Macroeconomics Pre-Test #1

10. It is possible to represent three dimensions on a two-dimensional graph by using a. a contour map. b. a razor blade. c. curved lines. d. all of the above.

A

15. What is the approximate number of Americans who have jobs? a. 145 million b. 200 million c. 290 million d. 310 million e. 3.1 billion

A

21. An industry can be defined as a. the group of all firms that sell a product. b. any company that produces and sells something. c. the set of buyers of a particular good or service. d. the top companies that sell something.

A

22. Antitrust laws are designed to a. preserve competition. b. protect the environment. c. protect the public's trust in the government. d. all of the above.

A

23. America's antitrust laws are used to protect competition against possible encroachment by monopoly. This is an example of government as a. regulator of businesses. b. buyer of goods and services. c. tax collector. d. redistributor.

A

25. In the U.S., the share of taxes_____during the early years of George W. Bush's presidency and _____ since then. a. decreased; increased somewhat b. decreased; further decreased c. increased; further increased d. increased; decreased somewhat e. increased; remained constant

A

26. A central government collected taxes totaling $120 billion in the previous year. It's expenditure during the year was roughly the same. This is an example of a a. balanced budget. b. surplus budget. c. deficit budget. d. zero budget.

A

35. The concept of government as redistributor is a. approved by many, but questioned by many as well. b. generally rejected as against "the American way." c. largely approved by a vast majority of Americans. d. unnecessary in the United States because income disparities are small. e. a conservative idea that many liberals reject.

A

39. The working population of the United States is approximately a. 145 million b. 290 million c. 300 million d. 1.3 billion

A

44. According to the data on real U.S. GDP, a. economic growth has been irregular, with periodic downturns. b. economic growth has been consistent, with few downturns. c. economic growth has been extremely rapid, but with major collapses. d. economic growth has been elusive, but downturns have been eliminated.Fall 2014 Econ 261, Pre-Test #1

A

47. Economic fluctuations are defined as a. alternating periods of significant GDP growth and decline. b. events only encountered in developing countries. c. periods of stable economic growth. d. alternating periods of unemployment falling above and below zero.

A

48. A recession can best be defined as a period of time in which a. total output of the economy falls. b. total output of the economy rises very slowly. c. total unemployment falls. d. total international trade fails to rise. e. Both a and c

A

5. In the 19th century, Russian peasants noticed that during cholera epidemics there were lots of doctors around; in an attempt to eliminate cholera, they killed all the doctors. This is an example of a. mistaking correlation with causation. b. the fallacy of opportunism. c. excessive abstraction. d. rationality. e. marginal analysis.

A

51. A firm that does business all over the world is called a(n) a. multinational corporation. b. international conglomerate. c. competitive corporation. d. government-owned business.

A

56. In 2005, President Bush promoted a plan to privatize Social Security through allowing workers to create personal savings accounts. How will this affect the government's role as a redistributor of income? a. it will be diminished. b. it will not be affected. c. it will be strengthened. d. the government does not redistribute income in the U.S.

A

71. The United States is a fairly good example of a. a mixed economy. b. a pure market system. c. a government-dominated economy. d. a manufacturing economy. e. a transitioning economy.

A

73. Potential GDP is an estimate of the economy's ability to produce goods and services if the a. labor force is fully employed. b. price level is stable. c. trade balance is zero. d. federal budget is balanced.

A

75. In the analysis of potential GDP, labor and capital are considered a. inputs. b. final goods and services. c. byproducts of economic growth. d. outputs.Fall 2014 Econ 261, Pre-Test #1

A

77. In 2009, which of the following countries had the lowest average unemployment rates? a. Canada b. France c. Italy d. Germany e. United States

A

78. Technological change or the effects of automation cause a. structural unemployment. b. frictional unemployment. c. seasonal unemployment. d. cyclical unemployment.

A

79. Full employment implies which of the following is reduced to zero? a. cyclical unemployment only b. frictional unemployment only c. frictional and structural unemployment only d. frictional, structural, and cyclical unemployment

A

81. The reason that inflation rarely harms workers is that a. wages rise at the same time prices rise. b. wages fall when prices rise. c. nominal income falls as prices rise. d. the minimum wage rate automatically rises when the price level rises.

A

9. If movement along a graph causes the value on the vertical axis to rise by 5 units and the value on the horizontal axis to fall by 10 units, the slope of the function is a. 5. b. −.5. c. −2. d. −72.

B

33. The role of government in a market economy includes all of the following except a. providing services such as national defense. b. collecting taxes. c. extensive ownership of productive resources. d. making and enforcing laws.

C

29. In a mixed economy a. all economies choose the same mix of private and public involvement in the economy. b. the government is more important than the private sector in generating output. c. there is some government influence over the workings of the free market. d. all of the above.

C

20. Nonconsumption spending accounts for roughly what percent of total output of goods and services? a. 20% b. 30% c. 40% d. 60%Fall 2014 Econ 261, Pre-Test #1

B

31. Gross domestic product is a. the largest industry in an economy. b. the money value of all final goods and services produced in a year. c. the volume of goods and services which are subject to international trade. d. goods and services produced by private companies. e. non-market production of goods and services.

B

38. Annual incomes of James, Jack, and Stanley are $30,000, $50,000, and $80,000 and their tax rates are 10%, 20%, and 30% respectively. Which tax structure is this an example of? a. Proportional tax b. Progressive tax c. Regressive tax d. Digressive tax

B

40. Capitalism and free enterprise are common, and the United States a. has just begun to move in that direction after years of central planning. b. has gone further in that direction than almost any other country. c. is becoming more "free," but is not as capitalistic as many others. d. is considering a major change to "free up" its economy as many others have. e. is leading the move toward greater central planning and control.

B

41. In 2009, about what percentage of goods and services sold in the United States was imported? a. 4% b. 13% c. 20% d. 88%

B

45. Economic progress is best measured by a. the growth rate of prices over time. b. the growth rate of GDP per capita c. the amount of time it takes a worker to work to afford certain goods and services. d. the growth rate in the population.

B

53. Which of the following illustrates government acting as a referee? a. taxing high income persons b. enforcing contract provisions between buyer and seller c. buying new weapons for defense d. mailing checks to social security recipients e. collecting data on imports and exports

B

6. An economic model can be defined as a. a testable claim which can be evaluated with proper data. b. a representation of a theory or a part of a theory. c. another word for theory. d. a method to distinguish correlation from causation. e. All of the above are correct.

B

60. How does the United States compare to other advanced, industrialized economies on the issue of openness? a. It is completely closed. b. It is one of the less open of them. c. It is about average in openness. d. It is one of the more open of them. e. It is the most open of them.Fall 2014 Econ 261, Pre-Test #1

B

62. Why does unemployment tend to change when the level of output changes? a. Persons wish to buy things, and if output falls, people need to work less to earn the income to buy the smaller output. b. Labor is an input, and if output falls, employers need fewer workers to make it, so the employment falls. c. When output rises, persons are more interested in buying, and will work more to earn the income to buy things. d. Persons face the option of buying or working, so that when they do more of one, the other necessarily falls. e. When companies replace workers with machines, output rises, and people take time off from work to buy before returning to employment.

B

63. Which of the following areas employed more workers in 2009? a. educational and health services b. business and professional services c. retail trade d. manufacturing companies

B

65. For those workers who are given fringe benefits such as health insurance and pensions, the additional income this amounts to over and above the average hourly wage is approximately a. 12% b. 30% c. 51% d. 70%

B

7. A diagram is a good example of a(n) a. hypothesis. b. abstraction. c. theory. d. concept. e. instrumentation. Figure 1-2

B

82. If wages rise by 12 percent at the same time prices rise by 3 percent, then the increase in real wages is equal to a. 12 percent. b. 9 percent. c. 6 percent. d. 3 percent.

B

83. The arithmetic difference between the nominal rate of interest and the expected rate of inflation is the a. expected interest rate. b. real interest rate. c. implied interest rate. d. contractual interest rate.Fall 2014 Econ 261, Pre-Test #1

B

85. Sharon buys some common stock in 1990 for $10,000 and sells it in 2000 for $15,000. During the same period, prices have risen by 75 percent. The net result of Sharon's stock purchases is that she will a. pay no taxes because she earned negative real capital gains. b. lose purchasing power and have to pay taxes anyway. c. earn a real capital gain of $5,000 plus 75 percent. d. earn a real capital gain of $15,000 minus 75 percent.

B

11. Government ownership of property and resources in the United States is a. about as common as it is in European countries. b. widespread; the United States is a leader in the amount of government ownership of resources. c. relatively rare; the United States is mostly privatized. d. rare, but has been increasing rapidly as the United States catches up to other countries.

C

12. Which of the following is the best definition of openness? a. The average of imports expressed as a share of GDP. b. The average of goods traded in markets expressed as a share of GDP. c. The average of imports and exports expressed as a share of GDP. d. The average trade balance expressed as a share of GDP. e. The average of exports expressed as a share of GDP.Fall 2014 Econ 261, Pre-Test #1

C

16. Which of the following groups has had declining labor force participation over the last 30 years? a. Women b. Men c. Teenagers d. Americans

C

19. Consumer spending accounts for what share of GDP? a. 20% b. 40% c. 70% d. 90%

C

2. Which of the following is an example of a fiscal policy initiative? a. Lowering of interest rates. b. Increase in reserve requirements. c. Reduction in taxes. d. Decrease in money supply.

C

28. All of the following are associated with a mixed economy except a. some public influence over the workings of free markets. b. public ownership mixed in with private property. c. homogenization. d. different countries blending the state and market sectors in different ways

C

32. Most American workers a. are employed in the goods-producing sector. b. are employed by government. c. are employed in the service-producing sector. d. are employed in the agricultural sector.

C

34. The FairTax idea centers on a national sales tax to replace other taxes including federal income tax. If such a flat tax were enacted, what would happen to the role of government as redistributor? a. It would decrease as tax rates increased and income taxes became more progressive. b. It would increase as tax rates decreased and income taxes became more representative. c. It would decrease as progressive income taxes ended. d. It would increase as regressive income taxes ended. e. It would be largely unchanged.

C

4. The use of chlorofluorocarbons in refrigerators and air conditioners is alleged to cause the destruction of the ozone layer that surrounds the earth. This layer protects humans from ultraviolet radiation, which causes skin cancer. Industry has been prohibited from using these substances in aerosol cans, but the government has been reluctant to ban their use altogether because of the serious economic consequences. Economists analyze such problems and refer to them as a. issues of unfairness. b. examples of excess abstraction. c. externalities. d. comparative advantage issues. e. examples of trade-offs between output and equality.

C

43. Gross Domestic Product in 2009 was almost five times larger than it was in 1960 but it is important to note that a. none of the growth represented more output. b. measurement of output omitted any effect of inflation. c. the population grew substantially over the same time period. d. graphs of output were unable to display such growth.

C

46. Per capita GDP can be defined as a. GDP per working person. b. GDP per unit of capital. c. GDP per person. d. GDP per unit of unemployment.

C

50. Most Americans a. have accurate perceptions of the level of corporate profits. b. underestimate corporate profits. c. overestimate corporate profits. d. believe that corporations earn zero profit.

C

54. The largest single portion of the federal budget is devoted to a. National defense. b. Medicare and Medicaid. c. Social Security and unemployment compensation. d. Education. e. Interest payments on the national debt.

C

55. A transfer payment is a sum of money a. spent by government for new goods and services. b. shifted between members of a household. c. given by government without a good or service in exchange. d. moved between companies for goods and services. e. required to pay taxes.

C

61. As of 2009, annual imports to the U.S. were approximately ( ) and annual exports from the U.S. were approximately ( ). a. $0.6 trillion; $1.5 trillion b. $2.0 trillion; $0.6 trillion c. $2.0 trillion; $1.5 trillion d. $1.5 trillion; $2.0 trillion e. $2.0 trillion; $2.0 trillion

C

68. In the United States each year, approximately a. 50% of all businesses fail. b. 25% of all businesses fail. c. 10% of all businesses fail. d. 5% of all businesses fail.

C

8. Identify the slope of the two curves A and B in Figure 1-2. a. A - zero, B - one. b. A - one, B - zero. c. A - one, B - different at different points. d. A - different at different points, B - zero.

C

86. From 1991 to 2008, the rate of inflation in the U.S. has been a. zero. b. between zero and 2.1%. c. between 1.6% and 4.1%. d. between 3.2% and 7.2%.

C

13. Along with changes in the level of economic activity, measured by GDP, what other economic variable tends to rise and fall as a consequence? a. precipitation b. regulation c. circulation d. unemployment

D

14. Which of the following is true about the United States? a. There has only been on recession in U.S. history. b. There have been recessions every couple of years throughout U.S. history. c. Recessions have never occurred in the United States. d. Recessions have occurred periodically in U.S. history. e. Recessions in the United States have generally been worse than in other countries.

D

17. Which factor of production accounts for the highest percentage of the income that the production process generates in the US? a. Capital b. Natural Resource c. Land d. Labor

D

18. How do the wages in the United States compare to those in northern Europe? a. U.S. wage rates are higher than those of all northern European nations. b. Northern Europe's average wage rates are higher. c. U.S. wage rates are higher than those in Germany and the Netherlands. d. they are similar.

D

24. Compared to people in other nations, people in the United States pay a. much higher taxes. b. somewhat higher taxes, on average. c. about the same amount taxes. d. lower taxes.

D

27. A mixed economy is one in which a. a mixture of businesses exist and function. b. there is a mixture of public influence over government. c. government plays a dominant role, and private markets are secondary. d. there is some public influence over free markets.

D

3. The law of comparative advantages explains why a. advanced nations will not trade with less-developed countries. b. an advanced nation will not trade with other countries. c. less-developed countries only trade among themselves. d. nations trade with each other, regardless of their relative levels of economic development. e. nations erect trade barriers.

D

30. The United States economy is a. the third largest in the world. b. larger than all other national economies combined. c. second largest in the world, behind Japan. d. largest in the world.

D

36. The government redistributes income to the poor, primarily through a. progressive taxes. b. transfer payments. c. government purchases. d. both a and b.Fall 2014 Econ 261, Pre-Test #1

D

37. Progressive income taxes are designed to a. make the distribution of income less equal. b. leave unchanged the distribution of income. c. let the market determine the distribution of income after taxes. d. make the distribution of income more equal.

D

42. Which of the following is the most closed economy? a. the Netherlands b. the United States c. Germany d. Russia e. Canada

D

49. In the United States, most workers a. work for government of some sort. b. produce raw materials for manufacturing. c. work in agriculture and farming. d. produce services rather than goods.

D

52. Government plays a role in which type of economy? a. only free market economies like the United States b. only socialist economies c. only mixed economies d. all economiesFall 2014 Econ 261, Pre-Test #1

D

57. The United States has the largest economy in the world because a. it has the most land to work with. b. it has a large population. c. American workers are very productive. d. both b and c are correct.

D

58. Inputs, or factors of production, include a. labor. b. machinery. c. natural resources. d. all of the above.

D

59. If California were a separate economy, it would be the ( ) largest economy on earth. a. second b. third c. fifth d. eighth

D

64. The portion of income which is earned in the form of wages for labor is about a. 12% b. 30% c. 51% d. 70%

D

66. The United States has approximately a. 80,000 businesses. b. 5.1 million businesses. c. 12.8 million businesses. d. 27.5 million businesses.

D

67. According to Robert Reich, secretary of Labor in the Clinton administration, a. the identity of American companies is clear, and laws should be written accordingly. b. foreign companies are clearly different from American companies. c. multinational companies have clear bases of operations, which form their identity. d. it is almost impossible to define the nationality of a multinational company. e. identifying the country of origin of a product is almost impossible, but essential for proper regulation.Fall 2014 Econ 261, Pre-Test #1

D

70. The largest single portion of state and local budgets is devoted to a. State and local defense. b. Health and public welfare programs. c. State and local unemployment compensation. d. Education. e. Interest payments on state and local debt.

D

72. An increase in the capital stock has the same effect on the production function as an increase in a. labor. b. output. c. GDP. d. technology.

D

74. The amount of goods and services the economy could produce if the labor force is fully employed is called a. nominal GDP. b. real GDP. c. actual GDP. d. potential GDP.

D

76. As the unemployment rate rises, a. real GDP also rises. b. nominal GDP rises. c. the employment rate rises. d. lost national output rises.

D

80. The most likely group of the following that would be eligible for unemployment insurance benefits is a. new college graduates looking for their first job. b. mothers returning to the labor force after caring for young children. c. workers who quit their jobs. d. experienced workers recently laid off.

D

84. Americans viewed the 12 percent mortgage interest rates of the 1980s as exorbitantly high while they considered the 7 percent mortgage interest rates of the late 1990s as reasonable. This represents a confusion of a. actual and expected inflation. b. real versus nominal inflation. c. real versus expected mortgage payments. d. real versus nominal interest rates.

D

1. Some college students think that because a college degree greatly increases their earning potential there is no opportunity cost of attending college. How would an economist look at the matter? a. There is no opportunity cost, assuming that future earnings actually increase as expected. b. The opportunity cost is much less than it would appear, assuming that earnings increase. c. Opportunity cost is a meaningless concept in this situation. d. The college students are completely correct in all respects. e. There is still an opportunity cost, even if it is justified by higher future earnings.

E

69. As Americans have become more health conscious, rules about food labels have become more complex and stringent. This is an example of government acting as a. regulator. b. redistributor. c. taxer. d. defender. e. referee.

E