ECON: Practice Quiz 4

Falling prices are beneficial if:

(All of the listed answers are correct.) a) they are caused by increases in the supply of goods and services. b) they are consistent and not temporary and sporadic. c) they are not caused by decreasing demand for goods and services. d) banks anticipate falling home prices and practice responsible lending (significant down payment).

According to our text, which of the following is correct about inflation measures?

(None of the above is true.) a) Inflation measures like the CPI and the PPI take quality changes of products into account. If a product increases in quality over time, the price increase is adjusted to reflect the greater quality of the product. b) Inflation measures are accurate because government statisticians receive information from millions of retail stores who report price changes of their products. c) The GDP price deflator provides a list of products whose prices have decreased over time. Most of these products are high-tech products and services.

As a result of what economic conditions can falling prices be beneficial to the economy?

Falling prices that occur as a result of technological growth and an increase in production.

Which of the following statements is correct about national debts and/or deficits?

The federal deficit is usually smaller than the federal national debt for any country.

Which of the following is the most likely outcome of a government running a large deficit and borrowing large amounts of money from domestic and foreign investors?

future taxes will rise.

According to our text, significantly increasing the money supply does the following to the economy in the long run:

harms the economy, because it causes inflation.

The main reason why the Gold Standard failed in many industrialized countries is that:

the monetary authorities failed to adhere to the limited growth rule. In other words, they increased the money supply more than the gold supply grew.

When economists look at a government's health in terms of its national budget, then the one most important statistic they consider is:

the nation's debt as a percentage of its GDP.

The Phillips curve implies that:

when inflation increases, then unemployment decreases, and vice versa.

If during a particular year nominal GDP is smaller than real GDP, then according to the definition of the GDP deflator:

Average prices of final goods and services must have fallen.

More and more nations are facing problems due to their high government debt ratios. What is likely to happen if a country's debt gets too high?

Investors (potential purchasers of government securities) expect that the government may be unable to pay back its loans (securities). Consequently, investors will stop buying government securities or demand very high interest rates.

According to the table in section 3, Unit 8, which of the following countries has a greater debt to GDP ratio than the United States?

Japan

Let's say that we are operating in a constant money supply economy. This year technology causes our aggregate supply to increase. Ceteris paribus, which of the following do you expect to happen?

Prices will fall and average real incomes will increase.

If a country has an excessive amount of debt and consequently, lenders are not sure if the government will be able to pay back its debt, then:

The interest on this debt will be relatively high.

Which of the following situations is most like that of the United States and other industrialized countries?

The national government spends more than it receives in tax revenues. It borrows from domestic and foreign investors in the form of government treasuries. The government pays interest to these investors.

Let's say that in year 1 our government spending is $300 and our revenue is $200. In year 2 our government spending is $450 and our revenue is $500. In year 3 our government spending is $550 and our revenue is $550. Assuming no other deficits and surpluses, what is our government's national debt/surplus?

We have a debt of $50.

Inflation calculators will indicate that since 1976 consumer prices in the United States approximately:

quadruppled

Considering how much our volume of goods produced has increased during the past several decades, the price level should have fallen drastically over this time. The reason why it has not is because of:

significant increases in the quantity of money.

Hyperinflation is usually caused by a combination of:

too much money in circulation and increased velocity.

According to our text, when the U.S. government borrows funds from the public (by issuing bonds), it:

transfers money from one sector (the private sector) to another (the government sector). This does not add money to our money supply and is not inflationary.