Macro Chap 15

Suppose that the value of the multiplier has increased in recent years. Which of the following would have caused this

"Buy America" campaigns launched by many unions have succeeded in reducing the demand for imported goods

Refer to Table 15.2. What is the real wage rate in 2015 using 2016 as the base year?

$11.20

Refer to Table 15.1. What is the real wage rate in 2014 using 2016 as the base year?

$13.30

Refer to Table 15.2. What is the real wage rate in 2015 using 2017 as the base year?

$15.20

Refer to Table 15.1. What is the real wage rate in 2016 using 2014 as the base year?

$6.84

Refer to Table 15.1. What is the real wage rate in 2015 using 2014 as the base year?

$7.14

Refer to Table 15.2. What is the real wage rate in 2016 using 2015 as the base year?

$7.14

Refer to Table 15.2. What is the real wage rate in 2017 using 2015 as the base year?

$7.37

Refer to Table 15.1. What is the real wage rate in 2016 using 2015 as the base year?

$9.58

Nancy's Nail Salon employs five workers. Each worker works eight hours per day. The five workers are able to serve 20 customers per day. The labor productivity is therefore ________ customer(s) per person/hour.

.5

If Okun's Law holds true, then a 3% increase in GDP would lead to a ________ percentage point decrease in the unemployment rate.

1

Okun's Law states that the unemployment rate decreases about

1% point for every 3% increase in GDP

In practice, the size of the multiplier is about

1.4

Soozie's Smoothies employs 10 workers. Each worker works eight hours per day. The ten workers are able to make 240 smoothies per day. The labor productivity is therefore _____ smoothies per person/hour

1.5

At the beginning of 2017, the Shades of Gray Company has 8,000 pairs of sunglasses in stock. During 2017, the company produces 120,000 pairs of sunglasses and sells 112,000 pairs of sunglasses. The Shades of Gray Company's stock of inventory at the end of 2017 is ________ pairs of sunglasses.

16,000

Suppose that output in an economy is 1,000 units and the number of hours worked in the economy is 40. If the economy enters an expansion, which of the following combinations of output and hours worked would best reflect the expansion?

1600 units of output and 60 hours worked

Suppose that output in an economy is 50 units and the number of hours worked in the economy is 25. What is the value of labor productivity?

2 unites per worker hour

According to Okun's Law, if GDP increased by 6%, the unemployment rate would decrease by

2% points

From 1970 to 2014, plant and equipment investments of the firm sector of the U.S. economy reached its peak in the

2000s

Suppose that output in an economy is 1000 units and the number of hours worked in the economy is 20. What is the value of labor productivity?

25 units per worker hour

If Okun's Law holds true, then a 9% increase in GDP would lead to a _____ percentage point decrease in the unemployment rate

3

Suppose that output in an economy is 50 units and the number of hours worked in the economy is 25. If the economy enters an recession, which of the following combinations of output and hours worked would best reflect the expansion?

30 units of output and 20 hours worked

According to Okun's Law, if GDP increased by 12%, the unemployment rate would decrease by

4 percentage points

If Sammy does not have a full-time job but is working part-time at 4 different jobs, he is counted _____ in the job data, and ____ in the persons employed data

4 times; once

If the number of people employed is 190 million and the number of people in the labor force is 200 million, then the unemployment rate is

5%

At the beginning of 2017, the Absorbo Company has 10,000 sponges in stock. During 2017, the company produces 200,000 sponges and sells 160,000 sponges. The Absorbo Company's stock of inventory at the end of 2017 is ________ sponges.

50,000

Suppose that output in an economy is 1,000 units and the number of hours worked in the economy is 40. If the economy enters a recession, which of the following combinations of output and hours worked would best reflect the expansion?

600 units of output and 25 hours worked

If the employment rate is 93% then the unemployment rate is

7%

Suppose that output in an economy is 50 units and the number of hours worked in the economy is 25. If the economy enters an expansion, which of the following combinations of output and hours worked would best reflect the expansion?

70 units of output and 30 hours worked

If the unemployment rate is 13%, then the employment rate is

87%

The multiplier reaches its peak about _____ months after a spending increase began

9 to 12

If the number of people employed is 190 million and the number of people in the labor force is 200 million, the the unemployment rate is

95%

Refer to Figure 15.1. Which of the following could cause a movement from Point B to Point C?

A decrease in the interest rate

When output increases by 1%, the number of jobs does not tend to rise by 1% in the short run. Which of the following statements represents one of the reasons why this is true?

A firm is likely to meet some of the increase in output by increase the number of hours worked per job

Refer to Figure 15.1. Which of the following could cause a movement from Point A to Point B?

An increase in the interest rate

Assume that households have positive wealth. Which of the following explains how the income effect of an interest rate increase affects consumption?

As the interest rate increases, nonlabor income increases and current consumption increases.

Which of the following is not one of the "slippages" between changes in output and changes in the unemployment rate?

As the size of the labor force increases, the interest rate increases, and therefore output falls

Which of the following statements is true

Changes in output per worker over the business cycle have nothing to do with the long run potential of the economy

Refer to Figure 15.1. If the economy is currently at Point C, pessimism about future growth in aggregate output moves the economy to Point

E

A decrease in corporate profits, resulting in a decline in dividend payments, will decrease consumption and decrease labor supply

False

According to Okun's law, if output increased by 15%, unemployment should decrease by 3%

False

According to the permanent income hypothesis, a one time tax rebate will generally have a considerable impact on consumption

False

Any increase in non labor income unambiguously leads to a decrease in consumption and a decrease in labor supply

False

Consumption depends solely on income

False

Discouraged workers are counted as part of the labor force

False

For every 3% growth in output, the unemployment rate always declines 1%

False

If taxes are a fixed amount rather than dependent on income, the size of the multiplier is decreased

False

If the substitution effect dominates the income effect, a decrease in transfer payments will have a negative effect on both consumption and labor supply.

False

If the substitution effect dominates the income effect, an increase in transfer payments will have a positive effect on both consumption and labor supply

False

If the wage rate decreases, the substitution effect is for a person to work more and the income effect is for a person to take more leisure

False

If the wage rate increases, the substitution effect is for a person to work less and the income effect is for a person to take less leisure

False

If you have more than one job, you are counted more than once in the persons-employed data

False

Investment affect output, but output does not affect investment

False

Investments is a very stable component of GP

False

Labor productivity rises during a recession as firms retain their more experienced worker

False

Okun's Law demonstrates the relationship between unemployment and inflation

False

Productivity fluctuates over the business cycle, tending to fall during expansions and rise during contractions

False

Recent research and data have shown that the relationship between output and unemployment is as stable as Okun's Law predicts.

False

Temporary policy changes have a greater effect than permanent ones

False

The amount of output produced by an average worker in one hour is per capita output

False

The closer the economy is to full employment, the larger the multiplier is

False

The idea of the "Invisible Hand" is that people make lifetime consumption plans

False

The multiplier becomes smaller as the economy moves farther away from full employment

False

The optimal level of inventories is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is greater than the gain (in interest revenue and decreased storage costs).

False

The path of income over a lifetime is likely to be much more stable than the path of consumption

False

The presence of automatic stabilizers increases the size of the multiplier

False

The real wage rate measures the amount that wages can buy in current dollars

False

The smaller the percentage of people who work, the higher the potential output per capita

False

When firms hold excess labor, the unemployment rate drops faster during an expansion

False

When firms hold excess labor, the value of the multiplier increases

False

When input prices adjust slowly, the multiplier is smaller

False

The unemployment rate does not tend to fall as soon as the economy pulls out of a recession. Which of the following best explains this?

Firms are holding excess labor, so as the economy pulls out of the recession, firms do not need to hire new workers immediately.

Which of the following statements is true?

Increases in the interest rate crowd out both consumption and investment spending, and this reduces the size of the multiplier.

Which of the following is an example of non labor income?

Inheritance

To describe the feelings of investors, the phrase "animal spirits" of entrepreneurs was coined by

John Maynard Keynes

If a firm's sales turn out to be more than expected, inventories will be

Lower the expected, and there will be more production in the future

When your income decreases, which of the following items are you likely to postpone buying first?

New iPhone

The theory that the unemployment rate decreases about 1% for every 3% increase in real GDP is

Okun;s Law

Refer to Figure 15.1. If the economy is currently at Point C ____ in aggregate output moves the economy to I3

Pessimism about future growth

Which of the following statements is true?

Production will fluctuate somewhat over time, but not as much as sales fluctuates over time

Which of the following relationships is correct?

Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) + Production - Sales

______ reaches its peak about 9-12 months after a spending increase began

The multiplier

Which of the following statements is true?

The multiplier effects for policy changes that are perceived to be temporary are smaller than those for policy changes that are perceived to be permanent.

Suppose that the value of the multiplier has decreased in recent years. Which of the following could have caused this?

There has been an increase in the demand for imported goods

Which of the following is not true of a change in dividend payments?

There is no substitution effect because a change in dividend payments does not change a household's permanent income

Which of the following is true of a change in dividend payments?

There is no substitution effect because a change in dividend payments does not change the trade-off between work and leisure

Which of the following is true in non labor income?

There is no substitution effect because a change in nonlabor income does not change the trade-off between work and leisure.

A firm holds excess labor if it can reduce the amount of labor it employs and still produce the same amount of output

True

A phrase coined by John Maynard Keynes to describe investors feelings is "Animal Spirits"

True

According to the accelerator effect, there is a tendency for investment to decrease when aggregate output decreases, thus accelerating the decline of output

True

According to the life-cycle theory of consumption, people tend to consume less than they earn during their main working years

True

According to the life-cycle theory of consumption, people tend to consume more than they earn during their early working years

True

According to the life-cycle theory of consumption, people tend to dissave during their retirement years

True

According to the life-cycle theory of consumption, people tend to save during their main working years

True

An unexpected decrease in inventories has a positive effect on future production

True

An unexpected decrease in non labor income will have a negative effect on a household's consumption

True

An unexpected increase in inventories has a negative effect on future production

True

As the economy starts to contract, labor productivity falls as firms hold excess labor

True

As the economy starts to expand, labor productivity rises as firms starts using any excess labor they kept during the recession

True

Because many events cannot be foreseen, investments is made with imperfect knowledge

True

Employment does not fluctuate as much as output over the business cycle

True

Expenditures on services fluctuate less than expenditures on durable goods

True

Generally speaking, wreath starts out negative, turns positive, then approaches zero near the end of life

True

Inventory investment is the difference between the level of output and the level of sales

True

Output is likely to respond more to sales increases in high-output periods than in low-output periods, provided that firms have enough capital and labor to support the output increase.

True

Permanent income refers to the average level of a person's expected future income stream

True

The "crowding out" effect decreases planned investment and decrease the value of the multiplier

True

The amount a household would like to work within a giver period at the current wage rate if it could find the work is referred to as the unconstrained supply of labor.

True

The collective decision of firms determine output, labor demand, and investment

True

The cost that a firm incurs when it changes it production level are adjustment costs

True

The idea of the life-cycle theory of consumption is that people make lifetime consumption plans

True

The labor force increase when output increases because discouraged workers re-enter the labor force

True

The less inventories firms hold, the larger multiplier

True

The most volatile type of investment is inventory investment

True

The path of consumption over a lifetime is likely to be much more stable than the path of income

True

The quantity of labor supplied by households depends on factors such as the wage rate, prices, wealth, and non labor income

True

The real wage rate is the nominal wage rate adjusted for inflation since some base year

True

The relationship between output growth and unemployment depends on the state of the economy

True

Time is a key factor in investment decisions

True

When an economy expands the unemployment rate is slow to drop because the labor force expands too

True

When firms gold excess capital, the value of the multiplier decreases

True

Although the relationship between output and the unemployment rate is not as simple as Okun's Law represents it to be, it is true that

a 1% increase in output tends to correspond to less than 1% decrease in the unemployment rate

A decrease in transfer payments will result in

a decrease in consumption and an increase in labor supply

An unexpected increase in wealth or nonlabor income leads to

a decrease in labor supply

Which of the following causes an individual to increase his/her supply of labor?

a decrease in non labor

Refer to Figure 15.1. Which of the following could cause a movement from Point B to Point A?

a decrease in the interest rate

A decrease in consumption and an increase in labor supply would result from

a decrease in transfer payments

An unexpected increase in inventories has

a negative effect on future production

An unexpected increase in non labor income will have ____ effect on a household's leisure

a positive

The tendency for investment to decrease when aggregate output decreases is the result of the _____ effect

accelerator

The tendency for investment to increase when aggregate output increases is the result of the _____ effect

accelerator

The constrained supply of labor refers to the amount of household _____ in a given period at the current wage rate

actually work

The cost that a firm incurs when it changes its production are ____costs

adjustment

A firm is more likely to invest in new capital if

all of the above ( the productivity of capital is high, no excess capital, expects future sales to grow_

When output increases by 1%, the unemployment rate does not tend to fall by 1% in the short run because

all of the above (a firm is likely to meet some of the increase in output by increasing the number of hours worked per job, the number of people who become employed is less than the number of new jobs created, as output increases, the size of the labor force increases)

An unexpected decrease in wealth or non labor income leads to

an increase in labor supply

Refer to Figure 15.1. Which of the following could case a movement from Point C to Point B?

an increase in the interest rate

The discouraged worker effect reflects

an increase in the measured employment rate

The income effect of a wage rate decrease should lead to

an increase in the quantity of labor supplied and a decrease in leisure

An increase in consumption and a decrease in labor supply would result from

an increase in transfer payments

Which of the following causes a decrease in labor supply?

an increase in transfer payments

An increase in non labor income leads to ____ in consumption and _____ in labor supply

an increase; a decrease

The phrase that was coined bye John Maynard Keynes to describe the feelings of investors was the ______ of entrepreneurs

animal spritis

As the economy _____, the sizeof the multiplier will become smaller

approaches full employment

People who have two jobs

are counted twice in the job data, but only once in the persons- employed data

If the economy has no automatic stabilizers built in, the multiplier will

be larger than it would been with automatic stabilizers

If the economy has automatic stabilizers built in, the multiplier will

be smaller than it would have been in the absence of automatic stabilizers

As the economy approaches full employment, the size of the multiplier will

become smaller

At the beginning of 2017, Albert planned to buy a new home theater system, laptop computer, and hybrid car by borrowing money. Albert already owes $9,000 on other loans. He also planned to buy a new iPod and humidor out of current income. A decrease in interest rates during 2017 will most likely

cause Albert to decide to borrow money and to spend more on gods purchased with current income

At the beginning of 2017, Joey planned to buy a new iPhone, LCD TV, and motorcycle by borrowing money. Joey already owes $25,000 on other loans. He also planned to buy new clothing and DVDs out of current income. An increase in interest rates, during 2017, will most likely

cause Joey to decide to borrow less money and to spend less on goods purchased with current income.

Production minus sales equals

change in inventories

Adjustment costs are the costs that a firm incurs when it

changes its production level

When interest rates decrease, the substitution effect suggests that individuals will

consume more today

There is an increase in aggregate demand, and firms do not have sufficient capital and labor to support an output increase. In this case, inventory stocks will

continue to fall, there will be a large increase in the price level

On average, the inventory/sales ration has been _____ over time

declining

An increase in wealth will usually cause an individual to ______ his supply of labor

decrease

If it becomes less expensive for firms to hold excess capital and labor, the multiplier will

decrease

The Unique Toy Company rents space by the square foot in a warehouse to store its inventory. The owner of the warehouse just doubled the rent he charges the Unique Toy Company. Everything else equal, the rent increase is likely to ________ Unique's optimal level of inventory.

decrease

Due to a decrease in the birthrate, the Tiny Feet Company expects a decrease in the sale of its baby booties over the next few years. The Tiny Feet Company will most likely

decrease current production

If the substitution effect is greater than the income effect, a decrease in interest rates will

decrease saving and increase consumption spending by households

The government increases the corporate profits tax. As a result, corporate profits decrease. This will

decrease the non labor income of households, causing consumption to decrease and labor supply to increase

Firms have inventories that they can draw down to meet an increase in demand. This will

decrease the size of the multiplier, because output will not immediately respond to changes in demand

An unexpected_____ in inventories has ____ effect on future production

decrease; a positive

Assume that households have positive wealth. As the interest rate ________, nonlabor income ________ and current consumption ________.

decrease; decrease; decrease

Arnold's nominal wage increased by 3%, and the prices of goods that Arnold buys increased by 5%. Arnold's real wage has

decreased

If an individual is a debtor, an increase in the interest rate

decreases current consumption

The non labor income of households will increase, causing consumption to increase and labor supply to decrease, if the government

decreases the corporate profits tax

A fall in the interest rate

decreases the opportunity cost of consuming today

The labor soppy will generally increase when the income tax rate ____ ( if the substitution effect dominates) or transfer payments ______

decreases; decreases

Consumption will generally increase when the income tax rate ______ or transfer payments ______

decreases; increases

In general, the relationship between output and unemployment

depends on the state of the economy at the time of the output change

The _____ of inventories is the level at which the extra cost of adding to inventory is equal to the extra gain from such a addition

desired level

The decline in the measured unemployment rate that results when people who want to work, but who cannot find work, drop out of the ranks of the unemployed and the labor force is the

discouraged-worker effect

According to the life-cycle theory of consumption, people tend to ___ during their early and later years

dissave

The portion of a corporation's profits that the firm pays out each period to shareholders is known as

dividends

Which of the following is not a transfer payment?

dividends

When output increases by 1% the unemployment rate _____ in the short run because as output increases, the size of the labor force increases

does not tend to fall by 1%

When output increases by 1%, the number of jobs ________ in the short run. One of the reasons why this is true is that a firm is likely to meet some of the increase in output by increasing the number of hours worked per job.

does not tend to rise by 1%

Empirical data suggests that during recessions, individuals reduce more of their consumption of

durable goods

The employment rate is the ration of the number of people

employed to the number of people in the labor force

If a firm is able to produce the same amount of output even after reducing its labor workforce, this implies that the firm has

excess labor

When the economy is in a slump, labor productivity tends to fall because firms have

excess labor

As the economy _______, the labor force increases, and as the economy ______, the labor force decreases

expands; contracts

Capital has a life that typically

extends over many years

If discouraged workers were counted as unemployed, then as output increased the unemployment rate would

fall by more than if discouraged workers are not counted as unemployed

Productivity tends to

fall during contractions

Refer to Table 15.2. From 2015 to 2016 the real wage

falls

If wages rate falls, consumption

falls because the income and substitution effects are working in opposite directions to change consumptions

The trend of the inventory/ sales ratio over time indicated that

firms are becoming more efficient in their management of inventory stocks

An increase in output will cause the unemployment rate to fall by a larger percentage if

firms aren't holding excess labor

At low levels of output, the economy can expand with little or no increase in the overall price level because

firms likely hold excess labor and capital, and production can be increased without causing input prices to increase

Productivity fluctuates along a business cycle because

firms usually keep excess labor

A graduate student is likely to consume less than a factory worker because the

graduate student's permeant income is likely lower than the factory worker's permanent income

Assume households have positive wealth. If the income effect is ________ the substitution effect, a decrease in interest rates will increase saving and decrease consumption spending by households.

greater than

If the income effect is greater than the substation effect, the labor supply curve

has a negative slope

The government spending multiplier is likely to be smaller during periods of

high output and low unemployment

The larger the percentage of people who work, the ____ output per capita

higher the potential

The _____ labor- force participation rate is among prime-age

highest;men

Labor productivity will decrease if a firm

holds excess labor

Which of the following types of expenditures is more volatile than plant and equipment investment?

housing investment

Related to the Economics in Practice on p. 287: The Case-Shiller index of housing prices measures the change in price of

identical houses that have sold multiple times

If it becomes more expensive for firms to hold excess capital and labor, the multiplier will

increase

The Yum Yum Bubble Gum Company rents space in a warehouse to store its inventory. The owner of the warehouse just lowered the rent he charges the Yum Yum Bubble Gum Company. Everything else equal, the rent decrease is likely to ________ Yum Yum's optimal level of inventory.

increase

If discouraged workers were counted as unemployed, then as output decreased the unemployment rate would

increase by more than is the case if discouraged workers are not counted as unemployed.

Due to an increase in the birthrate, the Solid Wood Furniture Company expectes an increase in the sale of its scrubs over the next future years. The Solid Wood Furniture Company will most likely

increase current production

Assume households have positive wealth. If the income effect is greater than the substitution effect, a decrease in interest rates will

increase saving and decrease consumption spending by households

The government reduced the corporate profits tax. As a result, corporate profits increase. This will

increase the non labor income of households, causing consumption to increase and labor supply to decrease

A rise in the interest rate

increase the opportunity cost of consuming today

Firms have no inventories that they can draw down to meet an increase in demand. This will

increase the size of the multiplier, because output will need to immediately respond to changes in demand

Suppose that input prices respond very slowly to output price. This will

increase the value of the multiplier

Consumption will generally decrease when the income tax rate _____ or transfer payments _____

increase; decrease

The government reduces the corporate profit tax. As a result, corporate profits increase. This will _____ the non labor income of households, causing consumption to _____ and labor supply to ______

increase; increases decrease

Todd's nominal wage increased by 5% and the prices of goods that Todd buys increased by 3%. Todd's real wage has

increased

Related to the Economics in Practice on p 287. The Case-Shriller index of housing prices

increased by 125% from 1996 to 2006, fell by 38% from 2006-2011, showed an annual increase of over 7% in 2012 and early 2013.

The non labor income of households will decrease, causing consumption to decrease and labor supply to increase if the government

increases the corporate profits tax

As the economy expands, the labor force ____, and as the economy contracts, the labor force ______

increases; decreases

The labor supply will generally decrease when the income tax rate _____ (if the substitution effect dominates) or transfer payments ______

increases; increases

The substitution effect of a wage rate decrease suggests that

individuals will supply less work

The goods and services that firms purchases and turn into final goods and services are called

inputs

Which of the following types of investments is the most volatile?

inventory investment

The tendency for _____ to decrease when ____ decreases is the result of the accelerator effect

investment aggregate output

The two channels through which monetary policy can influence behavior in the goods market are

investment and consumption

The tendency for ______ to increase when ______ increases is the result of the accelerator effect

investment; aggregate output

A change in tax rates _____ affect individual's behavior regarding consumption and saving if the change in permanent

is likely to

A firm is less likely to invest in new capital if

it does not expect future sales to grow

The desired level of inventories is the level at which the extra cost ( in lost sales) from lowering inventories by a small amount is

just equal to the extra gain ( in interest revenue and decreased storage costs)

Output per worker hour is known as

labor productivity

The amount of output produced by an average worker in one hour is

labor productivity

The _______ refers to the amount a household actually works within a given period at the current wage rate

labor-force participation rate

Firms believe that the current economic downturn will be long-lasting and have decided to hold very little excess labor. The government reports that the unemployment rate is 12.5%. The government has decided to stimulate the economy by increasing government spending. In this situation the multiplier is

large

Firms report that their workers are working no overtime. The government reports that the unemployment rate is 13.5%. In this situation, the multiplier is likely to be

large

The government spending multiplier is likely to be _____ during periods of low output and high unemployment

larger

If the economy is on the flat part of the AS curve, the multiplier will be

larger than it would be if the economy were on the steep portion of the AS curve

Refer to Figure 15.2. Labor productivity at t ime t2 is

larger than labor productivity at time t1

Refer to Figure 15.2. Labor productivity at time t1 is

larger than labor productivity at time t3

Refer to Figure 15.2. Labor productivity at time t2 is

larger than labor productivity at time t3

The ____ in the labor force participation rate since 1970 is among prime age women

largest increase

An increase in dividend payments will

lead to a decrease in labor supply

A decrease in dividend payments will

lead to an increase in labor supply

Monetary policy is _____ it was in the past _____ the income effect of an interest rate change on consumption has increase

less effective as; even though

If a firm' sales turns out to be _______, inventories will be higher than expected, and there will be less production in the future

less than expected

Refer to Figure 15.2.Labor productivity at time t3 is

less than labor productivity at time t4

At ________ levels of output, the economy can expand with little or no increase in the overall price level because firms likely hold excess labor and capital, and production can be increased without causing input prices to increase.

low

The government spending multiplier is likely to be larger during periods of

low output and high unemployment

If inventory stocks are ______ and firms have enough capital and labor to support an output increase, monetary and fiscal policy will be _____

low; very effective

According to the life-cycle theory of consumption, people tend to save during their ____ years

main working

A medical student is likely to consume more than a high school student because the

medical student's permanent income is likely higher than the high school student's permanent income

The two channels through which ______ policy can influence behavior in the goods market are investment and consumption

monetary

If inventory stocks are low and firms have enough capital and labor to support an output increase

monetary and fiscal policy will be very effective

The measured unemployment rate does not fall as much as one might expect when output increases because, as the economy expands

more people enter the labor force

The measured unemployment rate does not rise as much as one might expect when output decreases because, as the economy contracts

more people leave the labor force

Refer to Figure 15.2. Between times t3 and t4 labor is

more productive because growth in employment is less than growth in output

According to the life-cycle theory of consumption, people tend to consume ____ they earn during they early and later years

more than

Refer to Figure 15.1. Suppose the economy is currently at Point B. If investors are optimistic about future growth in aggregate output, investment

moves to point D

The path of consumptions over a lifetime is likely to be ____ the path of income

much more stable than

In practice, the size of the ______ is about 1.4

multiplier

An unexpected decrease in non labor income will have ____ effect on a household's consumption

negative

Households are said to have _____ wealth when the value of their assets is less than the debts they owe

negative

Empirical evidence with respect to the labor supply decision suggest that the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds ____ in the wage rate

negatively to a decrease

The average level of expected future of income is

net income

Purchases of ____ are the most volatile type of expenditures because they are sensitive to the interest rate, which is highly volatile

new houses

Sammy won the Quartermania jackpot in Las Vegas and decides to work less. This is an example of the impact of

non labor income on Sammy's decision

Over time, spending on___ is "smoother" than spending on ____

nondurable goods; durable goods

When the substitution effect is greater than the income effect, Donna will supply more work if

none of the above

Which of the following types of expenditures is more volatile than plant and housing investment?

none of the above

An inheritance is an example of _____ income

nonlabor

Okun's Law has

not turned out to be a law- the relationship between changes in GDP and the unemployment rate is more complex than Okun's Law indicates

The amount of output produced by an average worker in _____ is labor productivity

one hour

The unemployment rate is

one minus the employment rate

The employment rate is

one minus the unemployment rate

Refer to Figure 15.1. Suppose the economy is currently at Point B. If investors are ______ in aggregate output, investment moves the economy to I2

optimism about future growth

The slippage between _____ occurs because the unemployment rate is calculated from data on the number of people employed

output and the unemployment rate

During economic downswings,

output falls faster than employment, and the ratio of output to workers falls

Provided that firms have sufficient capital and labor to suppose an output increase, monetary, and fiscal policy are likely to be the most effective when

output is lower and inventory stocks are low

During economic expansions

output rises by a larger percentage than employment, and the ratio of output to workers rises

An increase in ___ will cause the ____ to fall by a larger percentage if firms aren't holding excess labor

output; unemployment rate

Assume that the substitution effect dominates the income effect. When wages fall

people will work fewer hours

Assume that the income effect dominates the substitution effect. When wages rise

people will worker fewer hours

The average level of one's expected future income stream is

permanent income

Which. of the following types of investment is the least volatile?

plant and equipment investment

Generally speaking, when aggregate output does ____ investment does _____

poorly; poorly

The largest increase in the labor force participation rate since 1970 is among

prime age women

The highest labor-force participation rate is among

prime-age men

Changes in inventories equals the difference between

production and sales

The difference between the stock of inventories at the end of a specific period and the stock at the beginning of that period is equal to

production minus sales

The portion of a corporation's _____ that the firm pays out each period to a shareholders is known as dividends

profits

The wage rate that is adjusted for changes in the price level over time is the

real wage rate

If firms believe that a downturn in sales and output is temporary and that increased output will be needed in the future, they may choose to

reassign their workers to different jobs

Empirical data suggest that during recession, individuals _____ their consumption of durable goods

reduce

A firm is holding excess labor. This will

reduce labor productivity

If a policy maker wants to change taxes to encourage individuals to increase their labor supply, the policy maker should

reduce the income tax rates that individuals pay

Suppose that input prices respond very quickly to output price. This will

reduce the value of the multiplier

Refer to Table 15.1. From 2014 to 2016 nominal wages

rise

Productivity tends to

rise during expansions

Refer to Table 15.2. From 2016 to 2017 the real wage

rises

In general, the relationship between _____ and ____ depends on the state of the economy at the rime of the output change

saving; output

Refer to Figure 15.1. Growth in aggregate output causes a ______ through the accelerator effect

shift from I3 to I1

Refer to Figure 15.1. Growth in aggregate output causes a ____ though the accelerator effect

shift from I3 to I2

Firms believe that the current economic upturn will be long-lasting and have decided to hold a significant amount of excess labor. The government reports that the unemployment rate is 2.5%. The government has decided it needs to take very little action to stimulate the economy. In this situation the multiplier is likely to be

small

Firms report that their workers are working six hours of overtime per week. The government reports that the unemployment rate is 3.5%. In this situation, the multiplier is likely to be

small

The government spending multiplier is likely to be ______ during periods of high output and low unemployment

smaller

If the economy is on the steep part of the AS curve, the multiplier will be

smaller than it would be if the economy were on the flat portion on the AS curve

Over time, spending on nondurable goods is ______ spending on durable goods

smoother than

If the ________ effect is greater than the ________ effect, a decrease in interest rates will decrease saving and increase consumption spending by households.

substitution; income

Refer to Figure 15.2. Between times _____, labor is more productive because growth in employment is less than growth in output

t3 and t4

If firms believe that a downturn in sales and output is _____. the most likely course of action would be too reassign their workers to different jobs

temporary

Transfer payments are cash payments made by _____ directly to ______

the government; households

When forming their expectations, firms gather information about all the following factors expect

the historical supply of their competitors line of products

Caroline's hourly wage rate was reduced from $22 to $16. As a result of the age decrease, Caroline desires to work more hours and take fewer hours of leisure. For Caroline

the income effect dominates the substitution effect

Assume that Krystal has positive wealth. As interest rate increased, Krystal increased her current consumption. For Krystal

the income effect of an interest rate increase outweigh the substitution effect

Holding everything else constant, the less wealth household has

the less it will consume, both now and in the future

The slippage between output and the unemployment rate occurs because the unemployment rate is calculated from data on

the number of people employed

A firm has no cost other than inventory costs will always aim to produce in a period the volume of goods necessary to make its stock of inventories at the end of the period equal to

the optimal level

If a firm is able to produce _____ output even after reducing its labor workforce, this implies that the firm has excess labor

the same amount of

When the substitution effect is greater than the income effect, Juanita will not supply more work if

the wage rate and the price level increase proportionately, the percentage increase in the price level is greater than the percentage change in wages, wages are falling faster than prices.

The opportunity cost of leisure will fall if

the wage rate decreases

The opportunity cost of leisure will rise if

the wage rate increases

Cash payments made by the government directly to households are

transfer payments

The ______ refers to the amount a household would like to work within a given period at the current wage rate if it could find the work

unconstrained supply of labor

The unemployment rate is the ration of the number of people

unemployed to the number of people in the labor force

Okun's Law states that the _______ decreases about 1% point for every 3% increase in _____

unemployment rate; GDP

Generally speaking, ______ starts out negative, turns positive, then approaches zero near the end of life

wealth

Generally speaking, investment does _____ when aggregate output does ______

well; well

If the income effect is less than the substitution effect and the wage rate decreases, individuals

will supply less work

If the income effect is less than the substitution effect and the wage rate increases, individuals

will supply more work

If an individual is a debtor

the income and substitution effects of an increase in the interest rate work in the same direction

Jenny's hourly wage rate increased from $17 to $21. As a result of the wage increase, Jenny desires to work fewer hours and take more hours of leisure. For Jenny

the income effect dominates the substitution effect

Monetary policy is less effective than it was in the past because

the income effect of an interest rate change on consumption has increased

Assume that Brenda has positive wealth. As interest rate decreased, Brenda reduced her current consumption. For Brenda

the income effect of an interest rate decrease outweighs the substitution effect

Purchases of new houses are the most volatile type of expenditures because they are sensitive to ___ which is highly volatile

the interest rate

Holding everything else constant, the more wealth a household has

the more it will consume, both now and in the future

The wage rate that is adjusted for changes in ______ over time is the real wage rate

the price level

Megan took pay cut from $10 an hour to $7 an hour. As a result of the wage decrease, Megan desires

the substitution effect dominates the income effect

Mickey got a raise from $14 an hour to $20 an hour. As a result of the wage rate increase, Mickey desires to work more hours and take less hours of leisure. For Mickey

the substitution effect dominates the income effect

Empirical evidence with respect to the labor supply decision suggests that

the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate.

Households are said to have positive wealth when

the value of their assets is greater than the debts they owe

The unconstraint supply of labor refers to the amount a household _____ within a given period at the current wage rate if it could find the work

would like to work

The income effect of a wage rate increase should lead to

a decrease in quantity of labor supplied and an increase in leisure

Assume that the substitution effect dominates the income effect. An increase in both consumption and labor supply would result from

a decrease in tax rates

Which of the following causes an increase in labor supply?

a decrease in the general price level

A decrease in non labor income leads to _____ in consumption and ______ in labor supply

a decrease; an increase

When interest rates increase, the substitution effect suggest that individuals will

consume less today

Which of the following factors factors is not one of the determinants of a household's budget constraint?

consumer's preferences

The path of ____ over a lifetime is likely to be much more stable than the path of _____

consumption; income

According to the life-cycle theory of consumption, people tend to consume more than they earn during their ___ years

early/later

According to the life-cycle theory of consumption, people tend to dissolve during their _____ years

early/later

According to the life-cycle theory of consumption, people tend to consume less than they _____ during their main working years

earn

If the income effect is ____ the substitution effect, the labor supply is vertical

equal to

The average level of one's _____ income stream is permanent income

expected future

Assume that the substation effect dominates the income effect. When the government raises tax rates, after-tax wage rates

fall, consumption decreases, and labor supply decreases

Refer to Table 15.1. From 2015 to 2016 the real wage

falls

The substitution effect of a wage rate increase suggests that

individuals will supply more work

If the income effect is equal to the substitution effect, the labor supply curve

is vertical

According to the life-cycle theory of consumption, people tend to consume ____ they earn during their main working years

less than

The idea of the ____ is that people make lifetime consumption plans

life-cycle theory of consumption

The idea of the life-cycle theory of consumption is that people make ____ consumption plans

lifetime

The smaller the percentage of people who work, the

lower the potential output per capita

Refer to Table 15.2. From 2016 to 2017 nominal wages

rise

Refer to Table 15.1. From 2014 to 2016 the real wage

rises then falls

According to the life-cycle theory of consumption, people tend to ____ during their main working years

save

If the income effect is ____ the substitution effect, the labor supply curve has a positive slope

smaller than

Generally speaking, wealth

starts out negative, turns positive, then approaches zero near the end of life

Permanent income is

the average level of expected future income

A change in tax rates is likely to affect individuals' behavior regarding consumption and saving if

the change is permanent