econ test 2 questions

When deciding how much to save, people care most about a. before-tax nominal interest rates. b. after-tax real interest rates. c. after-tax nominal interest rates. d. before-tax real interest rates.

b. after-tax real interest rates.

In the United States in 2009, consumption represented approximately a. 70 percent of GDP. b. 60 percent of GDP. c. 90 percent of GDP. d. 80 percent of GDP.

a. 70 percent of GDP.

When box office receipts are not corrected for inflation, the most popular movie of all time is a. Avatar. b. Star Wars. c. Gone With the Wind. d. The Dark Knight.

a. Avatar.

Which is the most accurate statement about the GDP deflator and the consumer price index? a. The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. b. The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. c. Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year. d. Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year.

a. The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? a. The real interest rate is the nominal interest rate minus the rate of inflation. b. The real interest rate is the nominal interest rate divided by the rate of inflation. c. The real interest rate is the nominal interest rate plus the rate of inflation. d. The real interest rate is the nominal interest rate times the rate of inflation.

a. The real interest rate is the nominal interest rate minus the rate of inflation.

Tom was laid off and is expecting to be recalled. He has not looked for work since being laid off. Bill is not employed and not laid off. Who is counted as unemployed in the U.S. labor force statistics? a. Tom and Bill if he has looked for work during the previous 4 weeks. b. Not Tom. Bill even if he has not looked for work during the previous 4 weeks. c. Tom and Bill even if he has not looked for work during the previous 4 weeks. d. Not Tom. Bill if he has looked for work during the previous 4 weeks.

a. Tom and Bill if he has looked for work during the previous 4 weeks.

A quota is a. a limit on the quantity of imports. b. an excess of exports over imports. c. a tax placed on imports. d. a tax on exports to other countries.

a. a limit on the quantity of imports.

Who can vote on Federal Open Market Committee decisions? a. all of the members of the Board of Governors and some of the Federal Reserve Bank presidents b. all of the members of the Board of Governors and all of the Federal Reserve Bank presidents c. some of the members of the Board of Governors and all of the Federal Reserve Bank presidents d. some of the members of the Board of Governors and some of the Federal Reserve Bank presidents

a. all of the members of the Board of Governors and some of the Federal Reserve Bank presidents

Most goods and services produced at home a. and most goods and services produced illegally are excluded from GDP. b. are excluded from GDP while most goods and services produced illegally are included in GDP c. and most goods and services produced illegally are included in GDP. d. are included in GDP while most goods and services produced illegally are excluded from GDP.

a. and most goods and services produced illegally are excluded from GDP.

GDP per person tells us the income and expenditure of the a. average person in the economy. b. richest person in the economy. c. poorest person in the economy. d. entire economy.

a. average person in the economy.

For purposes of calculating the CPI, the food & beverages category of consumer spending includes the cost of a. both food away from home and alcoholic beverages. b. alcoholic beverages. c. neither food away from home nor alcoholic beverages because these are included in the recreation category of consumer spending. d. food away from home.

a. both food away from home and alcoholic beverages.

According to the circular-flow diagram GDP a. can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production. b. can be computed as the revenue firms receive from the sales of goods and services but not as the payments they make to factors of production. c. can be computed as payments firms make to factors of production but not as revenues they receive from the sales of goods and services. d. cannot be computed as either the revenue firms receive or the payments they make to factors of production.

a. can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.

Which of the following lists is included in what economists call "money"? a. cash b. cash and stocks and bonds c. cash and stocks and bonds and real estate d. cash and stocks and bonds and real estate and all other assets

a. cash

Which of the following is a source of frictional unemployment? a. changes in the composition of demand among industries or regions b. minimum wages c. labor unions d. None of the above is correct.

a. changes in the composition of demand among industries or regions

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the a. consumer price index rises much more than does the GDP deflator. b. GDP deflator rises much more than does the consumer price index. c. consumer price index rises slightly more than does the GDP deflator. d. GDP deflator and the consumer price index rise by about the same amount.

a. consumer price index rises much more than does the GDP deflator.

Credit cards a. defer payments. b. have led to wider use of currency. c. are part of the money supply. d. are a store of value.

a. defer payments.

By far the largest category of goods and services in the CPI basket is a. housing. b. transportation. c. food & beverages. d. education & communication.

a. housing.

Money demand refers to a. how much wealth people want to hold in liquid form. b. how much currency the Federal Reserve decides to print. c. how much income people want to earn per year. d. the total quantity of financial assets that people want to hold.

a. how much wealth people want to hold in liquid form.

The term economists use to describe a situation in which the economy's overall price level is rising is a. inflation. b. recession. c. growth. d. expansion.

a. inflation.

When inflation rises, people a. make more frequent trips to the bank and firms make more frequent price changes. b. make less frequent trips to the bank and firms make less frequent price changes. c. make less frequent trips to the bank while firms make more frequent price changes. d. make more frequent trips to the bank while firms make less frequent price changes.

a. make more frequent trips to the bank and firms make more frequent price changes.

The costs of changing price tags and price listings are known as a. menu costs. b. relative-price variability costs. c. shoeleather costs. d. inflation-induced tax distortions.

a. menu costs.

If the discount rate is lowered, banks borrow a. more from the Fed so reserves increase. b. less from the Fed so reserves increase. c. more from the Fed so reserves decrease. d. less from the Fed so reserves decrease.

a. more from the Fed so reserves increase.

The price level is a a. nominal variable. b. dichotomous variable c. relative variable. d. real variable.

a. nominal variable.

The legal tender requirement means that a. people are more likely to accept the dollar as a medium of exchange. b. the government must hold enough gold to redeem all currency. c. people may not make trades with anything else. d. All of the above are correct.

a. people are more likely to accept the dollar as a medium of exchange.

When a union raises the wage above the equilibrium level, it a. raises the quantity of labor supplied and reduces the quantity of labor demanded. b. raises both the quantity of labor supplied and the quantity of labor demanded. c. reduces the quantity of labor supplied and raises the quantity of labor demanded. d. reduces both the quantity of labor supplied and the quantity of labor demanded.

a. raises the quantity of labor supplied and reduces the quantity of labor demanded.

Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc. is called a. a transitory good. b. an intermediate good. c. an inventory good. d. a final good.

b. an intermediate good.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called a. substitution bias. b. unmeasured quality change. c. price-change neglect. d. relative bias.

a. substitution bias.

A tax on an imported good is called a a. tariff. b. quota. c. supply tax. d. trade tax.

a. tariff.

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy? a. the FOMC b. the regional Federal Reserve Bank presidents c. the Central Bank Policy Commission d. the Board of Governors

a. the FOMC

One of the differences between the GDP deflator and the consumer price index is a. the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers. b. the GDP deflator includes income earned by American citizens working in foreign countries and the consumer price index is based solely on purchases made in the U.S. c. the consumer price index includes items not included in the GDP deflator such as airplanes purchased by the Air Force. d. the consumer price index basket of goods is updated constantly by the Bureau of Labor Statistics whereas the GDP deflator is updated only occasionally.

a. the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.

The interest rate the Fed charges on loans it makes to banks is called a. the discount rate. b. the LIBOR. c. the federal funds rate. d. the prime rate.

a. the discount rate.

The discount rate is a. the rate at which the Fed lends to banks. b. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. c. the percentage of deposits banks hold as excess reserves. d. the rate at which public banks lend to other public banks.

a. the rate at which the Fed lends to banks.

The consumer price index is used to a. turn dollar figures into meaningful measures of purchasing power. b. measure the quantity of goods and services that the economy produces. c. convert nominal GDP into real GDP. d. characterize the types of goods and services that consumers purchase.

a. turn dollar figures into meaningful measures of purchasing power.

In the national income accounts, depreciation is called a. "loss due to wear." b. "consumption of fixed capital." c. "diminished value." d. "negative investment."

b. "consumption of fixed capital."

Which of the following is correct? a. Unpaid homemakers are counted as employed by the BLS. b. People working part time are counted as employed by the BLS. c. The labor force includes all adults who are able to work. d. The BLS uses data collected from those applying for unemployment insurance to compute the unemployment rate.

b. People working part time are counted as employed by the BLS.

The term hyperinflation refers to a. the spread of inflation from one country to others. b. a period of very high inflation. c. inflation accompanied by a recession. d. a decrease in the inflation rate.

b. a period of very high inflation.

Interest rates adjusted for the effects of inflation a. and inflation are real variables. b. are real variables; inflation is a nominal variable. c. and inflation are nominal variables. d. are nominal variables; inflation is a real variable.

b. are real variables; inflation is a nominal variable.

The basic tools of supply and demand are a. useful in analyzing the overall economy, but not in analyzing individual markets. b. central to macroeconomic analysis as well as to microeconomic analysis. c. useful only in the analysis of economic behavior in individual markets. d. central to microeconomic analysis, but seldom used in macroeconomic analysis.

b. central to macroeconomic analysis as well as to microeconomic analysis.

When we say that trade is roundabout we mean that a. people sometimes trade goods for goods. b. currency is accepted primarily to make further trades. c. people must spend time searching for the products they wish to purchase. d. trades require a double coincidence of wants.

b. currency is accepted primarily to make further trades.

Which of the following is included in both M1 and M2? a. savings deposits b. demand deposits c. small time deposits d. money market mutual funds

b. demand deposits

Some goods can be produced at low cost only if they are produced in large quantities. This phenomenon is called a. economies of production. b. economies of scale. c. marginal benefit of size. d. marginal cost of production.

b. economies of scale.

The General Agreement on Tariffs and Trade (GATT) was initiated in response to a. in increase in exports of low-priced goods from developing countries to developed countries. b. high tariffs imposed during the Great Depression of the 1930s. c. economic dislocations caused by the North American Free Trade Agreement (NAFTA) in the 1990s. d. the replacement of manufacturing jobs with service jobs in developed countries.

b. high tariffs imposed during the Great Depression of the 1930s.

Disposable personal income is the income that a. households have left after paying taxes and non-tax payments to the government. b. households and noncorporate businesses have left after paying taxes and non-tax payments to the government. c. businesses have left after paying taxes and non-tax payments to the government. d. households and businesses have left after paying taxes and non-tax payments to the government.

b. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

When the price level rises, the number of dollars needed to buy a representative basket of goods a. decreases, and so the value of money falls b. increases, and so the value of money falls. c. increases, and so the value of money rises. d. decreases, and so the value of money rises.

b. increases, and so the value of money falls.

Income generated by a nation's domestic production a. is less than its domestic production. b. is equal to its domestic production. c. is greater than its domestic production. d. could be less than, equal to, or greater than its domestic production.

b. is equal to its domestic production.

When the money market is drawn with the value of money on the vertical axis, a. money demand slopes upward and money supply is vertical. b. money demand slopes downward and money supply is vertical. c. money demand slopes downward and money supply is horizontal. d. money demand slopes upward and money supply is horizontal.

b. money demand slopes downward and money supply is vertical.

The CPI is calculated a. monthly by the Department of Commerce. b. monthly by the Bureau of Labor Statistics. c. quarterly by the Bureau of Labor Statistics. d. quarterly by the Department of Commerce.

b. monthly by the Bureau of Labor Statistics.

The Fed can increase the money supply by conducting open-market a. sales or by lowering the discount rate. b. purchases or by lowering the discount rate. c. purchases or by raising the discount rate. d. sales or by raising the discount rate.

b. purchases or by lowering the discount rate. `

When a minimum-wage law forces the wage to remain above the level that balances supply and demand, it a. reduces the quantity of labor supplied and raises the quantity of labor demanded compared to the equilibrium level. b. raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. c. reduces the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. d. raises the quantity of labor supplied and raises the quantity of labor demanded compared to the equilibrium level.

b. raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level.

Which of the following is included in the investment component of GDP? a. spending on new business equipment such as power tools and spending on stocks and bonds b. spending on new business equipment such as power tools but not spending on stocks and bonds c. spending on stocks and bonds but not spending on new business equipment such as power tools d. neither spending on new business equipment such as power tools nor spending on stocks and bonds

b. spending on new business equipment such as power tools but not spending on stocks and bonds

The interest rate the Fed charges on loans it makes to banks is called a. the LIBOR. b. the discount rate. c. the federal funds rate. d. the prime rate.

b. the discount rate.

The discount rate is a. the interest rate that banks charge on overnight loans to other banks. b. the interest rate the Fed charges banks. c. the interest rate banks receive on reserve deposits with the Fed. d. one divided by the difference between one and the reserve ratio.

b. the interest rate the Fed charges banks.

How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)? a. GNP = GDP - losses from depreciation b. GNP = GDP - depreciation - retained earnings c. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S. d. GNP = GDP + transfer payments to households + - indirect sales taxes

c. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S.

The Bureau of Labor Statistics is part of the U.S. Department of a. the Interior. b. the Treasury. c. Labor. d. Commerce.

c. Labor.

The CPI is a measure of the overall cost of the goods and services bought by a. a typical firm. b. the government. c. a typical consumer. d. All of the above are correct.

c. a typical consumer.

The primary purpose of measuring the overall level of prices in the economy is to a. allow consumers to know what kinds of prices to expect in the future. b. allow for the measurement of GDP. c. allow for the comparison of dollar figures from different points in time. d. allow for the comparison of dollar figures from the same point in time.

c. allow for the comparison of dollar figures from different points in time.

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing a. deflation. b. stagflation. c. inflation. d. economic growth.

c. inflation.

The economy's inflation rate is the a. change in the price level from the previous period. b. price level in the current period. c. percentage change in the price level from the previous period. d. change in the gross domestic product from the previous period.

c. percentage change in the price level from the previous period.

The income that households and noncorporate businesses receive is called a. net national product. b. disposable personal income. c. personal income. d. national income.

c. personal income.

The North American Free Trade Agreement a. is an example of the unilateral approach to free trade. b. eliminated tariffs on imports to North America from the rest of the world. c. reduced trade restrictions among Canada, Mexico and the United States. d. All of the above are correct.

c. reduced trade restrictions among Canada, Mexico and the United States.

An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. b. the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. c. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers. d. the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.

c. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

Indexation refers to a. using a price index to deflate dollar values. b. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator. c. using a law or contract to automatically correct a dollar amount for the effects of inflation. d. a process of adjusting the nominal interest rate so that it is equal to the real interest rate.

c. using a law or contract to automatically correct a dollar amount for the effects of inflation.

The price of a good that prevails in a world market is called the a. relative price. b. absolute price. c. world price. d. comparative price.

c. world price.

If R represents the reserve ratio for all banks in the economy, then the money multiplier is a. 1/(1+R). b. (1+R)/R. c. 1/(1-R). d. 1/R.

d. 1/R.

The Bureau of Labor Statistics produces data on unemployment and other aspects of the labor market from a regular survey of about a. 6,000 households. b. 6,000,000 households. c. 600 households. d. 60,000 households.

d. 60,000 households.

At any given time, the voting members of the Federal Open Market Committee include a. five of the presidents of the regional Federal Reserve banks. b. the president of the Federal Reserve Bank of New York. c. the seven members of the Board of Governors. d. All of the above are correct.

d. All of the above are correct.

For purposes of calculating the CPI, the housing category of consumer spending includes the cost of a. shelter. b. fuel and other utilities. c. household furnishings and operation. d. All of the above are correct.

d. All of the above are correct.

In a simple circular-flow diagram, firms use the money they get from a sale to a. pay wages to workers. b. pay rent to landlords. c. pay profit to the firms' owners. d. All of the above are correct.

d. All of the above are correct.

The consumer price index tries to gauge how much incomes must rise to maintain a. the highest standard of living possible. b. a decreasing standard of living. c. an increasing standard of living. d. a constant standard of living.

d. a constant standard of living.

Most financial assets other than money function as a. a medium of exchange, a unit of account, and a store of value. b. a medium of exchange and a store of value, but not a unit of account. c. a store of value and a unit of account, but not a mediuim of exchange. d. a store of value, but not a unit of account nor a medium of exchange

d. a store of value, but not a unit of account nor a medium of exchange

Most goods and services produced at home a. and most goods and services produced illegally are included in GDP. b. are excluded from GDP while most goods and services produced illegally are included in GDP c. are included in GDP while most goods and services produced illegally are excluded from GDP. d. and most goods and services produced illegally are excluded from GDP.

d. and most goods and services produced illegally are excluded from GDP.

The inflation rate is calculated a. by adding up the price increases of all goods and services. b. by determining the change in the price index from the preceding period. c. by computing a simple average of the price increases for all goods and services. d. by determining the percentage increase in the price index from the preceding period.

d. by determining the percentage increase in the price index from the preceding period.

The Fed's primary tool to change the money supply is a. redeeming Federal Reserve notes. b. changing the reserve requirement. c. changing the interest rate on reserves. d. conducting open market operations.

d. conducting open market operations.

Economists view the fact that Florida grows oranges, Texas pumps oil, and California makes wine as a. confirmation of the infant-industry argument. b. confirmation that specialization in absolute advantage works. c. confirmation that free trade agreements are not necessary. d. confirmation of the virtues of free trade.

d. confirmation of the virtues of free trade.

Credit cards a. are part of the money supply. b. have led to wider use of currency. c. are a store of value. d. defer payments.

d. defer payments.

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is a. if it works consumer surplus will decline. b. if it works producer surplus falls. c. if it fails total surplus will increase. d. if it fails the country faces a choice between two bad options.

d. if it fails the country faces a choice between two bad options.

What word do economists use to refer to the purchase of goods that will be used in the future to produce more goods and services? a. costs b. capital c. consumption d. investment

d. investment

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate? a. unit of account b. liquidity c. store of value d. medium of exchange

d. medium of exchange

Cyclical unemployment is caused by a. frictional and structural unemployment b. frictional but not structural unemployment c. structural but not frictional unemployment d. neither frictional nor structural unemployment

d. neither frictional nor structural unemployment

Changes in the GDP deflator reflect a. only changes in the amounts being produced. b. neither changes in prices nor changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. only changes in prices.

d. only changes in prices.

When a country takes a multilateral approach to free trade, it a. is willing to trade with multiple countries at once. b. removes trade restrictions on its own. c. does not remove trade restrictions no matter what other countries do. d. reduces its trade restrictions while other countries do the same.

d. reduces its trade restrictions while other countries do the same.

When a country takes a unilateral approach to free trade, it a. does not remove trade restrictions no matter what other countries do. b. is willing to trade with multiple countries at once. c. reduces its trade restrictions while other countries do the same. d. removes trade restrictions on its own.

d. removes trade restrictions on its own.

Which of the following is not included in M1? a. traveler's checks b. currency c. demand deposits d. savings deposits

d. savings deposits

Which government entity computes U.S. GDP every three months? a. the Federal Reserve b. the Department of Treasury c. the Council of Economic Advisers d. the Department of Commerce

d. the Department of Commerce

The CPI is a measure of the overall cost of a. the stocks on the New York Stock Exchange. b. the goods and services produced in the economy. c. the inputs purchased by a typical producer. d. the goods and services purchased by a typical consumer.

d. the goods and services purchased by a typical consumer.

The percentage change in the price level from one period to another is called a. the growth rate. b. the GDP deflator. c. the unemployment rate. d. the inflation rate.

d. the inflation rate.

Collective bargaining refers to a. setting the same wage for all employees to prevent conflict among workers. b. the process by which the government sets exemptions from the minimum wage law. c. firms colluding to set the wages of employees below equilibrium. d. the process by which unions and firms agree on the terms of employment.

d. the process by which unions and firms agree on the terms of employment.

When a union raises the wage above the equilibrium level, a. the quantity of labor supplied and unemployment both fall. b. the quantity of labor supplied falls and unemployment rises. c. the quantity of labor supplied rises and unemployment falls. d. the quantity of labor supplied and unemployment both rise.

d. the quantity of labor supplied and unemployment both rise.

With the value of money on the vertical axis, the money supply curve is a. horizontal because we assume the central bank controls the money supply b. upward sloping because people supply a larger quantity of money when the value of money increases. c. downward sloping because people supply a larger quantity of money when the value of money decreases. d. vertical because we assume the central bank controls the money supply.

d. vertical because we assume the central bank controls the money supply.