending refers to the spending by all consumers, all businesses, and the government in the economy.
You have four friends. Which of your friends can be described as "cyclically unemployed"? Regan, who is in a nursing home Martha, who is a full-time stay-at-home parent Keele, who lost her job after her company lost a lot of customers during an economic downturn Arthur, who quit his job to look for a better job
Keele, who lost her job after her company lost a lot of customers during an economic downturn
The aggregate production function is represented as: K = f(L, H, Y). L = f(Y, H, K). H = f(L, Y, K). Y = f(L, H, K).
Y = f(L, H, K).
Property rights refer to: patents owned by a business. the number of properties owned by an entrepreneur. control over a tangible or intangible resource. the time it takes to start a business venture.
control over a tangible or intangible resource.
Hyperinflation is: inflation that occurs when the economy is in a recession. very high rates of economic growth. a period of high money growth in an economy. extremely high rates of inflation.
extremely high rates of inflation.
Suppose the New York City housing market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a series of new apartment buildings has just been completed. Given these two changes, and assuming that apartment housing is a normal good, we can predict that the price of apartments will _____, and the quantity of apartments bought and sold will _____. fall; fall fall; rise fall; rise or fall rise; fall or rise
fall; rise or fall
Which of the following is (are) included in investment? (i) military spending (ii) the purchase of an aircraft by a domestic airline (iii) the purchase of $45,000 worth of bonds (iv) the purchase of $32,000 worth of stock (v) social security payments(vi) the construction of a highway by the federal government (i) and (vi) (ii), (iii), and (iv) (ii) only (i), (ii), (v), and (vi)
ii only
The benefit of an extra dollar of consumption is called the: average benefit of consumption. marginal benefit of consumption. average price of goods and services consumed. real interest rate.
marginal benefit of consumption.
Menu costs are the: costs of producing restaurant meals. marginal costs of adjusting prices. total costs of producing goods and services. variety of costs that cause producers to change their prices.
marginal costs of adjusting prices.
If you see that the consumer price index this year is lower than the consumer price index last year, this means that: economic growth also decreased. on average, prices went down across the economy. the consumer price index is lower than the producer price index. the prices of each and every good and service went down.
on average, prices went down across the economy.
Refer to the diagram of the circular flow of income. Based on the diagram, the arrow going FROM box 2 to box 1 must be: spending by households. inputs used by businesses. earnings by businesses. output bought by households.
output bought by households.
A shortage occurs when: quantity supplied exceeds quantity demanded. quantity demanded exceeds quantity supplied. there is excess production. there is insufficient demand.
quantity demanded exceeds quantity supplied.
Which of the following countries enjoyed significant catch-up economic growth in the second half of the twentieth century? South Korea Spain Argentina United States
south korea
Technological advancement is NOT represented by which of the following? the adoption of an existing technology by new firms the creation of new apps designed to enhance efficiency and reduce wastage in production lines the invention of the light bulb the invention of robotic meal preparation
the adoption of an existing technology by new firms
An equilibrium in a market occurs: at the halfway point on a demand curve. at the halfway point on the price axis. when suppliers have sold all the goods and services that they have produced. when the quantity supplied equals the quantity demanded.
when the quantity supplied equals the quantity demanded.
An underemployed person is one who is: employed in the underground economy. retired or outside of the labor force. cyclically unemployed. working but whose skills are not fully utilized.
working but whose skills are not fully utilized.
Which of the following is an example of a durable good? your new car a soft drink your haircut fresh flowers from the florist
your new car
Suppose you want to realize a future value of $150,000 in 30 years on an investment you make. The average annual rate of return is 8.75%. What will be the present value of your investment? $12,112 $163,125 $1,857,673 $150,000
$12,112
Suppose you have $5,000 to invest in a Treasury bill for 20 years. The average annual rate of return is 1.5%. What is the real future value of your investment after 20 years? $6,734 $3,712 $5,075 $5,000
$6,734
Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $665, approximately how much will you get after these deductions? $19.29 $41.23 $604.49 $60.52
$604.49
Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer? $41.23 $604.48 $60.52 $725.52
$725.52
You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on a proposed project. Up-front cost: $300,000 Next year's revenue: $15,000 Real interest rate: 8% Depreciation rate: 10% What is the present value of the stream of payments from this project? $315,000 $383,333 $18,000 $83,333
$83,333
Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer? $24.65 $927.35 $52.70 $77.35
$927.35
If the financial account balance is $2 trillion, then the current account balance is: $2 trillion. zero. -$2 trillion. $4 trillion.
-$2 trillion.
Refer to the following table. What was the approximate output gap in 1998? -5.5% 1.2% 3% -1.2%
-1.2%
Refer to the following table. What was the approximate output gap in 1974? -6.5% 2.1% 3.3% 6.1%
-6.5%
Which of the following represents a current account deficit? -NX C + I + G T - G Y - C - T
-NX
Demand-pull inflation is inflation resulting from: a surplus .excess demand. excess supply. insufficient demand.
.excess demand.
Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Next year, you expect GDP to be equal to potential GDP. What is your forecast for unexpected inflation? 3% 0% 1% -1%
0%
Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected. 2.0% 3.75% 1.75% 0.25%
0.25%
The table shows the salary of a worker in India. The marginal propensity to consume (MPC) is: 1.89. 0.68. 0.47. 0.53
0.53
You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy? 2.5% 1.5% 1% 0.5%
1.5%
If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately: 2.77. 0.56. 1.12. 1.77.
1.77
Refer to the following table. What was the approximate output gap in 1999? 1.9% 1.2% -3.6% 3%
1.9%
The table shows the salary of a construction worker in Japan. The level of saving in 2017 is: 23,100 euros. 18,900 euros. 18,000 euros. 17,100 euros.
18,000 euros.
Suppose that in a given country, the line of best fit approximates the Phillips curve shown here. Suppose for next year, you expect GDP to be equal to potential GDP. Current inflation expectations are at 2%. How much does your salary have to change, in nominal terms, in order to maintain your purchasing power at the current level? 4% 2% 1% 3%
2%
You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy? 0.5% 1% 2% 3%
2%
What was the Fed's inflation target in 2019? 3.5%. 0.75%. 2%. 5%.
2%.
Consider the following financial information for The Procter & Gamble Company stock. What is Procter & Gamble's price-to-earnings ratio?Procter & GambleStock price per share: $124.57 Earnings per share: $4.32 Price-to-book ratio: 6.8649 28.84 538.14 18.15 4.32
28.84
When government expenditure rises by $180 million and the initial increase in government expenditure was $60 million, then the multiplier is: 2. 1. 3. 2.5.
3
You are a financial adviser. Your client, Mena, does not like risk and wants Federal Deposit Insurance Corporation (FDIC) insurance. Which of the following instruments should she invest in? A bank savings account An index fund Bonds issued by a corporation in financial distress Treasury bills
A bank savings account
A real exchange rate depreciation in the U.S. dollar will lead to: Americans importing more and exporting less. a negative trade balance. a current account deficit. Americans importing less and exporting more.
Americans importing less and exporting more.
An example of a leading indicator is: unemployment. nonfarm payrolls. unemployment insurance claims. the stock market.
the stock market.
The Federal Reserve's lender-of-last-resort function has been curtailed over time by the: very financial institutions that it is meant to serve. governor of the Federal Reserve. public. Dodd-Frank Act.
Dodd-Frank Act.
Suppose falling interest rates in Australia discourage saving. What effect does this have on the consumption function in Australia? Figure B (movement up along line) Figure A(movement of line back) Figure D( movement of line right) Figure C(movement down along line)
Figure A(movement of line back)
If the U.S. dollar appreciates, which of the following graphs correctly represents the effect on the IS curve?
IS curve moves back (decreased spending)
In September 2008, the stock market fell sharply and continued to perform poorly due to the financial crisis. How did this change impact GDP in the economy?
IS curve moves left
Which of the following shows the correct effect on the IS-MP framework if there is a rise in home values and wealth in the economy?
IS curve shifts out
A previously enacted steel tariff is removed. Which of the graphs shows the correct effect on the AD-AS framework for the country exporting steel?
Increased aggregate demand (curve shifts out)
When interest rates rise in the United States, what is the effect on net exports and aggregate expenditure? Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure. Government expenditure rises, and this increases imports, net exports, and aggregate expenditure. The real value of savings increases, leading to increased imports and decreased exports, and this causes net exports and aggregate expenditure to fall. Inflows of foreign savings cause the dollar to depreciate, and this increases exports and reduces imports, leading to a rise in net exports and a rise in aggregate expenditure.
Inflows of foreign savings cause the dollar to appreciate, and this reduces exports and increases imports, leading to a fall in net exports and a fall in aggregate expenditure.
Which of the following will probably rise when the economy is in a recession? Initial unemployment claims Real GDP growth Employment Real retail sales
Initial unemployment claims
How do interest rates affect investment in the economy? Higher interest rates increase government expenditure and thus raise investment. Lower interest rates lower the after-tax profit for firms, and thus investment falls. Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks. Lower interest rates lower the cost of borrowing for firms, and so investment rises.
Lower interest rates lower the cost of borrowing for firms, and so investment rises.
In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the: IS curve to the left. IS curve to the right. MP curve down. MP curve up.
MP curve down.
Which of the following shows the correct effect on the IS-MP framework if there is a credit crunch the economy, meaning banks are unwilling to lend except at high interest rates?
MP curve shifts up
Why don't most tax expenditures help much if your federal tax bill is zero? You don't qualify for tax breaks if your federal tax bill is zero. Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill. Taxes are an automatic stabilizer. Most tax expenditures are specifically for high-income people.
Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.
Which figure shows the correct effect on the Phillips curve when there are falling production costs?
Phillips curve moves down
Which of the following graphs correctly represents the effect on the Phillips curve in Ethiopia if the Ethiopian birr appreciates?
Phillips curve moves down (falling costs)
Which figure shows the correct effect on the Phillips curve when the domestic currency depreciates?
Phillips curve moves up
You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when imported inputs become cheaper? Prices increase, and GDP decreases. Both prices and GDP decrease. Prices decrease, and GDP increases. Both prices and GDP increase.
Prices decrease, and GDP increases.
Refer to the data dashboard shown. Which indicator is a cross-check on GDP? Real GDI Stock prices: S&P 500 Employment cost index Business confidence
Real GDI
Which of the following is a broad indicator? Starbucks stock returns Labor demand in the agricultural industry Agricultural sector output Real gross domestic income
Real gross domestic income
The figure shows inflation from 2009 to 2018 for countries in the Organization for Economic Cooperation and Development (OECD). The country with the second-highest inflation rate was: Russia. Switzerland. Italy. Argentina.
Russia
Which economic indicator tells you about the future expected profits of businesses? S&P 500 Consumer price index Nonfarm payrolls Initial unemployment claims
S&P 500
Which of the following causes shifts in the IS curve? Spending shocks occur. Financial shocks occur. The real interest rate decreases. The real interest rate increases.
Spending shocks occur.
What is the floor framework that the Federal Reserve uses to influence the federal funds rate? The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go The use of open market operations by the Fed The Fed's approach of setting the discount rate above the federal funds rate Operations by the Open Market Trading Desk at the Fed
The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go
The government passes a new investment tax credit initiative. Which input in the production function changes, and what is the effect on economic growth in the country? Technological advance occurs, but there is no effect on economic growth. The capital stock decreases, and economic growth is negatively affected. Human capital is enhanced, and economic growth is positively affected. The capital stock increases, and economic growth is positively affected.
The capital stock increases, and economic growth is positively affected.
You are the manager of a local bank. Due to unstable financial conditions, savers are worried that your bank may fail. When they show up in large numbers to withdraw their savings, you find that you do not have enough cash to meet the obligations. Where can you turn for a loan if no other bank will lend to you? The discount window The stock market The bond markets The market for overnight loans
The discount window
Which economic indicator tells you how fast wages and benefits are rising? S&P 500 Business confidence Nonfarm payrolls The employment cost index
The employment cost index
Which of the following factors will NOT lead to a shift in the demand of the U.S. dollar? Interest rate differentials Relative GDP levels Trade barriers The exchange rate
The exchange rate
Which of the following is correct about a financial instrument and its future value, keeping all other things constant? The lower the present value of the instrument, the higher the future value. The higher the interest rate on the instrument, the higher the future value. The lower the interest rate on the instrument, the higher the future value. The longer the time to maturity of the instrument, the lower the future value.
The higher the interest rate on the instrument, the higher the future value.
What happens to the investment line if the government institutes a tax break for funds invested? The investment line shifts to the left. The investment line shifts to the right. There is a movement down and to the right along the same investment line. There is a movement up and to the left along the same investment line.
The investment line shifts to the right.
Which of the following is correct about a financial instrument and its future value, keeping all other things constant? The lower the present value of the instrument, the higher the future value. The shorter the time to maturity of the instrument, the lower the future value. The higher the interest rate on the instrument, the lower the future value. The longer the time to maturity of the instrument, the higher the future value.
The longer the time to maturity of the instrument, the higher the future value.
Which of the following is a narrow indicator? The consumer price index The stock price for JPMorgan Chase & Co. Non-farm payrolls Real GDI
The stock price for JPMorgan Chase & Co.
A debt crisis occurs when: interest rates rise. bond markets weaken. a government cannot repay its loans. consumers spend too much on credit cards.
a government cannot repay its loans.
Monetary policy is defined as the: adjustment of interest rates to influence economic conditions. implementation of ceilings on the federal funds rate in the economy. change of the tax code to achieve economic changes. change in government spending to change economic conditions.
adjustment of interest rates to influence economic conditions.
You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy? an unchanged real interest rate, an unchanged output gap, and unexpected inflation a rise in the real interest rate, rising output, and unexpected inflation an unchanged real interest rate, falling output, and unexpected inflation a rise in the real interest rate, an unchanged output gap, and unexpected deflation
an unchanged real interest rate, an unchanged output gap, and unexpected inflation
The Affordable Care Act is an example of: mandatory spending. military defense spending. health care spending. discretionary spending.
discretionary spending.
When unexpected inflation is zero, the corresponding unemployment rate is the _____ unemployment rate. zero minimum equilibrium maximum
equilibrium
The risk premium is the: risk-free rate of interest. federal funds rate. extra interest charged by lenders to account for risk. extra rise in interest rates when the Federal Reserve identifies an output gap.
extra interest charged by lenders to account for risk.
Which of the following cause shifts in the MP curve? changes in tariffs changes in tax rates spending shocks financial shocks
financial shocks
You are driving to see your grandparents when you get caught in traffic caused by construction on the interstate. The construction is an example of: consumption. exports. government expenditure. planned investment.
government expenditure.
A budget deficit occurs when: discretionary spending exceeds automatic spending. imports exceed exports. government revenue exceeds government spending. government spending exceeds government revenue.
government spending exceeds government revenue.
Holding everything else equal, the _____ the interest rate on saving, the _____ the future value of that saving. higher; lower higher; greater lower; the more negative lower; greater
higher; greater
Refer to the diagram of the circular flow of income. The key lessons from this diagram are that: (i) all flows of resources are matched by flows of money. (ii) the market value of total output must be equal to total spending. (iii) total spending must equal total income. (iv) all inputs are provided by businesses.
i, ii, iii
When using the Fed model, the first step is to: increase the federal funds rate. assess inflation. identify the shock and shift the curve. find the output gap.
identify the shock and shift the curve.
Which of the following graphs correctly represents the effect of increased consumer confidence and spending on the IS curve?
increased spending, IS curve moves out
The United States experiences net financial inflows. Which graph shows the effect of this on the loanable funds market?
increased supply (supply shifts out)
Expansionary monetary policy _____ consumption, investment, and net exports; _____ aggregate expenditures; and _____ aggregate demand. decreases; lowers; lowers increases; boosts; raises decreases; boosts; raises increases; lowers; lowers
increases; boosts; raises
Contractionary monetary policy causes a: right shift of the aggregate supply curve. movement along the same aggregate demand curve. left shift of the aggregate demand curve. right shift of the aggregate demand curve.
left shift of the aggregate demand curve.
A good proxy for the risk-free interest rate is the interest rate on a: loan to a member of the public who has a good credit rating. junk bond. loan to the U.S. government. corporate bond.
loan to the U.S. government.
The equilibrium unemployment rate is also known as the _____ unemployment rate. long-run frictional cyclical structural
long-run
A bank run occurs when: bank customers expect the bank to open new branches. many bank customers deposit small amounts of money at the bank. a lender makes both long-term and short-term loans. many bank customers try to withdraw their savings at the same time.
many bank customers try to withdraw their savings at the same time.
Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the: equilibrium real interest rate. unexpected inflation. output gap. actual inflation.
output gap.
The use of automated harvesting machines greatly increased productivity in farming. How does this affect the Phillips curve for an economy where agriculture is a significant part of GDP?
phillips curve moves down
The fundamental value of a business is the: earnings per share. present value of the future profits it will earn. stock price. value of the forecasted future profits.
present value of the future profits it will earn.
If managers have an expectation of ongoing inflation, then it is likely that: prices will not change. prices will fall. the cost of inputs will fall. prices will rise.
prices will rise.
A supply shock is any change in: borrowing conditions that changes the real interest rate at which people can borrow. potential GDP in the economy. production costs that leads suppliers to change the prices they charge at any given level of output. aggregate expenditure at a given interest rate and level of income.
production costs that leads suppliers to change the prices they charge at any given level of output.
If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____. raise; cool inflationary pressures lower; reduce unemployment raise; reduce unemployment lower; cool inflationary pressures
raise; cool inflationary pressures
Contractionary fiscal policy _____ taxes, _____ government expenditure, _____ aggregate expenditures, and _____ aggregate demand. raises; lowers; boosts; raises raises; lowers; decreases; lowers lowers; raises; decreases; lowers lowers; raises; boosts; raises
raises; lowers; decreases; lowers
If the fundamental value of a stock is above the current market price of the stock, there will be a: decrease in the demand and supply of its stock. fall in the price and demand of its stock. rise in the price and demand of its stock. fall in the price and supply of its stock.
rise in the price and demand of its stock.
If Fiji's GDP rises, the demand for imports will _____, leading to a _____ shift in the supply of the Fijian dollar. rise; left fall; left fall; right rise; right
rise; right
According to Okun's rule of thumb, for every 1% fall in the actual output below potential output, the unemployment rate: falls by 0.5%. rises by 0.5%. falls by 1%. rises by 1%.
rises by 0.5%.
What kind of data adjustment removes the effect of sales spikes due to the holiday season? nominal data annual data real data seasonally adjusted data
seasonally adjusted data
The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of: items that count toward GDP. social insurance. taxes. consumption.
social insurance.
Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods? the high-income person They all spend the same on tax-preferred goods. the low-income person the middle-income person
the high-income person
Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit? the low-income person They all pay the same tax rate. the middle-income person the high-income person
the high-income person
Consider the Phillips curve shown here. In region B: (region B is above the equilibrium and potential output) there is excess demand. inflation falls below expected inflation. the output gap is negative. there is insufficient demand.
there is excess demand.
Consider the Phillips curve shown here. In region A: (region A is below equilibrium at potential output) the output gap is positive. inflation equals expected inflation. inflation rises above expected inflation. there is insufficient demand.
there is insufficient demand.
Even though deposit insurance existed, the United States experienced a major financial crisis from 2007 to 2009 because: there was excess competition from other countries. banks refused to honor the deposit insurance scheme. the deposit insurance system failed during that time. there was a run on shadow banks, which were not covered by deposit insurance.
there was a run on shadow banks, which were not covered by deposit insurance.
Which of the following did the New Deal create? unemployment benefits quotas tariffs the stock exchange
unemployment benefits
Which of the following is an example of transfer payments? government loans interest earned on savings in banks military salaries unemployment benefits
unemployment benefits
The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to: a new real interest rate of 0%. a new output gap of -6%. a new real interest rate of 4%. unexpected inflation of 1%.
unexpected inflation of 1%.
South Korea's currency is called the: won. peso. rupee. euro.
won.
The table shows consumer price index data for the United Kingdom. Based on this information, what is the rate of inflation in 2016? 2.32% 2.29% 1% 1.43%
1%
Consider the following basket of goods: 50 bottles of milk, 100 avocadoes, 50 apples, and eight pineapples. Suppose that last year, each bottle of milk was $2.50, each avocado was $1.50, each apple was $0.75, and each pineapple was $4. This year, each bottle of milk is $2.50, each avocado is $1.80, each apple is $0.80, and each pineapple is $4.30. What is the inflation rate between last year and this year? -10% 8.99% 10.13% -9.09%
10.13%
The table shows consumer price index data for the United States. Based on this information, what is the rate of inflation in 2006? 2.87% 3.22% 3.81% 1.64%
3.22%
If there is _____ rise in income, there will be an intermediate increase in total consumption in the economy. zero a temporary no news of a a permanent
a temporary
Credit constraints limit the: amount of money that people can borrow. interest rates that banks can charge. amount of money that banks can accept as deposits. amount of saving that people can make.
amount of money that people can borrow.
Henry Ford's $5 per day wage is an example of: an efficiency wage. a minimum wage law. an equilibrium wage. a government regulated wage.
an efficiency wage.
A minimum wage that is above the equilibrium wage is: an unemployment benefit. a labor union negotiated wage. an efficiency wage. an example of a price floor.
an example of a price floor.
In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars? $1,410 $8,746 $9,422 $227
$8,746
Consider the data shown in the table. Assume that the economy produces only textbooks. What is the growth rate of real GDP between the two years using last year as the base year? ( last year 5000 at $50) (this year 5250 at $55) 5% 15% 2.5% 10%
5%
Why does an anticipated change in income lead to no change in consumption for a consumption smoother? There is a failure of the permanent income hypothesis. Consumption is based on permanent income, which is already factored into anticipated future changes in income. The consumer is not aware of anticipated changes in future income. There are high tax rates on anticipated changes in future income.
Consumption is based on permanent income, which is already factored into anticipated future changes in income.
Consider the market for iPads. What happens if a fantastic new alternative tablet is developed by Samsung and, at the same time, a factory that makes iPads catches fire, destroying 3 million iPads? Price decreases, and quantity increases. Price increases, and quantity increases. The change in price is indeterminate, and quantity decreases. Price increases, and the change in quantity is indeterminate.
The change in price is indeterminate, and quantity decreases.
Dale is a stay-at-home-parent whose typical day consists of getting the kids ready for school, doing the laundry, cooking three meals, and cleaning the house. How are Dale's home activities counted in GDP? They are counted by subtracting Dale's opportunity cost in terms of lost income. They are counted at market value. They are not counted. They are counted by assigning a value that is equivalent to what it would have taken to pay a housekeeper to perform the same tasks.
They are not counted
You take a trip to Dhaka, Bangladesh. Your hotel room costs 12,000 Bangladeshi taka per night, and the nominal exchange rate is 85 taka per U.S. dollar. How much does your hotel room cost in U.S. dollars? $175 $141 $102 $120
$141
Appreciation of the Malaysian ringgit occurs when the exchange rate changes from:(i) 4.19 Malaysian ringgit per U.S. dollar to 4.09 Malaysian ringgit per U.S. dollar.(ii) 4.19 Malaysian ringgit per U.S. dollar to 4.29 Malaysian ringgit per U.S. dollar.(iii) 0.24 U.S. dollar per Malaysian ringgit to 0.25 U.S. dollar per Malaysian ringgit.(iv) 0.24 U.S. dollar per Malaysian ringgit to 0.23 U.S. dollar per Malaysian ringgit. (ii) and (iv) (i) and (iv) (i) and (iii) (ii) and (iii)
(i) and (iii)
Which of the following changes could create a more positive output gap?(i) The U.S. dollar appreciates.(ii) The U.S. dollar depreciates.(iii) Trading partners reduce tariffs on U.S. exports.(iv) Monetary policy actions boost the economy. (iv) only (ii), (iii), and (iv) (i) only (ii) only
(ii), (iii), and (iv)
In 2010, Eyjafjallajokull (a volcano in Iceland) erupted and created a dangerous ash cloud over Northern Europe. This led to major travel disruptions, and tourism to Iceland immediately fell by 30%. This included American tourists, some of whom cancelled their plans to visit Iceland. Which of the following would have happened in the market for the U.S. dollar? No change in the supply for the U.S. dollar An increase in the demand for the Icelandic krona An increase in the supply of the U.S. dollar A decrease in the supply of the U.S. dollar
A decrease in the supply of the U.S. dollar
Minimum wages rise sharply in the economy. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?
AS shifts back
The figure shows inflation expectations and actual inflation for U.S. consumers over time. Which of the following statements correctly describes the relationship between these rates? Actual inflation and inflation expectations have an inverse relationship. Actual inflation and inflation expectations seem to behave independently. Actual inflation tends to follow inflation expectations. Actual inflation and inflation expectations are exactly the same over time.
Actual inflation tends to follow inflation expectations.
Given your knowledge of how aggregate supply changes from the very short run to the long run, what is the LONG-RUN impact of a decrease in aggregate demand? All prices adjust, and the economy returns to long-run potential. There is a slow fall in prices as the short-run aggregate supply begins to have a positive slope, and the initial decline in output will increase. There is a sharp fall in prices in the economy as business hurriedly lower prices to try to boost sales. There is a recession as output falls sharply, and prices will not have had time to adjust.
All prices adjust, and the economy returns to long-run potential.
Refer to the data dashboard shown. Which indicator tells you how fast wages and benefits are rising? Stock prices: S&P 500 Employment cost index Inflation Business confidence
Employment cost index
In 2019, U.S. regulations were passed whereby passenger cruises were no longer allowed to travel to Havana, Cuba. This led to: restrictions on the amount of U.S. dollars that could be traded. a decrease in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos. no change in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos. an increase in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
a decrease in the supply of the U.S. dollar in the currency exchange market for U.S. dollars to Cuban pesos.
When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock. a spending a supply an inflation a financial
a financial
In 1711, a company called the South Sea Company was set up as a merchant trader between Great Britain and South America. Although the company failed to make any real profits, the company's share price rose substantially in a very short time. Eventually, the share price collapsed and returned to the original sale price. This scenario describes: term risk. a financial bubble. liquidity risk. the process of fundamental analysis.
a financial bubble.
Which of the following changes will lead to a decrease in the price level but an increase in the quantity of output in an economy? a fall in aggregate demand a rise in aggregate supply a fall in aggregate supply a rise in aggregate demand
a rise in aggregate supply
The IS curve is constructed by: plotting savings at each real interest rate. adding up consumption and investment and plotting these two expenditure levels to income. adding consumption and savings at each real interest rate. adding up the level of aggregate expenditure at each real interest rate.
adding up the level of aggregate expenditure at each real interest rate.
A financial shock is any change in: production costs that leads suppliers to change the prices they charge at any given level of output. aggregate expenditure, at a given interest rate and level of income. potential GDP in the economy. borrowing conditions that changes the real interest rate at which people can borrow.
borrowing conditions that changes the real interest rate at which people can borrow.
Stock prices are an important macroeconomic indicator because they: can predict changes in GDP. can predict inflation in the economy. display a random walk. do not have any correlation with the state of the economy.
can predict changes in GDP.
Suppose rubber prices rise in international markets. For countries that import rubber, this scenario would lead to: demand-pull inflation .an increase in potential output .a positive supply shock. cost-push inflation.
cost-push inflation.
In the IS-MP analysis in the Fed model, the MP curve shows you the: price level in the economy. potential GDP level in the economy. current real interest rate. output level in the economy.
current real interest rate.
During the Great Recession of 2007 to 2009, banks began to make fewer loans as they became wary of risky projects. Which of the following graphs shows the effect on the investment line?
demand line shifts left
Sensing weaker future earnings, firm managers become cautious about investment. What is the effect on the loanable funds market?
demand shifts left
In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. contractionary; lowers; raises expansionary; raises; lowers contractionary; raises; lowers expansionary; lowers; raises
expansionary; raises; lowers
Planned investment is the: expenditure on goods and services by consumers. planned purchases of stocks and bonds by consumers. use of electricity and water by factories. expenditure on capital goods by businesses.
expenditure on capital goods by businesses.
The intersection of the IS curve and the MP curve determine: macroeconomic equilibrium. the risk-free interest rate in the economy. the largest output gap. the federal funds rate.
macroeconomic equilibrium.
Ceteris paribus, a decrease in imports leads to a: movement up and to the left along the same aggregate demand curve. movement down and to the right along the same aggregate demand curve. left shift of the aggregate demand curve. right shift of the aggregate demand curve.
right shift of the aggregate demand curve.
Suppose that an economy is in a recession. You would expect to see the unemployment rate: be zero. rise above the equilibrium unemployment rate. be equal to the equilibrium unemployment rate. fall below the equilibrium unemployment rate.
rise above the equilibrium unemployment rate.
Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will: rise by 3%. rise by 1.5%. fall by 2%. fall by 1.5%.
rise by 1.5%.
What is a reserve requirement? the ceiling on the federal funds rate a maximum loan amount on the overnight loan market the amount of money that the Federal Reserve spends on buying bonds the minimum amount of reserves that each bank must hold
the minimum amount of reserves that each bank must hold
Fiscal policy is increased in its effectiveness through: the multiplier effect. monetary policy. administrative lags. crowding out.
the multiplier effect.
Consider the Phillips curve shown here. In region B: (region B is above the equilibrium and potential output) the output gap is negative. there is insufficient demand. the output gap is positive. inflation falls below expected inflation.
the output gap is positive.
Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the: unexpected inflation from the Phillips curve. potential GDP level. price level from the Phillips curve. unemployment rate from the labor market.
unexpected inflation from the Phillips curve.
You purchase a certificate of deposit and expect an inflation rate of 1.25% over the next year. Your nominal rate of interest is 2.1%. What is your expected real rate of return? -0.85% 1.25% 0.85% -2.1%
0.85%
You purchase a certificate of deposit that earns an advertised rate of 1.75% interest per year. What is your real rate of return if the actual inflation rate is 1.9%? 3.65% -0.15% 0.15% 1.75%
-0.15%
Refer to the table below, which shows data for the United Arab Emirates (UAE). What was the economic growth rate in UAE in 2010? -5.91% -15.15% 2.26% -11.27%
-5.91%
The table shows statistics for three Canadian cities at several different points in time. What was the unemployment rate in Montreal in January 2019? (labor force = 2323.9) (unemployed = 143.7) 6.2% 8.8% 93.8% 5.4%
6.2%
Which of the following shows the medium of exchange function of money? Darius goes window shopping. Mena saves his money in a certificate of deposit at the bank. Wilma wants to sell her old car, and she values it at $2,400. Daniela goes to the store and purchases roses with U.S. dollars.
Daniela goes to the store and purchases roses with U.S. dollars.
Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold of macaroni and cheese as incomes fall during a recession? The price would increase, and the quantity would decrease. Both the price and quantity would increase. Both the price and quantity would decrease. The price would decrease, and the quantity would increase.
Both the price and quantity would increase.
The higher the minimum wage, as compared to the equilibrium wage, the: lower the natural rate of unemployment. higher the cyclical unemployment rate. lower the structural unemployment rate. higher the structural unemployment rate.
higher the structural unemployment rate.
When there is a shortage of highly skilled workers in a particular region: the incomes of highly skilled workers fall. highly skilled workers can negotiate higher salaries. unemployment rises among highly skilled workers. there is a corresponding surplus of low-skilled workers in the region.
highly skilled workers can negotiate higher salaries.
The aggregate production function Y = f(L, H, K) shows that economic growth can occur if:(i) human capital increases.(ii) labor productivity falls.(iii) the capital stock in the country depreciates.(iv) the depreciation rate increases. (iii) only (i) and (iv) (i) only (i), (ii), (iii), and (iv)
i only
The aggregate production function Y = f(L, H, K) shows that economic growth can occur if:(i) more labor is employed.(ii) human capital is reduced.(iii) the dependency ratio rises.(iv) the capital stock stays constant. (i) only (i), (ii), (iii), and (iv) (i) and (iv) (iii) only
i only
The real interest rate is the: nominal interest rate minus the rate of inflation. economic growth rate adjusted for the effects of inflation. nominal interest rate plus the rate of inflation. percentage of the nominal interest that is inflation.
nominal interest rate minus the rate of inflation.
If you see that inflation between last year and this year is 3%, this means that: the consumer price index rose by 3% more than the producer price index. the prices of each and every good and service went up by 3%. economic growth is also 3%. on average, prices went up across the economy by 3%.
on average, prices went up across the economy by 3%.
Which of the following encourages the development of new ideas and inventions? patents government control of resources negative economic growth capital accumulation
patents
We expect that price will fall when: supply is greater than demand. the supply curve shifts to the left, and the demand curve shifts to the left. supply and demand both increase. the quantity supplied is greater than the quantity demanded.
the quantity supplied is greater than the quantity demanded.
In which scenario are you NOT part of a market transaction? You take a photo of flowers in bloom in a city park. You pay $5 to pick apples at a pick-your-own apples orchard. You buy meat and produce from a local farmer. You sell vegetables at a local fruit and vegetable stand
You take a photo of flowers in bloom in a city park.
Which of the following would lead to a slowdown in economic growth? the institution of a savings tax credit a reduction in the birth rate coupled with an increase in the retirement rate of a population an increase in innovation in the economy an increase in capital accumulation coupled with technological advancement
a reduction in the birth rate coupled with an increase in the retirement rate of a population
If Marios is a consumption smoother and has just won a prize of $12,000, we can expect Marios to exhibit: a large change in consumption. no change in MPC. a small change in consumption. zero change in saving.
a small change in consumption.
If there is a temporary rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. a small increase; a large increase no change; a large increase a large increase; no change a large increase; a large increase
a small increase; a large increase
Which of the following lists the functions of money? medium of exchange, measure of inflation, and benchmark of quality carrier of exchange, unit of account, and measure of inflation store of value, store of interest, and buffer against inflation medium of exchange, store of value, and unit of account
medium of exchange, store of value, and unit of account
A constant returns to scale production function means that if all inputs are increased by 75%, this should lead to output: falling by less than 75%. rising by more than 75%. falling by more than 75%. rising by 75%.
rising by 75%.
Consider the graph of the labor market shown here. If the government mandates a minimum wage of $25, there is a labor: surplus of 2,000 workers. shortage of 2,000 workers. surplus of 4,000 workers. surplus of 6,000 workers.
surplus of 6,000 workers.
If the price of quinoa is $10 per bushel, a _____ of _____ bushels per period will result. shortage; 10,000 shortage; 8,000 surplus; 8,000 surplus; 4,000
surplus; 8,000
Along the same aggregate production function, the level of _____ is the same. capital economic growth labor technology
technology
Based on the following statistics, how much is consumption? (total spending = 11.26 trillion) (investment = 2.56 trillion) (government spending = 2.95 trillion) (exports = 1.8 trillion) (imports = 2.18 trillion) $11.62 trillion $5.13 trillion $6.49 trillion -$0.38 trillion
$ 6.49 trillion (total spending - government spending - imports
Refer to the following statistics. Based on these statistics, the level of business investment is:Inventories: $12 millionHousing: $400 millionEquipment: $500 millionBusiness structures: $350 millionIntellectual property: $700 million $1,550 million. $1,562 million. $1,050 million. $500 million.
$1,550 million.
If the interest rate is 6% and the average inflation rate is 3.1%, what is the approximate future value of $75,000 in 20 years? $42,340 $132,852 $89,743 $240,535
$132,852
A new assembly line robot with a price tag of $2.5 million is expected to depreciate by 3% at the end of next year. The real interest rate is 2.5%. What is the user cost of the robot for one year? $137,500 $62,500 $75,000 $12,500
$137,500
What is Uganda's real GDP if its nominal GDP is $27.5 billion (in current US$), and the GDP deflator is 163.4? $16.8 billion $12.4 billion $44.9 billion $27.5 billion
$16.8 billion
A new assembly line robot costs $1.2 million and is expected to depreciate by 10% at the end of next year. The real interest rate is 4.5%. What is the user cost of the robot for one year? $174,000 $66,000 $120,000 $54,000
$174,000
The nominal exchange rate between Japan and the United States is about 109 yen per U.S. dollar. You visit the Studio Ghibli Museum in Tokyo and find that each ticket costs 1000 yen. You purchase two tickets. How much is your purchase in U.S. dollars? $9.17 $20.00 $18.35 $16.70
$18.35
If the interest rate is 5%, what is the approximate present value of $25,000 received in five years? $31,907 $19,588 $23,810 $22,676
$19,588
If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years? $10,133 $15,900 $22,204 $17,949
$22,204
Consider the data shown in the table. Assume that the economy produces only barrels of oil. What is the real GDP for this year using last year as the base year? $5,229,000 $4,980,000 $5,104,500 $4,800,000
$4,980,000
Suppose you want to realize a future value of $30,000 in 30 years on an investment you make. The average annual rate of return is 6%. What will be the present value of your investment? $172,305 $31,800 $30,000 $5,223
$5,223
As the manager of a farm-to-table restaurant, Carlos sets the prices of entrees each day. Today, his restaurant sold out of avocado toast during brunch service, so he had to recommend to some avocado toast aficionados the goat cheese radish tartine with micro greens. Which price did he MOST likely set for avocado toast? PriceQuantity DemandedQuantity Supplied$15.00 4 40 $13.00 8 32 $11.00 12 24 $9.00 16 16 $7.00 20 8 $7.00 $9.00 $11.00 $13.00
$7.00
The news of an impending recession in the economy will lead to a:(i) fall in consumption.(ii) rise in precautionary saving.(iii) rise in national saving.(iv) rise in consumption. (i) and (iii) (i), (ii), and (iii) (ii) only (i), (ii), (iii), and (iv)
(i), (ii), and (iii)
In order to be considered unemployed, a person must:(i) be part of the working-age population.(ii) be actively looking for work.(iii) not have been self-employed.(iv) must be noninstitutionalized. (iii) and (iv) (i) and (ii) (ii) and (iv) (i), (ii), and (iv)
(i), (ii), and (iv)
On which of the following is there a tax incentive in the United States?(i) health insurance purchased through employers(ii) employer contributions for life insurance(iii) rental value on owner-occupied housing(iv) your mortgage (i), (iii), and (iv) (iii) and (iv) (i), (ii), (iii), and (iv) (iv) only
(i), (iii), and (iv)
The higher the GDP deflator in an economy, the:(i) higher the purchasing power of the currency.(ii) lower the real wealth in the economy.(iii) higher the real wealth in an economy.(iv) more expensive the country's exports. (i) only (i), (iii), and (iv) (i), (ii), (iii), and (iv) (ii) and (iv)
(ii) and (iv)
Which of the following tasks are performed by banks?(i) Print new money.(ii) Provide zero-interest loans.(iii) Create long-term loans from short-term deposits.(iv) Pool savings from many savers. (iii) and (iv) (i) and (iv) (i) and (ii) (iii) only
(iii) and (iv)
Suppose the domestic price of a gallon of milk is $3.75 in the United States, and a similar gallon of milk costs 45 yuan in China. If the nominal exchange rate is 7.08 yuan per U.S. dollar, then what is the real exchange rate? 1.0 6.36 0.59 7.08
0.59
If a $100 million increase in total income leads to a $62 million increase in consumption, the slope of the consumption function is: negative. 0.62. zero. 0.38.
0.62.
You purchase a certificate of deposit and expect an inflation rate of 1.5% over the next year. Your nominal rate of interest is 2.25%. What is your expected real rate of return? 0.75% 2.25% 3.75% -0.75%
0.75%
Total consumption is $1,800 when income is $2,000, and total consumption increases to $2,600 when income is $3,000. What is the marginal propensity to consume? 1.25 0.5 0.2 0.8
0.8
If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is: 0.8%. 2.0%. 4.8%. 2.8%.
0.8%.
Consider the following data. What is the marginal propensity to consume? 1.1 0.84 0.9 0.1
0.9
If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at: 2%. 1.5%. 3.5%. 4%.
3.5%
The table shows consumer price index data for the United States. Based on this information, what is the rate of inflation in 1991? 2.97% 2.79% 4.22% 3.04%
4.22%
The table shows the salary of a worker in India. The level of saving in 2017 is: (income = 107,000) (consumption = 56710) 47,000 rupees. 49,350 rupees. 53,000 rupees. 50,290 rupees.
50,290 rupees.
In 2010, Eyjafjallajokull (a volcano in Iceland) erupted and created a dangerous ash cloud over Northern Europe. This led to major travel disruptions, and tourism to Iceland immediately fell by 30%. Which of the following would have happened in the market for the Iceland krona? A ban on the use of the Icelandic krona No change in the demand for the Icelandic krona An increase in the demand for the Icelandic krona A decrease in the demand for the Icelandic krona
A decrease in the demand for the Icelandic krona
You are a financial adviser. Your client, Archie, wants professional management of his investments but also wants a diversified portfolio. Which of the following investments is right for Archie? Large corporation stocks Corporate bonds Small corporation stocks A mutual fund
A mutual fund
In 2016, worries about the stock market caused consumer confidence in Asia to fall. Ceteris paribus, which of the graphs shows the correct effect on aggregate demand?
AD shifts back
Suppose that the Kenyan government engages in expansionary fiscal policy. Ceteris paribus, which of the graphs shows the correct effect in the AD-AS framework?
AD shifts out
The stock market rises consistently and reaches a record high. Ceteris paribus, which of the graphs shows the correct effect on the AD-AS framework?
AD shifts out
Which of the following will fall when the economy is expanding? Consumer confidence Business confidence Nonfarm payrolls Applications for unemployment benefits
Applications for unemployment benefits
Consider the following graphs, which are discussed in the textbook. Focus on the graph that looks at the relationship between GDP per person and infant deaths per 1,000 live births. What can explain this relationship? Infant mortality declines only when GDP per person is above $25,000 per year. As real GDP per person rises, infant mortality rises. As life expectancy increases, GDP per person increases at the same rate. As real GDP per person rises, maternal and fetal health increase due to better health care, education, sanitation, and nutrition.
As real GDP per person rises, maternal and fetal health increase due to better health care, education, sanitation, and nutrition.
Bond A is a five-year bond issued by a company with a very good credit rating. Bond B is a five-year bond issued by a different company in financial distress. Which of the following is likely? Bond A will have a higher interest rate than Bond B. Bond B will have a higher term risk than Bond A. Bond A will have a higher default risk than Bond B. Bond B will have a higher interest rate than Bond A.
Bond B will have a higher interest rate than Bond A.
You are an analyst preparing a forecast of the effects of macroeconomic changes in the economy. What happens to prices and GDP when corporate taxes rise in the economy? Prices decrease, and GDP increases. Prices increase, and GDP decreases. Both prices and GDP increase. Both prices and GDP decrease.
Both prices and GDP decrease.
For Elandra, home-brewed coffee is an inferior good, and lattes from the coffee shop are a normal good. Recently, Elandra cut back on lattes and began brewing her own coffee at home. What may have caused this change? Elandra's income fell. There was a bumper crop in coffee beans. Elandra got a pay raise. The price of teabags fell.
Elandra's income fell.
What effect does a booming real estate market in China have on the consumption function in China? Figure B (movement up along line) Figure A(movement of line back) Figure D( movement of line right) Figure C(movement down along line)
Figure A(movement of line back)
Which of the following graphs shows the correct effect on the consumption function when consumer wealth increases? Figure B (movement up along line) Figure A(movement of line back) Figure D( movement of line right) Figure C(movement down along line)
Figure A(movement of line back)
Which of the following graphs shows the correct effect on the consumption function when consumer wealth decreases? Figure B (movement up along line) Figure A(movement of line back) Figure D( movement of line right) Figure C(movement down along line)
Figure D( movement of line right)
Which of the following correctly shows the steps needed to calculate the inflation rate? Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate. Tally up the cost of the basket of goods and services, subtract the value of goods and services that are no longer counted in the basket and then calculate the inflation rate. Find the total value of the basket of goods and services, assess quality changes from one period to the next, and measure the inflation rate. Collect prices from the stores where people shop, assess the substitution that people make from low inflation to high inflation products, and calculate the difference in the prices that people pay.
Find out what people typically buy, collect the prices from the stores where people shop, tally up the cost of the basket of goods and services, and calculate the inflation rate.
Which of the following is an investment? Dan purchases $6,800 worth of gold. Fred pays a contractor to add two new rooms to his house. Frank buys a used car. Ben's computer depreciates by 15%.
Fred pays a contractor to add two new rooms to his house.
If an economy has a positive output gap of 1.5%, this means: GDP is 1.5% above potential GDP. inflation is 1.5% above the long-run rate of inflation. GDP is 1.5% below potential GDP. unemployment is 1.5% above the natural rate of unemployment.
GDP is 1.5% above potential GDP.
You purchase a new car (produced this year) for $38,000. After six months, you sell the car for $31,500. How much does GDP rise because of these two transactions? GDP rises by $69,500. GDP rises by $31,500. GDP rises by $6,500. GDP rises by $38,000.
GDP rises by $38,000
Which of the following is a reason to worry about government debt? High and rising debt slows economic growth. The government never really needs to repay the debt. Future generations can help repay the debt. Most of the debt is domestic debt.
High and rising debt slows economic growth.
In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the: MP curve down. IS curve to the left. IS curve to the right. MP curve up.
IS curve to the left.
The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the: IS curve to the left. MP curve up. IS curve to the right. MP curve down.
IS curve to the right.
The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation. demand for loanable funds; supply of loanable funds; AD IS; MP; Phillips AD; AS; Phillips dollar demand; dollar supply; AS
IS; MP; Phillips
Which of the following is NOT a type of global financial flow? International bond purchases Imports of goods Foreign portfolio investment Foreign direct investment
Imports of goods
Fiscal policy works best when it is: timely, targeted, and temporary. discretionary. general, nonspecific, and long-lasting. not countercyclical.
timely, targeted, and temporary.
Why is the discount rate the upper bound for the federal funds rate? It is set higher than the federal funds rate. It is set lower than the federal funds rate. The discount rate is the highest interest rate that banks can charge the public when they make loans. The discount rate does not change over time.
It is set higher than the federal funds rate.
Which of the following correctly describes the business cycle? It is the constant rise in GDP over time. It refers to excess unemployment during recessionary periods. It is the fluctuations of GDP around the potential output. It refers to ups and downs in business revenue during expansions and recessions.
It is the fluctuations of GDP around the potential output.
What is the difference between microeconomics and macroeconomics? Microeconomics is the study of the economy as a whole, whereas macroeconomics is the study of individual decisions in specific markets. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole. Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of government policies. Microeconomics focuses only on the forces of individual demand and individual supply, whereas macroeconomics focuses only on policy making for the economy.
Microeconomics is the study of individual decisions in specific markets, whereas macroeconomics is the study of the economy as a whole.
If drivers for ridesharing services like Uber and Lyft successfully negotiate for higher pay, and parking lot operators in the city raise parking rates, what can you conclude about the new equilibrium in the ridesharing market? The equilibrium price will rise, but the impact on quantity is unclear. The equilibrium quantity will rise, but the impact on price is unclear. Both the equilibrium price and quantity will rise. Both the equilibrium price and quantity will fall.
The equilibrium price will rise, but the impact on quantity is unclear.
HelloFresh is a service that provides subscribers with recipes and all the necessary ingredients to prepare meals at home, delivered to their door once per week. Holding other things constant, what would happen if the company found a more efficient way to keep food fresh and safe during shipment? There would be a movement up the market demand curve. There would be a movement down the market demand curve. The market demand curve would shift to the left. The market demand curve would shift to the right.
There would be a movement down the market demand curve.
When prices rise in the United States, what is the effect on consumption and aggregate expenditure? The real value of wealth increases, leading to an increase in consumption and an increase in aggregate expenditure. Real interest rates rise, and this decreases consumption and aggregate expenditures. The real value of debt increases, and this increases consumption and aggregate expenditure. The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.
The real value of wealth decreases, leading to a decrease in consumption and a decrease in aggregate expenditure.
Which of the following is an example of a depreciating US dollar? You book a holiday in Bali, Indonesia, for $1,700 in U.S. dollars. At checkout, you pay in Indonesian rupiahs at the exchange rate of the day. This works out to be an equivalent of $1,756 in U.S. dollars. You place an order for South African wine at the price of 70 rands per bottle. Prior to shipping, the company informs you that the price of each bottle has decreased to 68 rands per bottle. You order an imported vehicle from Sweden. The price of the car at the time of order is U.S. $47,500. You settle your bill once the car has arrived, at the current exchange rate. Your bill works out to be $47,389. You purchase British pounds at the bank for your trip to London. Each British pound costs you almost U.S. $1.48.
You book a holiday in Bali, Indonesia, for $1,700 in U.S. dollars. At checkout, you pay in Indonesian rupiahs at the exchange rate of the day. This works out to be an equivalent of $1,756 in U.S. dollars.
Which of the scenarios represents consumption spending? You eat at a fancy restaurant for Valentine's Day. Your parents pay their income taxes. A new hospital is constructed in your town. You take out a bank loan.
You eat at a fancy restaurant for Valentine's Day.
You have saved $747. Where should you go if you want to open a checking account? a commercial bank the New York Federal Reserve district bank the Federal Reserve in Washington, D.C. your local federal reserve district bank
a commercial bank
In 1944, the Bretton Woods system was established, whereby the value of the U.S. dollar was backed by gold, and the values of many other currencies were pegged to the U.S. dollar. This system, which was removed in the early 1970s, was an example of: a dirty float exchange rate system. a fixed exchange rate system. a floating exchange rate system. an international single currency.
a fixed exchange rate system.
Which of the following shows the correct effect on the IS curve of a decrease in personal income tax rates? a movement from point C to point B a movement from point C to point D a movement from point A to point D a movement from point A to point B
a movement from point C to point D
In the market for organic beef, what would cause a price increase? a fall in the price of chicken a consensus among doctors that beef is heavy in saturated fat, which causes heart attacks a rise in the prices of grass and organic corn a trend toward veganism in the United States
a rise in the prices of grass and organic corn
The Federal Reserve was created after: a period of very high unemployment. an increase in the inflation rate. a series of bank runs and bankruptcies. an extended period of economic stagnation.
a series of bank runs and bankruptcies.
A decreasing returns to scale production function is one where increasing all inputs by a certain proportion leads to output rising by: a smaller proportion. exactly double the proportion. the same proportion. a larger proportion.
a smaller proportion.
If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock. an interest rate a financial a supply a spending
a supply
Southeast Asian countries experience high temperatures and high humidity during the monsoon seasons. This makes working conditions difficult. Because air conditioners are expensive and consume a lot of electricity, an alternative air cooler called an Eco-cooler was invented. This device does not use electricity, is made from readily available soda bottles, and works by funneling air into a room. This scenario is an example of: a technological innovation that can increase labor productivity and thus increase economic growth. the development of human capital. a rise in productivity causing an increase in technology. a decrease in the labor force participation rate in Southeast Asian countries.
a technological innovation that can increase labor productivity and thus increase economic growth.
The liquidity of an asset is defined as the: ability to index the asset's returns to the inflation rate. risk that if you need to sell the asset quickly, you may not be able to get a good price for it. ability to predict the future cash flow of the asset. ability to quickly and easily convert the asset to cash, with little or no loss in value.
ability to quickly and easily convert the asset to cash, with little or no loss in value.
A rise in nominal wages represents: an increase in employment. a right shift of supply for firms. a decrease in production costs. an increase in production costs.
an increase in production costs.
During the Great Recession, the United States Congress increased the length of time that unemployment benefits could be received from 52 weeks to 99 weeks. This change caused: a decrease in unemployment. an increase in the costs for the government. an increase in the labor force participation rate. an increase in the number of employed people in the economy.
an increase in the costs for the government.
Which of the following would lead to a slowdown in economic growth? an increase in human capital reduced inefficiency in production an increase in the dependency ratio an increase in capital accumulation in the economy
an increase in the dependency ratio
For normal goods, an increase in income will result in: an increase in the equilibrium price and equilibrium quantity. a decrease in the equilibrium price and an increase in the equilibrium quantity. a decrease in the equilibrium price and equilibrium quantity. an increase in the equilibrium price and a decrease in the equilibrium quantity.
an increase in the equilibrium price and equilibrium quantity.
The efficient market hypothesis states that: market supply and market demand interact to reach equilibrium for the stock price. at any point in time, a firm selling a stock has engaged in efficient production methods. the market price for a stock will always exceed the book value of the stock. at any point in time, stock prices reflect all publicly available information.
at any point in time, stock prices reflect all publicly available information.
The neutral interest rate occurs when the economy is: experiencing very high inflation. above its potential. at its potential. below its potential.
at its potential.
Which of the following services are provided by local government? Pell grants Medicare bus services military defense
bus services
Equilibrium in the loanable funds market determines the: equilibrium real interest rate. point where there is excess demand for loanable funds. amount of inventories in an economy. up-front cost of capital.
equilibrium real interest rate.
The moral of the story of the Solow growth model is that: capital accumulation alone cannot lead to sustainable economic growth. human capital growth does not lead to economic growth. capital accumulation is the key to sustained economic growth. technological advance cannot sustain continuous economic growth.
capital accumulation alone cannot lead to sustainable economic growth.
When a spending shock occurs, the IS curve shifts by the: size of the multiplier. change in spending times the multiplier. change in spending divided by the multiplier. change in spending.
change in spending times the multiplier.
Which of the following cause(s) shifts in the MP curve? changes in monetary policy business optimism spending shocks consumer pessimism
changes in monetary policy
If a bakery buys a second oven, hires a second baker, buys double the number of ingredients, doubles the size of the bakery, and then produces double the number of cakes, then the bakery is experiencing: an increase in labor productivity. technological advancement. increasing returns to scale. constant returns to scale.
constant returns to scale.
Aggregate expenditure is the sum of: consumption, planned investment, government expenditure, and net exports. consumption, exports, and planned investment. planned Investment, government expenditure, exports, and imports. consumption, planned investment, imports, and taxes.
consumption, planned investment, government expenditure, and net exports.
The United States experiences net financial outflows. Which graph shows the effect of this on the loanable funds market?
decreased supply (supply shifts left)
Which graph shows the effect of a government budget deficit on the loanable funds market?
decreased supply (supply shifts left)
The Great Moderation refers to the: increase in globalization. longstanding effect of the Great Recession. decreased volatility of the U.S. economy. stable level of inflation in the United States.
decreased volatility of the U.S. economy.
A bond that is issued by a firm in financial distress is most likely to have: term risk. inflation indexation. default risk. liquidity risk.
default risk.
Diane is an avid gardener. Which graph of the potting soil market illustrates her most probable response if the cost of flowerpots falls?
demand curve shifts to right
If the government lowers the corporate tax rate, then the ______ loanable funds shifts to the _______ . demand for; left supply of; right demand for; right supply of; left
demand for; right
If the U.S. government lowers personal income tax rates: disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve. government expenditure falls, and this leads to a left shift of the IS curve. government expenditure rises, and this leads to a right shift of the IS curve. investment decreases, and this leads to a left shift in the IS curve.
disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve.
If corporate tax rates rise in Brazil, the demand for the real will _____, and the real will _____. fall; appreciate fall; depreciate rise; depreciate rise; appreciate
fall; depreciate
An initial public offering occurs when a company: first sells stock directly to the government. first opens for business and offers its goods and services for sale to the public. first sells stock directly to the public. experiences a rise in the price and demand for its stock.
first sells stock directly to the public.
Which of the following is a scaled number? the country's national debt government budget deficit as a percentage of GDP total tax revenues in the economy the sum of all incomes earned in the economy
government budget deficit as a percentage of GDP
The difference between a centralized economy and a market economy is that: the centralized economy does not have any markets for goods and services, whereas a market economy has fully functioning markets. governments make production decisions in a centralized economy, and individuals make production decisions in a market economy. governments have maximum decision-making power in a centralized economy but have zero decision-making power in a market economy. individuals make production decisions in a centralized economy, and the government makes production decisions in a market economy.
governments make production decisions in a centralized economy, and individuals make production decisions in a market economy.
Consider these four graphs of the labor market, showing four different minimum wage levels. Which graph(s) shows a wage level where there is no unemployment? graph D graphs A and D graphs A and C graph B
graph where minimum wage is at equilibrium
In the long run, inflation is determined by: the business cycle. the unemployment rate. the level of output relative to potential output. inflation expectations.
inflation expectations.
Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate there is: insufficient demand .excess demand. demand-pull inflation .currency depreciation.
insufficient demand
Which of the following graphs shows what would happen to the investment line if an investment project is expected to earn higher revenues over time?
investment line shifts right
If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to: lower nominal wages by 1%. raise inflation by 2%. raise nominal wages by 1%. lower real wages by 2%.
lower nominal wages by 1%.
Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be: lower than the neutral interest rate. higher than the neutral interest rate. equal to the inflation rate. equal to the neutral interest rate.
lower than the neutral interest rate.
The higher the opportunity cost of consumption, the: more to the right the economy is along the IS curve. lower the aggregate expenditures. higher the investment in the economy. higher the consumption.
lower the aggregate expenditures
If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. lower; up lower; down raise; down raise; up
lower; up
A bank run occurs when: interest rates are too high. consumers increase their deposits at banks faster than the bank can loan out the funds. many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand. too many borrowers want to take out loans from a bank, and the bank is unable to meet loan demands.
many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.
The rational rule of consumption is to consume more today if the: price of consumption today exceeds the dollar-plus-interest in the future. marginal benefit of a dollar of consumption today is less than the marginal benefit of spending a dollar plus interest in the future. marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future. real interest rate in the future is expected to be higher than the real interest rate today.
marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future.
With a progressive tax, those with _____ income tend to pay a _____. more; higher share of their income in taxes more; flat tax rate less; higher share of their income in taxes more; lower share of their income in taxes
more; higher share of their income in taxes
In the IS-MP analysis in the Fed model, a fall in the interest rate causes a: movement to the left along the IS curve. right shift of the IS curve. left shift of the IS curve. movement to the right along the IS curve.
movement to the right along the IS curve.
A rise in prices leads to a: movement down and to the right, along the same aggregate demand curve. right shift of the aggregate demand curve. movement up and to the left, along the same aggregate demand curve. left shift of the aggregate demand curve.
movement up and to the left, along the same aggregate demand curve.
The four stages of the business cycle are: consumption, investment, government expenditure, and net exports. expansion, growth, contraction, and depression. peak, recession, trough, and expansion. full employment, potential GDP, recessionary gap, and inflationary gap.
peak, recession, trough, and expansion.
The GDP deflator is an index that tracks the: price of all goods and services produced domestically. price that businesses pay over time for the inputs used in the production process. average price that consumers pay over time for a representative basket of goods and services. highest prices consumers pay over time for imported goods and services.
price of all goods and services produced domestically.
Forward guidance occurs when the Federal Reserve: follows the same future course of monetary policy that it has been following in the past. provides information about the future course of monetary policy in order to influence expectations about future interest rates. provides information about current monetary policy in order to influence expectations about future interest rates. carries out open market operations to influence future interest rates.
provides information about the future course of monetary policy in order to influence expectations about future interest rates.
If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. lower; up raise; up lower; down raise; down
raise; down
If the output gap is positive, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy. raise; upward; increase lower; downward; increase raise; upward; decrease lower; downward; decrease
raise; upward; decrease
If government expenditure rises by $27.5 billion and the multiplier in the economy is 2.5, then: real GDP rises by $68.75 billion, and the IS curve shifts to the right. real GDP falls by $11 billion, but the IS curve does not shift. real GDP rises by $27.5 billion, and the IS curve shifts to the right. real GDP falls by $55 billion, and the IS curve shifts to the left.
real GDP rises by $68.75 billion, and the IS curve shifts to the right.
If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then: real wages have fallen by 2.5%. inflation decreases by 1.5%. inflation rises by 1.5%. real wages have gone up by 2.5%.
real wages have fallen by 2.5%.
If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift: right by $35 billion. left by $14 billion. right by $87.5 billion. left by $35 billion.
right by $87.5 billion.
At Trader Joe's, the price of chocolate chip cookies falls. As a result, you would expect to see a(n): increase in the demand for chocolate chip cookies. rise in the quantity demanded of chocolate chip cookies. decrease in the demand for chocolate chip cookies. drop in the quantity demanded of chocolate chip cookies.
rise in the quantity demanded of chocolate chip cookies.
Russia's currency is called the: rupee. ruble. peso. dollar.
ruble.
In macroeconomics, the difference between saving and investment is that: saving does not depend on income, but investment depends on profitability. saving is the money left over after paying for spending, and investment is the purchase of stocks and bonds. saving is created by the government, and investment is specific to firms. saving is the money left over after paying for spending, and investment is the purchase of new capital.
saving is the money left over after paying for spending, and investment is the purchase of new capital.
When the government increases spending, a multiplier effect will: cause a movement to the left along the same AD curve. shift the AD curve further to the right than the effect of the spending. cause a movement to the right along the same AD curve. shift the AD curve further to the left than the effect of the spending.
shift the AD curve further to the right than the effect of the spending.
The three major pillars of the financial sector are the: banks, the goods market, and the labor market. stock market, the labor market, and the bond market. foreign exchange market, the bond market, and the government. stock market, the bond market, and the banks.
stock market, the bond market, and the banks.
Tariffs on inputs lead to a _____ shock. spending supply financial deflation
supply
Which of the following figures shows the correct shift in the market for the Japanese yen if the real exchange rate appreciates in Japan?
supply moves out
The graph shows how supply and demand might shift in response to specific events. Suppose a heat wave destroys one-quarter of the nation's potato crop. Which panel BEST illustrates how this event will affect the market for French fries?
supply shifts to the left
Insufficient demand leads to a: shortage and rising prices. shortage and falling prices. surplus and rising prices. surplus and falling prices.
surplus and falling prices.
Money illusion is the: illusion that one's earnings this year are higher than they were last year. increase in the amount of money that it takes to purchase goods and services when prices rise. tendency to focus on nominal values instead of inflation-adjusted values. inability to understand that prices always rise.
tendency to focus on nominal values instead of inflation-adjusted values.
Consider the following graph. One of the reasons that government spending rose during the 2007 to 2009 period was the introduction of: Social Security. the Securities and Exchange Commission. the Affordable Care Act. Medicaid.
the Affordable Care Act.
In the AD-AS framework, price and quantity are represented by _____, respectively. the real GDP and the real interest rate the GDP deflator and the real GDP nominal interest rates and the real GDP the real interest rate and consumption
the GDP deflator and the real GDP
The government's debt is: the equivalent of the country's imports. the accumulation of all the deficits. always zero by the end of the year. the current year's deficit.
the accumulation of all the deficits.
If actual GDP is greater than potential GDP: unemployment must be higher than the natural rate of unemployment. the economy can experience inflation. businesses are not producing at maximum capacity. businesses can easily increase supply.
the economy can experience inflation.
If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that: the labor force participation rate has fallen significantly. the economy is experiencing an economic boom. the equilibrium rate of unemployment is 3.75%. there is 2.25% actual unemployment.
the equilibrium rate of unemployment is 3.75%.
In your media studies class, you learn that Westerns were once a staple of network television but are now less common. If the production costs per episode of Westerns are comparable to those of other scripted shows, the most likely explanation for their disappearance is that, over time: the market demand curve for Westerns shifted to the left. the market demand curve for Westerns shifted to the right. there was a movement up the market demand curve for Westerns. there was a movement down the market demand curve for Westerns.
the market demand curve for Westerns shifted to the left.
An economy's potential output level is: equivalent of the GDP at current market value .the output when unemployment is zero. the output that is possible when all resources are fully employed. the level at which no resources are available in the economy.
the output that is possible when all resources are fully employed.
What is excess demand? higher equilibrium quantity too many buyers for too few goods too much supply for too few buyers fast-changing consumer preferences
too many buyers for too few goods