ECON 2020
If the Federal Reserve raises the discount rate, which of the following effects is likely to occur? A. Fixed interest rates on mortgages will decrease. B. Short-term interest rates will likely increase. C. Consumer spending will increase. D. Corporate profits will increase.
B. Short-term interest rates will likely increase.
Which of the following types of unemployment typically results from technological advances? A. Cyclical. B. Frictional. C. Structural. D. Short-term.
C. Structural.
A small country that uses the U.S. dollar as its currency is measuring its GDP for the current year. Personal consumption expenditure was $69,000 last year, and it increased by 10% this year. Gross private domestic investment was $18,000, and it decreased by 5% this year. Government purchases was $19,000, and it increased by 20% this year. Net exports of $2,000 remained the same as last year. What is the current year's GDP based on the classic expenditure model? A. $117,800. B. $114,000. C. $108,000. D. None of the answers are correct.
A. $117,800.
A bank with a reserve ratio of 20% and reserves of $1,000,000 can increase its total demand deposits by A. $5,000,000 B. $1,000,000 C. $800,000 D. $200,000
A. $5,000,000
Which of the following individuals would be most hurt by an unanticipated increase in inflation? A. A retiree living on a fixed income. B. A borrower whose debt has a fixed interest rate. C. A union worker whose contract includes a provision for regular cost-of-living adjustments. D. A saver whose savings was placed in a variable rate savings account.
A. A retiree living on a fixed income.
An improvement in technology that in turn leads to improved worker productivity would most likely result in A. A shift to the right in the supply curve and a lowering of the price of the output. B. A shift to the left in the supply curve and a lowering of the price of the output. C. An increase in the price of the output if demand is unchanged. D. A decrease in real wages.
A. A shift to the right in the supply curve and a lowering of the price of the output.
Which one of the following factors would cause the aggregate supply curve shown below to shift from AS1 to AS2? A. An improvement in technology. B. A higher resource price. C. An increase in the expected rate of inflation. D. A decrease in productivity.
A. An improvement in technology.
Which of the following would indicate that the economy is in an expansionary phase? A. Businesses increase capital investment. B. The economy's resources are underused. C. Potential national income will exceed actual national income. D. Building up of inventories is in excess of consumer demand.
A. Businesses increase capital investment.
The measurement of inflation that is a calculation based on a monthly pricing of items on a typical household shopping list is the A. Consumer price index. B. Wholesale price index. C. GDP deflator. D. Demand-pull index.
A. Consumer price index.
Which of the following concepts compares the price of goods in a given year to a base year? A. Consumer price index. B. Consumer confidence index. C. Gross national product. D. Net national product.
A. Consumer price index.
Under the income approach, gross domestic product (GDP) is measured as A. Depreciation charges and indirect business taxes + Wages + Rents + Interest + Profits - Net American income earned abroad. B. Wages + Rents + Interest + Profits. C. Depreciation charges and indirect business taxes + Wages + Rents - Interest + Profits. D. Wages + Rents + Interest - Profits + Net American income earned abroad.
A. Depreciation charges and indirect business taxes + Wages + Rents + Interest + Profits - Net American income earned abroad.
Macroeconomic stability theory includes the concepts of full employment and price stability. Which of the following are usually considered unavoidable factors preventing the achievement of 100% employment? A. Frictional and structural unemployment. B. Effects of demand-pull and cost-push inflation. C. Decisions of employable persons to voluntarily remain unemployed or to cease seeking employment. D. Some workers working part-time.
A. Frictional and structural unemployment.
Demand-pull inflation occurs when A. Incomes rise suddenly. B. There are excessive wage increases. C. There are rapid increases in raw materials prices. D. There are substantial changes in energy prices.
A. Incomes rise suddenly.
To address the problem of a recession, the Federal Reserve Bank most likely would take which of the following actions? A. Lower the discount rate it charges to banks for loans. B. Sell U.S. government bonds in open-market transactions. C. Increase the federal funds rate charged by banks when they borrow from one another. D. Increase the level of funds a bank is legally required to hold in reserve.
A. Lower the discount rate it charges to banks for loans.
Each of the following is a limitation of GDP's usefulness as a measure of a nation's prosperity except A. No practical means are available to compare real GDP from different time periods. B. GDP leaves out intermediate goods. C. Increases in GDP often involve environmental damage. D. Cash-only economic activity is not counted in GDP.
A. No practical means are available to compare real GDP from different time periods.
The velocity of money is generally measured as a ratio of the A. Nominal gross domestic product to the money supply. B. Value of domestic manufactured goods to the money supply. C. Total federal debt to the money supply. D. Value of imported and exported goods to the money supply.
A. Nominal gross domestic product to the money supply.
Which of the following instruments of monetary policy is the most important means by which the money supply is controlled? A. Open market operations. B. Manipulation of government spending. C. Changing the discount rate. D. Changing tax rates.
A. Open market operations.
Which of the following strategies would the Federal Reserve most likely pursue under an expansionary policy? A. Purchase federal securities and lower the discount rate. B. Reduce the reserve requirement while raising the discount rate. C. Raise the reserve requirement and lower the discount rate. D. Raise the reserve requirement and raise the discount rate.
A. Purchase federal securities and lower the discount rate.
The consensus of economic forecasts indicates that consumer prices are likely to increase because of increases in aggregate demand. Which of the following outcomes is most likely to occur as prices increase? A. Quantity of output increases if there is capacity to produce. B. Unemployment increases. C. Profits fall if all costs are fixed. D. Profits rise even if costs increase.
A. Quantity of output increases if there is capacity to produce.
The Federal Reserve System's reserve ratio is the A. Specified percentage of a commercial bank's deposit liabilities that must be deposited in the central bank or kept on hand. B. Rate that the central bank charges for loans granted to commercial banks. C. Ratio of excess reserves to legal reserves that are deposited in the central bank. D. Specified percentage of a commercial bank's demand deposits to total liabilities.
A. Specified percentage of a commercial bank's deposit liabilities that must be deposited in the central bank or kept on hand.
Which of the following categories best describes auto workers whose jobs have been replaced by computer-driven robots and are actively seeking employment in new industries? A. Structural unemployment. B. Cyclical unemployment. C. Frictional unemployment. D. Discouraged workers.
A. Structural unemployment.
All of the following are components of the formula used to calculate gross domestic product except A. The value of a homemaker's work. B. Foreign net export spending. C. Government spending. D. Gross investment.
A. The value of a homemaker's work.
Using the income approach, calculate the national income used to calculate GDP with the information provided below: Interest $8,000 Salaries and wages - 50,000 Net foreign factor income - 7,000 Partnership income - 10,000 Rents - 20,000 Indirect business taxes - 1,000 Corporate profits - 25,000 Proprietor income - 4,000 A. $107,000 B. $117,000 C. $118,000 D. $124,000
B. $117,000
Fact pattern: The table below concerns the money supply for the economy of the hypothetical country of Petasus. BillionsItemof DollarsCheckable deposits - 2,400 Small time deposits - 500 Currency - 60 Noncheckable savings deposits - 950 Money market deposits accounts - 300 Money market mutual funds - 550 Large time deposits - 1,000 The size of Petasus' M1 money supply is A. $2,400 billion B. $2,460 billion C. $2,960 billion D. $3,010 billion
B. $2,460 billion
What is the amount needed to close the recessionary gap if the economy's full-employment real gross domestic product (GDP) is $1.2 trillion and its equilibrium real GDP is $1.0 trillion? A. $200 billion. B. $200 billion divided by the multiplier. C. $200 billion multiplied by the multiplier. D. $200 billion times the reciprocal of the marginal propensity to consume (MPC).
B. $200 billion divided by the multiplier.
Fact pattern: The financial transactions for the country of Panglossia with values stated in billions of dollars are listed below.Gross domestic product (GDP) - $4,000 Transfer payments - 500 Corporate income taxes - 50 Social Security contributions - 200 Indirect business taxes - 210 Personal taxes - 250 Undistributed corporate profits - 25 Depreciation - 500 Net income earned abroad for the country - 0 Panglossia's national income is A. $3,500 B. $3,290 C. $3,515 D. $3,265
B. $3,290
Below are the recent monthly unemployment figures for an economy:Persons moving to a new city and seeking work 100,000Persons out of work because their industry has just been rendered obsolete by technological change 12,000Persons in all industries laid off due to general economic slowdown120,000Persons taking 2 months off from work to pursue education100,000Applying the Bureau of Labor Statistics' guidelines for calculating the official unemployment statistics, what is the "natural" level of unemployment for this economy? A. 200,000 B. 212,000 C. 232,000 D. 320,000
B. 212,000
Tuscan Bank is required to reserve $20 out of every $100 deposited, and it has $5,000,000 in deposits. What is the current money multiplier? A. .2 B. 5 C. 2,500 D. .5
B. 5
What is the rate of inflation from one year to the next if the consumer price index was 110 in one year and 118 in the next year? A. 7.0% B. 7.3% C. 8.0% D. 18.0%
B. 7.3%
A privately owned subchapter S corporation increases its inventory of paper towels held for sale by 35% this year. How will this be reflected in the GDP calculation? A. As a reduction of personal consumption expenditure. B. As an increase in gross private domestic investment. C. As a government transfer payment. D. As an increase in net exports.
B. As an increase in gross private domestic investment.
The primary mechanism of monetary control of the Federal Reserve System is A. Changing the discount rate. B. Conducting open market operations. C. Changing reserve requirements. D. Using moral persuasion.
B. Conducting open market operations.
Which of the following indicators is used by the federal government to measure inflation? A. Dow Jones index. B. Consumer price index. C. Consumer confidence index. D. Corporate profits.
B. Consumer price index.
An increasing federal deficit implies which of the following conditions? A. Increased tax revenues and decreased entitlement payments. B. Decreased tax revenues and increased entitlement payments. C. The U.S. is importing more than it is exporting. D. The economy is in an inflationary phase
B. Decreased tax revenues and increased entitlement payments.
The phrases "too many dollars chasing too few goods" and "supply shock" are associated with, respectively, A. Cost-push inflation and demand-pull inflation. B. Demand-pull inflation and cost-push inflation. C. Stagflation and cost-push inflation. D. Cost-push inflation and deficient-demand inflation.
B. Demand-pull inflation and cost-push inflation.
Which one of the following components of gross domestic product (GDP) has the greatest fluctuation from year to year? A. Personal consumption expenditures. B. Gross domestic private investment. C. Government spending. D. Net exports.
B. Gross domestic private investment.
The level of aggregate demand will decline if the level of A. Imports decrease. B. Gross private domestic investment decreases. C. Personal consumption expenditures increase. D. Government purchases increase.
B. Gross private domestic investment decreases.
Which of the following methods may the Federal Reserve use to reduce inflationary pressures? A. Decrease reserve requirements. B. Increase margin requirements. C. Increase the money supply. D. Decrease the target interest rate
B. Increase margin requirements.
Which of the following actions is the acknowledged preventive measure for a period of deflation? A. Increasing interest rates. B. Increasing the money supply. C. Decreasing interest rates. D. Decreasing the money supply.
B. Increasing the money supply.
In addition to increasing the demand for lendable funds, government borrowing to finance large deficits has which of the following effects? A. It decreases the rate of inflation. B. It puts upward pressure on interest rates. C. It increases the supply of lendable funds. D. It exerts downward pressure on interest rates.
B. It puts upward pressure on interest rates.
A major problem arising from the use of fiscal policy to help stimulate an economy is that there A. Are too few fiscal goals that have wide public support. B. May be an expansionary and, therefore, inflationary bias to such policies. C. Is too short a lag between recognizing an economic problem and implementing a cure. D. Is a balanced budget that promotes cyclical fluctuations.
B. May be an expansionary and, therefore, inflationary bias to such policies.
Which of the following options describes the phases of business cycle, in order of occurrence? A. Recession, recovery, trough, peak. B. Peak, recession, trough, recovery. C. Peak, recovery, trough, recession. D. Trough, recession, recovery, peak.
B. Peak, recession, trough, recovery.
In a capitalistic society, it is not considered possible to have 100% employment of the labor force. Therefore, full employment is defined as something less than 100% employment because of the existence of A. Structural and cyclical unemployment. B. Structural and frictional unemployment. C. Cyclical and frictional unemployment. D. Frictional and part-time unemployment.
B. Structural and frictional unemployment.
Which of the following statements is correct regarding an economy at the peak of the business cycle? A. The economy will be in a static equilibrium. B. The economy will be at the natural rate of unemployment. C. Incomes will be stable. D. The rate of inflation will decrease.
B. The economy will be at the natural rate of unemployment.
Which of the following statements is correct if there is an increase in the resources available within an economy? A. More goods and services will be produced in the economy. B. The economy will be capable of producing more goods and services. C. The standard of living in the economy will rise. D. The technological efficiency of the economy will improve.
B. The economy will be capable of producing more goods and services.
Which of the following is correct regarding the consumer price index (CPI) for measuring the estimated decrease in a company's buying power? A. The CPI is measured only once every 10 years. B. The products a company buys should differ from what a consumer buys. C. The CPI measures what consumers will pay for items. D. The CPI is skewed by foreign currency translations.
B. The products a company buys should differ from what a consumer buys.
The discount rate of the Federal Reserve System is A. The specified percentage of a commercial bank's deposit liabilities that must be deposited in the central bank. B. The rate that the central bank charges for loans granted to commercial banks. C. The rate that commercial banks charge for loans granted to the public. D. The ratio of excess reserves to legal reserves that are deposited in the central bank.
B. The rate that the central bank charges for loans granted to commercial banks.
The full-employment gross domestic product (GDP) is $1.3 trillion, and the actual gross domestic product is $1.2 trillion. The marginal propensity to consume (MPC) is 0.8. When inflation is ignored, what increase in government expenditures is necessary to produce full employment? A. $100 billion. B. $80 billion. C. $20 billion. D. $10 billion.
C. $20 billion.
A United States-based faculty member goes on sabbatical and works in Finland for a government-run university teaching classes for its International MBA program. The faculty member returns to the U.S. with a paycheck for $50,000 and spends $38,000 of it on a German manufactured car from a dealership in Miami, Florida. Using the classic expenditure model, how much does the GDP increase in each country?GermanyFinland United States A. $38,000 $50,000 $50,000 B. $0 $0 $50,000 C. $38,000 $50,000 $0 D. None of the answers are correct.
C. $38,000 $50,000 $0
Fact pattern: The table below concerns the money supply for the economy of the hypothetical country of Petasus. Billions Item of Dollars Checkable deposits - 2,400 Small time deposits - 500 Currency - 60 Noncheckable savings deposits - 950 Money market deposits accounts - 300 Money market mutual funds - 550 Large time deposits - 1,000 The size of Petasus' M2 money supply is A. $2,960 billion B. $3,910 billion C. $4,760 billion D. $5,760 billion
C. $4,760 billion
Investment figures are for planned investment. Amounts are in billions. Personal Consumption Real GDP/ Expenditures $510/$492 520/500 530/508 540/516 550/524 560/532 570/540 Assuming that taxes and net exports are zero, government purchases of goods and services are equal to $12, and gross private domestic investment is equal to $10, the equilibrium real gross domestic product will be A. $510 B. $520 C. $530 D. $570
C. $530
A hospital is comparing last year's emergency rescue services expenditures to those from 10 years ago. Last year's expenditures were $100,500. Ten years ago, the expenditures were $72,800. The CPI for last year is 168.5, as compared to 10 years ago when it was 121.3. After adjusting for inflation, what percentage change occurred in expenditures for emergency rescue services? A. 38.0% increase. B. 13.8% increase. C. 0.6% decrease. D. 18.1% decrease.
C. 0.6% decrease.
Each of the following describes one of the functions of money except A. A means of storing value over a long period of time. B. A common basis for measuring stored accounts. C. A hedge against inflation. D. A tool for facilitating the exchange of goods and services.
C. A hedge against inflation.
Which of the following definitions best describes a business cycle? A. Activity where the decline in the economy's real gross domestic product (GDP) persists for at least a half-year. B. Activity marked by a relatively high level of real GDP, full employment, and inflation. C. Activity that alternates periods of growth and decline in an economy's GDP. D. Activity where real GDP declines, inflation moderates, and unemployment increases.
C. Activity that alternates periods of growth and decline in an economy's GDP.
The money supply in a nation's economy will decrease following A. Open-market purchases by the nation's central bank. B. A decrease in the discount rate. C. An increase in the reserve ratio. D. A decrease in the margin requirement.
C. An increase in the reserve ratio.
For a given level of tax collections, prices, and interest rates, a decrease in governmental purchases will result in a(n) A. Increase in aggregate demand. B. Increase in aggregate supply. C. Decrease in aggregate demand. D. Decrease in aggregate supply.
C. Decrease in aggregate demand.
Which of the following economic terms describes a general decline in prices for goods and services and in the level of interest rates? A. Expansion. B. Inflation. C. Deflation. D. Recession.
C. Deflation.
How does inflation distort reported income? A. Wages are not reflective of current labor rates. B. Sales are not reflective of current product prices. C. Depreciation is not reflective of current fixed-asset replacement costs. D. Interest expense is not reflective of current borrowing rates.
C. Depreciation is not reflective of current fixed-asset replacement costs.
The Federal Reserve Board most directly influences a corporation's decision whether or not to issue debt or equity financing when it revises the A. Corporate income tax rate. B. Prime rate at which the Federal Reserve Bank lends money to member banks. C. Discount rate at which the Federal Reserve Bank lends money to member banks. D. Discount rate at which member banks lend money to their customers.
C. Discount rate at which the Federal Reserve Bank lends money to member banks.
Variations between business cycles are most likely attributable to which of the following factors? A. The law of diminishing returns. B. Comparative advantage. C. Duration and intensity. D. Opportunity costs.
C. Duration and intensity.
In order for the Federal Reserve System to increase the money supply, the appropriate policy is to A. Encourage banks to increase their holdings of excess reserves. B. Increase the discount rate. C. Engage in open-market purchases of government securities. D. Raise margin requirements on stock market purchases.
C. Engage in open-market purchases of government securities.
Disposable income is equal to A. All earned income received. B. Earned income minus unearned income. C. Income after taxes have been removed. D. National income minus personal income.
C. Income after taxes have been removed.
During a recession, the goal of government fiscal policy is to raise equilibrium output. An appropriate governmental action in this situation is to A. Decrease government spending. B. Increase government taxes. C. Increase government spending. D. Increase government taxes and decrease government spending by equal amounts.
C. Increase government spending.
Which of the following changes would most effectively halt a period of inflation? A. Decreasing interest rates by a large amount. B. Decreasing savings by a small amount. C. Increasing interest rates by a large amount. D. Increasing savings by a small amount.
C. Increasing interest rates by a large amount.
A country reduces its rate of monetary growth. Which of the following is the expected result for the country's economy? A. Higher net exports. B. Higher investment. C. Lower GDP growth. D. Lower interest rates.
C. Lower GDP growth.
Which of the following indicates that the economy is in a recessionary phase? A. The rate of unemployment decreases. B. The purchasing power of money declines rapidly. C. Potential national income exceeds actual national income. D. There is a shortage of essential raw materials, and costs are rising.
C. Potential national income exceeds actual national income.
What does the consumer price index measure? A. Cost of capital. B. Average household income. C. Rate of inflation. D. Prime rate of interest.
C. Rate of inflation.
A business cycle is a record of the A. Currently hottest trends in consumer purchases. B. Duration of a company from its founding date to its dissolution date. C. Recurrent fluctuations that occur in time series data for key macro variables such as real GDP. D. Average duration of product cycles, from introduction to obsolescence.
C. Recurrent fluctuations that occur in time series data for key macro variables such as real GDP.
An economy is at the peak of the business cycle. Which of the following policy packages is the most effective way to dampen the economy and prevent inflation? A. Increase government spending, reduce taxes, increase money supply, and reduce interest rates. B. Reduce government spending, increase taxes, increase money supply, and increase interest rates. C. Reduce government spending, increase taxes, reduce money supply, and increase interest rates. D. Reduce government spending, reduce taxes, reduce money supply, and reduce interest rates.
C. Reduce government spending, increase taxes, reduce money supply, and increase interest rates.
Which of the following Federal Reserve policies would increase the money supply? A. Change the multiplier effect. B. Increase reserve requirements. C. Reduce the discount rate. D. Sell more U.S. Treasury bonds.
C. Reduce the discount rate.
The rate of unemployment caused by changes in the composition of employment opportunities over time is referred to as the A. Frictional unemployment rate. B. Cyclical unemployment rate. C. Structural unemployment rate. D. Full employment unemployment rate.
C. Structural unemployment rate.
Which of the following conditions is the primary cause of fluctuations in business activity resulting in the alternating rise and fall of economic growth? A. The level of innovation brought to market. B. The amount of unemployment. C. The level of total spending. D. Governmental monetary policy.
C. The level of total spending.
Gross domestic product includes which of the following measures? A. The size of a population that must share a given output within 1 year. B. The negative externalities of the production process of a nation within 1 year. C. The total monetary value of all final goods and services produced within a nation in 1 year. D. The total monetary value of goods and services including barter transactions within a nation in 1 year.
C. The total monetary value of all final goods and services produced within a nation in 1 year.
The creation of deposit money by U.S. commercial banks increases the A. Real wealth of the United States. B. Real U.S. national income. C. U.S. money supply. D. Purchasing power of the U.S. dollar.
C. U.S. money supply.
A lender and a borrower signed a contract for a $1,000 loan for 1 year. The lender asked the borrower to pay 3% interest. Inflation occurred and prices rose by 2% over the next year. The borrower repaid $1,030. What is the amount worth in real terms, after inflation? A. $1,060.90 B. $1,050.60 C. $1,019.80 D. $1,009.80
D. $1,009.80
Fact pattern: The financial transactions for the country of Panglossia with values stated in billions of dollars are listed below.Gross domestic product (GDP) - $4,000 Transfer payments - 500 Corporate income taxes - 50 Social Security contributions - 200 Indirect business taxes - 210 Personal taxes - 250 Undistributed corporate profits - 25 Depreciation - 500 Net income earned abroad for the country - 0 Panglossia's disposable income is A. $3,500 B. $3,290 C. $4,500 D. $3,265
D. $3,265
Assume that real gross domestic product (GDP), measured in Year 1 dollars, rose from $3,000 billion in Year 1 to $4,500 billion in Year 10. Assume also that the price index rose from 100 to 200 during the same period. The GDP for Year 1 expressed in terms of Year 10 prices is A. $1,500 billion. B. $3,000 billion. C. $4,500 billion. D. $6,000 billion
D. $6,000 billion
The controller of Gray, Inc., has decided to use ratio analysis to analyze business cycles for the past 2 years in an effort to identify seasonal patterns. Which of the following formulas should be used to compute percentage changes for account balances for Year 1 to Year 2? A. (Prior balance - Current balance) ÷ Current balance B. (Prior balance - Current balance) ÷ Prior balance C. (Current balance - Prior balance) ÷ Current balance D. (Current balance - Prior balance) ÷ Prior balance
D. (Current balance - Prior balance) ÷ Prior balance
Assuming a required reserve ratio of 10%, the value of the monetary multiplier will be A. 4 B. 6 C. 8 D. 10
D. 10
Bank is willing to lend a business $1 million at an annual real interest rate of 6%. What is the nominal rate Bank will charge the firm if the rate of inflation is anticipated to be 2%? A. 2% B. 4% C. 6% D. 8%
D. 8%
Which of the following results could be expected from an open market operation of the Federal Reserve? A. A sale of securities would lower interest rates. B. A purchase of securities would raise interest rates. C. A purchase of securities would lower security prices. D. A sale of securities would raise interest rates.
D. A sale of securities would raise interest rates.
All of the following are stages of the business cycle except A. Peak. B. Trough. C. Recovery. D. Acceleration.
D. Acceleration.
A country recently experienced a drop in consumer purchases and a rise in business inventories of durable goods. Wages grew slowly and unemployment increased. Business investment in plant and equipment dropped sharply and profits fell. Both interest rates and stock prices fell. Which of the following statements best represents the country's current economy? A. Entering an economic "stagflation". B. Exiting an inflationary period. C. Exiting a depression period. D. Amidst an economic recession.
D. Amidst an economic recession.
Which of the following may provide a leading indicator of a future increase in gross domestic product? A. A reduction in the money supply. B. A decrease in the issuance of building permits. C. An increase in the timeliness of delivery by vendors. D. An increase in the average hours worked per week of production workers.
D. An increase in the average hours worked per week of production workers.
A government is most likely to reduce taxes on investments when A. The real exchange rate is expected to be unusually high. B. Inflation is expected to be unusually low. C. The gross domestic product is expected to be unusually high. D. Capital spending is expected to be unusually low
D. Capital spending is expected to be unusually low
The primary purpose of the consumer price index (CPI) is to A. Establish a cost-of-living index. B. Identify the strength of an economic recovery. C. Help determine the Federal Reserve Bank's discount rate. D. Compare relative price changes over time.
D. Compare relative price changes over time.
Personal income is equal to A. Gross domestic product minus net domestic product. B. Net domestic product plus transfer payments to individuals. C. Disposable income minus personal tax payments. D. Disposable income plus personal tax payments.
D. Disposable income plus personal tax payments.
Providing an adequate supply of money to accommodate the needs of U.S. business is the task of the A. United States Treasury. B. Controller of the Currency. C. Bureau of Printing and Engraving. D. Federal Reserve System.
D. Federal Reserve System.
Which of the following segments of the economy will be least affected by the business cycle? A. Commercial construction industry. B. Machinery and equipment industry. C. Residential construction industry. D. Healthcare industry.
D. Healthcare industry.
During which of the following periods will prices generally increase the fastest? A. Deflation. B. Recession. C. Inflation. D. Hyperinflation.
D. Hyperinflation.
The U.S. Bureau of Labor Statistics samples American households each month and publishes an official unemployment rate based on the following formula:Which of the following persons are excluded from the denominator of this calculation?I. A homemaker with a part-time job outside the homeII. A landscaper in the underground economyIII. A laid-off database administrator not actively seeking other employmentIV. A 15-year-old, actively seeking other employment, who was laid off by an ice cream stand owner A. I, II, and III. B. I, II, and IV. C. I, III, and IV. D. II, III, and IV.
D. II, III, and IV.
The most effective fiscal policy program to help reduce demand-pull inflation would be to A. Decrease the rate of growth of the money supply. B. Increase both taxes and government spending. C. Decrease taxes and increase government spending. D. Increase taxes and decrease government spending.
D. Increase taxes and decrease government spending.
A period of rising inflation A. Increases the price level, which benefits those who are entitled to receive specific amounts of money. B. Enhances the positive relationship between the price level and the purchasing power of money. C. Will not cause contracts that include the indexing of payments to change. D. Increases the price level, which is negatively related to the purchasing power of money.
D. Increases the price level, which is negatively related to the purchasing power of money.
The value of money varies A. Directly with the tax rates. B. Directly with government spending. C. Directly with investment. D. Inversely with the general level of prices.
D. Inversely with the general level of prices.
If a government were to use only fiscal policy to stimulate the economy from a recession, it would A. Raise consumer taxes and increase government spending. B. Lower business taxes and government spending. C. Increase the money supply and increase government spending. D. Lower consumer taxes and increase government spending.
D. Lower consumer taxes and increase government spending.
All of the following actions are valid tools that the Federal Reserve Bank uses to control the supply of money except A. Buying government securities. B. Selling government securities. C. Changing the reserve ratio. D. Printing money when the level of M1 appears low.
D. Printing money when the level of M1 appears low.
The basic source of improvements in real wage rates and in the standard of living is A. Inflation growth. B. Aggregate capital stock growth. C. Labor force growth. D. Productivity growth.
D. Productivity growth.
The Federal Reserve wishes to conduct expansionary monetary policy. Which of the following policy approaches will be most successful? A. Sell government securities and raise the required reserve ratio. B. Sell government securities and lower the discount rate. C. Purchase government securities and raise the required reserve ratio. D. Purchase government securities and lower the discount rate.
D. Purchase government securities and lower the discount rate.
Which of the following is not included in the gross domestic product (GDP)? A. Purchase of a new home. B. Investment in new computers. C. A doctor's fee. D. Purchase of common stock.
D. Purchase of common stock.
The prime rate is the A. Size of the commitment fee on a commercial bank loan. B. Effective cost of a commercial bank loan. C. Effective cost of commercial paper. D. Rate charged on business loans to borrowers with high credit ratings.
D. Rate charged on business loans to borrowers with high credit ratings.
One of the measures economists and economic policy makers use to gauge a nation's economic growth is to calculate the change in the A. Money supply. B. Total wages. C. General price level. D. Real per capita output.
D. Real per capita output.
Diana has noticed that many of her coworkers at Bubble, Inc., have been laid off over the past year due to low profits. Also, prices were lowered recently due to economic conditions. Even though Diana is worried about her future at Bubble, she has noticed that employment has risen over the past month and that prices are slowly increasing. Because other companies have had the same experience, what phase of the business cycle is the economy currently in? A. Peak. B. Recession. C. Trough. D. Recovery.
D. Recovery.
According to fiscal policy principles, a tax increase will A. Increase spending and increase aggregate demand. B. Increase spending and reduce aggregate demand. C. Reduce spending and increase aggregate demand. D. Reduce spending and reduce aggregate demand.
D. Reduce spending and reduce aggregate demand.
Economic growth can be depicted as all of the following except: A. An outward shift in the aggregate supply curve with a fixed aggregate demand curve. B. An outward shift in the aggregate demand curve with a fixed aggregate supply curve. C. Simultaneous outward shifts in both the aggregate supply and aggregate demand curves. D. Simultaneous inward shifts in both the aggregate supply and aggregate demand curves.
D. Simultaneous inward shifts in both the aggregate supply and aggregate demand curves.
Unemployment that is caused by a mismatch between the composition of the labor force (in terms of skills, occupation, industries, or geographic location) and the makeup of the demand for labor is called A. Real wage unemployment. B. Deficient-demand unemployment. C. Frictional unemployment. D. Structural unemployment.
D. Structural unemployment.
An increase in the federal debt may create inflationary pressures for which of the following reasons? A. Businesses may have difficulty raising investment capital. B. The government may need to cut spending. C. Lenders may charge higher interest rates. D. The economy's money supply may increase.
D. The economy's money supply may increase.
If the Federal Reserve Banks sell $20 million in government securities to commercial banks and the required reserve ratio is 25%, the effect will be A. To reduce the actual supply of money by $20 million. B. To reduce the actual supply of money by $5 million. C. To reduce the potential money supply by $20 million. D. To reduce the potential money supply by $80 million.
D. To reduce the potential money supply by $80 million.
In national income terms, aggregate demand is A. Demand for money by the community in a period of full employment. B. Total expenditure on capital goods by entrepreneurs during a period of full employment. C. Demand that is needed if a country's economy is to operate at optimum level and the level of investment is to be raised. D. Total expenditure on consumer goods and investment, including government and foreign expenditure, during a given period.
D. Total expenditure on consumer goods and investment, including government and foreign expenditure, during a given period.
The trough of a business cycle is generally characterized by A. Shortages of essential raw materials and rising costs. B. Increasing purchasing power and increasing capital investments. C. Rising costs and an unwillingness to risk new investments. D. Unused productive capacity and an unwillingness to risk new investments.
D. Unused productive capacity and an unwillingness to risk new investments.