macro final

A market in disequilibrium would feature: a stable price. consumers able to purchase all they wish at the market price. a stable quantity. either excess supply or excess demand.

either excess supply or excess demand.

At the national level, higher saving rates lead to ______ and higher standards of living. greater current consumption slower growth greater investment crowding out

greater investment

If the nominal interest rate is below the equilibrium value, then the quantity demanded of money is ______ than the quantity supplied of money, bond prices will ____, and the nominal interest rate will ____. greater; fall; increase greater; fall; decrease greater; rise; increase less; fall; increase

greater; fall; increase

Federal Reserve actions that increase nominal interest rates and decrease the money supply: close a recessionary gap. close an expansionary gap. raise the rate of inflation. raise bond prices.

close an expansionary gap.

ederal Reserve actions that increase nominal interest rates and decrease the money supply: close a recessionary gap. close an expansionary gap. raise the rate of inflation. raise bond prices.

close an expansionary gap.

The federal funds rate is the interest rate on short-term loans made by: the Federal Reserve to commercial banks. the federal government to the Federal Reserve. the Federal Reserve to the federal government. commercial banks to other commercial banks.

commercial banks to other commercial banks.

a. Washing machines and dryers are (complements/substitutes/both).

complements

b. Tennis rackets and tennis balls are (complements/substitutes/both).

complements

The two main responsibilities of the Federal Reserve System are to ______ and to ______. apprehend counterfeiters; regulate the stock market enable banks to make affordable mortgages; control the exchange rate of the U.S. dollar insure bank deposits; print currency conduct monetary policy; oversee financial markets

conduct monetary policy; oversee financial markets

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through: conducting open-market operations. changing the Federal Reserve discount rate. changing bank reserve requirement ratios. changing interest rates.

conducting open-market operations.

The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the: consumption cost calculator. consumption production index. consumer production index. consumer price index.

consumer price index.

The four components of aggregate expenditures are: consumption, imports, government spending, and net exports. consumption, interest payments, government spending, and net exports. consumer durables, investment, government spending, and net exports. consumption, investment, government spending, and net exports.

consumption, investment, government spending, and net exports.

The four components of planned aggregate expenditure are: spending on domestic goods, domestic services, foreign goods, and foreign services. spending on durable goods, inventory investment, government debt, and net exports. consumption, planned investment, government transfers, and net interest. consumption, planned investment, government purchases, and net exports

consumption, planned investment, government purchases, and net exports

The largest component of planned aggregate expenditure is: consumption. investment. government purchases. exports.

consumption.

The largest expenditure component of U.S. GDP is: consumption. investment. government purchases. exports.

consumption.

Government policies intended to decrease planned spending and output are called ______ policies. aggregate monetary fiscal contractionary

contractionary

Suppose Mary is willing to pay up to $15,000 for an used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______. benefit; $12,000 cost; $15,000 economic surplus; $3,000 economic surplus; $12,000

economic surplus; $3,000

The most commonly used measure of an economy's output is: the rate of employment. the rate of inflation. gross domestic product. the Dow Jones stock market index

gross domestic product.

Larry has a comparative advantage over his classmates in writing term papers if he: can write term papers faster than his classmates. has an absolute advantage in writing term papers. always earns an A on his term papers. has a lower opportunity cost of writing term papers than his classmates.

has a lower opportunity cost of writing term papers than his classmates.

c. Financial investors become concerned about increasing riskiness of stocks. The demand for money will (decrease/increase)

increase

An open-market purchase of government securities by the Fed will: increase bank reserves, and the money supply will increase. decrease bank reserves, and the money supply will increase. increase bank reserves, and the money supply will decrease. decrease bank reserves, and the money supply will decrease.

increase bank reserves, and the money supply will increase.

The Federal Open Market Committee makes decisions about ______ policy. monetary fiscal banking deposit insurance

monetary

The inside lag is relatively shorter for _____ policy; the outside lag is relatively shorter for _____ policy. monetary; fiscal monetary; monetary fiscal; monetary fiscal; fiscal

monetary; fiscal

When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan: money is created. the bank gains new reserves. the bank immediately loses reserves. the Fed has made an open-market purchase.

money is created.

Because the Fed determines the money supply, the: money supply curve is downward sloping. money supply curve is upward sloping. money supply curve is vertical. money supply curve is horizontal.

money supply curve is vertical.

If potential output for an economy equals $8 billion, and actual output equals $7 billion, then this economy has a(n): budget deficit. trade deficit. expansionary gap. recessionary gap.

recessionary gap.

In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion. Macroland has a(n) ______ gap equal to ______ percent of potential GDP. expansionary; 8 expansionary; 4 recessionary; -8 recessionary; -4

recessionary; -4 Since Macroland's actual GDP is less than its potential GDP, it has a recessionary gap. The size of the gap is [(Y - Y*) ÷ Y*] ×100, or [($19.2 billion - $20 billion) ÷ $20 billion] ×100 = -4 percent.

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n) _____ gap and inflation will _____. recessionary; increase recessionary; decrease expansionary; decrease expansionary; increase

recessionary; decrease

a. Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year. (unemployment is frictional, structural, or cyclical.)

structural

The natural rate of unemployment is equal to the unemployment rate when there is only: structural and cyclical unemployment. frictional unemployment. cyclical unemployment. structural and frictional unemployment.

structural and frictional unemployment.

Current income minus spending on current needs equals: saving. wealth. transfers. investment.

saving.

Bank C promises to pay a compound annual interest rate of 6 percent, while Bank S pays an 8 percent simple annual interest rate on deposits. If you deposit $1,000 in each bank, after 10 years, your deposit in Bank C equals _____, while your deposit in Bank S equals ______. $1,060; $1,800 $1,600; $1,800 $1,600; $2,159 $1,791; $1,800

$1,791; $1,800 Bank C uses the formula: FV = PV (1 + i)^n, where i is the interest rate and n the number of years, so that your deposit after 10 years = $1,000*(1.06)^10 = $1,791. Bank S uses the formula: FV = P + I, where I is the sum of all the interest payments (here 10 times $100), so that our deposit after 10 years = $1,000 + $800 = $1,800.

In Macroland, 500,000 of the 1 million people in the country are employed. Average labor productivity in Macroland is $20,000 per worker. Real GDP per person in Macroland totals: $1,000. $10,000. $15,000. $40,000.

$10,000. To find real GDP per person for Macroland, multiply the average output each worker produces times the percentage of population employed. In this case, real GDP per person is: ($20,000)*(500,000/1,000,000) = $10,000.

Fred purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the first, second, and third years and pays $10,400 upon its maturity at the end of four years. The principal amount of this bond is ___, the coupon rate is ____, and the term of this bond is _____. $400; 40%; four years $10,000; 4%; four years $10,000; $400; 4% $10,400; 4%; four years

$10,000; 4%; four years The principal is the original amount borrowed, i.e., $10,000 in this case. The annual payment is $400, which is the principal times the annual interest rate. At maturity, which is after four years, the bondholder gets his/her money back plus the annual interest payment.

Sydney purchases a newly issued, two-year government bond with a principal amount of $10,000 and a coupon rate of 6% paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if newly issued one-year government bonds are paying a 5% coupon rate? $9,906 $10,000 $10,095 $10,600

$10,095 In equilibrium, the previously issued bond must pay the same as the newly issued bond. The previously issued bond pays $10,000*1.06 = $10,600 when redeemed in a year, while the newly issued one-year bond pays $10,000*1.05 = $10,500. Therefore Sydney's previously issued bond sells at a premium. Since the price of Sydney's bond must allow the purchaser to earn the same 5% as on the newly issued bond, the bond price can be computed as: Bond price * 1.05 = 10,600 or Bond price = 10,600 / 1.05 = 10,095.

In Econland, 500,000 of the 2 million people in the country are employed. Average labor productivity in Econland is $15,000 per worker. Real GDP per person in Econland totals: $1,250. $3,750. $11,250. $60,000.

$11,250. To find real GDP per person for Econland, multiply the average amount of output each worker produces times the percentage of population employed. In this case, real GDP per person is: ($15,000)*(500,000/2,000,000) = $3,750.

If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government interest payments equal $10 billion, then net taxes equal: $115 billion. $125 billion. $190 billion. $275 billion.

$115 billion. The government collected $200 billion in taxes but gave back $85 billion in transfer payments and interest. Thus, the net collected was $115 billion.

If 50 percent of the population in a country is employed and average labor productivity equals $30,000, then real GDP per person equals: $15,000. $30,000. $50,000. $60,000.

$15,000. To find real GDP per person, which gives the standard of living, multiply the average output each worker produces times the percentage of population employed. In this case, real GDP per person equals: ($30,000*0.5) = $15,000.

If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches to consumers and uses to rest to make jam that is sold to consumers for $100,000, Bountiful Orchard's contribution to GDP is: $50,000. $100,000. $150,000. $200,000.

$150,000. Bountiful Orchard sold two final goods, peaches worth $50,000 and jam worth $100,000, to the ultimate buyer for $150,000.

Pat earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund. Pat's saving is _____, and Pat's saving rate is _____. $50; 5.0% $50; 5.9% $100; 10% $150; 15%

$150; 15% The savings rate is the amount saved divided by income. In this case, saving is $150, which is the income not spend on current needs, and the saving rate is $150/$1,000 = 0.15, or 15%.

Suppose a borrower and lender agree to an interest rate on a loan when inflation is expected to be 6%. The borrower would benefit the most if which of the following inflation rates actually occurred? 0% 3% 6% 9%

9%

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State NoName U is: $60,000 $30,000 $20,000 $15,000

$20,000 If Larry attends NoName U, he will not have any out-of-pocket expenses, but he will still have to give up the value of his next-best option. To determine the value of his next best option, note that the value to Larry from attending Elite U (net of tuition) is $60,000 - $50,000 = $10,000. And, his value from attending State College (net of tuition) is $40,000 - $20,000 = $20,000. Thus, going to State College is his next-best option, and his opportunity cost of attending NoName U is $20,000.

If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires, $100 for a car CD player, and sells cars made with these parts for $20,000, then each car the automobile manufacturer sells contributes how much to GDP? $19,300 $20,000 $20,200 $20,700

$20,000 Just the value of the final good, the $20,000 car, is included in GDP.

If the desired reserve/deposit ratio is 0.25 and the banking system receives an additional $10 million in reserves, bank deposits will increase by: $10 million. $250 million. $40 million. $4 million.

$40 million. When reserves increase by $10 million, bank deposits will increase by a multiple determined by the desired reserve/deposit ratio. In this case, the multiplier is 1/0.25 = 4, so the $10 million supports a $40 million increase in bank deposits.

If you left $2,500 on deposit with a bank promising to pay you a 6 percent compound annual rate of interest, then after 50 years your deposit would be worth approximately: $2,800 $18,420 $46,050 $250,750

$46,050 Use the formula FV = PV (1 + i)^n, where i is the interest rate and n the number of years, so that your deposit after 50 years = and $2,500*(1.06)^50 = $46,050.

In Macroland there is $12,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5%, deposits in Macroland equal ______ and the money supply equals _______. $48,000,000; $75,000,000 $54,000,000; $54,000,000 $48,000,000; $54,000,000 $96,000,000; $96,000,000

$48,000,000; $54,000,000 In Macroland, banks hold $6,000,000, which must be 12.5% of deposits, so deposits are $6,000,000*(1/0.125) = $48,000,000. Since the public also holds $6,000,000, the total money supply equals deposits and currency held by public or $48,000,000 + $6,000,000 = $54,000,000.

In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10%, deposits in Macroland equal ______ and the money supply equals _______. $50,000,000; $60,000,000 $55,000,000; $55,000,000 $50,000,000; $55,000,000 $100,000,000; $100,000,000

$50,000,000; $55,000,000 In Macroland, banks hold $5,000,000 in reserves, which must be 10% of deposits, so deposits are $50,000,000. Since the public also holds $5,000,000, the total money supply equals deposits and currency held by public or $50,000,000 + $5,000,000 = $55,000,000.

If real GDP per person in a country equals $20,000 and 40 percent of the population is employed, then average labor productivity equals: $8,000. $20,000. $40,000. $50,000.

$50,000. If real GDP per person is obtained by multiplying the average output each worker produces times the percentage of population employed. Then average output per worker or average labor productivity is = real GDP divided by the percentage of population employed =: $20,000/0.40 = $50,000.

Chris earns $1,500 per week and spends $1,000 per week on living expenses, puts $200 in a savings account, and buys $300 worth of shares in a stock mutual fund. Chris's saving is _____, and Chris's saving rate is _____. $200; 13.3% $200; 20.0% $300; 20.0% $500; 33.3%

$500; 33.3% Stocks and savings accounts are both considered savings. In this case, saving is $500 and the saving rate is $500/$1,500 = 0.33, or 33.3%.

If a pizza maker pays $1 for tomatoes, $1 for cheese, $2 for sausage, and sells the pizza made with these ingredients for $7, then each pizza sold contributes how much to GDP? $3 $4 $7 $11

$7 Just the value of the final good, the $7 pizza, is included in GDP.

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending Elite U is: $70,000 $50,000 $20,000 $15,000

$70,000 If Larry attends Elite U, he not only has to pay $50,000 in out-of-pocket expenses, but he also has to give up the value his next-best option. To determine the value of his next best option, note that the value to Larry from attending State College (net of tuition) is $40,000 - $20,000 = $20,000. And, his value from attending NoName U (net of tuition) is $15,000 - 0 = $15,000. So going to State College is his next best option, and his opportunity cost of going to Elite U is $50,000 + $20,000 = $70,000.

If the principal amount of a bond is $10,000,000, the coupon rate is 7%, and the inflation rate is 4%, then the annual coupon payment made to the holder of the bond is: $70,000. $300,000. $400,000. $700,000.

$700,000. The coupon rate is not directly connected to the inflation rate. In this case, the annual coupon payment is $700,000, which is the principle times the annual interest rate, i.e., $10,000,000*0.07 = $700,000.

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption. $13.33 $25 $75 $133

$75 If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a $75 increase in consumption because 0.75 ×$100 = $75.

Suppose the most you would be willing to pay for a plane ticket home is $250. If you buy one for $175, then your economic surplus is: $250. $175. $75. $0.

$75.

Peg's Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to nominal GDP in 2010 was ______ and in 2011 was _______. $80,000; $88,000 $80,000; $90,000 $80,000; $99,000 $88,000; $90,000

$80,000; $99,000 Peg?s contribution to nominal GDP in 2010 was (4,000 nails *$20) = $80,000, and her contribution in 2011 was (4,500 nails *$22) = $99,000.

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______. $1,000; $1,000 $9,000; $9,000 $9,000; $10,000 $1,000; $9,000

$9,000; $10,000 In this case, the money multiplier is 1/0.10 = 10. If 1,000 new dollars of currency are deposited in banks, they must hold $100 as required reserves and can lend out $900. Through the money multiplier, loans will increase by $900*10 = $9,000. The expansion of the money supply is the original deposit(s) + the increase in loans or $1,000 + $9,000 = $10,000.

Real GDP per person in both Alpha and Omega is equal to $2,000. Over the next 100 years, real GDP per person grows at a 1 percent annual rate in Alpha and at a 2 percent annual rate in Omega. After 100 years, real GDP per person in Alpha is ______ smaller than real GDP per person in Omega. $2,000 $5,410 $9,080 $11,080

$9,080 For Alpha, the future value equation is: Future GDP = $2,000*(1.01)^100 = $5,409.6. For Omega, the future value equation is: Future GDP = $2,000*(1.02)^100 = $14,489.3. The difference is $9,079.7 or $9,080.

When the Fed sells government securities, the banks': *reserves will increase and lending will expand, causing an increase in the money supply. *reserves will decrease and lending will contract, causing a decrease in the money supply. *reserve requirements will increase and lending will contract, causing a decrease in the money supply. *reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply.

*reserves will decrease and lending will contract, causing a decrease in the money supply.

If Alex deposits $1,000 from her paycheck into her checking account and, at the same time, increases her credit card balance by $1,500, then her saving is ______, and her wealth ______. +$1,000; decreases by $500 +$500; decreases by $1,000 -$500; increases by $2,500 -$500; decreases by $500

-$500; decreases by $500 The $1,000 deposit adds to assets whereas the $1,500 increase in credit card balances adds to liabilities. Thus, savings was -$500 and wealth decreased by $500.

If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals: -1 percent. 1 percent. -1.2 percent. 11 percent.

-1 percent. Cyclical unemployment is the difference between the actual rate of unemployment (u) and the natural rate of unemployment (u*); in this case u - u* equals -1 percent.

The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was ______ percent. -13.3 -11.8 1.5 11.8

-11.8 The percentage change in CPI is calculated as: (current price index - historic prices) / historic price index. In this case: (0.15 - 0.17) / 0.17 = -0.118, or an 11.8 percent decrease.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals: 0.25Y. 320 + 0.25Y. 0.75Y. 290 + 0.75Y.

0.75Y. Induced expenditure is the expenditure which is directly related to income. In this case, because C = 100 + 0.75(Y - T), we have PAE = C + I + G + NX = [100 + 0.75(Y - 40)] + 50 + 150 + 20 = 100 + 0.75Y - 30 + 50 + 150 + 20 = 290 + 0.75Y. Induced expenditure is the part related to income, which is 0.75Y.

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals: 0.1. 0.9. 1.0. 9.0.

0.9. If consumption increases by $9 in response to a $10 increase in disposable income, then consumption rose $0.90 for every $1 increase in disposable income, making the mpc equal to 0.9.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals: 1,000. 1,160. 1,280. 1,440.

1,160. PAE = C + I + G + NX = [100 + 0.75(Y - 40)] + 50 + 150 + 20 = 100 + 0.75Y - 30 + 50 + 150 + 20 = 290 + 0.75Y. Short-run equilibrium output occurs when Y equals PAE. The only value for Y in the answer choices that would also be equal to 290 + 0.75Y is 1,160.

Suppose that the total expenditures for a typical household in 2010equaled $2,500 per month, while the cost of purchasing exactly the same items in 2015 was $3,000. If 2010 is the base year, the CPI for 2010 equals: 0.83 1.00 1.20 1.25

1.00 The base year, by definition, has a CPI value equal to 1.00.

The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2010, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2015, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2015 on Planet Econ equals: 1.00 1.15 1.25 1.45

1.25 First, note that in the computation of the CPI, the basket of goods and services is fixed - so the quantities remain the same as in the base year. The market basket cost in 2010 was (10*$25) + (25* $2) = $300. The same market basket?scost in 2015 was (10*$30) + (25*$3) = $375, so the consumer price index is 1.25.

Suppose that the total expenditures for a typical household in 2010 equaled $5,500 per month, while the cost of purchasing exactly the same items in 2015 was $6,875. If 2010 is the base year, the CPI for the year 2015 equals: 0.80 1.00 1.20 1.25

1.25 CPI is calculated by taking the current price of the basket and dividing it by the historical price of the basket. In this case, $6,875/$5,500 = 1.25.

If the real interest rate is 3% and the inflation rate is 7%, then the nominal interest rate equals: 3%. 4%. 7%. 10%

10%

Which of the following is an example of an intermediate good? A new car sold to a family A metal-stamping machine used to produce cars sold to an automaker A new CD player sold to an automaker for installation in a car A new CD player sold to a teenager

A new CD player sold to an automaker for installation in a car

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $62.73 for one share of the stock today, and you expect a dividend payment of $4, what rate of return do you require? 3.6% 6.2% 6.4% 10%

10% To solve for your required rate of return, use the present value equation: PV (the current stock price) = FV (the future value) / (1 + i). Here, $62.73 = ($65 + $4) / (1 + i), so 1 + i = 1.10, and i = 0.10, or 10%.

population 16 and older- 1mil participation rate- 80% employed workers -720,000 7.2% 8.0% 10.0% 28.0%

10.0% There are 800,000 in the labor force, i.e., 1,000,000*0.80. From this labor force, 720,000 are employed and so 80,000 must be unemployed. The unemployment rate is 80,000/800,000, or 10%.

The CPI in 1974 equaled 0.49. The CPI in 1975 equaled 0.54. The rate of inflation between 1974 and 1975 was ______ percent. 5.0 5.4 9.3 10.2

10.2 The percentage change in CPI is calculated as: (current price index - historic prices) / historic price index. In this case:(0.54 - 0.49) / 0.49 = 0.102, or 10.2 percent.

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee. 7; 12; 12 12; 7; 12 12; 7; 19 14; 7; 21

12; 7; 12

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. What is the unemployment rate in this town? 10.0% 11.0% 13.7 % 14.5%

13.7 % To compute the unemployment rate you must know the number unemployed and divide it by the labor force. The labor force is 73, taking out those 10 children who are too young to work and the 17 people who are not in the labor force (retired, full-time students, and homemakers). We know 63 are working, so 10 must be unemployed. Ten divided by 73 is 13.7%.

If the money supply equals 1,000, velocity equals 5, and real GDP equals 2,500, then the price level equals: 2. 2.5. 5. 5,000.

2 The Quantity Equation says: PY = MV. In this case, (P*2,500) = 1,000*5, and P = 5,000/2,500 = 2.

If potential output equals $8 billion and actual output equals $10 billion, then this economy's output gap should be expressed as: $2 billion. 20 percent. 25 percent. -25 percent.

25 percent. An output gap is measured relative to potential output and it is calculated according to the formula [(Y - Y*) ÷ Y*] ×100. In this case, the output gap is [($10 billion - $8 billion) ÷ $8 billion] ×100 = 25 percent.

Working efficiently, Jordan can write 3 essays and outline 4 chapters each week. It must be true that: 6 essays and 0 chapter outlines would be unattainable. 2 essays and 3 chapter outlines would be efficient. 3 essays and 5 chapter outlines would be unattainable. 4 essays and 3 chapter outlines would be both attainable and efficient.

3 essays and 5 chapter outlines would be unattainable.

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment? 2 percent 3 percent 4 percent 5 percent

3 percent If PAE = 15,000 + 0.6Y - 20,000r, and Y = 36,000 at full employment, then 20,000r = 15,000 + 0.6(36,000) - 36,000. Solving for the real interest rate, r = 600/20,000 = 0.03.

Which of the following is an example of an investment in human capital? A firm replaces manually controlled production with a computer controlled procedure. A firm pays for workers to take college classes. A chemical firm supports research to develop new chemicals. A firm purchases new equipment for a manufacturing process.

A firm pays for workers to take college classes.

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State College is: $35,000 $30,000 $20,000 $15,000

35,000 If Larry attends State College, he not only has to pay $20,000 (= $30,000 - $10,000) in out-of-pocket expenses, but he also has to give up the value of his next-best option. To determine the value of his next best option, note that the value to Larry from attending Elite U (net of tuition) is $60,000 - $50,000 = $10,000. And, his value from attending NoName U (net of tuition) is $15,000 - 0 = $15,000. So going to NoName U is his next-best option, and his opportunity cost of going to State College is $20,000 + $15,000 = $35,000.

If real GDP equals 5,000, nominal GDP equals 10,000, and the price level equals 2, then what is velocity if the money stock equals 2,000? 2 2.5 5 10

5 This comes from the Quantity Equation which says: PY = MV. In this case, (2*5,000) = 2,000V, and V = 10,000 / 2,000 = 5.

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 35,000, what real interest rate must the Federal Reserve set to bring the economy to full employment? 2 percent 3 percent 4 percent 5 percent

5 percent If PAE = 15,000 + 0.6Y - 20,000r, and Y = 35,000 at full employment, then 20,000r = 15,000 + 0.6(35,000) - 35,000. Solving for the real interest rate, r = 1,000 � 20,000 = 0.05.

Suppose that the total production of an economy consists of 4 oranges and 10 candy bars, each orange sells for $0.25, and each candy bar sells for $0.50. What is the market value of production in this economy? $0.75 $1.00 $5.00 $6.00

6.00 The market value is $6.00, because 4 oranges contributed $1.00 and 10 candy bars contributed $5.00.

In a country with 200 million people aged 16 years and older, 120 million are in the labor force, and 114 million are employed, what is the participation rate? 40 percent 57 percent 60 percent 95 percent

60 percent To find the participation rate, divide the labor force by the number of people 16 and older, i.e., 120,000,000/200,000,000 = 0.60, or 60 percent.

You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 8% return? $60 $62 $67 $70

62 If you require an 8% return, you must discount future payments by that amount. Using the present value equation: PV (current stock price)= FV (future value) / (1 + i), where PV = ($65 + $2)/1.08 = $62.04 or $62 rounded.

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 8 percent, then the natural rate of unemployment must equal: -7 percent. 9 percent. 12.5 percent. 7 percent.

7 percent.

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and -2 percent cyclical unemployment, then the natural rate of unemployment equals: 1%. 2%. 5%. 7%.

7%. The natural rate of unemployment is the part of the total unemployment rate that is attributable to frictional and structural unemployment; in this case it is 3 + 4 = 7 percent.

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5% paid annually fell to $981. The one-year interest rate must be: 8.5%. 7.0%. 5.0%. 1.9%.

7.0%. In equilibrium, both bonds have the same yield. Thus, $981*(1+i) = $1,000 *(1.05). Solving for i: 1+ i = $1,050/$981 and i = 0.07, or 7.0%.

Data for an economy shows that the unemployment rate is 10%, the participation rate 80 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the labor force in this economy? 80 million 200 million 800 million 1.0 billion

800 million Since the participation rate is 80 percent, 20 percent are not participating in the labor market. So the 200 million people are not participating represent 20 percent of the working-age population, or (0.20*x) = 200,000,000, where x is the working-age population. Then x = 200,000,000/0.20 = 1,000,000,000, or 1 billion. With 200 million of these 1 billion people being outside the labor force, there must be 800 million are in the labor force.

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____. 200; 600 400; 800 600; 1,000 800; 1,200

800; 1,200

Which of the following would be classified as a final good? New computer software sold to a computer manufacturer for installation in new computers The services provided by lawyers to a computer manufacturer Computer chips sold to a computer manufacturer for installation in new computers A new computer sold to a business firm.

A new computer sold to a business firm.

Who from among the following would be counted as unemployed? A person with a part-time job who wants and is looking for a full-time job. A person who is willing to work and has looked for a job in the last week. A person who is willing to work but has not looked for a job in two months. All of these people would be counted as unemployed.

A person who is willing to work and has looked for a job in the last week.

Who from among the following would be classified as out of the labor force? A person with a part-time job who wants and is looking for a full-time job. A person who is willing to work and has looked for a job in the last week. A person who is willing to work but has not looked for a job in two months. None of these people would be classified as out of the labor force.

A person who is willing to work but has not looked for a job in two months.

A negative demand shock will shift the ______ curve to the ______. AD; left AD; right AS; left AS; right

AD; left

A positive demand shock will shift the ______ curve to the ______. AD; left AD; right AS; left AS; right

AD; right

What might cause a supply function to shift to the left today? An increase in the product's own price. An expectation that the product's price will fall in the future. An expectation that the product's price will rise in the future. A decrease in the price of one of the inputs to making the product.

An expectation that the product's price will rise in the future.

Which of the following policies is likely to enhance a central bank's credibility? Announcing inflation targets Appointing inflation doves as central bankers Making the central bank obligated to finance the national deficit Appointing central bankers for short terms that coincide with those in the legislative and executive branches of government

Announcing inflation targets

Which of the following is NOT a capital good? Batteries purchased by a car manufacturer to install in new cars Machines purchased by a car manufacturer to measure metal thicknesses A new house purchased by a family A new apartment building purchased by a corporation

Batteries purchased by a car manufacturer to install in new cars

The seven leaders of the Federal Reserve System headquartered in Washington, D.C. constitute the: Federal Reserve Bank of Washington, D.C. Federal Open Market Committee. Federal Economic Advisory Board. Board of Governors.

Board of Governors.

Which of the following would be included in the GDP of the United States? Boeing builds a plane in Seattle that is sold to Air Canada. Chrysler produces a car in Germany that is sold in Michigan. Nestle produces a candy bar in Switzerland that is sold in San Francisco. Planet Hollywood serves customers in a restaurant in Hong Kong.

Boeing builds a plane in Seattle that is sold to Air Canada.

What will happen to the equilibrium price and quantity of beef if the price of chicken feed decreases?

Both will decrease.

Martha and Sarah have the same preferences and incomes. Just as Martha arrived at the theater to see a play, she discovered that she had lost the $10 ticket she had purchased earlier. Sarah also just arrived at the theater planning to buy a ticket to see the same play when she discovered that she had lost a $10 bill from her wallet. If both Martha and Sarah are rational and both still have enough money to pay for a ticket, is one of them more likely than the other to go ahead and see the play anyway?

Both would make the same decision.

Planned aggregate expenditure (PAE) equals: C + Ip + G + NX. Cp + I + G + NX. C + I + Gp + NX. C + I + G + NXp.

C + Ip + G + NX.

Which of the following is an asset of a family? Student loan Mortgage Unpaid credit card balance Checking account balance

Checking account balance

The increase in the unemployment rate during a recession is associated with which type of unemployment? Frictional unemployment Cyclical unemployment Structural unemployment Nominal unemployment

Cyclical unemployment

Which of the following events would increase the unemployment rate, if nothing else changed? Unemployed workers leave the labor force. Employed workers leave the labor force. Workers from outside the labor force become employed. Unemployed workers become employed.

Employed workers leave the labor force.

Suppose the current issue of the New York Times reports an outbreak of mad cow disease in Nebraska, as well as the discovery of a new breed of chicken that gains more weight than existing breeds that consume the same amount of food. How will these developments affect the equilibrium price and quantity of chickens sold in the United States?

Equilibrium quantity will increase, but the effect on equilibrium price is unknown. correct

Which of the following would be expected to decrease the demand for money in the U.S.? Grocery stores begin to accept credit cards in payment. The economy enters a boom period. Political instability increases dramatically in developing nations. Households fear increasing computer glitches will severely limit their ability to use ATMs.

Grocery stores begin to accept credit cards in payment.

Which of the following is an example of frictional unemployment? Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his skills, but now has a job that requires the expertise he gained in college.

Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his skills, but now has a job that requires the expertise he gained in college.

Jay owns a classic car he purchased for $50,000. At a car rally a knowledgeable classic car enthusiast offers him $75,000 for the car. Based on this information: Jay's saving this year has increased by $25,000. Jay's saving this year has decreased by $25,000. Jay has experienced a $25,000 capital gain. Jay's wealth is unchanged.

Jay has experienced a $25,000 capital gain. The market value of Jay's car has risen to $75,000. He purchased the car for $50,000 so he realized a capital gain of $25,000.

Josh wants to go to the football game this weekend, but he has a paper due on Monday. It will take him the whole weekend to write the paper. Josh decides to stay home and work on the paper. According to the Scarcity Principle, the reason Josh doesn't go to the game is that: Josh prefers schoolwork to football games. writing the paper is easier than going to the game. Josh can't go the game and finish the paper. going to the game won't be fun.

Josh can't go the game and finish the paper.

If Les can produce two pairs of pants per hour while Eva can produce one pair per hour, then it must be true that: Les has a comparative advantage in producing pants. Les has an absolute advantage in producing pants. Eva has a comparative advantage in producing pants. Les has both comparative and absolute advantage in producing pants.

Les has an absolute advantage in producing pants.

Consider a country in which real GDP is $15 trillion, nominal GDP is $24 trillion, M1 is $5.5 trillion, and M2 is $8.5 trillion. The velocity for M1 and for M2 are:

M1:4.4 ± 0.05 M2:2.8 ± 0.05 With nominal GDP = P × Y, velocity (V) is equal to (P × Y) / M. For M1, V = $24 trillion/$5.5 trillion = 4.4. For M2, V = $24 trillion/$8.5 trillion = 2.8.

M1 differs from M2 in that: M1 includes currency and balances held in checking accounts, which are not included in M2. M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1. M1 is a broader measure of the money supply than M2. the assets in M2 are more liquid than the assets in M1.

M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1. M2 is a broader measure of money than M1, thus it contains assets that are less liquid than M1. Note that everything included in M1 is by definition also included in M2, but the opposite is not true.

Who from among the following would be classified as employed? Brenda Smith, an 18 year old full-time college student. Mario Faubert, a NHL hockey player at home sick with the flu. Jack Little, a 21 year old new college graduate actively looking for his first job. Sarah Lopez, a retired public school teacher.

Mario Faubert, a NHL hockey player at home sick with the flu.

Which of the following is an example of cyclical unemployment? Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. Marsha was laid off from her job with the airline because the recession reduced demand for airline travel. She expects to get her job back when the economy picks up. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. Jim had a job as an engineer, but quit when his wife was transferred to another state. He looked for a month before finding a new job that he liked.

Marsha was laid off from her job with the airline because the recession reduced demand for airline travel. She expects to get her job back when the economy picks up.

Ginger and Maryann are lost in the jungle, where the only things to eat are mangoes and fish. Ginger can gather more mangoes per hour than Maryann and can also catch more fish per hour than can Maryann. Therefore: There are no gains to specialization and trade for Ginger. There are no gains to specialization and trade for Maryann. Maryann should specialize in the activity for which she has a comparative advantage. Ginger should specialize in the activity for which she has an absolute advantage.

Maryann should specialize in the activity for which she has a comparative advantage.

Which of the following is a liability of a family? Checking account balance Share of stock House Mortgage

Mortgage

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the: Federal Reserve Board. Congressional Budget Office. National Bureau of Economic Research Council of Economic Advisers.

National Bureau of Economic Research

Which of the following is correct? National saving equals private saving plus public saving. Public saving equals national saving plus private saving. Private saving equals national saving plus public saving. National saving equals public saving minus private saving.

National saving equals private saving plus public saving.

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If you do not use the frequent-flyer coupon to fly to Miami, should you go to Miami? Yes, your benefit is more than your cost. No, your benefit is less than your cost. Yes, your benefit is equal to your cost. No, because there are no benefits in the trip.

No, your benefit is less than your cost. If you don't use your frequent-flyer coupon, your total cost is $600 + $900 = $1500, but your benefit is only $1400.

Which of the following would be expected to increase the demand for U.S. currency? Competition among brokers forces down the commission charge for selling bonds or stocks. The economy enters a recession. Political instability rises dramatically in developing nations. On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day.

Political instability rises dramatically in developing nations.

Who from among the following is counted as employed? Ray wants to work forty hours per week, but can only find work for twenty hours per week. Anna Marie spends all of her time taking care of her children at home. Frank would like to work, but has not looked for work because he believes no jobs are available. Martin has been offered several jobs in the past four weeks, but has chosen not to accept any of the offers.

Ray wants to work forty hours per week, but can only find work for twenty hours per week.

Which of the following would increase the government purchases component of U.S. GDP? The U.S. federal government pays $3 billion in pensions to government workers. The U.S. federal government pays $3 billion in interest on the national debt. The U.S. federal government pays $3 billion in salaries to soldiers in the military. The U.S. federal government pays $3 billion in interest to foreign holders of U.S. government bonds.

The U.S. federal government pays $3 billion in salaries to soldiers in the military.

Which one of the following is an advantage of having an independent central bank?

The countries whose central banks are more independent have lower rates of inflation.

Which of the following is a nominal quantity? The number of people unemployed The current price of a barrel of oil The number of cars produced in 2005 The amount of coal mined in one month

The current price of a barrel of oil

Which of the following is a real quantity? The current wages paid to factory workers The cost of a new car The number of tons of steel produced in 2005 The current price of a barrel of oil

The number of tons of steel produced in 2005

If country A can produce more of practically everything than can country B, then which of the following statements is true? Country A has no incentive to trade with country B. Country B cannot have a comparative advantage in the production of any good that country A wants to buy. Trade can benefit both countries. Country B has no incentive to trade with country A.

Trade can benefit both countries.

When the central bank sells $1,000,000 worth of government bonds to the public, the money supply: When the central bank sells $1,000,000 worth of government bonds to the public, the money supply: decreases by $1,000,000. decreases by less than $1,000,000. increases by $1,000,000.

When the central bank sells $1,000,000 worth of government bonds to the public, the money supply: When the Fed sells government bonds in the open market, there is less currency in the hands of the banking community, as some money must be used buy these bonds. As a consequence the amount of bank reserves decreases. This contraction of reserves decreases the money supply by more than $1,000,000.

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals: C + I + G - T. Y - T - C. Y -T - G. Y - C - I.

Y - T - C.

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that: Y = PAE. PAE = C + Ip + G + NX. I ≠ Ip. Y* = Y.

Y = PAE.

Which of the following would increase the consumption component of U.S. GDP? You purchase a bottle of California wine. A person in Paris purchases a bottle of California wine. A restaurant in Denver purchases a bottle of California wine to include on its wine list. The U.S. government buys a bottle of California wine to serve at a state dinner in the White House.

You purchase a bottle of California wine.

Which of the following expenditures would increase the investment component of U.S. GDP? You purchase a new house. You purchase a new car. You purchase 1,000 shares of stock. You pay a commission to your stock broker for selling some stocks that you owned.

You purchase a new house.

A movement along a demand curve from one price-quantity combination to another is called: a change in quantity demanded. a shift in the demand curve. a change in demand. a change in quantity supplied.

a change in quantity demanded.

High rates of saving today contribute to ______ in the future. higher tax rates more unemployment a higher standard of living more capital gains

a higher standard of living

The entire group of buyers and sellers of a particular good or service makes up: only the demand curve. only the supply curve. a market. the equilibrium.

a market.

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as: bank reserves. a medium of exchange. a unit of account. a store of value.

a medium of exchange.

A large increase in oil prices is an example of: a positive inflation shock. a negative inflation shock. inflation inertia. excessive aggregate spending.

a negative inflation shock.

Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except: a positive demand shock. a negative inflation shock. a decrease in taxes. an increase in the money supply.

a negative inflation shock.

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following except: a negative demand shock. a positive inflation shock. an increase in taxes. a decrease in the money supply.

a positive inflation shock.

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has: an expansionary gap. a recessionary gap. no output gap. no autonomous expenditure.

a recessionary gap. Equilibrium occurs where PAE equals Y. In this economy, (2,000 + 0.8Y) = Y, so Y = 10,000. Since Y* = 11,000 and actual output falls short of potential output, there is a recessionary gap.

When actual output is less than potential output, there is ____ output gap and the rate of inflation will tend to ____. an expansionary; increase an expansionary; decrease a recessionary; decrease a recessionary; increase

a recessionary; decrease

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be surprised when you find it again next winter, you are using money as: bank reserves. a medium of exchange. a unit of account. a store of value.

a store of value.

When your grandfather keeps a bundle of $100 dollar bills behind a brick in the basement, this is an example of dollars serving as: bank reserves. a medium of exchange. a unit of account. a store of value.

a store of value.

If you post your car on eBay with a Buy-It-Now price of $1,800, you are using money as: bank reserves. a medium of exchange. a unit of account. a store of value.

a unit of account.

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the ______ shifts _____. aggregate demand curve; right aggregate demand curve; left aggregate supply curve; left aggregate supply curve; right

aggregate demand curve; left

For a given inflation rate, if a stock market crash makes consumers less willing to spend, then the ______ shifts _____. aggregate demand curve; right aggregate demand curve; left aggregate supply curve; left aggregate supply curve; right

aggregate demand curve; left

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the ______ shifts _____. aggregate demand curve; right aggregate demand curve; left aggregate supply curve; left aggregate supply curve; right

aggregate demand curve; left

For a given inflation rate, if a rise in the stock market makes consumers more willing to spend, then the ______ shifts _____. aggregate demand curve; right aggregate demand curve; left aggregate supply curve; left aggregate supply curve; right

aggregate demand curve; right

For a given inflation rate, if bright prospects for the future of the economy cause businesses to increase spending on new capital, then the ______ shifts _____. aggregate demand curve; right aggregate demand curve; left aggregate supply curve; left aggregate supply curve; right

aggregate demand curve; right

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will shift the ______ curve to the left and generate ______. aggregate demand; a recessionary output gap aggregate supply; a recessionary output gap aggregate demand; an expansionary output gap aggregate supply; an expansionary output gap

aggregate demand; a recessionary output gap

As the available technology improves, ______ shifts to the _____. aggregate demand; left aggregate demand; right aggregate supply; left aggregate supply; right

aggregate supply; right

The Scarcity Principle applies to: all decisions. only market decisions, e.g., buying a car. only non-market decisions, e.g., watching a sunset. only the poor.

all decisions.

The substitution bias in the CPI refers to the failure of statisticians to: allow for the possibility that consumers switch from products whose prices are rising. allow for the possibility that consumers switch stores at which they shop. take into account improvements in goods and services. take into account new products purchased by consumers.

allow for the possibility that consumers switch from products whose prices are rising.

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is: not an economic problem because neither activity costs money. not an economic problem because it's an hour that Chris has no matter what he does. an economic problem because the tuition Chris pays covers the cost of both the gym and the library. an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has: an expansionary gap. a recessionary gap. no output gap. no autonomous expenditure.

an expansionary gap. Equilibrium occurs where PAE equals Y. In this economy, (1,000 + 0.9Y) = Y, so Y = 10,000. Since Y* = 9,000 and actual output exceeds potential output, there is an expansionary gap.

When actual output exceeds potential output, there is ______ output gap and the inflation rate will ____. an expansionary; exceed the expected rate of inflation an expansionary; be lower than the expected rate of inflation no; be equal to the expected rate of inflation a recessionary; exceed the expected rate of inflation

an expansionary; exceed the expected rate of inflation

When actual output exceeds potential output there is ____ output gap and the rate of inflation will tend to ____. an expansionary; increase an expansionary; decrease no; remain the same a recessionary; increase

an expansionary; increase

Hyperinflation is: frequently experienced in the United States. very erratic inflation. an extremely high rate of inflation. an extremely low rate of inflation.

an extremely high rate of inflation.

Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, in the pasta market one would expect to see: an increase in the quantity of pasta demanded. an increase in the demand for pasta. a decrease in the quantity of pasta demanded. a decrease in the demand for pasta.

an increase in the demand for pasta.

An increase in the aggregate demand for goods and services will result in an increase in the amount of output firms are willing to produce, and this increase in output is accompanied by: a decrease in the inflation rate. an increase in the inflation rate. a decrease in nominal GDP an increase in potential GDP.

an increase in the inflation rate.

Central bank independence refers to situations in which central bankers: conduct open market operations in free markets. operate in countries with independently elected governments. are insulated from short-term political considerations. are appointed without confirmation hearings.

are insulated from short-term political considerations.

The components of M2 that are not also in M1: sum to an amount that is smaller than the sum of the components of M1. pay lower rates of interest than do the components of M1. are not usable for making payments. are slightly less liquid than the components of M1.

are slightly less liquid than the components of M1.

Provisions in the law that automatically increase government spending or decrease taxes when real output declines are called: autonomous stabilizers. automatic stabilizers. the marginal propensity to consume. the income-expenditure multiplier.

autonomous stabilizers.

Long-run increases in living standards, as measured by real GDP per person, are primarily the result of increases in: population. the money supply. government budget surpluses. average labor productivity.

average labor productivity.

The CPI is a measure of the: real wage. price of a specific good or service. rate of inflation. average level of prices relative to prices in the base year.

average level of prices relative to prices in the base year.

When an individual deposits currency into a checking account: bank reserves increase, which allows banks to lend more and increases the money supply. bank reserves decrease, which reduces the amount banks can lend and reduces the growth of the money supply. bank reserves are unchanged. bank liabilities increase, which reduces the amount banks can lend and reduces the growth of the money supply.

bank reserves increase, which allows banks to lend more and increases the money supply.

Real GDP is measured in ______ prices; nominal GDP is measured in ______ prices. current; base-year base-year; current current; current base-year; base-year

base-year; current

All of the following are real quantities except the: number of new cars produced in one year. tons of steel shipped to South America. millions of computer chips shipped to computer makers. billions of dollars invested in stocks.

billions of dollars invested in stocks.

c. Ice cream and chocolate are(complements/substitutes/both).

both

Fiscal policy can shift: aggregate demand only. both aggregate demand and potential output. both aggregate demand and short-run aggregate supply, but not long-run aggregate supply. only short-run functions.

both aggregate demand and potential output.

The AD curve can be shifted by: both fiscal and monetary policy. neither fiscal nor monetary policy. fiscal policy only. monetary policy only.

both fiscal and monetary policy.

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO) found that: the Bush Administration's fiscal policy worked, but the Obama Administration's did not. the Obama Administration's fiscal policy worked, but the Bush Administration's did not. both the Bush Administration's fiscal policy and the Obama Administration's fiscal policy worked. neither the Bush Administration's fiscal policy nor the Obama Administration's fiscal policy worked.

both the Bush Administration's fiscal policy and the Obama Administration's fiscal policy worked.

If the quantity supplied of money exceeds the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal. buy; rise; fall sell; fall; fall sell; rise; fall buy; fall; rise

buy; rise; fall

In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______. buys; increases buys; decreases sells; decreases sells; increases

buys; increases

Stockholders receive returns on their financial investment in the form of ______ and _____. interest payments; dividends capital gains; dividends coupon payments; capital gains capital gains; interest payments

capital gains; dividends

Factories and machines are examples of: consumption goods. non-market goods. value-added goods. capital goods.

capital goods.

The situation in which central bankers are insulated from short-term political considerations and are allowed to take a long-term view of the economy is called: being an inflation dove. being an inflation hawk. central bank independence. the inside lag of monetary policy.

central bank independence.

Nominal GDP measures the ______ of production. change in the volume physical volume current dollar value base year value

current dollar value

The consumer price index for the current year measures the cost of a standard basket in the ______ year relative to the cost of the same basket in the ______ year. current; base current; current base; index base; current

current; base

b. Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up.(unemployment is frictional, structural, or cyclical.)

cyclical

According to Okun's law, each extra percentage point of ______ unemployment is associated with a ______ widening of a negative output gap, measured in relation to potential output. frictional; 2 percent frictional; 0.5 percent cyclical; 2 percent cyclical; 0.5 percent

cyclical; 2 percent Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

The two negative demand shocks that caused the Great Recession were: declining housing prices and the 2008 financial panic. declining housing prices and declining stock prices. increasing oil prices and the 2008 financial panic. increasing oil prices and declining stock prices.

declining housing prices and the 2008 financial panic.

You own shares in a start-up internet company. If large swings in the stock market increase financial investors' concerns about market risk, then the price of your shares will _____, holding other factors constant. increase decrease not change either increase or decrease

decrease

a. Competition among brokers forces down the commission charge for selling holdings of bonds or stocks. The demand for money will(decrease/increase)

decrease

b. Grocery stores begin to accept credit cards in payment. The demand for money will (decrease/increase)

decrease

c. War preparations lead to the institution of a national draft, and many young people are called up. The supply of labor would

decrease

e. Social Security benefits are made more generous. The supply of labor would

decrease

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ______ to eliminate any output gap. increase by 100 decrease by 100 increase by 1,000 decrease by 1,000

decrease by 100 If the multiplier is 10, a 100-unit decrease in government purchases results in a 1,000-unit decrease in output. This closes the expansionary output gap of 1,000.

A fiscal policy action to close an expansionary gap is to: decrease taxes. increase transfer payments. decrease government purchases. increase the marginal propensity to consume.

decrease government purchases.

d. More people decide to have children (consider both short-run and long-run effects). The supply of labor would

decrease in the short run and increase in the long run

Starting from full employment at the initial target inflation rate, if there is a favorable inflation shock, then the Federal Reserve must _____ in order to return output to potential. increase the target inflation rate. decrease the target inflation rate. maintain the initial target inflation rate. shift the short-run aggregate supply curve up.

decrease the target inflation rate.

When the supply of a good decreases, consumers will eventually: decrease their demand. increase their preferences for the good. decrease their quantity demanded. increase their quantity demanded.

decrease their quantity demanded.

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will: increase. decrease. not change. either increase or decrease.

decrease.

In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______. increase. decrease. remain the same. either increase or decrease.

decrease.

To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must: increase. decrease. not change. either increase or decrease depending on the relative shifts of AD and AS.

decrease.

In the short-run, if the Federal Reserve increases interest rates, then consumption and investment ______, planned aggregate expenditure ______, and short-run equilibrium output _______. increase; increases; increases increase; increases decreases increase; decreases; decreases decrease; decreases; decreases

decrease; decreases; decreases

To close a recessionary gap, the Federal Reserve must ______ real interest rates by ______ the money supply. increase; increasing increase; decreasing decrease; decreasing decrease; increasing

decrease; increasing

A factory worker earned $10 an hour in 1980. The CPI was 0.82 in 1980. The same factory worker was earning $15 an hour in 1990 when the CPI was 1.31. From 1980 to 1990, the factory worker's hourly real wage: increased from $7.63 to $18.29. decreased from $12.20 to $11.45. remained constant. increased from $10 to $15

decreased from $12.20 to $11.45. Real hourly wage decreased from $12.20 (i.e., $10/0.82) to $11.45 (i.e., $15/1.31).

If workers received a 5 percent wage increase and the rate of inflation was 10 percent, then their real wage: increased. decreased. remained constant. equaled the nominal wage.

decreased.

When the interest rate on newly issued bonds increases, the price of existing bonds: increases. decreases. increases only if the coupon rate is below the new rate. may either increase or decrease.

decreases.

A higher real interest rate ______ investment spending and ______ consumption spending. increases; increases increases; decreases decreases; decreases decreases; increases

decreases; decreases

When housing prices decrease, household wealth _____, and consumption _____. increases; increases increases; decreases decreases; decreases decreases; increases

decreases; decreases

In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of: inflation. deflation. trade deficit. expansion.

deflation.

The situation when the price of most goods and services are falling over time is called: inflation. disinflation. a boom. deflation.

deflation.

The credibility of monetary policy is the: recognition that open market purchases increase the money supply, even though banks and the public affect the money multiplier. degree to which the public believes the central bank's promises to keep inflation low, even if doing so may impose short-run costs. pace at which monetary policy can return an economy to potential when inflationary expectations are anchored. practice of the Federal Reserve of relying primarily on open market operations rather than discount rate lending or changes in reserve requirements.

degree to which the public believes the central bank's promises to keep inflation low, even if doing so may impose short-run costs.

When Argentines increase their savings in U.S. dollars, the U.S. money: supply curve shifts left. supply curve shifts right. demand curve shifts right. demand curve shifts left.

demand curve shifts right.

If the price of TVs produced by XYZ-TV Company falls from $1,000 to $750 per TV set, then the: supply of labor to the XYZ-TV Company increases. supply of labor to the XYZ-TV Company decreases. demand for labor by the XYZ-TV Company increases. demand for labor by the XYZ-TV Company decreases.

demand for labor by the XYZ-TV Company decreases.

A banking panic is an episode in which: depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system. commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations. commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate. depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve.

depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.

Changes in government purchases affect planned spending _____, and changes in taxes and/or transfers affect planned spending _______. directly; directly directly; indirectly directly; not at all indirectly; indirectly

directly; indirectly

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate. Fed funds prime discount Federal

discount

People who say that they would like to have a job, but have not made an effort to find a job in the past four weeks, are called ______ workers. unemployed involuntary part-time discouraged chronically unemployed

discouraged

Finding both parties to a trade who have something the other party wishes to trade for is called a: unit of account. store of value. medium of exchange. double coincidence of wants.

double coincidence of wants.

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should: drink a third glass of soda. drink a third glass of soda if the extra benefit of doing so is positive. drink a third glass of soda if his total benefit from drinking soda is positive. not drink a third glass of soda.

drink a third glass of soda if the extra benefit of doing so is positive.

a. Your estimate of the natural rate of unemployment is 5 percent, and the actual unemployment rate is 5.5 percent. If you recognize macroeconomic policymaking as an inexact science, you would interpret that the difference is:

due to a measurement error

Two reasons savers keep deposits at banks are to: secure mortgages and to purchase stocks. earn a return on their savings and to facilitate making payments. lower interest rates and to increase the money supply. equalize loan supply and demand and to earn interest.

earn a return on their savings and to facilitate making payments.

Each person who is 16 years or older is considered to be in one of the following categories: employed, unemployed, or discouraged worker. part-time worker, full-time worker, or unemployed. part-time worker, full-time worker, or out of the labor force. employed, unemployed, or out of the labor force.

employed, unemployed, or out of the labor force.

Suppose that both supply and demand for iPads decrease. One can predict that the: equilibrium price will rise but the equilibrium quantity can increase or decrease. equilibrium price and quantity will decrease. equilibrium price and quantity will rise. equilibrium quantity will fall but the equilibrium price can rise or fall.

equilibrium quantity will fall but the equilibrium price can rise or fall.

The Scarcity Principle applies to: poor people primarily. consumers primarily. firms primarily. everyone.

everyone

A period in which the economy is growing at a rate significantly above normal is called a(n): depression. expansion. peak. recession.

expansion.

Economic activity moves from a trough into a period of ______ until it reaches a ______ and then into a period of _______. expansion; trough; recession. recession; trough; expansion expansion; peak; recession recession; peak; expansion

expansion; peak; recession

If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ______ gap that can be closed by _________. expansionary; decreasing taxes expansionary; increasing transfer payments expansionary; decreasing government purchases recessionary; increasing government purchases

expansionary; decreasing government purchases This economy has an expansionary gap because the short-run equilibrium output is above Y*. This gap can be closed by fiscal contraction, and decreasing government purchases is one form of contraction.

Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ______gap in the short run and ____inflation and ____output in the long run. expansionary; higher; potential expansionary; lower; potential expansionary; higher; higher recessionary; higher; lower

expansionary; higher; potential

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _____ gap and inflation will _____. recessionary; increase recessionary; decrease expansionary; decrease expansionary; increase

expansionary; increase

In the Keynesian cross diagram, the ______ line shows the relationship between planned aggregate expenditure and output, and the ______ line represents the condition that planned aggregate expenditure and output are equal. consumption function; 45-degree 45-degree; consumption function expenditure; 45-degree 45 degree; expenditure

expenditure; 45-degree

When the inflation rate increases, PAE ______, which in turn causes Y to ______ because of ______. falls; fall; the wealth effect falls; rise; the wealth effect rises; rise; the wealth effect rises; fall; the wealth effect

falls; fall; the wealth effect

When actual investment is greater than planned investment: firms sold less output than expected. firms sold more output than expected. the quantity of output sold is the amount the firm expected to sell. the economy produces the short-run equilibrium output.

firms sold less output than expected.

Recessions tend to be ______ by ______ the rate of inflation. followed; an increase in followed; a decrease in preceded; a decrease in the stability of neither preceded nor followed; any change in

followed; a decrease in

In general, individuals and nations should specialize in producing goods ______ other individuals or nations. that they can produce more quickly than that they can produce less quickly than for which they have a lower opportunity cost compared to for which they have a higher opportunity cost compared to

for which they have a lower opportunity cost compared to

c. Gwen had a job as a clerk but quit when her husband was transferred to another state. She looked for a month before finding a new job that she liked.(unemployment is frictional, structural, or cyclical.)

frictional

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower ______ and the lender ______. gains; gains gains; loses is not affected; gains loses; gains

gains; loses

Two explanations for increasing wage inequality are ______ and ________. technological progress; a modernized capital stock increased labor supply; a slowdown in productivity growth increased worker mobility; transition aid globalization; skill-biased technological change

globalization; skill-biased technological change

a. The age at which people are eligible for Medicare is increased. The supply of labor would

increase

If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it: has too few reserves and will reduce its lending. has too many reserves and will increase its lending. has the correct amount of reserves and outstanding loans. should increase the amount of its reserves.

has too few reserves and will reduce its lending. The bank desires reserves of 0.33*$100,000,000 = $33,000,000, however it holds reserves of $50,000,000. Thus, this bank has too many, or excess, reserves and will increase its lending.

National saving is done by: only households. only businesses. only governments. households, businesses, and governments.

households, businesses, and governments.

The market value of all domestically produced final goods and services arealso equal to the total amount spent by ______________ less spending on imported goods and services. households and firms households, firms, and governments households, firms, and the foreign sector households, firms, governments, and the foreign sector

households, firms, governments, and the foreign sector

The four categories of final users of GDP are: businesses, firms, governments, and the foreign sector. households, the Federal Reserve, governments, and the foreign sector. businesses, corporations, firms, and farms. households, firms, governments, and the foreign sector.

households, firms, governments, and the foreign sector.

Getting a college degree is an example of investing in: human capital. physical capital. technology. research and development.

human capital.

Real GDP per person can increase: only if the share of the population employed increases. only if the share of the population employed decreases. only if average labor productivity increases. if the share of population employed and/or average labor productivity increases.

if the share of population employed and/or average labor productivity increases.

Most economists believe that the reduced variability of inflation in the U.S. is the result of: globalization. better management of inventories. improved monetary policymaking by the Fed. deregulation.

improved monetary policymaking by the Fed.

A nominal value is measured: in physical terms. in terms of current dollar value. using the consumer price index. by indexing.

in terms of current dollar value.

All of the following tend to make economic policymaking difficult and inexact except the: lack of precise knowledge about the state of the economy. inability to develop statistical models of the economy. lack of knowledge about the future course of the economy if no policy changes are implemented. imprecise knowledge of the level of potential output.

inability to develop statistical models of the economy.

Educational services provided by public schools are: included in GDP at market prices. included in GDP at cost. excluded from GDP because they are not sold in markets. excluded from GDP because they are intermediate goods.

included in GDP at cost.

Goods and services provided by state and local governments are: included in GDP at market prices. included in GDP at cost. excluded from GDP because they are not sold in markets. excluded from GDP because they are publicly provided.

included in GDP at cost.

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of: inconsistent reasoning; saving $20 is saving $20. the proper application of the Cost-Benefit Principle. rational choice because saving 40% is better than saving 4%. inconsistent reasoning because prices are sunk costs.

inconsistent reasoning; saving $20 is saving $20.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap. increase by 200 increase by 1,000 increase by 5,000 decrease by 200

increase by 200 If the multiplier is 5, a 200-unit increase in government purchases results in a 1,000-unit increase in output. This closes the recessionary output gap of 1,000.

A fiscal policy action to close a recessionary gap is to: increase taxes. decrease transfer payments. increase government purchases. increase the marginal propensity to consume.

increase government purchases.

A decrease in the price of pizza will cause a(n): increase in demand. increase in quantity demanded. decrease in quantity demanded. decrease in the number of consumers.

increase in quantity demanded.

To ensure that a nominal payment represents a constant level of purchasing power over time, one should: add the price index to it. subtract the price index from it. divide it by the price index. increase it by a percentage equal to the rate of inflation for that year.

increase it by a percentage equal to the rate of inflation for that year.

The introduction of a new technology that increases the productivity of labor will: increase the supply of labor. decrease the supply of labor. increase the demand for labor. decrease the demand for labor

increase the demand for labor.

As the price of cookies increases, firms that produce cookies will: increase the supply of cookies. increase the quantity supplied of cookies. decrease the supply of cookies. decrease the quantity supplied of cookies.

increase the quantity supplied of cookies.

Starting from full employment at the initial target inflation rate, if there is an adverse inflation shock, then the Federal Reserve must _____ in order to avoid a recession. increase the target inflation rate. decrease the target inflation rate. maintain the initial target inflation rate. shift the short-run aggregate supply curve up.

increase the target inflation rate.

A fiscal policy action to close a recessionary gap is to: increase taxes. increase transfer payments. decrease government purchases. decrease the marginal propensity to consume.

increase transfer payments.

During the Christmas shopping season, the demand for money increases significantly. If the Fed takes no actions to offset the increase in money demand, then nominal interest rates will: increase. decrease. remain constant. equal the real interest rates.

increase.

If the public switches from using cash for most transactions to using checks instead, then all else equal, the money supply will: increase. decrease. not change. either increase or decrease.

increase.

When the coupon rate on newly issued bonds decreases from 6% to 5%, the prices of existing bonds: increase. decrease. remain unchanged. decrease only if the coupon rate is less than 5%.

increase.

An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ______ in the inflation rate, leading to a(n) ______ in output. increase; increase increase; decrease decrease; increase decrease; decrease

increase; decrease

Lower nominal interest rates ______ the amount of money demanded and a lower price level ______ the amount of money demanded. increase; increases increase; decreases increase; does not change decrease; decreases

increase; decreases

Lower nominal interest rates ______ the amount of money demanded and lower real income ______ the amount of money demanded. increase; increases increase; decreases increase; does not change decrease; decreases

increase; decreases

A tax cut that affects both aggregate demand and potential output is predicted to _____ the long-run equilibrium level of output, while inflation _____. increase; increases increase; decreases increase; may increase, decrease, or remain unchanged decrease; decrease

increase; may increase, decrease, or remain unchanged

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be: increased by $1 billion. decreased by $1 billion. increased by more than $1 billion. increased by less than $1 billion.

increased by less than $1 billion.

If workers received a 5 percent wage increase and the rate of inflation was 3 percent, then their real wage: increased. decreased. remained constant. equaled the nominal wage.

increased.

A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $3,000 in 2005 when the CPI equaled 1.68. The real cost of tuition between 1972 and 2005: increased. decreased. remained constant. may have either increased or decreased.

increased. The real cost of tuition increased from $598 ($250 / 0.418) in 1972 to $1,786 ($3000 / 1.68) in 2005. In other words the real cost of tuition almost tripled in those 33 years.

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 5 percent. The nominal price of gasoline _____, and the real price of gasoline _____. increased; also increased increased; decreased increased; did not change decreased; increased

increased; also increased

One family earned an income of $28,000 in 1990. Over the next five years, their income increased by 15%, while the CPI increased by 12%. After five years, this family's nominal income ______, and their real income ______. decreased; also decreased decreased; increased increased; did not change increased; also increased

increased; also increased The family?s nominal income increased, as it was 15 % higher in 1995. The family?s real income also increased because their percentage income gains were greater than the percentage price level increases. In other words, their nominal income grew faster than average prices increasing the purchasing power or real income of the family.

The price of a gallon of gasoline at the pump increased by 10 percent at the same time that the inflation rate was 15 percent. The nominal price of gasoline _____, and the real price of gasoline _____. increased; also increased increased; decreased increased; did not change decreased; increased

increased; decreased

According to the principle of diminishing returns to labor, if the amount of capital and other inputs are held constant, employing additional workers: increases output at an increasing rate. increases output at a constant rate. increases output at a decreasing rate. decreases output at an increasing rate

increases output at a decreasing rate.

In the basic Keynesian model, a tax cut: reduces short-run equilibrium output. increases short-run equilibrium output. reduces potential output. increases potential output.

increases short-run equilibrium output.

In the basic Keynesian model, an increase in transfer payments: reduces short-run equilibrium output. increases short-run equilibrium output. reduces potential output. increases potential output.

increases short-run equilibrium output.

According to the Incentive Principle, people will be less likely to smoke if the government: increases taxes on smoking-cessation devices such as nicotine patches. increases taxes on cigarettes, effectively raising the price. subsidizes hospitals treating lung disease. invests more money in cancer research.

increases taxes on cigarettes, effectively raising the price.

As disposable income increases, consumption: increases. decreases. may either increase or decrease depending on the wealth effect. may either increase or decrease depending on the mpc.

increases.

Automatic stabilizers are provisions in the law which create automatic ______ in government spending or ______ in taxes when real output declines. increases; increases increases; decreases no change; no change decreases; decreases

increases; decreases

An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico. reduces; expansionary increases; expansionary reduces; recessionary increases; recessionary

increases; expansionary

As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _______. increases; increases increases; decreases decreases; decreases decreases; increases

increases; increases

Higher real income ______ the demand for money and a higher price level ______ the demand for money. increases; increases increases; decreases decreases; increases decreases; decreases

increases; increases

When commercial banks borrow reserves from the Fed, the quantity of reserves in the banking system ______ and, ultimately, the money supply _____. increases; increases increases; decreases decreases; increases decreases; decreases

increases; increases

Indexing is the process of: dividing a real quantity by a price index. dividing a nominal quantity by a price index. increasing a nominal quantity by an amount equal to the percentage change in a price index. increasing a real quantity by an amount equal to the percentage change in a price index.

increasing a nominal quantity by an amount equal to the percentage change in a price index.

Two methods used to adjust nominal values for inflation are: substituting and complementing. indexing and deflating. aggregating and disaggregating. real and nominal.

indexing and deflating.

When real output decreases, planned aggregate expenditures decrease because: autonomous expenditures increase. autonomous expenditures decrease. induced expenditures increase. induced expenditures decrease.

induced expenditures decrease.

Suppose Colin brews beer and makes cheese. If Colin can increase his production of beer without decreasing his production of cheese, then he is producing at an: inefficient point. efficient point. unattainable point. ideal point.

inefficient point.

The aggregate demand curve shows the relationship between planned spending and the: nominal interest rate. real interest rate. unemployment rate. inflation rate.

inflation rate.

The annual percentage rate of change in the price level is the: relative price. Fisher effect. cost of living. inflation rate.

inflation rate.

A rapidly growing supply of money will lead to: rising real GDP. rising velocity. unemployment. inflation.

inflation.

The current price of a stock increases when: expected future dividends decrease. the expected future price of the stock decreases. interest rates decrease. the perceived riskiness of the stock increases.

interest rates decrease.

An inflation hawk is someone who: puts equal weight on maintaining output at potential and keeping prices stable. is committed to maintaining low inflation even at the cost of reduced output and employment. is committed to maintaining output at potential even at the cost of high inflation. encourages policy accommodation.

is committed to maintaining low inflation even at the cost of reduced output and employment.

Firms will hire additional workers as long as the wage: is less than the marginal product of labor. equals the marginal product of labor. is greater than the marginal product of labor. is less than the value of the marginal product of labor.

is less than the value of the marginal product of labor.

The value of unpaid work by a homemaker ______ included in GDP and the value of housekeeping services sold in amarket ______ included in GDP. is; is not is; is is not; is not is not; is

is not; is

a. The Fed increases the money supply. Aggregate supply

is unchanged

Firms do not change prices frequently because: there are legal prohibitions against doing so. it is easier to change the quantity of capital used in production. it is costly to do so. customers will refuse to patronize firms that change prices frequently.

it is costly to do so.

High expected inflation leads to ____ increases in wages and costs and to ____ actual inflation. large; high large; low small; low small; high

large; high

Buyers in the market for pizza read a study linking pepperoni consumption to heart disease. The demand curve shifts to the

left

GDP excludes important factors that affect people's well-being, such as the value of: leisure time. government purchases of goods and services. services purchased by households. goods produced domestically but sold to foreigners.

leisure time.

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2005 found a job paying $30,000. The CPI was 1.68 in 2005. The 1972 graduate's job paid ______ in nominal terms and ______ in real terms than the 2005 graduate's job. more; less more; more less; more less, less

less, less The 1972 graduate?s job paid less not only in nominal terms ($7,200 is clearly less than $30,000) but also in real terms. The real wage for the 1972 graduate was $17,225 ($7,200 / 0.418) compared to $17,857 ($30,000 / 1.68) for the 2005 graduate.

A college graduate in 1972 found a job paying $7,200. The CPI was 0.418 in 1972. A college graduate in 2005 found a job paying $28,000. The CPI was 1.68 in 2005. The 1972 graduate's job paid ______ in nominal terms and ______ in real terms than the 2005 graduate's job. more; less more; more less; more less, less

less; more The 1972 graduate?s job paid less in nominal terms ($7,200 is clearly less than $30,000) but more in real terms. The real wage for the 1972 graduate was $17,225 ($7,200 / 0.418) compared to $16,667 ($28,000 / 1.68) for the 2005 graduate.

Capital goods are long-lived goods used for producing other goods and services. the end products of production. publicly provided. excluded from GDP.

long-lived goods used for producing other goods and services.

The key variable in determining changes in a country's standard of living is the: interest rate. inflation rate. unemployment rate. long-run rate of economic growth.

long-run rate of economic growth.

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation. high; high high; low low; low low; high

low; high

The adoption of a tighter, more anti-inflationary monetary policy might be politically unpopular because the Fed will:

lower the target inflation rate, increasing the real interest rate at every rate of inflation, causing a recessionary gap and increasing unemployment above the natural rate. correct

The field of economics that would be most concerned with a recent fall in interest rates is: microeconomics. macroeconomics. economic naturalism. marginal economics.

macroeconomics.

Workers should invest in additional human capital as long as the: marginal benefit exceeds the marginal cost. marginal cost exceeds the marginal benefit. opportunity cost exceeds the marginal benefit. opportunity cost is zero.

marginal benefit exceeds the marginal cost.

Buyers and sellers of a particular good comprise the: market for the good. demand for the good. supply for the good. production possibilities curve for the good.

market for the good.

Gross domestic product (GDP) equals the ______ of final ______ produced within a country during a given period of time. market value; goods market value; services market value; goods and services quantity; goods and services

market value; goods and services

A reserve requirement set by the Federal Reserve is the: minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain. maximum ratio of reserves to bank deposits that commercial banks are allowed to maintain. minimum amount of currency banks must hold in their vaults. maximum amount of currency banks are allowed to hold in their vaults.

minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain.

Empirical evidence indicates that higher real interest rates lead to ______ in savings. modest increases substantial increases no change in modest decreases

modest increases

The number of U.S. households with access to the Internet is growing rapidly. Compared to 50 years ago, one would predict that when considering a major purchase, people today will gather: less information because the Internet has lowered the cost of gathering information. less information because the Internet has increased the benefit of gathering information. more information because the Internet has lowered the cost of gathering information. more information because the Internet has increased the cost of gathering information.

more information because the Internet has lowered the cost of gathering information.

Anti-inflationary monetary policy might be politically unpopular because it leads to

more unemployment and less economic growth correct.

If the interest rate in the U.S. rises, U.S. financial assets become ______ attractive to buyers and the ______ U.S. dollars will rise. more; demand for more; supply of less; demand for less; supply of

more; demand for

Real GDP per person in Richland is $20,000, while real GDP per person in Poorland is $10,000. However, Richland's real GDP per person is growing at 1 percent per year, and Poorland's real GDP per person is growing at 3 percent per year. After 50 years, real GDP per person in Richland minus real GDP in Poorland is: positive and greater than $10,000. positive but less than $10,000. zero. negative.

negative For Richland, the future value equation is: Future GDP = $20,000*(1.01)^50 = $32,893. For Poorland, the future value equation is: Future GDP = $10,000*(1.03)^50 = $43,839. Real GDP per person in Richland minus real GDP in Poorland is $-10,946, which means Poorland has surpassed Richland.

Firms suddenly becoming pessimistic about future business prospects is an example of a ______ demand shock, which would shift the AD curve to the ______. negative; left positive; left negative; right positive; right

negative; left

Total taxes minus transfer payments minus government interest payments is called: a budget surplus. net taxes. a budget deficit. national saving.

net taxes.

Investment spending includes spending on: consumer durable goods. new capital goods. services. stocks and bonds.

new capital goods.

When actual output equals potential output there is ____ output gap and the rate of inflation will tend to ____. an expansionary; increase an expansionary; decrease no; remain the same a recessionary; increase

no; remain the same

When economists use market values to aggregate output, they sum the: number of items produced. quantity of items produced. price times the quantity of each item produced. inputs of each item produced.

price times the quantity of each item produced.

One thing that distinguishes normative economic principles from positive economic principles is that: normative principles are pessimistic and positive principles are optimistic. normative principles reflect social norms, and positive principles reflect universal truths. normative principles tell us how people should behave, and positive principles tell us how people will behave. normative principles tell us how people will behave, and positive principles tell us how people should behave.

normative principles tell us how people should behave, and positive principles tell us how people will behave.

The most important tool of monetary policy is: reserve requirement ratios. the discount rate. open-market operations. market interest rates.

open-market operations.

Jim Brown would like to work, but has not looked for work in the past four weeks because he does not believe any jobs are available. In the official employment statistics, Jim is classified as: employed. unemployed. out of the labor force. underemployed.

out of the labor force.

The marginal product of labor is the additional: wage paid for an additional hour of work. wage paid for an additional worker employed. labor employed to produce one more unit of output. output produced by one more worker.

output produced by one more worker.

When statisticians fail to take into account improvements in the quality of goods and services, the CPI will tend to ______ the rate of inflation. understate precisely measure be unrelated to overstate

overstate

Suppose manufacturers introduce a new model car to replace a car currently included in the CPI basket. The price of the new car is 10 percent higher than the discontinued model, but the new car has additional safety features and amenities. In this situation the CPI will tend to ______ inflation as a result of ______ bias. overstate; substitution understate; quality adjustment accurately measure; substitution overstate; quality adjustment

overstate; quality adjustment

Economic activity moves from a period of expansion to a ______ and then moves into a period of ______ until it reaches a _____. peak; expansion; trough peak, recession; trough trough; expansion; peak trough; recession; peak

peak, recession; trough

If all the world's resources were to magically increase one hundredfold, then: people would still have to make trade-offs. economics would no longer be relevant. scarcity would disappear. trade-offs would become unnecessary.

people would still have to make trade-offs.

When a firm builds a new factory, this is an example of an investment in: human capital. physical capital. the market. research and development.

physical capital.

Real GDP measures the ______ of production. change in the volume physical volume current dollar value current market value

physical volume

Planned aggregate expenditure is total: value added in the economy. planned spending on final goods and services. income of households, businesses, governments, and foreigners. revenue from the sale of goods and services.

planned spending on final goods and services.

The aggregate demand curve shifts when there are changes in: the inflation rate. planned spending that are not caused by changes in output or the inflation rate. planned spending that are caused only by changes in output or the inflation rate. real GDP.

planned spending that are not caused by changes in output or the inflation rate.

A sudden increase in household wealth is an example of a ______ demand shock, which shifts the AD curve to the ______. negative; left positive; left negative; right positive; right

positive; right

A recession occurs when ______, when _______, or when both of these occur. potential output grows slowly; actual output falls below potential output potential output grows slowly; actual output rises above potential output potential output grows rapidly; actual output equals potential output potential output grows rapidly; actual output falls below potential output

potential output grows slowly; actual output falls below potential output

The value of the marginal product of labor equals the marginal product of labor times the: real wage. nominal wage. price of output. quantity of labor.

price of output.

In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ______, which led to ______. reduced the amount of currency held by the public; a smaller money supply increased bank reserves; a larger reserve/deposit ratio printed large quantities of paper money; hyperinflation ordered the central bank to sell government bonds; an increase in the money supply

printed large quantities of paper money; hyperinflation

Saving by households and businesses is called ______ saving. private public national aggregate

private

If consumption spending increases by $10 million with no changes in net taxes, then: public saving increases. public saving decreases. private saving increases. private saving decreases.

private saving decreases.

Three equivalent ways to measure GDP are total _____, total _____, and total ______. profits; production; saving expenditure; income; profits investment; consumption; saving production; income; expenditure

production; income; expenditure

Labor income includes: wages, salaries, and earnings of the self-employed. payments to owners of factories, machines, and buildings. interest, dividends, and rent. profits, royalties, and rent.

profits, royalties, and rent.

If government spending increases by $1 million while net taxes are unchanged, then: public saving increases. public saving decreases. public saving does not change. private saving increases.

public saving decreases.

If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply. sale; increases sale; decreases purchase; decreases purchase; increases

purchase; increases

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02). If potential output equals 8,000, the central bank must ______ the interest rate to close the ______ gap. lower; expansionary lower; recessionary raise; recessionary raise; expansionary

raise; expansionary If potential output is 8,000, this economy has a recessionary gap. PAE is equals 5,500 + 0.6(Y) - 20,000(0.02), so 0.4Y = 5,100 and Y = 12,750. This is an expansionary gap of 4,750 and interest rates must be raised to close the gap.

To close an expansionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output. raises; increases; increases raises; decreases; increases raises; decreases; decreases reduces; increases; decreases

raises; decreases; decreases

Globalization ______ the wages of workers in the exporting industries and ______ the wages of workers in the import-competing industries. raises; raises raises; lowers raises; does not change lowers; raises

raises; lowers

The key indicator of a country's living standard and economic well-being is: the interest rate. nominal GDP per person. real GDP. real GDP per person.

real GDP per person.

The money demand curve will shift to the left if: the nominal interest rate increases. the nominal interest rate decreases. the price level increases. real income decreases.

real income decreases.

The money demand curve will shift to the right if: the nominal interest rate increases. real income increases. ATM machines are introduced. the price level decreases.

real income increases.

The supply and demand for saving are brought into equilibrium by adjustments of the ______ rate. discount nominal interest real interest dividend

real interest

In the market for saving, the price is the: relative price. real interest rate. nominal interest rate. inflation rate.

real interest rate.

In the market for labor, the price of labor is the: same as price of the product produced by the labor. real wage. marginal product of labor. number of hours employed per year.

real wage.

The wage paid to workers measured in terms of real purchasing power is called the: nominal wage. cost of living. minimum wage. real wage.

real wage.

To compare the change in physical production (GDP) between 2010 and 2016, we should compare ______ GDP in 2010 with ______ GDP in 2016. real; real real; nominal nominal; nominal current dollar; current dollar

real; real

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will generate a(n) _____ gap and inflation will _____. recessionary; increase recessionary; decrease expansionary; decrease expansionary; increase

recessionary; decrease

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ______ gap that can be closed by _________. recessionary; increasing taxes expansionary; increasing transfer payments expansionary; increasing government purchases recessionary; increasing government purchases

recessionary; increasing government purchases This economy has a recessionary gap because Y* exceeds short-run equilibrium output. The gap can be closed by fiscal stimulus, and increasing government purchases is one form of stimulus.

Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ______gap in the short run and ____inflation and ____output in the long run. expansionary; higher; potential recessionary; lower; potential expansionary; higher; higher recessionary; higher; potential

recessionary; lower; potential

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap. recessionary; raise recessionary; reduce recessionary; not change expansionary; raise

recessionary; reduce

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will: reduce production. increase production. increase planned aggregate expenditure. decrease planned aggregate expenditure.

reduce production.

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries: reduce the cost of gathering information about borrowers. have a monopoly on lending. increase the risk of lending. offer higher rates of return than available elsewhere.

reduce the cost of gathering information about borrowers.

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05). If potential output equals 11,750, the central bank must ______ the interest rate to close the ____________ gap. reduce; expansionary reduce; recessionary raise; recessionary raise; expansionary

reduce; recessionary If potential output is 11,750, this economy has a recessionary gap. PAE is equal to 5,500 + 0.6(Y) - 20,000(0.05), so 0.4Y = 4,500 and Y = 11,250. This is a recessionary gap of 500 and interest rates must be reduced to close the gap.

In the basic Keynesian model, a decrease in government purchases: reduces short-run equilibrium output. increases short-run equilibrium output. reduces potential output. increases potential output.

reduces short-run equilibrium output.

A recession in the United States ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada. reduces; expansionary increases; expansionary reduces; recessionary increases; recessionary

reduces; recessionary

b. Increased productivity causes real wages to rise. The supply of labor would

remain unchanged

d. Buyers in the market for CDs learn of an increase in the price of CDs. The demand curve

remains unchanged

The minimum payment you are willing to accept to do a job is your: nominal wage. real wage. reservation price. value of marginal product.

reservation price.

When the Fed sells government securities, the banks': reserves will increase and lending will expand, causing an increase in the money supply. reserves will decrease and lending will contract, causing a decrease in the money supply. reserve requirements will increase and lending will contract, causing a decrease in the money supply. reserves/deposit ratio will increase and lending will expand, causing an increase in the money supply.

reserves will decrease and lending will contract, causing a decrease in the money supply.

a. An increase in consumer confidence leads to higher consumption spending. Aggregate demand shifts to the

right

b. Oil prices drop sharply. Aggregate supply shifts to the

right

b. The government reduces income taxes. Aggregate demand shifts to the

right

c. Buyers in the market for CDs learn of an increase in the price of downloadable MP3s (a substitute for CDs). The demand curve shifts to the

right

Typically, the unemployment rate ______ during a recession and ______ during an expansion. rises; rises even more rises; falls rises; does not change falls; rises

rises; falls

The self-correcting property of the economy means that output gaps are eventually eliminated by: rising or falling prices. falling prices only. increasing or decreasing potential output. government policy.

rising or falling prices.

If the Fed wishes to increase nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply. sale; increases sale; decreases sale; does not change purchase; increases

sale; decreases

Current income minus spending on current needs equals: saving. wealth. transfers. investment.

saving

If the quantity supplied of money is less than the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal. sell; fall; rise sell; fall; fall sell; rise; fall buy; fall; rise

sell; fall; rise

In an open-market sale the Federal Reserve ______ government bonds and the supply of bank reserves ____. buys; increases buys; decreases sells; increases sells; decreases

sells; decreases

The three functions of money are: spending for consumption, investment, and government purchases. measuring balance of payments, exchange rates, and interest rates. implementing monetary policy, fiscal policy, and structural policy. serving as a medium of exchange, unit of account, and store of value.

serving as a medium of exchange, unit of account, and store of value.

d. A tornado sweeps through Iowa. The supply curve

shifts to the left

a. A new and improved crop rotation technique is discovered. The supply curve

shifts to the right

b. The price of fertilizer falls. The supply curve

shifts to the right

c. The government offers new tax breaks to farmers. The supply curve

shifts to the right

Low expected inflation leads to ____ increases in wages and costs and to ____ actual inflation. large; high large; low small; low small; high

small; low

Government purchases include all of the following except: social security benefits paid by the federal government. the construction of a new court house built by a county government. the salary paid to an elementary school teacher employed by a local public school district. the purchase of new military hardware by the U.S. Army.

social security benefits paid by the federal government.

The AS curve slopes upward because: all firms will increase their prices in response to an increase in aggregate demand, but some will increase their output and others will decrease their output. all firms will increase their prices, but not their output in response to an increase in aggregate demand. some firms will increase their prices and their output in response to an increase in aggregate demand. all firms will increase their prices and their output in response to an increase in aggregate demand.

some firms will increase their prices and their output in response to an increase in aggregate demand.

Regarding specialization, it is generally true that: more specialization is always better. less specialization is always better. specialization imposes costs as well as benefits. more specialization is always worse.

specialization imposes costs as well as benefits.

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies. structural cyclical productivity stabilization

stabilization

The quality adjustment bias of the CPI refers to the failure of statisticians to: allow for the possibility that consumers switch from products whose prices are rising. allow for the possibility that consumers switch stores at which they shop. take into account improvements in goods and services. take into account price changes in goods and services.

take into account improvements in goods and services.

Fiscal policy includes: tax policy only. government expenditures only. tax policy and government expenditures. tax policy, government expenditures, and monetary policy.

tax policy and government expenditures.

The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______. that choices must be made; how to make good choices that good choices eliminate scarcity; how to make good choices how to make choices; that choices must be made how to make good choices; that choices involve costs and benefits

that choices must be made; how to make good choices

The central bank of the United States is: Bank of America. Bank of the United States. the U.S. Treasury. the Federal Reserve System.

the Federal Reserve System.

The equilibrium quantity of money in circulation is determined by: the interaction of an upward-sloping money supply curve and a downward-sloping money demand curve. the nominal interest rate, real income, and the price level. the Federal Reserve. the decentralized interactions between households and businesses.

the Federal Reserve.

The Federal Reserve discount rate is the rate of interest charged on loans from ______ to _____. the Federal Reserve; commercial banks the Federal Reserve; the U.S. Treasury commercial banks; the Federal Reserve the U.S. Treasury; commercial banks

the Federal Reserve; commercial banks

When a U.S. firm engages in outsourcing, it benefits ______ and harms ______. the firm; the U.S. consumers of the firm's products the U.S. consumers of the firm's products; the firm the U.S. consumers of the firm's products; the firm's U.S. employees the U.S. consumers of the firm's products; the firm's foreign employees

the U.S. consumers of the firm's products; the firm's U.S. employees

Graphically, long-run equilibrium occurs at the intersection of the aggregate demand curve and: the aggregate supply curve and potential output. the planned aggregate expenditure line. the aggregate supply curve. potential output.

the aggregate supply curve and potential output.

Graphically, short-run equilibrium occurs at the intersection of the aggregate demand curve and: the aggregate supply curve and potential output. the planned aggregate expenditure line. the aggregate supply curve. potential output.

the aggregate supply curve.

The demand for money is: unlimited, since people want to hold as much money as possible. limited by the amount of currency printed by the government. the amount of wealth an individual chooses to hold in the form of money. the amount of income an individual chooses to hold in the form of money.

the amount of wealth an individual chooses to hold in the form of money.

The amount of money in the United States is determined by: the Federal Reserve. the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve. the public the combined behavior of commercial banks and the public.

the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.

Dean should play golf instead of preparing for tomorrow's exam in economics if: he is irrational. the benefit of golfing is greater than the benefit of studying. the economic surplus from playing golf is greater than the economic surplus from studying. Dean can play golf for free.

the economic surplus from playing golf is greater than the economic surplus from studying.

According to the Cost-Benefit Principle, you should go see the latest Star Wars movie with your friends this week-end if: the extra benefits of seeing the movie are greater than the extra costs of seeing the movie. you really like Star Wars. you can afford to go to the movies. the average benefit you get from going to the movies is greater than the average cost of a ticket.

the extra benefits of seeing the movie are greater than the extra costs of seeing the movie.

For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for: bank reserves. the Federal Reserve discount rate. the federal funds rate. open market operations.

the federal funds rate.

In reference to short-term economic fluctuations, the "peak" refers to: a period in which the economy is growing at a rate significantly above normal. the high point of economic activity prior to a downturn. the high point of economic activity prior to a recovery. a particularly strong and protracted expansion.

the high point of economic activity prior to a downturn.

The time between when Congress decides to cut taxes to stimulate aggregate demand and when the tax cuts are implemented is an example of: the outside lag of macroeconomic policy. the inside lag of macroeconomic policy. the outside lag of fiscal policy. the inside lag of monetary policy.

the inside lag of macroeconomic policy.

The time between when Federal Reserve policymakers decide to close an output gap and when they act to change the fed funds rate is an example of: the outside lag of macroeconomic policy. a structural policy change. anchoring inflationary expectations. the inside lag of macroeconomic policy.

the inside lag of macroeconomic policy.

The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the: less is produced. less production is wasted. the more an additional unit of capital adds to production. the less an additional unit of capital adds to production.

the less an additional unit of capital adds to production.

Three macroeconomic factors that affect the demand for money are: the nominal interest rate, real income, and the price level. the nominal interest rate, capital, and labor. globalization, skill-biased technological change, and labor mobility. capital, labor, and technology.

the nominal interest rate, real income, and the price level.

The opportunity cost of money is: the time spent going to the bank to withdraw funds. the fees charged by banks to provide checking services. the nominal interest rate. the price level.

the nominal interest rate.

The speed at which an economy returns to potential following an adverse inflation shock depends on: the Federal Reserve's target inflation rate. the Federal Reserve's target real interest rate. the level of potential output. the public's expectations of how the Federal Reserve will act.

the public's expectations of how the Federal Reserve will act.

Real wages can be cut without cutting nominal wages if: the rate of inflation is positive. the rate of inflation is zero. the rate of inflation is negative. there is deflation.

the rate of inflation is positive.

As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called: the income effect. the change in equilibrium. the substitution effect. a shift in the demand curve.

the substitution effect.

Human capital is: the factories and machinery used by humans in the production process. the talents, training, and education of workers. the financial resources available to humans for investment. the factories and machinery made by workers.

the talents, training, and education of workers.

If the consumer price index increased from 1.52 to 1.65, then it must be the case that ______ relative to prices in the base year. all prices rose the weighted average level of prices rose all prices fell some prices rose and some prices fell

the weighted average level of prices rose

Public saving is negative when: there is a government budget surplus. there is a government budget deficit. the government's budget is balanced. after-tax income of households and businesses is greater than consumption expenditures.

there is a government budget deficit.

Public saving is positive when: there is a government budget surplus. after-tax income of households and businesses is less than consumption expenditures. the government's budget is balanced. after-tax income of households and businesses is greater than consumption expenditures.

there is a government budget surplus.

All of the following are institutional features that make a central bank independent, except when:

they are swayed by short run political considerations.

Commercial banks create new money: when they increase their desired reserve/deposit ratio. by issuing checks. through multiple rounds of lending. when they buy government bonds from the Federal Reserve.

through multiple rounds of lending.

Real GDP per person equals average labor productivity: times one minus the unemployment rate. minus the share of population employed. times the labor force participation rate. times the share of population employed.

times the share of population employed.

a. The income of buyers in the market for Adirondack vacations increase. The demand curve shifts

to the right

b. Oil prices drop sharply. Aggregate supply shifts

to the right

GDP can be measured as each of the following except: the market value of production. total expenditure on final goods and services. incomes of capital and labor. total business revenues.

total business revenues.

An informal definition of a recession is at least ______ consecutive quarters of declining real GDP. two four six eight

two

The long-run average annual growth of real GDP per person is the United States is approximately ______ percent. one two five seven

two

Points that lie outside the production possibilities curve are ______, and points that lie inside the production possibilities curve are ______. efficient; inefficient inefficient; efficient unattainable; attainable attainable; unattainable

unattainable; attainable

a. The Fed increases the money supply. Aggregate supply is

unchanged

A person 16 years or older who does not work, but is actively looking for work, is officially classified as: employed. unemployed. chronically unemployed. out of the labor force.

unemployed.

b. Your estimate of the natural rate of unemployment is 5 percent, and the actual unemployment rate is 8 percent. Your understanding will be that:

unemployment has risen above the natural rate.

Intermediate goods and services are ______ production and ______ counted in GDP. the end products of; are the end products of; are not used up in the process of; are used up in the process of; are not

used up in the process of; are not

Whether studying the output of the U.S. economy or how many classes a student will take, an unifying concept is that: wants are limited and resources are unlimited, so trade-offs are unnecessary. wants are unlimited and resources are scarce, so trade-offs have to be made. wants are limited and resources are unlimited, so trade-offs have to be made. both wants and resources are unlimited.

wants are unlimited and resources are scarce, so trade-offs have to be made.

If Dylan saves $50 per week, then Dylan's ______ will increase by $50 per week. investment consumption taxes wealth

wealth

The economy is in long-run equilibrium: when the AD and AS curves intersect at potential output, Y*. when the AD and AS curves intersect, regardless of the level of output. when the AD and AS curves become vertical. only when the business cycle is eliminated.

when the AD and AS curves intersect at potential output, Y*.

For two goods X and Y to be classified as substitutes, it must be the case that: X and Y are identical. consumers tend to purchase both items. when the price of X rises, the demand for Y decreases. when the price of X rises, the demand for Y increases.

when the price of X rises, the demand for Y increases.

If two countries are economically identical except that there is significant air and water pollution in one, then the level of GDP: will be higher in the country with pollution. will be higher in the country with no pollution. will be the same in both countries. will be greater than the level of economic well-being in each country.

will be the same in both countries.

If workers and employers agree to a three-year wage contract under the expectation of 3% inflation, and inflation turns out to be 5%, then: workers gain and employers gain. workers gain and employers lose. workers lose and employers gain. workers lose and employers lose.

workers lose and employers gain.

In 2015, Janice Quinn sells a five-year-old car to Used Car, Inc. for $3,000. In the same year, Used Car, Inc. resells the car to Hilda Goner for $3,500. What is the contribution of these transactions to GDP in the year 2015? $0 $500 $3,000 $6,500

$500 Used Car, Inc. added $500 value to the transaction for the service to facilitate car sales, which is the difference in the price of buying the used car versus the price of selling the same car to a new owner.

Peg's Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to real GDP in 2011 was ______ and to nominal GDP in 2011 was _____. $80,000; $88,000 $80,000; $90,000 $80,000; $99,000 $90,000; $99,000

$90,000; $99,000 First note that in order to find Peg?s contribution to real GDP, we must use the price of nails in the base years ($20), so Peg?s contribution to real GDP in 2011 was: (4,500 nails * $20) = $90,000. Peg?s contribution to nominal GDP in 2011 was: (4,500 nails *$22) = $99,000.

Which of the following is not classified as a final good? New clothing purchased by a college student Fresh vegetables purchased by a restaurant A new car purchased by a family A new machine purchased by a business

Fresh vegetables purchased by a restaurant

Which of the following activities is most likely to be counted in GDP? Fran volunteers at the local veteran's hospital twice a month. Stu gave $5 to a homeless man he met in the park. Gail buys paper and crayons to donate to poor children in need of school supplies. Bud works hard five hours each week to make sure that his lawn always looks nice.

Gail buys paper and crayons to donate to poor children in need of school supplies.

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore: Gertie should not buy the jeans because they will be of lower quality than she expected. Gertie should not buy the jeans because the price is not equal to her reservation price. Gertie should buy the jeans because the price is less than her reservation price. Gertie should buy the jeans because the price is more than her reservation price.

Gertie should buy the jeans because the price is less than her reservation price.

Which of the following transactions would be included in the GDP of the United States? Coca Cola produces soft drinks in England. Honda produces cars in Ohio. McDonalds sells hamburgers in Russia. Ford Motor Company produces cars in Mexico.

Honda produces cars in Ohio.

Which of the following is NOT true of a demand curve? It has negative slope. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. It relates the price of an item to the quantity demanded of that item. It shows how an increase in price leads to an increase in quantity demanded of a good.

It shows how an increase in price leads to an increase in quantity demanded of a good.

The downward slope of the production possibilities curve illustrates the: Scarcity Principle. Cost-Benefit Principle. Incentive Principle. Principle of Comparative Advantage.

Scarcity Principle.

The meal plan at University A lets students eat as much as they like for a fixed fee of $500 per semester. The average student there eats 250 pounds of food per semester. University B charges $500 for a book of meal tickets that entitles the student to eat 250 pounds of food per semester. If the student eats more than 250 pounds, he or she pays $2 for each additional pound; if the student eats less, he or she gets a $2 per pound refund. If students are rational, at which university will average food consumption be higher?

Univeristy A *At University A, the marginal or extra cost for each additional pound of food is $0, so everybody will keep eating until the extra benefit from eating an extra pound is also equal to $0. At University B, however, the cost of eating an extra pound of food is $2, so people will stop eating when the benefit of eating an extra pound falls to $2. Food consumption will thus be higher at University A.

Which of the following would increase the consumption component of U.S. GDP? You purchase a vacation at Disney World in Florida. A business purchases Disney World vacations as rewards for the firm's best salespeople. Disney World purchases tires for the monorail from a firm in Ohio. A French man purchases a vacation at a Disney theme park in France.

You purchase a vacation at Disney World in Florida.

You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go see a movie or work as a math tutor? You should work as a math tutor. You should go to the movies. You should do neither. Both options are equally good.

You should work as a math tutor. To determine your best choice, calculate the value of each option as if it were your only choice. In this case, your economic surplus from going to the movies would be $8 (= $20 - $12) and your economic surplus from working as a math tutor would be $10 (= $45 - $35). Thus, your economic surplus would be higher if you worked as a math tutor.

"As the price of personal computers continues to fall, demand increases." This headline is inaccurate because: a change in the price of personal computers shifts the demand curve. a change in the price of personal computers shifts the supply curve. the statement is backwards: increased demand leads to lower prices. a falling price for personal computers increases quantity demanded, not demand.

a falling price for personal computers increases quantity demanded, not demand.

Economics is the study of: the financial concerns of businesses and individuals. the role of government in limiting the choices people make. choice in the face of limited resources. whether we will have enough resources in the future.

choice in the face of limited resources.

The market value of final goods and services produced within a country during a period of time is called: guaranteed direct prices. general domestic productivity. government documented production. gross domestic product.

gross domestic product.

The slope of a production possibilities curve is ______ because ______. negative; producing more of one good requires producing less of the other negative; producing less of one good requires producing less of the other positive; producing more of one good requires producing more of the other positive; producing more of one good requires producing less of the other

negative; producing more of one good requires producing less of the other

One shortcoming of real GDP as an indicator of society's social well-being is that it fails to take into account the: growth in productivity. increase in the quantity of goods. non-market production. change in the price level.

non-market production.

d. Cloth diapers and disposable diapers are (complements/substitutes/both).

substitutes

Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then: attending State U. for four years is costless for Alex. Alex has no incentive to study hard while at State U. the opportunity cost of attending State U. includes the money Alex could have earned working for four years. the opportunity cost of attending State U. includes the sum of the benefits Alex would had from attending each of the other schools to which he was admitted.

the opportunity cost of attending State U. includes the money Alex could have earned working for four years.

Ginger bought a phone that came with a $10 rebate. Ginger should fill out and mail in the rebate form if: the opportunity cost of the time and trouble of sending in the rebate form is less than $10. the opportunity cost of the time and trouble of sending in the rebate form is more than $10. she would have bought the phone without the rebate, and so sending in the rebate form involves no opportunity cost. Ginger's surplus from purchasing the phone was less than $10.

the opportunity cost of the time and trouble of sending in the rebate form is less than $10.

Macroeconomics differs from microeconomics in that macroeconomics focuses on: individual choices and group behavior in individual markets. the performance of national economies and ways to improve that performance. production in specific markets. prices in specific markets.

the performance of national economies and ways to improve that performance.

A CPI that equals 1.34 in 2008 (when 2000 is the base year) means that: prices in 2008 are 34 percent higher than in 2007. the CPI equals $1.34 in 2008. the inflation rate in 2008 is 134 percent. the price level in 2008 is 34 percent higher than in the base period.

the price level in 2008 is 34 percent higher than in the base period. A CPI of 1.34 means that prices on average have risen 34 percent since the base year.

Generally, on a linear two-good production possibilities curve, the opportunity cost of the good measured on the vertical axis is: one minus the opportunity cost of the good measured on the horizontal axis. the reciprocal of the opportunity cost of the good measured on the horizontal axis. the absolute value of the slope of the production possibilities curve. the negative of the opportunity cost of the good measured on the horizontal axis.

the reciprocal of the opportunity cost of the good measured on the horizontal axis.

The Scarcity Principle states that: people don't have enough money to buy what they want. society will eventually run out of resources. with limited resources, having more of one thing means having less of another. some countries have fewer resources than others.

with limited resources, having more of one thing means having less of another.

If you have a comparative advantage in a particular task, then: you are better at it than other people. you give up more to accomplish that task than do others. you give up less to accomplish that task than do others. you have specialized in that task, while others have not.

you give up less to accomplish that task than do others.