ECON FINAL EXAM - HWQ + CQS

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000? A) 14 years B) 28 years C) 21 years D) 7 years

A) 14 years

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be? A) 60 million B) $11 million C) $50 million D) $275 million

A) 60 million

Which event will shift the aggregate demand curve to the right? A) catastrophic hurricane hits the northeastern United States B) decrease in military spending C) increase in household debt D) decrease in taxes

D) decrease in taxes

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. A) right; decrease B) left; decrease C) left; increase D) right; increase

D) right; increase

T or F: The consumer price index measures private goods as well as public goods

FALSE

T or F: A rise in real GDP is associated with increased employment.

TRUE

T or F: The catch-up effect is the idea that up to a certain point, developing countries can achieve greater productivity for each unit of capital invested because they have the advantage of using technologies already developed by other countries.

TRUE

T or F: To convert a nominal value to a real value in dollar terms, the base year index must be set at 100

TRUE

T or F: To convert a nominal value to a real value in dollar terms, the base year index must be set at 100.

TRUE

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? A) The CPI does not deal with producer prices. B) The CPI assumes that people do not substitute goods. C) The CPI does not account for quality changes. D) The CPI does not include new products.

A) The CPI does not deal with producer prices.

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? A) The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. B) The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. C) The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. D) The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are.

A) The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to A) fall by $600. B) by $800. C) remain the same. D) rise by $800.

A) fall by $600.

Which statement is NOT correct? A) Discouraged workers are not classified as unemployed. B) Discouraged workers have stopped actively seeking work. C) Discouraged workers are considered underemployed. D) Discouraged workers are considered part of the leisure class and not part of the labor force.

B) Discouraged workers have stopped actively seeking work.

In the TED talk that we watched today in the class, what was the name of the Nobel prize winner economist? A) Abhijeet Banerjee B) Esther Duflo C) John Keynes D) David Card

B) Esther Duflo

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing A) deflation. B) disinflation. C) hyperinflation. D) a drop in its price level.

B) disinflation.

Which of these is NOT a financial intermediary in the market for loanable funds? A) mutual funds B) an insurance company C) a school D) credit unions

C) a school

Which statement regarding discretionary and mandatory spending is correct? A) Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s. B) Mandatory spending programs include national defense, income security, and education. C) Discretionary spending is authorized by permanent laws. D) Mandatory spending may act as an automatic stabilizing force in the macro economy.

D) Mandatory spending may act as an automatic stabilizing force in the macro economy.

T or F: The consumer price index measures private goods as well as public goods.

FALSE

T or F: If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause.

TRUE

T or F: Knowing the marginal propensity to consume makes it possible to calculate the marginal propensity to save.

TRUE

T or F: Thomas Malthus believed that the geometric growth of the population and the arithmetic growth of the food supply would never be altered.

TRUE

T or F: Total factor productivity captures the factors that influence the overall effectiveness of inputs.

TRUE

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium? A) Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output. B) Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. C) Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output. D) Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices.

A) Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output.

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.) A) a beginning deposit of $930, earning 8% per year B) a beginning deposit of $1,000, earning 4% per year C) a beginning deposit of $1,010, earning 3% per year D) a beginning deposit of $950, earning 5% per year

A) a beginning deposit of $930, earning 8% per year

In which situation is a country LEAST likely to be producing on its production possibilities curve? A) There are large legal penalties for breaking a contract. B) There are legal disputes over the ownership of 15% of the factory buildings in the country. C) The average education level is of the fourth grade. D) The land is dry and has low productivity in farming.

B) There are legal disputes over the ownership of 15% of the factory buildings in the country.

What are the determinants of short-run aggregate supply? A) changes in education, taxes, and business and inflationary expectations B) changes in input prices, taxes, and business and inflationary expectations C) changes in input prices, taxes, and technology D) changes in government spending, taxes, and business and inflationary expectations

B) changes in input prices, taxes, and business and inflationary expectations

A passive job search A) means participating in productive activities, like sending out résumés. B) entails merely talking to friends about jobs. C) includes contacting a private employment agency. D) entails the scheduling of job interviews.

B) entails merely talking to friends about jobs.

The _____ is the change in consumption associated with a change in income. A) marginal propensity to save B) marginal propensity to consume C) average propensity to consume D) average propensity to save

B) marginal propensity to consume

When Main Street Bank buys new automatic teller machines, the quantity of _____ in the economy increases. A) land and natural resources B) physical capital C) labor D) entrepreneurial ability, technology, and ideas

B) physical capital

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is A) 10%. B) 20%. C) 17%. D) 60%.

C) 17%

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. A) Reducing; increasing; raising B) Increasing; reducing; raising C) Increasing; increasing; lowering D) Reducing; increasing; lowering

C) Increasing; increasing; lowering

Which situation indicates that total output in a country has grown the most when the starting output is the same in all situations? A) Output per worker grows by 4% while the labor force grows by 12%. B) Output per worker remains constant while the labor force grows by 11%. C) Output per worker grows by 10% while the labor force grows by 10%. D) Output per worker grows by 11% while the labor force remains constant.

C) Output per worker grows by 10% while the labor force grows by 10%.

Which change is likely to increase wages the MOST in a country? A)The labor force grows by 2%. B) Drainage of swampy land allows 2% more land to be farmed. C) The capital-to-labor ratio rises by 2%. D) Since the growth rate is 2% in all listed situations, wages would increase equally in all of them.

C) The capital-to-labor ratio rises by 2%.

Which statement is an example of an open market operation? A) A bank loans out all but 5% of its funds to hold in storage. B) The central bank lowers the interest rate from 5% to 3% on the loans it gives to commercial banks. C) The central bank sells bonds to the public via the commercial banking system. D) Naftali runs a bazaar in Baghdad selling odds and ends type trinkets to tourists.

C) The central bank sells bonds to the public via the commercial banking system.

Which event would NOT be included in total factor productivity measurements? A) a severe military conflict that restricts daily movements of labor and capital B) an unexpected breakthrough in GPS technology that enhances transportation C) a large investment in physical capital that makes labor more productive D) an earthquake that disrupts a country's production for several weeks

C) a large investment in physical capital that makes labor more productive

Unanticipated _____ is detrimental to economic growth. A) Neither inflation nor deflation is detrimental to economic growth. B) deflation C) inflation or deflation D) inflation

C) inflation or deflation

Cost-push inflation occurs because of a shift to the A) right of the short-run aggregate supply curve. B) left of the aggregate demand curve. C) left of the short-run aggregate supply curve. D) right of the aggregate demand curve.

C) left of the short-run aggregate supply curve.

A bond's price and yield A) are usually equal in value. B) move in the same direction. C) move in opposite directions. D) must sum up to 1,000.

C) move in opposite directions.

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment? A) increase spending by $25 billion B) increase spending by $10 billion C) reduce spending by $25 billion D) reduce spending by $100 billion

C) reduce spending by $25 billion

A breakthrough in solar energy research that halves the cost of electricity will A) shift the aggregate supply curve to the left. B) have no effect on the aggregate supply curve. C) shift the aggregate supply curve to the right. D) cause the aggregate supply curve to become vertical.

C) shift the aggregate supply curve to the right.

Last year, the consumer price index was 115 while the consumer price index for this year is 125. The rate of inflation is A) 8%. B) 9.2%. C) 10.8%. D) 8.7%.

D) 8.7%.

_____ unemployment is the result of changes in the business cycle. A) Seasonal B) Frictional C) Structural D) Cyclical

D) Cyclical

Which statement is NOT correct? A) Discouraged workers are considered part of the leisure class and not part of the labor force. B) Discouraged workers are not classified as unemployed. C) Discouraged workers have stopped actively seeking work. D) Discouraged workers are considered underemployed.

D) Discouraged workers are considered underemployed.

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? A) Esteban's average propensity to consume decreased. B) Esteban's average propensity to consume cannot be calculated. C) Esteban's average propensity to consume stayed the same. D) Esteban's average propensity to consume increased.

D) Esteban's average propensity to consume increased.

Which statement(s) is/are TRUE regarding the paradox of thrift?I. People intend to save less but their actions actually lead to an increase in savings.II. For the paradox of thrift to occur, investment must be positively related to income.III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. A) I, II, and III B) I and II only C) II and III only D) II only

D) II only

Which of these would NOT shift the investment demand schedule? A) a change in expectations B) a change in operating costs C) a change in technology D) a change in interest rates

D) a change in interest rates

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the _____ effect. A) ricochet B) boomerang C) opposite expansionary D) crowding-out

D) crowding-out

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. A) aggregate spending; larger B) disposable income; larger C) aggregate spending; smaller D) disposable income; smaller

D) disposable income; smaller

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A) recessionary; increase; $100 B) inflationary; decrease; $250 C) recessionary; increase; $250 D) inflationary; decrease; $100

D) inflationary; decrease; $100

A production function says output per worker equals A × f(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living. A) more human capital B) increases in capital C) more natural resources D) more people

D) more people

Assume the economy is currently experiencing aggregate expenditures greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment and _____ income. A) more; less; less B) less; less; less C) less; more; more D) more; more; more

D) more; more; more

One argument against using taxation to pay off the public debt is that it will redistribute wealth from A) richer bondholders to richer people who do not own bonds. B) richer bondholders to poorer people who do not own bonds. C) poorer bondholders to richer people who do not own bonds. D) poorer people who do not own bonds to richer bondholders.

D) poorer people who do not own bonds to richer bondholders.

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A) inflationary; decrease; $250 B) inflationary; decrease; $100 C) recessionary; increase; $250 D) recessionary; increase; $100

D) recessionary; increase; $100

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A) recessionary; increase; $250 B) inflationary; decrease; $250 C) inflationary; decrease; $100 D) recessionary; increase; $100

D) recessionary; increase; $100

(Table) According to the table, what is the labor force of this economy? A) 500 B) 300 C) 50 D) 350

D) 350