Exam 2 Multiple Choice Dr V

Government expenditure depends to a large extent on: a. the stock of capital b. public needs c. credit conditions d. the structure of taxes

b. public needs

Suppose the total market value of all final goods and services produced in a particular country in 2006 is $500 billion and the total market value of final goods and services sold is $450 billion. We can conclude that: A) GDP in 2006 is $450 billion. C) GDP in 2006 is $500 billion. B) NDP in 2006 is $950 billion. D) Inventories in 2006 fell by $50 billion. E) None of the above

C) GDP in 2006 is $500 billion.

A "social good" is best described as: a. A good or service not adequately provided by a free market usually provided by the government b. A good or service not adequately provided by the government and usually provided by a free market c. A good or service that is subject to the exclusion principle d. A good or service that is subject to the investment principle e. A private good or service

a. A good or service not adequately provided by a free market usually provided by the government

As aggregate income increases, consumption: a. and saving both increase b. and saving both decrease c. decrease and saving increase d. increase and saving decrease e. none of the above

a. and saving both increase

66. GDP measures only the value of FINAL goods and services to: a. avoid double counting b. avoid measuring value added c. include nonproductive transactions d. exclude productive transactions e. include the value of all intermediate transaction

a. avoid double counting

During a period of high inflation: a. borrowers are better off because they can pay off their loans with currency that is worth less b. borrowers are worse off because thy have to pay off their loans with currency that is worth more c. lenders are worse off because they cannot find anyone who wants a loan d. lenders are worse off because they are repaid with currency that is worth more e. none of the above

a. borrowers are better off because they can pay off their loans with currency that is worth less

The MEI expresses a relationship between: a. consumption and investment b. interest rates and consumption c. interest rates and savings d. investment and savings e. interest rates and investment

a. consumption and investment

Dissaving occurs if: a. consumption is greater than disposable income b. the APC is negative c. the APS is positive d. the MPC is negative e. the MPS is negative

a. consumption is greater than disposable income

The relationship between income and consumption is expected to be: a. direct b. inverse c. independent d. static over time e. none of the above

a. direct

People who are in the process of changing jobs are accounted for by which one of the following unemployment categories? a. frictional unemployment b. involuntary unemployment c. structural unemployment d. cyclical unemployment e. seasonal unemployment

a. frictional unemployment

Aggregate output is the: a. money value of a nation's total production b. sum of money income earned by the suppliers of labor, land, capital, and entrepreneurship c. income earned by owners of foreign factors of production less income earned by domestic factors of production d. total value of goods and services purchased by the business sector. e. total value of income households have available for discretionary expenditures

a. money value of a nation's total production

That part of a person's income which is not consumed is his or her: a. saving d. excess b. profit e. problem c. surplus

a. saving

The most important factor determining a family's consumption expenditures is likely to be the: a. neighborhood in which it lives b. level of its disposable income c. average age of its members d. size of the family e. general price level

b. level of its disposable income

Aggregate supply is: a. the amount of real aggregate output that will be made available at various national income amounts b. the amount of real aggregate output that will be purchased at various average price levels c. the amount of real aggregate output that will be purchased at various national income levels d. the amount of real aggregate output that will be made available at various average price levels e. the amount of real aggregate output that will be made available at various interest rates.

a. the amount of real aggregate output that will be made available at various national income amounts

A business cycle is: a. the periodic fluctuation of economic activity. b. the engine of economic growth. c. a period lasting about 50 years. d. identical to the consumption life cycle.

a. the periodic fluctuation of economic activity.

Suppose during the course of a year an economy produces $11 trillion of consumer goods, $3 trillion of investment goods, $6 trillion in government services, and has $3 trillion of exports and $1 trillion of imports. For this economy, GDP would be: a. $18 trillion. b. $22 trillion. c. $23 trillion. d. $24 trillion.

b. $22 trillion.

A recessionary gap exists if: a. actual real GDP is less than potential real GDP b. actual real GDP exceeds potential real GDP c. actual real GDP equals potential real GDP d. the actual equilibrium price level is greater than zero e. the actual equilibrium price level is zero

b. actual real GDP exceeds potential real GDP

An inflationary gap occurs if: a. actual real output is less than potential real output b. actual real output is greater than potential real output c. actual real output is equal to potential real output d. unemployment is greater than the natural rate e. unemployment is equal to the natural rate

b. actual real output is greater than potential real output

In term of the "bathtub theorem," an injection is: a. a leakage from the economy's circular flow of income b. an expenditure that raises the economy's income c. a form saving d. any variable that reduces the economy's income e. any variable that has a neutral effect on the economy's income

b. an expenditure that raises the economy's income

Cyclical unemployment consists of people who are unemployed due to: a. discrimination b. business recessions c. temporary changes in jobs d. a mismatch between the location of workers and the location of jobs e. a mismatch between the skills of workers and the skills required by the job market

b. business recessions

The APC is: a. 1 - MPS b. consumption divided by disposable income c. the slope of the propensity-to-consume line d. the proportion of additional disposable income used for consumption e. the change in consumption divided by the change in disposable income

b. consumption divided by disposable income

Real GDP measures: a. current output at current prices b. current output at base year prices c. base year output at current prices d. none of the above e. all of the above

b. current output at base year prices

The GDP gap is the: a. difference between nominal GDP and real GDP b. difference between potential GDP and actual GDP c. ration of nominal GDP to real GDP d. ratio of potential GDP to actual GDP e. ratio of potential GDP to real GDP

b. difference between potential GDP and actual GDP

Macroeconomics deals with the action of: a. individuals only b. societies only c. atmosphere only d. both individuals and societies e. neither individuals nor societies

b. societies only

As price level rises: a. the purchasing power of cash holdings rises b. the purchasing power of cash holdings falls c. the purchasing power of cash holdings remain constant d. all of the above e. none of the above

b. the purchasing power of cash holdings falls

Economist use the term "aggregate expenditure" to mean: a. spending for all final goods and services b. the sum of planned spending for all products and factor services c. household spending for all consumption goods d. business spending for all investment goods e. spending for all products except exports

b. the sum of planned spending for all products and factor services

The aggregate supply curve is: a. downward-sloping b. upward-sloping c. vertical d. horizontal e. none of the above

b. upward-sloping

Suppose that your income increases form $10,000 to $15,000 and your consumption increase from $9,000 to $12,000. Your APC at $15,000 is: a. 0.4 b. 0.6 c. 0.8 d. 0.9 e. 1.0

c. 0.8

Which of the following is not necessarily true? a. C/DI + S/DI = 1 b. APC + APS = 1 c. APC = MPC d. APC + APS = MPC + MPS e. MPC + MPS = 1

c. APC = MPC

Which of the following states that a 3% increase in real GNP will yield a 1% point decrease in the unemployment rate? a. Phillips Curve b. GDP Gap c. Okun's law d. Keynesian Rule e. Stephen's Law

c. Okun's law

68. In general terms, the economic role of the government includes the broad functions of the: a. Provision of private goods and the regulation of social goods b. Promotion and regulation of the private sector and the provision of private goods c. Promotion and regulation of the private sector and the provision of social goods d. Promotion and regulation of the public sector and the provision of quasi-public goods e. Reduction of economic efficiency and the maintenance of economic growth

c. Promotion and regulation of the private sector and the provision of social goods d

"Double counting" would occur in GNP statisticians: a. used market prices without a correction for inflation b. included sales taxes in the market prices of goods and services c. added the costs of wood to the furniture maker along with the final price of the chairs d. added government expenditures on roads, and consumer expenditures on gasoline e. did all of the above

c. added the costs of wood to the furniture maker along with the final price of the chairs

Which of the following is not a type of unemployment? a. seasonal b. structural c. cost-push d. cyclical e. none of the above

c. cost-push

The expression "too much money chasing too few good" best describes the condition called: a. cost-push inflation b. wage-push inflation c. demand-pull inflation d. market-power inflation e. commodity inflation

c. demand-pull inflation

Which of the following factors is NOT a component of aggregate demand? a. consumption b. investment c. income d. net export

c. income

A rise in the general price level of goods and services is: a. depreciation b. deflation c. inflation d. expectations

c. inflation

Value added is equal to the sum of all: a. wages paid to labor b. income generated from production c. intermediate transactions involved in the production of a good d. intermediate transactions involved in the production of a good, less profit

c. intermediate transactions involved in the production of a good

A measure of the economy's output in current dollars is: a. deflation b. real GDP c. nominal GDP d. constant GDP e. intermediate GDP

c. nominal GDP

In the short run, the aggregate supply curve is: a. horizontal. b. negatively sloped. c. positively sloped. d. vertical.

c. positively sloped.

Tom Atoe grows tomatoes for home consumption. This activity is: a. excluded from GDP in order to avoid double counting. b. excluded from GDP because an intermediate good is involved. c. productive but is excluded from GDP because no market transaction occurs. d. included in GDP because it reflects production. e. all of the above

c. productive but is excluded from GDP because no market transaction occurs.

In terms of the "bathtub theorem," a withdrawal of leakage: a. expands the economy's income b. has a neutral effect on the economy's income c. reduces the economy's income d. is a form of investment e. is any variable that stimulates production and employment

c. reduces the economy's income

The MPS is: a. 1 - MPS b. saving divided by consumption c. saving divided by disposable income d. the slope of the propensity-to-consume line e. the proportion of additional disposable income used for saving

c. saving divided by disposable income

The notion that equilibrium occurs when "injections" are equal to "leakage" is termed the: a. "water paradox" b. paradox of thrift c. saving theorem d. "bathtub theorem" e. multiplier effect

d. "bathtub theorem"

In the expenditure approach to measuring the GDP the following are categories of spending: a. gross private domestic investment b. personal consumption expenditure c. government expenditure d. all of the above e. none of the above

d. all of the above

During recession, government tax receipts (revenue): a. is unaffected b. overflow c. underestimated d. decrease e. increase

d. decrease

An example of an "injection" in the bathtub theorem is: a. taxes b. saving c. imports d. investment e. employment

d. investment

Spending by business firms on physical capital is: a. taxes b. saving c. exports d. investment e. consumption

d. investment

The GDP for one year differs from the GDP of another because: a. price changes b. physical output changes c. people are not patriotic d. only "a" and "b" above e. all of the above

d. only "a" and "b" above

In order to know if differences in GDP is a result of changes in prices or output GDP is expressed in the way of: a. dollars and cents b. nominal c. real d. only b and c above e. only a and c above

d. only b and c above

A measure of the economy's output in constant dollars is: a. intermediate GDP b. current GDP c. nominal GDP d. real GDP e. inflation

d. real GDP

The simple circular flow diagram shows that economic aggregates can be calculated either by the _____________ flows in the product market or by the ______________ flowing to households in the resource market. a. spending; income b. income; spending c. output; spending d. spending; output

d. spending; output

Frictional unemployment consists of people who are unemployed due to: a. discrimination b. business recessions c. business depressions d. temporary changes in jobs e. a mismatch between the skills of workers and the skills required by the job market

d. temporary changes in jobs

The lower the market rate of interest, other things being equal: a. the higher the MEI b. the lower the rate of investment c. the lower the MEI d. the higher the rate of investment e. the steeper the MEI

d. the higher the rate of investment

The best reason economists take only final goods and services into account when calculating GDP is: a. this is the way things have always been done b. they want to avoid the problem of final counting c. this is the only way things can be done d. they want to avoid the problem of double counting e. none of the above

d. they want to avoid the problem of double counting

A recessionary gap occurs if: a. actual real output is greater than potential real output b. actual real output is equal to potential real output c. unemployment is less than the natural rate d. unemployment is greater than the natural rate e. unemployment is equal to the natural rate

d. unemployment is greater than the natural rate

The economic role of government can be considered to: a. Promotion and regulation of the private sector b. Provision of social goods and services c. Accumulating debts d. none of the above e. "a" and "b" above only

e. "a" and "b" above only

The expected annual rate of return on an additional unit of a capital good is the: a. APS b. APC c. MPS d. MPC e. MEI

e. MEI

Structural unemployment consists of people who are unemployed due to: a. business recessions b. business depressions c. temporary changes in jobs d. imperfect knowledge of job opportunities e. a mismatch between the skills of workers and the skills required by the job market

e. a mismatch between the skills of workers and the skills required by the job market

Household spending on goods and services is: a. taxes b. saving c. exports d. investment e. consumption

e. consumption

GDP measures all goods in units of: a. pounds b. feet c. tons d. acres e. dollars

e. dollars

Gross national product is income earned from: a. foreign production b. domestic production c. foreign production less net domestic factor income d. domestic production plus net foreign factor income e. domestic production less net foreign factor income

e. domestic production less net foreign factor income

In the bathtub theorem, "injections" are: a. leakages from total income b. withdrawals that are dependent on income c. withdrawals that are not dependent on income d. expenditures that are dependent on income e. expenditures that are not dependent on income

e. expenditures that are not dependent on income

Disposable income includes: a. corporate taxes b. undistributed corporate profits c. depreciation d. allowance given to children by parents e. none of the above

e. none of the above

The consumption function expresses the: a. purposes of consumption b. relation between consumption and prices c. relation between consumption and saving d. difference between consumption and taxes e. relation between consumption and income

e. relation between consumption and income

Aggregate expenditure is the sum of desire or planned spending that: a. occurs only when the economy is in equilibrium b. occurs only when the economy is at full employment c. occurs only when the economy is in equilibrium at full employment d. will be undertaken by the household sector after taxes e. will be undertaken at each aggregate-income level by all sectors of the economy

e. will be undertaken at each aggregate-income level by all sectors of the economy