Econ 202 CSUF Fazeli Ch. 5

If 20 million workers are unemployed and 180 million workers are employed, then the unemployment rate is A) 10%. B) 11.1%. C) 18%. D) 80%

A) 10%.

In a business cycle, a peak represents the end of A) an expansion. B) a depression. C) trough. D) a recess

A) an expansion.

In a business cycle, a peak represents the end of ________ and a trough represents the end of ________. A) an expansion; a recession B) a depression; an expansion C) a trough; a peak D) a recession; an expansion

A) an expansion; a recession

Unemployment means that A) at the going wage rate, there are people who want to work but cannot find work. B) people are not willing to work at the going wage rate. C) there are some people who will not work at the going wage rate. D) there is excess demand in the labor market.

A) at the going wage rate, there are people who want to work but cannot find work.

The portion of a corporation's profits that a firm pays out each period to its shareholders is a A) dividend. B) promissory note. C) capital gain. D) corporate bond.

A) dividend.

Government policies regarding taxes and expenditures are called A) fiscal policy. B) income policies. C) supply-side policy. D) monetary policy.

A) fiscal policy.

Which of the following is a topic studied in Macroeconomics? A) gross domestic product B) the wage of auto workers C) the price of IBM computers D) the amount of pizza produced

A) gross domestic product

If the central bank decreases the money supply, it is conducting A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.

A) monetary policy.

Since 1970, the U.S. economy has experienced two A) periods of high inflation. B) recessions. C) deflations. D) all of the above

A) periods of high inflation.

The period in the business cycle from a peak to a trough is a(n) A) recession. B) boom. C) expansion. D) inflation.

A) recession.

A household that spends less than it receives in income during a given period is A) saving. B) dissaving. C) running a deficit. D) receiving transfer payments.

A) saving.

Rapid increases in the price level during periods of recession or high unemployment are known as A) stagflation. B) stagnation. C) depression. D) inflation.

A) stagflation.

The demand for massage therapists declined in the spring of 2007, but the starting wages paid to massage therapists was still the same at the end of 2007. This is an example of a A) sticky price. B) flexible price. C) highly regulated market. D) price control

A) sticky price.

Deflation occurs when A) the average price level declines. B) economic activity declines. C) the economic growth rate declines. D) the unemployment rate declines.

A) the average price level declines.

In which basic market would DVDs be traded? A) the goods and services market B) the money market C) the labor market D) the factor market

A) the goods and services market

The trend of the economy is A) the long run growth path of the economy. B) the long run inflation rate. C) the long run unemployment rate. D) the short run production capacity of an economy.

A) the long run growth path of the economy.

Unemployment implies that in the labor market A) there is an excess supply of labor. B) there is an excess demand for labor. C) there are too few workers for the jobs available. D) quantity demanded of labor exceeds quantity supplied

A) there is an excess supply of labor.

In the circular flow diagram, the different payments made by firms to households include A) wages and profits. B) interest and taxes. C) transfer payments and dividends. D) taxes and transfer payments.

A) wages and profits.

In the U.S. economy, the inflation rate in 1975 peaked at ________ percent. A) 10.1 B) 11.0 C) 14.2 D) 22.4

B) 11.0

If the labor force is 50 million and 48 million are employed then the unemployment rate is: A) 2%. B) 4%. C) 5%. D) 52%.

B) 4%.

The concept of "market clearing" is adopted and defended by A) Keynesian economists. B) Classical economists. C) fine-tuning economists. D) demand-side economists.

B) Classical economists.

The ________ can change the quantity of money in the economy. A) Treasury Department B) Federal Reserve C) Congress D) Office of the Comptroller of the Currency

B) Federal Reserve

Wayne purchased 10 autographed Eli Manning football cards when he was 15 years old for a total cost of $50 and then sold those football cards 4 years later for $800. Due to these transactions A) Wayne earned a capital gain of $800. B) Wayne earned a capital gain of $750. C) Wayne earned a dividend of $800. D) Wayne earned a dividend of $750.

B) Wayne earned a capital gain of $750.

A transfer payment is A) a bonus to get a worker to accept a transfer. B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment. C) a cash payment for transferring a good from one person to another. D) an in kind payment for working "off the books."

B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment.

A prolonged and deep recession is called A) a business cycle. B) a depression. C) a stagflation. D) hyperinflation.

B) a depression.

The government wants to encourage consumer spending through cutting income taxes. This is an example of A) an incomes policy. B) a fiscal policy. C) a supply-side policy. D) a monetary policy

B) a fiscal policy.

Which of the following is a topic studied in Macroeconomics? A) the functioning of individual industries B) aggregate behavior of households and industries C) the behavior of individual households D) the decision-making behavior of individual business firms

B) aggregate behavior of households and industries

If Juanita purchases a share of stock for $20 and three years later sells it for $120, she will realize a A) dividend of $100. B) capital gain of $100. C) dividend of $120. D) capital gain of $140.

B) capital gain of $100.

If Tomas purchases a share of stock for $150 and one year later sells it for $225, he will realize a A) dividend of $75. B) capital gain of $75. C) dividend of $225. D) a capital gain of $225

B) capital gain of $75.

The diagram that shows the income received and payments made by each sector of the economy is the A) aggregate demand-aggregate supply diagram. B) circular flow diagram. C) income flow diagram. D) income-production diagram.

B) circular flow diagram.

A promissory note issued by a corporation when it borrows money is a A) share. B) corporate bond. C) corporate dividend. D) stock

B) corporate bond.

Dividends are A) government profits distributed among bondholders. B) corporate profits distributed among shareholders. C) capital gains realized by stockholders. D) promissory notes issued by corporations.

B) corporate profits distributed among shareholders.

According to the Classical model, unemployment A) could not persist because wages would rise to eliminate the excess supply of labor. B) could not persist because wages would fall to eliminate the excess supply of labor. C) could be eliminated through fiscal and monetary policies. D) could be eliminated only through government intervention.

B) could not persist because wages would fall to eliminate the excess supply of labor.

In the circular flow diagram, firms ________ labor and households ________ goods and services. A) demand; supply. B) demand; demand. C) supply; demand. D) supply; supply.

B) demand; demand.

If output is rising and unemployment is falling, the economy MUST be in a(n) A) contraction. B) expansion. C) depression. D) hyperinflationary period

B) expansion.

The period in the business cycle from a trough to peak is called a(n) A) recession. B) expansion. C) slump. D) depression.

B) expansion.

A period of very rapid increase in the overall price level is known as A) stagnation. B) hyperinflation. C) stagflation. D) depression.

B) hyperinflation.

The Federal Reserve affecting the supply of money is known as A) fiscal policy. B) monetary policy. C) growth policy. D) supply side policy.

B) monetary policy.

In the goods-and-services market, households A) only supply. B) only demand. C) both supply and demand. D) neither supply nor demand.

B) only demand.

According to Classical models, the level of employment is determined primarily by A) the level of aggregate demand for goods and services. B) prices and wages. C) government taxation. D) government spending.

B) prices and wages.

Since 1970, the U.S. economy has experienced four A) periods of high inflation. B) recessions. C) deflations. D) periods of stagflation

B) recessions.

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are A) administered prices. B) sticky prices. C) regulatory prices. D) market prices.

B) sticky prices.

Macroeconomic policies became more influenced by Keynes' theories starting with, A) the period of high unemployment and high inflation in the 1970s. B) the Great Depression. C) the period of high inflation in the early 1980s. D) the OPEC recession.

B) the Great Depression.

Stagflation occurs when the economy's inflation rate is high and A) employment is high. B) the unemployment rate is high. C) the unemployment rate is low. D) the rate of change in economic activities is positive.

B) the unemployment rate is high

It has become conventional to classify an economic downturn as a recession when aggregate output declines for A) three consecutive quarters. B) two consecutive quarters. C) a year. D) six consecutive quarters.

B) two consecutive quarters.

If the labor force is 500 and employment is 450, then the unemployment rate is A) 100%. B) 90%. C) 10%. D) 0%.

C) 10%

During the U.S. recession of 1980-1982, the unemployment rate reached a high of ________ percent. A) 7.6 B) 8.8 C) 10.7 D) 22.4

C) 10.7

Which of the following would be an example of fine tuning? A) Firms increase wages to attract high-quality workers. B) Firms increase employment benefits to increase workers' productivity. C) The federal government enacts legislation to increase spending to try to stimulate the economy. D) The federal government passes legislation that would require that the government's budget always be balanced.

C) The federal government enacts legislation to increase spending to try to stimulate the economy.

Promissory notes issued by the federal government when it borrows money are known as A) Treasury shares. B) Treasury stocks. C) Treasury bonds. D) none of the above

C) Treasury bonds.

An example of a transfer payment is A) an interest payment on a General Motors' bond. B) the added value of stock from the time it was bought to the time it was sold. C) a Social Security retirement benefit. D) the salary paid to a member of the armed forces.

C) a Social Security retirement benefit.

A capital gain is A) a financial instrument that gives the holder a share in the ownership of a firm and therefore the right to share in the profits of the firm. B) the portion of a corporation's profits that the firm pays out each period to its shareholders. C) an increase in the value of an asset over the price initially paid for it. D) the difference between an individual's economic income and money income.

C) an increase in the value of an asset over the price initially paid for it.

Between a trough and a peak, the economy goes through a(n) A) recession. B) bust. C) expansion. D) hyperinflation.

C) expansion.

If Congress increases government spending, it is using A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.

C) fiscal policy.

In the circular flow diagram, households demand ________ and supply ________. A) labor; labor. B) goods; services. C) goods and services; labor. D) labor; goods and services.

C) goods and services; labor.

Inflation is a(n) A) decrease in the overall price level. B) decrease in the overall level of economic activity. C) increase in the overall price level. D) increase in the overall level of economic activity.

C) increase in the overall price level.

To bring the economy out of an inflationary period, Keynes argued that the government should A) cut both taxes and government spending. B) increase both taxes and government spending. C) increase taxes and/or decrease government spending. D) decrease taxes and/or increase government spending

C) increase taxes and/or decrease government spending.

An increase in the overall price level is known as A) deflation. B) recession. C) inflation. D) stagflation.

C) inflation

According to the Classical economists, the economy A) requires fine-tuning to reach full employment. B) has sticky prices in many industries. C) is self-correcting. D) will never be at full employment.

C) is self-correcting.

Between a peak and a trough, the economy goes through a(n) A) expansion. B) inflation. C) recession. D) boom.

C) recession.

Unemployment generally ________ during recessions and ________ during expansions. A) falls; rises. B) falls; falls. C) rises; falls. D) rises; rises.

C) rises; falls.

The term business cycle refers to the A) short-term ups and downs in the price level. B) long-term trends in the price level. C) short-term ups and downs in the level of economic activity. D) long-term trends in the level of economic activity.

C) short-term ups and downs in the level of economic activity.

According to Classical economists, if the quantity of labor demanded exceeds the quantity supplied, there is a A) surplus of labor and wages will rise. B) shortage of labor and wages will fall. C) shortage of labor and wages will rise. D) surplus of labor and wages will fall.

C) shortage of labor and wages will rise.

The demand for corn has increased in May without any change in supply. Eight months later there still has been no change in corn prices. This is an example of a A) price floor. B) price control. C) sticky price. D) macroeconomic price.

C) sticky price.

The government implements fiscal policy when it changes A) spending and/or interest rate. B) money supply and/or taxes. C) taxes and/or spending. D) taxes and/or interest rate

C) taxes and/or spending.

Aggregate behavior is A) the behavior of each household and firm. B) the behavior of each individual. C) the behavior of all households and firms together. D) none of the above.

C) the behavior of all households and firms together.

In which of the following markets are funds demanded and supplied? A) the labor market B) the goods and services market C) the money market D) the factor market

C) the money market

Which of the following is NOT a topic studied in Macroeconomics A) gross domestic product B) the unemployment rate C) the price of IBM computers D) the inflation rate

C) the price of IBM computers

The major lesson of the circular flow diagram is that A) saving must always be less than investment. B) taxes must always be greater than government expenditures. C) total income in the economy must always equal total spending. D) tax receipts must be equal to transfer payments

C) total income in the economy must always equal total spending.

The unemployment rate equals A) labor force/population. B) unemployed/employed. C) (employed - unemployed)/labor force. D) (labor force - employed)/labor force

D) (labor force - employed)/labor force

Which of the following statements is FALSE? A) The rate of change in economic activity is used to assess whether an economy is expanding or contracting. B) Short-term ups and downs in the economy are known as business cycles. C) During a recession, output and employment are falling. D) Business cycles are always symmetricthe length of an expansion is the same as the length of a contraction.

D) Business cycles are always symmetricthe length of an expansion is the same as the length of a contraction.

Mike purchased a 1968 Chevy Corvette in 2006 for $30,000 and a year later he sold it for $36,000. Due to these transactions A) Mike earned a capital loss of $6,000. B) Mike earned a dividend of $36,000. C) Mike earned a dividend of $600. D) Mike earned a capital gain of $6,000.

D) Mike earned a capital gain of $6,000.

Which of the following is a CORRECT statement? A) Companies issue shares but don't issue bonds. B) The government issues both bonds and shares. C) Bondholders earn dividends but shareholders don't. D) Shareholders earn dividends but bondholders don't

D) Shareholders earn dividends but bondholders don't.

Which of the following is an assumption used by Classical economists? A) Wages adjust downward but not upward. B) Wages adjust upward but not downward. C) Wages are inflexible. D) Wages adjust both upward and downward.

D) Wages adjust both upward and downward.

In a business cycle, a trough represents the end of A) an expansion. B) an inflation. C) a peak D) a recession.

D) a recession.

A period when the economy shrinks is known as A) a recession. B) a contraction. C) a slump. D) all of the above.

D) all of the above.

An increase in the value of an asset over the price initially paid for it is a A) dividend. B) share of stock. C) promissory note. D) capital gain.

D) capital gain.

To get the economy out of a slump, Keynes believed that the government should A) cut both taxes and government spending. B) increase both taxes and government spending. C) increase taxes and/or decrease government spending. D) decrease taxes and/or increase government spending.

D) decrease taxes and/or increase government spending.

A period during which aggregate output rises is known as a(n) A) recession. B) inflation. C) hyperinflation. D) expansion.

D) expansion.

The demanders in the goods-and-services market are A) households and business firms. B) households, the government, and the rest of the world. C) the government and business firms. D) households, the government, business firms, and the rest of the world.

D) households, the government, business firms, and the rest of the world.

Suppose the economy suffers a high rate of unemployment. According to Keynesian economists, the government should increase employment by A) decreasing money supply. B) balancing the budget. C) not doing anything. D) increasing government spending.

D) increasing government spending.

Policies designed to affect the quantity of money are A) fiscal policies. B) supply side or growth policies. C) government spending policies. D) monetary policies.

D) monetary policies.

According to Keynes, the level of employment is determined by A) flexible wages and prices. B) interest rates. C) price and wages. D) the level of aggregate demand for goods and services.

D) the level of aggregate demand for goods and services.

A dividend is A) a promissory note issued by corporations when they borrow money. B) an increase in the value of an asset over the purchase price initially paid for it. C) the difference between the interest rate a bank pays on deposits and the interest rate it charges for loans. D) the portion of a corporation's profits that the firm pays out each period to its shareholders

D) the portion of a corporation's profits that the firm pays out each period to its shareholders.

The unemployment rate equals A) labor force/population. B) unemployed/employed. C) (employed - unemployed)/labor force. D) unemployed/labor force.

D) unemployed/labor force.

A dividend is is paid by shareholders to firms.

FALSE

A transfer payment is the tax one pays when transferring real estate.

FALSE

According to Keynes, aggregate supply determines the level of economic activities in the economy.

FALSE

All business cycles are symmetric the length of an expansion is the same as the length of a recession

FALSE

Fiscal policy generally takes the form of regulations specifying the maximum amount by which the money supply can be changed.

FALSE

Hyperinflation and stagflation are two different names which refer to identical economic conditions.

FALSE

In the Classical model, the level of employment is determined by the level of aggregate demand.

FALSE

Keynes believed that expansionary fiscal policy could help get an economy out of an inflation.

FALSE

Macroeconomics is concerned with the market price and equilibrium quantity of each good or service.

FALSE

Monetary policy includes changing the level of household taxes.

FALSE

The following is a correct order in a business cycle: recession, trough, peak, expansion.

FALSE

"Fine tuning" is any government attempt to regulate inflation or unemployment

TRUE

A capital gain is the increase in value of an asset above its initial cost.

TRUE

A corporate bond is a promissory note issued by a firm when it borrows money.

TRUE

A recession is associated with a negative rate of growth of the economy.

TRUE

A recession is usually associated with increasing unemployment.

TRUE

According to Keynes, the government's role during periods when private demand is low is to stimulate aggregate demand and, by so doing, lift the economy out of recession.

TRUE

An expansion is usually associated with rising price levels.

TRUE

Contractionary fiscal policy includes raising taxes.

TRUE

In the circular flow diagram everyone's expenditure is someone else's receipt.

TRUE

Macroeconomic behavior is the sum of all the microeconomic decisions made by individual households and firms.

TRUE

Macroeconomics is concerned with inflation or deflation, output growth and unemployment.

TRUE

The employment rate is the number of people employed divided by number of people in the labor force.

TRUE