Econ Test 2

"Full employment" is said to exist when the unemployment rate equals: a. The natural unemployment rate b. The structural unemployment rate c. The cyclical unemployment rate d. Zero

a

3) During business cycles: a) troughs are followed by recession b) troughs are followed by peaks c) peaks are followed by troughs d) peaks are followed by recessions

a

38) Demand-pull inflation is often summed up as: a) excessive demand caused by too much dollars chasing too few goods b) the wage-price spiral c) profit-push inflation d) supply-side cost shock inflation

a

4) which order is correct? a) recession, recovery, prosperity b) prosperity, recovery, recession c) recession, prosperity, recovery d) recovery, recession, prosperity

a

45) If the CPI declines from 200 to 190, prices have declined by a) 5% b) 10% c) 19% d) 20% e) 200%

a

5) A complete cycle of a business cycle can be measured from: a) peak to peak b) peak to trough c) trough to peak d) all of the above e) none of the above

a

6) Joseph Schumpeter is most closely associated with the a) theory of innovations b) psychological theory c) inventory cycle theory d) monetary theory

a

8) The GDP gap is found by a) subtracting actual GDP from potential GDP b) subtracting potential GDP from actual GDP c) adding actual GDP and potential GDP d) none of the above

a

According to the classical economists, if the amount of money people are planning to invest is greater than the amount that people want to save: a. interest rates will rise and savings will rise. b. interest rates will fall and savings will fall. c. interest rates will fall and savings will rise. d. interest rates will rise and savings will fall.

a

According to the classicals our economy can produce beyond the full employment output: a. only in the short run. b. only in the long run. c. in both the short run and the long run. d. in neither the short run nor the long run.

a

As the MPC rises, the multiplier a. will rise. b. will fall. c. will stay the same. d. may rise, fall, or stay the same.

a

Budget deficits are appropriate during: a. recessions, but not inflations. b. inflations, but not recessions. c. recessions and inflations. d. neither recessions nor inflations.

a

Fiscal policy deals with each of the following except the money supply. government spending. taxation. the federal budget.

a

If the MPC were .75, what change in government spending would be required to cause the equilibrium level of GDP to fall by 100? a. a decrease of 25. b. a decrease of 50. c. a decrease of 75. d. a decrease of 100. e. a decrease of 125.

a

If the economy dips into a recession: a. automatic stabilizers will cause tax receipts to fall and transfer payments to rise. b. automatic stabilizers will cause tax receipts to rise and transfer payments to fall. c. discretionary fiscal policy will generate increased transfer payments and lower tax receipts. d. discretionary fiscal policy will reduce government outlays and increase tax receipts. e. nothing will happen to the federal budget unless the president and Congress take specific corrective action.

a

If we subtract the number of people not in the labor force from the civilian population, we get the number of people in the: a. Ranks of discouraged workers b. Ranks of the employed c. Civilian labor force d. Ranks of the unemployed

a

Say's law: a. was a basic pillar of classical economics. b. was a basic pillar of keynesian economics. c. was formulated during the Great Depression. d. proves that we can never have full employment.

a

Suppose the civilian population equals 150,000; there are 72,500 employed persons and 10,000 unemployed persons. How many people are not in the labor force? a. 67,500 b. 63,500 c. 77,500 d. 10,000 e. None of the above

a

The "crowding-out effect" suggests that: a. government spending is increasing at the expense of private investment. b. imports are replacing domestic production. c. private investment is increasing at the expense of government spending. d. consumption is increasing at the expense of investment.

a

The base year is the year: a. That serves as a reference point or benchmark b. In which prices are highest c. In which prices are lowest d. In which prices are unstable

a

True or False: When news reports state that the cost of living has changed they are usually referring to a change in the CPI. a. True b. False

a

Laissez-fair economics was advocated by: a. both Keynes and the classicals. b. neither Keynes nor the classicals. c. the classicals, but not by Keynes. d. Keynes, but not by the classicals.

c

10) If the number of unemployed stays the same and the number of people in the labor force rises, a) the unemployment rate will rise b) the unemployment rate will fall c) the unemployment rate will stay the same d) there is not enough information to determine what will happen to the unemployment rate

b

12) A computerized job bank would be most effective in reducing ______ unemployment a) seasonal b) frictional c) cyclical d) structural

b

14) when we are at full employment a) the unemployment rate is 0% b) the cyclical unemployment rate is 0% c) the structural unemployment rate is 0% d) the frictional unemployment rate is 0% e) none of the above

b

44) The purchasing power of a dollar will rise: a) if nominal interest rates rise b) if the price level decreases c) if the price level increases d) if real interest rates fall

b

At equilibrium GDP: a. savings = investment, but aggregate demand does not equal aggregate supply. b. savings = investment and aggregate demand = aggregate supply. c. savings does not equal investment and aggregate demand does not equal aggregate supply. d. savings does not equal investment, but aggregate demand = aggregate supply.

b

During times of inflation we want to: a. raise taxes and run budget deficits. b. raise taxes and run budget surpluses. c. lower taxes and run budget surpluses. d. lower taxes and run budget deficits.

b

If a person is waiting to be called back to a job from which she has been laid off, how is she classified? a. As an employed person b. As an unemployed person c. As not in the labor force d. None of the above

b

If aggregate demand increases and, as a result, the price level increases but equilibrium real GDP and employment remain unchanged, we can assume that the aggregate demand curve: a. intersects the upward-sloping segment of the aggregate supply curve. b. intersects the vertical segment of the aggregate supply curve. c. intersects the horizontal segment of the aggregate supply curve. d. is horizontal.

b

Keynesians tend to believe that: a. laissez-faire policies stabilize market economies. monetary restraint aggravates inflationary pressures. b. massive government spending and tax cuts are cures for recession. c. expansionary monetary policy revives an economy from recession. d. the velocity of money rises if the money supply grows during recessions.

b

Our economy is always tending towards full employment according to: a. John Maynard Keynes. b. the classical economists. c. both Keynes and the classicals. d. neither Keynes nor the classicals.

b

Suppose there are 50 million people in the population, 25 million people in the civilian labor force, and 20 million people are employed. The number of people unemployed is __ million and the unemployment rate is __ percent. a. 10; 10 b. 5; 20 c. 5; 10 d. 25; 50

b

The Keynesian point of view suggests that: a. supply creates its own demand. b. demand creates its own supply. c. the market is always at equilibrium. d. full employment is the natural result of market forces. e. wage and price controls can halt deflationary pressures.

b

The multiplier effect occurs because: a. when retained national income rises, the MPC increases, prompting further increases in income. b. the new income generated by an increase in aggregate demand will be spent, each time becoming new income again. c. the level of national income must be multiplied by the average propensity to consume to find total consumption spending. d. what business firms view as spending is viewed by household s as income, so that new investment automatically becomes new income.

b

There is a deflationary gap when a. equilibrium GDP is equal to full employment GDP. b. equilibrium GDP is smaller than full employment GDP. c. equilibrium GDO is larger than full employment GDP. d. none of these occur.

b

True or false: The cyclical unemployment rate can never be negative a. True b. False

b

Which of the following is an example of crowding out? a. Federal government spending causes changes in state and local government spending. b. Government spending reduces private spending. c. Tax changes perceived as temporary are largely ignored. d. Government spending causes the price level to rise.

b

Which question did John Maynard Keynes pose for the classical economists? a. What if their policies led to inflation? b. What if savings and investment were not equal? c. What if government intervention did not cure a recession? d. None of the above is correct.

b

One measure of the inflation rate is the: GDP minus the real GDP in a year Percentage change in the real GDP of adjacent years Percentage change in the CPI of adjacent years Sum of the CPIs of adjacent years

c

The curve showing various quantities of total real output that will be offered for sale at various alternative price levels is called the: a. aggregate demand curve. b. real gross domestic investment curve. c. aggregate supply curve. d. yield curve. e. aggregate individual demand curve.

c

11) David Simon quit his job as an economics instructor at Laney College, spent two weeks in Hawaii, and is now looking for (and expects to soon find) another job. He is ____ unemployed. a) psychologically b) structurally c) frictionally d) cyclically

c

13) If cyclical unemployment is 4%, the overall unemployment rate a) is 4% b) is more than 4% c) is 9% d) is 0% e) cannot be determined

c

33) An example of disinflation would be when the annual inflation rate went from: a) 4% to 0% b) 8% to 4% c) 4% to 8% d) 2% to -2%

c

34) Inflation is: a) a rise in the price of every good and service b) a rise of exactly a specified percentage in the price of every good or service c) a general rise in the price level d) a general rise in prices of at least 10% a year

c

37) An example of disinflation would be when the annual inflation rate went from: a) 4% to 0% b) 8% to 4% c) 4% to 8% d) 2% to -2%

c

40) A wage-price spiral is the result of: a) lower wages and higher prices b) higher wages and lower prices c) higher wages and higher prices d) lower wages and lower prices

c

42) Phillips' curve explains the trade-off between: a) wage and price inflation b) the unemployment rate and the rate of change in wages c) the unemployment rate and the rate of inflation d) output and prices changes

c

43) Inflation means that: a) all prices are rising, but at different rates. b) all prices are rising and at the same rate. c) prices in the aggregate are rising, although some particular prices may be falling. d) real incomes are rising.

c

7) The sun spot theory of business cycle is associated with which economist? a) Joseph Schumpeter b) J.M. Keynes c) William Stanley Jevons d) Milton Friedman e) Thorstein Veblen

c

9) Among the following cases, which one would be considered to be unemployed? Someone who: a) worked three days in the last month but is now out of work b) is ready, willing, and able to work, but gave up looking for work three months ago c) reported to the state employment office last week but is not very enthusiastic about finding a job

c

A crowding-in effect of increased government spending on investment occurs: a. when an increase in government spending leads to an increased in savings. b. when increased government borrowing reduces the quantity of funds that businesses can borrow. c. and increases investment each time government spending increases. d. when the increase in GDP caused by the increased government spending makes businesses see more investment projects as profitable.

c

As potential real GDP is approached, the aggregate supply curve: a. becomes flatter. b. is downward sloping. c. becomes steeper. d. remains unchanged.

c

At equilibrium, aggregate demand will equal each of the following except: a. C + I b. C + S c. Full employment GDP d. Aggregate supply

c

Contractionary fiscal policy involves: a. an increase in government spending and/or a decrease in taxes. b. an increase in transfer payments. c. a decrease in government spending and/or an increase in taxes. d. all of the above.

c

If a person did at least one hour of work as a paid employee during the past month, how is she classified? a. As an unemployed person b. As not in the labor force c. As an employed person d. None of the above

c

If the cyclical unemployment rate is negative, then the ____________. a. Structural unemployment rate is less than the frictional unemployment rate. b. Structural unemployment rate is greater than the frictional unemployment rate. c. natural unemployment rate is greater than the actual unemployment rate in the economy. d. natural unemployment rate is less than the actual unemployment rate in the economy.

c

In many large retail stores, price markdowns are now determined by computer. The "middle manager" who used to make these decisions personally became ________ unemployed. a. Cyclically b. Naturally c. Structurally d. Frictionally

c

Is it possible for the economy to be at full employment and still have some people who are unemployed? a. Yes, since full employment equals the sum of the cyclical unemployment rate and the natural unemployment rate,and there is always some cyclical unemployment. b. Yes, since full employment exists if the economy is operating at the frictional unemployment rate and there is always some frictional unemployment. c. Yes, since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment. d. No, full employment means that no one is unemployed

c

Keynesian theory: a. established the validity of Say's Law. b. assumes that supply creates its own demand. c. is primarily demand-oriented. d. assigns much importance to Aggregate Supply and the general price level.

c

The practical significance of the multiplier is that a. it helps to stabilize the economy. b. it keeps inflation within tolerable limits. c. it magnifies relatively small changes in spending into larger changes in GDP. d. it brings about a reduction in MPC.

c

The standard definition of "recession" is: a. a period of negative inflation b. the lowest point on a business cycle c. two or more consecutive quarters of falling real GDP d. a period of a positive frictional unemployment rate

c

The wealth or real balances effect indicates that: a. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. b. a lower price level will decrease the real value of many financial assets and therefore cause a decline in spending. c. a higher price level will increase the real value of many financial assets and therefore cause a decline in spending. d. a higher price level will decrease the real value of many financial assets and therefore cause a decline in spending.

c

There are two ways to lower the deficit: a. raise taxes and raise government spending. b. lower taxes and lower government spending. c. raise taxes and lower government spending. d. lower taxes and raise government spending.

c

To close a deflationary gap we should: a. raise G and raise taxes. b. lower G and lower taxes. c. raise G and lower taxes. d. lower G and raise taxes.

c

Under what condition will an increase in aggregate demand result in no increase in the price level? a. The aggregated demand curve is upward sloping. b. The aggregate demand curve intersects the upward-sloping segment of the aggregate supply curve. c. The aggregate demand curve intersects the horizontal segment of the aggregate supply curve. d. The aggregate demand curve intersects the downward sloping segment of the aggregate supply curve. e. The aggregate demand curve intersects the vertical segment of the aggregate supply curve.

c

When the price level in the United States, relative to the price levels in other countries, rises, this tends to: a. raise imports and exports. b. Lower imports and exports. c. Raise imports and lower exports. d. Lower imports and raise exports.

c

When the unemployment rate is 7 percent and we are running a budget deficit of $70 billion, the full employment budget is: a. balanced. b. running a surplus. c. running a deficit.

c

Which best describes the classical theory of employment? a. We will always have a great deal of unemployment. b. We will usually have a great deal of unemployment. c. We will occasionally have some unemployment, but our economy will automatically move back toward full employment. d. We never have any unemployment.

c

15) In an economy with 100 million people, 70 million hold jobs and 10 million are not working but are looking for jobs. The number of people in the labor force is: a) 100 million b) 40 million c) 10 million d) 80 million e) 70 million

d

39) During unanticipated inflation: a) savers lose b) borrowers gain c) lenders lose d) All of the above

d

A plumber who quits his job in San Diego and moves to Oakland where additional plumbers are needed is said to be _______ unemployed a. Underemployed b. Cyclically c. Structurally d. Frictionally

d

A recession is always part of a: a. remission b. detraction c. recovery d. contraction

d

During an inflation republicans would be most in favor of a. spending cuts. b. spending increases. c. tax cuts. d. tax increases.

d

How large will the total change in income be from a change in investment of $15 if the marginal propensity to consume (MPC) is .8? a. $12 b. $20 c. $25 d. $75 e. $200

d

If the multiplier is 5, the MPC is a. .1 b. .2 c. .5 d. .8 e. 1.0

d

In order to be classified as unemployed, a person must: a. Not have a job b. Actively have looked for work within the past six weeks c. Not have a job, and currently be available for work d. Not have a job, have been actively looking for work within the past four weeks, and currently be available for work

d

Nondiscretionary fiscal policy also known as automatic stabilizers: a. entails legislative changes in government spending or taxes to stabilize the economy. b. include changes in tax rates designed to reduce unemployment. c. is the culprit whenever the federal government runs a budget deficit. d. involves changes in spending and taxes that occur automatically as economic conditions change.

d

The unemployment due to changes in the types of skills employers require is called ____ unemployment: a. Frictional b. Natural c. Cyclical d. Structural

d

True or false: The sum of the unemployment rate and the employment rate always equals 100%. c. True d. False

d

When government expenditures in a given year are less than revenues, there exists: a. a budge deficit. b. public revenue. c. full-employment taxation. d. a budget surplus.

d

When savings is greater than investment we are: at equilibrium GDP. at full employment GDP. below equilibrium GDP. above equilibrium GDP.

d

Which of the following is an example of an automatic stabilizer? a. The reduction in the money supply that occurs as banks become less willing to make loans during a recession. b. The reduction in real wages that occurs as the economy goes into a recession. c. The increase in government spending that occurs as the result of new spending bills passed by Congress. d. The rise in tax revenue that occurs as a result of growth in real GDP. e. All of the above.

d

Which of the following is not an aspect of Keynesian economics? a. Wages and prices tend to be inflexible downward. b. Supply does not necessarily generate its own demand. c. Saving depends directly upon the level of income. d. Unemployment is a temporary phenomenon.

d

35) Deflation is: a) Hyperinflation b) a constant rate of inflation c) a slow-down in the rate of inflation d) zero inflation e) a decline in the price level

e

36) Disinflation is: a) the same as deflation b) a constant price level c) negative inflation d) a drop in the general level of prices e) a reduction in the annual rate of inflation

e

If full employment GDP is $500 billion greater than equilibrium GDP and the multiplier is 5, there is a deflationary gap: a. of $50 billion. b. $100 billion. c. of $200 billion. d. of $500 billion. e. that is impossible to find.

e

If we ran a budget deficit of $60 billion and a full-employment balanced budget, then the unemployment rate would be: a. 5% b. 6% c. 7% d. 8% e. impossible to determine.

e

Which statement is true about inflationary gaps and deflationary gaps? a. They can both be eliminated by raising G. b. They can both be eliminated by lowering G. c. They can both be eliminated by raising taxes. d. They can both be eliminated by lowering taxes. e. None is true.

e