ECON 131 Final

67. A U.S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U.S. In both cases $1 million of the value of the cars was due to U.S-owned equipment located in Mexico and U.S. managers working in Mexico. How much did this production contribute to U.S. GDP? a. $0 b. $1 million c. $2 million d. None of the above are correct

$0

117. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. Ruth's 1931 salary was equivalent to a 2012 salary of about a. $5,296. b. $1,128,421 c. $1,208,421 d. $17,152,000

$1,208,421

81. Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals a. $24,450. b. $11,550. c. $15,300. d. $20,700.

$15,300.

119. In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars? a. $4,609.57 b. $4,957.51 c. $13,508.17 d. $16,008.17

$16,008.17

87. If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP? a. $2.72 billion. b. $17 billion. c. $36.8 billion. d. $43 billion.

$17 billion.

65. A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute a. $150 to GDP. b. $250 to GDP. c. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle. d. $400 to GDP.

$250 to GDP

118. In 1931 the price of a movie ticket was $0.25. The consumer price index was 15.2 in 1931, and 210 in 2008. Using 2008 prices, the real price of a movie in 1931 was a. $13.82. b. $52.50. c. $1.81. d. $3.45.

$3.45

66. A U.S.-owned automobile factory uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP? a. $300,000 b. $500,000 c. $600,000 d. $700,000

$500,000

59. In the GDP accounts production equals a. income. b. income + saving. c. income - government expenditures. d. income - imports

income

85. A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate? a. 16.7%. b. 10.0%. c. 15.0%. d. -9.1%.

10.0%.

100. Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was a. 98.0. b. 102.0. c. 104.0. d. 151.0.

102.0

101. Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was a. 109.8 and the inflation rate was 9.8%. b. 109.8 and the inflation rate was 16.9%. c. 116.9 and the inflation rate was 9.8%. d. 116.9 and the inflation rate was 16.9%.

116.9 and the inflation rate was 9.8%.

141. In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was a. 93.3/234.9. b. 12.4/234.9. c. 93.3/154. d. 12.4/154

12.4/154

104. For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was a. 145.0. b. 147.0. c. 135.0. d. 133.3.

147.0

142. In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the laborforce participation rate was a. 154/234.9. b. 141.6/234.9. c. 141.6/154. d. None of the above is correct

154/234.9

120. Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power? a. 70 in Washington, D.C. and 42 in Austin, TX b. 140 in Washington, D.C. and 70 in Austin, TX c. 160 in Washington, D.C. and 72 in Austin, TX d. 210 in Washington, D.C. and 150 in Austin, TX

160 in Washington, D.C. and 72 in Austin, TX

41. A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about a. 0.45. b. 2.0. c. 2.2. d. 200

2.2

34. Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is a. 0.35. b. 0.43. c. 2.33. d. 2.89.

2.33

35. If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a a. 0.2 percent decrease in the quantity demanded. b. 5 percent decrease in the quantity demanded. c. 20 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

20 percent decrease in the quantity demanded.

103. The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006? a. 4 percent b. 11 percent c. 19.6 percent d. 24.4 percent

24.4 percent

126. The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 percent. What was the real interest rate during this period? a. 3 percent b. 2 percent c. 3.3 percent d. 12.8 percent

3 percent

137. Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are employed and 5 million are unemployed, then a. 30 million are not in the labor force. b. 35 million are in the labor force. c. 75 million are in the labor force. d. 35 million are not in the labor force

30 million are not in the labor force.

125. If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is a. -5 percent. b. 1.67 percent. c. 5 percent. d. 11 percent

5 percent.

144. Since 1960, the natural rate of unemployment in the U.S. has been between a. 0% and 1%. b. 5% and 6%. c. 10% and 12%. d. 12% and 24%.

5% and 6%.

102. The price index was 120 in 2012 and 126 in 2013. What was the inflation rate? a. 5.0 percent b. 6.0 percent c. 7.2 percent d. 105 percent

5.0 percent

149. In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered was short term, and what percentage of the unemployment you encountered in a given week was long term? a. 52% was short term; 13.3% was long term b. 52% was short term; 88.9% was long term c. 86.7% was short term; 13.3 was long term d. 86.7% was short term; 88.9 was long term

86.7% was short term; 13.3 was long term

86. If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is a. 104.1 so prices are higher than in the base year. b. 104.1 so prices are lower than in the base year. c. 96.1 so prices are higher than in the base year. d. 96.1 so prices are lower than in the base year

96.1 so prices are lower than in the base year

80. Transfer payments a. are payments that flow from government to households. b. are not made in exchange for currently produced goods or services. c. alter household income, but they do not reflect the economy's production. d. All of the above are correct.

All of the above are correct

134. A person who is counted as "unemployed" by the Bureau of Labor Statistics a. is also in the labor force. b. must have recently looked for work or be on temporary layoff. c. must be at least 16 years old. d. All of the above are correct.

All of the above are correct.

155. Which of the following helps to reduce frictional unemployment? a. government-run employment agencies b. public training programs c. the Internet d. All of the above are correct.

All of the above are correct.

165. A firm may pay efficiency wages in an attempt to a. reduce incentives to shirk. b. reduce turnover. c. attract a well-qualified pool of applicants. d. All of the above are correct.

All of the above are correct.

190. The long-run aggregate supply curve shifts right if a. immigration from abroad increases. b. the capital stock increases. c. technology advances. d. All of the above are correct.

All of the above are correct.

61. Which of the following is a way to compute GDP? a. total income earned. b. total expenditures on final goods. c. add up the market values of all final goods and services. d. All of the above are correct.

All of the above are correct.

5. Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? a. only the one with a low level of output per person. b. only the one with a high level of output per person. c. Both d. neither

Both

44. Why was OPEC unable to maintain high oil prices in the long run? a.Demand and supply are both elastic in the long run compared to the short run. b. Demand and supply are both inelastic in the long run compared to the short run. c.Demand is elastic and supply is inelastic in the long run compared to the short run. d. Demand is inelastic and supply is elastic in the long run compared to the short run.

Demand and supply are both elastic in the long run compared to the short run.

45. Which of the following statements helps to explain why government drug interdiction increases drug related crime? a. The direct impact is on buyers, not sellers. b. Successful drug interdiction policies reduce the demand for illegal drugs. c. Drug addicts will have an even greater need for quick cash to support their habits. d. In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs.

Drug addicts will have an even greater need for quick cash to support their habits.

91. Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that GDP is not a useful measure of society's welfare. b. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government. c. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. d. GDP is still the best measure of society's welfare because these other values cannot actually be measured.

GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

71. U.S. GDP and U.S. GNP are related as follows: a. GNP = GDP + Value of exported goods - Value of imported goods. b. GNP = GDP - Value of exported goods + Value of imported goods. c. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad. d. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad

GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad

7. The principle of comparative advantage does not provide answers to certain questions. One of those questions is a. Do specialization and trade benefit more than one party to a trade? b. Is it absolute advantage or comparative advantage that really matters? c. How are the gains from trade shared among the parties to a trade? d. Is it possible for specialization and trade to increase total output of traded goods?

How are the gains from trade shared among the parties to a trade?

127. Which of the following is correct? a. Nominal and real interest rates always move together. b. Nominal and real interest rates never move together. c. Nominal and real interest rates do not always move together. d. Nominal and real interest rates always move in opposite directions.

Nominal and real interest rates do not always move together.

124. Which of the following statements about real and nominal interest rates is correct? a. Real interest rates can be either positive or negative, but nominal interest rates must be positive. b. Real interest rates and nominal interest rates must be positive. c. Real interest rates must be positive, but nominal interest rates can be either positive or negative. d. Real interest rates and nominal interest rates can be either positive or negative.

Real interest rates can be either positive or negative, but nominal interest rates must be positive

1. Economics deals primarily with the concept of a. scarcity. b. money. c. poverty. d. banking

Scarcity

114. Which is the most accurate statement about the GDP deflator and the consumer price index? a. The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. b. The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. c. Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. d. Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year.

The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

37. A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct? a. Both the mayor and city manager would be correct if demand were price elastic. b. Both the mayor and city manager would be correct if demand were price inelastic. c. The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic. d. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

122. Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct? a. The newspaper editorial is correct under all circumstances. b. The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI. c. The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI d. The newspaper editorial is incorrect under all circumstances.

The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI

123. Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? a. The real interest rate is the nominal interest rate times the rate of inflation. b. The real interest rate is the nominal interest rate minus the rate of inflation. c. The real interest rate is the nominal interest rate plus the rate of inflation. d. The real interest rate is the nominal interest rate divided by the rate of inflation

The real interest rate is the nominal interest rate minus the rate of inflation.

69. Which of the following is included in Singapore's GDP? a. The value of production by a Singaporean working in the U.S. b. The value of production by an American working in Singapore c. The value of production by a Singaporean that crosses the border to work in Malaysia. d. All of the above are correct.

The value of production by an American working in Singapore

72. If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries, a. U.S. net factor payments from abroad are positive, and its GDP is larger than its GNP. b. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP. c. U.S. net factor payments from abroad are negative, and its GDP is larger than its GNP. d. U.S. net factor payments from abroad are negative, and its GNP is larger than its GDP

U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP.

193. According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to a. decreases in both the price level and real GDP. b. an increase in real GDP and an increase in the price level. c. a decrease in the price level but does not change real GDP. d. an increase in the price level but does not change real GDP.

a decrease in the price level but does not change real GDP.

197. A change in the expected price level is likely to cause which of the following? a. a shift in the short-run aggregate supply curve and long-run aggregate supply curve b. a shift in the short run aggregate supply curve c. a shift in the aggregate demand curve d. a shift in the long-run aggregate supply curve

a shift in the short run aggregate supply curve

2. When society requires that firms reduce pollution, there is a. a tradeoff because of reduced incomes to the firms' owners and workers. b. a tradeoff only if some firms are forced to close. c.no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements. d. no tradeoff, since everyone benefits from reduced pollution.

a tradeoff because of reduced incomes to the firms' owners and workers.

147. The reported unemployment rate should be viewed as a. a useful but imperfect measure of joblessness. b. clearly smaller than the true unemployment rate. c. clearly larger than the true unemployment rate. d. being very close to the true unemployment rate.

a useful but imperfect measure of joblessness.

189. The classical dichotomy and monetary neutrality are represented graphically by a. an upward-sloping long-run aggregate-supply curve. b. a vertical long-run aggregate-supply curve. c. an upward-sloping short-run aggregate-curve. d. a downward-sloping aggregate-demand curve.

a vertical long-run aggregate-supply curve.

183. Other things the same, an increase in the amount of capital firms wish to purchase would initially shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.

aggregate demand right.

184. The initial impact of an increase in an investment tax credit is to shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left

aggregate demand right.

201. Which of the following alone can explain the change in the price level and output during World War II? a. aggregate demand shifted right b. aggregate demand shifted left c. aggregate supply shifted right d. aggregate supply shifted left

aggregate demand shifted right

185. Other things the same, when the government spends more, the initial effect is that a. aggregate demand shifts right. b. aggregate demand shifts left. c. aggregate supply shifts right. d. aggregate supply shifts left.

aggregate demand shifts right.

202. Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift a. aggregate supply to the right. b. aggregate supply to the left. c. aggregate demand to the right. d. aggregate demand to the left.

aggregate demand to the right

21. In a competitive market, the quantity of a product produced and the price of the product are determined by a. a single buyer. b. a single seller. c. one buyer and one seller working together. d. all buyers and all sellers.

all buyers and all sellers

116. The primary purpose of measuring the overall level of prices in the economy is to a. allow for the measurement of GDP. b. allow consumers to know what kinds of prices to expect in the future. c. allow for the comparison of dollar figures from different points in time. d. allow for the comparison of dollar figures from the same point in time.

allow for the comparison of dollar figures from different points in time

11. The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. amount of the other good that must be given up. b. market price of the additional amount produced. c. amount of resources that must be devoted to its production. d. number of dollars that must be spent to produce it.

amount of the other good that must be given up.

128. The natural rate of unemployment is the a. unemployment rate that would prevail with zero inflation. b. rate associated with the highest possible level of GDP. c. difference between the long-run and short-run unemployment rates. d. amount of unemployment that the economy normally experiences.

amount of unemployment that the economy normally experiences.

8. The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as a. productivity. b. an externality. c. market power. d. property rights

an externality

191. Which of the following shifts long-run aggregate supply right? a. an increase in either technology or the human capital stock. b. an increase in human capital but not technology. c. an increase in technology, but not the human capital stock. d. neither an increase in technology nor the human capital stock.

an increase in either technology or the human capital stock.

168. Which of the following would raise the price level in both the short and long run? a. an increase in taxes b. an increase in government expenditures c. a decrease in the minimum wage d. an increase in the capital stock

an increase in government expenditures

198. Which of the following shifts both the short-run and long-run aggregate supply right? a. an increase in the actual price level b. an increase in the expected price level c. an increase in the capital stock d. None of the above is correct.

an increase in the capital stock

39. Suppose good X has a negative income elasticity of demand. This implies that good X is a. a normal good. b. a necessity. c. an inferior good. d. a luxury

an inferior good

140. If an unemployed person quits looking for work, then, eventually the unemployment rate a. decreases, and the labor-force participation rate is unaffected. b. and the labor-force participation rate both decrease. c. is unaffected, and the labor-force participation rate decreases. d. and the labor-force participation rate are both unaffected.

and the labor-force participation rate both decrease

133. Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed"? a. anyone who is not employed b. anyone who is not employed, is available for work, and has looked for work in the past four weeks c. anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off d. anyone who is not employed, is available for work, has looked for work in the past four weeks, anyone who is waiting to be recalled from a job from which they have been laid off, and anyone who is employed part time and has searched for full time employment in the past 4 weeks

anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off

58. Expenditures on a nation's domestic production a. are less than its domestic production. b. are equal to its domestic production. c. are greater than its domestic production. d. could be less than, equal to, or greater than its domestic production.

are equal to its domestic production.

204. Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually a. because unemployment is low, wages will be bid up and short-run aggregate supply will shift right. b. because unemployment is low, wages will be bid down and short-run aggregate supply will shift right. c. because unemployment is high, wages will be bid up and short-run aggregate supply will shift right. d. because unemployment is high, wages will be bid down and short-run aggregate supply will shift right.

because unemployment is high, wages will be bid down and short-run aggregate supply will shift right.

46. A price ceiling will be binding only if it is set a. equal to the equilibrium price. b. above the equilibrium price. c. below the equilibrium price. d. either above or below the equilibrium price

below the equilibrium price

188. Which of the following shifts aggregate demand to the right? a. both an investment tax credit and a decrease in income tax rates b. an investment tax credit but not a decrease in income tax rates c. a decrease in income tax rates but not an investment tax credit d. neither an investment tax credit nor a decrease in income tax rates

both an investment tax credit and a decrease in income tax rates

83. Changes in nominal GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

both changes in prices and changes in the amounts being produced.

42. A decrease in supply will cause the largest increase in price when a. both supply and demand are inelastic. b. both supply and demand are elastic. c. demand is elastic and supply is inelastic. d. demand is inelastic and supply is elastic.

both supply and demand are inelastic.

62. Which of the following is included in GDP? a. the market value of rental housing services, but not the market value of owner-occupied housing services. b. the market value of owner-occupied housing services, but not the market value of rental housing services c. both the market value of rental housing services and the market value of owner-occupied housing services d. neither the market value of owner-occupied housing services nor the market value of rental housing services.

both the market value of rental housing services and the market value of owner-occupied housing services

136. Suppose there are a large number of men who used to work or seek work who now no longer do either. Other things the same, this makes a. the number of people unemployed rise but does not change the labor force. b. the number of people unemployed rise but makes the labor force fall. c. both the number of people unemployed and the labor force fall. d. the number of people unemployed fall but does not change the labor force.

both the number of people unemployed and the labor force fall.

20. In a market economy, supply and demand determine a. both the quantity of each good produced and the price at which it is sold. b. the quantity of each good produced but not the price at which it is sold. c. the price at which each good is sold but not the quantity of each good produced. d. neither the quantity of each good produced nor the price at which it is sold

both the quantity of each good produced and the price at which it is sold.

105. The producer price index measures the cost of a basket of goods and services a. typically produced in the economy. b. produced for a typical consumer. c. sold by producers. d. bought by firms.

bought by firms.

32. Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.

buyers respond substantially to changes in the price of the good.

99. The inflation rate is calculated a. by determining the change in the price index from the preceding period. b. by adding up the price increases of all goods and services. c. by computing a simple average of the price increases for all goods and services. d. by determining the percentage increase in the price index from the preceding period

by determining the percentage increase in the price index from the preceding period.

92. When the consumer price index falls, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can save less because they do not need to offset the effects of rising prices.

can spend fewer dollars to maintain the same standard of living.

77. For the purpose of calculating GDP, investment is spending on a. stocks, bonds, and other financial assets. b. real estate and financial assets such as stocks and bonds. c. capital equipment, inventories, and structures, including household purchases of new housing. d. capital equipment, inventories, and structures, excluding household purchases of new housing.

capital equipment, inventories, and structures, including household purchases of new housing.

63. Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has a. caused measured GDP to fall. b. not caused any change in measured GDP. c. caused measured GDP to rise. d. probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

caused measured GDP to rise.

40. The cross-price elasticity of demand can tell us whether goods are a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes.

complements or substitutes.

73. Which of the following is an example of depreciation? a. falling stock prices b. the retirement of several employees c. computers becoming obsolete d. All of the above are examples of depreciation.

computers becoming obsolete

112. . In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the a. GDP deflator rises much more than does the consumer price index. b. consumer price index rises much more than does the GDP deflator. c. GDP deflator and the consumer price index rise by about the same amount d. consumer price index rises slightly more than does the GDP deflator

consumer price index rises much more than does the GDP deflator.

76. Household spending on education is included in a. consumption, although it might be argued that it would fit better in investment. b. investment, although it might be argued that it would fit better in consumption. c. government spending, based on the fact that most higher-education students attend publiclysupported colleges and universities. d. None of the above is correct; in general, household spending on services is not included in any component of GDP.

consumption, although it might be argued that it would fit better in investment.

107. The goal of the consumer price index is to measure changes in the a. costs of production. b. cost of living. c. relative prices of consumer goods. d. production of consumer goods.

cost of living.

166. . Sectoral changes in demand a. create frictional unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates structural unemployment. b. create structural unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates frictional unemployment. c. and firms paying wages above equilibrium to attract a better pool of candidates both create structural unemployment. d. and firms paying wages above equilibrium to attract a better pool of candidates both create frictional unemployment

create frictional unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates structural unemployment.

167. Job search a. and firms paying wages above equilibrium to improve worker health both create frictional unemployment. b. creates frictional unemployment, while firms paying wages above equilibrium to improve worker health creates structural unemployment. c. creates structural unemployment, while firms paying wages above equilibrium to improve worker health creates frictional unemployment. d. and firms paying wages above equilibrium to improve worker health both create structural unemployment.

creates frictional unemployment, while firms paying wages above equilibrium to improve worker health creates structural unemployment.

143. If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is a. cyclical unemployment amounting to 0.5 percent of the labor force. b. frictional unemployment amounting to 0.5 percent of the labor force. c. structural unemployment amounting to 0.5 percent of the labor force. d. search unemployment amounting to 0.5 percent of the labor force.

cyclical unemployment amounting to 0.5 percent of the labor force.

90. A recession is always associated with a. the end of a war. b. slowly growing real GDP. c. rising inflation. d. declining real GDP.

declining real GDP.

38. Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should a. increase the price charged to vacationers and decrease the price charged to business travelers. b. decrease the price charged to vacationers and increase the price charged to business travelers. c. decrease the price to both groups of customers. d. increase the price for both groups of customers.

decrease the price charged to vacationers and increase the price charged to business travelers.

51. If the government removes a tax on a good, then the price paid by buyers will a. increase, and the price received by sellers will increase. b. increase, and the price received by sellers will decrease. c. decrease, and the price received by sellers will increase. d. decrease, and the price received by sellers will decrease.

decrease, and the price received by sellers will increase.

68. A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely a. increased. b. decreased. c. stayed the same. d. may have increased, decreased, or stayed the same.

decreased

187. Aggregate demand shifts right when the government a. decreases taxes. b. cuts military expenditures. c. repeals an investment tax credit. d. None of the above is correct

decreases taxes.

24. Two goods are substitutes when a decrease in the price of one good a. decreases the demand for the other good. b. decreases the quantity demanded of the other good. c. increases the demand for the other good. d. increases the quantity demanded of the other good

decreases the demand for the other good.

28. Which of the following events must cause equilibrium quantity to fall? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase

demand and supply both decrease

29. Which of the following events must cause equilibrium price to fall? a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase

demand decreases and supply increases

43. Good news for farming can be bad news for farmers because the a. supply curve for an individual farmer is usually perfectly elastic. b. supply curve for an individual farmer is usually perfectly inelastic. c. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers. d. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.

55. Tax incidence a. depends on the legislated burden. b. is entirely random. c. depends on the elasticities of supply and demand. d. falls entirely on buyers or entirely on sellers.

depends on the elasticities of supply and demand.

131. The designation "natural" implies that the natural rate of unemployment a. is desirable. b. is constant over time. c. is impervious to economic policy. d. does not go away on its own even in the long run

does not go away on its own even in the long run

57. Gross domestic product measures a. income and expenditures. b. income but not expenditures. c. expenditures but not income. d. neither income nor expenditures.

income and expenditures.

132. To be counted as "employed" in the U.S. labor force statistics, a person a. must be working for pay and be working full time. b. must be working for pay but does not have to be working full time. c. does not have to be working for pay if they are working for a family business but must be employed full time. d. does not have to be working for pay if they are working for a family business and does not have to be working full time

does not have to be working for pay if they are working for a family business and does not have to be working full time

26. Opponents of cigarette taxes often argue that tobacco and marijuana are substitutes so that high cigarette prices a. encourage marijuana use, and the evidence supports this argument. b. encourage marijuana use, but the evidence does not support this argument. c. discourage marijuana use, and the evidence supports this argument. d. discourage marijuana use, but the evidence does not support this argument.

encourage marijuana use, but the evidence does not support this argument.

4. When the government redistributes income from the wealthy to the poor, a. efficiency is improved, but equality is not. b. equality is improved, but efficiency is not. c. both efficiency and equality are improved. d. neither efficiency nor equality are improved.

equality is improved, but efficiency is not.

27. The unique point at which the supply and demand curves intersect is called a. market harmony. b. coincidence. c. equivalence. d. equilibrium

equilibrium

178. When the price level increases, the real value of people's money holdings a. falls, so they buy more. b. falls, so they buy less. c. rises, so they buy more. d. rises, so they buy less.

falls, so they buy less.

199. If aggregate demand shifts right then in the short run a. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. b. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. c. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. d. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

154. The invention of the telegraph led to the loss of jobs for those who had delivered mail by horse but created jobs for telegraph operators and delivery persons. This is an example of a. structural unemployment created by efficiency wages. b. structural unemployment created by sectoral shifts. c. frictional unemployment created by efficiency wages. d. frictional unemployment created by sectoral shifts.

frictional unemployment created by sectoral shifts.

151. People who are unemployed because of job search are best classified as a. cyclically unemployed. b. structurally unemployed. c. frictionally unemployed. d. discouraged workers.

frictionally unemployed.

98. For any given year, the CPI is the price of the basket of goods and services in the a. given year divided by the price of the basket in the base year, then multiplied by 100. b. given year divided by the price of the basket in the previous year, then multiplied by 100. c. base year divided by the price of the basket in the given year, then multiplied by 100. d. previous year divided by the price of the basket in the given year, then multiplied by 100.

given year divided by the price of the basket in the base year, then multiplied by 100.

6. If an externality is present in a market, economic efficiency may be enhanced by a. government intervention. b. a decrease in foreign competition. c. fewer market participants. d. weaker property rights.

government intervention

12. In the simple circular-flow diagram, the participants in the economy are a. firms and government. b. households and firms. c. households and government. d. households, firms, and government.

households and firms

106. By far the largest category of goods and services in the CPI basket is a. housing. b. transportation. c. education & communication. d. food & beverages

housing

97. In the CPI, goods and services are weighted according to a. how long a market has existed for each good or service. b. the extent to which each good or service is regarded by the government as a necessity. c. how much consumers buy of each good or service. d. the number of firms that produce and sell each good or service

how much consumers buy of each good or service.

52. If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would a. increase by more than $1,000. b. increase by exactly $1,000. c. increase by less than $1,000 d. decrease by an indeterminate amount.

increase by less than $1,000

163. Efficiency wages a. increase productivity and reduce unemployment. b. increase productivity but increase unemployment. c. decrease productivity but reduce unemployment. d. decrease productivity and increase unemployment.

increase productivity but increase unemployment.

47. If the government removes a binding price ceiling from a market, then the price paid by buyers will a. increase, and the quantity sold in the market will increase. b. increase, and the quantity sold in the market will decrease. c. decrease, and the quantity sold in the market will increase. d. decrease, and the quantity sold in the market will decrease.

increase, and the quantity sold in the market will increase.

48. Over time, housing shortages caused by rent control a. increase, because the demand for and supply of housing are less elastic in the long run. b. increase, because the demand for and supply of housing are more elastic in the long run. c. decrease, because the demand for and supply of housing are less elastic in the long run. d. decrease, because the demand for and supply of housing are more elastic in the long run

increase, because the demand for and supply of housing are more elastic in the long run.

181. Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire a.increased consumption, which shifts the aggregate-demand curve right. b. increased consumption, which shifts the aggregate-demand curve left. c.decreased consumption, which shifts the aggregate-demand curve right. d. decreased consumption, which shifts the aggregate-demand curve left.

increased consumption, which shifts the aggregate-demand curve right.

145. Over the past several decades in the United States, the labor-force participation rate of women has a. increased, and the labor-force participation rate of men has increased. b. increased, and the labor-force participation rate of men has decreased. c. decreased, and the labor-force participation rate of men has increased. d. decreased, and the labor-force participation rate of men has decreased.

increased, and the labor-force participation rate of men has decreased.

195. The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has a. decreased, so they increase production. b. decreased, so they decrease production. c. increased, so they increase production. d. increased, so they decrease production

increased, so they increase production.

64. If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP a. decreases. b. increases. c. doesn't change because both legal and illegal production are included in GDP. d. doesn't change because these activities are never included in GDP.

increases

9. When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good a. increases as more of the good is produced. b. decreases as more of the good is produced. c. does not change as more of the good is produced. d. may increase, decrease, or not change as more of the good is produced

increases as more of the good is produced.

182. When taxes decrease, consumption a.decreases as shown by a movement to the left along a given aggregate-demand curve. b. decreases as shown by a shift of the aggregate demand curve to the left. c.increases as shown by a movement to the right along a given aggregate-demand curve. d. increases as shown by a shift of the aggregate demand curve to the right.

increases as shown by a shift of the aggregate demand curve to the right.

25. Two goods are complements when a decrease in the price of one good a. decreases the quantity demanded of the other good. b. decreases the demand for the other good. c. increases the quantity demanded of the other good. d. increases the demand for the other good.

increases the demand for the other good.

176. The aggregate-demand curve shows that a decrease in the price level a. decreases the dollar value of goods and services demanded in the economy. b. decreases the real value of goods and services demanded in the economy. c. increases the dollar value of goods and services demanded in the economy. d. increases the real value of goods and services demanded in the economy.

increases the real value of goods and services demanded in the economy.

36. An increase in price causes an increase in total revenue when demand is a. elastic. b. inelastic. c. unit elastic. d. All of the above are possible.

inelastic

186. When the money supply increases a. interest rates fall and so aggregate demand shifts right. b. interest rates fall and so aggregate demand shifts left. c. interest rates rise and so aggregate demand shifts right. d. interest rates rise and so aggregate demand shifts left.

interest rates fall and so aggregate demand shifts right.

79. The value of goods added to a firm's inventory in a certain year is treated as a. consumption, since the goods will be sold to consumers in another period. b. intermediate goods, and so is not included in that year's GDP. c. investment, since GDP aims to measure the value of the economy's production that year. d. spending on durable goods, since the goods could not be inventoried unless they were durable

investment, since GDP aims to measure the value of the economy's production that year.

175. . The model of aggregate demand and aggregate supply a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships. b. is different from the model of supply and demand for a particular market, in that we have to separate real and nominal variables in the aggregate model. c. is a straightforward extension of the model of supply and demand for a particular market, in which substitution of resources between markets is highlighted. d. is a straightforward extension of the model of supply and demand for a particular market, in which the interaction between real and nominal variables is highlighted.

is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.

162. The theory of efficiency wages explains why a. setting wages at the equilibrium level may increase unemployment. b. it may be in the best interest of firms to offer wages that are above the equilibrium level. c. the most efficient way to pay workers is to pay them according to their skills. d. it is efficient for firms to set wages at the equilibrium level.

it may be in the best interest of firms to offer wages that are above the equilibrium level.

19. In the circular-flow diagram, which of the following items flows from households to firms through the markets for the factors of production? a. goods and services b. land, labor, and capital c. dollars spent on goods and services d. wages, rent, and profit

land, labor, and capital

16. Which markets are represented in the simple circular-flow diagram? a. markets for goods and services and markets for financial assets b. markets for factors of production and markets for financial assets c. markets for goods and services and markets for factors of production d. markets for goods and services and markets for imports and exports

markets for goods and services and markets for factors of production

50. Minimum wage laws a. may encourage some teenagers to drop out and take jobs. b. create labor shortages. c. have the greatest impact in the market for skilled labor. d. All of the above are correct

may encourage some teenagers to drop out and take jobs

14. In the circular-flow diagram, which of the following is not a factor of production? a. labor b. land c. capital d. money

money

33. Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands. c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative.

more elastic demands

56. Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect a. most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government. b. most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government. c. the distribution of the tax burden between buyers and sellers of cigarettes to depend on whether buyers or sellers of cigarettes are required to pay the tax to the government. d. a large percentage of smokers to quit smoking in response to the tax.

most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.

177. The effect of an increase in the price level on the aggregate-demand curve is represented by a a. shift to the right of the aggregate-demand curve. b. shift to the left of the aggregate-demand curve. c. movement to the left along a given aggregate-demand curve. d. movement to the right along a given aggregate-demand curve.

movement to the left along a given aggregate-demand curve.

196. The effects of a higher than expected price level are shown by a. shifting the short-run aggregate supply curve right. b. shifting the short-run aggregate supply curve left. c. moving to the right along a given aggregate supply curve. d. moving to the left along a given aggregate supply curve.

moving to the right along a given aggregate supply curve.

22. A competitive market is a market in which a. an auctioneer helps set prices and arrange sales. b. there are only a few sellers. c. the forces of supply and demand do not apply. d. no individual buyer or seller has any significant impact on the market price.

no individual buyer or seller has any significant impact on the market price.

82. If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? a. both real GDP and nominal GDP. b. real GDP but not nominal GDP. c. nominal GDP but not real GDP. d. neither nominal GDP nor real GDP.

nominal GDP but not real GDP.

88. Suppose an economy's production consists only of corn and soybeans. In 2010, 20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base year, it follows that, for 2010, a. nominal GDP is $50, real GDP is $100, and the GDP deflator is 50. b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200. c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50. d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

170. Which of the following is most commonly used to monitor short-run changes in economic activity? a. the inflation rate. b. real GDP. c. interest rates. d. value of the U.S. dollar in the foreign exchange market.

real GDP.

84. The GDP deflator is the ratio of a. real GDP to nominal GDP multiplied by 100. b. real GDP to the inflation rate multiplied by 100. c. nominal GDP to real GDP multiplied by 100. d. nominal GDP to the inflation rate multiplied by 100.

nominal GDP to real GDP multiplied by 100.

135. The labor force equals the a. number of people employed. b. number of people employed plus the number of people unemployed. c. number of people employed plus the number of people unemployed plus teenagers between ages 14 and 16 who work at least 10 hours a week. d. adult population.

number of people employed plus the number of people unemployed.

17. Production is efficient if the economy is producing at a point a. on the production possibilities frontier. b. outside the production possibilities frontier. c. on or inside the production possibilities frontier. d. inside the production possibilities frontier.

on the production possibilities frontier.

146. The Bureau of Labor Statistics counts discouraged workers as a. employed. Including them as employed makes the unemployment rate lower than otherwise. b. unemployed. Including them as unemployed makes the unemployment rate higher than otherwise. c. out of the labor force. If they were counted as unemployed the unemployment rate would be higher. d. None of the above is correct.

out of the labor force. If they were counted as unemployed the unemployment rate would be higher

192. Other things the same, if technology increases, then in the long run a. both output and prices are higher. b. output is higher and prices are lower. c. output is lower and prices are higher. d. both output and prices are lower.

output is higher and prices are lower.

94. The inflation rate is defined as the a. price level in an economy. b. change in the price level from one period to the next. c. percentage change in the price level from the previous period. d. price level minus the price level from the previous period.

percentage change in the price level from the previous period.

30. The signals that guide the allocation of resources in a market economy are a. surpluses and shortages. b. quantities. c. government policies. d. prices.

prices

31. Adam Smith suggested that an invisible had guides market economies. In this analogy, what is the baton that the invisible hand uses to conduct the economic orchestra? a. the government b. prices c. subsidies d. the Federal Reserve

prices

173. According to the classical model, an increase in the money supply causes a. output to increase in the long run. b. the unemployment rate to fall in the long run. c. prices to rise in the long run. d. interest rates to fall in the long run.

prices to rise in the long run.

70. Which of the following is not included in U.S. GDP? a. additions of newly produced output to inventory b. production of U.S citizens working in foreign countries. c. the estimated rental value of owner-occupied housing d. the value of food purchased from a grocery store to make meals at home without pay

production of U.S citizens working in foreign countries.

10. What is the most important factor that explains differences in living standards across countries? a. the quantity of money b. the level of unemployment c. productivity d. equality

productivity

75. Consumption consists of spending by households on goods and services, with the exception of a. purchases of intangible services. b. purchases of durable goods. c. purchases of new houses. d. spending on education.

purchases of new houses.

158. Labor unions a. raise wages in unionized industries. b. create labor shortages in non-unionized industries. c. play a larger role in the current U.S. economy than in European countries such as Norway and Sweden. d. prefer to operate in states with right-to-work laws.

raise wages in unionized industries.

160. The introduction of a union into an industry a. raises wages and employment in that industry. b. lowers wages and employment in that industry. c. lowers wages and raises employment in that industry. d. raises wages and lowers employment in that industry.

raises wages and lowers employment in that industry.

171. The classical dichotomy refers to the separation of a. prices and nominal interest rates. b. taxes and government spending. c. decisions made by the public and decisions made by the government. d. real and nominal variables.

real and nominal variables.

89. A country reported nominal GDP of $115 billion in 2010 and $125 billion in 2009. It also reported a GDP deflator of 85 in 2010 and 100 in 2009. Between 2009 and 2010, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.

real output rose and the price level fell.

156. Unemployment insurance a. reduces search effort which raises unemployment. b. reduces search effort which lowers unemployment. c. increases search effort which raises unemployment. d. increases search effort which decreases unemployment.

reduces search effort which raises unemployment.

203. Stagflation exists when prices a. fall and unemployment rises. b. rise and unemployment falls. c. rise and unemployment rises. d. fall and unemployment falls.

rise and unemployment rises.

200. An economic expansion caused by a shift in aggregate demand causes prices to a. rise in the short run, and rise even more in the long run. b. rise in the short run, and fall back to their original level in the long run. c. fall in the short run, and fall even more in the long run. d. fall in the short run, and rise back to their original level in the long run

rise in the short run, and rise even more in the long run

109. If the quality of a good improves while its price remains the same, then the value of a dollar a. rises and the cost of living increases. b. rises and the cost of living decreases. c. falls and the cost of living increases. d. falls and the cost of living decreases.

rises and the cost of living decreases.

180. As the price level rises, the exchange rate a.falls, so exports rise and imports fall. b. falls, so exports fall and imports rise. c.rises, so exports rise and imports fall. d. rises, so exports fall and imports rise.

rises, so exports fall and imports rise.

23. A monopoly is a market with one a. seller, and that seller is a price taker. b. seller, and that seller sets the price. c. buyer, and that buyer is a price taker. d. buyer, and that buyer sets the price.

seller, and that seller sets the price

153. Frictional unemployment is thought to explain relatively a. short spells of unemployment, as is structural unemployment. b. long spells of unemployment, as is structural unemployment. c. short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment. d. long spells of unemployment, while structural unemployment is thought to explain relatively short spells of unemployment.

short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.

148. Most spells of unemployment are a. long, and most unemployment observed at any given time is long term. b. long, but most unemployment observed at any given time is short term. c. short, but most unemployment observed at any given time is long term. d. short, and most unemployment observed at any given time is short term.

short, but most unemployment observed at any given time is long term.

130. Cyclical unemployment refers to a. the portion of unemployment created by job search. b. short-run fluctuations around the natural rate of unemployment. c. changes in unemployment due to changes in the natural rate of unemployment. d. the portion of unemployment created by wages set above the equilibrium level.

short-run fluctuations around the natural rate of unemployment.

169. Most economists use the aggregate demand and aggregate supply model primarily to analyze a. short-run fluctuations in the economy. b. the effects of macroeconomic policy on the prices of individual goods. c. the long-run effects of international trade policies. d. productivity and economic growth.

short-run fluctuations in the economy.

3. Efficiency means that a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed equally among society's members. c. society's goods and services are distributed fairly, though not necessarily equally, among society's members. d. society is getting the maximum benefits from its scarce resources.

society is getting the maximum benefits from its scarce resources.

150. Evidence indicates that the typical person who becomes unemployed will a. soon find a job. b. find a job but not before a year or more has gone by. c. leave the labor force and never return. d. retire soon after

soon find a job.

78. Which of the following is included in the investment component of GDP? a. spending on new residential construction and spending on stocks and bonds b. spending on new residential construction but not spending on stocks and bonds c. spending on stocks and bonds but not spending on new residential construction d. neither spending on stocks and bonds nor spending on new residential construction

spending on new residential construction but not spending on stocks and bonds

161. Unions contribute to a. cyclical unemployment. b. frictional unemployment. c. seasonal unemployment. d. structural unemployment

structural unemployment

164. Efficiency wages contribute to a. frictional unemployment and the natural rate of unemployment. b. frictional unemployment but not the natural rate of unemployment. c. structural unemployment and the natural rate of unemployment. d. structural unemployment but not the natural rate of unemployment.

structural unemployment and the natural rate of unemployment.

152. Unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called a. the natural rate of unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment.

structural unemployment.

157. Minimum wages create unemployment in markets where they create a a. shortage of labor. Unemployment of this type is called frictional. b. shortage of labor. Unemployment of this type is called structural. c. surplus of labor. Unemployment of this type is called frictional. d. surplus of labor. Unemployment of this type is called structural.

surplus of labor. Unemployment of this type is called structural.

49. The minimum wage has its greatest impact on the market for a. female labor. b. older labor. c. black labor. d. teenage labor

teenage labor

95. The CPI is more commonly used as a gauge of inflation than the GDP deflator is because a. the CPI is easier to measure. b. the CPI is calculated more often than the GDP deflator is. c. the CPI better reflects the goods and services bought by consumers. d. the GDP deflator cannot be used to gauge inflation.

the CPI better reflects the goods and services bought by consumers.

111. A decrease in the price of domestically produced industrial robots will be reflected in a. both the GDP deflator and the consumer price index. b. neither the GDP deflator nor the consumer price index. c. the GDP deflator but not in the consumer price index. d. the consumer price index but not in the GDP deflator

the GDP deflator but not in the consumer price index.

110. An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. b. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers. c. the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. d. the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

113. . If the price of Italian shoes imported into the United States increases, then a. both the GDP deflator and the consumer price index will increase. b. neither the GDP deflator nor the consumer price index will increase. c. the GDP deflator will increase, but the consumer price index will not increase. d. the consumer price index will increase, but the GDP deflator will not increase.

the consumer price index will increase, but the GDP deflator will not increase.

53. The term tax incidence refers to a. whether buyers or sellers of a good are required to send tax payments to the government. b. whether the demand curve or the supply curve shifts when the tax is imposed. c. the distribution of the tax burden between buyers and sellers. d. widespread view that taxes (and death) are the only certainties in life.

the distribution of the tax burden between buyers and sellers.

93. Economists use the term inflation to describe a situation in which a. some prices are rising faster than others. b. the economy's overall price level is rising. c. the economy's overall price level is high, but not necessarily rising. d. the economy's overall output of goods and services is rising faster than the economy's overall price level.

the economy's overall price level is rising.

96. The CPI is a measure of the overall cost of a. the inputs purchased by a typical producer. b. the goods and services purchased by a typical consumer. c. the goods and services produced in the economy. d. the stocks on the New York Stock Exchange

the goods and services purchased by a typical consumer.

74. Disposable income is a. the total income earned by a nation's permanent residents. b. the total income earned by a nation's residents in the production of goods and services. c. the income that households and non-corporate businesses receive. d. the income that households and businesses have remaining after satisfying their obligations to the government.

the income that households and businesses have remaining after satisfying their obligations to the government.

179. When the price level falls a.the interest rate rises, so the quantity of goods and services demand rises. b. the interest rate rises, so the quantity of goods and services demand falls. c.the interest rate falls, so the quantity of goods and services demand rises. d. the interest rate falls, so the quantity of goods and services demand falls.

the interest rate falls, so the quantity of goods and services demand rises.

139. The Bureau of Labor Statistics defines the unemployment rate as the percentage of a. those unemployed relative to those employed. b. the labor force that is unemployed. c. the adult population that is unemployed. d. the adult population that is unemployed or not in the labor force.

the labor force that is unemployed.

13. Suppose a nation is currently producing at a point inside its production possibilities frontier. We know that a. the nation is producing beyond its capacity, so inflation will occur. b. the nation is not using all available resources or is using inferior technology or both. c. the nation is producing an efficient combination of goods. d. there will be a large opportunity cost if the nation tries to increase production of any good.

the nation is not using all available resources or is using inferior technology or both.

129. In the long run the unemployment rate equals a. zero. b. the cyclical rate of unemployment. c. the natural rate of unemployment. d. the sum of the cyclical and natural rate of unemployment

the natural rate of unemployment.

194. The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if a. the price level is higher than expected making production more profitable. b. the price level is higher than expected making production less profitable. c. the price level is lower than expected making production more profitable. d. the price level is lower than expected making production less profitable.

the price level is higher than expected making production more profitable.

172. According to classical macroeconomic theory, changes in the money supply affect a. real GDP and the price level. b. real GDP but not the price level. c. the price level, but not real GDP. d. neither the price level nor real GDP.

the price level, but not real GDP.

159. Collective bargaining refers to a. the process by which the government sets exemptions from the minimum wage law. b. setting the same wage for all employees to prevent conflict among workers. c. firms colluding to set the wages of employees below equilibrium. d. the process by which unions and firms agree on the terms of employment.

the process by which unions and firms agree on the terms of employment.

174. Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes a. both the short run and the long run. b. the short run, but not the long run. c. the long run, but not the short run. d. neither the long run nor the short run

the short run, but not the long run.

115. When we are calculating the consumer price index and the inflation rate for a certain year, a. the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year. b. the inflation rate may depend on the choice of a base year, but the value of the consumer price index does not depend on the choice of a base year. c. both the value of the consumer price index and the inflation rate may depend on the choice of a base year. d. neither the value of the consumer price index nor the inflation rate depends on the choice of a base year.

the value of the consumer price index may depend on the choice of a base year, but the inflation rate does not depend on the choice of a base year

15. If an economy is producing efficiently, then a. there is no way to produce more of one good without producing less of another good. b. it is possible to produce more of both goods without increasing the quantities of inputs that are being used. c. it is possible to produce more of one good without producing less of another good. d. it is not possible to produce more of any good at any cost.

there is no way to produce more of one good without producing less of another good.

138. The labor-force participation rate measures the percentage of the a. total adult population that is in the labor force. b. total adult population that is employed. c. labor force that is employed. d. labor force that is either employed or unemployed.

total adult population that is in the labor force.

108. Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living? a. substitution bias b. introduction of new goods c. unmeasured quality change d. unmeasured price change

unmeasured price change

121. Indexation refers to a. a process of adjusting the nominal interest rate so that it is equal to the real interest rate. b. using a law or contract to automatically correct a dollar amount for the effects of inflation. c. using a price index to deflate dollar values. d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

using a law or contract to automatically correct a dollar amount for the effects of inflation.

60. GDP is defined as the a. value of all goods and services produced within a country in a given period of time. b. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. c. value of all final goods and services produced within a country in a given period of time. d. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

value of all final goods and services produced within a country in a given period of time.

18. In the circular-flow diagram, which of the following items flows from firms to households through the markets for the factors of production? a. goods and services b. land, labor, and capital c. dollars spent on goods and services d. wages, rent, and profit

wages, rent, and profit

54. Lawmakers designed the burden of the FICA payroll tax to be split evenly between workers and firms. Labor economists believe that a. lawmakers may have actually achieved their goal because statistics show that the tax burden is currently equally divided. b. the tax raises too little revenue for the government, so it should be eliminated. c. firms bear most of the burden of the tax. d. workers bear most of the burden of the tax.

workers bear most of the burden of the tax.