Multiple Choice
In an economy with no international sector and with lump-sum taxes, if the MPC = 0.80, the government purchases multiplier is a. 5.00. b. 1.25. c. 4.00. d. 0.20.
a. 5.00.
Investment spending represents spending on: a. productive physical capital. b. stocks. c. mutual funds. d. corporate bonds.
a. productive physical capital.
Of the following items, which would NOT be included in GDP? a. the dollar value of a repair job done by your professor on her own car b. the dollar value of a lawyer's service c. new car sales by a local car dealer d. the production of new cars that were not sold in the current year
a. the dollar value of a repair job done by your professor on her own car
Suppose that 2003, firms discover that their inventories are falling below their target levels. Which of the following statements is correct? a. Real GDP is less than equilibrium expenditure. b. Aggregate demand is less than aggregate supply. c. The level of aggregate savings must equal the level of desired investment. d. Even though firms are trying, they are unable to maximize profits.
a. Real GDP is less than equilibrium expenditure.
A negative demand shock can cause: a. a liquidity trap. b. crowding out. c. a recessionary gap. d. an inflationary gap.
c. a recessionary gap.
Unemployment that occurs because it takes workers and employees time to find each other is called: a. cyclical unemployment b. structural unemployment c. frictional unemployment d. discouraged unemployment
c. frictional unemployment
The circular flow diagram indicates that a. households sell goods and services to the government. b. firms buy goods and services from households. c. households rent the services of factors of production to firms. d. firms buy the services of factors of production from the government.
c. households rent the services of factors of production to firms.
If more women enter or reenter the labor force, the natural rate of unemployment is expected to: a. decrease. b. remain unchanged. c. increase. d. decrease if they are well-educated.
c. increase.
Which of the following shift the consumption function upward? a. expectations of harder times ahead b. increases in the real interest rate c. increases in wealth d. increases in disposable income
c. increases in wealth
(Figure: The Market for Loanable Funds II) An increase in government borrowing will shift the demand for loanable funds to the: a. left and increase the interest rate. b. left and decrease the interest rate. c. right and increase the interest rate. d. right and decrease the interest rate.
c. right and increase the interest rate.
According to the aggregate demand curve, when the aggregate price level __________, the quantity of __________. a. rises; aggregate output supplied falls b. falls; aggregate output demanded falls c. rises; aggregate output demanded falls d. rises; aggregate output demanded does not change.
c. rises; aggregate output demanded falls.
A reduction in government transfers __________, therefore shifting the aggregate demand curve to the __________. a. increases labor costs to companies, increasing investment; left b. decreases government purchases of goods and services, decreasing consumption; right c. increases the marginal propensity to save, decreasing consumption; right d. decreases in disposable income and consumption; left
d. decreases disposable income and consumption; left
Which of the following is a flow variable? a. the money in your pocket b. capital c. wealth d. gross domestic product
d. gross domestic product
Autonomous expenditure is not influenced by a. the interest rate. b. the price level. c. any other variable. d. real GDP.
d. real GDP.
Sam, who is 55 years old and has been a steel worker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is experiencing: a. cyclical unemployment. b. permanent unemployment. c. frictional unemployment. d. structural unemployment.
d. structural unemployment.
C = 2030+0.8(Y-T) I = 480 T = 200 G = 750 X = 500 M = 1000 What is the equilibrium real GDP? a. 10000 b. 13000 c. 12500 d. 18640
b. 13000
If AE = 75+0.4Y and Y = 100, where Y is real GDP, inventory is a.75 above the target level b. 15 below the target level c. 75 below the target level d. 15 above the target level
b. 15 below the target level
If the economy is in a recessionary gap, the Federal Reserve should conduct __________ monetary policy by __________ the money supply. a. expansionary; decreasing b. expansionary; increasing c. contractionary; decreasing d. contractionary; increasing
b. expansionary; increasing
The budget balance is equal to: a. taxes plus government spending. b. taxes minus government spending. c. consumption plus investment. d. imports minus exports.
b. taxes minus government spending.
The demand for loanable funds is _______ sloping because _______ respond to lower interest rates by _______ their quantity demanded of loanable funds. a. downward; investors; increasing b. downward; savers; increasing c. upward; investors; decreasing d. upward; savers; decreasing
a. downward; investors; increasing
Other things equal, rising interest rates lead to a: a. fall in investment and consumer spending. b. rise in investment and consumer spending. c. fall in investment spending and a rise in consumer spending. d. fall in consumer spending and a rise in investment spending.
a. fall in investment and consumer spending.
Nominal wages are "sticky" because: a. in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment. b. in the long run these payments remain fixed thereby increasing the profitability of the firms. c. in the short run these payments are slow to fall when there are labor shortages and slow to rise even when there is significant level of unemployment. d. in the long run all wages become adjusted for inflation.
a. in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment.
Disposable income equals: a. income plus government transfers minus taxes. b. income plus government spending minus taxes. c. income minus taxes plus government spending. d. income minus taxes minus government transfers.
a. income plus government transfers minus taxes.
According to the loanable funds model, in the short run expansionary monetary policy: a. increases the supply of loanable funds. b. increases the demand for loanable funds. c. increases the quantity of loanable funds supplied. d. has no effect on the supply of loanable funds.
a. increases the supply of loanable funds.
As an inflationary gap is eliminated through adjustment of nominal wages, the equilibrium price level __________ and the equilibrium real output __________. a. increases; decreases b. increases; increases c. decreases; decreases d. decreases; increases
a. increases; decreases
All other things unchanged, a decrease in the value of the dollar against the euro __________ U.S. net exports and shifts the aggregate demand curve to the __________. a. increases; right b. decreases; right c. increases; left d. decreases; left
a. increases; right
Suppose that the stock market crashes. Which of the following is most likely to occur? a. the aggregate demand curve shifts to the right b. the aggregate demand curve shifts to the left c. a movement up the aggregate demand curve d. a movement down the aggregate demand curve
b. the aggregate demand curve shifts to the left
Consider an economy that only produces two goods: DVDs and DVD players. Last year, 10 DVDs were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15 DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Real GDP this year using last year as the base year is: a. $100. b. $700. c. $1,300. d. $300.
c. $1,300.
(Figure: Loanable Funds Market) If the interest rate is 8%, people will want to save approximately: a. $3 trillion b. $2 trillion c. $4 trillion d. $1 trillion
c. $4 trillion
Table: Measuring GDP Measuring GDP (billions of dollars) Consumer spending $500 Investment spending 200 Net exports -5 Government spending 300 Imports 15 (Table: Measuring GDP) GDP is: a. $500 billion. b. $850 billion. c. $995 billion. d.$1,000 billion.
c. $995 billion.
In a country with no international trade, if the MPC = 0.75, the lump-sum tax multiplier is a. 3.00. b. -0.33. c. -3.00. d. 4.00.
c. -3.00.
C = 2030+0.8(Y-T) I = 480 T = 200 G = 750 X = 500 M = 1000 What is the slope of the aggregate expenditure equation? a. 0.05 b. 0.75 c. 0.8 d. 0.85
c. 0.8
C = 2030+0.8(Y-T) I = 480 T = 200 G = 750 X = 500 M = 1000 How much is consumption in equilibrium? a. 25000 b. 12430 c. 12270 d. 15030
c. 12270
If a country has a working-age population of 200 million, 135 million people with jobs, 10 million people who were looking for a job but have given up, and 5 million people unemployed and seeking employment, then its labor force is: a. 150 million. b. 145 million. c. 140 million. d. 135 million.
c. 140 million.
If AE = 50+0.9Y and Y = 300, where Y is real GDP, then the inventory is a. 20 above target level. b. 50 below target level. c. 20 below target level. d. 50 above target level
c. 20 below target level.
You read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical market basket in 2008 would have cost a. 20 percent more than the same market basket purchased in 2007. b. 120 percent more than the same market basket purchased in 2007. c. 20 percent more than the same market basket purchased in the base year. d. 120 percent more than the same market basket purchased in the base year.
c. 20 percent more than the same market basket purchased in the base year.
If the CPI is 120 in Year 1 and 150 in Year 2, then the rate of inflation from Year 1 to Year 2 is _____. a. 10% b. 20% c. 25% d. 50%
c. 25%
able: Measuring GDP (billions of dollars) GDP $1700 Consumer spending 1100 Investment spending ? Net exports -50 Government spending 400 What is investment spending in this economy? a. 300 b. 350 c. 250 d. 150
c. 250
C = 2030+0.8(Y-T) I = 480 T = 200 G = 750 X = 500 M = 1000 What is the value of the multiplier in this economy? a. 1.05 b. 4 c. 5 d. 6.67
c. 5
Scenario: Price Index Suppose that in the base period a college student buys 20 gallons of gasoline at $2.00 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50. (Scenario: Price Index) The change in prices for the month is: a. 7.6%. b. 94%. c. 6.4%. d. -6%.
c. 6.4%.
An example of a government transfer is a(n): a. expenditure on an interstate highway. b. bequest from a deceased relative. c. Social Security payment. d. salary for members of the armed forces.
c. Social Security payment.
Ford Motor Company agreed to pay its workers $31 an hour in 1999 and $39 an hour in 2001. The CPI in 1999 was 166 and in 2001 it was 180. Which of the following is correct? a. The real wage rate in 2001 was $18.68 b. The economy experienced deflation from 1999 to 2001. c. The workers did really get a raise between 1999 and 2001. d. The real wage rate in 1999 was higher than the real wage rate in 2001.
c. The workers did really get a raise between 1999 and 2001.
When the value of the euro changes from $1.30 to $1.20, it follows that: a. European Union imports from the United States increase. b. U.S. exports to the European Union increase. c. U.S. imports from the European Union increase. d. European Union exports to the United States decrease.
c. U.S. imports from the European Union increase.
An expansionary fiscal policy is a. an increase in taxes. b. a decrease in government purchases. c. a cut in taxes. d. none of the above is an expansionary fiscal policy.
c. a cut in taxes.
The Fed's actions to fight a recession shift the a. aggregate demand curve leftward. b. short-run aggregate supply curve leftward. c. aggregate demand curve rightward. d. short-run aggregate supply curve rightward.
c. aggregate demand curve rightward.
An increase in government spending on health care is likely to shift to the: a. short-run aggregate supply curve to the right b. short-run aggregate supply curve to the left c. aggregate demand curve to the right d. aggregate demand curve to the left
c. aggregate demand curve to the right
The short-run aggregate supply curve would shift to the left for all the following reasons EXCEPT: a. a decrease in productivity. b. an increase in nominal wages. c. an increase in interest rates. d. an increase in the price of commodities used for production.
c. an increase in interest rates.
The aggregate supply curve shows the relationship of prices: a. to sales b. and the output people want to buy. c. and the output producers are willing to provide. d. to both the amount people want to buy and the amount producers want to provide.
c. and the output producers are willing to provide.
(Figure: The Money Supply and Aggregate Demand) Refer to the figure The Money Supply and Aggregate Demand. If the economy is in a recessionary gap, the Federal Reserve will __________ government bonds, which will __________ the money supply and __________ interest rates. This is shown in panel __________. a. sell; decrease; raise; (b) b. buy; decrease; lower; (a) c. buy; increase; lower; (a) d. sell; increase; lower; (a)
c. buy; increase; lower; (a)
If the government has a balanced budget, the total amount of government debt is a. decreasing. b. increasing. c. constant. d. zero.
c. constant.
When the Fed buys U.S. government securities from a bank, the Fed a. pays for the securities by giving the bank gold. b. borrows money from the U.S. Treasury to cover the purchase. c. credits the bank's account at the Fed. d. decreases the amount of money in circulation.
c. credits the bank's account at the Fed.
The reserve ratio is the: a. bank's holdings of gold. b. government's holdings of gold at Fort Knox. c. fraction of deposits that banks hold in their vaults plus their deposits at the Federal Reserve. d. ratio of gold to the paper money in the economy.
c. fraction of deposits that banks hold in their vaults plus their deposits at the Federal Reserve.
Ron quit his job in retail management and moved to Florida with his wife, a physician who opened a new practice there. He was not successful in his job search for the next four months. This type of unemployment is known as: a. structural unemployment. b. cyclical unemployment. c. frictional unemployment. d. seasonal unemployment.
c. frictional unemployment.
If in an open economy, the government's budget deficit increases at the same time as the trade deficit grows, this will lead to a(n) __________ in the demand and a(n) __________ in the supply of loanable funds in domestic markets. a. increase; decrease b. decrease; decrease c. increase; increase d. decrease; increase
c. increase; increase
Suppose that in 2002 the economy has an MPC of 0.67 and in 2003 the MPC changes to 0.8. Which of the following best describes what happens to the multiplier? a. It falls from 1.49 to 1.25 b. It falls from 5 to 3 c. It rises from 1.25 to 1.49 d. It rises from 3 to 5
d. It rises from 3 to 5
If you transfer $1,000 from your savings account to your checking account: a. M1 decreases by $1,000, and M2 increases by $1,000. b. M1 increases by $1,000, and M2 decreases by $1,000. c. M1 and M2 don't change. d. M1 increases by $1,000, but M2 doesn't change.
d. M1 increases by $1,000, but M2 doesn't change.
Year 2007 (in billions of dollars) Consumption Spending $65 Rental Income 10 Interest 35 Profit 20 Investment Spending 15 Wages 29 Government Purchases 18 Imports 7 Exports 3 (Table: GDP) The GDP for 2007, was: a. $94 billion. b. $188 billion. c. $168 billion. d. $139 billion.
a. $94 billion.
Table: GDP II 2007 2008 Nominal GDP 400 500 Real GDP 360 480 (Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2007. a. 111 b. 104 c. 90 d. 96
a. 111
In response to a government stimulus package of $100 billion, the equilibrium real GDP increased by $250 billion. What is the value of the multiplier for this economy? a. 2.5 b. 0.4 c. 1.67 d. 0.6
a. 2.5
Mitsubishi Heavy Industries makes the wings of the new Boeing 787 Dreamliner in Japan. Choose the correct statement. a. The wings appear as imports in U.S. GDP . b. The wings appear as investment in U.S. GDP. c. The wings appear as exports in U.S. GDP . d. The wings appear as a positive entry in calculating U.S. GDP.
a. The wings appear as imports in U.S. GDP .
When the value of a pound sterling changes from US $1.50 to US $2, it follows that the: a. U.S. dollar has depreciated. b. British pound has depreciated. c. U.S. dollar has appreciated. d. value of a U.S. dollar has gone from 0.5 to 0.6 (euro).
a. U.S. dollar has depreciated.
The PPI is often regarded as a warning sign of inflation: a. because commodity producers are relatively quick to raise prices. b. because producers are more likely to have monopoly control over prices. c. because consumers have to pay the prices charged. d. because commodity producers can sell whatever they want at higher prices.
a. because commodity producers are relatively quick to raise prices.
If the average retirement age decreases: a. implicit liabilities will increase. b. implicit liabilities will decrease. c. implicit liabilities will be unaffected. d. the public debt will immediately increase.
a. implicit liabilities will increase.
All other things unchanged, a decrease in the value of the dollar against the euro __________ U.S. net exports and shifts the aggregate demand curve to the __________. a. increases, right b. decreases, right c. increases, left d. decreases, left
a. increases, right
C = 600+0.8Yd. What is MPS? What is the value of saving when Yd = 1000?
MPS = 0.2 S = -400
An economy saves 20 percent of any increase in income and there are no other income taxes or imports. Then, an increase in investment of $2 billion can produce a short run increase in real GDP of as much as a. $10 billion. b. $2 billion. c. $0.4 billion. d. $1.6 billion.
a. $10 billion.
An example of a discretionary fiscal policy is when a. Congress passes a law that raises personal marginal tax rates. b. tax receipts fall as incomes fall. c. unemployment compensation payments rise with unemployment rates. d. food stamp payments rise when the economy is in a recession.
a. Congress passes a law that raises personal marginal tax rates.
In the basic equation of national income accounting, the government directly controls __________ and influences __________. a. G; C and I b. T; G and C c. C; X and M d. I; G and T
a. G; C and I
Which of the following is considered investment spending in macroeconomics? a. GM builds a new plant to manufacture automobiles. b. Ryan Jones buys some GM stock. c. Ryan Jones buys some GM bonds. d. Ryan Jones buys some GM stock and bonds.
a. GM builds a new plant to manufacture automobiles.
Which of the following are equal to one another? I. aggregate production II. aggregate expenditure III. aggregate income a. I equals II equals III b. II equals III, but not I c. I equals III, but not II d. I equals II, but not III
a. I equals II equals III
Which of the following statistics is used to measure changes in the prices that firms pay for goods and services? a. Producer Price Index b. Consumer Price Index c. GDP Deflator d. Cost of Living Index
a. Producer Price Index
Automatic stabilizers are government spending and taxation changes that: a. cause fiscal policy to be expansionary when the economy contracts. b. cause fiscal policy to be a contractionary when the economy contracts. c. cause fiscal policy to be neutral when the economy contracts. d. cause fiscal policy to be ineffective when the economy contracts.
a. cause fiscal policy to be expansionary when the economy contracts.
Scenario: Exchange Rates The value of a euro goes from US $1.25 to $1.50. Refer to the information provided in the scenario. The dollar has: a. depreciated. b. appreciated. c. been revalued. d. not been affected for use in international trade.
a. depreciated.
A relatively low saving rate affects productivity growth by: a. depriving investment spending of the funds needed to increase the physical capital. b. promoting consumption spending and depriving investment in human capital of the funds needed for tuition. c. reducing the tax base and preventing the government from providing public goods. d. stimulating imports and increasing trade deficit.
a. depriving investment spending of the funds needed to increase the physical capital.
The short-run aggregate supply curve may shift to the right if: a. productivity increases. b. nominal wages increase. c. personal income taxes decrease. d. commodity prices rise.
a. productivity increases.
When disposable income is 0, consumption is $2000. Then a. saving = -$2000. b. the MPC = 0.2. c. saving = $2000. d. saving = 0.
a. saving = -$2000
In a simple closed economy, all investment spending must come from: a. saving. b. money creation. c. debt issuance. d. foreign borrowing.
a. saving.
A currency has depreciated when: a. that currency buys less foreign goods than it did previously. b. that currency buys more foreign goods than it did previously. c. one unit of that currency buys more units of a foreign currency than it did previously. d. foreign goods become cheaper to holders of that currency.
a. that currency buys less foreign goods than it did previously.
Suppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following can we safely conclude would be true about the reported official GDP the following year? a. It would rise. b. It would fall. c. It would stay the same. d. There is not enough information to evaluate the impact that it would have on GDP.
b. It would fall.
If a country experiences a trade surplus, we can conclude that it is also experiencing: a. a budget surplus. b. a net capital outflow. c. a net capital inflow. d. a budget deficit.
b. a net capital outflow.
Scenario: Exchange Rates The value of a euro goes from US $1.25 to $1.50. Refer to the information provided in the scenario. French exports to the United States will: a. be cheaper. b. be more expensive. c. be unaffected. d. increase.
b. be more expensive.
Medicaid, Medicare, and Social Security are examples of: a. unilateral payments. b. transfer payments. c. monetary policy. d. taxes.
b. transfer payments.
In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. (Scenario: Closed Economy S = I) How much is private saving? a. $4 trillion b. $2.5 trillion c. $3.5 trillion d. -$0.5 trillion
c. $3.5 trillion
Scenario: Closed economy S=I: In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. How much is private saving? a. $4 trillion b. $2.5 trillion c. $3.5 trillion d. -$0.5 trillion
c. $3.5 trillion
From the standpoint of economic growth, banks are important to: a. fight inflation. b. keep interest rates low. c. channel savings into investment. d. channel investment into savings.
c. channel savings into investment.
An increase in government purchases shifts the AE curve _________ and shifts the AD curve __________ a. downward; rightward. b. downward; leftward. c. upward; rightward. d. upward; leftward.
c. upward; rightward.
The supply of loanable funds is _______ sloping because _______ respond to lower interest rates by _______ their quantity supplied of loanable funds. a. upward; savers; increasing b. upward; investors; decreasing c. upward; savers; decreasing d. downward; investors; increasing
c. upward; savers; decreasing
The value of a euro goes from 1 euro = US $1.25 to 1 euro = US $1.50. In Germany, exports: a. will increase, and imports will decrease. b. and imports will increase. c. will decrease, and imports will increase. d. and imports will decrease.
c. will decrease, and imports will increase.
Decreasing funding to explore space: a. will shift the aggregate supply curve to the left. b. will shift the aggregate supply curve to the right. c. will shift the aggregate demand curve to the left. d. will shift the aggregate demand curve to the right.
c. will shift the aggregate demand curve to the left.
If there are no taxes or imports and MPC = 0.75, the multiplier equals a. 1.33. b. 6.0. c. 0.25. d. 4.0.
d. 4.0.
If the multiplier is 6 and imports increase by $30, what impact will that have on aggregate expenditure? a. decrease by $180 b. increase by $180 c. increase by $30 d. decrease by $30
a. decrease by $180
Contractionary monetary policy: a. is appropriate during a recessionary gap. b. decreases aggregate demand. c. increases aggregate demand. d. helps solve the problem of unemployment.
b. decreases aggregate demand
When the unemployment rate increases, the budget: a. is unaffected. b. tends to move into deficit. c. tends to move into a surplus. d. remains neutral.
b. tends to move into deficit.
A survey reveals that on a small island 1,000 people have jobs, 250 people are looking for jobs, and 450 people are neither working nor looking for work. The unemployment rate on the island is: a. 20.0%. b. 25.0%. c. 45.0%. d. 15.6%.
a. 20.0%.
Table: The Consumer Price Index Year Consumer Price Index 1 80 2 (base year) 100 3 105 4 125 5 150 (Table: The Consumer Price Index) The approximate rate of inflation from Year 2 to Year 3 is _____ percent. a. 5 b. 10 c. 19 d. 20
a. 5
The country of Livonia has an adult population of 100 million. Sixty percent of Livonia's population are employed, but 10% of the people are unemployed. The Labor Force Participation Rate in Livonia is: a. 70%. b. 60%. c. 7%. d. 10%.
a. 70%.
Yd Consumption Expenditure 200 225 300 300 400 375 500 450 According to the data in the above table, what is the autonomous consumption? a. 75 b. 100 c. 150 d. 225
a. 75
Suppose that the value of the euro fell from $1.32 on April 30, 2010, to $1.24 on July 5, 2012. This implies that: a. The euro depreciated and the dollar appreciated during this period. b. The dollar depreciated and the euro appreciated during this period. c. The euro depreciated and there is insufficient information about the dollar's value during this period. d. The euro appreciated and there is insufficient information about the dollar's value during this period.
a. The euro depreciated and the dollar appreciated during this period.
When the value of a sterling pound changes from US $1.50 to US $2.00, it follows that the: a. U.S. dollar has depreciated. b. British pound has depreciated. c. U.S. dollar has appreciated. d. the value of a U.S. dollar has gone from 0.5 euros to 0.6 euros.
a. U.S. dollar has depreciated.
In general, a change in the price level, all other things unchanged, causes: a. a movement along the aggregate demand curve. b. a shift of the aggregate demand curve. c. both a movement along the aggregate demand curve and a shift in the curve. d. no change in the purchasing power of assets.
a. a movement along the aggregate demand curve.
Inflation is when there is: a. a rising aggregate price level. b. an expansion of output. c. a rise in wages. d. a rise in the unemployment rate.
a. a rising aggregate price level.
C = 2030+0.8(Y-T) I = 480 T = 200 G = 750 X = 500 M = 1000 The government is running a a. budget deficit b. budget surplus c. trade surplus d. none of the answers are correct
a. budget deficit
(Figure: The Money Supply and Aggregate Demand) Refer to the figure The Money Supply and Aggregate Demand. If the Federal Reserve intended to encourage investment and expand the economy, it would _________ government bonds, __________ the money supply, and __________ interest rates. This is shown in panel __________. a. buy; increase; lower; (a) b. sell; increase; lower; (b) c. buy; decrease; lower; (a) d. buy; increase; raise; (a)
a. buy; increase; lower; (a)
Don has built an extension to his house, this transaction will be: a. not included in GDP because it is not produced for the marketplace. b. included in GDP because Don is a professional builder. c. not included in GDP because it is an intermediate good. d. included in GDP because building is Don's hobby.
a. not included in GDP because it is not produced for the marketplace.
A negative short-run supply shock: a. reduces aggregate output and increases the aggregate price level b. increases aggregate output and reduces the aggregate price level c. reduces both aggregate output and the aggregate price level. d. increases both aggregate output and the aggregate price level.
a. reduces aggregate output and increases the aggregate price level.
Suppose the U.S. spends more on foreign goods and services than foreigners spend on our goods and services and the U.S. sells no foreign assets. Then a. the U.S. must borrow an amount equal to imports minus exports. b. the rest of the world may or may not finance the U.S. trade deficit. c. the U.S. must borrow an amount equal to consumption expenditure plus investment. d. the U.S. must borrow an amount equal to national saving.
a. the U.S. must borrow an amount equal to imports minus exports.
When the dollar value of the euro is high: a. travel in the U.S. is less expensive for Europeans. b. travel in the U.S. is more expensive for Europeans. c. the dollar has appreciated. d. travel in Europe is less expensive for Americans.
a. travel in the U.S. is less expensive for Europeans.
Scenario: Exchange Rates The value of a euro goes from US $1.25 to $1.50. Refer to the information provided in the scenario. In the United States, exports: a. will increase and imports will decrease. b. and imports will increase. c. will decrease and imports will increase. d. and imports will decrease.
a. will increase and imports will decrease.
The value of a euro goes from 1 euro = US $1.25 to 1 euro = US $1.50. In the United States, exports: a. will increase, and imports will decrease. b. and imports will increase. c. will decrease, and imports will increase. d. and imports will decrease.
a. will increase, and imports will decrease.
Table: Furniture Production Schedule Stage of production Sales value of material Timber 100 Milled wood 300 Finished wood 600 Assembled furniture 800 Retail price to consumer 1200 (Table: Furniture Production Schedule) What is the value added at all stages of the production process of the furniture as described in the accompanying table? a. $800 b. $1,200 c. $1,800 d. $2,000
b. $1,200
In the figure above, the induced consumption when real GDP is $6 trillion is a. $6 trillion. b. $4 trillion. c. zero. d. $1 trillion.
b. $4 trillion. (real GDP - y-intercept)
Yd Consumption Expenditure 200 225 300 300 400 375 500 450 According to the data in the above table, what is the marginal propensity to consume? a. 75 b. 0.75 c. 0.25 d. 100
b. 0.75
If the Consumer Price Index (CPI) for 2007 was 160.6 and 163.1 in 2008, what was the inflation rate between the two years? a. 0.25% b. 1.56% c. 2.59% d. 5.00%
b. 1.56%
Table: GDP II 2007 2008 Nominal GDP 400 500 Real GDP 360 480 (Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2008. a. 111 b. 104 c. 90 d. 96
b. 104
Scenario: Price Index Suppose that in the base period a college student buys 20 gallons of gasoline at $2.00 per gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie ticket is $7.50. (Scenario: Price Index) The price index for the second month is: a. 94. b. 106.4. c. 100. d. impossible to determine without more information.
b. 106.4.
If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is: a. 2%. b. 5%. c. 7%. d. 9%.
b. 5%.
Suppose the lender expects a real interest rate of 6% and the inflation rate is expected to be 3%. In this case, the nominal interest rate is equal to: a. 3%. b. 9%. c. 12%. d. 6%.
b. 9%.
(Figure: Fiscal Policy I) Suppose that this economy is in equilibrium at E2. If there is an increase in taxes, then: a. AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP. b. AD2 will shift to the left, causing a decrease in the price level and a decrease in real GDP. c. AD1 will shift to the right, causing an increase in the price level and an increase in real GDP. d. AD1 will shift to the right, causing a decrease in the price level and an increase in real GDP.
b. AD2 will shift to the left, causing a decrease in the price level and a decrease in the real GDP.
(Figure: Loanable Funds) The accompanying graph shows the market for loanable funds in equilibrium. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150 billion? a. Consumers increase consumption as a fraction of disposable income. b. Businesses become more optimistic about the return on investment spending. c. The federal government has a budget surplus rather than a budget deficit. d. There is an increase in capital inflows from other nations.
b. Businesses become more optimistic about the return on investment spending.
(Figure: Loanable Funds) The accompanying graph shows the market for loanable funds in equilibrium. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150? a. Consumers have increased consumption as a fraction of disposable income. b. Businesses have become more optimistic about the return on investment spending. c. The federal government has a budget surplus rather than a budget deficit. d. There has been an increase in capital inflows from other nations.
b. Businesses have become more optimistic about the return on investment spending.
A survey reveals that on a small island initially 1,000 people have jobs, 250 people are looking for jobs, and 450 people are neither working nor looking for work. Suppose that 150 of the 450 people who weren't looking for work now begin looking for work. There are now 400 people looking for work and 1,000 people working. What happens to the unemployment rate? a. It falls to 20%. b. It rises to 28.6%. c. It rises to 50.0%. d. Nothing happens to the unemployment rate, because these people weren't working before and they aren't working now.
b. It rises to 28.6%.
Suppose that in a particular month roughly 8 million people in the United States were seeking jobs but had not found them, as in the previous month. Suppose that 2 million of these people gave up their searches in the current month and stopped looking for work. What will happen to the unemployment rate, all other things unchanged? a. It will rise. b. It will fall. c. It will be unaffected, because none of these people is working. d. Not enough information is provided to determine what happens to the unemployment rate.
b. It will fall.
Which one of the following is an example of consumption expenditure? a. Samantha bought an oven for her cooking show on Food Network. b. Stephanie bought a laptop for her brother. c. Jim purchased 200 shares of Google stock. d. Mr. Smith spent $1500 to buy a used car for his son.
b. Stephanie bought a laptop for her brother.
Suppose the exchange rate of the U.S. dollar was $0.50 (U.S.) = 1.00 German Mark on Thursday, and on Friday the exchange rate was $1.00 (U.S.) = 2.10 German marks. Which of the following best describes what happened between Thursday and Friday? a. The U.S. dollar depreciated against the German mark. b. The U.S. dollar appreciated against the German mark. c. The German mark appreciated against the dollar. d. Both answers B and C are correct.
b. The U.S. dollar appreciated against the German mark.
Which of the following examples definitely illustrates a depreciation of the U.S. dollar? a. The dollar exchanges for 250 yen and then exchanges for 275 francs. b. The dollar exchanges for 120 francs and then exchanges for 100 francs. c. The dollar exchanges for 1 pound and then exchanges for 1.2 pounds. d. The dollar exchanges for 100 francs and then exchanges for 120 yen.
b. The dollar exchanges for 120 francs and then exchanges for 100 francs.
Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the following would most likely result? a. Equilibrium real GDP will be more than anticipated. b. The economy could move into a recession. c. The economy will generate a larger inflationary gap than anticipated. d. This will not have any adverse effects on the economy, since inflation has been abated.
b. The economy could move into a recession.
Which of the following statements is false? a. Unemployment always rises during recessions. b. Unemployment always falls during expansions. c. There exists a strong negative relationship between growth in real GDP and changes in unemployment. d. In general, there is a trade-off between inflation and unemployment in the short run.
b. Unemployment always falls during expansions.
Deflation is when there is: a. a decrease in unemployment. b. a decreasing aggregate price level. c. a decline in wages. d. a recession.
b. a decreasing aggregate price level.
In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. (Scenario: Closed Economy S = I) What is the government budget balance? a. a surplus of $1.5 trillion b. a deficit of $1.5 trillion c. a surplus of $0.5 trillion d. a deficit of $0.5 trillion
b. a deficit of $1.5 trillion
Scenario: Closed economy S=I: In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. What is the government budget balance? a. a surplus of $1.5 trillion b. a deficit of $1.5 trillion c. a surplus of $0.5 trillion d. a deficit of $0.5 trillion
b. a deficit of $1.5 trillion
Classify each of the following items as a final good or an intermediate good, and identify which is a component of consumer spending, investment, or government spending on goods and services. Item 1. A new airplane bought by United Airlines. Item 2. A DVD bought by a household. Item 1 is _________ and item 2 is __________. a. a final good that is a consumer spending; a final good that is a consumer spending. b. a final good that is an investment; a final good that is a consumer spending. c. a final good that is an investment; an intermediate good. d. a final good that is a consumer spending; an intermediate good.
b. a final good that is an investment; a final good that is a consumer spending.
The SRAS curve is upward rising because: a. a higher aggregate price level leads to lower output as costs of production increase. b. a higher aggregate price level leads to higher output since most production costs are fixed in the short run. c. a lower aggregate price level leads to higher output since production costs tend to fall in the short run. d. a lower aggregate price level leads to higher profit and higher productivity.
b. a higher aggregate price level leads to higher output since most production costs are fixed in the short run.
The Arcadia Entertainment Co. produced 20,000 DVD's of the movie Hulk in 2007. Only 4000 copies remained unsold at the end of 2007, as a result: a. only 16,000 DVD's should be included in GDP in 2007 as consumption expenditure. b. all 20,000 DVD's will be included in GDP in 2007, 16,000 as consumption expenditure and 4,000 as investment expenditure c. only 16,000 DVD's are included in GDP of 2007, remaining 4,000 is counted in GDP of 2008. d. all 20,000 DVD's are initially counted in 2007 GDP as consumption expenditure, but subtracted and added to 2008 GDP as the merchandise gets sold.
b. all 20,000 DVD's will be included in GDP in 2007, 16,000 as consumption expenditure and 4,000 as investment expenditure
Suppose the economy is in a recessionary gap. Which of the following fiscal policy options is likely to increase real GDP by the largest amount? a. a decrease in taxes. b. an increase in government purchases. c. an increase in transfer payments. d. an increase in government purchases, paid for by an increase in taxes.
b. an increase in government purchases.
Scenario: Exchange Rates The value of a euro goes from US $1.25 to $1.50. Refer to the information provided in the scenario. The euro has: a. depreciated. b. appreciated. c. been devalued. d. not been affected for use in international trade.
b. appreciated.
Goods that are produced in a particular period but not sold in that period: a. count as consumption in the next year. b. are included in investment. c. are treated like exports. d. are classified as purely financial transactions.
b. are included in investment.
The value of a euro goes from 1 euro = US $1.25 to 1 euro = US $1.50. French exports to the United States will: a. be cheaper. b. be more expensive. c. be unaffected d. increase.
b. be more expensive.
To be counted as unemployed, one must: a. have had a job previously. b. be out of work and be actively looking for a job. c. have had a job before and be actively looking for work. c. actively looking for a job and have at least a high-school degree or its equivalent
b. be out of work and be actively looking for a job.
The effects of a change in government purchases are multiplied throughout an economy a. only when there is a decrease in purchases. b. because these purchases generate changes in consumption expenditure. c. because taxes are left unchanged. d. only when there is an increase in purchases.
b. because these purchases generate changes in consumption expenditure.
The most frequently used policy tool of the Fed is the a. tax rate on bank profits. b. buying and selling of government securities. c. interest rate charged by the Fed for lending to banks. d. required reserve ratio for depository institutions.
b. buying and selling of government securities.
Real GDP is nominal GDP adjusted for: a. double counting. b. changes in prices. c. population. d. imports.
b. changes in prices.
Monetary policy affects GDP and the price level by: a. changing aggregate supply. b. changing aggregate demand. c. changing the aggregate amount of labor supplied. d. changing exports.
b. changing aggregate demand.
Monetary policy affects aggregate demand through changes in: a. government spending. b. consumer and investment spending. c. tax receipts. d. export demand.
b. consumer and investment spending.
In 2007, _____ was the largest component of U.S. GDP, at 70% of the total aggregate spending. a. government spending b. consumer spending c. investment spending d. net export spending
b. consumer spending
Suppose the economy is in a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to: a. decrease government purchases. b. decrease taxes. c. decrease government transfers. d. increase real interest rates.
b. decrease taxes.
When he Fed sells U.S. government securities to a bank, the Fed a. gives the money from the sale to the U.S. Treasury. b. decreases the monetary base and decreases the quantity of money. c. credits the bank's account at the Fed. d. loans the money needed to buy the securities o the bank.
b. decreases the monetary base and decreases the quantity of money.
Private savings is: a. disposable income less taxes. b. disposable income less consumption. c. wealth. d. wealth plus government transfer payments.
b. disposable income less consumption.
Physical capital is purchased through investment spending, which in turn is mostly financed out of: a. taxes. b. domestic and foreign savings. c. import tariffs. d. consumption expenditure.
b. domestic and foreign savings.
In a closed economy, all investment spending must come from: a. government. b. domestic savings. c. foreign savings. d. government, domestic savings and foreign savings.
b. domestic savings.
Unemployment rates are usually higher in Europe than in the United States because: a. the minimum wage is higher in the United States than in Europe. b. economic policy in the United States is much more effective than European economic policy. c. there are more unskilled, uneducated workers in Europe than in the United States. d. unemployment benefits are more generous in Europe than in the United States.
b. economic policy in the United States is much more effective than European economic policy.
The official unemployment rate reported by the government may tend to understate the amount of unemployment by: a. including discouraged workers in the calculations. b. excluding discouraged workers who are not actively seeking employment. c. including people over 65 who aren't retired in the calculations. d. excluding teenagers from the calculations.
b. excluding discouraged workers who are not actively seeking employment.
If real GDP rises while nominal GDP falls, then prices on average have: a. risen. b. fallen. c. stayed the same. d. Real GDP can not rise when nominal GDP falls.
b. fallen.
As the value of the US dollar __________, the __________ is the demand for U.S. _________. a. rises; greater; exports b. falls; greater; exports c. rises; smaller; imports d. falls; greater; imports
b. falls; greater; exports
The U.S. dollar is an example of: a. commodity-backed money. b. fiat money. c. commodity money. d. near-money.
b. fiat money.
An example of structural unemployment is a(n): a. autoworker who is temporarily laid off from an automobile company due to a decline in sales. b. geologist who is permanently laid off from an oil company due to an increase in wages won by labor unions. c. worker at a fast-food restaurant who quits work and attends college. d. real estate agent who leaves a job in Texas and searches for a similar, higher paying job in California.
b. geologist who is permanently laid off from an oil company due to an increase in wages won by labor unions.
Because of automatic stabilizers, when real GDP decreases a. government expenditures decrease and tax revenues increase. b. government expenditures increase and tax revenues decrease. c. the economy will automatically go to full employment. d. government expenditures equal tax revenues.
b. government expenditures will increase and tax revenues will decrease.
Holding everything else constant, assume there is a decrease in the price of commodity. In the short run, this will: a. cause producer's profit per unit to increase. b. lead to a movement along the AS curve. c. lead to a movement along the AD curve. d. result in less production by producers.
b. lead to a movement along the AS curve.
If capital inflow is negative, this suggests a country is: a. borrowing more than it is lending to other countries. b. lending more than it is borrowing from other countries. c. experiencing balanced trade. d. experiencing a situation where its imports are greater than its exports.
b. lending more than it is borrowing from other countries.
When the U.S. dollar depreciates against the yen, the yen becomes __________ expensive and the value of the dollar __________. a. less; falls b. more; falls c. less; rises d. more; rises
b. more; falls
If both aggregate output and the aggregate price level increase: a. real GDP will increase faster than nominal GDP. b. nominal GDP will increase faster than real GDP. c. it makes no difference to real or nominal GDP. d. real GDP and nominal GDP will increase faster than the price level.
b. nominal GDP will increase faster than real GDP.
The marginal propensity to consume measures how much a. disposable income goes to saving. b. of a change in disposable income will be consumed. c. disposable income consumed. d. consumption expenditure occurs at the equilibrium income.
b. of a change in disposable income will be consumed.
By definition, currency depreciation occurs when the value of a. gold falls relative to the value of currencies. b. one currency falls relative to another currency. c. one currency rises relative to another currency. d. all currencies fall relative to gold.
b. one currency rises relative to another currency.
When the economy is in full employment, a. unemployment is zero. b. only cyclical unemployment is zero. c. only frictional unemployment is zero. d. the natural rate of unemployment is zero.
b. only cyclical unemployment is zero.
The CPI is used for calculating payments from the U.S. government to individuals. To the extent it is biased upward, this index: a. leads to lower benefits than would be the case if it weren't biased upward. b. raises government expenditures. c. lowers government expenditures. d. leads to lower benefits than would be the case if it weren't biased upward and raises government expenditures.
b. raises government expenditures.
A decrease in the level of business opportunity will generally: a. not change the loanable funds demand curve. b. shift the loanable funds demand curve to the left. c. cause a movement up and down the loanable funds demand curve. d. shift the loanable funds demand curve to the right.
b. shift the loanable funds demand curve to the left.
An example of an intermediate good will be: a. wages paid to an employee. b. steel purchased by the aircraft manufacturers. c. vegetables purchased for your dinner. d. electric bills for the office.
b. steel purchased by the aircraft manufacturers.
Expansionary monetary policy: a. increases the money supply, interest rates, consumption, and investment. b. decreases the money supply, interest rates, consumption and investment. c. increases the money supply, decreases interest rates, and increases consumption and investment. d. decreases the money supply, increases interest rates, and decreases consumption and investment.
c. increases the money supply, decreases interest rates, and increases consumption and investment.
Chained dollars: a. is money that banks are required to keep in their vaults to back deposits. b. is the measure for the value of intermediate goods. c. is a method for calculating changes in real GDP which uses an early base year and a late base year. d. is a method used to convert real to nominal GDP.
c. is a method for calculating changes in real GDP which uses an early base year and a late base year.
An automatic stabilizer a. involves a change in government purchases. b. requires action by the Congress. c. is triggered by the state of the economy. d. involves a change in personal taxes.
c. is triggered by the state of the economy.
If the marginal propensity to consume is 0.9, then the tax multiplier will be: a. impossible to determine. b. greater than 10. c. less than 10. d. zero, because there is no multiplier effect from taxes.
c. less than 10.
If the CPI rises from 120 to 126, then ____. a. on average, the price paid by consumers for a fixed basket of goods and services rises by 6% b. the price of gasoline rises by 6% c. on average, the price paid by consumers for a fixed basket of consumer goods and services rises by 5% d. the price of housing rises by at least 5%
c. on average, the price paid by consumers for a fixed basket of consumer goods and services rises by 5%
An example of investment spending would be: a. purchase of a bond. b. purchase of a loaf of bread. c. purchase of a new productive machine. d. purchase of a bond, a loaf of bread or a new productive machine.
c. purchase of a new productive machine.
The exchange rate is the: a. interest rate differential between countries. b. balance of trade differential between countries. c. relative price of currencies between countries. d. relative price of gold between countries.
c. relative price of currencies between countries.
In the above table, the government sector surplus or deficit (its budget balance) is a a. deficit of $200 billion. b. deficit of $100 billion. c. surplus of $100 billion. d. surplus of $200 billion
c. surplus of $100 billion.
Many economists believe that the CPI overstates inflation because: a. innovation forces consumers to pay more for most goods and services. b. the Bureau of Labor Statistics collects data on the prices of only a few goods and services. c. the CPI market basket doesn't reflect the fact that consumers shift consumption away from more expensive goods. d. people use it to bargain for wage increases.
c. the CPI market basket doesn't reflect the fact that consumers shift consumption away from more expensive goods.
The "Fed" is the abbreviation for a. Congress, the President, and the Supreme Court. b. the Federal Council on Economic activity. c. the Federal Reserve System d. the U.S. Treasury
c. the Federal Reserve System
Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that: a. the budget tends to move into a deficit during expansions. b. the budget tends to move into a surplus during recessions. c. the budget tends to move into a deficit during recessions. d. the budget tends to remain balanced throughout expansions and recessions.
c. the budget tends to move into a deficit during recessions.
Included in GDP would be: a. the dollar value of a used car sold during the period. b. the dollar value of a new car imported during the period. c. the dollar value of a new car exported during the period. d. the purchase of 100 shares of General Motors stock.
c. the dollar value of a new car exported during the period.
The Fisher Effect states that: a. the nominal rate of interest is unaffected by the change in expected inflation. b. the nominal rate of interest is unaffected by the change in unexpected inflation. c. the expected real rate of interest is unaffected by the change in expected inflation. d. the expected real rate of interest increases by one percentage point for each percentage change in expected inflation.
c. the expected real rate of interest is unaffected by the change in expected inflation.
If we add up all the values added at every stage of production for a good, we will get: a. the total cost of labor used to produce the good. b. the prices of the factors of production used to produce the good. c. the final value of the good. d. the intermediate value of the good.
c. the final value of the good.
The aggregate price level is: a. the average price of shares on the stock market. b. the average price of commodities. c. the overall level of prices in the economy. d. the average rate of inflation.
c. the overall level of prices in the economy.
Which of the following is NOT a policy tool of the Federal Reserve System? a. open market operations b. the amount of required reserves held by member banks c. the tax rate imposed on interest income d. the interest rate charged on loans to member banks
c. the tax rate imposed on interest income
When the government runs a budget deficit, all of the following happen EXCEPT: a. the government becomes a borrower in the market for loanable funds. b. the interest rate rises. c. the total amount of borrowing decreases. d. private investment spending is crowded out.
c. the total amount of borrowing decreases.
The supply of loanable funds is __________ sloping because __________ respond to lower interest rates by __________ their quantity supplied of loanable funds. a. upward; savers; increasing b. upward; investors; decreasing c. upward; savers; decreasing d. downward; investors; increasing
c. upward; savers; decreasing
In the figure above, negative saving occurs a. when disposable income is $6 trillion. b. at all levels of disposable income. c. when disposable income is $4 trillion. d. when disposable income is $8 trillion.
c. when disposable income is $4 trillion. (Equilibrium - y-intercept)
Scenario: Exchange Rates The value of a euro goes from US $1.25 to $1.50. Refer to the information provided in the scenario. In Germany, exports: a. will increase, and imports will decrease. b. and imports will increase. c. will decrease, and imports will increase. d. and imports will decrease.
c. will decrease, and imports will increase.
In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. (Scenario: Closed Economy S = I) How much is investment spending? a. $3.5 trillion b. $3 trillion c. $2.5 trillion d. $2 trillion
d. $2 trillion
In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. (Scenario: Closed Economy S = I) How much is national saving? a. $3.5 trillion b. $3 trillion c. $2.5 trillion d. $2 trillion
d. $2 trillion
Scenario: Closed economy S=I: In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. How much is investment spending? a. $3.5 trillion b. $3 trillion c. $2.5 trillion d. $2 trillion
d. $2 trillion
Scenario: Closed economy S=I: In a closed economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. How much is national saving? a. $3.5 trillion b. $3 trillion c. $2.5 trillion d. $2 trillion
d. $2 trillion
If the MPS is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by: a. $40 million b. $50 million c. $200 million d. $250 million
d. $250 million
Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are $2 trillion and tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is: a. $10.5 trillion b. $6.5 trillion c. $9 trillion d. $7.5 trillion
d. $7.5 trillion
If actual unemployment is 6.2% and the natural rate of unemployment is 4%, cyclical unemployment is: a. 6.2%. b. 10.2%. c. 4%. d. 2.2%.
d. 2.2%.
Table: The Consumer Price Index Year Consumer Price Index 1 80 2 (base year) 100 3 105 4 125 5 150 (Table: The Consumer Price Index) The approximate rate of inflation from Year 4 to Year 5 is _____ percent. a. 5 b. 10 c. 19 d. 20
d. 20
In the country of Sildavia, a market basket of goods and services cost $130 in 2003, $140 in 2004, and $160 in 2005. Based on this information and considering 2003 as the base year, inflation from 2003 to 2005 was: a. 7.14%. b. 7.69%. c. 14.28%. d. 23.07%.
d. 23.07%.
In the nation of Abydos, depreciation is $22 billion, GDP is $260.4 billion, and gross national product is $15.2 billion. Net domestic product is a. smaller than national income. b. $445.2 billion. c. $215.2 billion. d. 238.4 billion.
d. 238.4 billion.
Toyota assembles cars for the U.S. market in Kentucky. Choose the correct statement. a. Household expenditures on the cars is part of consumption expenditure in calculating U.S. GDP. b. Expenditure made by Toyota on building the assembly plant in Kentucky is recorded as investment. c. If any parts for the cars come from Japan, they are U.S. imports. d. All of the statements are true.
d. All of the statements are true.
If the British pound appreciates against the dollar, then: a. British imports and exports have become more expensive. b. American imports and exports have become more expensive. c. British imports and exports have become less expensive. d. British exports have become more expensive but the price of American exports to Britain has fallen.
d. British exports have become more expensive but the price of American exports to Britain has fallen.
Which one of the following transactions is included in a current year's GDP as investment spending? a. ABC company purchased 10,000 shares of IBM stock. b. Ronnie bought a new BMW. c. Anton purchased his friend's condo. d. Maggie bought a play-gym set for her day-care business.
d. Maggie bought a play-gym set for her day-care business.
Which one of the following transactions will be included in the official measurement of GDP? a. Stan sold his house at a huge gain. b. Monica illegally downloaded movies to her laptop. c. Ben won the state lottery. d. Sean bought a new iPhone.
d. Sean bought a new iPhone.
In April 2010, the real GDP was $9,283.4 billion and the GDP deflator was 110.8. In May 2010, the real GDP was $9,301.3 billion and the nominal GDP was $10,325.5 billion. Which of the following is incorrect? a. The nominal GDP in April 2010 was $10,286 billion. b. The GDP deflator in May 2010 was 111. c. The economic growth from April to May is 0.19%. d. The inflation rate from April to May is 0.38%.
d. The inflation rate from April to May is 0.38%.
The negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve: a. an upward slope b. a vertical slope c. a horizontal slope d. a downward slope
d. a downward slope
Classify each of the following items as a final good or an intermediate good, and identify which is a component of consumer spending, investment, or government spending on goods and services. Item 1. A new battle ship bought by the U.S. Navy Item 2. Coffee beans bought by Starbucks Item 1 is _________ and item 2 is __________. a. a final good that is government spending; a final good that is investment b. a final good that is investment; a final good that is investment c. a final good that is investment; an intermediate good d. a final good that is government spending; an intermediate good
d. a final good that is government spending; an intermediate good
Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which of the following is most likely to occur? a. a decrease in short-run aggregate supply b. a decrease in aggregate demand c. an increase in short-run aggregate supply d. an increase in aggregate demand
d. an increase in aggregate demand
When the central bank buys government securities, it leads to a. a decrease in demand deposits. b. a decrease in the quantity of money. c. an increase in interest rates. d. an increase in lending by banks.
d. an increase in lending by banks.
Which of the following is an expansionary fiscal policy? a. an increase in the money supply that decreases interest rates b. an increase in taxes that reduces the budget deficit and decreases consumption c. a decrease in government spending on the space program d. an increase in unemployment benefits.
d. an increase in unemployment benefits.
An increase in investment by U.S. firms that is intended to maintain U.S. competitiveness in world markets is _________ in the United States. a. an increase in induced expenditure b. a decrease in autonomous expenditure c. a decrease in induced expenditure d. an increase in autonomous expenditure
d. an increase is autonomous expenditure
An increase in investment leads to __________ in the price level and __________ in real GDP in the short run. a. an increase; no change b. a decrease; no change c. no change; no change d. an increase; and increase
d. an increase; an increase
If real GDP is $3 billion and aggregate planned expenditure is $3.25 billion, inventories will a. pile up and output will decrease. b. pile up and output will increase. c. be depleted and output will decrease. d. be depleted and output will increase.
d. be depleted and output will increase.
Which of the following is considered to be money? a. Google stock b. bonds c. credit cards d. checking account deposits
d. checking account deposits
Gross domestic product is defined as: a. consumer spending + government purchases + financial spending + exports - imports. b. consumer spending + government transfers + investment spending + exports - imports. c. disposable income + taxes + investment spending + exports + imports. d. consumer spending + government purchases + investment spending + exports - imports.
d. consumer spending + government purchases + investment spending + exports - imports.
Suppose an economy is producing real GDP of $300 billion. The potential output is equal to $400 billion, and the MPC is equal to 0.80. Then the government should follow a policy of: a. raising the taxes by $25 billion to bring the economy to potential output. b. cutting taxes by $33.33 billion to bring the economy to potential output. c. raising taxes by $33.33 billion to bring the economy to potential output. d. cutting taxes by $25 billion to bring the economy to potential output.
d. cutting taxes by $25 billion to bring the economy to potential output.
Deviations from the natural rate of unemployment are known as: a. frictional unemployment. b. structural unemployment. c. random unemployment. d. cyclical unemployment.
d. cyclical unemployment.
A decrease in the demand for loanable funds would most likely be caused by a(n): a. decrease in the market interest rate. b. decrease in corporate income tax rates. c. increase in the amount of expected business opportunities. d. decrease in the amount of expected business opportunities.
d. decrease in the amount of expected business opportunities.
In the above table, the net exports is a a. surplus of $200 billion. b. deficit of $100 billion. c. a surplus os $100 billion. d. deficit of $200 billion.
d. deficit of $200 billion.
Monetary policy that lowers the interest rate is called __________ because it __________. a. contractionary; aims to head off inflation b. expansionary; increases short-run aggregate supply c. contractionary; reduces saving and increases consumption d. expansionary; increases aggregate demand
d. expansionary; increases aggregate demand
Changes in aggregate demand can be caused by changes in: a. wages. b. business costs. c. raw materials cost. d. government spending.
d. government spending.
If the government wants to engage in fiscal policy to increase real GDP in the short run, it could a. decrease government purchases in order to increase aggregate supply. b. increase government purchases in order to increase aggregate supply. c. decrease government purchases in order to decrease aggregate demand. d. increase government purchases in order to increase aggregate demand.
d. increase government purchases in order to increase aggregate demand.
The current level of real GDP lies below potential GDP. An appropriate fiscal policy would b to __________, which will shift the __________ curve to the __________. a. increase government purchases; AD; left. b. increase transfer payments; AS; right. c. increase tax rates; AD; right. d. increase government purchases; AD; right.
d. increase government purchases; AD; right.
Which of the following is NOT one of the main features designed to protect depositors and the economy against bank runs? a. deposit insurance b. capital requirements c. reserve requirements d. interest rate ceilings
d. interest rate ceilings
One of the shortcomings of fiscal policy is that: a. it has significant time lags which make it more effective. b. it takes effect immediately, thus it is the best policy to use at crunch time. c. it affects aggregate demand indirectly through the interest rate. d. it has time lags and sometimes it may end up destabilizing the economy as a result of these lags.
d. is has time lags and sometimes it may end up destabilizing the economy as a result of these lags.
The purpose of indexing Social Security payments to the CPI is to: a. increase corporate profits. b. justify continued government funding of the Bureau of Labor Statistics. c. avoid the privatization of Social Security. d. maintain the purchasing power of retirees.
d. maintain the purchasing power of retirees.
Controlling the quantity of money and interest rates to influence aggregate economic activity is called a. fiscal policy. b. foreign policy. c. bank antitrust policy. d. monetary policy.
d. monetary policy.
An example of frictional unemployment is a(n): a. autoworker who is temporarily laid off from an automobile company due to a decline in sales. b. geologist who is permanently laid off from an oil company due to a new technological advance. c. worker at a fast-food restaurant who quits work and attends college. d. real estate agent who leaves a job in Texas and searches for a similar, higher paying job in California.
d. real estate agent who leaves a job in Texas and searches for a similar, higher paying job in California.
Crowding out negatively affects the economy by: a. decreasing government borrowing. b. decreasing consumption. c. increasing private borrowing. d. reducing investment spending on physical capital.
d. reducing investment spending on physical capital.
If the real interest rate falls, the consumption function a. shifts downward. b. has a flatter slope. c. is unaffected. d. shifts upward.
d. shifts upward.
An open market operation involves a. raising the debt limit of the United States. b. the changing of federal income tax rates. c. the issuance of new corporate stock. d. the Federal Reserve's purchase or sale of government securities.
d. the Federal Reserve's purchase or sale of government securities.
The labor force is: a. the total of people employed. b. the total population. c. the total of the population of working age. d. the total of people employed and unemployed.
d. the total of people employed and unemployed.
The government's budget deficit or surplus equals the: a. average expenditure divided by average revenue. b. change in expenditure divided by change in revenue. c. change in revenue minus change in purchases. d. total tax revenue minus total government expenditure.
d. total tax revenue minus total government expenditure.
Which of the following would NOT be included in this year's GDP? a. the production of a television show b. the purchase of a new work truck c. the hiring of a new police officer d. your purchase of your neighbor's 2001 Toyota
d. your purchase of your neighbor's 2001 Toyota