ECON Test: 3

If an economy's GDP will double in 25 years, then its growth rate must be about: A)2.8%. B)28%. C)2.5% .D)25%.

A)2.8%.

If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is: A)0.80. B)0.70 .C)0.10. D)0.30.

B)0.70

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in :A)increased output. B)increased inflation. C)both increased output and increased inflation D)neither increased output nor increased inflation.

B)increased inflation.

As income increases, consumption _____. A)decreases at a slower rate B)increases at a slower rate C)decreases faster D)increases faster

B)increases at a slower rate

Improvements in production capacity will: A)move the economy up to the PPF. B)move the economy along the PPF. C)shift the PPF outward. D)rotate the PPF clockwise.

C)shift the PPF outward.

Which of the following equations is correct? A)AE = C + I -G + (X -M) B)AE = C + I + G + (X + M) C)AE = C -I + G -(X + M) D)AE = C + I + G + (X -M)

D)AE = C + I + G + (X -M)

SEE GRAPH: If the government raises taxes or increases regulations, the short-run aggregate supply curve will shift from SRAS0to _____ and the price level will be at _____. A)SRAS2; P2 B)SRAS1; P0 C)SRAS1; P1 D)SRAS2; P1

A)SRAS2; P2

_____ inflation occurs when a supply shock reduces aggregate supply. A)Demand-push B)Cost-push C)Demand-pull D)Sticky

B)Cost-push

A(n) _____ in oil prices and a(n) _____ in taxes will shift short-run aggregate supply to the left. A)decrease; decrease B)increase; increase C)increase; decrease D)decrease; increase

B)increase; increase

(Graph: Consumption) Based on the information provided in the graph, at an income level of $300, savings equals _____, the MPC equals _____, and the APC equals _____. A)-$80; 0.6; 1.27 B)$300; 0.4; 0.5 C)-$120; 0.4; -0.7 D)$80; 0.6; -0.27

A)-$80; 0.6; 1.27

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? A)0.6 B)2.5 C)0.4 D)1.2

A)0.6

Rocky Gap Furniture hires ten employees working eight hours each to produce 100 rocking chairs. What is the productivity of these workers? A)1.25 chairs per hour B)50 chairs C)2.5 chairs per hour D)100 chairs

A)1.25 chairs per hour

Which of the following events will NOT cause the aggregate demand curve to shift? A)A rise in the aggregate price level causes a decline in exports. B)Governments increase spending on national security in the wake of terrorist attacks .C)Consumers' wealth declines because of a drop in the stock market. D)Businesses are optimistic about the economy, investing heavily in new equipment.

A)A rise in the aggregate price level causes a decline in exports.

The _____ effect is a reason for the negative slope of the aggregate demand curve. A)interest rate B)income C)multiplier D)substitution

A)interest rate

Suppose the marginal propensity to consume in Economia is 0.75. People feel increasing confidence in their economy and spend $5 billion more on vacations. Equilibrium income will rise by: A)$5 billion. B)$20 billion. C)$4 billion. D)$75 billion.

B)$20 billion.

.If disposable income is $3,000 and saving is $1,200, how much is consumption? A)$2,100 B)$4,200 C)$1,800 D)-$1,200

C)$1,800

SEE CHART: When disposable income is $1,200, what is the value of the average propensity to save? A)-1.083 B)-0.5 C)-0.083 D)-1.5

C)-0.083

SEE GRAPH: Based on the information provided in the graph, the marginal propensity to consume equals: A)0.6. B)0.7. C)0.5. D)any number less than one, but the eventual value depends on the level of income.

C)0.5.

If the marginal propensity to save is 0.25, the multiplier is: A)1.33. B)3.33. C)4. D)3.

C)4.

3.(Table) According to the table, which country was MOST likely to experience catch-up growth? A)Croland B)Nomica C)Econia D)Macroland

C)Econia

If the growth rate in an economy is 3.5%, then its GDP will double in about: A)245 years. B)70 years. C)3.5 years. D)20 years.

D)20 years.

SEE GRAPH: Equilibrium output is _____ units and the equilibrium price level is _____. A)5,000; $160 B)100; $3,000 C)2,000; $130 D)3,000; $100

D)3,000; $100

If output equals A × (5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100? A)50,000 B)12,000 C)120,000 D)500,000

D)500,000

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

D)The marginal propensity to consume

As a general rule, the more capital employed with workers, the _____ their productivity and the _____ their earnings. A)higher; higher B)lower; higher C)higher; lower D)lower; lower

A)higher; higher

USE GRAPH: This economy is currently at point a. This figure depicts an economy: A)in short-run equilibrium only. B)in long-run equilibrium only. C)in neither short-run nor long-run equilibrium. D)in both short-run and long-run equilibrium study how short run and long run look differently

A)in short-run equilibrium only.

Which of the following events causes a decrease in aggregate demand? A)increase in taxes B)increase in government spending C)improving consumer confidence D)decrease in interest rates

A)increase in taxes

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

A)right; increase

.If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was: A)10%. B)0.625%. C)2.5%. D)7.5%.

B)0.625%

____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises. A)Overextended B)Demand-pull C)Unnecessary D)Cost-push

B)Demand-pull

A(n) _____ in government spending, a _____ domestic currency, and _____ interest rates will shift a country's aggregate demand to the left. A)increase; stronger; lower B)decrease; stronger; higher C)decrease; weaker; lower D)increase; weaker; higher

B)decrease; stronger; higher

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _____ in the _____ U.S.-made products. A)increase; short-run aggregate supply of B)increase; aggregate demand for C)decrease; short-run aggregate supply of D)decrease; aggregate demand for

B)increase; aggregate demand for

(Table) According to the Table: Real Per Capita GDP and Growth, which country will have the higher real per capita GDP in 17.5 years? A)Econia because its real GDP per capita will have time to double and then almost double again B)Econia because its growth rate is higher C)Nomicia because its real GDP per capita will double and Econia's will still lag behind even though it is growing at a faster rate D)Nomicia because it has a higher starting GDP in the currentyear

C)Nomicia because its real GDP per capita will double and Econia's will still lag behind even though it is growing at a faster rate

The capital-to-labor ratio is: A)the ratio of managers to workers. B)a key element in decreasing real wages. C)high in rich countries. D)high in poor countries.

C)high in rich countries.

The reason business investment is sensitive to interest rates is that: A)interest rates indicate how aggressive government policy is about fighting recessions. B)firms charge interest on any investment they make. C)most funds used for investment are borrowed, so firms incur an interest charge. D)interest rates are a lagging indicator, so they signal to firms the state of the economy.

C)most funds used for investment are borrowed, so firms incur an interest charge.

54.If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will: A)become vertical. B)shift to the left. C)shift to the right. D)not change.

C)shift to the right.

Refer to the production possibilities frontiers below. Panel A illustrates _____ economic growth and Panel B illustrates _____ economic growth. A)long-run; long-run B)long-run; short-run C)short-run; long-run D)short-run; short-run

C)short-run; long-run

A production function: A)shows the output that is produced using different combinations of technology combined with existing inputs. B)shows the most desired production method for a given level of output. C)shows the output that is produced using different combinations of inputs combined with existing technology. D)shows the output that is most highly valued by consumers.

C)shows the output that is produced using different combinations of inputs combined with existing technology.

Long-run growth is MOST likely to be achieved by promoting: A)provision of infrastructure by the government. B)increased saving .C)increases in the size of the labor force. D)development of new technologies.

D)development of new technologies.

A shift to the _____ of the _____ curve would cause the price level and employment to decrease. A)left; short-run aggregate supply B)right; short-run aggregate supply C)right; aggregate demand D)left; aggregate demand

D)left; aggregate demand

Physical capital includes: A)the ability to take physical resources and use them in creative ways to produce goods and services. B)land and raw resources that come from land. C)the physical talents of people. D)manufactured products that are used to produce other goods and services.

D)manufactured products that are used to produce other goods and services.

Which is NOT a source of productivity growth? A)making investments in technological improvements B)raising the capital-to-labor ratio C)increasing the quality of labor D)moving resources from production to pension benefits

D)moving resources from production to pension benefits

Investment spending: A)is the largest component of total spending. B)is not sensitive to interest rates. C)is limited to the stock and bond markets. D)tends to be volatile.

D)tends to be volatile.

In the Keynesian macroeconomic equilibrium: A)AE = Y and C = S. B)AE = I and C = S .C)AE = Y and S = I. D)AE = S and C = I.

C)AE = Y and S = I.

Which of the following statements is NOT true? A)Economic growth always leads to a more equitable distribution of income. B)Economic growth leads to increased consumption of goods and services. C)Economic growth leads to lower poverty rates. D)Economic growth leads to longer life expectancies.

A)Economic growth always leads to a more equitable distribution of income.

According to the figure of ADAS curves and assuming the country begins on AD1and SRAS1, what will happen in the short and long run if the price of oil rises significantly?A)The economy will move from point C to A to B. B)The economy will move from point D to C to E. C)The economy will move from point D to C to B. D)The economy will move from point C to E to B.

A)The economy will move from point C to A to B.`

Which of the following did classical economists believe would happen if the economy experienced a downturn?A)The economy would self-correct. B)Prices would rise. C)The government would fix the inefficiencies. D)Interest rates would rise.

A)The economy would self-correct.

In the Keynesianmodel, the price level is _____; in the aggregate demand and supply model, the price level is _____. A)flexible; flexible B)fixed; flexible C)fixed; fixed D)flexible; fixed

B)fixed; flexible

Economic growth is shown as a: A)shift to the left of the short-run aggregate supply curve. B)shift to the left of the long-run aggregate supply curve. C)movement up along the short-run aggregate supply curve. D)shift to the right of the long-run aggregate supply curve.

D)shift to the right of the long-run aggregate supply curve.

(Figure: Aggregate Demand Shift)Which of the following may be an explanation for the shift in aggregate demand from line A to line B? A)Consumer confidence declines and consumption spending falls. B)Goods and services become less competitive and exports fall. C)Interest rates fall and boost investments. D)Prices fall and increase real wealth.

C)Interest rates fall and boost investments.

The real GDP that firms will produce at varying price levels is: A)individual product supply .B)aggregate demand .C)aggregate supply. D)individual product demand

C)aggregate supply.

According to the textbook, what brought the United States out of the Great Depression? A)an increase in consumption B)a decrease in the interest rate C)an increase in spending on World War II D)an increase in investment

C)an increase in spending on World War II

The aggregate demand curve slopes _____ and has _____ on the vertical axis. A)upward; the price level B)downward; output C)downward; the price level D)upward; output

C)downward; the price level

If consumption decreases from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will: A)rise by $25 billion. B)rise by $125 billion. C)fall by $125 billion. D)fall by $25 billion.

C)fall by $125 billion.

If a country's population increases at a higher rate than the growth in its real GDP: A)the country's rate of inflation has increased .B)average output per person remains constant. C)GDP per capita has increased. D)the standard of living in the country has declined.

D)the standard of living in the country has declined.

Infrastructure is: A)a country's public capital. B)unimportant for economic growth because the government provides it. C)not important in a market-based economy. D)typically better when provided by private companies.

A)a country's public capital.

The figure shows the aggregate expenditures line for an economy. Which is the proper sequence of events if income was originally at $100? A)Total spending exceeds income, firms expand production, workers are hired, and incomes rise until equilibrium is reached. B)Total spending exceeds income, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached. C)Total income exceeds spending, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached. D)Total income exceeds spending, firms expand production, workers are hired, and incomes rise until equilibrium is reached.

A)Total spending exceeds income, firms expand production, workers are hired, and incomes rise until equilibrium is reached.

If the U.S. aggregate price level falls: A)net exports rise. B)interest rates go up. C)the aggregate demand curve shifts to the right. D)the purchasing power of wealth declines.

A)net exports rise.

Economic growth is most accurately measured using: A)real GDP per capita. B)GDP. C)GDP per capita .D)Genuine Progress Indicator per capita.

A)real GDP per capita.

Because of the wealth effect, a rising aggregate price level _____ the purchasing power of wealth and therefore _____ output demanded. A)reduces; reduces B)reduces; increases C)increases; increases D)increases; reduces

A)reduces; reduces

Which of the following best illustrates the wealth effect?A)Simon felt he needed at least $800,000 to retire comfortably. He increased his savings to build up his wealth. B)The Jones family has $50,000 in a bank. Prices in the market rose dramatically, diminishing their purchasing power by $50,000. C)Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks .D)Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000.34.

B)The Jones family has $50,000 in a bank. Prices in the market rose dramatically, diminishing their purchasing power by $50,000.