Midterm 2

Increases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

B) increase; decrease

Property rights consist of _____ goods that _____ be easily measured. A) intangible; can B) intangible; cannot C) tangible; cannot D) tangible; can

B) intangible; cannot

For which growth rate would the Rule of 70 be most accurate? A) 1% B) 15% C) 20% D) 30%

A) 1%

_____ is a reduction in the rate of inflation. A) Disinflation B) Deflation C) Hyperinflation D) The price level

A) Disinflation

. _____ is a measure of the change in average prices paid by urban consumers for a typical market basket of goods and services. A) The consumer price index B) The producer price index C) Personal consumption expenditure D) The GDP deflator

A) The consumer price index

Along the 45-degree line in the graph of consumption and disposable income: A) consumption is equal to disposable income. B) consumption is equal to total saving. C) consumption is equal to marginal saving. D) the interest rate is zero.

A) consumption is equal to disposable income.

The capital-to-labor ratio is: A) high in rich countries. B) high in poor countries. C) a key element in decreasing real wages. D) the ratio of managers to workers.

A) high in rich countries.

Which of the following groups benefits from an unanticipated rise in the inflation rate? A) homeowners with fixed-rate mortgages B) elderly people living on a fixed income C) creditors or lenders D) workers on contracts without escalator clauses

A) homeowners with fixed-rate mortgages

Which of the following increases productivity? A) increased skill in the labor force B) young labor force C) poorly educated labor force D) large labor force

A) increased skill in the labor force

Generally, nations with the _________ economic freedom also have the _________ per capita GDP. A) most; highest B) least; highest C) most; lowest D) least; average

A) most; highest

A production function: A) shows the output that is produced using different combinations of inputs combined with existing technology. B) shows the output that is produced using different combinations of technology combined with existing inputs. C) shows the output that is most highly valued by consumers. D) shows the most desired production method for a given level of output.

A) shows the output that is produced using different combinations of inputs combined with existing technology.

What event was a major influence on the development of macroeconomics? A) the Great Depression B) the Employment Act of 1946 C) the establishment of the Federal Reserve System in the United States D) the U.S. entry into World War II

A) the Great Depression

A business cycle is: A) the periodic fluctuation of economic activity. B) the engine of economic growth. C) a period lasting about 50 years. D) identical to the consumption life cycle.

A) the periodic fluctuation of economic activity

Which of the following would NOT be included in the GDP accounts? A) the value of time spent learning how to prepare your personal income tax return B) the value of the time a mechanic spends changing the battery of a customer's car C) the payment to a certified nursing assistant for caring for an aged relative in her home D) the value of the gambling winnings that you declare on your tax return

A) the value of time spent learning how to prepare your personal income tax return

Which of the following marginal propensities to consume results in the flattest consumption line in an aggregate expenditures model? A) 0.4 B) 0.5 C) 0.8 D) 1.0

A. 0.4

When the Bureau of Labor Statistics calculates the consumer price index, it assumes that: A) each consumer maximizes his or her utility. B) consumers do not substitute cheaper goods for goods whose prices have risen. C) consumers overspend. D) there is no unemployment.

B) consumers do not substitute cheaper goods for goods whose prices have risen.

The inflation rate is 4%. Social Security payments automatically rise 4%. This adjustment is authorized by an: A) inflation rate. B) escalator clause. C) elevator clause. D) insanity clause.

B) escalator clause.

Which of the following are considered withdrawals from an economy? A) imports; taxes; investment B) imports; taxes; savings C) exports; government spending; investment D) exports; government spending; savings

B) imports; taxes; savings

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce: A) more, raising both employment and income. B) less, lowering both employment and income. C) more, raising employment and lowering income. D) less, lowering employment and raising income.

B) less, lowering both employment and income.

Which phase of the business cycle occurs immediately before a trough? A) peak B) recession C) boom D) recovery

B) recession

The Rule of 70 states that the number of years required for a value to double in size is: A) 70. B) 70 times the growth rate. C) 70 divided by the growth rate. D) the growth rate divided by 70.

C) 70 divided by the growth rate.

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n): A) unemployment trap. B) recession. C) jobless recovery. D) microeconomic problem.

C) jobless recovery.

The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called: A) labor income. B) gross domestic income. C) national income. D) pretax income.

C) national income.

Human capital refers to: A) equipment, buildings, and inventories. B) funds firms raise by selling stocks and bonds. C) skills, knowledge, and quality of workers. D) infrastructure of a nation.

C) skills, knowledge, and quality of workers

People are considered employed if they are: A) unpaid family workers. B) on strike. C) on vacation. D) All of those listed are considered employed

D) All of those listed are considered employed

Which statement about short-run economic growth is NOT true? A) It occurs when an economy makes use of underutilized resources. B) It is easier to achieve than long-run economic growth. C) It is likely to occur when countries are recovering from an economic downturn. D) It is likely to occur when obstacles preventing resources from being used are put in place.

D) It is likely to occur when obstacles preventing resources from being used are put in place.

Inflation has significant long-run effects on the economy because: A) it distorts the price signal and produces incentives for speculation. B) it can enhance the purchasing power of a fixed income. C) it can lead to an improvement in real values. D) creditors can gain from inflation.

D) creditors can gain from inflation.

If real GDP at full employment is $5 billion while current GDP is $6 billion, a(n) _____ exists, and will require a _____ in spending to bring the economy back to full employment. A) recessionary gap; increase B) recessionary gap; decrease C) inflationary gap; increase D) inflationary gap; decrease

D) inflationary gap; decrease

The high point of a business cycle is called the: A) trough. B) expansion. C) recession. D) peak.

D) peak.

Improvements in production capacity will: A) rotate the production possibility frontier (PPF) clockwise. B) move the economy up to the PPF. C) move the economy along the PPF. D) shift the PPF outward.

D) shift the PPF outward.

In the United States, real GDP is measured by: A) the Federal Reserve. B) the Congressional Budget Office. C) the National Bureau of Economic Research. D) the Bureau of Economic Analysis.

D) the Bureau of Economic Analysis.