ECON 2301 FINAL MEGA

Which of the following countries would economists say definitively is achieving modern economic growth?

Nigeria experiences a 2.7 percent increase in real GDP per person.

Refer to the diagram for athletic shoes. The optimal output of shoes is

Q2.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it is experiencing:

a positive GDP gap.

Actual investment equals saving:

at all below-equilibrium levels of GDP, at all above-equilibrium levels of GDP, only at the equilibrium GDP; at all levels of GDP.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

at any level of GDP below $400.

In a private closed economy, when aggregate expenditures exceed GDP:

business inventories will fall.

The study of economics is primarily concerned with:

choices that are made in seeking the best use of resources.

Increased present saving:

comes at the expense of reduced current consumption.

Which of these pairs of financial institutions are most alike in terms of their main lines of business?

commercial banks and thrifts.

Command systems are also known as:

communism.

The slope of a straight line can be determined by:

comparing the absolute vertical change to the absolute horizontal change between two points on the line.

The number of years required for real GDP to double can be found by:

dividing 70 by the annual growth rate.

Real income is found by:

dividing nominal income by the price index (in hundredths).

Real GDP per capita is found by:

dividing real GDP by population.

In the aggregate expenditures model, it is assumed that investment:

does not change when real GDP changes.

The aggregate demand curve is:

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

Contractionary fiscal policy is so named because it:

is aimed at reducing aggregate demand and thus achieving price stability.

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a:

movement downward along a fixed aggregate demand curve.

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

multiplier effect.

The system that measures the economy's overall performance is formally known as:

national income accounting.

For economists, the word "utility" means:

pleasure or satisfaction.

Full-employment output is also called:

potential output.

Suppose that an economy's labor productivity fell by 3 percent and its total worker-hours remained constant between year 1 and year 2. We could conclude that this economy's:

real GDP declined.

If nominal GDP rises:

real GDP may either rise or fall.

For a nation's real GDP per capita to rise during a year:

real GDP must increase more rapidly than population.

Productivity measures:

real output per unit of input.

From society's point of view, the economic function of profits and losses is to:

reallocate resources from less desired to more desired uses.

If Trent's MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income.

If you place a part of your summer earnings in a savings account, you are using money primarily as a:

store of value

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with:

structural unemployment.

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

structural unemployment.

The value of U.S. imports is:

subtracted from exports when calculating GDP because imports do not constitute production in the United States.

The federal budget deficit is found by:

subtracting government tax revenues from government spending in a particular year.

Value added can be determined by:

subtracting the purchase of intermediate products from the value of the sales of final products.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy:

tax revenues vary directly with GDP, but government spending is independent of GDP.

The largest contributor to increases in the productivity of American labor is:

technological advance.

The investment demand curve will shift to the right as a result of:

technological progress.

The natural rate of unemployment is:

that rate of unemployment occurring when the economy is at its potential output.

The MPC for an economy is:

the slope of the consumption schedule or line.

At the equilibrium price:

there are no pressures on price to either rise or fall.

The investment demand curve suggests:

there is an inverse relationship between the real rate of interest and the level of investment spending.

Cost-of-living adjustment clauses (COLAs):

tie wage increases to changes in the price level.

In a competitive market economy, firms select the least-cost production technique because:

to do so will maximize the firms' profits.

Per-unit production cost is:

total input cost divided by units of output.

The concept of net domestic investment refers to:

total investment less the amount of investment goods used up in producing the year's output.

A private closed economy will expand when:

unplanned decreases in inventories occur.

Shocks to the economy occur:

when expectations are unmet.

Which of the following economic regions has experienced the least growth in real GDP per capita since 1820?

Africa.

Refer to the table. Between years 2 and 3:

Alta's real GDP grew more rapidly than Zorn's real GDP.

Under what circumstances do rates of economic growth understate the growth of economic well-being?

Product quality has improved.

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:

a portion of a tax cut will be saved.

The phase of the business cycle in which real GDP declines is called:

a recession.

Economic growth is best defined as an increase in:

either real GDP or real GDP per capita.

Transfer payments are:

excluded when calculating GDP because they do not reflect current production.

Net exports are:

exports less imports.

In the aggregate expenditures model, a reduction in taxes may:

increase saving.

Growth is advantageous to a nation because it:

lessens the burden of scarcity.

At the equilibrium GDP for a private open economy:

net exports may be either positive or negative.

The aggregate supply curve (short run):

slopes upward and to the right.

A nation's production possibilities curve might shift to the left (inward) as a result of:

the depletion of its soil fertility due to overplanting and overgrazing.

Economies of scale refer to:

the fact that large producers may be able to use more efficient technologies than smaller producers.

The public debt is the amount of money that:

the federal government owes to holders of U.S. securities.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

the foreign purchases effect.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

A lump-sum tax means that:

the same amount of tax revenue is collected at each level of GDP.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

An appreciation of the U.S. dollar.

A high rate of inflation is likely to cause a:

high nominal interest rate.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

increase by $10 billion.

In the diagram, a shift from AS2 to AS3 might be caused by a(n):

increase in business taxes and costly government regulation.remain unchanged.

Refer to the diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n):

increase in investment spending.

Real GDP is preferred to nominal GDP as a measure of economic performance because:

nominal GDP uses current prices and thus may over- or understate true changes in output.

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are:

not counted

Strong property rights are important for modern economic growth because:

people are more likely to invest if they don't fear that others can take their returns on investment without compensation.

During a period of hyperinflation:

people tend to hold goods rather than money.

The unemployment rate is the:

percentage of the labor force that is unemployed.

A checking account entry is money because it:

performs the functions of money.

In a private closed economy, when aggregate expenditures equal GDP:

planned investment equals saving.

The political business cycle refers to the possibility that:

politicians will manipulate the economy to enhance their chances of being reelected.

The demand curve shows the relationship between:

price and quantity demanded.

The figure depicts a situation where:

prices are sticky, but output is flexible.

The location of the product supply curve depends on the:

production technology.

Tom Atoe grows fruits and vegetables for home consumption. This activity is:

productive but is excluded from GDP because no market transaction occurs.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in:

productivity.

Other things equal, an improvement in productivity will:

shift the aggregate supply curve to the right.

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

wage contracts.

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

Nominal GDP would rise, but real GDP would be unchanged.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of:

Okun's law.

Economic systems differ according to which two main characteristics?

Who owns the factors of production and the methods used to coordinate economic activity.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

aggregate demand curve would shift to the right.

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect:

aggregate demand to decrease and aggregate supply to increase.

Refer to the diagram for a private closed economy. At the $300 level of GDP:

aggregate expenditures and GDP are equal.

At equilibrium real GDP in a private closed economy:

aggregate expenditures and real GDP are equal.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that:

all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

The assertion that "there is no free lunch" means that:

all production involves the use of scarce resources and thus the sacrifice of alternative goods.

The 45-degree line on a graph relating consumption and income shows:

all the points at which consumption and income are equal.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that:

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

There will be a surplus of a product when:

consumers want to buy less than producers offer for sale.

Other things equal, the multiplier effect associated with a change in government spending is:

equal to that associated with a change in investment or consumption.

The economy's long-run AS curve assumes that wages and other resource prices:

eventually rise and fall to match upward or downward changes in the price level.

If competitive industry Z is making substantial economic profit, output will:

expand in industry Z as more resources will move to that industry.

Other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right.

The economy's long-run aggregate supply curve:

is vertical.

The use of money contributes to economic efficiency because:

it promotes specialization by overcoming the problems with barter.

The percentage of the working-age population in the labor force (= employed + officially unemployed) is called the:

labor force participation rate.

In constructing models, economists:

make simplifying assumptions.

The fundamental invention underpinning the 1995-2012 rise in the average rate of productivity growth is the:

microchip.

Economics involves marginal analysis because:

most decisions involve changes from the present situation.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

Other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve.

(Consider This) The ratchet effect is the tendency of:

the price level to increase but not to decrease.

Human capital refers to:

the skills and knowledge that enable a worker to be productive.

Suppose total output (real GDP) is $4,000 and labor productivity is $8. We can conclude that:

the number of worker-hours must be 500.

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect.

Real per capita GDP:

was much more equal across nations in 1820 than it is today.

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

wealth effect.

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is:

$30.

If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:

$360 billion.

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the question on the basis of these data. Refer to the data. If year 2 is chosen as the base year, the price index for year 1 is:

100.

If the MPC is .6, the multiplier will be:

2.5.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

20 percent.

In the depth of the Great Depression, the unemployment rate in the United States was about:

25 percent.

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

3 percent

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

3 percent.

If the demand curve for product B shifts to the right as the price of product A declines, then:

A and B are complementary goods.

Which of the following is an example of a supply shock?

A dramatic increase in energy prices increases production costs for firms in the economy.

Which of the following is a final good or service?

A haircut purchased by a father for his 12 year-old son.

Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible?

A only.

Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing?

A only.

Refer to the diagram. The equilibrium price and quantity in this market will be: A. $1.00 and 200. B. $1.60 and 130. C. $0.50 and 130. D. $1.60 and 290.

A. $1.00 and 200.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be: A. 0F and 0C, respectively. B. 0G and 0B, respectively. C. 0F and 0A, respectively. D. 0E and 0B, respectively.

A. 0F and 0C, respectively.

Refer to the diagram. A government-set price ceiling is best illustrated by: A. price A. B. quantity E. C. price C. D. price B.

A. price A.

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is:

$1,200.

Answer the question on the basis of the following data. All figures are in billions of dollars. The gross domestic product for the above economy is:

$101.

Answer the question on the basis of the following data. All figures are in billions of dollars: Refer to the data. GDP is:

$121.

Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is:

$200,000

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

$210 billion.

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

$24,000

At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:

$38 billion.

Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by:

$40 billion.

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

$50 billion.

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is:

$510 billion.

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it. This reality illustrates:

achieving points beyond the production possibilities curve through international specialization and trade.

The GDP gap measures the difference between:

actual GDP and potential GDP.

Planned investment plus unintended increases in inventories equals:

actual investment.

Saving is always equal to:

actual investment.

In the treatment of U.S. exports and imports, national income accountants:

add exports, but subtract imports, in calculating GDP.

Specialization—the division of labor—enhances productivity and efficiency by:

allowing workers to take advantage of existing differences in their abilities and skills; avoiding the time loss involved in shifting from one production task to another; allowing workers to develop skills by working on one, or a limited number, of tasks.

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the:

amount of oranges that will be available at various prices has declined.

If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause:

an $8 billion downshift in the consumption schedule.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

an excess of government expenditures over tax receipts.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with:

an expansionary fiscal policy.

Refer to the given diagram. Consumption will be equal to income at:

an income of E.

The multiplier effect means that:

an increase in investment can cause GDP to change by a larger amount.

If we say that two variables are directly related, this means that:

an increase in one variable is associated with an increase in the other variable.

Inflation is defined as:

an increase in the overall level of prices.

The interest-rate effect suggests that:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

In national income accounting, the consumption category of expenditures includes purchases of:

automobiles for personal use but not houses.

As disposable income goes up, the:

average propensity to consume falls.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the:

budget surplus.

Recurring upswings and downswings in an economy's real GDP over time are called:

business cycles.

The investment demand curve will shift to the right as the result of:

businesses becoming more optimistic about future business conditions.

Real GDP per capita:

can grow either more slowly or more rapidly than real GDP.

Assume that in 2002 the nominal GDP was $350 billion and in 2003 it was $375 billion. On the basis of this information, we:

cannot make a meaningful comparison of the economy's performance in 2002 relative to 2003.

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

capital goods and durable consumer goods.

The MPC can be defined as that fraction of a:

change in income that is spent.

In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP.

The largest component of national income is:

compensation of employees.

The regulatory mechanism of the market system is:

competition.

Blu-ray players and Blu-ray discs are:

complementary goods.

The U.S. public debt:

consists of the historical accumulation of all past federal deficits and surpluses.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

consume is three-fifths.

The dollar votes of consumers ultimately determine the composition of output and the allocation of resources in a market economy. This statement best describes the concept of:

consumer sovereignty.

GDP can be calculated by summing:

consumption, investment, government purchases, and net exports.

The largest component of total expenditures in the United States is:

consumption.

If competitive industry Y is incurring substantial losses, output will:

contract as resources move away from industry Y.

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation.

An effective expansionary fiscal policy will:

increase the cyclically adjusted deficit but reduce the actual deficit.

Investment spending in the United States tends to be unstable because:

expected profits are highly variable, capital goods are durable, innovation occurs at an irregular pace.

The immediate determinants of investment spending are the:

expected rate of return on capital goods and the real interest rate.

The level of aggregate expenditures in the private closed economy is determined by the:

expenditures of consumers and businesses.

A nation's gross domestic product (GDP):

is the dollar value of all final output produced within the borders of the nation during a specific period of time and can be found by summing C + Ig + G + Xn.

When deriving the aggregate demand (AD) curve from the aggregate expenditures model, an increase in U.S. product prices would cause an increase in:

interest rates and lower investment expenditures.

Price floors and ceiling prices:

interfere with the rationing function of prices.

Economic historians date the start of the Industrial Revolution around the year 1776, when James Watt:

invented and built a more powerful and efficient steam engine.

An economic system:

is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.

A market:

is an institution that brings together buyers and sellers.

If an unintended increase in business inventories occurs at some level of GDP, then GDP:

is too high for equilibrium.

A decline in investment will shift the AD curve to the:

left by a multiple of the change in investment.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level.

A contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

A lender need not be penalized by inflation if the:

lender correctly anticipates inflation and increases the nominal interest rate accordingly.

A decrease in aggregate demand will cause a greater decline in real output the:

less flexible is the economy's price level.

The most important determinant of consumption and saving is the:

level of income.

Most economists agree that the immediate determinant of the volume of output and employment is the:

level of total spending.

When economists say that people act rationally in their self-interest, they mean that individuals:

look for and pursue opportunities to increase their utility.

The greater the required reserve ratio, the:

lower is the monetary multiplier

The practical significance of the multiplier is that it:

magnifies initial changes in spending into larger changes in GDP.

Countries that have experienced modern economic growth have also tended to:

move toward more democratic forms of government.

The smallest component of aggregate spending in the United States is:

net exports.

If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that:

net investment is negative.

A private closed economy includes:

households and businesses, but not government or international trade.

The simple circular flow model shows that:

households are on the selling side of the resource market and on the buying side of the product market.

In the resource market:

households sell resources to businesses.

Michigan: Has surplus of Autos and wants lettuce. Texas: Has surplus of Autos and wants apples. Washington: Has surplus of apples and wants autos. On the basis of the information, it can be said that:

no coincidence of wants exists between any two states.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of:

purposeful behavior.

Recessions have contributed to the public debt by:

reducing national income and therefore tax revenues.

Demand shocks:

refer to unexpected changes in the desires of households and businesses to buy goods and services.

In the United States, business cycles have occurred against a backdrop of a long-run trend of:

rising real GDP.

If an economy wants to increase its current level of investment, it must:

sacrifice current consumption.

Households and businesses are:

sellers in the resource and product markets respectively.

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would:

shift downward.

Refer to the graph. Growth of production capacity is shown by the:

shift from AB to CD.

The wealth effect is shown graphically as a:

shift of the consumption schedule.

A decrease in the price of digital cameras will:

shift the demand curve for memory cards to the right.

An improvement in production technology will:

shift the supply curve to the right.

If the price of product L increases, the demand curve for close-substitute product J will:

shift to the right.

An increase in money income:

shifts the consumer's budget line to the right.

The two topics of primary concern in macroeconomics are:

short-run fluctuations in output and employment and long-run economic growth.

The business cycle depicts:

short-run fluctuations in output and employment.

Economic profits in an industry suggest the industry:

should be larger to better satisfy consumers' desire for the product.

The aggregate demand curve:

shows the amount of real output that will be purchased at each possible price level.

The aggregate supply curve:

shows the various amounts of real output that businesses will produce at each price level.

Which of the diagrams best portrays the effects of declines in the prices of imported resources?

A

Which of the following represents the most expansionary fiscal policy?

A $10 billion increase in government spending.

Which of the following would reduce GDP by the greatest amount?

A $20 billion decrease in government spending.

Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky?

B only.

The consumption schedule is such that:

the MPC is constant and the APC declines as income rises.

Real GDP per capita in the United States (as of 2010) exceeds that of France primarily because:

the United States has a higher percentage of the working-age population in the labor force and because U.S. employees average about 14 percent more hours worked per year.

When the economy is at full employment:

the actual and the cyclically adjusted budgets will be equal.

If actual GDP is less than potential GDP:

the actual unemployment rate will be higher than the natural unemployment rate.

The equilibrium price level and level of real output occur where:

the aggregate demand and supply curves intersect.

Refer to the diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant:

the aggregate supply curve would have to shift rightward.

The Industrial Revolution and modern economic growth resulted in:

the average human lifespan more than doubling.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400:

the budget will be balanced.

To say that "the U.S. public debt is mostly held internally" is to say that:

the bulk of the public debt is owned by U.S. citizens and institutions.

The production possibilities curve tells us:

the combinations of two goods that can be produced with society's available resources.

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:

the crowding-out effect.

When current government expenditures exceed current tax revenues and the economy is achieving full employment:

the cyclically adjusted budget has a deficit.

When current tax revenues exceed current government expenditures and the economy is achieving full employment:

the cyclically adjusted budget has a surplus.

Opportunity costs exist because:

the decision to engage in one activity means forgoing some other activity.

Value added refers to:

the difference between the value of a firm's output and the value of the inputs it has purchased from others.

A fundamental difference between the command system and laissez-faire capitalism is that, in command systems:

the division of output is decided by central planning rather than by individuals operating freely through markets.

At the economy's natural rate of unemployment:

the economy achieves its potential output.

If depreciation exceeds gross investment:

the economy's stock of capital is shrinking.

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by:

the increase in productivity.

The most important determinant of consumer spending is:

the level of income.

As it relates to economic growth, the term long-run trend refers to:

the long-term expansion or contraction of business activity that occurs over 50 or 100 years.

A production possibilities curve shows:

the maximum amounts of two goods that can be produced, assuming the full use of available resources.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:

the official unemployment rate will remain unchanged.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

the price level is inflexible downward and a recession has occurred.

In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is:

the price of the product itself.

If there is a shortage of product X, and the price is free to change:

the price of the product will rise.

In moving along a given budget line:

the prices of both products and money income are assumed to be constant.

At the point where the demand and supply curves for a product intersect:

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

When the receipts given by goldsmiths to depositors were used to make purchases:

the receipts became in effect paper money.

Nominal GDP is:

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

The phase of the business cycle in which real GDP is at a minimum is called:

the trough.

Productive efficiency refers to:

the use of the least-cost method of production.

If the economy adds to its inventory of goods during some year:

this amount should be included in calculating that year's GDP.

The shape of the immediate-short-run aggregate supply curve implies that:

total output depends on the volume of spending.

Labor productivity is defined as:

total output/worker-hours.

Official unemployment statistics:

understate unemployment because discouraged workers are not counted as unemployed.

Stock market price quotations best exemplify money serving as a:

unit of account

The scientific method is:

used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

Real GDP measures the:

value of final goods and services produced within the borders of a country, corrected for price changes.

The cyclically adjusted budget tells us:

what the size of the federal budget deficit or surplus would be if the economy was at full employment.

To say money is socially defined means that:

whatever performs the functions of money extremely well is considered to be money.

An economy is enlarging its stock of capital goods:

when gross investment exceeds replacement investment.

Built-in stability means that:

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

The incentive problem under communist central planning refers to the idea that:

workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products.

Which of the diagrams illustrate(s) the effect of a decline in the price of irrigation equipment on the market for corn?

C only.

Refer to the diagram. If this is a competitive market, price and quantity will move toward: A. $60 and 100, respectively. B. $60 and 200, respectively. C. $40 and 150, respectively. D. $20 and 150, respectively.

C. $40 and 150, respectively.

Refer to the diagram. A government-set price floor is best illustrated by: A. price A. B. quantity E. C. price C. D. price B.

C. price C.

Refer to the diagram. A decrease in demand is depicted by a: A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.

C. shift from D2 to D1.

Refer to the diagram. A decrease in supply is depicted by a: A. move from point x to point y. B. shift from S1 to S2. C. shift from S2 to S1. D. move from point y to point x.

C. shift from S2 to S1.

Refer to the given diagram. At income level F, the volume of saving is:

CD.

In a mixed open economy, the equilibrium GDP exists where:

Ca + Ig + Xn + G = GDP.

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output?

Capital goods.

Which of the following statements is most accurate about the prospects for poorer ("follower") countries catching up with richer ("leader") countries?

Catching up is possible as "follower countries" tend to grow faster than "leader countries."

Which of the following is an example of a demand shock?

Consumers become worried about job loss and buy fewer goods and services than expected.

The group of three economists appointed by the president to provide fiscal policy recommendations is the:

Council of Economic Advisers.

Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services?

Cyclical unemployment.

Refer to the diagram. A price of $60 in this market will result in: A. equilibrium. B. a shortage of 50 units. C. a surplus of 50 units. D. a surplus of 100 units.

D. a surplus of 100 units.

Refer to the diagram. A decrease in quantity demanded is depicted by a: A. move from point x to point y. B. shift from D1 to D2. C. shift from D2 to D1. D. move from point y to point x.

D. move from point y to point x.

Refer to the diagram. A price of $20 in this market will result in a: A. shortage of 50 units. B. surplus of 50 units. C. surplus of 100 units. D. shortage of 100 units.

D. shortage of 100 units.

Which of the following statements is most accurate about advanced economies?

Economies experience a positive growth trend over the long run but experience significant variability in the short run.

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Expansion.

Which of the following best explains why prices tend to be inflexible even when demand changes?

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:

GDP in 2010 is $500 billion.

Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when:

GDP is $60 billion.

Which of the following is used to measure directly the average standard of living across countries?

GDP per person.

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion:

GDP will remain at $400 billion unless aggregate expenditures change.

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

Goods and services produced in the underground economy.

Refer to the graphs. Assume that pizza is measured in slices and beer in pints. In which of the graphs is the opportunity cost of a pint of beer equal to one slice of pizza?

Graph D.

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

Great Depression.

Which of the following best measures improvements in the standard of living of a nation?

Growth of real GDP per capita.

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

Higher expected rates of return on investment.

(Last Word) In The General Theory of Employment, Interest, and Money:

John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself.

(Last Word) Say's law and classical macroeconomics were disputed by:

John Maynard Keynes.

Which of the following is most closely related to recessions?

Negative real growth in output.

The economic perspective entails:

a comparison of marginal benefits and marginal costs in decision making.

A price index is:

a comparison of the current price of a market basket to a fixed point of reference.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD3 to AD2 is consistent with:

a contractionary fiscal policy.

An upward shift of the aggregate expenditures schedule might be caused by:

a decrease in imports, with no change in exports.

If two goods are complements:

a decrease in the price of one will increase the demand for the other.

In the diagram, a shift from AS1 to AS2 might be caused by:

a decrease in the prices of domestic resources.

Microeconomics is concerned with:

a detailed examination of specific economic units that make up the economic system.

The value added of a firm is the market value of:

a firm's output less the value of the inputs bought from others.

A large negative GDP gap implies:

a high rate of unemployment.

The real-balances effect indicates that:

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

When economists say that money serves as a medium of exchange, they mean that it is:

a means of payment

When economists say that money serves as a unit of account, they mean that it is:

a monetary unit for measuring and comparing the relative values of goods.

Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing:

a negative GDP gap.

Cost-push inflation may be caused by:

a negative supply shock.

A college graduate using the summer following graduation to search for a job would best be classified as:

a part of frictional unemployment.

Unemployment describes the condition where:

a person cannot get a job but is willing to work and is actively seeking work.

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:

a rapid decline in investment spending.

Economists use the term "demand" to refer to:

a schedule of various combinations of market prices and amounts/quantities demanded.

Refer to the diagram. A price of $60 in this market will result in:

a surplus of 100 units.

An appropriate fiscal policy for severe demand-pull inflation is:

a tax rate increase.

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. Refer to the information. The $40 billion deposit of currency into checking accounts will initially create:

$40 billion of new checkable deposits.

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

$5,000

Suppose that the federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?

All of these are possible outcomes.

Refer to the given diagram. Suppose an economy's consumption schedule shifts from C1 to C2 as shown in the diagram. We can say that its:

MPC and APC at each income level have both increased.

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase:

consumption by $80 billion.

Commercial banks and thrift institutions:

have become increasingly similar in recent years.

If aggregate expenditures exceed GDP in a private closed economy:

planned investment will exceed saving.

When a bank has a check drawn and cleared against it:

the amount of required reserves the bank must have will fall

Refer to the figure. The consumption schedule indicates that:

up to a point consumption exceeds income but then falls below income.

Stabilizing a nation's price level and the purchasing power of its money can be achieved:

with both fiscal and monetary policy.

Net exports are negative when:

a nation's imports exceed its exports.

All else equal, a large decline in the real interest rate will shift the:

investment schedule upward.

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:

investment will take place until i and r are equal.

The multiplier applies to:

investment, net exports, and government spending.

The process of producing and accumulating capital goods is called:

investment.

If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP:

is $500.

Refer to the diagram. The break-even level of income is:

$150.

A normative statement is one that:

is based on value judgments.

The Federal Reserve System:

is basically an independent agency.

According to economists, economic self-interest:

is a reality that underlies economic behavior.

According to economists, economic selfinterest:

is a reality that underlies economic behavior.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP.

The French term "laissez-faire" means:

"let it be."

Savings are generated whenever:

current income exceeds current spending.

Tennis rackets and ballpoint pens are:

independent goods.

Competition means that:

there are independently acting buyers and sellers in each market.

An exchange rate:

is the price that the currencies of any two nations exchange for one another.

The multiplier is:

1/MPS.

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

Macroeconomics is mostly focused on:

the economy as a whole.

Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods:

would involve an inefficient use of the economy's scarce resources.

Which of the following would increase GDP by the greatest amount?

A $20 billion increase in government spending

Which of the following represents the most contractionary fiscal policy?

A $30 billion decrease in government spending.

The public debt is held as:

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

In 2012, the U.S. public debt was about:

$16.4 trillion.

The market system's answer to the fundamental question "How will the system accommodate change?" is essentially:

"Through the guiding function of prices and the incentive function of profits."

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. The per-unit cost of production in this economy is:

$0.10.

Refer to the table. The value of the dollar in year 3 is:

$1.25.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about:

30 percent.

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is:

300.

What percentage of the U.S. adult population has a college or post-college education (as of 2012)?

31 percent.

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?

33 percent.

Based on the annual number of hours worked per capita, labor supply in the United States exceeds that of France by about _______ percent.

34

In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______.

3; 2; 1

Refer to the given diagram. The marginal propensity to consume is equal to:

CB/AB.

Examples of command economies are:

Cuba and North Korea.

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that:

Holly's statement is normative, but Ben's is positive.

Answer the question on the basis of the following information: Suppose 30 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively. Refer to the information. Which technique is economically most efficient in producing A?

IV.

If the equilibrium level of GDP in a private open economy is $1,000 billion and consumption is $700 billion at that level of GDP, then:

Ig + Xn must equal $300 billion.

Why are economists concerned about inflation?

Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

Which of the following is correct?

MPC + MPS = APC + APS.

Which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

The aggregate expenditures model is built upon which of the following assumptions?

Prices are fixed.

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

Prices are sticky in the short run.

Which of the following statements best describes price flexibility in the economy?

Prices tend to be sticky in the short run but become more flexible over time.

Other things equal, which of the following might shift the demand curve for gasoline to the left?

The development of a low-cost electric automobile.

Which of the following would most likely increase the demand for gasoline?

The expectation by consumers that gasoline prices will be higher in the future.

In moving along a demand curve, which of the following is not held constant?

The price of the product for which the demand curve is relevant.

In moving along a supply curve, which of the following is not held constant?

The price of the product for which the supply curve is relevant.

Which of the following do national income accountants consider to be investment?

The purchase of a new house.

A decline in disposable income:

decreases consumption by moving downward along a specific consumption schedule.

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

.1.

Refer to the given data. At the $100 level of income, the average propensity to save is:

.10.

Refer to the given diagram. The marginal propensity to consume is:

.8.

Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy. The average propensity to save at this level of output is:

0.10.

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

12 percent.

If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately:

14 years.

With a marginal propensity to save of .4, the marginal propensity to consume will be:

1.0 minus .4.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. The labor force in Scoob is:

102 million.

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent.

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

12 percent

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines:

4 and 3.

What percentage of the U.S. public debt is held by federal agencies and the Federal Reserve?

40 percent.

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately:

44 percent.

Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta.

5

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

6 percent.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. The unemployment rate in Scoob is:

6.9 percent.

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is:

8 percent.

What percentage of the U.S. adult population has at least a high school education (as of 2012)?

88 percent.

Which of the following is correct?

APC + APS = 1.

Suppose a family's consumption exceeds its disposable income. This means that its:

APC is greater than 1.

Which of the following economic regions has experienced the least growth in real GDP per capita since 1820?

Africa

In which of the following sets of circumstances can we confidently expect inflation?

Aggregate supply decreases and aggregate demand increases.

Which of the following will cause the demand curve for product A to shift to the left?

An increase in money income if A is an inferior good.

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: A. $30. B. $60. C. $40. D. $20.

B. $60.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. the equilibrium position has shifted from M to K. B. an increase in demand has been more than offset by an increase in supply. C. the new equilibrium price and quantity are both greater than originally. D. point M shows the new equilibrium position.

B. an increase in demand has been more than offset by an increase in supply.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. supply has decreased and equilibrium price has increased. B. demand has increased and equilibrium price has decreased. C. demand has decreased and equilibrium price has decreased. D. demand has increased and equilibrium price has increased.

B. demand has increased and equilibrium price has decreased.

Which of the following would an economist consider to be investment?

Boeing building a new factory.

The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the:

Bureau of Economic Analysis.

The government agency responsible for collecting and reporting unemployment data is the:

Bureau of Labor Statistics.

The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by:

a budget line.

Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF?

Lender of last resort

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the:

M1 money supply will decline and M2 supply will remain unchanged

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the:

M1 money supply will not change

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the:

MPC is greater in A than in B.

Refer to the given diagram. Suppose the economy's saving schedule shifts from S1 to S2 as shown in the given diagram. We can say that its:

MPS has increased.

Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information, we can say that the:

MPS in this economy is .4.

Which of the following statements is most accurate about modern economic growth?

Modern economic growth is characterized by sustained and ongoing increases in living standards.

Transfer payments are included in:

PI.

What is the primary function of the Term Asset-Backed Securities Loan Facility?

Provide funding support for collateralized securities such as student, auto, and credit card loans.

If the monetary authorities want to reduce the monetary multiplier, they should:

Raise the legal reserve ration

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

In a mixed open economy, the equilibrium GDP is determined at that point where:

Sa + M + T = Ig + X + G.

Which of the following statements is correct for a private closed economy?

Saving equals planned investment only at the equilibrium level of GDP.

Which of the following constitute the types of unemployment occurring at the natural rate of unemployment?

Structural and frictional unemployment.

Suppose Smith pays $100 to Jones.

We need more information to determine whether GDP has changed.

The phrase "too much money chasing too few goods" best describes:

demand-pull inflation.

Which of the following characteristics is least unique to a market system?

The widespread use of money.

Why are high rates of unemployment of concern to economists?

There is lost output that could have been produced if the unemployed had been working.

Which of the following is correct?

Total output = worker-hours × labor productivity.

Which of the following economic regions has experienced the most growth in real GDP per capita since 1820?

United States.

Which of the following institutional arrangements is most likely to promote growth?

Unrestricted trade between nations.

Which of the following is most likely to be an inferior good?

Used clothing.

The United States' economy is considered to be at full employment when:

about 4-5 percent of the labor force is unemployed.

In 2012, the U.S. federal debt held by the public was:

about 70 percent of the size of the GDP.

A surplus of a product will arise when price is:

above equilibrium, with the result that quantity supplied exceeds quantity demanded.

Efficiency wages are:

above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

The invisible hand concept suggests that:

assuming competition, private and public interests will coincide.

Economic growth can be portrayed as:

an outward shift of the production possibilities curve.

If for some reason households become increasingly thrifty, we could show this by:

an upward shift of the saving schedule.

As disposable income increases, consumption:

and saving both increase.

National income accountants define investment to include:

any increase in business inventories.

Inflation is undesirable because it:

arbitrarily redistributes real income and wealth.

In the diagram, it is assumed that investment, net exports, and government purchases:

are independent of the level of GDP.

Menu costs:

are the costs to firms of changing prices and communicating them to customers.

Unintended changes in inventories:

bring actual investment and saving into equality at all levels of GDP.

The amount by which government expenditures exceed revenues during a particular year is the:

budget deficit.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that:

bicycles are normal goods.

The immediate-short-run aggregate supply curve represents circumstances where:

both input and output prices are fixed.

The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:

creative destruction.

The federal government has a large public debt that it finances through borrowing. As a result, real interest rates are higher than otherwise and the volume of private investment spending is lower. This illustrates the:

crowding-out effect.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Refer to the given information. If the natural rate of unemployment in Scoob is 5 percent, then:

cyclical unemployment is about 2 percent.

The type of unemployment associated with recessions is called:

cyclical unemployment.

If the full-employment GDP for the economy is at L, then we can say with certainty that the:

cyclically adjusted budget will have a surplus.

Economists refer to a budget deficit that exists when the economy is achieving full employment as a:

cyclically adjusted deficit.

If X is a normal good, a rise in money income will shift the:

demand curve for X to the right.

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara:

decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would:

decline.

In the United States from 1929 to 1933, real GDP _____________ and the unemployment rate ________________.

declined by 27 percent; rose to 25 percent

Other things equal, appreciation of the dollar:

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

Discretionary fiscal policy will stabilize the economy most when:

deficits are incurred during recessions and surpluses during inflations.

Countercyclical discretionary fiscal policy calls for:

deficits during recessions and surpluses during periods of demand-pull inflation.

With the expenditures programs and the tax system shown in the diagram:

deficits will occur at income levels below K, and surpluses above K.

Real income can be determined by:

deflating nominal income for inflation.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation of 3.33 percent.

Fiscal policy refers to the:

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

If the United States wants to increase its net exports in the short term, it might take steps to:

depreciate the dollar compared to foreign currencies.

Other things equal, a serious recession in the economies of U.S. trading partners will:

depress real output and employment in the U.S. economy.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the:

determinants of aggregate demand.

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

direct; inverse

The amount of after-tax income received by households is measured by:

disposable income.

Refer to the given data. At the $200 level of disposable income:

dissaving is $5.

The production of durable goods varies more than the production of nondurable goods because:

durables purchases are postponable.

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Refer to the information. Positive net investment is occurring in:

economy C only.

The labor force includes:

employed workers and persons who are officially unemployed.

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

Property rights are important because they:

encourage cooperation by improving the chances of mutually agreeable transactions.

A competitive market system:

encourages growth by allowing producers to make profitable investment decisions based on market signals.

Free Trade:

encourages growth by promoting the rapid spread of new inventions and innovations.

The competitive market system:

encourages innovation because successful innovators are rewarded with economic profits.

Private property:

encourages owners to maintain or improve their property so as to preserve or enhance value.

It is true that:

equal increases in government spending and taxes increase the equilibrium GDP.

Prices and wages tend to be:

flexible upward, but inflexible downward.

A normal good is one:

for which the consumption varies directly with income.

Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is:

frictionally unemployed.

Part-time workers who want full-time work are counted as:

fully employed and therefore the official unemployment rate may understate the level of unemployment.

Final goods and services refer to:

goods and services purchased by ultimate users, rather than for resale or further processing.

Government purchases include government spending on:

government consumption goods and public capital goods.

A price floor means that:

government is imposing a minimum legal price that is typically above the equilibrium price.

The term "laissez-faire" suggests that:

government should not interfere with the operation of the economy.

Higher rates of unemployment are linked with:

higher crime rates as the unemployed seek to replace lost income.

The law of increasing opportunity costs states that:

if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of another good to do so.

A market is in equilibrium:

if the amount producers want to sell is equal to the amount consumers want to buy.

Gross domestic product (GDP) measures and reports output:

in dollar amounts and percentage growth.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

income effect.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports.

Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE1 to AE2 would:

increase aggregate demand from AD1 to AD2.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

increase aggregate demand.

Other things equal, a reduction in personal and business taxes can be expected to:

increase both aggregate demand and aggregate supply.

If a nation imposes tariffs and quotas on foreign products, the immediate effect will be to:

increase domestic output and employment.

In the diagram, a shift from AS1 to AS3 might be caused by a(n):

increase in the prices of imported resources.

Other things equal, an increase in an economy's exports will:

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

In the aggregate expenditures model, an increase in government spending may:

increase output and employment.

(Consider This) Over the past several decades, the percentage of women in the paid U.S. workforce has:

increased due to higher wages, expanded job accessibility, changing preferences and attitudes, and other factors.

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information we can conclude that Harry's production of large pepperoni pizzas this year:

increased nominal GDP by $20,000 but left real GDP unchanged.

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information we can conclude that Harry's production of large pepperoni pizzas:

increased nominal GDP from last year, but real GDP was unaffected.

The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008:

increased the moral hazard problem by limiting losses from bad financial decisions.

An economist who favored expanded government would recommend:

increases in government spending during recession and tax increases during inflation.

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

More than half the growth of real GDP in the United States is caused by:

increases in the productivity of labor.

Network effects are:

increases in the value of a product to each user, including existing users, as the total number of users rises.

A government subsidy to the producers of a product:

increases product supply.

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

increasing government spending by $4 billion.

Broadly defined, competition involves:

independently acting buyers and sellers and freedom to enter or leave markets.

A demand curve:

indicates the quantity demanded at each price in a series of prices.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are:

inferior goods.

Suppose a nation's 2010 nominal GDP was $972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be:

inflated to $1,080 billion.

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible.

Discretionary fiscal policy refers to:

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

The average tax rate required to service the public debt is roughly measured by:

interest on the debt as a percentage of the GDP.

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are:

not counted.

Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:

not in the labor force.

The invisible hand refers to the:

notion that, under competition, decisions motivated by self-interest promote the social interest.

Supply shocks:

occur when sellers face unexpected changes in the availability and/or prices of key inputs.

Demand-pull inflation:

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

National income accountants can avoid multiple counting by:

only counting final goods.

The Latin term "ceteris paribus" means:

other things equal.

The term "recession" describes a situation where:

output and living standards decline.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by:

panel (A) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by:

panel (B) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by:

panel (B) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment, and price stability are depicted by:

panel (C) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by:

panel (C) only.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by:

panels (A) and (B).

Inflation means that:

prices on average are rising, although some particular prices may be falling.

The law of supply indicates that, other things equal:

producers will offer more of a product at high prices than at low prices.

Allocative efficiency is concerned with:

producing the combination of goods most desired by society.

Other things equal, if the price of a key resource used to produce product X falls, the:

product supply curve of X will shift to the right.

Banks and other financial institutions:

promote economic growth by helping to direct household saving to businesses that want to invest.

The primary purpose of the legal reserve requirement is to:

provide a means by which the monetary authorities can influence the lending ability of commercial banks

A nation's infrastructure refers to:

public capital goods such as highways and sanitation systems.

In national income accounting, government purchases include:

purchases by federal, state, and local governments.

Before the period of modern economic growth:

rates of population growth virtually matched rates of output growth.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:

rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.

The three statistics that are the main focus for those measuring macroeconomic health are:

real GDP, inflation, and unemployment.

A recession is defined as a period in which:

real domestic output falls.

Modern economic growth refers to countries that have experienced an increase in:

real output per person.

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

reduce worker morale and work effort, and thus lower productivity.

In an effort to stop the U.S. recession of 2007-2009, the federal government:

reduced taxes and increased government spending.

Cost-push inflation:

reduces real output.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will:

remain constant.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. All else being equal, if the price of each input increased from $4 to $6, productivity would:

remain unchanged.

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by Congress to be made effective.

When economists refer to "investment," they are describing a situation where:

resources are devoted to increasing future output.

When an economy is operating under conditions of full employment, the production of more of commodity A will mean the production of less of commodity B because:

resources are limited.

An effective ceiling price will:

result in a product shortage.

An effective price floor will:

result in a product surplus.

An effective price floor on wheat will:

result in a surplus of wheat.

Specialization in production is important primarily because it:

results in greater total output.

An increase in net exports will shift the AD curve to the:

right by a multiple of the change in investment.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

rightward by $50 billion at each price level.

An expansionary fiscal policy is shown as a:

rightward shift in the economy's aggregate demand curve.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will:

rise by about 1 percent.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

rise by about 15 percent.

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

A leftward shift of a product supply curve might be caused by:

some firms leaving an industry.

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because:

some of the tax increase will be paid out of income that would otherwise have been saved.

Suppose that inventories were $80 billion in 2012 and $70 billion in 2013. In 2013, national income accountants would:

subtract $10 billion from other elements of investment in calculating total investment.

The concept of opportunity cost:

suggests that the use of resources in any particular line of production means that alternative outputs must be forgone.

Corporate profits are found by:

summing corporate income taxes, dividends, and undistributed corporate profits.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. Given an increase in input price from $4 to $6, we would expect the aggregate:

supply curve to shift to the left.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate:

supply curve would shift to the left.

An economist who favors smaller government would recommend:

tax cuts during recession and reductions in government spending during inflation.

Economic growth rates in follower countries:

tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs.

Dissaving means:

that households are spending more than their current incomes.

At the point where the consumption schedule intersects the 45-degree line:

the APC is 1.00.

Nominal GDP is adjusted for price changes through the use of:

the GDP price index.

If intermediate goods and services were included in GDP:

the GDP would be overstated.

(Last Word) Classical macroeconomics was dealt severe blows by:

the Great Depression and Keynes's macroeconomic theory.

Which aggregate expenditure schedule(s) AE in the diagram for a private closed economy represent(s) the highest level of investment, assuming investment is the same at each level of income and the level of consumption at zero income is the same for each schedule?

AE2 and AE3.

Which of the following describes the identity embodied in a balance sheet?

Assets equal liabilities plus net worth

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's:

balance sheet will be unchanged.

When a check is drawn and cleared, the

bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures on national defense will cause equilibrium GDP to:

decrease by $50 billion.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as:

medium of exchange

Purchasing common stock by writing a check best exemplifies money serving as a:

medium of exchange

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is:

5

The relationship between consumption and disposable income is such that:

a direct and relatively stable relationship exists between consumption and income.

The market for immediately available reserve balances at the Federal Reserve is known as the:

Federal funds market.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

Federal funds rate.

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of:

$80,000

The ABC Commercial bank has $5,000 in excess reserves and the reserve ratio is 30 percent. This information is consistent with the bank having:

$90,000 in checkable deposit liabilities and $32,000 in reserves

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is:

12.5 percent

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be:

40%

When banks bundled mortgage loans and sold the resulting mortgage-backed securities:

They reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage- backed securities

During periods of rapid inflation, money may cease to work as a medium of exchange:

because people and businesses will not want to accept it in transactions.

Refer to the diagram for a private closed economy. Gross investment:

is independent of the level of GDP.

If you are estimating your total expenses for school next semester, you are using money primarily as:

unit of account

In the aggregate expenditures model, technological progress will shift the investment schedule:

upward and increase aggregate expenditures.