Macro
(Table: Unemployment Statistics for Country X) Using the data in the table, Country X is likely to be in a recession in: A. both 1995 and 2005. B. 2005. C. 1995. D. neither 1995 nor 2005.
A. both 1995 and 2005.
A minimum wage is: A. a labor market price ceiling. B. a labor market price floor. C. an employment protection law. D. the equilibrium wage in an unskilled labor market.
B. a labor market price floor.
The quantity theory of money implies that the money supply times the velocity of money equals: A. the price level. B. nominal GDP. C. the quantity of goods and services. D. real GDP.
B. nominal GDP.
If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's unemployment rate is: A. 5%. B. 10%. C. 9.1%. D. 11%.
C. 9.1%.
Which of the following causes a shift of the AD curve to the right? A. an increase in income taxes B. an increase in interest rates C. an increase in consumer confidence D. an increase in import growth
C. an increase in consumer confidence
(Table: iPhones) This table shows data for a country producing only iPhones. Based on the GDP deflator, the increase in prices between 2000 and 2010 was: A. 1%. B. 110%. C. 9.9%. D. 10%.
D. 10%.
Inflation refers to an increase in the: A. relative prices of some goods as compared to other goods. B. average level of prices. C. average level of nominal output. D. standard of living.
B. average level of prices.
(Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year(s) did the country experience disinflation? A. neither 2007 nor 2009 B. both 2007 and 2009 C. 2007 only D. 2009 only
B. both 2007 and 2009
According to the quantity theory of money, an increase in the money supply will cause the price level to: A. increase by a greater percentage than the money supply. B. increase by about the same percentage as the money supply. C. remain relatively constant since money is neutral. D. increase by a smaller percentage than the money supply.
B. increase by about the same percentage as the money supply.
If a national government improves its unemployment benefits, its unemployment rate will most likely: A. decrease. B. increase. C. follow the global trend, regardless of national policy. D. remain the same.
B. increase.
A decrease in spending growth will cause the economy's aggregate demand curve to: A. become steeper. B. shift to the left. C. become flatter. D. shift to the right.
B. shift to the left.
A country has a population of 160 million. Thirty million of its people are under the age of 16 and 10% of the population is either in the military or institutionalized. Seventy million people have jobs, and five million are looking for work. What is the labor force participation rate in this country? A. 70% B. 52% C. 66% D. 62%
C. 66%
A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's labor force participation rate? A. 83.3% B. 50% C. 66.7% D. 75%
C. 66.7%
When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _____. A. fall short of; lenders and harm borrowers B. exceed; benefit borrowers and harm lenders C. exceed; lenders and harm borrowers D. fall short of; borrowers and harm lenders
C. exceed; lenders and harm borrowers
Among countries with similar Solow steady states, poorer countries tend to grow _____ rich countries. A. more slowly than B. sometimes faster and sometimes more slowly than C. faster than D. at the same rate as
C. faster than
In 2010, real GDP was $13.2 trillion (using 2005 prices) and nominal GDP was $14.6 trillion. Based on the GDP deflator, prices in 2010 were about _____ than prices in 2005. A. 9.6% higher B. 9.6% lower C. 10.6% lower D. 10.6% higher
D. 10.6% higher
If U.S. per capita GDP is $50,000 and grows at 2% per year, what will U.S. per capita GDP be in 70 years? A. $400,000 B. $100,000 C. $800,000 D. $200,000
D. $200,000
If U.S. per capita GDP is $50,000 and grows at 3% per year, what will U.S. per capita GDP be in 70 years? A. $200,000 B. $800,000 C. $100,000 D. $400,000
D. $400,000
For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is: A. -6%. B. 16%. C. -4%. D. 4%.
D. 4%.
In response to a negative oil price shock, real GDP growth: A. falls and never returns to its initial level. B. first rises and then falls back to its initial level. C. rises and never returns to its initial level. D. first falls and then rises back to its initial level.
D. first falls and then rises back to its initial level.
The quantity theory of money is a theory of: A. money growth in the United States. B. economic growth. C. the growth of tax burdens. D. inflation.
D. inflation.
Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead: A. borrowers on existing fixed rate loans will gain while lenders will lose. B. both lenders and borrowers on existing fixed rate loans will lose. C. both lenders and borrowers on existing fixed rate loans will gain. D. lenders on existing fixed rate loans will gain while borrowers will lose.
D. lenders on existing fixed rate loans will gain while borrowers will lose.
Which is NOT an example of an institution that creates incentives aligning self-interest with the interest of society? A. political stability B. well-defined property rights C. competitive markets D. low inflation
D. low inflation
The formula that represents the generation of ideas (A) is: A. capital ÷ population - ideas per hour. B. capital × (population ÷ ideas per hour). C. population - incentives - ideas per hour. D. population × incentives × ideas per hour.
D. population × incentives × ideas per hour.
Which of the following is a case of cyclical unemployment? Selected Answer: A. Garrett lost his job after the company closed during last year's recession. B. Glenn quit his job to move to another state. C. Grace is an accountant temporarily unemployed since tax season has ended. D. Gwyneth is still seeking a job that will use her skills in statistics.
A. Garrett lost his job after the company closed during last year's recession.
Which of the following is true of the natural unemployment rate? A. It is higher if structural or frictional unemployment is higher. B. It can change dramatically within a matter of months. C. It is equal to zero when the economy is not in a recession. D. It has been fixed at 4% during the post-World War II period.
A. It is higher if structural or frictional unemployment is higher.
The quantity theory of money predicts that the main cause of inflation is increases in: A. the money supply. B. real output. C. consumption. D. prices.
A. the money supply.
When an economic system changes from using a collective property rights system to something closer to private property rights, the immediate effect is: A. to increase investment, work effort, and productivity. B. to increase regulation, resulting in less market activities. C. less efficient organization of resources. D. to decrease investment, work effort, and productivity.
A. to increase investment, work effort, and productivity.
Institutions and incentives are _____ causes, and factors of productions are _____ causes of the wealth of nations. A. ultimate; immediate B. immediate; direct C. ultimate; indirect D. immediate; ultimate
A. ultimate; immediate
The presence of discouraged workers causes the measured unemployment rate to be: A. understated. B. correctly stated. C. either overstated, understated, or correctly stated. D. overstated.
A. understated.
Which of the following is NOT considered a government purchase? A. unemployment checks B. salaries for public school teachers C. new rifles for the military D. levees built by the Army Corps of Engineers
A. unemployment checks
(Figure: Labor Market) Refer to the figure. What is the unemployment rate in this market as a result of the implementation of a $10 minimum wage? A. 25% B. 50% C. 20% D. 100%
B. 50%
(Table: iPhones) This table shows data for a country producing only iPhones. Its nominal GDP in 2010 is: A. $9,900. B. $9,000. C. $10,800. D. $10,000.
A. $9,900.
(Figure: Labor Market) Refer to the figure. If this market is initially in equilibrium when a $10 minimum wage is imposed, the quantity of labor employed will fall by: A. 20. B. 80. C. 40. D. 60.
A. 20.
(Figure: Labor Supply and Demand) Refer to the figure. What is the unemployment rate caused by the labor union's action to increase its wage demands to $11 an hour? A. 40% B. 75.6% C. 60% D. 66.7%
A. 40%
Which statement is TRUE about economic growth? A. A country can grow and become wealthy, never grow, or grow and then begin to stagnate. B. Once a country starts to grow, it will continue to grow. C. All countries eventually grow rich. D. Growth is a random process; in some years a country grows and in other years it doesn't.
A. A country can grow and become wealthy, never grow, or grow and then begin to stagnate.
In a country where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case? A. A large percentage of the population is aging and thus has retired. B. A large percentage of the population consists of children. C. A large percentage of the population is unemployed. D. A large percentage of the population is employed.
A. A large percentage of the population is aging and thus has retired.
Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2, the depreciation rate is δ = .05, and the economy starts with output of 20, what does the Solow model predict will happen to output in the long run? A. It will decline. B. It will increase for a time and then return to 20. C. It will increase. D. It will remain at 20.
A. It will decline.
Which of the following activities is counted as part of U.S. GDP? A. Jeff stays in a hotel in Colorado while on a skiing trip. B. Jake takes a vacation at a Caribbean resort. C. Joe watches a free video on YouTube. D. John purchases a counterfeit DVD.
A. Jeff stays in a hotel in Colorado while on a skiing trip.
Which of the following is NOT consistent with points along the long-run aggregate supply curve? A. Real output growth is negatively related to inflation. B. All real factors of production are being fully utilized. C. All prices are fully flexible. D. Real GDP is growing at its long-run potential growth rate.
A. Real output growth is negatively related to inflation.
Which of the following is NOT true regarding the natural rate of unemployment? A. The natural rate of unemployment correlates positively with the level of GDP growth in an economy. B. The actual rate of unemployment varies around the natural rate over time. C. The natural rate of unemployment equals the sum of the frictional and structural rates. D. If the economy is operating at the natural rate of unemployment, cyclical unemployment is equal to zero.
A. The natural rate of unemployment correlates positively with the level of GDP growth in an economy.
The growth that results from better ideas or technological knowledge is: A. cutting-edge growth. B. catching-up growth. C. capital growth. D. short-run growth.
A. cutting-edge growth.
Continued long-run economic growth requires that economies: A. have institutions in place that encourage research and development of new ideas. B. reach their steady-state levels of capital and output. C. have high levels of capital stock. D. continue to increase their investment rates.
A. have institutions in place that encourage research and development of new ideas.
For a given nominal interest rate, an increase in deflation will cause the real rate of interest to: A. increase. B. become unpredictable. C. decrease. D. remain relatively constant.
A. increase.
Higher levels of unemployment benefits and employment protection: A. raise structural unemployment. B. lower cyclical unemployment. C. lower structural unemployment. D. raise cyclical unemployment.
A. raise structural unemployment.
Using a graph of the AD and long-run aggregate supply curves, the Internet revolution of the 1990s caused: A. real growth to increase and inflation to decrease. B. real growth to decrease and inflation to increase. C. both real growth and inflation to decrease. D. both real growth and inflation to increase.
A. real growth to increase and inflation to decrease.
Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 10% and a production function of Y = K1/2. If there is no technological advancement, what will the growth rate in this country be over the next year? A. 2.4% B. -3.97% C. 10% D. -4.13%
B. -3.97%
(Table: iPhones) This table shows data for a country producing only iPhones. The growth rate of real GDP between 2000 and 2010 (in 2000 dollars) is: A. -10%. B. 10%. C. 0%. D. 8%.
B. 10%.
If the average annual growth rate of a country increases from 2% to 3%, how much faster will its GDP double? A. 10 years faster B. 11 2/3 years faster C. 17 years faster D. 25 years faster
B. 11 2/3 years faster
(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is: A. 8%. B. 27%. C. 16%. D. 21%.
B. 27%.
The larger the spillovers, the stronger the argument for: A. government taxation of excess profits. B. government subsidies. C. research and development. D. economic growth.
B. government subsidies.
In the Solow model, if a country increases its savings rate: A. growth increases as a result of a new, higher production function. B. growth increases as the economy moves toward a new, higher steady-state capital stock. C. growth decreases as the economy moves toward a new, lower steady-state capital stock. D. no growth occurs, since the steady state is unchanged.
B. growth increases as the economy moves toward a new, higher steady-state capital stock.
The number of new ideas does NOT depend on the: A. incentive to innovate. B. level of capital invested. C. number of people involved. D. number of ideas per hour each person has.
B. level of capital invested.
In the AD-AS model, money is not neutral in the short run if: A. unexpected inflation turns into expected inflation. B. wages and prices are sticky. C. wages and prices are flexible. D. the change in the money supply is fully anticipated.
B. wages and prices are sticky.
Why did so many Chinese farmers and workers starve under "The Great Leap Forward"? A. A long, severe drought drastically decreased agricultural production. B. The number of workers on communes was reduced. C. The incentive to work hard was low since the rewards were so minimal. D. The Chinese people did not know how to farm in certain geographic areas.
C. The incentive to work hard was low since the rewards were so minimal.
High-income economies generally have _____ that incentivize individuals' self-interest by using _____. A. institutions; legal penalties B. central planners; profit-seeking motives C. institutions; profit-seeking motives D. government mandates; legal penalties
C. institutions; profit-seeking motives
Which of the following is (are) NOT an institution of economic growth? A. property rights B. honest government C. labor unions D. competitive and open markets
C. labor unions
According to the quantity theory, what causes inflation in the long run? A. aggregate demand shocks B. unexpected inflation C. money supply growth D. unemployment
C. money supply growth
Better ideas or technological knowledge causes: Selected Answer: A. the depreciation function to shift downward. B. the investment function to shift downward. C. the production function to shift upward. D. the production function to shift downward.
C. the production function to shift upward.
A positive real shock causes the aggregate demand curve to: A. shift outward and become flatter. B. shift inward. C. shift outward. D. not shift at all.
D. not shift at all.
During the Great Depression, the long-run aggregate supply curve: A. became flatter. B. shifted outward. C. did not shift at all. D. shifted inward.
D. shifted inward.
If the depreciation rate is .03 and the capital stock is 200, how many units of capital will depreciate this period? A. 2 units B. 3 units C. 12 units D. 6 units
D. 6 units
Suppose a country's real GDP per capita was $9,000 in 1990, and it grew to $18,000 by 2000. What is the annual growth rate of the country's real GDP per capita during this period? A. 20% B. 10% C. 25% D. 7%
D. 7%
(Table: Labor Data) According to the accompanying labor data, the unemployment rate is: A. 0.7%. B. 5.6%. C. 7%. D. 7.5%.
D. 7.5%.
(Table: Small-Town GDP) Which of the four towns in this table has the highest standard of living? A. Town A B. Town B C. Town C D. Town D
B. Town B
Which of the following correctly represents deflation? A. Eπ = π B. π < 0 C. Eπ < π D. Eπ > π
B. π < 0
(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2008 prices are used in the calculation of real GDP? A. -3.71% B. -1.97% C. 2.94% D. 1.00%
A. -3.71%
f you received a constant annual rate of return of 7% on an investment of $10,000, how many years will it take before you have $20,000? A. 10 years B. 2.86 years C. 7 years D. 35 years
A. 10 years
(Table: iPhones) This table shows data for a country producing only iPhones. If 2000 prices are used in the calculation of real GDP, the GDP deflator for 2010 is: A. 110. B. 90.9. C. 10. D. 900.
A. 110.
Which of the following is a case of frictional unemployment? A. Timothy is looking for a job where he can apply his expertise in computer programming. B. Terrance is one of more than a dozen applicants for a position teaching high school math. C. Tina was laid off temporarily while her company downsized. D. Thomas recently quit his job to start his own business.
A. Timothy is looking for a job where he can apply his expertise in computer programming.
Which of the following is an example of money illusion assuming that inflation is 5%? A. You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend. B. You do not receive a raise at your part-time job but cut out some expenses as you notice some prices rising. C. You receive a 10% raise at your part-time job and start spending extra money on entertainment every weekend. D. You receive a 5% raise at your part-time job but do not increase or decrease your spending.
A. You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.
In the Solow model, if a country's depreciation rate (δ) increased from 1% to 2% and it was operating at its steady state before the change, we would expect to see: A. a decrease in both the capital stock and output. B. an increase in both the capital stock and output. C. a decrease in output only. D. a decrease in the capital stock only.
A. a decrease in both the capital stock and output.
(Figure: The Solow Model) If the production function shifts from Y1 to Y2 in the accompanying graph of the Solow model, then: A. a new steady state will occur at K2. B. the steady state will remain at K1. C. a new steady state will occur somewhere between K1 and K2. D. the steady state will move to K2 and then return to K1 in the long run.
A. a new steady state will occur at K2.
Growth in nominal GDP over time can be caused by: A. an increase in both prices and production over time. B. neither an increase in prices nor an increase in production over time. C. an increase in production over time. D. an increase in prices over time.
A. an increase in both prices and production over time.
In the Solow model, an earthquake that destroys half of a nation's capital stock will cause: A. an increase in the country's growth rate in the years following the earthquake. B. an increase in the country's steady-state output level. C. a decrease in the country's steady-state capital stock. D. a decrease in the country's growth rate in the years following the earthquake.
A. an increase in the country's growth rate in the years following the earthquake.
According to the textbook, one major reason for the increase in the female labor force participation rate after World War II was: A. an increase in the incentive to work. B. an increase in the overall population because of the baby boom. C. a decrease in the male labor force participation rate. D. an increase in income taxes.
A. an increase in the incentive to work.
Around the world, about one _____ people have incomes of less than $2 per day. A. billion B. thousand C. trillion D. million
A. billion
Which is an example of an increase in technological knowledge? A. bone cancer researchers discover a cure for bone cancer B. an increase in the training of bone cancer researchers C. an increase in the number of scientists working on curing bone cancer D. building new bone cancer research centers
A. bone cancer researchers discover a cure for bone cancer
To compare the $1-an-hour your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to: A. calculate real wages in both 1950 and today. B. add the inflation rates in each year since 1950 until today and add this to your grandfather's wage. C. simply compare $1-an-hour to $8-an-hour. D. calculate your grandfather's nominal wage in 1950 and compare it to your wage today.
A. calculate real wages in both 1950 and today.
In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore: A. changes in GDP overstate the true increase in production over the past 100 years. B. there has been no change in production over the past 100 years. C. there has been no change in GDP over the past 100 years. D. changes in GDP understate the true increase in production over the past 100 years.
A. changes in GDP overstate the true increase in production over the past 100 years.
GDP includes the: A. current market value of government purchases of goods and services. B. sales of stocks and bonds at current market prices. C. current market value of all existing homes, regardless of when they were built. D. current market value of used cars.
A. current market value of government purchases of goods and services.
If spending grows by 3%, real GDP grows by 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve. A. falling; 2% B. rising; 3% C. rising; 2% D. falling; 3%
A. falling; 2%
To avoid double accounting, the value of: A. final goods only are included in GDP. B. both final good and intermediate goods are included in GDP. C. intermediate goods only are included in GDP. D. neither final goods nor intermediate goods are included in GDP.
A. final goods only are included in GDP.
Which of the following is an ultimate cause of economic growth among countries around the world? A. geography B. history C. History, culture, and geography are all ultimate causes of growth. D. culture
A. geography
If 2009 prices are used in the calculation of real GDP and inflation occurs between 2009 and 2010, then nominal GDP will be ____ real GDP in 2010. A. greater than B. equal to C. less than D. unrelated to
A. greater than
The 2003 Iraq War destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned and the government has become more stable. According to the Solow growth model, over the next few years we would expect to see growth rates in Iraq _____ those of high-income countries with similar institutions, followed by growth rates that are _____ the growth rates in those countries. A. higher than; similar to B. similar to; lower than C. higher than; much higher than D. lower than; similar to
A. higher than; similar to
In the Solow model, an increase in the capital stock with all other variables held constant will _____ the country's real GDP but at a(n) _____ rate. A. increase; decreasing B. increase; increasing C. decrease; decreasing D. decrease; increasing
A. increase; decreasing
Consider an economy with production function Y = K1/2, an investment rate equal to 0.25, and a depreciation rate of 0.05. If K = 1,000 this period, the capital stock next period will be: A. less than 1,000. B. greater than 1,200. C. greater than 1,000. D. equal to 1,000.
A. less than 1,000.
If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be: A. less than the equilibrium rate. B. 5%. C. greater than the equilibrium rate. D. 3%.
A. less than the equilibrium rate.
If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____. A. less; lenders to borrowers B. greater; borrowers to lenders C. greater; lenders to borrowers D. less; borrowers to lenders
A. less; lenders to borrowers
(Figure: Two SRAS Curves) The figure shows the AD-AS model with two SRAS curves. If the economy is initially at Point A and expected inflation rate remains unchanged, the economy can achieve a real GDP growth rate of 9% only by: A. moving along SRAS1 to Point B. B. first moving to Point C and then to Point B. C. first moving to Point D and then moving along SRAS2 to Point C. D. moving directly to Point C.
A. moving along SRAS1 to Point B.
GDP is calculated by: A. multiplying the quantity of all goods and services by their prices and adding together the results. B. adding the quantities of all goods and services in an economy. C. adding the prices of all goods and services in an economy. D. dividing the quantity of all goods and services by their prices and adding together the results.
A. multiplying the quantity of all goods and services by their prices and adding together the results.
Property rights are important institutions for encouraging investment because: A. people won't invest if they feel their property is at risk and that they may not realize a return on their investment. B. they increase the average return to investing, thus increasing the overall level of investment in the economy. C. they eliminate corruption. D. they tend to sup
A. people won't invest if they feel their property is at risk and that they may not realize a return on their investment.
For a tax system in which higher income earners pay a larger share of their incomes in taxes, a higher inflation rate: A. raises the tax burden of taxpayers. B. can raise or lower the tax burden of taxpayers, depending on their income levels. C. does not affect the tax burden of taxpayers. D. lowers the tax burden of taxpayers.
A. raises the tax burden of taxpayers.
When the expected rate of inflation is higher than the actual rate of inflation, wealth is: A. redistributed from borrowers to lenders. B. not redistributed at all. C. redistributed from lenders to borrowers. D. redistributed at random.
A. redistributed from borrowers to lenders.
Money illusion occurs when people: A. see changes in nominal prices and mistake them for changes in real prices. B. correctly see changes in nominal prices. C. correctly see changes in real prices. D. see changes in real prices and mistake them for changes in nominal prices.
A. see changes in nominal prices and mistake them for changes in real prices.
Which is NOT an important institution for growth? A. strong regulation of religious belief B. a dependable legal system C. free markets D. a low level of corruption
A. strong regulation of religious belief
Solow estimated that better ideas are responsible for about _____ of the U.S. standard of living. A. three-fourths B. one-fourth C. all D. one-half
A. three-fourths
Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction? A. -$40,000 B. $15,000 C. $200,000 D. $185,000
B. $15,000
(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. If 2008 prices are used in the calculation of real GDP, then nominal GDP in 2009 is _____ and real GDP in 2009 is _____. A. $35,350; $34,310 B. $34,310; $33,700 C. $35,000; $33,700 D. $33,700; $35,000
B. $34,310; $33,700
(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. What is the GDP in this country? A. $6,700 B. $7,700 C. $7,200 D. $6,200
B. $7,700
GDP in the United States was $14,119 billion in 2009, and grew to $14,660.4 billion in 2010. This represents an annual growth rate of: A. 1.04%. B. 3.8%. C. $541.4 billion. D. 3.7%.
B. 3.8%.
(Figure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of: A. 7%. B. 4%. C. 3%. D. 5%.
B. 4%.
If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of output is equal to: A. 15 units. B. 5 units. C. 10 units. D. 25 units.
B. 5 units.
If GDP was $10 billion in 2010 and $11 billion in 2011 and the population grew 5% between 2010 and 2011, the growth rate of GDP per capita between 2010 and 2011 was: A. 10%. B. 5%. C. -5%. D. -10%.
B. 5%.
If real GDP per capita in the United States is currently $50,000 and grows at 2.5% per year, it will take approximately how many years to reach $200,000? A. 112 years B. 56 years C. 84 years D. 28 years
B. 56 years
A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's underemployment rate? A. 20% B. 60% C. 40% D. 25%
B. 60%
(Figure: Labor Supply and Demand) Refer to the figure. How much will the quantity of labor employed decline as a result of the labor union's action to increase its wage demands to $11 an hour? A. 1,100 B. 700 C. 2,700 D. 1,800
B. 700
(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is: A. 15.7%. B. 8.3%. C. 27%. D. 25.2%.
B. 8.3%.
If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be: A. 9.23%. B. 8.33%. C. 7.69%. D. 10%.
B. 8.33%.
How might changes in the money supply be non-neutral in the short run? A. When money supply changes in the short run, it will affect nominal, but not real, variables in the short run. B. As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels. C. As money growth increases at a faster rate, it will cause real GDP to grow at an even faster rate. D. If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.
B. As the amount of money circulating in the economy changes before prices respond, the purchases of consumers change accordingly, which leads producers to change production levels.
Structural unemployment is more persistent in France than in the United States because: A. labor unions are weaker in France than they are in the United States. B. French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher. C. American workers have many more job opportunities than French workers. D. France's labor regulations require a mandatory waiting period before a worker can reapply for a new job.
B. French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher.
Which of the following is TRUE in the calculation of GDP? A. GDP is positively adjusted to include production in the underground economy. B. GDP does not include goods and services produced privately inside the home. C. GDP is negatively adjusted to account for environmental damage caused by businesses. D. GDP includes a positive adjustment for leisure activities, even if no purchase is required.
B. GDP does not include goods and services produced privately inside the home.
Which of the following is a problem with deflation? A. It causes people to pay more taxes. B. It raises the real cost of debt repayment. C. Stopping it will cause a recession. D. There is no problem with deflation; falling prices are good for the economy.
B. It raises the real cost of debt repayment.
(Figure: Oil Market Diagrams) Consider the world oil market diagrams presented in the figure. Which of the panels correctly depicts the cause of rises in the price of oil in the early 2000s? A. Panel B B. Panel D C. Panel A D. Panel C
B. Panel D
As a result of an increase in expected inflation, the: A. LRAS curve shifts to the left. B. SRAS curve shifts up and to the left. C. LRAS curve shifts to the right. D. SRAS curve shifts down and to the right.
B. SRAS curve shifts up and to the left.
A country's total civilian noninstitutionalized adult population is 1 million, and 500,000 people in this country are working, with another 20,000 people looking for work. Which of the following statements about the labor force statistics in this country is accurate? A. The employment rate is 50% and the unemployment rate is 2%. B. The employment rate is 96.15% and the labor force participation rate is 52%. C. The labor force is 500,000 and the labor force participation rate is 50%. D. The unemployment rate is 2% and the labor force participation rate is 52%.
B. The employment rate is 96.15% and the labor force participation rate is 52%.
What is meant by the "steady-state" level of capital? A. Positive net capital investment continues to drive growth at a steady rate. B. There is no new net investment or any growth. C. Investment exceeds depreciation. D. All of a nation's capital is being reinvested back into the economy.
B. There is no new net investment or any growth.
Countries A and B have similar levels of technology and physical capital, but country B has twice as much human capital as country A. If diminishing returns apply to all inputs, country B should grow at ______ country A. A. the same rate as B. a lower rate than C. twice the rate of D. more than twice the rate of
B. a lower rate than
Which scenario has the greatest potential for free riding? A. secure property rights B. a system in which work effort and pay are not connected C. an unstable political system D. a dishonest government that promotes corruption
B. a system in which work effort and pay are not connected
If wages are not as flexible as prices in the AD-AS model, an increase in money growth will lead to: A. an increase in inflation, but no rise in real short-run GDP growth. B. an increase in inflation and in the profits of firms. C. an increase in inflation and a rise in real long-run GDP growth. D. no change in inflation, but a fall in the profits of firms.
B. an increase in inflation and in the profits of firms.
If the money supply, the velocity of money, and the price level are fixed, then increases in real GDP: A. cause the money supply, the velocity of money, and the price level to decrease together. B. are impossible because real GDP must also be fixed. C. cause the money supply, the velocity of money, and the price level to increase together. D. occur without changes in the other variables.
B. are impossible because real GDP must also be fixed.
Which of the following would be most effective in reducing "free riding" in a communal farming system? A. increasing penalties for low production B. assigning property rights C. increasing supervision of workers D. increasing physical capital
B. assigning property rights
An unexpected increase in money growth leads to increased inflation in: A. the long run only. B. both the short run and the long run. C. neither the short run nor the long run. D. the short run only.
B. both the short run and the long run.
The real business cycle (RBC) model implies that: A. real output fluctuates as a result of demand shocks only. B. business cycles are driven by real shocks to the economy. C. the rate of inflation is closely linked to the long-run rate of output growth. D. business cycles are the result of fluctuations in the money supply.
B. business cycles are driven by real shocks to the economy.
If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $10 in both markets will: A. have no effect in either market. B. cause more unemployment among restaurant workers than restaurant workers. C. cause the same amount of unemployment in both markets. D. cause more unemployment among hotel workers than restaurant workers.
B. cause more unemployment among restaurant workers than restaurant workers.
Gross domestic product is the market value of all: A. goods and services sold within a country in a year. B. final goods and services produced within a country in a year. C. final goods and services produced by a country's permanent residents, wherever located, in a year. D. goods and services produced within a country in a year.
B. final goods and services produced within a country in a year.
The AD-AS model is most useful for explaining what causes: A. the economy's long-run growth rate. B. fluctuations in GDP growth around its trend rate. C. stock market fluctuations. D. inflation.
B. fluctuations in GDP growth around its trend rate.
The implicit tax on working is less than 1% in the United States and over 2% in Belgium. Given this, we would expect: A. higher unemployment in the United States. B. higher labor force participation in the United States. C. higher labor force participation in Belgium. D. higher unemployment in Belgium.
B. higher labor force participation in the United States.
In the AD-AS model, an unexpected increase in the growth rate of the money supply: A. decreases both the inflation and real growth rates in the long run. B. increases both the inflation and real growth rates in the short run. C. decreases both the inflation and real growth rates in the short run. D. increases both the inflation and real growth rates in the long run.
B. increases both the inflation and real growth rates in the short run.
Which is NOT an example of physical capital? A. tractors B. money C. cell phones D. computers
B. money
Deflation can cause the economy's aggregate demand curve to shift inward because debt contracts are: A. adjusted for changes in the interest rate. B. not adjusted for inflation. C. not adjusted for changes in the interest rate. D. adjusted for inflation.
B. not adjusted for inflation.
Which is considered an immediate cause of economic growth? A. the extent of government support in free markets B. physical capital C. good luck D. good incentives
B. physical capital
For most of recorded human history, real GDP per capita has: A. increased at a modest rate. B. remained about the same. C. increased at a rapid rate. D. decreased at a modest rate.
B. remained about the same.
If spending grows by 3% while real growth is 1% and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve. A. rising; 3% B. rising; 2% C. falling; 3% D. falling; 2%v
B. rising; 2%
Property rights encourage: A. saving. B. saving and investment in both physical and human capital. C. investment in physical capital. D. investment in human capital.
B. saving and investment in both physical and human capital.
Sticky wages and prices are incorporated in the AD-AS model by the: A. long-run aggregate supply curve. B. short-run aggregate supply curve. C. aggregate demand curve. D. both the aggregate demand and short-run aggregate supply curves.
B. short-run aggregate supply curve.
A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____. A. high; most of the institutions needed for growth are in place B. slow; of uncertainty due to an unstable political system C. high; once a group comes to power all the institutions needed for growth exist D. slow; of a lack of a dependable legal system
B. slow; of uncertainty due to an unstable political system
Which are immediate causes of the wealth of nations? A. property rights and honest government B. technical knowledge and human capital C. customs, practices, and social norms D. institutions and incentives
B. technical knowledge and human capital
Which of the following elements reduces structural unemployment? A. the extension of unemployment benefits B. the enhancement of worker retraining programs C. the growth of labor unions D. the existence of employment protection laws
B. the enhancement of worker retraining programs
An increase in the rate of expected inflation causes: A. a downward movement along the short-run aggregate supply curve. B. the short-run aggregate supply curve to shift up. C. the short-run aggregate supply curve to shift down. D. an upward movement along the short-run aggregate supply curve.
B. the short-run aggregate supply curve to shift up.
If U.S. per capita GDP is $50,000 and grows at 5% per year, what will U.S. per capita GDP be in 70 years? A. $800,000 B. $1.2 million C. $1.6 million D. $400,000
C. $1.6 million
Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's Day Care? A. $700 B. $114,700 C. $100,000 D. $100,700
C. $100,000
(Table: Data from Europia) Based on the data in the table, what is interest income in the economy of Europia? A. $2,000 B. $-1,800 C. $2,800 D. $3,000
C. $2,800
(Table: Components of GDP) Use the data in this table to calculate the contribution of rent and interest income to GDP. A. $14,380 billion B. $6,032 billion C. $8,916 billion D. $10,806 billion
C. $8,916 billion
If a country's real GDP per capita in 1950 was $10,000, and it grew to $20,000 by year 2000, then the country's annual growth rate during this period would have been approximately: A. 2.2%. B. 1.8%. C. 1.4%. D. 2%.
C. 1.4%.
Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital increases from γ = 0.2 to γ = 0.5 and the depreciation rate is δ = .05, what is the new steady-state amount of capital? A. 256 units B. 16 units C. 100 units D. 64 units
C. 100 units
(Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the country's GDP deflator for 2008 (using 2005 prices for the calculation of real GDP) is: A. 116. B. 127. C. 142. D. 100.
C. 142.
(Table: Anticipating Inflation) Using the inflation data in the table above, assume that all loan contracts have fixed nominal interest rates of 10% and mature after one year. Which year did lenders gain relative to borrowers? A. 2000 B. 2002 C. 2003 D. 2004
C. 2003
If the production function in a country is Y = K1/2, the investment rate equals 0.25, and the depreciation rate is 0.05, then the steady-state level of the capital stock is equal to: A. 15 units. B. 5 units. C. 25 units. D. 10 units.
C. 25 units.
Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = .05, how much total capital will be available in the next period? A. 404 units B. 400 units C. 384 units D. 380 units
C. 384 units
If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be: A. 8.00. B. 6.25. C. 4.00. D. 1.25.
C. 4.00.
(Figure: Depreciation and Investment) According to this diagram of the Solow model, the steady-state level of the capital stock is: A. 60 units. B. 70 units. C. 50 units. D. 40 units.
C. 50 units.
Imagine that a government starts out with the budget surplus. If in the next period the government temporarily runs a budget deficit, what would you expect to happen to aggregate demand? A. AD would stay the same. B. AD would decrease. C. AD would increase. D. AD would lie on the Solow growth rate.
C. AD would increase.
Which of these transactions occurring in 2011 would contribute to GDP for 2011? A. Mario sells his used car for a profit. B. Sally buys $10,000 worth of U.S. government bonds as an investment. C. Boeing sells a 787 aircraft produced in 2011 to a Korean airline. D. A contractor sells a new house which was built in 2009.
C. Boeing sells a 787 aircraft produced in 2011 to a Korean airline.
If the GDP of country X is 4 times the GDP of country Y and if the GDP of country X remains constant while GDP of country Y grows at a rate of 7% per year, which of the following statements is true? A. Country Y's GDP will never catch up with country X's GDP. B. Country Y's GDP will be equal to country X's GDP in 40 years. C. Country Y's GDP will be equal to country X's GDP in 20 years. D. Country Y's GDP will be equal to country X's GDP in 10 years.
C. Country Y's GDP will be equal to country X's GDP in 20 years.
(Figure: Four Production Functions) Refer to the figure. Which of these production functions exhibits diminishing returns? A. B B. C C. D D. A
C. D
Which of the following is the best example of frictional unemployment? A. Peter, a highly skilled construction worker, lost his job when the recession began. He is looking for work, but demand in the construction industry is still low. B. Allison, a recent high school graduate with high aspirations, is seeking a job as the CEO of a Fortune 500 company. C. Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills. D. John, a coal miner, was laid off because of a lack of demand for workers in his industry. He is looking into new opportunities in computer programming, but they require him to gain some new skills.
C. Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.
Which two nations have a high percentage of older workers participating in the labor force? A. Sweden and the Netherlands B. Germany and the United States C. Japan and the United States D. Belgium and France
C. Japan and the United States
Which of the following is considered unemployed? A. Julie, a full-time housewife, is searching for a part-time position. B. Jason, a full-time college student, is looking for a part-time job. C. John, on temporary layoff from his work, awaits recall. D. Joe, a retired college professor, does community volunteer work.
C. John, on temporary layoff from his work, awaits recall.
Why could very high rates of inflation cause velocity to increase? A. The more people earn, the faster they spend it. B. The more inflation there is, the more there is to buy. C. The more money loses its value, the faster people try to spend it. D. The more people earn, the faster prices rise.
C. The more money loses its value, the faster people try to spend it.
Which of the following best describes the effects of a major labor union that maintains a union wage above the market wage? A. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate decreases. B. The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate increases. C. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases. D. The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate decreases.
C. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases.
Which of the following is a negative real shock that occurred during the Great Depression? A. Bank failures led to a decrease in the money supply. B. A stock market crash decreased consumer wealth. C. Widespread bank failures led to a reduction in the productivity of financial intermediation. D. The Smoot-Hawley tariffs led to a decrease in net exports.
C. Widespread bank failures led to a reduction in the productivity of financial intermediation.
In the basic model that includes the AD and LRAS curves only, increased spending growth causes: A. a higher real growth rate, but no change in the inflation rate. B. a lower inflation rate, but no change in the real growth rate. C. a higher inflation rate, but no change in the real growth rate. D. a lower real growth rate, but no change in the inflation rate.
C. a higher inflation rate, but no change in the real growth rate.
In the Solow model, an increase in investment leads to: A. an increase in growth rates in both the short run and the long run, as new investment will lead to permanently higher levels of the capital stock. B. a decrease in growth rates in both the short run and the long run, as fewer resources are available for production following the increase in investment. C. an increase in growth rates in the short run but a return to zero growth in the long run as the economy converges to a new, higher steady state. D. no change in growth rates.
C. an increase in growth rates in the short run but a return to zero growth in the long run as the economy converges to a new, higher steady state.
The most promising idea for creating a growth miracle in a country is: A. opening the country to more foreign investment. B. allowing more foreign aid in the country. C. changing the institutions in the country. D. building more schools in the country.
C. changing the institutions in the country.
Which is NOT likely an ultimate cause of economic growth around the world? A. historical differences B. luck C. communal resources D. geographical locations
C. communal resources
Which type of unemployment is likely to be higher when real GDP growth is lower? A. frictional unemployment B. structural unemployment C. cyclical unemployment D. natural unemployment
C. cyclical unemployment
Decreases in the level of political stability in a country tend to: A. increase per capita GDP. B. have no impact on per capita GDP. C. decrease per capita GDP. D. increase per capita GDP at lower levels of stability, but decrease per capita GDP at higher levels of stability.
C. decrease per capita GDP.
If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005. A. remained the same B. increased 20% C. decreased D. increased 10%
C. decreased
The Solow growth model features _____ returns to physical capital. A. no B. constant C. decreasing D. increasing
C. decreasing
Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was: A. hyperinflation. B. deflation. C. disinflation. D. inflation in the real price of everything.
C. disinflation.
Several years ago, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the work force? A. structural unemployment B. technological substitution C. frictional unemployment D. creative destruction
C. frictional unemployment
Countries that have high per capita GDP tend to have: A. high levels of physical capital per worker. B. high levels of technology per worker. C. high levels of all three factors of production. D. high levels of human capital per worker.
C. high levels of all three factors of production.
Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would: A. increase by $210,000. B. increase by $200,000. C. increase by $10,000. D. not change.
C. increase by $10,000.
Which would be most effective in ensuring sustained long-term economic growth? A. increasing human capital B. increasing government control of land use C. increasing technological knowledge D. increasing physical capital
C. increasing technological knowledge
Debt monetization means that a government pays off its debt by: A. borrowing from foreigners. B. raising tax revenues. C. increasing the money supply. D. lowering inflation.
C. increasing the money supply.
Money illusion is a condition in which people: A. expect the value of money will illusively surge. B. mistakenly confuse changes in nominal GDP for changes in real GDP. C. mistakenly confuse changes in nominal prices for changes in real prices. D. see money as an illusion for value.
C. mistakenly confuse changes in nominal prices for changes in real prices.
(Figure: Depreciation and Investment) According to this diagram of the Solow model, if the current capital stock is 70, then economic growth will be: A. in a steady state. B. zero. C. negative. D. positive.
C. negative.
The value of volunteer services is: A. included in GDP and should be because a service is produced. B. included in GDP, but should not be because nothing tangible is produced. C. not included in GDP, but should be because a service is produced. D. not included in GDP and should not be because nothing tangible is produced.
C. not included in GDP, but should be because a service is produced.
The value of a country's GDP exceeds that of the country's GNP if the value of the: A. country's imports exceed the value of its exports. B. output produced by the country's permanent residents produced in other countries exceeds the value of output produced by foreign workers in the country. C. output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries. D. country's exports exceeds the value of its imports.
C. output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries.
(Figure: The Solow Model) Which of the following events would NOT shift the production function from Y1 to Y2 in the accompanying diagram of the Solow model? A. better ideas B. increases in productivity C. physical capital accumulation D. advances in technological knowledge
C. physical capital accumulation
In the United States, most scientists who research and develop new products work for: A. public universities. B. private universities. C. private firms. D. the U.S. government.
C. private firms.
An increase in expected inflation will cause the economy's aggregate demand curve to: A. become steeper. B. shift outward. C. remain unchanged. D. shift inward.
C. remain unchanged.
When workers lose their jobs and become officially unemployed, the number of people in the labor force: A. increases. B. decreases. C. remains constant. D. becomes difficult to predict.
C. remains constant.
The lowering of the growth rate of the money supply is represented graphically by a: A. shift to the left of the SRAS curve. B. shift to the right of the AD curve. C. shift to the left of the AD curve. D. shift to the right of the SRAS curve.
C. shift to the left of the AD curve.
Which policy does NOT promote idea-based economic growth? A. granting patents to intellectual property B. government subsidies in research and development C. strengthening the spillover effects of innovations D. enforcing open and competitive markets
C. strengthening the spillover effects of innovations
The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in: A. frictional unemployment. B. seasonal unemployment. C. structural unemployment. D. cyclical unemployment.
C. structural unemployment.
Higher implicit tax rates tend to cause labor force participation rates to: A. increase. B. remain constant. C. behave unpredictably. D. decrease.
D. decrease.
The key reason for China's growth miracle beginning in the late 1970s was: A. the enforcement of communal property. B. increases in foreign investment from developed countries. C. the assignment of private property rights. D. pure luck.
C. the assignment of private property rights.
The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of: A. amplification mechanisms. B. a lack of foreign aid. C. the government monetizing its debt. D. large rainfall shocks.
C. the government monetizing its debt.
With possible spillover of ideas, there will be: A. no effect on the investment in R&D. B. more ideas being created. C. too little investment in R&D. D. increasing investment in R&D.
C. too little investment in R&D.
History has shown that when collective property rights are converted to private property rights: A. investment in physical capital increases. B. work effort increases. C. work effort, investment, and productivity all increase. D. productivity increases.
C. work effort, investment, and productivity all increase.
(Table: Three-Good Economy II) Suppose an economy produces only the three final goods shown in the table. The table gives information on the quantities produced and the prices of goods sold in 2008 and 2009. What is the growth rate of real GDP in 2009 if 2009 prices are used in the calculation of real GDP? A. -3.71% B. 1.00% C. -1.97% D. -2.94%
D. -2.94%
(Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country? A. $7,700 B. $6,200 C. $6,700 D. $7,200
D. $7,200
If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be: A. -5%. B. 1%. C. 5%. D. -1%.
D. -1%.
Imagine an economy with production function Y = F(K) = and 400 units of capital. If the fraction of output invested in new capital is γ = 0.2 and the depreciation rate is δ = .05, what is the steady-state amount of capital? A. 100 units B. 64 units C. 225 units D. 16 units
D. 16 units
Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000? A. 1970 B. 2005 C. 2000 D. 1985
D. 1985
(Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 2005? A. 1% B. 4.7% C. 1.9% D. 2.9%
D. 2.9%
(Figure: Production Function 1) Refer to the figure. In this diagram of the Solow model, if output is 600, consumption equals: A. 400. B. 600. C. 50. D. 200.
D. 200.
Real GDP for the year 2000 (measured in 2005 dollars) is equal to: A. 2005 prices × 2005 quantities. B. 2000 prices × 2005 quantities. C. 2000 prices × 2000 quantities. D. 2005 prices × 2000 quantities.
D. 2005 prices × 2000 quantities.
Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid? A. 2% B. 5% C. 7% D. 3%
D. 3%
(Table: Employment, Unemployment, and Labor Force Participation) Refer to the table. What is the unemployment rate of the country in 2010? A. 6% B. 4% C. 3% D. 5%
D. 5%
Suppose economies A and B have the same initial level of GDP per capita at $15,000, and each economy begins with a constant growth rate of 1% per year. (Neither country has good institutions for economic growth at first.) Then Country A enters an era of political stability, establishes property rights, and installs incentives for entrepreneurship. Country A's economic growth rate consequently improves to 5%. Assuming population growth rates remain unaffected, how much longer will it take Country B to double its per capita GDP level compared to Country A? A. 14 years B. 70 years C. 28 years D. 56 years
D. 56 years
Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 20% and a production function of Y = K1/2. What will its capital stock be next year? A. 720 units B. 900 units C. 920 units D. 740 units
D. 740 units
On a given aggregate demand curve, if the rate of spending growth is 10% and the growth rate of the money supply is 2%, then the velocity of money must be growing at: A. 20%. B. 12%. C. 5%. D. 8%.
D. 8%.
Roughly what percent of the world's population live in countries with per capita GDP lower than the average world per capita GDP? A. 10% B. 50% C. 25% D. 80%
D. 80%
Consider countries A and B. In country A the minimum wage is 30% of the median wage, and in country B the minimum wage is 60% of the median wage. As a result, the minimum wage will affect more workers in country _____ and create more unemployment in country _____. A. B; A B. A; B C. A; A D. B; B
D. B; B
Which of the following statements is TRUE about GDP? A. GDP includes a positive adjustment for the value of leisure and well-being. B. GDP includes a negative adjustment for damage caused by pollution. C. GDP includes all known goods and services in the underground economy. D. GDP does not account for the distribution of income in a country.
D. GDP does not account for the distribution of income in a country.
In nations that have large underground, or illegal, sectors: A. GDP will provide an accurate account of production in the economy. B. poverty will be significantly greater than in countries with fewer illegal market activities. C. GDP will overestimate total production in the economy. D. GDP will underestimate total production in the economy.
D. GDP will underestimate total production in the economy.
Which statement best describes the economic growth patterns in the world since World War II? : A. Most countries in the world except the United States experienced no growth at all. B. Japan and South Korea experienced slow growth while Argentina and Nigeria experienced rapid growth. C. Most countries in the world experienced rapid growth. D. Japan and South Korea experienced rapid growth while Argentina and Nigeria experienced slow growth.
D. Japan and South Korea experienced rapid growth while Argentina and Nigeria experienced slow growth.
Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? A. The CPI measures the average prices of all final goods and services purchased by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy. B. The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods and services purchased by consumers. C. The CPI measures the average prices of retail goods and services, whereas the GDP deflator measures the average prices of wholesale goods. D. The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy.
D. The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy.
If the actual rate of inflation turns out to be higher than the expected rate of inflation, what happens to the growth rate of output before expectations are updated? A. The growth rate could go up or down. B. The growth rate stays at the Solow growth rate. C. The growth rate is lower than the Solow growth rate. D. The growth rate is higher than the Solow growth rate.
D. The growth rate is higher than the Solow growth rate.
Why is the SRAS curve steeper above its intersection with the long-run aggregate supply curve? A. Employees become less motivated to work during times of unexpected inflation. B. Lower inflation will lead to faster growth. C. Wages are stickier in the upward direction. D. Wages are less sticky in the upward direction.
D. Wages are less sticky in the upward direction.
A set of tires installed on a vehicle in an automobile factory is counted as: A. an intermediate good and its market price is part of GDP. B. a final good and its market price is not part of GDP. C. a final good and its market price is part of GDP. D. an intermediate good and its market price is not part of GDP.
D. an intermediate good and its market price is not part of GDP.
From an initial equilibrium in the AD-AS model, an increase in consumption growth will initially cause inflation: A. to increase and real growth to decrease. B. and real growth to remain unchanged. C. to increase and real growth to remain unchanged. D. and real growth to increase.
D. and real growth to increase.
In the basic model that includes the AD and LRAS curves only, aggregate demand shocks caused by changes in the growth of money supply: A. are neutral in the long run only. B. are neutral in neither the short run nor the long run. C. are neutral in the short run only. D. are neutral in both the short run and long run.
D. are neutral in both the short run and long run.
The main reason(s) for the slope of SRAS is: A. neither sticky prices nor sticky wages. B. sticky wages only. C. sticky prices only. D. both sticky prices and sticky wages.
D. both sticky prices and sticky wages.
Because of money illusion, inflation usually confuses: A. firms. B. workers. C. consumers. D. consumers, workers, and firms.
D. consumers, workers, and firms.
High and volatile inflation: A. increases the purchasing power of money and income. B. creates high supply of goods and services. C. causes the price of goods and services to deviate from the market price. D. destroys the ability of market prices to send signals about the value of resources and opportunities.
D. destroys the ability of market prices to send signals about the value of resources and opportunities.
If π < πe: A. there will be no change in real GDP growth because it is determined by real factors. B. firms' profits will increase. C. money growth will cause the short-run aggregate supply curve to shift. D. firms will reduce their output.
D. firms will reduce their output.
If the equilibrium wage is $9 in the market for hotel workers and $8 in the market for restaurant workers and both markets have similar elasticities of labor supply and demand, then a minimum wage of $4 in both markets will: A. cause more unemployment among hotel workers than restaurant workers. B. cause more unemployment among restaurant workers than restaurant workers. C. cause the same amount of unemployment in both markets. D. have no effect in either market.
D. have no effect in either market.
When we examine data from different countries, higher money growth has consistently been associated with: A. deflation. B. hyperinflation. C. disinflation. D. higher inflation.
D. higher inflation.
Sticky wages and prices: A. offset the impact of positive shocks. B. reduce the impact of negative shocks. C. have no effect on the impact of negative shocks. D. increase the impact of positive shocks.
D. increase the impact of positive shocks.
(Figure: The Solow Model) In the accompanying graph of the Solow model, if the production function shifts from Y1 to Y2 while capital remains at K1, then the capital stock will: A. increase for a time and then return to K1. B. decrease until it reaches the new steady-state level. C. remain unchanged. D. increase until it reaches the new steady-state level.
D. increase until it reaches the new steady-state level.
If the median wage is $9 in country X and $8 in country Y and both countries have similar elasticities of labor supply and demand, then a minimum wage of $4 in both countries will tend to: A. make unemployment the same in both countries. B. make unemployment higher in country X than in country Y. C. have no effect in either country. D. make unemployment higher in country Y than in country X.
D. make unemployment higher in country Y than in country X.
The key to keeping the economy growing in the long run is: A. foreign investment. B. investment in physical capital. C. education and training to build human capital. D. new ideas.
D. new ideas.
Using the national spending approach to measuring GDP, the social security checks the government sends retirees each month get included in GDP as part of: A. government purchases. B. investment. C. consumption. D. nothing; they are not included as part of GDP.
D. nothing; they are not included as part of GDP.
A temporary positive shock to spending growth will lead to an increase in: A. both prices and output in the short run, but only output in the long run. B. both output and prices in the short run, but only prices in the long run. C. output in both the short run and the long run. D. output and prices in the short run, but no change in either in the long run.
D. output and prices in the short run, but no change in either in the long run.
If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010: A. decreased by 20%. B. increased by 20%. C. cannot be determined without knowing the base year. D. remained the same.
D. remained the same.
A developing country could buy (or be given) _____ and _____ more easily than _____. A. human capital; work experience; technological knowledge B. physical capital; human capital; technological knowledge C. human capital; technological knowledge; physical capital D. technological knowledge; physical capital; human capital
D. technological knowledge; physical capital; human capital
Orrin mines iron ore, which he sells to Thorin, who turns iron ore into steel. The steel is sold to Gorin, who turns the steel into battle axes. The battle axes are sold by a merchant in the city to adventurers. Which of the following would be considered a final good? A. the steel B. the battle axes sold to the merchant C. the iron ore D. the battle axes sold to the adventurers
D. the battle axes sold to the adventurers
The fact that the United States has grown steadily on average over the past two centuries is consistent with: Selected Answer: A. the concept that increases in investment cause higher living standards. B. the law of diminishing returns to capital. C. the hypothesis that incomes of poor countries tend to converge to incomes of rich countries. D. the concept that better ideas result in economic growth in the long run.
D. the concept that better ideas result in economic growth in the long run.
The text states, "inflation is a type of tax." This tax refers to _____ when inflation occurs. A. a higher tax rate that the government must impose B. a special tax on taxpayers in order for the government to balance its budget C. a higher nominal interest rate of a typical loan D. the lower purchasing power of money
D. the lower purchasing power of money
In the quantity theory of money, growth of _____ is the cause of inflation. A. the CPI B. real GDP C. velocity D. the money supply
D. the money supply
The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with: A. the theory of price confusion. B. the Fisher effect. C. the theory of money illusion. D. the quantity theory of money.
D. the quantity theory of money.
An unexpected outward shift of the economy's AD curve will cause real GDP growth to increase in: A. neither the short run nor the long run. B. both the short run and the long run. C. the long run only. D. the short run only.
D. the short run only.
The long-run aggregate supply curve is represented by a vertical line at the Solow growth rate because: A. growth is not affected by the factors of production. B. growth is affected by changes in the money supply in the long run. C. growth depends on the rate of inflation in the long run. D. there is an underlying assumption of long-run money neutrality.
D. there is an underlying assumption of long-run money neutrality.
Why do we use the "real" prices of goods to measure how expensive things have become? A. to find out what the current prices of goods and services are B. to find out what the inflation rate has been C. to estimate the periods when hyperinflation has occurred D. to see whether there have been any changes in our purchasing power
D. to see whether there have been any changes in our purchasing power
