Economics

The economy is in long-run equilibrium at

all points on its institutional production possibilities frontier.

Suppose that investment is $12.5 billion, purchases of new residential housing is $2.4 billion, and purchases of newly produced capital goods is $8.5 billion. What is the value of inventory investment?

$1.6 billion ($2.4 billion + $8.5 billion) = $10.9 billion, thus inventory investment equals ($12.5 billion - $10.9 billion) = $1.6 billion.

When the MPC is 0.6, the multiplier is

2.50

If persons not in the labor force total 4 million and persons in the civilian labor force total 60 million, then how many persons are unemployed?

There is not enough information to answer the question.

If investment changes because of a change in a factor other than the price level, then the

AD curve shifts.

Refer to Exhibit 9-3. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P1. If circumstances change which cause the AD curve to shift to AD3, the economy will eventually settle down in long-run equilibrium at the intersection of

AD3 and SRAS3.

Refer to the exhibit. Which point is representative of an economy producing Natural Real GDP?

B

Refer to the exhibit. If the present level of disposable income is Yd3, then autonomous consumption is equal to

C0

A change in investment that results from a decrease in the price level causes _______________, while a change in investment caused by an increase in business taxes causes ____________________.

a movement down along a given AD curve, the AD curve to shift leftward

In the simple Keynesian model the aggregate supply (AS) curve is

a. horizontal until Natural Real GDP (QN) is reached and vertical at QN.

According to classical economists, saving is matched by an equal amount of investment because of

a. interest rate flexibility.

The international trade effect helps to explain why the ____________________ curve is _________________.

aggregate demand, downward sloping

Suppose that the economy is in a recessionary gap and that it is self-regulating. If wage rates take a long time to fall, then ________________________.

a. it is likely to take a long time before Real GDP rises.

According to economists, leisure is ______________ in GDP calculations because it is_______________.

a. not counted, too difficult to measure

Real GDP rises when _________________ rises, while GDP rises when ___________________ rises, and so ____________ is the better gauge of an economy's health.

a. output, output or the price level, Real GDP

Suppose the following: (1) productivity rises, (2) wealth increases, (3) any change in SRAS is less than any change in AD. Based on this information, in the short-run Real GDP will __________ and the price level will _____________.

a. rise, rise

Which of the following statements is false?

Economists who believe that the economy is self-regulating advocate for a great deal of government intervention to help push the economy toward long-run equilibrium.

______________________ is the Real GDP that is produced at the natural unemployment rate and the _________________ curve is a vertical line at this level of Real GDP.

Natural Real GDP, LRAS

Economic growth has occurred if

Real GDP in one year exceeds the Real GDP in the previous year.

Suppose the aggregate supply (AS) curve has a horizontal portion and a vertical portion. The kink in the curve comes at the Natural Real GDP level. This is what the AS curve looks like in the simple Keynesian model. Now suppose aggregate demand increases in the economy. It follows that

There is not enough information to answer the question.

______________________ is the average number of times a dollar is spent to buy goods and services in a year.

Velocity

Suppose that 1982 is the base year for the Consumer Price Index (CPI) and in 2014 the CPI is 345. What does this "345" mean?

What cost $100 in 1982 will on average cost $245 more in 2014.

Net domestic product is the total market value of

all final goods and services produced annually within a country's borders minus the capital consumption allowance

If autonomous consumption increases by $50 billion and the MPC is 0.95, the resulting change in total spending equals__________________ billion, assuming that idle resources exist at each expenditure round and the multiplier is operative.

a. $1,000

Your family purchased a house in 1983 for $60,000 and sold it in 2014 for $280,000. During this period the CPI rose from 100 in 1983 to 250 in 2014. Given this information, the 1983 purchase price of the house in 2014 dollars would be ______________, and thus your family gained ____________________ on the sale of the house (in constant dollar terms).

a. $150,000, $130,000 The formula used to convert a dollar amount from 1983 to 2014 to find the price in 2014 dollars would be: Price1983 x (CPI2014/CPI1983). In this example, the price of the house in 2014 dollars would be calculated as follows: $60,000 x (250/100) = $150,000. Comparing this value to the price that the house sold for in 2014, one can see that the house increased in value by $130,000 in constant dollar terms.

Suppose that the level of consumption in an economy is $8,000 billion. If saving increases by $750 billion, then the new level of consumption will equal ______________. According to classical economists, investment would then rise and total expenditures would ______________.

a. $7,250 billion, remain unchanged

Refer to the data in the table below. The marginal propensity to consume (MPC) is equal to ___________ and the level of autonomous consumption (C0) is __________.

a. 0.80, $400

If MPC is 0.65, then it follows that the multiplier is

a. 2.86

Refer to the exhibit. Which point is representative of an economy in a recessionary gap?

a. A

Which of the following is an example of a nonmarket good or service?

a. Laura cuts her friend Michelle's hair in exchange for Michelle giving Laura a facial.

Retained earnings is part of which component of National Income?

a. corporate profits

All persons in the civilian labor force fall into one of two categories:

a. employed and unemployed.

Ann works 20 hours per week in her family's tire shop, but she is not paid for her work. The Bureau of Labor Statistics (BLS) would count Ann as

a. employed.

The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) is always

a. equal to 1.

As foreign real national income falls, foreigners purchase _______________ U.S. exports and the U.S. aggregate demand curve shifts ____________________.

a. fewer, leftward

Suppose that an economy has a natural unemployment rate of 4.5 percent and a current unemployment rate that is ______________ 4.5 percent. This economy is experiencing a ___________ in the labor market which will push the wage rate _______________.

a. greater than, surplus, downward b. less than, shortage, upward a and b are correct

Suppose that the consumer price index in 2011 was 195 and Jose's salary was $56,000. Suppose further that in 2021 the consumer price index will be 350. What salary will Jose have to earn in 2021 in order to equal his 2011 real income?

b. $100,513

Given the following data, what is the value of durable goods for this economy? Consumption = $500 billion Nondurable goods = $100 billion Services = $200 billion New residential construction = $50 billion

b. $200 billion

If a country has GDP of $80,000,000,000 and its population is 2,000,000, then its per-capita GDP is

b. $40,000

Suppose that the frictional unemployment rate is 2 percent, the natural unemployment rate is 3.5 percent, and the actual unemployment rate is 7.5 percent. The structural unemployment rate is ____________ and the cyclical unemployment rate is __________.

b. 1.5 percent, 4 percent

Suppose the market basket consists of 12X, 13Y, and 20Z. Current-year prices are $1.10 for each unit of X, $2.33 for each unit of Y, and $3.10 for each unit of Z. Base-year prices are $1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?

b. 234

Refer to the exhibit. The labor market is originally in equilibrium at point 1. Then the demand for labor declines. According to the efficiency wage model, it is likely that the labor market will move to point ____________ and ____________ number of workers will be working.

b. 3, 70

Suppose that an economy has a civilian noninstitutional population of 25 million people. Suppose that, of those 25 million who are in the civilian noninstututional population, 10.5 million are employed. Based on this information, the employment rate in this economy is _____________ percent.

b. 42

Net domestic product is equal to

b. GDP minus the capital consumption allowance

Dirk says that the total spending in the economy can never be greater than the money supply. For instance, if the money supply is $1 billion, then it follows that total spending can't be greater than $1 billion. Is Dirk correct?

b. No. Total spending can be greater than the money supply if velocity is greater than 1.

Refer to the exhibit. At Q1,

b. TE > TP and inventories fall. d. TP < TE and inventories fall. b and d are correct

The term classical economics refers to an era in the history of economic thought that was prevalent from __________________ to _____________________.

b. about 1750, the early 1900s

A higher income tax rate ______________ consumption, causing a __________ shift in the AD curve.

b. decreases, leftward

To compute the CPI in the current year, you would:

b. divide the total dollar expenditure on the market basket in the current year by the total dollar expenditure on the market basket in the base year and then multiply by 100.

Suppose the following: (1) personal income taxes rises, (2) the price of oil rises, (3) any change in SRAS is equal to any change in AD. Based on this information, short-run Real GDP will __________ and the price level will _____________.

b. fall, remain unchanged

There is a(n) ____________________relationship between the interest rate and consumption, and a(n) ______________________ relationship between the interest rate and investment.

b. inverse, inverse

If the AD and SRAS curves intersect to the left of the LRAS curve, it follows that the economy

b. is producing a level of Real GDP greater than Natural Real GDP.

Suppose the economy is self-regulating, the price level is 210, the quantity demanded of Real GDP and the quantity supplied of Real GDP in the short run both equal $9.7 trillion, and the quantity supplied of Real GDP in the long run is $10.2 trillion. Given all of this information, we can conclude the economy ________________ in short run equilibrium and that the price level in the long run equilibrium will be ______________ than 210.

b. is, less than

The real wage will rise if either the ____________ rises or the ___________ declines.

b. nominal wage, price level

Economic-Growth macroeconomics deals with ______________________.

b. rightward shifts in the LRAS curve.

Refer to Exhibit 9-3. Which of the following statements is false at the intersection of AD3 and SRAS1?

b. the (actual unemployment) rate is less than natural unemployment rate At the intersection of AD3 and SRAS1 the economy is producing Q1. Since Q1 is less than QN the economy is in a recessionary gap at Q1. The unemployment rate at QN is the natural unemployment rate which is less than the unemployment rate at Q1. The difference between the unemployment rate and the natural unemployment rate is the cyclical unemployment rate. If the unemployment rate is greater than the natural unemployment rate, it must be true that the cyclical unemployment rate is greater than 0%. In a recessionary gap, the quantity supplied of labor is greater than the quantity demanded of labor, so there is a surplus in the labor market.

Suppose the economy is in a recessionary gap. The classical position is likely to be _______________ whereas the Keynesian position is likely to be ________________________.

b. wages and prices are flexible and will soon begin to fall, wages and prices are likely to be inflexible downward and the economy could end up being stuck in a recessionary gap

Suppose a person earned $10,000 in year 1, when the CPI was 213. It is now year 10 and the CPI is 243. The $10,000 in year 1 is equivalent to approximately what dollar amount in year 10?

c. $11,408

The frictional unemployment rate is 3 percent, the structural unemployment rate is 3.3 percent, and the (actual) unemployment rate is 6 percent. It follows that the natural unemployment rate is ___________ percent and the cyclical unemployment rate is ____________ percent.

c. 6.3 percent, -0.3 percent

A simple circular flow diagram shows that ______________ equals __________________.

c. GDP, total income

Which of the following is an example of income received but not earned?

c. Social Security benefits

Which of the following illustrates double counting?

c. The total market value of the steel used to produce a car and the total market value of the car itself are summed.

If the economy is operating ______________ its institutional production possibilities frontier, it is producing ______________ output than it would be at full employment.

c. above, more d. on, the same c and d are correct

Refer to Exhibit 8-1. A shift in short-run aggregate supply from SRAS1 to SRAS2 could be caused by which of the following?

c. an increase in labor productivity

Suppose that last month one U.S. dollar was worth 1.25 euros, but this month one U.S. dollar is worth 1.35 euros. Based upon this information, the U.S. dollar has ____________________ against the euro over the past month, which would cause U.S. exports to Europe to _____________ and U.S. imports from Europe to _______________.

c. appreciated, fall, rise

An economy can operate at a point that lies

c. beyond its institutional production possibilities frontier, but not beyond its physical production possibilities frontier.

The capital consumption allowance refers to

c. capital goods being used up in production through natural wear, obsolescence, and accidental destruction.

When the prices of goods and services are constant, higher wage rates mean ______________ costs of production and ____________ profits, leading to a ________________________________.

c. higher, lower, leftward shift of the short-run aggregate supply curve

Suppose that your nominal income increased by 10% last year while the consumer price index (CPI) increased by 2%. From this information you would be correct in concluding that the purchasing power of your income ______________ this year by ___________.

c. increased, 8 percent

The horizontal government purchases curve used to create the TE curve in the simple Keynesian model indicates that government purchases and Real GDP are

c. independent of one another.

When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ____________________ gap. In this situation, the (actual) unemployment rate is ___________ than the natural unemployment rate, and there is a ________________ in the labor market.

c. inflationary, lower, shortage

Of the various categories of unemployment, which category do most unemployed persons fall into?

c. job loser

Betty lost her job when a computer began doing the tasks that she used to do for her employer. Her skills and training are not transferable to any job market that is currently hiring workers. Under which category of unemployment would Betty be categorized?

c. structural unemployment

Among the assumptions of the simple Keynesian model is:

c. there is no foreign sector.

On a consumption curve graph, the consumption curve cuts through the _________ axis at some _____________ dollar amount when either disposable income or Real GDP is zero.

c. vertical, positive

Look at the following data (stated in billions of dollars): consumption = $600; exports = $90; imports = $95; inventory investment = $110; fixed investment = $150; government purchases = $300. GDP is equal to __________________ billion.

d. $1,155

If Real GDP was $12,454 billion in year 2 and it had been $12,323 billion in year 1, then what was the approximate economic growth rate during this period?

d. 1.06 percent

Can a change in the price level change aggregate demand?

d. No, a change in the price level changes the quantity demanded of Real GDP.

National income is the sum of

d. compensation of employees, rental income, net interest, corporate profits and proprietors' income.

In an economy where the short-run equilibrium price level is greater than the current price level, the quantity demanded of Real GDP is _________________ the quantity supplied of Real GDP, which will push the price level ___________________.

d. greater than, upward

Economists who believe that the economy is self-regulating advocate for a policy prescription of _________________ which means that government has _____________economic management role to play.

d. laissez-faire, no

In a recessionary gap, the implications of downward wage inflexibility are that there will be:

d. no rightward shifts of SRAS, allowing for persistent higher unemployment than would occur at Natural Real GDP.

Margaret is currently categorized by the Bureau of Labor Statistics as a discouraged worker. Margaret would therefore _________________ counted as unemployed because discouraged workers are________________.

d. not be, not actively looking for work

Unemployment due to changes in the types of skills employers require is called __________ unemployment.

d. structural

The employment rate equals

d. the number of employed persons divided by the civilian noninstitutional population.

The consumption function depicts the ______________ relationship between consumption and __________________.

direct, disposable income

The three components that make up corporate profits are

dividends, corporate profits taxes, and undistributed corporate profits

A person has $50,000 and the price level is 120. The price level falls to 113. As a result there is a change in the purchasing power of the $50,000. This change in the purchasing power of $50,000 is referred to as the ____________________ and it helps to explain why the AD curve slopes ____________.

e. real balance effect, downward

According to Say's law, in a money economy a reduction in consumption spending causes a ___________ of the saving curve and therefore a ________________ in the interest rate. This, in turn, causes the amount of ______________ to _____________.

e. rightward shift, decline, investment, increase

Robert lost his job in industry XYZ, but his skills can easily be transferred to another industry (which is currently hiring). Jeff lost his job in industry ABC (which is currently not hiring), but his skills cannot be transferred to any other industry. Robert is __________ unemployed and Jeff is __________ unemployed.

frictionally, structurally

Suppose that an economy is experiencing an unexpected increase in inventories and in response, firms are decreasing their production of goods and services. This scenario is consistent with a situation in which total expenditures are ________________ total production.

less than

The marginal propensity to consume is always a ____________ number between___________.

positive, 0 and 1

A decrease in business taxes ____________________ the expected profitability of investment decisions, shifting the aggregate demand curve ___________________.

raises, rightward

When a self-regulating economy is in a recessionary gap, the labor market is in ____________, wages begin to ___________, and the ___________ curve shifts __________.

surplus, fall, SRAS, rightward

The base year is the year

that serves a reference point or benchmark

Suppose buyers don't buy as many units of output as firms have produced. The unsold units find their way into ____________________ and as a result investment rises and so does GDP.

unplanned inventory investment

Which of the following would definitely not be counted in the measurement of GDP?

value of the services of a person who cooks his or her own food

Keynes believed that

wages and prices can be inflexible in the downward direction

A necessary condition for the economy to be self-regulating is that

wages must be flexible in both an upward and downward direction.

Refer to the exhibit. According to the Keynesian view of the economy, if the economy is at point 1,

wages will probably remain unchanged, and the economy could very well remain stuck at point 1.