Macroeconomics Midterm 2

Which of these would cause an increase in a country's aggregate demand? A rise in the country's stock market increases the value of stock held by people. The country's inflation rate is lower than the inflation rates abroad among its trading partners. The government raises taxes in the country. The nominal interest rate falls as the country's price level falls.

A rise in the country's stock market increases the value of stock held by people.

If business expectations become less favorable, what will likely happen to the AD curve? AD shifts left. AD shifts right. AD does not shift. AD decreases to zero.

AD shifts left.

Which of these would NOT shift the AD curve? The economy improves and people start spending more. Interest rates rise, which reduces investment spending. An increase in market power occurs in the airline industry. The federal budget is reduced to tackle the deficit problem.

An increase in market power occurs in the airline industry.

Which of these sets of events clearly would lead to a decrease in aggregate demand if the events occurred simultaneously? Taxes are cut, giving the government less revenue while household debt levels rise. Interest rates fall, giving savers less interest income while government spending on research is cut. There is a strong expansion in the economy of the country's main trading partner at the same time that the country's currency appreciates. Debt levels in the country rise at the same time that the country's currency appreciates.

Debt levels in the country rise at the same time that the country's currency appreciates.

Econia and Macroland are each other's main trading partner. Which of these correctly identifies an event that would cause Econia's aggregate demand to rise and Macroland's aggregate demand to fall? Inflation is higher in Econia than Macroland. Inflation is lower in Econia than Macroland. Econia's currency appreciates in value compared to Macroland's currency. Econia's currency depreciates in value compared to Macroland's currency.

Econia's currency depreciates in value compared to Macroland's currency.

How do changes in inflation expectations impact the short-run aggregate supply curve and the long-run aggregate supply curve? Expectations for inflation to rise will cause short-run and long-run aggregate supply to increase. Expectations for inflation to rise will cause short-run and long-run aggregate supply to decrease. Expectations that inflation will rise will cause movements along both curves but would cause neither curve to shift. Expectations that inflation will rise will cause short-run aggregate supply to decrease and long-run aggregate supply to remain constant.

Expectations that inflation will rise will cause short-run aggregate supply to decrease and long-run aggregate supply to remain constant.

A country where bribery and corruption are widespread will have higher total factor productivity, ceteris paribus, than a country where bribery and corruption are limited. True/ False

False

As a clergyman and an economist, Thomas Malthus believed that society could eliminate poverty and create a "heaven on earth." True/ False

False

By investing heavily in the consumption of goods, the government promotes a higher level of labor productivity in the United States. True/ False

False

Capital is inversely related to production. True/ False

False

Every year in India, about 1 million more people fall into poverty. True/ False

False

Social media raise the costs of doing business for firms. True/ False

False

The relationship between the amount of inputs used in production and the amount of output produced is called an output function. True/ False

False

Thomas Malthus believed that living standards would rise as a result of population growth, because people are the economy's BEST resource. True/ False

False

Which of these events would reduce short-run aggregate supply but not long-run aggregate supply? A major natural disaster results in the loss of life of 10% of the labor force. Government environmental regulations require the use of more expensive energy sources. The capital stock of a country rises by 10%. Concentration in the leading industries in a country falls.

Government environmental regulations require the use of more expensive energy sources.

Which of these would MOST likely cause aggregate demand to decrease? The price of lumber increases. There is a new housing boom. Government reduces regulations on businesses. Income taxes rise to reduce the deficit.

Income taxes rise to reduce the deficit.

Which of these is correct regarding classical economic analysis? It focuses on the long-run aggregate supply curve by assuming that prices and wages are flexible. It assumes that economic policy can achieve increases in output in the short run. It argues that during times of recession, the price level would not increase by much when aggregate output increases. It is similar to Keynesian economic analysis in terms of input prices being slow to change.

It focuses on the long-run aggregate supply curve by assuming that prices and wages are flexible.

Which of these statements is true regarding an economy's short-run growth? It occurs when an economy's PPF expands outward. It occurs when there is an expansion of an economy's capacity to produce. It often occurs when there is technological advancement and a discovery of new resources. It often follows an economic downturn when resources have been underutilized.

It often follows an economic downturn when resources have been underutilized.

Which U.S. government organization provides numerous grants to individual researchers and research organizations to pursue projects that contribute to the country's economic growth? U.S. Census Bureau National Aeronautics and Space Administration (NASA) Bureau of Economic Analysis (BEA) National Science Foundation (NSF)

National Science Foundation (NSF)

Which of these statements regarding international free trade and economic growth is the MOST accurate?A country that imposes tariffs on imports to protect domestic industries will have a higher average growth rate. The relationship between a country's use of import quotas and its economic growth is typically positive. Countries that do not trade much with other countries have typically achieved the highest growth rates. Reductions in trade barriers such as tariffs and quotas typically create more potential for economic growth.

Reductions in trade barriers such as tariffs and quotas typically create more potential for economic growth.

Which set of events would lead to an increase in a country's aggregate demand? The country's CPI falls while its currency appreciates. The country's inflation rate is lower than inflation rates abroad while debt levels in the country rise. Interest rates fall in the country while there is a serious recession in the country's main trading partner. Taxes are decreased in the country while expectations of job security rise in the workforce.

Taxes are decreased in the country while expectations of job security rise in the workforce.

If a country's average saving rate increases, how does this affect the country's marginal propensity to consume (MPC) and its spending multiplier? The MPC decreases, which reduces the spending multiplier. The MPC decreases, which increases the spending multiplier. The MPC increases, which reduces the spending multiplier. The MPC increases, which increases the spending multiplier.

The MPC decreases, which reduces the spending multiplier.

Which of these changes is likely to increase wages the MOST in a country? Drainage of swampy land allows 2% more land to be farmed. The labor force grows by 2%. The capital-to-labor ratio rises by 2%. Since the growth rate is 2% in all listed situations, wages would increase equally in all situations.

The capital-to-labor ratio rises by 2%.

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

In which situation is a country LEAST likely to be producing on its production possibilities curve? The average education level is of the fourth grade. The land is dry and has low productivity in farming. There are legal disputes of the ownership of 15% of the factory buildings in the country. There are large legal penalties for breaking a contract.

There are legal disputes of the ownership of 15% of the factory buildings in the country.

A key characteristic of competitive markets is the ability of firms to open and close businesses without unnecessary restrictions or other burdens. True/ False

True

China's growth rate, if new technologies are not developed, is likely to fall. True/ False

True

During the MOST recent global economic downturn, extreme poverty continued to fall. True/ False

True

Growth is the MOST important contributor to reducing extreme poverty. True/ False

True

If a tsunami washes across an island nation, the output loss will be greater than that predicted using a production function. True/ False

True

If new technologies are not developed, the catch-up effect tends to slow over time. True/ False

True

Lydia graduates from a culinary school. This action increases human capital. True/ False

True

Physical resources are not useful without ideas about how to turn them into goods and services that people want. True/ False

True

Predictions of Thomas Malthus about inadequate food supply did not fully materialize in reality. True/ False

True

Total factor productivity captures the factors that influence the overall effectiveness of inputs. True/ False

True

Total factor productivity is a measure of output that is not explained by the number of inputs used. True/ False

True

Total factor productivity is influenced in part by a country's institutions. True/ False

True

When the production function exhibits constant returns to scale, it can be expressed as follows: Output per worker = A × f (1, K/L, H/L, N/L) True/ False

True

Which of these will NOT shift the aggregate supply curve to the left? an increase in the minimum wage a decrease in corporate taxes an increase in the price of crude oil an increase in the legislated amount of paid vacation

a decrease in corporate taxes

Which of these events would MOST likely affect a country's total factor productivity? a decrease in a country's population due to a low birth rate an increase in a country's physical capital greater average educational attainment among a country's residents a military coup that disrupts a country's institutions

a military coup that disrupts a country's institutions

Which of these would NOT cause an increase in long-run aggregate supply? an increase in government expenditures on infrastructure a free trade agreement that significantly reduces previous trade barriers an increase in the average education level in the labor force a reduction in poverty due to new income redistribution programs

a reduction in poverty due to new income redistribution programs

Econia's currency appreciates. This will cause: aggregate demand to rise. aggregate demand to fall. a movement upward along Econia's aggregate demand curve. a movement downward along Econia's aggregate demand curve.

aggregate demand to fall.

Econia's currency depreciates. This will cause: aggregate demand to fall. aggregate demand to rise. a movement downward along Econia's aggregate demand curve. a movement upward along Econia's aggregate demand curve.

aggregate demand to rise.

Which of these would cause a movement along a country's aggregate demand curve, but not a shift in its aggregate demand curve? a rise in the value of stocks in a country's stock market a fall in real interest rates an increase in a country's CPI, meaning that household income does not buy as much an expectation among business owners for profits to increase so that they make more investments

an increase in a country's CPI, meaning that household income does not buy as much

Which of these would shift the short-run aggregate supply curve but not have any impact on the long-run aggregate supply curve? an increase in the land area of a country an increase in the price level faced by consumers in a country an increase in technology an increase in market concentration in many industries

an increase in market concentration in many industries

Which of these events would not shift the short-run aggregate supply curve to the right? a reduction in burdensome regulations an increase in market power in an industry improvements in human capital lower inflationary expectations

an increase in market power in an industry

Which of these events would cause the aggregate demand curve to shift left, all else equal? an increase in government spending an increase in the amount of goods imported an increase in investment spending an increase in consumption

an increase in the amount of goods imported

Which of these will shift the aggregate supply curve to the right? the development of a cartel in the production of soybeans an increase in corporate taxes an increase in the investment of human capital an increase in the price of garbage collection

an increase in the investment of human capital

Which of these will NOT shift the aggregate supply curve to the right? the discovery of cheap solar energy the development in the methods of production of nanotechnology an increase in the minimum wage a decrease in corporate taxes

an increase in the minimum wage

Which of these will NOT cause a shift in the short-run aggregate supply curve? changes in the aggregate price level changes in input prices changes in productivity changes in inflationary expectations

changes in the aggregate price level

Simultaneous recession and deflation can be explained by a(n): increase in aggregate supply. increase in aggregate demand. decrease in aggregate demand. decrease in aggregate supply.

decrease in aggregate demand.

A shift of the aggregate _____ curve to the _____ would cause inflation to rise and employment to increase. supply; left demand; left supply; right demand; right

demand; right

Sharon owns a pizzeria and chooses to invest in new capital. She first purchases a new brick oven which increases output by 30% and then purchases an automated meat slicer which increases output by another 10%. Which concept do these capital investments represent? catch-up effect of capital investment negative marginal returns to capital decreasing capital-to-labor ratio diminishing returns to capital

demising returns to capital

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

development of new technologies.

Many developing countries experience a higher rate of growth compared to developed countries. This catch-up effect phenomenon occurs because of the: slowdown of labor in developed countries. higher interest in education in developing countries. diminishing returns to capital in developed countries. higher population growth in developing countries.

diminishing returns to capital in developed countries.

Countries with abundant capital will not gain as much per additional piece of capital than countries with little capital with which to start. This phenomenon is called the law of: diminishing returns. diminishing marginal rate of substitution. increasing opportunity cost. increasing returns to scale.

diminishing returns.

The long-run aggregate supply curve assumes that prices are _____, and the short-run aggregate supply curve assumes that prices are _____. flexible; sticky flexible; flexible sticky; flexible sticky; flexible

flexible; sticky

Which of these forms of infrastructure would be considered an intangible resource? a new causeway across a bay a new tunnel through a mountain improved enforcement of property rights renovations to an aging airport

improved enforcement of property rights

All else equal, rising incomes in other countries will cause U.S. aggregate demand to _____, while a rising value of the U.S. dollar will cause U.S. aggregate demand to _____. decrease; also decrease decrease; increase increase; also increase increase; decrease

increase; decrease

A reduction in the income tax rate for individuals generally leads to a(n) _____ in aggregate demand, resulting in a _____ shift of the aggregate demand curve. increase; leftward decrease; leftward increase; rightward decrease; rightward

increase; rightward

As one moves up and to the left along an aggregate demand curve, the aggregate price level _____ and the aggregate output _____. increases; decreases increases; increases decreases; decreases decreases; increases

increases; decreases

When rising prices in an economy cause people to borrow more money to carry out economic transactions, this is referred to as the _____ effect in explaining why the aggregate demand curve slopes downward. inflation wealth interest rate export price

interest rate

Japan's highly productive is due to all of these factors EXCEPT: the level of physical capital per worker is high. the level of human capital per worker is high. labor is mostly producing high value-added products. labor is not producing its food, but rather imports it.

labor is not producing its food, but rather imports it.

Rising labor costs leads to a _____ shift of the SRAS curve, resulting in a _____ aggregate price level. rightward; higher rightward; lower leftward; higher leftward; lower

leftward; higher

For a short-run aggregate supply curve, the aggregate price level becomes _____ responsive as aggregate output _____. equally; changes less; increases more; decreases more; increases

more; increases

Which government policy would provide an incentive for research and development of new technologies? a program providing a tax break for saving toward retirement patents for inventors that provide temporary ownership rights for inventions a new electrical power plant funded through tax monies a legal system that helps enforce contracts

patents for inventors that provide temporary ownership rights for inventions

What is the BEST measure of economic growth and standards of living in a country? nominal GDP nominal GDP per capita real GDP real GDP per capita

real GDP per capita

We can define labor productivity as: real GDP per hour of labor. real GDP times the number of workers. real GDP times the hours of work. the rate of change in real GDP per hour of labor.

real GDP per hour of labor.

If the money supply is fixed and prices rise, the cost of borrowing will _____ and business investment will _____. This is called the _____ effect. rise; rise; wealth fall; rise; interest rate rise; fall; wealth rise; fall; interest rate

rise; fall; interest rate

If a country increases the amount of goods it imports but its exports remain unchanged, AD: shifts right. shifts left. would not shift. would shift but in a random direction.

shifts left.

Production function exhibits constant returns to scale if: some percentage increase in all inputs leads to the same percentage increase in output. output is constant regardless of any increase in inputs. the returns to the inputs are constant all the time. capital-to-labor ratio (K/L) is constant at all scales of production.

some percentage increase in all inputs leads to the same percentage increase in output.

Many developing countries have managed to achieve high rates of growth by adopting existing technologies that were previously invented by developed countries as opposed to creating new technologies. This phenomenon is known as: total factor productivity. the catch-up effect. diminishing returns to capital. investment in human capital.

the catch-up effect.

Factors of production include: the new stocks you have recently purchased in the stock market. the computer you bought for your studying. the computer you use in your company. your car you use to commute to work.

the computer you use in your company.

All of these would cause a decrease in a country's aggregate demand EXCEPT: the country's currency appreciates in value. the average level of household debt rises. business expectations of the return on investment fall. the country's CPI rises.

the country's CPI rises.

An increase in aggregate demand can be caused by: the depreciation of the dollar. a cut in government spending. an increase in interest rates. a rise in consumer debt.

the depreciation of the dollar.

The "wealth effect" refers to the fact that when aggregate price levels rise: exports decline. firms cut back on their investments. the real value of savings accounts, bonds, and cash declines. interest rates tend to rise.

the real value of savings accounts, bonds, and cash declines.

Which of these events would be MOST detrimental to economic growth? a strengthening of a country's protection of intellectual property rights unanticipated inflation that pushes prices and wages in an economy higher a reduction in trade barriers that increase the flow of goods between countries a new law requiring all children to remain in school until the end of high school

unanticipated inflation that pushes prices and wages in an economy higher