Econ -Test 2

How much is the output gap if short-run output is $18.0 trillion and potential output is $18.0 trillion?

$0

If the real GDP of a country in 2017 was $300 billion, its price index was 108.3, and its population was 150 billion, then real GDP per capita for that year was _____

$2 billion

Linda earns an income of $3,000 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her disposable income per month?

$3,000

Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What are her savings per month before the increase income and after the increase in income?

$300;$350

Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging and other expenses. So far, she has managed to save $20,000. What is the change in her saving per month after the increase in income?

$50

How much is the output gap if short-run output is $21.0 trillion and potential output is $20.0 trillion?

+$1.0 trillion

How much is the output gap if short-run output is $20.0 trillion and potential output is $21.0 trillion?

-$1 trillion

If the consumer price index (CPI) is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately

-4.6 percent

Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 5%, what is your real wage increase?

1 percent

If the marginal propensity to consume (MPC) equals 0.9, the multiplier is

10

Refer to Table 6.3, which shows the current and base-year prices of different goods in a market basket. The market basket in the current year is _____ higher than the price of the market basket in the base year.

100 percent

Consider an economy made up of 100 people who are sixteen years of age and older, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is

70

what reflects the relationship between the economy's price level and aggregate output demanded

Aggregate demand

Which of these changes is observed in an economy when a recessionary gap is closed in the long run?

An increase in the level of output and a decrease in the price level

Real gross domestic product (GDP) is measured in terms of the

Base-year prices

One of the most widely reported measures of inflation is the

Consumer price index

Identify the correct statement: a. In period of low inflation, real wages are constant but nominal wages decline. b. If the price level increases, real wages will increase. c. If the price level increases, nominal wages will fall. d. In periods of high inflation, real wages change even if nominal wages remain constant. e. If the inflation rate is high, real wages and nominal wages change by the same amount.

D.

If the United States made the sale of a legal drug illegal, GPD would

Decrease

An increase in the interest rate, other things constant, will

Decrease the quantity of loanable funds demanded

_____ is counting an item's value more than once

Double-counting

Which of the following statements about U.S. business cycles since 1945 is true?

Expansions are longer and recessions are shorter

________ are goods and services sold to final, or end, users

Final goods and services

Which of the following equations equals aggregate expenditure?

GDP=C+I+G+(X-M)

The marginal propensity to consume

Is the change in consumption relative to a change in disposable income

If costs increase, what happens to the aggregate supply curve?

It shifts leftward

If costs decrease, what happens to the aggregate supply curve?

It shifts rightward

The term, supply-side economics, refers to

Macroeconomics policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes to increase production incentives.

Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. To the left of Y1,

Output levels are less than the economy's potential

Refer to Exhibit 5.1, which shows the aggregate demand and supply curves for the United States. From the beginning of period 1 to the end of period 2,

Real GDP decreased and then increased

Refer to Exhibit 9.1, which shows the income-expenditure model. Which of the following best describes the situation at point B?

Real GDP exceeds aggregate expenditure

A decrease in the price level will

Shift the consumption function upward

Which pf the following is correct if real GDP is $20 trillion and spending is $20 trillion?

Spending and GDP are in equilibrium

Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At a price of P3, firms will,

Supply more than potential output

Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. If output is at Y1,

The economy produces its potential output and unemployment is at the natural rate

Economists use the price index to eliminate year-to-year changes in GDP caused solely by changes in

The price level

Which of the following is true of the labor force participation rates in the United States since the 1950s?

The rate for men has fallen; the rate for women has increased

If the marginal propensity to consume (MPC) in your classmate's country is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true?

The spending multiplier is smaller in your classmate's country than in your country

The final market value of a good is

The sum of the value added at all stages of production

When do firms buy capital goods?

When firms expect the investment to yield a higher return than other possible uses of their funds

The global financial panic is September 2008 led to a sharp fall in business investment spending and consumer spending can be viewed as

a sharp decrease in aggregate demand

What do most economists agree was the trigger of the Great Depression?

a stock market crash

Which of the following is most likely to happen if the aggregate demand curve for an economy (which was initially in equilibrium) shifts to the left, aggregate supply remaining unchanged? a. the equilibrium real GDP will decrease b. the equilibrium price level in the economy will increase c. the aggregate supply curve will shift rightward d. the aggregate supply curve will shift leftward e. the economy will experience an expansion

a. The equilibrium real GDP will decrease

Which of the following is an effect of an increase in the price level in an economy? a. The real value of dollar-denominated assets will fall b. The aggregate expenditure line will shift upward c. the equilibrium real gross domestic product will increase d. there will be a downward movement along the aggregate demand curve of the economy e. The aggregate demand curve of the economy will shift rightward.

a. The real value of dollar-denominated assets will fall

Which of these is not assumed to be constant along a short-run aggregate supply curve? a. the actual price level b. the state of technology c. the sizer and quality of the labor force d. the expected price level e. the size and quality of the capital stock

a. the actual price level

The benefits paid by the largest pension program in the United States are

adjusted for changes in the price level

The long run is the period of time during which

all resource prices are variable

Economic fluctuations or business cycles

are fluctuations in the level of economic activity relative to a long-term growth trend

Which of the following is true of a lower price level? a. The lower the price level, any given money wage purchases less, so the wage is less attractive to workers. b. The lower the price level, any given money wage purchases more, so the wage is more attractive to workers. c. The lower the price level, any given money wage purchases more, so the wage is less attractive to workers. d. The lower the price level, any given money wage purchases less, so the wage is more attractive to workers. e. There is no relationship between the price level and money wages.

b. The lower the price level, any given money wage purchases more, so the wage is more attractive to workers.

Which of the following occurred during the Great Depression? a. Unemployment and prices increased, while output decreased. b. Unemployment increased, while output and prices decreased. c. Unemployment and prices decreased, while output increased. d. Unemployment and output decreased, while prices increased. e. Unemployment and output increased, while prices decreased.

b. Unemployment increased, while output and prices decreased.

Which of the following will shift the consumption function upward? a. a decrease in stock prices b. a increase in stock prices c. a higher price level d. a lower disposable income e. a higher disposable income

b. a increase in stock prices

Which of the following is an example of an injection into the circular flow of income and expenditure? a. consumption b. exports c. taxes d. savings e. government borrowing

b. exports

Which of the following is an example of a leakage from the circular flow of income and expenditure? a. government purchases of goods and services b. taxes c. investment d. exports e. consumption expenditures

b. taxes

Which of the following, if true, would suggest that an expansionary gap exists in an economy? a.rapid inflation during a period when plant capacity utilization is below average b. a steady price level coupled with a 5 percent unemployment rate c. an unemployment rate below its natural rate and an unexpected increase in the consumer price index d. sluggish growth in the rate of inflation and an exceptional increase in the Dow Jones average e.a modest increase in the number of new unemployment claims and a lower-than-expected price level

c. an unemployment rate below its natural rate and an unexpected increase in the consumer price index

When an economy is operating at full employment,

cyclical unemployment does not exist

Identify the correct statement, a. During a recession, investment decreases while consumption increases. b. During a recession, investment increases while consumption decreases. c. During a recession, investment is constant while consumption increases. d. Annual variations in investment are larger than annual variations in consumption. e. Annual variations in investment are smaller than annual variations in consumption.

d. Annual variations in investment are larger than annual variations in consumption

Identify the correct statement. a. In periods of low inflation, real wages are constant but nominal wages decline. b. If the price level increases, real wages will increase. c. If the price level increases, nominal wages will fall. d. In periods of high inflation, real wages change even if nominal wages remain constant. e. If the inflation rate is high, real wages and nominal wages change by the same amount.

d. In periods of high inflation, real wages change even if nominal wages remain constant.

Which of the following is not a component of aggregate expenditure? a. Consumption expenditures b. investment c. imports d. rent e. government purchases

d. rent

Suppose the price level increases by 5 percent and the nominal wages of workers increase by 3 percent during a particular year. This implies that the real wage has

declined by 2 percent

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will

decrease by 3 percent per year

An increase in the price level in an economy will

decrease the quantity of real gross domestic product (GDP) demanded

If the economy is experiencing a sustained decrease in the price level, it is called

deflation

The consumption function relates consumption spending to

disposable income

Which of these is the best measure of the average standard of living in an economy? a. The unemployment rate b. Nominal income c. Real GDP d. National debt e. Real GDP per capita

e. Real GDP per capita

You would rather be a lender when

expected inflation is low and the interest rate is high

If the price level in the current year is much lower than the expected price level in an economy,

firms will increase production beyond the economy's potential level

The Keynesian approach to government economic policy

highlights the role of aggregate demand

Net exports have averaged a minus 3 percent of GDP during the last decade. This means that

imports exceed exports

Which of the following factors makes the official unemployment rate an overstatement of the actual level of unemployment in an economy?

inclusion of those who pretend to look for work in order to qualify for welfare programs

For a given aggregate supply curve, an increase in aggregate demand will

increase real GDP

Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24. Based on this information, we can conclude that the price level has

increased by 20 percent

an increase in a person's nominal wage necessarily

is not important until it is adjusted for inflation

Any diversion of income from the domestic spending stream is known as

leakages

In terms of the aggregate demand and aggregate supply framework, the Great Depression can be viewed as a

leftward shift of the aggregate demand curve

An expansionary gap is closed in the long run by a(n)

leftward shift of the short-run aggregate supply curve.

The fraction of an increase in income that is saved is referred to as the

marginal propensity to save

The nominal wage is

measured in current dollars rather than in constant dollars

The official unemployment rate disguises the extent pf the unemployment problem because

people overqualified for their current jobs are not considered unemployed

When the actual price level is in economy turns out to be lower than expected in the short run, firms,

produce less than the economy's potential output

Which relationship is shown on the income-expenditure model?

real GDP and aggregate expenditures

Historically, consumption spending in the United States has

remained approximately constant as a percentage of income

A decrease in net wealth will

shift the consumption function downward

problems with CPI do not include

that it does not allow for some substitution within narrow categories

An expansionary gap is equal to

the actual short-run output minus potential output

Which of the following is an example of an intermediate good?

the flour that Amy orders each month for the bakery she manages

Refer to Exhibit 10.5, which shows the short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is currently producing Y2 level of output, long-run equilibrium will be established if

the short-run aggregate supply curve shifts to the left to remove the expansionary gap.

The nominal wage represents

the wage measured in terms of the dollar value of the goods and services a worker can purchase with it.

Unanticipated inflation penalizes

those who are saving

Gross domestic product (GDP) is not a perfect measure of welfare because it

treats a dollar spent on guns the same as a dollar spent on education

If 2016 is the base year and the price index in 2017 is 100, prices in 2017 are _____ than prices in 2016.

unchanged

A(n) _____ involves market transactions that go unreported either because they are illegal or because people involved want to evade taxes.

underground economy

The existence of the underground economy causes gross domestic product (GDP) statistics to

understate the true volume of economic activity

Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At Y2,

unemployment is higher than the natural rate