Econ Final, Midterm Questions
A central bank like the Federal Reserve in the United States can help banks survive a bank run by A) printing money. B) acting as a lender of last resort. C) raising the discount rate. D) increasing the required reserve ratio.
B
A critical function of the government in supporting the operation of a market economy is A) producing goods and services for low-income households. B) setting up and enforcing private property rights. C) ensuring an equal distribution of income to all citizens. D) controlling the market prices of food items.
B
A successful market economy requires well-defined property rights and A) balanced supplies of all factors of production. B) an independent court system to handle disputes based on the law. C) detailed government regulations. D) a safety net to ensure that those who cannot participate in the market economy can earn an income.
B
At market equilibrium A) demand equals supply. B) quantity demanded equals quantity supplied. C) surpluses are greater than shortages. D) shortages are greater than surpluses.
B
A decrease in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run? A) The price level will fall, and the level of GDP will be unaffected. B) The price level will fall, and the level of GDP will fall. C) The price level will rise, and the level of GDP will fall.D) The price level will rise, and the level of GDP will be unaffected.
A
During the expansion phase of the business cycle A) production increases. B) employment decreases.C) income decreases. D) unemployment increases.
A
Economists who believe the supply-side effects of tax cuts are small essentially believe that A) tax cuts mainly affect aggregate demand. B) tax cuts mainly affect aggregate supply. C) tax cuts will increase the quantity of labor supplied. D) tax cuts will result in relatively small changes in the price level.
A
Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________ .A) higher; higher B) higher; lower C) lower; higher D) lower; lower
A
How can freedom of the press promote economic growth? A) A free press can act as a watchdog for corruption, increasing the chances for economic growth. B) A free press can be more easily swayed to report only one side of any issue. C) A free press reduces the likelihood that judges will protect private property rights. D) A free press does not promote economic growth
A
If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade? A) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter. B) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden. C) Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter. D) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter.
A
If an increase in income leads to a decrease in the demand for salami, then salami is A) an inferior good. B) a neutral good. C) a necessity. D) a normal good.
A
If the Fed lowers its target for the federal funds interest rate, this indicates that A) the Fed is pursuing an expansionary monetary policy. B) the Fed is pursuing a contractionary monetary policy. C) the Fed is attempting to combat inflation. D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.
A
If the balance of the current account in the United States is -$900 billion, which of the following is most likely to be true? A) The balance on the financial account is positive. B) The trade balance is positive. C) Net foreign investment is positive. D) The balance on the capital account is negative.
A
If the current account is in surplus and the capital account is zero, then A) the financial account must be in deficit. B) the balance of trade must be in deficit. C) the balance of payments must be in deficit. D) there is a capital inflow. E) the balance of services must be in deficit.
A
If the current unemployment rate is 5%, under which of the following circumstances would you expect the Fed to use expansionary monetary policy? A) if the natural rate of unemployment is below 5% B) if the natural rate of unemployment is above 5% C) if the inflation rate is above 5% D) if the inflation rate is below 5%
A
If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is A) 5%. B) 5.2%. C) 8%. D) 10%. E) 50%.
A
If workers and firms have rational expectations, they understand that ________ monetary policy will raise the inflation rate, so actual inflation ________ expected inflation. A) expansionary; will be equal to B) expansionary; will be greater than C) contractionary; will be equal to D) contractionary; will be less than E) expansionary; will be less than
A
In 2017, Boeing announced that it was laying off 1,800 employees in addition to the 7,000 workers it had cut the year before. The laid-off employees who were not able to find jobs at another aircraft manufacturer due to a permanent decline in employee demand in the aircraft industry would be considered A) structurally unemployed. B) frictionally unemployed. C) seasonally unemployed. D) cyclically unemployed.
A
In an open economy, expansionary monetary policy will cause A) consumption, investment, and net exports to rise. B) consumption and investment to rise, but net exports will fall. C) consumption to rise, but investment and net exports will fall D) consumption to fall, but investment and net exports will rise.
A
Inflation that is less than what is expected benefits ________ and hurts ________. A) lenders; borrowers B) borrowers; lenders C) borrowers; no one D) lenders; no one
A
Jack lost his job six months ago, and he's been actively looking for a new job ever since. The Bureau of Labor Statistics would classify Jack a A) unemployed. B) out of the labor force. C) a discouraged worker. D) all of the above.
A
Scarcity refers to the situation in which A) unlimited wants exceed limited resources. B) unlimited resources exceed limited wants. C) a country's population is larger than its resource base. D) a nation's poverty level increases faster than its population.
A
The long-run aggregate supply curve will shift to the right if A) the economy experiences technological advance. B) there is a decrease in population. C) the economy experiences high levels of inflation. D) net exports decrease.
A
Voluntary exchange increases economic efficiency A) because neither the buyer nor the seller would agree to a trade unless they both benefit. B) because voluntary exchange only takes place with government permission. C) because it is free and consequently does not cost anything. D) because it allows wealthy individuals to act altruistically and give to the poor.
A
When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a A) medium of exchange. B) unit of account. C) store of value. D) standard of deferred payment.
A
Which of the following could increase unemployment and inflation simultaneously? A) an increase in oil prices B) expansionary monetary policy C) contractionary monetary policy D) an increase in the real wage
A
Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates? A) Some goods and services produced in any country are not traded internationally. B) Consumer preferences for goods and services across countries are very similar. C) Most countries do not impose barriers to trade. D) Most countries have free markets with little, if any, government regulation.
A
Which of the following is a macroeconomic question? A) What determines the unemployment rate? B) How is the production quantity of digital cameras determined? C) What factors determine the price of iPhones? D) What determines the wages and benefits of flight attendants?
A
Which of the following is an appropriate fiscal policy if equilibrium real GDP falls below potential real GDP?A) an increase in government purchases B) an increase in the supply of money C) an increase in individual income taxes D) a decrease in transfer payments
A
Which of the following is considered contractionary fiscal policy? A) Congress increases the income tax rate. B) Congress increases defense spending. C) The Federal Reserve sells treasury bills. D) The New Jersey legislature cuts highway spending to balance its budget.
A
Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy? A) Potential GDP is forecasted to be lower than equilibrium GDP. B) Potential GDP is forecasted to be higher than equilibrium GDP. C) Aggregate demand is growing too fast to keep the economy at full employment. D) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.
A
Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy? A) growth in capital per hour worked accompanied by technological change B) increases in labor force participation rates as workers who are out of the labor force pursue rising wages C) a shift of workers in the economy from the agricultural sector to the nonagricultural sector D) a temporary influx of immigrant labor into an economy without any accompanying technological change
A
Which of the following would increase public saving? A) An increase in taxes. B) An increase in transfers. C) An increase in government purchases. D) None of the above would increase public saving.
A
Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil. We can conclude that A) Honduras also has an absolute advantage in producing bananas relative to Brazil. B) Honduras has a lower opportunity cost of producing bananas relative to Brazil. C) Brazil has an absolute disadvantage in producing bananas relative to Honduras. D) Labor costs are higher for banana producers in Brazil than in Honduras
B
During recessions, government expenditure automatically A) falls because of programs such as unemployment insurance and Medicaid (health insurance). B) rises because of programs such as unemployment insurance and Medicaid (health insurance). C) falls because of the progressive income tax system. D) rises because of the progressive income tax system.
B
Economics is the study of the ________ people make to attain their goals, given their ________ resources. A) purchases; unlimited B) choices; scarce C) income; available D) decisions; household
B
Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 4 percent over the next year, which of the following will occur? A) Unemployment of university employees will fall. B) Real wages for university employees will rise. C) Inflation will be 5 percent the following year. D) The decrease in inflation is expected.
B
Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 6 percent over the next year, which of the following will occur? A) Unemployment of university employees will rise. B) Real wages for university employees will fall. C) Inflation will be 5 percent the following year. D) The increase in inflation is expected.
B
How do changes in income tax policies affect aggregate demand? A) Higher income taxes increase disposable income, consumption, and aggregate demand. B) Higher income taxes reduce disposable income, consumption, and aggregate demand. C) Higher income taxes increase corporate investment and aggregate demand. D) Higher income taxes increase aggregate supply and thus increase aggregate demand as well.
B
How does contractionary monetary policy in an open economy affect net exports in the short run? A) Contractionary monetary policy increases exports and reduces imports. B) Contractionary monetary policy reduces exports and increases imports. C) Contractionary monetary policy increases exports and increases imports. D) Contractionary monetary policy reduces exports and reduces imports.
B
How will contractionary monetary policy in Japan affect the demand and supply of the yen in the foreign exchange market? A) The demand for the yen will fall, and the supply of the yen will increase. B) The demand for the yen will increase, and the supply of the yen will fall. C) The demand for the yen will fall, and the supply of the yen will fall. D) The demand for the yen will increase, and the supply of the yen will increase.
B
If inflation increases unexpectedly, then A) borrowers pay a higher real interest rate than they expected. B) lenders receive a lower real interest rate than they expected. C) lenders gain and borrowers gain. D) neither borrowers nor lenders lose.
B
If net foreign investment in the United States is positive, how must national saving and domestic investment be related? (Assume that the capital account is zero and net transfers are zero.) A) Domestic investment and national saving must also be positive. B) Domestic investment must be less than national saving. C) Domestic investment must be greater than national saving. D) Domestic investment can be greater than or less than national saving.
B
If net foreign investment is positive, which of the following must be true? (Assume that the capital account is zero and net transfers are zero.) A) Capital outflows are less than capital inflows. B) Domestic investment must be less than national saving. C) Net exports are negative. D) None of the above are true when net foreign investment is pos
B
If the purchasing power of a dollar is greater than the purchasing power of the yen, purchasing power parity would predict that A) in the short run, exchange rates will move so the purchasing power of the dollar and the yen are equal. B) in the long run, exchange rates will move so the purchasing power of the dollar and the yen are equal. C) in the long run, interest rates will move so the purchasing power of the dollar and the yen are equal. D) in the short run, interest rates will move so the purchasing power of the dollar and the yen are equal.
B
In 2008, the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing. Which of the following is one reason why these measures were taken? A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed. B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail. This is referred to as systemic risk. C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt. D) The failure of these firms would have forced the Fed to increase interest rates, which could have led to a severe recession.
B
In 2017, monthly expenditures for a family of 4 averaged $1,400. In 2018, the cost of the same purchases was $1,500. If 2017 is the base year, what was the CPI in 2018? A) 110 B) 107 C) 100 D) 93
B
It is ________ difficult to effectively time fiscal policy than monetary policy because ________. A) more; fiscal policy can be quickly decided and changed B) more; fiscal policy takes longer to implement C) less; monetary policy takes longer to decide and change D) less; monetary policy takes longer to implement
B
Monetary policy refers to the actions the Federal Reserve takes to manage A) the money supply and income tax rates to pursue its economic objectives. B) the money supply and interest rates to pursue its economic objectives. C) income tax rates and interest rates to pursue its economic objectives. D) government spending and income tax rates to pursue its economic objectives.
B
Scott is a woodworker and charges $125 an hour for his time manufacturing custom-made wood products. For his wife's birthday, he designs and creates a maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts? A) GDP rises by $1,875. B) GDP is not affected by Scott's production of the jewelry box. C) GDP rises by $125. D) GDP falls by $1,875.
B
Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is A) $200. B) $1,800. C) $2,000. D) $20,000.
B
The Fed's preferred measure of inflation is A) the index of leading economic indicators B) the core personal consumption expenditures index C) the consumer price index D) the GDP deflator E) the producer price index
B
To calculate GDP by the expenditure method, one must add A) wages, rents, interest, and profits. B) consumption spending, investment spending, government purchases, and net exports. C) consumption spending, investment spending, government purchases, and exports. D) labor, natural resources, entrepreneurship, and capital.
B
Trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country A) total employment is greater. B) total consumption of goods is greater. C) wages are higher. D) total welfare is greater.
B
Which of the following is a positive economic statement? A) Everyone should live at the same standard of living. B) If the price of gasoline rises, a smaller quantity of it will be bought. C) The government should close income tax loopholes. D) U.S. firms should not be allowed to outsource production of goods and services.Answer: B
B
Which of the following is a reason why we should consider the federal national debt a problem? A) The federal government is in danger of defaulting on its debt. B) If the debt drives up interest rates, crowding out will occur. C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur. D) If the debt was incurred to finance research and development, crowding out will occur.
B
Which of the following is counted as "capital" in economics? A) the money people have B) the machines that workers have to work with C) the labor force D) the wealth people have
B
Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy? A) Potential GDP is forecasted to be higher than equilibrium GDP. B) Potential GDP is forecasted to be lower than equilibrium GDP. C) Aggregate demand is growing too fast to keep the economy at full employment. D) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.
B
Which of the following statements is false? A) Not all individuals in both countries are made better off as a result of international trade. B) Within each country, some individuals are made better off as a result of international trade, but one of the countries will be worse off overall. C) Although some individuals may not be made better off as a result of international trade, both countries may be made better off overall. D) Each country as a whole is made better off as a result of international trade, but individuals within each country may be made worse off.
B
Which of the following would cause a decrease in the equilibrium price and decrease in the equilibrium quantity of papayas? A) a decrease in supply and an increase in demand B) a decrease in demand C) an increase in supply and an increase in demand greater than the increase in supply D) a decrease in supply and a decrease in demand
B
Which of the following would cause an increase in the equilibrium price and decrease in the equilibrium quantity of watermelon? A) a decrease in demand and an increase in supply B) a decrease in supply C) an increase in demand and an increase in supply greater than the increase in demand D) an increase in demand and an increase in supply
B
Without technological advancement, how can a nation achieve economic growth? A) by producing more expensive goods and fewer cheap goods B) through an increase in supplies of factors of production C) by producing more cheap goods and fewer expensive goods D) by decreasing the size of the labor force
B
You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn? A) 0% B) 4.4% C) 5.5% D) 5.8%
B
Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP. A) decreases; increases B) increases; decreases C) increases; increases D) decreases; decreases
C
An increase in government purchases will A) increase public saving. B) increase the supply of loanable funds. C) reduce investment. D) reduce real GDP.
C
A central bank can help stop a bank panic by A) raising the required reserve ratio. B) calling in consumer loans .C) acting as a lender of last resort. D) decreasing income taxes.
C
How might a U.S. federal budget surplus affect the balance of trade? (Assume exchange rates are stated in terms of foreign currency per U.S. dollar.) A) A federal budget surplus raises interest rates, which raises exchange rates, and increases the balance of trade. B) A federal budget surplus reduces interest rates, which raises exchange rates, and reduces the balance of trade. C) A federal budget surplus reduces interest rates, which reduces exchange rates and increases the balance of trade. D) A federal budget surplus raises interest rates, which raises exchange rates, and reduces the balance of trade.
C
Human capital refers to A) the money people have. B) the machines that workers have to work with. C) the accumulated or total skills and training that workers have. D) the wealth people have.
C
If households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will initially A) decrease M1 and increase M2. B) decrease M1 and decrease M2. C) decrease M1 and not change M2. D) increase M1 and decrease M2.
C
If real GDP in a small country in 2017 is $8 billion and real GDP in the same country in 2018 is $8.3 billion, the growth rate of real GDP between 2017 and 2018 A) is 3.0%. B) is 3.6% .C) is 3.75%. D) cannot be determined from the information given.
C
If technological change increases the profitability of new investments for firms, then the ________ curve for loanable funds will shift to the ________. A) supply; right B) supply; left C) demand; right D) demand; left
C
If the number of unemployed workers is 19 million, the number in the working-age population is 500 million, and the unemployment rate is 4%, what is the labor force participation rate? A) 4.75% B) 7.8% C) 95% D) 96.2%
C
If wages and prices adjust rapidly, we would expect expansionary monetary policy to be A) more likely to reduce the natural rate of unemployment. B) more likely to affect the unemployment rate. C) less likely to affect the unemployment rate. D) less likely to result in a vertical short-run Phillips curve.
C
If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) seasonally unemployed.
C
In 2008, the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing. Which of the following is one reason why these measures were taken? A) The failure of these firms would have forced the Fed to increase interest rates, which could have led to a severe recession. B) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed. C) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail. This is referred to as systemic risk. D) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt.
C
In a market economy, who decides what goods and services will be produced? A) only the producers B) only consumers C) consumers and producers D) the government
C
In the long run, the Phillips curve is a ________ at ________. A) horizontal line; 0% inflation B) negatively sloped line; the intersection of aggregate demand and short-run aggregate supply C) vertical line; the natural rate of unemployment D) None of the above is correct.
C
Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally A) less difficult than with monetary policy. B) far less difficult than with monetary policy. C) more difficult than with monetary policy. D) about the same difficulty as with monetary policy.
C
Suppose the economy is at full employment and firms become more optimistic and think positively about the future profitability of new investment. Which of the following will happen in the short run? A) Output will decline. B) Prices will decline. C) Unemployment will decline. D) The aggregate demand curve will shift to the left.
C
The branch of economics which studies the behavior of entire economies and policies that affect the economy as a whole is called A) public economics. B) microeconomics. C) macroeconomics. D) normative economics.
C
The largest source of federal government revenue in 2014 was A) sales taxes. B) corporate income taxes. C) individual income taxes. D) payroll taxes to fund Social Security and Medicare programs.
C
When Americans increase their demand for Japanese goods, A) the demand for dollars will rise, and the demand for yen will rise. B) the demand for dollars will fall, and the demand for yen will rise. C) the supply of dollars will rise, and the demand for yen will rise. D) the supply of dollars will fall, and the demand for yen will fall.
C
Which of the following increases labor productivity? A) an increase in the aggregate hours of work B) decreases in the availability of computers and factory buildings C) inventions of new machinery, equipment, or software D) a decline in the health of the population
C
Which of the following is a normative statement about economic growth? A) Economic growth is associated with higher labor productivity growth. B) Economic growth increases GDP per capita. C) Economic growth hurts developing countries. D) Foreign direct investment stimulates economic growth.
C
Which of the following is not a reason why low-income countries might experience low economic growth? A) The country has endured extended periods of war. B) The country fails to enforce a rule of law. C) The country has a good education system. D) The country has a low rate of saving and investment.
C
Which of the following transactions would be included in the official calculation of GDP? A) A student buys a used textbook at the bookstore. B) You wash and wax your father's car as a favor to him. C) You buy a new iPod. D) You illegally download music off the Internet to put on your new iPod
C
Which of the following transactions would take place in the "underground economy"? A) Elizabeth tells her mother she's going to work but really goes to see a movie. B) Paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per gallon of that price goes to the government as tax revenue. C) John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes. D) Matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it. Answer: C
C
While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008, others were critical of these actions. The critics were concerned that by not allowing large firms to fail, A) smaller firms will resent not receiving similar assistance. B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy. C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. D) there will be less competition in the U.S. economy, which could led to higher prices for consumers.
C
With a required reserve ratio of 20 percent, an increase in reserves of $20,000 could lead to a maximum increase in checking account deposits in the entire banking system of A) $4,000. B) $16,000. C) $100,000. D) $200,000.
C
A decrease in the demand for eggs due to changes in consumer tastes, accompanied by a decrease in the supply of eggs as a result of an outbreak of Avian flu, will result in A) a decrease in the equilibrium quantity of eggs and no change in the equilibrium price. B) a decrease in the equilibrium price of eggs and no change in the equilibrium quantity C) a decrease in the equilibrium price of eggs; the equilibrium quantity may increase or decrease. D) a decrease in the equilibrium quantity of eggs; the equilibrium price may increase or decrease.
D
An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an increase in the supply of peanuts as a result of favorable growing conditions, will result in A) an increase in the equilibrium quantity of peanuts and no change in the equilibrium price. B) an increase in the equilibrium price of peanuts and no change in the equilibrium quantity. C) an increase in the equilibrium price of peanuts; the equilibrium quantity may increase or decrease. D) an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease.
D
An outward shift of a nation's production possibilities frontier can occur due to A) a reduction in unemployment. B) a natural disaster like a hurricane or bad earthquake. C) a change in the amounts of one good desired.D D) an increase in the labor force.
D
At a product's equilibrium price A) anyone who needs the product will be able to buy the product, regardless of ability to pay. B) the federal government will provide the product to anyone who cannot afford it. C) not all sellers who are willing to accept the price will find buyers for their products. D) any buyer who is willing and able to pay the price will find a seller for the product.
D
Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government purchases are $2 billion. If GDP using the expenditure approach is $14 billion, which of the following could be true regarding exports and imports in the economy? A) Exports are $4.5 billion, and imports are $2 billion. B) Exports are $6 billion, and imports are $8.5 billion. C) Exports are $9 billion, and imports are $6 billion. D) Exports are $15 billion, and imports are $10.5 billion.
D
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________. A) higher; higher B) higher; lower C) lower; higher D) lower; lower
D
Contractionary monetary policy to prevent real GDP from rising above potential real GDPwould cause the inflation rate to be ________ and real GDP to be ________. A) higher; higher B) higher; lower C) lower; higher D) lower; lower
D
Discouraged workers are A) workers who have a part-time job but want a full-time job. B) workers who find their current jobs unfulfilling and are considering a job change. C) workers who have consistently been looking for work for more than 4 weeks. D) workers who have stopped looking for work because they believe there are no jobs for them.
D
During an expansion, how do inflation and unemployment typically change? A) Inflation and unemployment both rise. B) Inflation and unemployment both fall. C) Inflation falls and unemployment rises. D) Inflation rises and unemployment falls.
D
Economists consider full employment to occur when A) everyone who wants a job has a job. B) frictional unemployment equals zero. C) the sum of frictional unemployment and structural unemployment equals zero. D) the unemployment rate consists of only frictional and structural unemployment.
D
How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market? A) The demand for dollars falls, and the supply of dollars falls. B) The demand for dollars rises, and the supply of dollars rises. C) The demand for dollars rises, and the supply of dollars falls. D) The demand for dollars falls, and the supply of dollars rises.
D
How might a U.S. federal budget surplus affect the balance of trade? (Assume exchange rates are stated in terms of foreign currency per U.S. dollar.) A) A federal budget surplus raises interest rates, which raises exchange rates, and increases the balance of trade. B) A federal budget surplus raises interest rates, which raises exchange rates, and reduces the balance of trade. C) A federal budget surplus reduces interest rates, which raises exchange rates, and reduces the balance of trade. D) A federal budget surplus reduces interest rates, which reduces exchange rates and increases the balance of trade.
D
If households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially A) not change M1 and increase M2. B) decrease M1 and decrease M2. C) decrease M1 and not change M2. D) not change M1 and not change M2.
D
If the CPI changes from 125 to 120 between 2017 and 2018, how did prices change between 2017 and 2018? A) Prices increased by 5%. B) Prices decreased by 5% C) Prices increased by 25%. D) Prices decreased by 4%.
D
If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run. A) reduce; raise B) increase; lower C) increase; raise D) reduce; lower
D
If there is an increase in quality bias in the consumer price index, price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket. A) also; understate B) also; overstate C) not; understate D) not; overstate
D
Jack just received a promotion at work and now works 50 hours per week instead of 35. As a result A) the unemployment rate increased. B) the unemployment rate decreased. C) the labor force participation rate increased. D) neither the unemployment rate nor the labor force participation rate changed.
D
Jack was unemployed two weeks ago but just started a new job. As a result of this increase in the number of employed workers, which of the following occurred? A) The labor force participation rate increased. B) The unemployment rate increased. C) The labor force participation rate decreased. D) The unemployment rate decreased.
D
On the long-run aggregate supply curve A) a decrease in the price level decreases the level of potential GDP. B) a decrease in the price level increases the aggregate quantity of GDP supplied. C) a decrease in the price level decreases the aggregate quantity of GDP supplied. D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.
D
Spending on the war in Afghanistan is essentially categorized as government purchases. How do decreases in spending on the war in Afghanistan affect the aggregate demand curve? A)They will move the economy down along a stationary aggregate demand curve. B) They will move the economy up along a stationary aggregate demand curve. C) They will shift the aggregate demand curve to the right. D) They will shift the aggregate demand curve to the left.
D
Suppose that real GDP for 2017 was $10,000 billion and real GDP for 2018 was $11,000 billion. What is the rate of growth of real GDP between 2017 and 2018? A) 1% B) 2% C) 5% D) 10%
D
The "new product bias" in the consumer price index refers to the idea that A) consumers switch to newer cheaper goods when the prices of old goods increase, and the CPI overestimates the cost to consumers. B) consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers. C) consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers. D) new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.
D
The fact that the long-run aggregate supply curve is vertical, means A) the economy stays at the natural rate of inflation in the long run. B) the short-run Phillips curve must be vertical. C) unemployment and inflation are positively related in the long run. D) the trade-off between unemployment and inflation cannot be permanent.
D
The nominal GDP of the U.S. in 2016 was approximately $18.6 trillion. This means that A) the value of output in 2016 was around $18.6 trillion.B) total income in 2016 was around $18.6 trillion. C) total spending in 2016 was around $18.6 trillion. D) all of the above are true.
D
When the labor market is at full employment A) there is only cyclical unemployment in the economy. B) there is only structural unemployment in the economy. C) the unemployment rate is 0%. D) there is no cyclical unemployment in the economy.
D
Which of the following best describes supply-side economics? A) Labor productivity affects aggregate supply. B) Education affects labor productivity which affects aggregate supply. C) Education affects the incentive to work, save, and invest and, therefore, aggregate supply. D) Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.
D
Which of the following can explain why some countries have not experienced relatively high growth rates despite relatively low initial levels of real GDP per capita? A) Many developing countries do not have a functioning court system that can enforce laws. B) Countries that are relatively poor are more likely to experience wars and revolutions. C) Countries that are relatively poor are likely to have a lower quality of health care. D) all of the above
D
Which of the following is a normative economic statement? A) Rising global demand for diesel and heating oil has led to increases in the price of crude oil. B) With falling home prices and rising mortgage interest rates, the amount of foreclosures has increased. C) The federal government is considering raising the gasoline tax to promote the use of public transportation. D) Fashion designers should be allowed to copyright designs to promote innovation.
D
Which of the following is considered contractionary fiscal policy? A) Congress increases defense spending. B) The Federal Reserve sells treasury bills. C) The New Jersey legislature cuts highway spending to balance its budget. D) Congress increases the income tax rate.
D
Which of the following is the most liquid asset? A) a Renoir painting B) bonds C) a car D) money
D
Which of the following would be considered a fiscal policy action? A) The Fed increases the money supply. B) Subsidies are offered to encourage the purchase of fuel efficient cars. C) Spending on the war in Afghanistan is increased to promote homeland security. D) A tax cut is designed to stimulate spending during a recession.
D
With a required reserve ratio of 10 percent, an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of A) $2,000. B) $8,000. C) $50,000. D) $100,000.
D
You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. The CPI over that year rises from 180 to 200. What is the real interest rate you are paying A) 15% B) 5% C) -1.1% D) -6.1%
D
