Unit 2 Practice Quizzes

c. A decrease of $10,000

If the MPS is .25 and the current GDP is 30,000 and the target level of GDP is $60,000, what change in taxes would be required to reach the target? a. A decrease of $160,000 b. An increase of $10,000 c. A decrease of $10,000 d. An increase of $60,000

d. Understate the unemployment rate, because they are no longer counted in the calculation of unemployed workers.

"Discouraged workers", those who are unemployed but have given up looking for a job: a. Overstate the unemployment rate because they are included in the calculation of unemployment even though they have given up. b. Are counted as part-time workers. c. Are counted as fully employed, understating the unemployment rate. d. Understate the unemployment rate, because they are no longer counted in the calculation of unemployed workers.

c. Okun's law.

"For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point GDP gap occurs." This is a statement of: a. Say's law. b. The Coase theorem. c. Okun's law. d. Taylor's rule.

c. Increase the amount of investment spending.

A decline in the real interest rate will: a. Shift the investment-demand curve to the left. b. Shift the investment-demand curve to the right. c. Increase the amount of investment spending. d. Shift the investment schedule downward.

d. The phillips curve

A graph which demonstrates the tradeoff between unemployment and changes in price levels, specifically inflation best describes: a. The demand curve b. The unemployment curve c. The production possibilities curve d. The phillips curve

c. Wealth effect.

In the early 2000's the U. S. real estate market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the: a. Multiplier effect. b. Interest-rate effect. c. Wealth effect. d. Keynes effect.

c. Aggregate demand exceeds the amount that our companies are capable of producing (Aggregate Supply).

An "inflationary gap" is the amount by which: a. Aggregate expenditures exceed any given level of domestic output. b. Saving exceeds investment at the full-employment GDP. c. Aggregate demand exceeds the amount that our companies are capable of producing (Aggregate Supply). d. Equilibrium GDP falls short of the full-employment GDP.

c. Aggregate demand falls short of what our businesses are capable of producing (Aggregate Supply).

An "recessionary gap" is the amount by which: a. Equilibrium GDP falls short of the full-employment GDP. b. Saving exceeds investment at the full-employment GDP. c. Aggregate demand falls short of what our businesses are capable of producing (Aggregate Supply). d. Aggregate expenditures exceed any given level of domestic output.

b. Stagflation

An Increase in price and unemployment, combined with a decrease in output and employment best describes: a. Demand-pull inflation b. Stagflation c. Hyperinflation d. Real economic growth

c. Not in the labor force.

Anne Kasperson works in her own home as a full-time caretaker and homemaker. Officially, she is: a. Employed. b. Unemployed. c. Not in the labor force. d. In the labor force.

b. $30.

Assume a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: a. $70. b. $30. c. $110. d. $40.

a. .60

Assume an economy that is producing only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the next question(s) on the basis of these data. Year: 1 Units of Output: 3 Price per unit: $3 Year: 2 Units of Output: 4 Price per unit: 4 Year: 3 Units of Output: 6 Price per unit: 5 Year: 4 Units of Output: 7 Price per unit: 7 Year: 5 Units of Output: 8 Price per unit: 8 Refer to the above data. If year 3 is chosen as the base year, the price index for year 1 is: a. .60 b. .40 c. 1.40 d. 1.67

d. $40.

Assume an economy that is producing only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the next question(s) on the basis of these data. Year: 1 Units of Output: 3 Price per unit: $3 Year: 2 Units of Output: 4 Price per unit: 4 Year: 3 Units of Output: 6 Price per unit: 5 Year: 4 Units of Output: 7 Price per unit: 7 Year: 5 Units of Output: 8 Price per unit: 8 Refer to the above data. Real GDP for year 5 is: a. $49. b. $64. c. $160. d. $40.

d. Frictionally unemployed.

Assume that Hernandez is temporarily unemployed because he has voluntarily quit his job with company A, earned his degree and is currently looking for a better job. Hernandez will be considered as: a. Cyclically unemployed. b. Employed. c. Secularly unemployed. d. Frictionally unemployed.

c. $20 billion.

Assume the MPC is 3/4. If investment spending increases by $5 billion, the level of GDP will increase by: a. $5 billion. b. $2 billion. c. $20 billion. d. $3/4 billion.

b. 6 percent.

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 8 percent. According to Okun's law, the GDP gap is: a. 2 percent. b. 6 percent. c. 3 percent. d. 10 percent.

a. 0.4.

Refer to the above diagram. The marginal propensity to save is: a. 0.4. b. 0.8. c. 0.6. d. 0.5.

d. An increase in wage rates or other resource prices.

Cost-push inflation may be caused by: a. A decline in per unit production costs. b. A decrease in wage rates. c. An increase in resource availability. d. An increase in wage rates or other resource prices.

c. Downturns in the economy, recessions.

Cyclical Unemployment is caused by: a. A change in the demand structure of a nation. b. A decrease in demand for bicycles. c. Downturns in the economy, recessions. d. Quitting your job and looking for a new one.

d. Dissaving is $5

Disposable Income: $200 Consumption: $205 Disposable Income: 225 Consumption: 225 Disposable Income: 250 Consumption: 245 Disposable Income: 275 Consumption: 265 Disposable Income: 300 Consumption: 285 Refer to the above data. At the $200 level of income, a. The average propensity to consume is -1.025 b. The average propensity to save is +2.5% c. The economy is at breakeven. d. Dissaving is $5

d. 225

Disposable Income: $200 Consumption: $205 Disposable Income: 225 Consumption: 225 Disposable Income: 250 Consumption: 245 Disposable Income: 275 Consumption: 265 Disposable Income: 300 Consumption: 285 Refer to the above data. The breakeven level of income is: a. 275 b. 250 c. 200 d. 225

c. .80.

Disposable Income: $200 Consumption: $205 Disposable Income: 225 Consumption: 225 Disposable Income: 250 Consumption: 245 Disposable Income: 275 Consumption: 265 Disposable Income: 300 Consumption: 285 Refer to the above data. The marginal propensity to consume is: a. .20. b. .75. c. .80. d. .25.

b. A negative Net Exports number, which means imports are greater than exports.

For many years, the United States has experienced a _________ Net Exports number, which means: a. A negative Net Exports number, which means exports are greater than imports. b. A negative Net Exports number, which means imports are greater than exports. c. A positive Net Exports number, which means imports are greater than exports. d. A positive Net Exports number, which means exports are greater than imports.

c. 6 percent.

Full-time employed: 30 million Part-time employed: 17 million Unemployed: 3 million Discouraged Workers: 75 thousand Underground Economy: 1 million Refer to the above information, the unemployment rate is: a. 7 percent. b. 9 percent. c. 6 percent. d. 3 percent.

c. Investment, government purchases, consumption, and net exports.

GDP can be calculated by summing: a. Consumption, investment, government purchases, and imports. b. Consumption, investment, wages, and rents. c. Investment, government purchases, consumption, and net exports. d. Consumption, investment, government purchases, exports, and imports.

c. 2.5.

If the MPC is .6, the multiplier will be: a. 1.67. b. 4.0. c. 2.5. d. 6.0.

b. Increase by $7 Billion

If the MPC is .75 and government spending and taxes both increase by $7 billion, then GDP will: a. Increase by $5 Billion b. Increase by $7 Billion c. Decrease by $7 Billion d. Decrease by $5 Billion

c. A decrease of $20,000

If the MPC is .8 and the current GDP is $150,000 and the target level of GDP is $50,000, what change in government spending would be required to reach the target? a. A decrease of $160,000 b. An increase of $40,000 c. A decrease of $20,000 d. An increase of $20,000

c. Decrease by $500,000

If the MPS is .20 and government spending and taxes both decrease by $500,000, the GDP will: a. Decrease by $100,000 b. Increase by $500,000 c. Decrease by $500,000 d. Increase by $100,000

d. Increase GDP by $100 billion.

If the MPS is .20, a $20 billion increase in investment will: a. Reduce GDP by $20 billion. b. Increase GDP by $20 billion. c. Decrease GDP by $100 billion. d. Increase GDP by $100 billion.

c. A decrease of $10,000

If the MPS is .25 and the current GDP is 30,000 and the target level of GDP is $60,000, what change in taxes would be required to reach the target? a. An decrease of $160,000 b. An increase of $10,000 c. A decrease of $10,000 d. An increase of $60,000

c. 2.5.

If the MPS is .4, the multiplier will be: a. 4.0. b. 6.0. c. 2.5. d. 1.67.

a. Consumption has increased.

If the consumption schedule shifts upward, this means that: a. Consumption has increased. b. Savings has increased. c. Consumption has decreased. d. Consumption has not changed.

d. Increase GDP by $45 billion.

If the multiplier in an economy is 3, a $15 billion increase in net exports will: a. Decrease GDP by $45 billion. b. Reduce GDP by $15 billion. c. Increase GDP by $15 billion. d. Increase GDP by $45 billion.

c. A non-market transaction and does not get included in GDP.

Margaret sews clothes for her family. She does not sell them to anyone. This activity is: a. Is non-productive and does not get included in GDP. b. Is included in GDP but not GNP. c. A non-market transaction and does not get included in GDP. d. A non-market transaction and therefore should be included in GDP.

c. Only counting final goods.

National income accountants can avoid multiple counting by: a. Counting both intermediate and final goods. b. Including transfers in their calculations. c. Only counting final goods. d. Only counting intermediate goods.

c. Are hurt by unanticipated inflation.

People on social security, with a fixed income: a. Benefit from unanticipated inflation. b. Are hurt by unanticipated unemployment. c. Are hurt by unanticipated inflation. d. Benefit from unanticipated unemployment.

a. Business cycles.

Recurring upswings and downswings in an economy's real GDP over time are called: a. Business cycles. b. Output yo-yos. c. Total product oscillations. d. Recessions.

a. 0.6

Refer to the above diagram. The marginal propensity to consume is: a. 0.6. b. Greater than 1 at all levels of GDP below $150. c. Greater than 1 at all levels of GDP above $150. d. 0.5.

c. Rise by about 1 percent.

Suppose that a person's nominal income rises by 5% and the price level rises by 4%. The person's real income will: a. Rise by about 4 percent. b. Remain constant. c. Rise by about 1 percent. d. Fall by about 1 percent.

a. Saving is bad and spending is good, because when our society saves, the economy contracts.

The "Paradox of thrift" suggests: a. Saving is bad and spending is good, because when our society saves, the economy contracts. b. If everyone saves, society will benefit. c. Spending is bad and saving is good, because when our society spends, the economy contracts. d. Saving and spending are unrelated to GDP.

c. Monetary value of all final goods and services produced within a nation in a particular year.

The GDP is the: a. Monetary value of all economic resources used in producing a year's output. b. Monetary value of all goods and services, final and intermediate, produced in a specific year. c. Monetary value of all final goods and services produced within a nation in a particular year. d. National income minus all non-income charges against output.

a. The slope of the consumption schedule or line.

The MPC for an economy is: a. The slope of the consumption schedule or line. b. 1 divided by the slope of the consumption schedule or line. c. The slope of the savings schedule or line. d. 1 divided by the slope of the savings schedule or line.

a. About 5 percent of the labor force is unemployed.

The United States' economy is considered to be at "full employment" when: a. About 5 percent of the labor force is unemployed. b. 100 percent of the labor force is employed. c. 90 percent of the labor force is employed. d. 90 percent of the total population is employed.

b. 3.4 percent.

The consumer price index was 166.6 in 1999 and 172.2 in 2000. Therefore, the rate of inflation in 2000 was about: a. 1.2 percent. b. 3.4 percent. c. 6.7 percent. d. 4.1 percent.

b. Consumption directly to the level of disposable income.

The consumption schedule relates: a. Saving inversely to the level of disposable income. b. Consumption directly to the level of disposable income. c. Disposable income directly to domestic income. d. Consumption directly to saving.

b. The smaller is the marginal propensity to save.

The greater is the marginal propensity to consume: a. The lower is the price level. b. The smaller is the marginal propensity to save. c. The lower is the average propensity to consume. d. The higher is the interest rate.

c. The amount of income they earn.

The most important factor in determining how much consumers spend in a year is: a. The value of their assets. b. Their expectations of future prices. c. The amount of income they earn. d. Their outstanding debt.

d. A small change in spending or taxes can cause GDP to change by a larger amount.

The multiplier effect means that: a. Consumption is typically several times as large as saving. b. A small decline in the MPC can cause equilibrium GDP to rise by several times that amount. c. A small change in spending or taxes can cause a much larger increase in investment. d. A small change in spending or taxes can cause GDP to change by a larger amount.

b. The trough.

The phase of the business cycle in which real GDP is at a minimum is called: a. The pits. b. The trough. c. The peak. d. A recession.

b. Peak, recession, trough, recovery/expansion

The phases of the business cycle, in the order in which they occur are: a. Trough, recession, recovery/expansion, peak b. Peak, recession, trough, recovery/expansion c. Recession, recovery/expansion, peak, trough d. Recovery/expansion, trough, recession, peak

b. Turns a change in government expenditures into a larger change in equilibrium GDP.

The simple multiplier: a. Indicates how much a change in Federal income taxes will affect the overall economy. b. Turns a change in government expenditures into a larger change in equilibrium GDP. c. Indicates the amount of debt incurred when consumption exceeds income. d. Is used in economics instead of the simple divider.

c. Can be found by taking the reciprocal of the MPS.

The simple multiplier: a. Occurs only in response to a change in the level of investment spending. b. Occurs only when intended investment increases as GDP increases. c. Can be found by taking the reciprocal of the MPS. d. Is measured by the slope of the saving schedule.

d. GDP data that have been adjusted for changes in the price level. (Current output multiplied by the base year price)

The term "real GDP" refers to: a. The value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. b. GDP data that reflect changes in both physical output and the price level. c. GDP data that embody changes in the price level, but not changes in physical output. d. GDP data that have been adjusted for changes in the price level. (Current output multiplied by the base year price)

d. Intermediate, overstate

Tires sold to the Ford Plant are considered ________________ goods. Including these tires in GDP would ________________ GDP. a. Final, overstate b. Final, understate c. Intermediate, understate d. Intermediate, overstate

c. The before-tax income received by households

Which of the following best defines personal income? a. All income earned by resource suppliers for their current contributions to production b. The market value of the annual output net of consumption of fixed capital c. The before-tax income received by households d. The after-tax income received by households

d. A haircut at a professional salon

Which of the following is a final good or service? a. Chevrolet windows purchased by a General Motors assembly plant b. Fertilizer purchased by a farm supplier c. Diesel fuel bought for a delivery truck d. A haircut at a professional salon

c. Building of a factory.

Which of the following is considered Economic Investment? a. A deposit into a savings account. b. The purchase of 50 shares of Home Depot stock by a school teacher. c. Building of a factory. d. The purchase of an I-pad by a college student.

a. MPS = MPC + 1

Which of the following relations is not correct? a. MPS = MPC + 1 b. APS + APC = 1 c. 1 - MPC = MPS d. MPC + MPS = 1

a. 1.0 minus .4.

With an MPS of .4, the MPC will be: a. 1.0 minus .4. b. .4. c. .4 minus 1.0. c. The reciprocal of the MPS.

b. $1,369.86

Year: 1 Nominal GDP: $1,000 Price Index: 100 Year: 2 Nominal GDP: 2,000 Price Index: 146 Year: 3 Nominal GDP: 3,000 Price Index: 132 Year: 4 Nominal GDP: 4,000 Price Index: 120 Year: 5 Nominal GDP: 5,000 Price Index: 105 Refer to the above data. The real GDP for year 2 is (round to two places after the decimal): a. $2,272.73 b. $1,369.86 c. $4,761.90 d. $3,33.33

a. $4,761.90

Year: 1 Nominal GDP: $1,000 Price Index: 100 Year: 2 Nominal GDP: 2,000 Price Index: 146 Year: 3 Nominal GDP: 3,000 Price Index: 132 Year: 4 Nominal GDP: 4,000 Price Index: 120 Year: 5 Nominal GDP: 5,000 Price Index: 105 Refer to the above data. The real GDP for year 5 is (round to two places after the decimal): a. $4,761.90 b. $2,272.73 c. $1,369.86 d. $3,333.33

b. $669.64

Year: 1 Smallville Real GDP: $50,000 Smallville Population: 100 Year: 2 Smallville Real GDP: 75,000 Smallville Population: 112 Year: 3 Smallville Real GDP: 80,000 Smallville Population: 120 Refer to the information above. What is Smallville's per capita GDP in year 2? a. $666.67 b. $669.64 c. $500.00 d. $600.00

Part-time workers are counted as: a. Fully employed and therefore the official unemployment rate may overstate the level of unemployment. b. Unemployed and therefore the official unemployment rate may overstate the level of unemployment. c. Fully employed and therefore the official unemployment rate may understate the level of unemployment. d. Unemployed and therefore the official unemployment rate may understate the level of unemployment.

c. Fully employed and therefore the official unemployment rate may understate the level of unemployment.