Eco 2 final
According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be 16) A) 15 percent. B) 20 percent. C) 25 percent. D) 100 percent.
A
Assume that in recent years the cost of producing microbrew beer in the U.S. has decreased largely due to technological improvements. At the same time, more and more Americans prefer microbrew beer over wine. Which of the following best explains the effect of these events in the microbrew beer market? 4) A) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price. B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in both the equilibrium price and the equilibrium quantity. C) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity. D) The supply curve has shifted to the right and the demand curve has shifted to the left. As a result there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.
A
If inflation is completely anticipated, 27) A) firms lose because they incur menu costs. B) no one loses in the economy. C) lenders lose in the economy. D) borrowers lose in the economy
A
If the CPI rises from 206.7 to 212.7 between two consecutive years, by how much has the cost of living changed between these two years? 26) A) The cost of living has increased by 2.9%. B) The cost of living has increased by 6%. C) The cost of living has increased by 12.7%. D) The cost of living has decreased by 6%.
A
If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would 5) A) decrease. B) equal 20%. C) increase. D) remain the same.
A
Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would 10) A) increase the measured labor force participation rate. B) increase the measured unemployment rate. C) decrease the number of persons in the labor force. D) decrease the number of persons in the working-age population.
A
How does in the price level affect the quantity of real GDP supplied in the long run? A. Changes in the price level do not affect the level of GDP in the long run. B. In the long run, in the price level will increase real GDP. a decrease C. In the long run, in the price level increases inflation, which will decrease real GDP. a decrease D. In the long run, in the price level decreases inflation, which will decrease real GDP. a decrease
A. Changes in the price level do not affect the level of GDP in the long run.
There is a strong link between changes in the money supply and inflation A. in the long run. B. in the short run. C. in both the short run and the long run. D. in neither the short run nor the long run.
A. in the long run.
A bank will consider a car loan to a customer ________ and a customer's checking account to be ________. 20) A) a liability; a liability B) an asset; a liability C) an asset; an asset D) a liability; an asset
B
According to the quantity theory of money, inflation is caused by 17) A) GDP growing at the same rate as the money supply. B) the money supply growing faster than real GDP. C) the money supply growing slower than real GDP. D) GDP growing faster than the money supply.
B
Electric car enthusiasts want to buy more electric cars at a lower price. All of the following events would have this effect except 8) A) a decrease in the price of lithium, which is used in the electric car batteries. B) an increase in the price of gasoline. C) an increase in the number of manufacturers of electric cars. D) technological advancement in the production of electric car batteries.
B
The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________. 18) A) Council of Economic Advisors; four members of the U.S. Banking Committee B) Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks C) Federal Reserve's Board of Governors; four members of the Council of Economic Advisors D) Council of Economic Advisors; four presidents from the 11 Federal Reserve banks
B
The drawback to calculating real GDP using base-year prices is that 25) A) quality changes are reflected in base-year prices. B) relative prices change over time and these are not reflected in base-year prices, and this distorts GDP. C) real GDP in one year is not comparable to real GDP in another year. D) relative prices change over time and these changes are reflected in base-year prices.
B
The purchase of Treasury securities by the Federal Reserve will, in general 19) A) decrease the quantity of reserves held by banks. B) increase the quantity of reserves held by banks. C) not change the quantity of reserves held by banks. D) not change the money supply.
B
Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness? 16) A) discouraged workers B) unemployed persons falsely report themselves to be actively looking for a job C) counting people as employed who are working part time, although they would prefer to be working full time D) inflation
B
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104? A. $34,000 B. $70,288 C. $16,447 D. $73,100
B. $70,288
Country X is a small developing economy. The budget deficit of the government has been rising sharply in the last few years. The government spends a large amount of money to keep unprofitable public sector firms running. It also extends lavish salaries and retirement benefits to government employees. With low tax revenue, the government has resorted to financing its deficit by issuing bonds. This was expected to lead to an increase in the price level. As the value of the currency declined, the velocity of money in the country was also expected to rise. However, while the velocity of money barely increased, the price level in the economy increased disproportionately. Which of the following can most reasonably be inferred from the above information? A. Interest rates in country X are likely to have increased. B. The GDP of country X is likely to be declining. C. The return on government bonds in country X is high. D. Income tax rates in country X are low. E. The public sector employs more people than the private sector in country X.
B. The GDP of country X is likely to be declining.
According to the law of demand, A. when the price of a product increases, quantity demanded will increase. B. there is an inverse relationship between price and quantity demanded. C. when the price of a product falls, quantity demanded will decrease. D. All of the above.
B. there is an inverse relationship between price and quantity demanded.
An increase in the equilibrium quantity of a product will result 5) A) when there is an increase in supply and a decrease in demand for the product. B) when the quantity of the product supplied exceeds the quantity demanded. C) when there is an increase in supply and an increase in demand for the product. D) when there is an decrease in demand and a decrease in the cost of inputs used to make the product.
C
An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment. 1) A) increase; cyclical B) decrease; frictional C) increase; frictional D) decrease; cyclical
C
Assets: reserves +4000 Liabilities: Deposits +4000 Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of 22) A) $0. B) $400. C) $3,600. D) $4,000
C
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is 11) A) 12.5. B) 80. C) 125. D) 800.
C
What do economists mean when they use the Latin expression ceteris paribus? A. The thing speaks for itself. B. The whole is just the sum of the parts. C. All else equal. D. Prior to an event
C. All else equal.
An economics student makes the following statement: "It's easy to understand why the aggregate demand curve is downward sloping: When the price level increases, consumers substitute into less expensive products, thereby decreasing total spending in the economy." This statement is false because the aggregate demand curve is A. upward sloping because as prices rise, consumer wealth increases, interest rates fall, and exports become more expensive. B. downward sloping for the same reasons as a demand curve for a single product. C. downward sloping because as prices rise, consumer real wealth declines, interest rates rise, and exports become more expensive. D. upward sloping for the same reasons as a demand curve for a single product.
C. downward sloping because as prices rise, consumer real wealth declines, interest rates rise, and exports become more expensive
Assume that both the demand curve and the supply curve for DVD players shift to the left but the supply curve shifts more than the demand curve. As a result 9) A) both the equilibrium price and quantity of DVD players will decrease. B) the equilibrium price of DVD players will decrease; the equilibrium quantity may increase or decrease. C) the equilibrium price of DVD players may increase or decrease; the equilibrium quantity will increase. D) the equilibrium price of DVD players will increase; the equilibrium quantity will decrease.
D
If cyclical unemployment is eliminated in the economy, then 12) A) the economy is at less than full employment. B) the unemployment rate is below the natural rate of unemployment. C) the unemployment rate is above the natural rate of unemployment. D) the economy is considered to be at full employment.
D
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest? 13) A) -9.5% B) -3.5% C) 1.5% D) 3.5%
D
Which of the following statements about the idea that people are rational is correct? A. The idea assumes that consumers and firms take into account the costs of their actions but ignore the benefits. B. The idea assumes that consumers and firms always make correct decisions. C. The idea assumes that consumers and firms take into account the benefits of their actions but ignore the costs. D. The idea assumes that consumers and firms use all available information as they act to achieve their goals.
D. The idea assumes that consumers and firms use all available information as they act to achieve their goals
According to the quantity theory of money, if velocity does not change, when the money supply of a country increases, what will occur? A. the discount rate will increase B. the nominal interest rate will decrease C. the price level will decrease D. nominal GDP will increase
D. nominal GDP will increase
The law of demand holds in the market for three goods, X, Y, and Z. An increase in the price of X causes an increase in the price of Y. A decrease in the price of X causes a decrease in the demand for Z. Which of the following conclusions is most strongly supported by the information given above? A. The slope of the demand curve for X is zero. B. X and Y are substitutes. C. Z is a substitute for input X in the production of Y. D. Y and Z are inputs in the production of X. E. Y and Z are complements.
. C. Z is a substitute for input X in the production of Y
Studies have shown that smoking cigarettes can cause heart disease. Assume this is true, and favorable weather has increased the tobacco harvest in North Carolina. In the market for cigarettes, these two developments would 17) A) decrease demand and increase supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of cigarettes. B) decrease demand and increase supply, resulting in an increase in both the equilibrium price and the equilibrium quantity of cigarettes. C) decrease demand and decrease supply, resulting in an increase in the equilibrium quantity and a decrease in the equilibrium price of cigarettes. D) increase demand and increase supply resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cigarettes.
A
You earned $30,000 in 2013, and your salary rose to $80,000 in 2020. If the CPI rose from 82 to 202 between 2013 and 2020, which of the following is true? 8) A) The purchasing power of your salary increased between 2013 and 2020. B) The purchasing power of your salary remained constant between 2013 and 2020. C) There was deflation between 2013 and 2020. D) The purchasing power of your salary fell between 2013 and 2020.
A
An underground economy involves all of the following except A. buying and selling of goods and services by obtaining a permit from the government. B. trying to avoid government regulations. C. avoiding tax payment on the earned income. D. dealing in illegal goods and services, such as drugs or prostitution. Some countries have larger underground economies than do other countries, because A. of government policies that are accelerating economic growth. B. of government policies that are retarding economic growth. C. the informal sector can produce much more than the formal sector. D. of low tax rates and lax regulations that prevail in these nations.
A. buying and selling of goods and services by obtaining a permit from the government. B. of government policies that are retarding economic growth
The unemployment rate A. rises during recessions, falls during expansions, and is always above zero. B. rises during recessions, falls during expansions, and can fall below zero. C. falls during recessions, rises during expansions, and is always above zero. D. falls during recessions, rises during expansions, and can fall below zero.
A. rises during recessions, falls during expansions, and is always above zero.
Gross domestic product understates the total production of final goods and services because of the omission of 2) A) inflation. B) household production. C) exports. D) intermediate goods.
B
If the Federal Reserve decided to include virtual money like bitcoins in its measure of the money supply, what would be the effect on M1 or M2? 23) A) M1 would fall. B) M1 would rise. C) M1 would rise and M2 would remain constant. D) M2 would rise but M1 would remain constant.
B
Monthly expenditures for a family of 4 in 2019 averaged $1,400. In 2020, the cost of the same purchases was $1,500. If 2019 is the base year, what was the CPI in 2020? 25) A) 110 B) 107 C) 100 D) 93
B
National income equals gross national product minus 22) A) imports. B) depreciation. C) changes in inventories. D) inventories.
B
Suppose that in 2020, the national income in the United States was $200 billion, depreciation was $15 billion, personal taxes were $20 billion, and transfer payments were $10 billion. Gross domestic product in 2020 is 29) A) $185 billion. B) $215 billion. C) $220 billion. D) $245 billion
B
Suppose that the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect A) the labor force participation rate to fall. B) the unemployment rate to rise. C) the unemployment rate to fall. D) no change in the unemployment rate or labor force participation rate
B
Which of the following would cause both the equilibrium price and equilibrium quantity of oysters (assume that oysters are a normal good) to decrease? 7) A) an oil spill that sharply reduces oyster output B) a decrease in consumer income C) a technological advancement in the production of oysters D) an increase in consumer income
B
The long-run aggregate supply curve is vertical because in the long run, A. changes in the size of the labor force, capital stock, and technology affect the price level but not potential GDP. B. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology. C. the price level does not change, but potential GDP changes its value. D. changes in the price level affect potential GDP via other variables, such as the size of the labor force, capital stock, and technology.
B. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology
Efficiency wages cause unemployment because 24) A) firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. B) firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. C) firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. D) firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied.
C
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. 21) Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by 21) A) $2,000. B) $8,000. C) $10,000. D) $50,000.
C
In 2020, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1, 2020 and unsold cars and trucks were valued at $900,000 on December 31, 2020. What is Kendall Ford's total investment spending in 2020? 6) A) $22,000 B) $322,000 C) $522,000 D) $1,022,000
C
The equilibrium wage in a local labor market is $10 per hour. If a minimum wage of $15 per hour is imposed, which of the following will occur? 4) A) There will be an increase in the quantity of labor demanded by firms. B) There will be a decrease in the quantity of labor supplied by households. C) There will be an increase in unemployment. D) All of the above will occur.
C
The quantity theory of money predicts that, in the long run, inflation results from the 15) A) velocity of money growing at a faster rate than real GDP. B) money supply growing at a lower rate than real GDP. C) money supply growing at a faster rate than real GDP. D) velocity of money growing at a lower rate than real GDP.
C
The value of what a U.S.-owned McDonald's produces in South Korea is included in the U.S. ________ and the South Korean ________. 13) A) GDP; GNP B) GNP; GNP C) GNP; GDP D) GDP; GDP
C
Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be 14) A) 19 percent. B) 15 percent. C) 11 percent. D) 6 percent.
C
Which of the following goods is directly counted in GDP? 15) A) the plastic bags that Subway purchases to wrap its sandwiches B) the lettuce that Subway purchases for its sandwiches C) a 12-inch Subway sandwich purchased by a student D) the bread that Subway purchases for its sandwiches
C
Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon? 28) A) an increase in demand and an increase in supply greater than the increase in demand B) an increase in demand and an increase in supply C) a decrease in supply D) a decrease in demand and an increase in supply
C
n recent years the demand for cobalt, which is used in the manufacture of batteries for electric automobiles, has risen and the supply of cobalt has also risen, with the increase in supply being larger than the increase in demand. In this situation, the equilibrium price of cobalt will have ________ and the equilibrium quantity of cobalt will have ________. 1) A) increased; increased B) increased; decreased C) decreased; increased D) decreased; decreased
C
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic? A. Seasonally unemployed B. Frictionally unemployed C. Cyclically unemployed D. Structurally unemployed
C. Cyclically unemployed
According to the quantity theory of money, inflation results from which of the following? A. The money supply grows at the same rate as GDP. B. The money supply grows slower than real GDP. C. The money supply grows faster than real GDP
C. The money supply grows faster than real GDP
An article in the Economist magazine noted that: "the economy's potential to supply goods and services [is] determined by such things as labour force and capital stock, as well as inflation expectations." Source:"Money's Muddled Message" Economist, May 19, 2009. This list of the determinants of potential GDP is A. incorrect since changes in the expected price level do not affect aggregate supply. B. correct since changes in the expected price level affect short run aggregate supply which in turn determines potential GDP. C. incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply. D. correct since changes in the expected price level affect both the short run and the long run aggregate supply.
C. incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply.
Unemployment rates are A. lower for people without a high school degree than for college graduates, and vary greatly among ethnic groups. B. lower for people without a high school degree than for college graduates, and vary little among ethnic groups. C. lower for college graduates than for people without a high school degree, and vary greatly among ethnic groups. D. lower for college graduates than for people without a high school degree, and vary little among ethnic groups.
C. lower for college graduates than for people without a high school degree, and vary greatly among ethnic groups.
For a given positive inflation rate, A. the nominal interest rate can be lower than the real interest rate, and the real interest rate may be positive or negative. B. the real interest rate is always higher than the nominal interest rate, and the real interest rate may be positive or negative. C. the nominal interest rate is always higher than the real interest rate, and the real interest rate may be positive or negative. D. the nominal interest rate can be lower than the real interest rate, but the nominal interest rate cannot be negative.
C. the nominal interest rate is always higher than the real interest rate, and the real interest rate may be positive or negative.
In the second half of 2019, automobile sales in the United States were lower than they were in the second half of 2018. The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses. 18) A) durable goods; nondurable goods B) nondurable goods; durable goods C) investment; consumption D) consumption; investment
D
Inflation that is ________ than what is expected benefits ________ and hurts ________. 28) A) greater; lenders; borrowers B) less; borrowers; lenders C) greater; lenders; no one D) less; lenders; borrowers
D
Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the market for sushi if the Surgeon General announces that a majority of the raw fish that is imported to make sushi contains high levels of toxic mercury? 24) A) D no change, S increases, P decreases, Q decreases. B) S decreases, D no change, P increases, Q decreases. C) D and S decrease, P and Q decrease. D) D decreases, S no change, P and Q decrease.
D
The United States has ________ social insurance programs, and generally has a ________ unemployment rate, as compared to Canada and Western Europe. 2) A) more generous; lower B) less generous; greater C) more generous; greater D) less generous; lower
D
The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following types of unemployment? 30) A) structural unemployment B) cyclical unemployment C) seasonal unemployment D) frictional unemployment
D
The nominal GDP of the U.S. in 2019 was approximately $21.7 trillion. This means that 19) A) total spending in 2019 was around $21.7 trillion. B) total income in 2019 was around $21.7 trillion. C) the value of output in 2019 was around $21.7 trillion. D) all of the above are true
D
Which of the following accurately describes an effect of Hurricane Harvey on GDP? 26) A) GDP would increase reflecting the decrease in production that occurred during the storm and the productive capacity lost in the storm. B) GDP would decrease reflecting the costs of cleanup. C) GDP would increase well-being. D) GDP would increase reflecting the costs of cleanup
D
Which of the following causes changes in the CPI to overstate the true inflation rate? A. New product bias B. Increase in quality bias C. Substitution bias D. All of the above
D. All of the above
Which of the following is a monetary policy tool used by the Federal Reserve Bank? A. Increasing the reserve requirement from 10 percent to 12.5 percent. B. Buying $500 million worth of government securities, such as Treasury bills. C. Decreasing the rate at which banks can borrow money from the Federal Reserve. D. All of the above.
D. All of the above.
Which of the following is true with respect to hyperinflation? A. It can be hundreds—even thousands—of percentage points per year. B. In the presence of hyperinflation, firms and households avoid holding money. C. It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP. D. All of the above.
D. All of the above.
Which of the following would cause a shift in the demand curve from point A to point B? A. An increase in income (normal good). B. An increase in the price of a substitute good. C. A decrease in income (inferior good). D. All of the above.
D. All of the above.
________ is caused by central banks increasing the money supply at a rate far in excess of the growth rate of real GDP. A. Disinflation B. Securitization C. Deflation D. Hyperinflation
D. Hyperinflation
Based on the quantity theory of money, if velocity is constant, inflation is likely to occur when: A. The money supply grows at a slower rate than real GDP. B. The money supply and inflation are unrelated. C. The money supply grows at the same rate as real GDP. D. The money supply grows at a faster rate than real GDP
D. The money supply grows at a faster rate than real GDP.
Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? For example, is cotton used to produce a new shirt included in GDP? (Note that this question does not ask whether cotton is directly counted in GDP but rather whether the production is included in GDP.) A. Yes. The value of both final goods and intermediate goods is included in the calculation of GDP. B. No. If we include intermediate goods in GDP, we would be counting the value of the good three times: once when the is produced, once when it is sold to the manufacturer, and again when the is sold to the consumer. cotton shirt C. No. There is no value added in the production of . Therefore, production is not included in the value-added method of measuring GDP. cotton D. Yes. The value of the is not directly counted in GDP, but the production of is included in the value-added method of measuring GDP.
D. Yes. The value of the is not directly counted in GDP, but the production of is included in the value-added method of measuring GDP.
When economists speak of a shortage, they mean a situation in which A. the quantity exceeds quantity . demanded supplied B. some consumers are unable to make a purchase at the current price. C. the market price is the equilibrium price. below D. all of the above. E. A and B only
D. all of the above.
