ECON 201 Assignment Questions

If a bank's net worth is negative, then the bank definitely is A) illiquid. B) insolvent. C) liquid. D) solvent.

B) insolvent.

Depreciation is subtracted from gross domestic product to determine directly A) net domestic product. B) national income. C) consumption expenditures plus investment expenditures plus government expenditure plus net exports. D) disposable income.

A) net domestic product.

Price indexes can overstate inflation because they A) omit some quality improvements. B) do not contain the prices of any used goods. C) do not contain the prices of services. D) do not contain the prices of foreign goods.

A) omit some quality improvements.

The productivity growth slowdown refers to the A) period during the 1970s and for some years afterwards. B) situation in foreign nations but not in the United States. C) years during the 1990s. D) years following the 1930s depression.

A) period during the 1970s and for some years afterwards.

Labor growth depends mainly on ________ and labor productivity growth depends on ________. A) population growth; technological advances B) growth in real GDP per person; growth rate of capital C) population growth; increases in real GDP D) growth in real GDP per person; technological advances

A) population growth; technological advances

Labor productivity is A) real GDP per hour of labor or real GDP per worker. B) real GDP per hour of labor times the hours of work. C) the rate of change in real GDP per hour of labor. D) real GDP per hour of labor times the number of people.

A) real GDP per hour of labor or real GDP per worker.

When the inflation rate is negative, the A) real interest rate is greater than the nominal interest rate. B) real interest rate is less than the nominal interest rate. C) nominal interest rate is zero. D) real interest rate equals the nominal interest rate.

A) real interest rate is greater than the nominal interest rate.

The term "capital," as used in macroeconomics, refers to A) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. B) investment. C) financial wealth. D) the sum of investment and government purchases of goods.

A) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.

Greater labor force participation for households at higher real wage rate is one reason that A) the supply of labor curve is upward sloping. B) the demand for labor curve is downward sloping. C) the supply of labor curve is downward sloping. D) the demand for labor curve is upward sloping.

A) the supply of labor curve is upward sloping.

Greater labor force participation for households at higher real wage rate is one reason that A) the supply of labor curve is upward sloping. B) the supply of labor curve is downward sloping. C) the demand for labor curve is upward sloping. D) the demand for labor curve is downward sloping

A) the supply of labor curve is upward sloping.

If the FED increases the money supply: A) the supply of loanable funds shifts right lowering interest rates. B) the supply of loanable funds shifts left increasing interest rates. C) the demand of loanable funds shifts right lowering interest rates. D) the demand of loanable funds shifts right raising interest rates.

A) the supply of loanable funds shifts right lowering interest rates.

Potential GDP is A) the value of production when all the nationʹs resources are fully employed. B) the maximum GDP that an economy actually achieves throughout its entire history. C) the level of GDP achieved during periods when 100 percent of the labor force is employed. D) a goal that can never be achieved by the economy.

A) the value of production when all the nationʹs resources are fully employed.

Intermediate goods are excluded from GDP because A) their inclusion would involve double counting. B) they represent goods that have never been purchased so they cannot be counted. C) the premise of the question is incorrect because intermediate goods are directly included in calculating GDP. D) their inclusion would understate GDP

A) their inclusion would involve double counting.

In the computation of GDP, Social Security payments count as A) transfer payments and are not included in GDP. B) transfer payments and are included in GDP. C) government expenditure on goods and services and are included in GDP. D) government expenditure on goods and services and are not included in GDP.

A) transfer payments and are not included in GDP.

In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate? A) 5.0 percent B) 10.0 percent C) 7.7 percent D) 7.1 percent

B) 10.0 percent

Suppose there are currently 100 people unemployed, 1500 people employed, and 2000 people in the working age population. The labor force participation rate equals 100 times A) 100/1600. B) 1600/2000. C) 100/1500. D) 1500/2000.

B) 1600/2000.

Given the following: Given the following: population- 4,500,000 Less than 16 years old-500,000 unemployed but actively seeking work-100,000 philosophers---(non working) 50,000 house-husbands/housewives (non employed)-20,000 discouraged workers-10,000 people in institutions-30,000 full time students (non working)-100,000 full time workers-3,000,000 part time workers-690,000 Given the information in the questions above, what is the unemployment rate? A) 7.1% B) 2.6% C) 2.7% D) 9.2% E) none of the above

B) 2.6%

If the CPI basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals A) 450. B) 225. C) 250. D) 300.

B) 225

Year---- Nominal Income-- Price Index 1990---- 9800-------- 99 1991---- 10000-------- 95 1992---- 15000------- 100 1993---- 17000------- 110 1994---- 23000------- 115 1995---- 33000------- 123 Calculate the change in inflation, nominal income, and real income from 1990 to 1995. I would recommend working out the entire problem as illustrated in class. Using a spreadsheet can be helpful as well.

B) 24%, 237%, 171%

If the nominal interest rate is 8 percent and inflation is 3 percent, approximately what is the real interest rate? A) 3 percent B) 5 percent C) 11 percent D) 8 percent

B) 5 percent

The Federal Board of Governors has_________ members. A) 17 B) 7 C) 12 D) 5

B) 7

If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the unemployment rate is A) 7.1 percent. B) 9.1 percent. C) 10 percent. D) 6.6 percent.

B) 9.1 percent.

Which type of price index theory uses current yearʹs quantities? A) Boskinʹs Index B) Paasche C) Laspeyres D) Fisherʹs Mean

B) Paasche

If Nike, an American corporation, produces sneakers in Thailand this would A) count as part of U.S. GDP since it is a U.S. corporation. B) add to Thailandʹs GDP but not to U.S. GDP. C) count for both Thailandʹs GDP and U.S. GDP. D) add to neither U.S. GDP nor Thailandʹs GDP

B) add to Thailandʹs GDP but not to U.S. GDP.

Discouraged workers ________ counted as officially unemployed because they ________. A) are not; are not qualified to work B) are not; are not actively seeking work C) are; are still in the labor force D) are; are not working

B) are not; are not actively seeking work

Economic growth is measured by A) changes in nominal GDP. B) changes in real GDP. C) changes in the employment rate. D) All of the above are used to measure economic growth.

B) changes in real GDP.

The largest component of national income is A) proprietorsʹ income. B) compensation of employees. C) corporate profits. D) rental income

B) compensation of employees.

Depreciation is defined as the A) increase in the stock of capital due to investment by firms. B) decrease in the stock of capital due to wear and tear. C) increase in the stock of capital due to wear and tear. D) decrease in the stock of capital due to investment by firms.

B) decrease in the stock of capital due to wear and tear.

When a student finishes college and begins looking for work A) frictional and cyclical unemployment increase. B) frictional unemployment increases. C) structural unemployment increases. D) cyclical unemployment increases.

B) frictional unemployment increases.

The three types of unemployment are A) frictional, part-time, and involuntary. B) frictional, structural, and cyclical. C) voluntary, involuntary, and structural. D) voluntary, part-time, and cyclical.

B) frictional, structural, and cyclical.

Net investment equals A) the total quantity of plant, equipment and buildings. B) gross investment minus depreciation. C) capital stock minus depreciation. D) gross investment/depreciation.

B) gross investment minus depreciation.

We are interested in long-term growth primarily because it brings A) lower price levels. B) higher standards of living. C) trade wars with our trading partners. D) higher price levels.

B) higher standards of living.

Workers who pursue an education directly increase their A) saving. B) human capital. C) financial capital. D) physical capital.

B) human capital.

Fiscal policy A) is enacted by the Federal Reserve. B) involves changing taxes and government spending. C) involves changing interest rates. D) involves changing the money supply.

B) involves changing taxes and government spending.

According to the law of diminishing returns, an additional unit of A) labor produces more output than the previous unit. B) labor produces less output than the previous unit. C) capital produces more output than an additional unit of labor. D) labor decreases output.

B) labor produces less output than the previous unit.

Which of the following is NOT part of the expenditure approach to measuring GDP? A) personal consumption expenditures B) net interest C) net exports of goods and services D) gross private domestic investment

B) net interest

The biases in the CPI include the A) substitution, new goods, and old goods biases. B) new goods, quality change, and substitution biases. C) old goods, new goods, and quality change biases. D) old goods, unemployment, and inflation biases.

B) new goods, quality change, and substitution biases.

in a zero lower bound: A) deflation cannot occur. B) nominal interest rates cannot fall below zero. C) all of the above are true. D) real interest rates cannot fall below zero.

B) nominal interest rates cannot fall below zero.

Marginally attached workers fall into which of the following population categories? A) unemployed B) not in the labor force C) labor force D) employed

B) not in the labor force

Full employment occurs A) only if unemployment is equal to structural unemployment plus cyclical unemployment. B) only if the unemployment rate is equal to the natural rate of unemployment. C) only if the unemployment rate is zero. D) None of the above answers are correct.

B) only if the unemployment rate is equal to the natural rate of unemployment.

Which of the following is NOT included in real GDP? A) production of goods that do not last more than one year, such as gasoline B) production in the home C) production of goods that last more than one year, such as television sets D) production of services, such as the services of doctors

B) production in the home

A price floor... A) results in a surplus if the floor price is higher than the equilibrium price. B) results in a shortage if the floor price is higher than the equilibrium price. C) always results in a surplus. D) always results in a shortage.

B) results in a surplus if the floor price is higher than the equilibrium price.

If the real interest rate rises, people A) save less. B) save more. C) earn a higher real wage rate. D) decrease their expected future income.

B) save more.

Ms. Krupsky has shorthand and typing skills and still finds herself unemployed. In todayʹs economy, Ms. Krupsky is an example of what type of unemployment? A) frictional unemployment B) structural unemployment C) cyclical unemployment D) None of the above answers is correct.

B) structural unemployment

When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing A) frictional and cyclical unemployment. B) structural unemployment. C) cyclical unemployment. D) frictional unemployment.

B) structural unemployment.

If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________. A) surplus; negative B) surplus; positive C) deficit; positive D) deficit; negative

B) surplus; positive

Substitution bias in the CPI refers to the fact that the CPI A) substitutes quality changes whenever they occur without taking account of the cost of the quality changes. B) takes no account of the substitution of goods by consumers when relative prices change. C) takes into account the substitution of goods by consumers when relative prices change. D) substitutes relative prices for absolute prices of goods.

B) takes no account of the substitution of goods by consumers when relative prices change.

Pollution is a by-product of some production processes, so on this count real GDP as measured A) is adjusted downward to take into account the pollution. B) tends to overstate economic welfare. C) is adjusted upward to take into account the expenditures that will be made in the future to clean up the pollution. D) tends to understate economic welfare.

B) tends to overstate economic welfare.

Looking at inflation rates in the United States since the 1970s we see that A) the inflation rate increased with the increased growth of the 1990s. B) the 1970s experienced the highest inflation rates. C) the highest inflation rates were the double digits during the 1990s. D) inflation fell the most during the 1970s productivity slowdown.

B) the 1970s experienced the highest inflation rates.

If a rich country grows at a faster rate than a poor one, then A) whether or not the living standards gap widens or closes over time depends on the absolute size of the relative growth rates. B) the gap in their standard of living will widen over time. C) the difference in their living standards will not change over time. D) the gap in their standard of living will close over time.

B) the gap in their standard of living will widen over time.

Potential GDP is A) the level of GDP not adjusted for price changes. B) the maximum amount of GDP that can be produced ceteris paribus assuming all resources are fully and effectively employed in the economy. C) another name for real GDP. D) always different from real GDP.

B) the maximum amount of GDP that can be produced ceteris paribus assuming all resources

Real GDP decreases during A) the movement from trough to peak. B) the movement from peak to trough. C) a decrease in unemployment. D) the movement from below potential GDP back to potential GDP.

B) the movement from peak to trough.

The employment-to-population ratio is defined as A) total employment divided by the labor force then multiplied by 100. B) total employment divided by the working-age population then multiplied by 100. C) total employment divided by labor hours then multiplied by 100. D) the labor force divided by the working-age population then multiplied by 100.

B) total employment divided by the working-age population then multiplied by 100.

The ________ is calculated as the number of people ________ divided by the labor force multiplied by 100. A) employment rate; employed B) unemployment rate; unemployed C) employment-to-population ratio; in the working age population D) employment-to-population ratio; unemployed

B) unemployment rate; unemployed

The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services. A) consumers living in cities with a population greater than 100,000 B) urban consumers C) urban wage earners and clerical workers D) all consumers

B) urban consumers

Question -- Given the following: Consumption of fixed capital (depreciation) $1,257 Rents $120 Indirect business taxes less subsidies $682 Social security contributions $800 Corporate income taxes $500 Undistributed Corporate Profits-retained earnings $274 Transfer payments $2,000 Personal income taxes $1,500 Compensation of employees (wages) $7,650 Net interest $571 Profits-(Corporate and Proprietors Income) $1,668 Personal Consumption expenditures $8,000 Gross private domestic investment $1,855 Government purchases $1,843 Net Exports (X-M) $300 Statistical discrepancy $50 What is Net Domestic Income at factor prices? A) $10,948 B) $8,098 C) $10,009 D) $10,087 E) none of the above

C) $10,009

Over the last 100 years, the average U.S. growth rate in real GDP per person was about A) 6 percent per year. B) 12.5 percent per year. C) 2 percent per year. D) 1 percent per year.

C) 2 percent per year.

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate? A) 8 percent B) 3 percent C) 5 percent D) 11 percent

C) 5 percent

Given the following: Given the following: population- 4,500,000 Less than 16 years old-500,000 unemployed but actively seeking work-100,000 philosophers---(non working) 50,000 house-husbands/housewives (non employed)-20,000 discouraged workers-10,000 people in institutions-30,000 full time students (non working)-100,000 full time workers-3,000,000 part time workers-690,000 Given the information in the question above, what is the employment-to-population ratio? A) 76.1% B) 89.0% C) 92.9% D) 97.8% E) none of the above

C) 92.9%

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account? A) A resident of France visits the United States. B) An American purchases a share of stock on the Tokyo exchange. C) A Japanese resident purchases a U.S. government bond. D) An American sells wheat to an African nation.

C) A Japanese resident purchases a U.S. government bond.

Cyclical unemployment occurs when A) individuals with skills no longer valued in the labor market cannot find employment. B) individuals enter into the labor market making the rounds of potential employers. C) a business cycle recession decreases employment. D) individuals give up the search for employment.

C) a business cycle recession decreases employment.

Deflation represents: A) a recession. B) an increase in the unemployment rate. C) a reduction in the aggregate price level. D) a reduction in output.

C) a reduction in the aggregate price level.

The account that shows international transactions involving capital investment, financial transactions (stocks, bonds, bank loans, etc.) is called the A) trade balance. B) balance of payments. C) capital account. D) current account.

C) capital account.

Deadweight or welfare loss is the decrease in ________ from producing an inefficient amount of a product. A) profit B) only consumer surplus C) consumer surplus and producer surplus D) only producer surplus

C) consumer surplus and producer surplus

The account that records the receipts from the exports of goods and services sold abroad, the payments for imports of goods and services from abroad, net interest income paid abroad, and net transfers is the ________. A) official settlements account B) capital and financial account C) current account D) international capital account

C) current account

Financial institutions that accept deposits and make loans are called ________ institutions. A) contractual savings B) underwriting C) depository D) investment

C) depository

The underground economy exists for all of the following reasons EXCEPT the A) avoidance of government regulation. B) production of illegal goods. C) desire to maintain accurate records of economic transactions. D) avoidance of taxes.

C) desire to maintain accurate records of economic transactions

Net exports of goods and services equal the A) imports of goods and services minus the exports of goods and services. B) exports of goods and services divided by the imports of goods and services. C) exports of goods and services minus the imports of goods and services. D) exports of goods and services plus the imports of goods and services.

C) exports of goods and services minus the imports of goods and services.

The business cycle refers to A) changes in the level of employment. B) changes in the level of the stock market. C) fluctuations in the level of real GDP around potential GDP. D) changes in the level of nominal GDP.

C) fluctuations in the level of real GDP around potential GDP.

Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as A) structurally unemployed. B) naturally unemployed. C) frictionally unemployed. D) cyclically unemployed.

C) frictionally unemployed.

An increase in saving that leads to more capital accumulation ________ labor productivity. A) decreases B) probably changes but in an ambiguous direction C) increases D) does not change

C) increases

If the population increases, then potential GDP ________ and employment ________. A) decreases; decreases B) decreases; increases C) increases; increases D) increases; decreases

C) increases; increases

According to the new growth theory A) the concept of a labor market is not necessary. B) the labor demand curve does not shift rightward over time. C) knowledge is not subject to diminishing returns. D) the rate of technological progress is determined by chance.

C) knowledge is not subject to diminishing returns.

The real wage rate will fall if the A) labor demand curve shifts rightward more than the labor supply curve shifts rightward. B) labor demand curve shifts rightward and the labor supply curve does not shift. C) labor supply curve shifts rightward and the labor demand curve does not shift. D) labor supply curve shifts leftward and the labor demand curve does not shift.

C) labor supply curve shifts rightward and the labor demand curve does not shift.

If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a: A) 1970's. B) new classical trap. C) liquidity trap. D) velocity trap.

C) liquidity trap.

In the equation, GDP = C + I + G + X - M, G refers to A) federal government expenditures plus all transfer payments. B) local, state, and federal government spending for all purposes. C) local, state, and federal government expenditure on goods and services, but does not include transfer payments. D) the taxes and expenditures of all government units

C) local, state, and federal government expenditure on goods and services, but does not include transfer payments.

An example of a price floor is a A) quota. B) subsidy. C) minimum wage. D) rent control.

C) minimum wage

Which of the following is NOT part of the expenditure approach to measuring GDP? A) personal consumption expenditures B) gross private domestic investment C) net interest D) net exports of goods and services

C) net interest

Frictional unemployment comes about because of A) a general economic slowdown. B) friction between labor and management. C) normal labor market turnover. D) a mismatch between skills and available jobs

C) normal labor market turnover.

During a recession, the ________. A) number of discouraged workers decreases B) employment-to-population ratio increases C) number of marginally attached workers increases D) unemployment rate decreases

C) number of marginally attached workers increases

In the expenditure approach to GDP, the largest component is A) net exports. B) government expenditure on goods and services. C) personal consumption expenditures. D) gross private domestic investment

C) personal consumption expenditures.

The largest component of GDP in the expenditures approach is A) government expenditure on goods and services. B) gross private domestic investment. C) personal consumption expenditures. D) net exports.

C) personal consumption expenditures.

Factors that influence labor productivity include ________. A) the labor demand curve B) physical capital, the real wage rate, and technology C) physical capital, human capital, and technology D) the inflation rate, the real wage rate, and the exchange rate

C) physical capital, human capital, and technology

Ongoing economic growth in real GDP per person requires all of the following EXCEPT ________. A) saving and investment in new capital B) the discovery of new technologies C) population growth D) investment in human capital

C) population growth

All of the following contribute to labor productivity growth EXCEPT: A) human capital growth. B) technological advancements. C) population growth. D) physical capital growth.

C) population growth.

The currently used method for calculating the CPI A) accounts for people increasing consumption of a good that falls in relative price. B) has no effect on government expenditures. C) probably overstates inflation by about 1 percentage point. D) None of the above answers are correct.

C) probably overstates inflation by about 1 percentage point.

In the labor market, an increase in labor productivity ________ the real wage rate and ________ the level of employment. A) raises; decreases B) lowers; increases C) raises; increases D) lowers; decreases

C) raises; increases

An increase in disposable income shifts the supply of loanable funds curve A) leftward and increases the real interest rate. B) rightward and increases the real interest rate. C) rightward and decreases the real interest rate. D) leftward and decreases the real interest rate.

C) rightward and decreases the real interest rate.

An increase in the working-age population results in a A) leftward shift of the supply of labor curve and a decrease in potential GDP. B) rightward shift of demand for labor curve and an increase in potential GDP. C) rightward shift of the supply of labor curve and an increase in potential GDP. D) rightward shift of the demand for labor curve and no change in potential GDP.

C) rightward shift of the supply of labor curve and an increase in potential GDP.

Whenever the federal government spends more than it receives in tax revenue, then by definition it A) operates a balanced budget. B) runs a budget surplus. C) runs a budget deficit. D) increases economic growth.

C) runs a budget deficit.

If new capital increases labor productivity, the supply of labor ________ and the demand for labor ________. A) increases; increases B) increases; decreases C) stays the same; increases D) decreases; stays the same

C) stays the same; increases

Structural unemployment is the result of A) normal labor market turnover. B) irresponsible workers with poor work habits. C) technological change, absolute job skills, or foreign competition. D) a slowdown in the rate of economic expansion.

C) technological change, absolute job skills, or foreign competition.

Neoclassical growth theory attributes economic growth to A) increasing population growth. B) fiscal policy. C) technological change. D) the law of diminishing returns.

C) technological change.

The Industrial Revolution in England in large was the result of A) population growth. B) technological innovations that were financed mainly by government spending. C) technological innovations encouraged by the market system. D) growth in human capital.

C) technological innovations encouraged by the market system.

In 2010, of the following ________ had the highest real GDP per person. A) Canada B) Japan C) the United States D) the Europe Big 4 countries

C) the United States

If the Treasury borrows funds increasing the budget deficit: A) the supply of loanable funds shifts right lowering interest rates. B) the demand of loanable funds shifts right lowering interest rates. C) the demand of loanable funds shifts right raising interest rates. D) the supply of loanable funds shifts left increasing interest rates.

C) the demand of loanable funds shifts right raising interest rates.

The labor demand curve slopes downward because A) the firm maximizes profits by hiring more labor when the real wage rate rises. B) workers supply fewer hours of work when the real wage rate rises. C) the firm maximizes profits by hiring more labor when the real wage rate falls. D) workers supply more hours of work when the real wage rate rises.

C) the firm maximizes profits by hiring more labor when the real wage rate falls.

GDP declines during A) a decrease in unemployment. B) the movement from below potential GDP back to potential GDP. C) the movement from peak to trough. D) the movement from trough to peak.

C) the movement from peak to trough.

When calculating GDP, underground economic activity is A) an aspect of the quality of life, such as health and life expectancy. B) the production of goods and services in the home. C) the part of the economy purposely hidden. D) that portion of the time when we are enjoying leisure activities and not producing marketable goods.

C) the part of the economy purposely hidden.

The term ʺcapital,ʺ as used in macroeconomics, refers to A) the sum of investment and government purchases of goods. B) investment. C) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. D) financial wealth.

C) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.

When cyclical unemployment is zero, A) structural unemployment is zero. B) cyclical and frictional unemployment are zero. C) the unemployment rate equals the natural unemployment rate. D) frictional unemployment is zero

C) the unemployment rate equals the natural unemployment rate.

Real Gross Domestic Product is A) the productivity of labor. B) the most that can be produced when the economyʹs resources are fully employed. C) the value of total production linked back to the prices of a single year. D) the amount of people unemployed divided by the total labor force.

C) the value of total production linked back to the prices of a single year.

The supply of labor curve is A) downward sloping. B) vertical at potential GDP. C) upward sloping. D) horizontal at the equilibrium wage rate.

C) upward sloping.

The greater a household's ________ the less is its saving. A) expected future profits B) return from saving C) wealth D) disposable income

C) wealth

The labor force is defined as A) people with full time jobs. B) all people capable of work. C) workers with jobs and unemployed workers. D) All of the above answers are correct.

C) workers with jobs and unemployed workers.

Given the following: Given the following: population- 4,500,000 Less than 16 years old-500,000 unemployed but actively seeking work-100,000 philosophers---(non working) 50,000 house-husbands/housewives (non employed)-20,000 discouraged workers-10,000 people in institutions-30,000 full time students (non working)-100,000 full time workers-3,000,000 part time workers-690,000 What is the labor force participation rate? A) 92.9% B) 87.0% C) 76.1% D) 95.5% E) none of the above

D) 95.5%

Real GDP can be criticized as a measure of economic welfare because it A) does not take account of the degradation of environmental quality. B) does not include the value of products produced in the household. C) does not include leisure time available to a society. D) All of the answers in this question are correct.

D) All of the answers in this question are correct.

Which of the following changes causes reported GDP to increase when, in fact, total production is unchanged? A) The legalization of previously illegal activities. B) A shift from household production to market production. C) Neither of the above will cause reported GDP to increase when total production does not change. D) Both answers A and B are correct

D) Both answers A and B are correct

The current chairman of the Federal Reserve is A) Janet Yellen. B) Paul Volcker. C) Alan Greenspan. D) Jerome Powell

D) Jerome Powell

Suppose the Consumer Price Index is 143.6. What does that number mean? A) Prices rose 143.6 percent over the reference base period, on average. B) On average, goods cost $143.60. C) On average, goods cost $243.60. D) Prices rose 43.6 percent over the reference base period, on average.

D) Prices rose 43.6 percent over the reference base period, on average.

Which of the following is consistent with classical growth theory? A) Competition destroys innovation and decreases profit. B) As real GDP increases, there will be a decrease in the rate of population growth. C) Real GDP per person will increase because technological change induces investment. D) Real GDP per person will never permanently increase.

D) Real GDP per person will never permanently increase.

Which of the following statements is INCORRECT? A) The labor-force participation rate is the labor force divided by the working-age population then times 100. B) The labor force is equal to the number of people employed plus the number of people unemployed. C) The unemployment rate is the number of persons who are unemployed divided by the labor force then times 100. D) The working age population includes everyone over the age of 16

D) The working age population includes everyone over the age of 16

Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is A) 137 × 121 = 258. B) (137/121) × 100 = 113.2. C) (137 - 121)/100 = 0.16. D) [(137 - 121)/121] × 100 = 13.2.

D) [(137 - 121)/121] × 100 = 13.2.

The use of purchasing power parity prices A) weakens the validity of cross country comparisons of economic welfare. B) decreases the real GDP per person statistics published by the International Monetary Fund. C) increases the amount by which U.S. GDP is larger than that of any other nation. D) accounts for differences in the prices of the same goods in different countries when measuring real GDP

D) accounts for differences in the prices of the same goods in different countries when measuring real GDP

In a liquidity trap: A) inflation is low. B) expansionary monetary policy is ineffective. C) interest rates are near zero. D) all of the above is true.

D) all of the above is true.

Well-functioning financial markets A) cause financial crises. B) cause inflation. C) eliminate the need for indirect finance. D) allow the economy to operate more efficiently.

D) allow the economy to operate more efficiently.

According to many mainstream economists (and the view of your instructor), the financial markets: A) should be deregulated by the Trump administration. B) are inherently unstable due to substantial negative externalities. C) answers B and C are correct. D) are inherently stable and need very little regulation.

D) are inherently stable and need very little regulation.

The largest component of national income is A) rental income. B) proprietorsʹ income. C) corporate profits. D) compensation of employees.

D) compensation of employees.

Goods that are produced this year, stored in inventories, and then sold to consumers next year A) count in both this yearʹs and next yearʹs GDP. B) are not counted as a part of GDP. C) count in next yearʹs GDP. D) count in this yearʹs GDP.

D) count in this yearʹs GDP.

The difference between gross investment and net investment is A) consumption. B) inflation. C) initial capital. D) depreciation.

D) depreciation.

Economists distinguish real GDP from nominal GDP to A) measure the change in nominal interest rates. B) determine whether economic welfare has changed. C) determine whether the government sector is growing. D) determine whether real production has changed.

D) determine whether real production has changed.

Governments often intervene in agricultural markets by A) setting price floors that reduce prices for buyers. B) imposing heavy taxes on farm products. C) setting production quotas that will increase production. D) granting subsidies.

D) granting subsidies

The principal lender-savers are A) governments. B) businesses. C) foreigners. D) households.

D) households.

All of the following are indirect taxes EXCEPT A) liquor excise taxes. B) cigarette sales taxes. C) taxes on utility bills. D) income taxes.

D) income taxes.

The gap between real GDP per person in Africa and real GDP per person in the United States has been A) there is no gap in real GDP per person between Africa and the United States. B) remaining fairly constant. C) decreasing. D) increasing

D) increasing

The nominal interest rate minus the real interest rate approximately equals the A) the rate of increase in the income. B) rate of increase in the amount of investment. C) the rate the bank receives to cover lending costs. D) inflation rate

D) inflation rate

Which of the following items is NOT a component of the income approach to measuring U.S. GDP? A) interest earned on savings deposits B) income earned by businesses that export goods C) profits made by businesses D) investment

D) investment

In the national income accounts, the purchase of a new house counts as A) a transfer. B) an addition to inventory. C) consumption expenditure. D) investment.

D) investment.

The real interest rate A) can never be negative. B) is positively related to the inflation rate. C) is approximately equal to the nominal interest rate plus the inflation rate. D) is approximately equal to the nominal interest rate minus the inflation rate.

D) is approximately equal to the nominal interest rate minus the inflation rate.

The labor force participation rate is calculated as the A) labor force divided by the number of persons employed then multiplied by 100. B) labor force divided by the unemployment rate then multiplied by 100. C) number of persons unemployed divided by the labor force then multiplied by 100. D) labor force divided by the working age population then multiplied by 100.

D) labor force divided by the working age population then multiplied by 100.

When using the income approach to measure GDP, the largest share of GDP generally consists of: A) capital income. B) interest income. C) indirect taxes. D) labor income. E) profits.

D) labor income.

If households expect an increase in their future incomes, they will save A) more and consume less today. B) and consume more today. C) and consume less today. D) less and consume more today.

D) less and consume more today.

Because of the biases in calculating the CPI, actual inflation is A) more than the measured inflation rate by about 1 percent per month. B) more than the measured inflation rate by about 1 percent per year. C) accurately measured. D) less than the measured inflation rate by about 1 percent per year.

D) less than the measured inflation rate by about 1 percent per year.

Personal consumption expenditures include all of the following EXCEPT spending on A) consumer services. B) consumer durable goods. C) consumer nondurable goods. D) new housing.

D) new housing.

The unemployment rate measures the percentage of A) people who want full-time jobs, but canʹt find them. B) the working age population that canʹt find a full-time job. C) the working-age population who canʹt find a job. D) people in the labor force who canʹt find a job.

D) people in the labor force who canʹt find a job.

Human capital is A) the saving done by human beings. B) the investment people make in industries that make capital goods. C) a measure of the labor productivity of workers. D) peopleʹs knowledge and skills.

D) peopleʹs knowledge and skills.

U.S. investment is financed from A) private saving, government budget deficits, and borrowing from the rest of the world. B) private saving and borrowing from the rest of the world only. C) private borrowing, government budget deficits, and lending to the rest of the world. D) private saving, government budget surpluses, and borrowing from the rest of the world.

D) private saving, government budget surpluses, and borrowing from the rest of the world.

Financial intermediaries A) produce nothing of value and are therefore a drain on society's resources. B) can hurt the performance of the economy. C) hold very little of the average American's wealth. D) provide a channel for linking those who want to save with those who want to invest.

D) provide a channel for linking those who want to save with those who want to invest.

All of the following household expenditures are included in consumption expenditure EXCEPT A) purchase of a new purse. B) payment to a dentist for filling a tooth. C) purchase of hair styling. D) purchase of corporate stock.

D) purchase of corporate stock.

The idea that a government budget deficit decreases investment is called A) the Ricardo-Barro effect. B) the capital investment effect. C) government dissaving. D) the crowding-out effect.

D) the crowding-out effect

Suppose that expected profit decreases in the loanable funds model. This change means A) there is a movement down along the demand curve for loanable funds. B) the real interest rate rises as saving increases. C) the supply curve for loanable funds shifts rightward and the nominal interest rate rises. D) the demand curve for loanable funds shifts leftward and the real interest rate falls.

D) the demand curve for loanable funds shifts leftward and the real interest rate falls.

Other things remaining the same, the greater the expected profit, A) the less the amount of investment. B) the flatter is the investment demand curve. C) the steeper is the investment demand curve. D) the greater the amount of investment.

D) the greater the amount of investment.

Two methods of measuring GDP are A) the goods approach and the services approach. B) the saving approach and the investment approach. C) the income approach and the receipts approach. D) the income approach and the expenditure approach.

D) the income approach and the expenditure approach.

Consumer surplus (for a single exchange) is defined as the demand price minus the supply price

False

If you purchase a Japanese Toyota pickup, it is reflected as a credit (+) or inflow into the current account.

False

An overall trade deficit occurs when the current account has a negative balance.

True

If nominal interest rates fall below zero (i.e. zero lower bound), banks pay borrowers and charge interest to savers.

True

If the FED increases the money supply, interest rates will usually fall (ceteris paribus).

True

If the international value of the dollar is rising (from the U.S. perspective), imports are cheaper and U.S. exports are more expensive.

True

Producer surplus (for a single exchange) is defined as the exchange price minus the supply price

True

The inflation rate has been low and sometimes at near zero since the beginning of the 2007-2009 recession.

True

The sum of the current, capital and official settlements accounts is always zero.

True

The government sets a price floor for corn which is above the equilibrium price of corn. As a result, ________. A) a deadweight loss will be created. B) a shortage of corn will be created. C) the corn market will be efficient. D) None of the above answers is correct

A

- Given the following: Consumption of fixed capital (depreciation) $1,257 Rents $120 Indirect business taxes less subsidies $682 Social security contributions $800 Corporate income taxes $500 Undistributed Corporate Profits-retained earnings $274 Transfer payments $2,000 Personal income taxes $1,500 Compensation of employees (wages) $7,650 Net interest $571 Profits-(Corporate and Proprietors Income) $1,668 Personal Consumption expenditures $8,000 Gross private domestic investment $1,855 Government purchases $1,843 Net Exports (X-M) $300 Statistical discrepancy $50 What is GDP (Expenditure Approach)? A) $11,998 B) $10,948 C) $9,572 D) $8,098 E) none of the above

A) $11,998

Assuming no governmental reserve transactions, if the U.S. is running a $500 billion trade deficit, it is also running a: A) $500 billion capital/financial account surplus. B) $500 billion capital/financial account deficit. C) $1,000 billion capital/financial account surplus. D) $1,000 capital/financial account deficit.

A) $500 billion capital/financial account surplus.

Assuming no governmental reserve transactions, if the U.S. Treasury borrows $500 billion to finance the U.S. budget deficit, it is creating a: A) $500 billion current account (i.e. trade) deficit. B) $1,000 capital/financial account deficit. C) $500 billion capital/financial account surplus. D) $1,000 billion current account (i.e. trade)surplus.

A) $500 billion current account (i.e. trade) deficit.

Using the Rule of 70, if the country of Flowerdomʹs current growth rate of real GDP per person was 7 percent a year, how long would it take the countryʹs real GDP per person to double? A) 10 years B) 49 years C) 2 years D) 1 year

A) 10 years

Which type of price index theory averages the base year and current yearʹs quantities? A) Fisherʹs Mean B) Paasche C) Laspeyres D) Boskinʹs Index

A) Fisherʹs Mean

Which type of price index theory uses base yearʹs quantities? A) Laspeyres B) Paasche C) Fisherʹs Mean D) Boskinʹs Index

A) Laspeyres

The "legs" of the Keynesian social safety net in the U.S. include: A) New Deal (1930s), Great Society (1960s), and Great Regulation (1970s). B) tax cuts, government spending cuts, government regulation cuts. C) Great Society (1930s), New Deal (1960s), and Great Regulation (1990s). D) none of the answers.

A) New Deal (1930s), Great Society (1960s), and Great Regulation (1970s).

I equals A) S + (T - G) + (M-X) B) S + T + G. C) C + S + T. D) C + T + G + (M-X).

A) S + (T - G) + (M-X)

An example of ʺinvestmentʺ in computing real GDP using the expenditure approach is the purchase of A) a new set of tools by an auto mechanic, for use in repairing cars. B) a 100 year old house by a married couple. C) 100 shares of IBM stock. D) computer chips by Dell to put in their personal computers.

A) a new set of tools by an auto mechanic, for use in repairing cars.

The growth rate of real GDP per person in the United States has A) averaged approximately 2 percent per year over the past century. B) has increased every year over the past century. C) has consistently been 2 percent per decade over the past century. D) has been the highest in the world over the past 5 decades.

A) averaged approximately 2 percent per year over the past century.

All of the following are included in gross private domestic investment expenditure EXCEPT a A) businessʹs purchase of another companyʹs stock. B) a retail storeʹs purchase of shoes to add to its inventory. C) businessʹs purchase of a fleet of cars. D) householdʹs purchase of a new house.

A) businessʹs purchase of another companyʹs stock.

The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________. A) classical growth theory B) neoclassical growth theory C) new growth theory D) modern theory of population growth

A) classical growth theory

The consumer price index (CPI) A) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period. B) measures the increase in the prices of the goods included in GDP. C) compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2. D) is the ratio of the average price of a typical basket of goods to the cost of producing those goods.

A) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

Unemployment caused by the fluctuation of the business cycle is called ________ unemployment. A) cyclical B) recession-related C) frictional D) structural

A) cyclical

The decreasing slope of a production function reflects A) diminishing returns. B) rising unemployment. C) increasing aggregate demand. D) decreasing costs.

A) diminishing returns.

U6 measure of unemployment is approximately _______ the U3 measure of unemployment. A) double B) 75% C) 150% D) triple

A) double

The three types of unemployment are A) frictional, structural, and cyclical. B) voluntary, part-time, and cyclical. C) frictional, part-time, and involuntary. D) voluntary, involuntary, and structural.

A) frictional, structural, and cyclical.

The U.S. federal budget over the past 30 years has been A) in deficit most of the years. B) in balance most years. C) in surplus most of the years. D) in surplus about half the time and deficit the other half.

A) in deficit most of the years.

As currently calculated, the CPI tends to overstate the true inflation rate because A) it fails to correctly measure quality changes for some products. B) the market basket selected is inappropriate. C) we cannot know what the true inflation rate is. D) the market basket fails to weigh housing costs sufficiently.

A) it fails to correctly measure quality changes for some products.

Moving along the aggregate production function shows the relationship between ________, holding all else constant. A) labor input, capital input and real GDP B) labor input and real GDP C) capital input and real GDP D) technology and real GDP

A) labor input, capital input and real GDP

A higher savings rate that leads to an increase in the capital stock A) leads to increases in labor productivity. B) immediately decreases investment. C) is associated with a decrease in the rate of growth of the population. D) leads to higher interest rates.

A) leads to increases in labor productivity.

Gross domestic product is the total ________ produced within a country in a given time period. A) market value of all final goods and services B) market value of all final and intermediate goods and services C) market value of all goods and services D) amount of final and intermediate goods and services

A) market value of all final goods and services