Brad's Econ

The best definition of inflation is a(n): a. temporary increase in prices b. increase in the price of one important commodity such as food. C. persistent increase in the general level of prices as measured by a price index. d. increase in the purchasing power of the dollar.

persistent increase in the general level of prices as measured by a price index.

Using the expenditure approach, total spending by households for durable goods, nondurable goods, and services is a category called: а. gross private domestic investment. b. capital consumption allowance. personal consumption expenditures d. household investment.

personal consumption expenditures

Classical economists believed that: a. price flexibility automatically directs market economies to full employment. b. budget deficits and surpluses were necessary for the control of economic fluctuations c. market economies suffer prolonged periods of recessions and depressions. d. market economies are inherently unstable because of fluctuating aggregate demand.

price flexibility automatically directs market economies to full employment.

In Exhibit 9-4, equilibrium real GDP is: a. $500 billion. b. $800 billion. C. $900 billion d. 1,000 billion.

1,000 billion.

Contractionary fiscal policy is deliberate govemment action to influence aggregate demand and the level of real GDP through: a. expanding and contracting the money supply b. encouraging business to expand or contract investment c. regulating net exports. d. decreasing govemment spending or increasing taxes

@decreasing govemment spending or increasing taxes

A phase in the business cycle in which the economy's real GDP declines is known as: a. a depression. a recession c. a downtick d. disequilibrium e. limited demand

A recession

Which of the following would count as an investment expenditure in the GDP expenditures approach? General Motors hires 10 electrical engineers. Boeing purchases a new metal stretching machine used to produce airplane wings. Ms. Quantum buys 100 shares of Microsoft stock. D. A large corporation spends $10,000 per month on long-distance phone charges.

Boeing purchases a new metal stretching machine used to produce airplane wings.

According to Say's law, there cannot be overproduction of goods and services because: a. planned aggregate expenditures sometimes fall short of total output. b. prices and wages are "sticky" or inflexible in the downward direction. c. demand creates its own supply. d. supply creates its own demand.

supply creates its own demand.

Inflation is defined as an increase in: a. real wages of workers. b. real GDP. c. the average price level. d. all consumer products.

the average price level.

An increase in the general price level is termed: a. the Consumer Price Index. Dinflation. c. deflation. stagflation. e. Nominal pricing

Dinflation.

Inflation is measured by an increase in: a. homes, autos and basic resources. b. prices of all products in the economy c. the consumer price index (CPI). d. none of these.

the consumer price index (CPI).

The Keynesian analysis of fiscal policy argues that: a. fiscal policy should generally be expansionary except during periods of economic recession. b. fiscal policy should generally be restrictive except during inflationary booms. c. the federal budget should be balanced annually except during war. D. A the federal budget should be used to maintain aggregate demand at a level consistent with full employment.

the federal budget should be used to maintain aggregate demand at a level consistent with full employment.

Inflation is an increase in a. prices of all products in the economy b. homes, autos and basic resources. c. the general price level of products d. none of these.

the general price level of products

A business cycle is the period of time in which: a. a business is established and ceases operations there are four phases: peak, recession, trough and expansion. c. the price level varies with real GDP. d. expansion and contraction of economic activity are equal. e. none of these are true.

there are four phases: peak, recession, trough and expansion.

What stage of the business cycle immediately follows the trough? a. Peak. B. Expansion. c. Recession. D. Depression

Expansion.

All final goods and services that make GDP can be expressed in the form: a. GDP = C+1-G+(X+ M). b. GDP = C+I+G+(X+ M). GDP = C+1+G+(X-M) d. GDP = C+1+(X- M). e. GDP = C+1+ G

GDP C+1+G+(X-M)

GDP does count: а. state and local government purchases. b. spending for new homes. с. changes in inventories. D. None of these

None of these

Economists usually use the term "recession" to refer to: a. any slowdown in the growth of real GDP. b. zero real GDP growth. Cwo or more consecutive quarters of declining real GDP. d. a reduction in nominal GDP lasting more than six months.

Two or more consecutive quarters of declining real GDP.

Using the expenditure approach, "gross private domestic investment" the sum of: I а. newly produced capital goods. b. fixed investment C. changes in business inventories. D. all of these.

all of these.

The formula to compute the spending multiplier is: a. 1/ (MPC+ MPS). b. 1/(1-MPC). C. 1/(1 MPS). d. 1/(C+I)

b1/(1-MPC).

As a general rule, a recession occurs when there is a six consecutive month fall in: a nominal GDP b. Rea GDP c. the price level. d. the trade balance.

breal GDP

Fiscal policy is government action to influence aggregate demand and in turn to influence the level of real GDP and the price level, through: a expanding and contracting the money supply. b. regulation of net exports. c. Changes in government spending and/or tax revenues. d. encouraging businesses to invest.

changes in government spending and/or tax revenues.

The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run is: a. supply-side economics. b. Keynesian economics. c. Classical economics. d. mercantilism

classical economics.

The expenditure approach for the calculation of GDP includes spending on: a. consumption, investment, durable goods and exports. b. consumption, gross private domestic investment, government spending for goods and services, and exports. consumption, gross private domestic investment, government spending for goods and services, and net exports. d. consumption, net private domestic investment, government spending for goods and services, and net exports. e. consumption, gross private domestic investment, all government spending including transfer payments, and net exports.

consumption, gross private domestic investment, government spending for goods and services, and net exports.

Changes in government spending and/or taxes as the result of legislation is called: a. open market operations of the Federal Reserve. discretionary fiscal policy c. balanced budget operations d. discretionary monetary policy.

discretionary fiscal policy

A balanced budget is present when: a. the economy is at full employment. b. the actual level of aggregate spending equals the planned level of spending. c. public sector spending equals private sector spending. govemment revenues equal government expenditures.

govemment revenues equal government expenditures.

When the federal government is running a budget deficit: a. govenment tax revenues exceed government expenditures. government expenditures exceed government tax revenues. C. the economy must be in an economic recession. d. the size of the national debt will decline.

government expenditures exceed government tax revenues.

Inflation: a. reduces the cost-of-living of the typical worker. b. is measured by changes in the cost of a typical market basket of goods between time periods. c. causes the purchasing power of a dollar to rise. d. has no effect on real income.

is measured by changes in the cost of a typical market

A govemment spending and taxation policy to achieve macroeconomic goals is known as: a. countercyclical policy (bfiscal policy C. monetary policy d. a balanced budget.

(bfiscal policy

The formula the spending multiplier is: a. 1/(MPC + MPS). 1/(1 MPC). c. 1/(1 MPS). d. 1/(C+I)

1/(1 MPC).

In which of the following years was inflation in the United States the highest? a. 1960 b. 1970. c. 1980. d. 1990. e. 2007

1980.

Since World War II, the average length of recessions in the United States has been: months. months. c. 2 years d. 3 1/2 years.

2 months

If the marginal propensity to consume (MPC) is 0.60, what is the spending multiplier? a. 0.4. b. 0.6. c. 2.5 d. 6.0.

2.5

Tina Eckstrom and her husband bought a deferred annuity that started paying them $700 a month in retirement benefits. They, along with millions of other people who live on fixed incomes, are examples of: a. those who are responsible for inflation. b. the big winners from inflation. c. the big losers from inflation. d. the paradox of thrift. e. stock market losers.

C.the big losers from inflation.

Which of the following would be included in the government expenditures component of GDP? а. The export of 100 fighter jets to Japan Construction costs of a new public school building C. Food stamps used by the Smith family d. A $1,000 check issued by the federal government as part of the Pell Grant program to

Construction costs of a new public school building

Which of the following is true of the business cycle record of the United States? a. Recessions have been lengthier during the last two decades than was true prior to 1980. b. Real GDP contracted throughout most of the 1950s. c. Real GDP in 2000 was approximately the same as 1950. D. Since 1950, the fluctuations in GDP have been less severe than before 1950.

D since 1950, the fluctuations in GDP have been less severe than before 1950.

Which of the following correctly defines inflation? a. An increase in price of a particular good or service. B. An increase in the general (average) price level of goods and services in the economy. c. The growth rate in real GDP d. None of the above.

DAn increase in the general (average) price level of goods and services in the economy.

Which of the following is an example of expansionary fiscal policy? a. Increase taxes. b. Decrease government spending c. Increase government spending. d. Increase taxes and decrease government spending equally.

Increase government spending.

How do we measure economic growth? a. Increases in the price level, as indicated by the GDP chain price index. b. Increases in nominal GDP. Increases in real GDP. d. Increases in the labor force.

Increases in real GDP.

Which one of the following is not a component of GDP, as measured using the expenditure approach a. Personal consumption. b. Exports. C. Durable goods d. Government spending. E. Interest.

Interest.

Which of the following is true of inflation? a. It is an increase in the general price level of goods and services. b. The purchasing power of money increases as the result of inflation. c. Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans d. Inflation has no effect on real income.

It is an increase in the general price level of goods and services.

The largest component of GDP as measured by the expenditure approach is: а. wages and salary eamings. B. personal consumption. C. net profits of corporations. d. gross private investment.

Personal consumption

Which one of the following would count as investment in the GDP accounts? а Purchase of a new airplane by an airline. b. Purchase of a U.S. government bond. C. Purchase of 100 shares of Wal-Mart stock. d. Purchase of an existing house.

Purchase of a new airplane by an airline.

Which of the following will most likely occur during the recovery phase of a business cycle? A. Real GDP rises, and unemployment falls b. Real GDP declines, and inflation rises. Interest rates rise, and the number of business failures rise d. Inflation rises, and employment falls.

Real GDP rises, and unemployment falls

Which of the following is associated with peaks in the business cycle? a. Relatively high levels of unemployment b. Recessions c. Relatively low levels of unemployment d. Both a and b

Relatively low prices of unemployment

Which of the following will most likely occur during the recessionary phase of a business cycle? a. Real GDP rises, and the unemployment rate falls. b. Real GDP declines, and the rate of inflation rises The sales of most businesses decline, and the unemployment rate rises. d. Inflation rises, and employment/population ratio falls

The sales of most businesses decline, and the unemployment rate rises.

The phase of the business cycle follows a recession a. recovery b. recession c. peak d. Trough

Trough

According to Say's law, there cannot be overproduction of goods and services because: a. planned aggregate expenditures sometimes fall short of total output. b. prices and wages are "sticky" or inflexible in the downward direction. c. demand creates its own supply. supply creates its own demand. Prior to the Great Depression, classical economists believed that a recessionary downturm would be reversed by: a. higher wages and prices. lower wages and prices. c. an expansionary monetary policy on the part of the Federal Reserve System. d. an increase in government spending that would stimulate aggregate demand.

lower wages and prices.

To construct GDP, exports: a. and imports must be subtracted. b. and imports must be included. c. must be includ ed and imports must be ignored. d. must be included and imports must be subtracted.

must be included and imports must be subtracted.

The expenditure approach to GDP accounting includes: a. wages and salaries. b. net exports C. net interest d. corporate profit.

net exports

The equation for determining real GDP for year X is: a. nominal GDP for year X average nominal GDP b. nominal GDP for year X 100 GDP for year X nominal GDP for year X GDP chain price index for year X nominal GDP for year X/average family incomex100

nominal GDP for year X GDP chain price index for year Xx100

The point at which real GDP reaches a maximum during a business cycle is called the recession. C. recovery d. trough.

peak

Economists use the phrase "business cycle" when referring to fluctuations in: real GDP b. the chain price index. c. the consumer price index. d. the general level of prices.

real GDP

The period during which real output falls during a business cycle is called: a peak. B. recession c. recovery d. trough.

recession

The period of declining growth in real GDP between the peak of the business cycle and the trough is called a(n): a. recessionary phase b. expansionary. c. recovery phase d. stationary phase.

recessionary phase.

The period of growth in real GDP between the trough of the business cycle and the next peak is called the: a. recessionary phase. recovery phase. c. contractionary phase. d. cyclical phase.

recovery phase.

A business cycle is the: a. period of time in which expansion and contraction of economic activity are equal. b. period of time in which there are three phases: peak, depression, and recovery recurring growth and decline in real GDP. d. period of time in which a business is established and ceases operations.

recurring growth and decline in real GDP.

As a general rule, a recession is a decline in real GDP lasting at least: a. one year b. six months. c. three months. d. one month.

six months.

The phase of the business cycle that follows a recession is known as the: a. peak b. recession C. recovery. D. trough.

trough.

The short-run aggregate supply curve is: upward-sloping. downward-sloping. c. horizontal. d. vertical.

upward-sloping.