Econ 5-7

Exam 2

Question 1 GDP is best defined as the ________ in a given time period. Selected Answer: Correct market value of the final goods and services produced within a country Question 2 Which of the following is included in USA's GDP? i. BMWs produced in a German-owned factory in South Carolina ii. the value of the stocks sold on the German stock exchange, the Frankfurt Stock Exchange iii. china produced by the English-owned Wedgewood Company at a factory in Berlin, Germany Selected Answer: Correct i only Question 3 One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $22. A second bag of coffee is sold directly to Joan for $7, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee? Selected Answer: Correct $29 Question 4 The table above has information about an economy. Using this information, GDP equals Selected Answer: Correct $6,500 billion. Question 5 The table above has information about an economy. Using this information, government expenditures (G) equals Selected Answer: Correct $2,100 billion. Question 6 Investment is defined as the purchase of Selected Answer: Correct new capital goods and additions to inventories. Question 7 The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is Real GDP in 2009? Selected Answer: Correct $350 Question 8 The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is Real GDP in 2010? Selected Answer: Correct $447.5 Question 9 In 1961, real GDP totaled $575 billion and in 2011 it totaled $1,255 billion. Between 1961 and 2011, the population increased from 20 million to 40 million. Between 1961 and 2011, the standard of living : Selected Answer: increased by 9 percent.Question 10 The business cycle has two phases, Selected Answer: Correct recession and expansion. Question 11 As measured, GDP omits which of the following? i. Illegal sales of goods and services ii. Changes in the amount of leisure time iii. Household production of goods and services Selected Answer: Correct i, ii, and iii Answers: Question 12 In order to be classified as a recession, a contraction of general economic activity must last at least Selected Answer: Correct six months. Question 13 Which of the following is likely to be an unreported economic activity? Selected Answer: Correct tips paid to a taxi driver Question 14 A country with a real GDP per person similar to real GDP per person in the United States but with limited political freedom is generally considered to have Selected Answer: Correct a lower standard of living than the United States. Question 15 The growth rate of real GDP equals Selected Answer: Correct [(real GDP in current year - real GDP in previous year) ÷ real GDP in previous year] × 100. Question 16 Using the data in the table above, the growth rate of real GDP for 2010 is equal to Selected Answer: Correct 10.0 percent. Question 17 Using the data in the table above, the growth rate of real GDP per person for 2010 is equal to Selected Answers: Correct 5% Question 18 Using the data in the table above, real GDP per person in 2011 is Selected Answer: Correct $55,000. Question 19 Growth in the standard of living is measured by the increase in Selected Answer: Correct real GDP per person. Question 20 Correct A nation's annual growth rate of real GDP per person is 3.5 percent. Its standard of living will Selected Answer: Correct double in 20 years. Question 21 If it took 28 years for real GDP to double, what was the growth rate of real GDP? Selected Answer: Correct 2.5 percent Question 22 In order to obtain the data used to calculate the unemployment rate, the Bureau of Labor Statistics Selected Answer: Correct uses a survey from 60,000 households. Question 23 Which of the following people would be classified as employed in the Current Population Survey? Selected Answer: Correct Rich, who is working 20 hours a week but wants a full-time job Question 24 Unemployment Rate in the U.S. for Feb. 2019 (Last Month) is: Selected Answer: Correct 3.8 percent. Question 25 Using the table above, the working-age population is Selected Answer: Correct 240 million. Question 26 Using the table above, the number of people NOT in the Labor Force is Selected Answer: Correct 80 million. Question 27 Using the table above, the Unemployment Rate is Selected Answer: Correct 7.50 percent. Question 28 Using the table above, the Labor Force Participation Rate is Selected Answer: Correct 66.7 percent. Question 29 A Discouraged worker i. does not have a job and has not looked for one in the last month. ii. is available and willing to work. iii. must work at least 1 hour per week. Selected Answer: Correct i and ii Question 30 Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full-time. ∙ Arrelo is temporarily laid off from her technical support job because of a strike by production workers. ∙ Schurita graduated from college in May and is currently looking for a job. ∙ Bo quit his job on September 1 and then, after looking for a new job, will begin his new job on October 1. ∙ Terri retired from his job on May 1. ∙ Vicki works part-time at Bainen Press to help pay her college tuition. According to the scenario above, in which of the following groups are all the people frictionally unemployed? Selected Answer: Correct Arrelo & Schurita Question 31 Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full-time. ∙ Arrelo is temporarily laid off from her technical support job because of a strike by production workers. ∙ Schurita graduated from college in May and is currently looking for a job. ∙ Bo quit his job on September 1 and then, after looking for a new job, will begin his new job on October 1. ∙ Terri retired from his job on May 1. ∙ Vicki works part-time at Bainen Press to help pay her college tuition. According to the scenario above, Vicki would be classified as Selected Answer: Correct a voluntary part-time worker. Question 32 Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full-time. ∙ Arrelo is temporarily laid off from her technical support job because of a strike by production workers. ∙ Schurita graduated from college in May and is currently looking for a job. ∙ Bo quit his job on September 1 and then, after looking for a new job, will begin his new job on October 1. ∙ Terri retired from his job on May 1. ∙ Vicki works part-time at Bainen Press to help pay her college tuition. According to the scenario above, Chris would be classified as Selected Answer: Correct not in the labor force because he is a full-time student. Question 33 Full employment occurs when the Selected Answer: Correct unemployment rate equals the natural unemployment rate. Question 34 Correct Potential GDP is the level of output produced when the unemployment rate is Selected Answer: Correct equal to the natural unemployment rate. Question 35 When the unemployment rate is ________ the natural unemployment rate, real GDP is ________ potential GDP. Selected Answer: Correct below; above Question 36 The reference base period for the CPI has an index number of Selected Answer: Correct 100. Question 37 According to the CPI basket, the largest item in the households' budgets is Selected Answer: Correct housing. Question 38 The formula for the CPI is Selected Answer: (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100. Question 39 The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2012 is Selected Answer: Correct 121.0 Question 40 The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The inflation rate between 2011 and 2012 is Selected Answer: Correct 21.0 percent. 123.1 percent. Question 41 Because a third of government outlays are linked directly to the CPI, as time passes, the CPI bias means that the government's outlays are Selected Answer: Correct larger than needed to keep pace with the cost of living. Question 42 When we compare the records of the CPI and the PCE price index over time, the Selected Answer: Correct CPI tends to exceed the PCE price index. Question 43 March 2012, the price of gasoline in the Florida was $3.229 per gallon and the CPI was 220.0 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars? Selected Answer: Correct $1.468 per gallon Question 44 If average annual tuition at public 4-year colleges was $2,000 in 1991, when the CPI was 125.0, and $8,000 in 2010 when the CPI was 250.0, then the real cost of annual tuition Selected Answer: Correct rose by 100.0 percent during that period. Question 45 The trends displayed in the table can best be explained by Selected Answer: the nominal wage rate has increased at a rate about equal to the inflation rate. Question 46 If for a given year nominal GDP is $14,000 billion and real GDP is $7,000 billion, then the GDP price index is Selected Answer: Correct 200. Question 47 If the nominal wage is $20.00 in 2011 and the CPI is 230 in 2011, then the real wage in 1982-1984 dollars Selected Answer: Correct is $08.70. Question 48 If the bank returns $1,100 on the $1,000 deposited for a year during which inflation was 4 percent, the real interest rate is Selected Answer: Correct 6 percent. Question 49 If the real interest rate is 4 percent when the inflation rate is 4 percent, the nominal interest rate is Selected Answer: Correct 8 percent. Question 50 Incorrect If real interest rate is higher than nominal interest rate Selected Answer: Incorrect inflation rate is negative

Chapter 11

Question 1 In order for any given commodity to be considered money, it has to Selected Answer: be generally acceptable as a means of payment. Question 2 For an asset to be a "means of payment," the asset Selected Answer: can be used to settle a debt. Question 3 The functions of money are Selected Answer: medium of exchange, unit of account, and store of value. Question 4 Barter requires the Selected Answer: exchange of goods and services directly for other goods and services. Question 5 When you use currency to buy lunch, money is performing which function? Selected Answer: medium of exchange Question 6 When we put a price tag on goods and services, we are using money as a Selected Answer: unit of account. barter token. Question 7 The objects that we use as money today are Selected Answer: currency and checks. Question 8 Which of the following is an example of money? Selected Answer: currency in your wallet Question 9 An official measure of money in the United States is M1, which includes the sum of Selected Answer: currency plus traveler's checks plus checkable deposits. Question 10 If Rob deposits $300 in currency into his savings account at Bank of America, Selected Answer: M1 decreases. Question 11 M2 consists of Selected Answer: M1 plus saving deposits, small time deposits, and money market funds. Question 12 The above table has information about the hypothetical economy of Robotica. Based on the data, the size of M1 is Selected Answer: $610 billion. Question 13 The above table has information about the hypothetical economy of Robotica. Based on the data, the size of M2 is Selected Answer: $2,610 billion. Question 14 The goal of a commercial bank is to Selected Answer: maximize its stockholders' wealth. Question 15 Banks earn a profit by Selected Answer: making loans at a higher interest rate than the rates that they offer on their deposits. Question 16 Which of the following are assets of commercial banks? i. reserves ii. loans iii. deposits Selected Answer: i and ii Question 17 Which of the following is NOT held as an asset by banks? Selected Answer: checkable deposits Question 18 A commercial bank's reserves are equal to the amount of Selected Answer: currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank. Question 19 A bank has checkable deposits of $1,000,000, loans of $600,000, and government securities of $400,000. If the required reserve ratio is 5 percent, the amount of required reserves is Selected Answer: $50,000. Question 20 A bank has $250 in checking deposits, $1,000 in savings deposits, $1,200 in time deposits, $1,000 in loans to businesses, $400 in outstanding credit card balances, $800 in government securities, $25 in currency in its vault, and $25 in deposits at the Fed. The bank's reserves are equal to Selected Answer: $50. Question 21 A public authority that provides banking services to commercial banks and regulates financial institutions and markets is called a Selected Answer: central bank. Question 22 As the central bank, the Federal Reserve System provides banking services to Selected Answer: banks and regulates financial institutions and markets. Question 23 The Federal Open Market Committee is Selected Answer: the main policy making body of the Fed. Question 24 The voting members of the Federal Open Market Committee consists of the Selected Answer: seven Board of Governor members and five Federal Reserve Bank presidents. Question 25 Which of the following statements is correct? Selected Answer: required reserves = (total deposits) × (required reserve ratio) Question 26 If the Fed increases the discount rate, Selected Answer: commercial banks pay a higher interest rate if they borrow from the Fed. Question 27 Open market operations are the Selected Answer: purchase or sale of government securities by the Fed. Question 28 In response to the financial crisis in 2008, the Fed created which of the following policy tools? Selected Answer: quantitative easing Question 29 The monetary base is the sum of Selected Answer: coins, Federal Reserve notes, and banks' reserves at the Fed. Question 30 Regulating the amount of money in the United States is one of the most important responsibilities of the Selected Answer: Federal Reserve. Question 31 Banks create money by Selected Answer: making loans. Question 32 If the desired reserve ratio is 15 percent, then for every dollar that is deposited in the bank, the bank will Selected Answer: keep 15 cents as reserves. Question 33 When Zane deposits $20,000 cash in his checkable deposit at the Citicorp and the Citicorp's desired reserves increase by $5,000, the desired reserve ratio is Selected Answer: 25 percent. Question 34 The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What is the total amount of deposits in this bank? Selected Answer: $1,600,000 Question 35 If Bulge Bank has a desired reserve ratio of 10 percent, loans of $25,000, deposits of $100,000, vault cash of $10,000, and reserves at the Fed of $65,000, then the bank Selected Answer: has excess reserves of $65,000. Question 36 An open market purchase of securities by the Fed leads to all of the following EXCEPT Selected Answer: a decrease in the quantity of money. Question 37 If the Fed makes an open market purchase of $1 million of government securities, the monetary base Selected Answer: is increased by $1 million. Question 38 When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________. Selected Answer: increase; increases Question 39 The Fed sells $300 million U.S. government securities to commercial banks. This action leads to ________ in Fed assets and ________ in Fed liabilities. Selected Answer: a $300 million decrease; a $300 million decrease in Question 40 The Fed purchases $1 million of U.S. government securities from First Bank. The desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all excess reserves. The Fed's purchase increases First Bank's excess reserves by how much? Selected Answer: $1,000,000 Question 41 When the desired reserve ratio is 10 percent, suppose the Fed buys $1,000,000 of government securities from banks. As a result, the banks' excess reserves Selected Answer: increase by $1,000,000. Question 42 Assume First Central Bank has a desired reserve ratio of 15 percent; $80,000 in total deposits, loans equal to $60,000, and has $20,000 in actual reserves. First Central can make additional loans totaling Selected Answer: $8,000. Question 43 A currency drain occurs when the Selected Answer: non- bank public increases its holdings of currency outside the banking system. Question 44 Suppose the Federal Reserve buys $50 million worth of securities from a commercial bank. As a result, the monetary base ________, and the quantity of money will ________ $50 million due to the ________. Selected Answer: increases; increase by more than; money multiplier Question 46 If the money multiplier is 3.0, a $1,000 increase in the monetary base Selected Answer: increases quantity of money by $3,000. Question 47 Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. The money multiplier equals Selected Answer: 3.08.

Chapter 6:

Question 1 The Bureau of Labor Statistics (BLS) compiles information about employment by Selected Answer: performing a monthly survey of 60,000 households. Question 2 Which of the following is true? Selected Answer: To be classified as employed, you must work at least 1 hour per week at a paid job or 15 hours or more as an unpaid worker in your family business. Question 3 n Selected Answer: part of the labor force and employed. Question 4 Which of the following people would be classified as employed in the Current Population Survey? Selected Answer: Rich, who is working 20 hours a week but wants a full- time job Question 5 The labor force consists of Selected Answer: the number of people in the working- age population who are employed or unemployed. Question 6 Jane is a 25 year old, full- time student. She works part time in her school library and is paid $7 an hour. She is considered to be Selected Answer: employed. Question 7 Suppose the working- age population is 500 million, the labor force is 200 million, and the unemployment rate is 15 percent. The number of unemployed people is Selected Answer: 30 million. Question 8 Using the table above, the working- age population is Selected Answer: 195 million. Question 9 Using the table above, the number of people in the labor force is Selected Answer: 175 million. Question 10 Using the table above, the unemployment rate is Selected Answer: 5.71 percent. Question 11 The labor force participation rate is equal to Selected Answer: (labor force ÷ working- age population) × 100. Question 12 If the number of employed people is 150 million, the number of unemployed people is 50 million, and the working- age population equals 285 million people, the labor force participation rate is Selected Answer: 70.2 percent. Question 13 A marginally attached worker i. does not have a job and has not looked for one in the last month. ii. is available and willing to work. iii. must work at least 1 hour per week. Selected Answer: i and ii Question 14 Suppose that Mel (who is 27) is not working, but looked for a job as recently as 2 months ago. Mel would like a job and he is available for work. He is considered Selected Answer: a marginally attached worker. Question 15 Discouraged workers are included in the calculation of the i. unemployment rate. ii. labor force participation rate. iii. working- age population. Selected Answer: iii only Question 16 Part- time workers are defined as people who are working Selected Answer: less than 35 hours per week. Question 17 Involuntary part- time workers are workers who Selected Answer: work less than 35 hours but would like to work full time. Question 18 The average U.S. unemployment rate from 1948 has been about Selected Answer: 5.8 percent. Question 19 The unemployment rate generally ________ during recessions and generally ________ during expansions. Selected Answer: increases; decreases Question 20 The highest unemployment rate in U.S. history was about Selected Answer: 25 percent in 1933. Question 21 In the United States, over the past 50 years the total labor force participation rate Selected Answer: has increased. Question 22 Between 1960 and 2010, the labor force participation rate for women Selected Answer: increased until about 1996. Question 23 In the United States, a reason for the increase of the labor force participation rate for women is that Selected Answer: more women pursued a college education and received higher wages upon graduation. Question 24 Which is true concerning U- 2? i. It does not count marginally attached workers as unemployed. ii. It counts as unemployed workers who were laid off. iii. It is smaller than U- 3. Selected Answer: i, ii and iii Question 25 Frictional unemployment is the result of Selected Answer: normal labor market turnover. Question 26 A reduction in unemployment benefits will Selected Answer: decrease the amount of frictional unemployment. Question 27 Bill just graduated with his degree in economics. Through Career Services he submitted his resume to several companies and he will visit them during the next two weeks. Bill is considered Selected Answer: frictionally unemployed. Question 28 Which type of unemployment arises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs? Selected Answer: structural Question 29 Cyclical unemployment includes people who become unemployed from Selected Answer: changes in the business cycle. Question 30 During a recession, cyclical unemployment ________ and real GDP ________. Selected Answer: increases; decreases Question 31 Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full- time. ∙ Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job. ∙ Rita graduated from college and is currently looking for a job. ∙ Armondo quit his old job and will begin his new job in four days. ∙ Thorton was fired from his job as a steel worker because of massive imports of steel and he is looking for a new job. ∙ Jung was laid off from his job as an appraiser because the firm's business declined because of a general downturn in the economy and he is currently looking for a new job as an appraiser. According to the scenario above, in which of the following groups are all the people frictionally unemployed? Selected Answer: Rita and Darrelo Question 32 Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full- time. ∙ Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job. ∙ Rita graduated from college and is currently looking for a job. ∙ Armondo quit his old job and will begin his new job in four days. ∙ Thorton was fired from his job as a steel worker because of massive imports of steel and he is looking for a new job. ∙ Jung was laid off from his job as an appraiser because the firm's business declined because of a general downturn in the economy and he is currently looking for a new job as an appraiser. According to the scenario above, in which of the following groups are all the people cyclically unemployed? Selected Answer: Jung Question 33 Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full- time. ∙ Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job. ∙ Rita graduated from college and is currently looking for a job. ∙ Armondo quit his old job and will begin his new job in four days. ∙ Thorton was fired from his job as a steel worker because of massive imports of steel and he is looking for a new job. ∙ Jung was laid off from his job as an appraiser because the firm's business declined because of a general downturn in the economy and he is currently looking for a new job as an appraiser. According to the scenario above, in which of the following groups are all the people structurally unemployed? Selected Answer: Thorton Question 34 When the economy is at full employment, Selected Answer: there is no cyclical unemployment. Question 35 Full employment occurs when the Selected Answer: unemployment rate equals the natural unemployment rate. Question 36 Natural unemployment equals the sum of Selected Answer: frictional and structural unemployment. Question 37 0.50000 out of 0.50000 points At the peak of a business cycle, the Selected Answer: unemployment rate is below the natural unemployment rate. Question 38 Potential GDP is the level of output produced when the unemployment rate is Selected Answer: equal to the natural unemployment rate. Question 39 During a recession, Selected Answer: real GDP is less than potential GDP. Question 40 When the unemployment rate is ________ the natural unemployment rate, real GDP is ________ potential GDP. Selected Answer: below; above

Chapter 7:

Question 1 The CPI is a measure of the Selected Answer: average prices paid by consumers for a fixed basket of goods and services. Question 2 The CPI is calculated by the Bureau of Labor Statistics on a frequency of every Selected Answer: month. Question 3 The reference base period for the CPI has an index number of Selected Answer: 100. Question 4 The CPI market basket is determined by Selected Answer: The Consumer Expenditure Survey. Question 5 According to the CPI basket, the largest item in the households' budgets is Selected Answer: housing. Question 6 Consumers in Beachland consume only two goods, sodas and DVDs. If they spend $10 on sodas and $90 on DVDs a month, how many sodas and DVDs are in their CPI market basket if the price of a soda is $1 and the price of a DVD is $9? Selected Answer: 10 sodas and 10 DVDs Question 7 The formula for the CPI is Selected Answer: (Cost of CPI market basket at current period prices ÷ Cost of CPI market basket at base period prices) × 100. Question 8 If the cost of the CPI market basket at current period prices is $1000 and the cost of the CPI market basket at base period prices is $250, the CPI is Selected Answer: 400. Question 9 The inflation rate is the Selected Answer: percentage change in the CPI from one year to the next year. Question 10 Which of the following formulas is used to calculate the inflation rate? Selected Answer: Inflation rate = 100 × Question 11 The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The cost of the CPI market basket in 2011 is Selected Answer: $52.00. Question 12 The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2011 is Selected Answer: 100. Question 13 The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2012 is Selected Answer: 123.1 Question 14 The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The inflation rate between 2011 and 2012 is Selected Answer: 23.1 percent. Question 15 If the CPI decreases from one year to the next, then the inflation rate is Selected Answer: negative. Question 16 The inflation rate between last year and this year was 14 percent. The CPI was 118 this year. What was the CPI last year? Selected Answer: 103.5 Question 17 Looking at the historical values for annual inflation in the United States as measured by the Consumer Price Index, it is clear that inflation was Selected Answer: higher on average during the 1970s than during the 1980s. Question 18 Economists agree that the CPI Selected Answer: is a possibly biased measure of the cost of living. Question 19 Which of the following is a bias in the CPI? i. new goods bias ii. index change bias iii. commodity substitution bias Selected Answer: i and iii Question 20 When a good gets better from one year to the next, the CPI has a what is called Selected Answer: quality change bias. Question 21 The fact the consumers substitute one good for another when prices change is Selected Answer: not taken into account by the fixed market basket used in calculating the CPI. Question 22 If higher prices cause buyers to shop at discount stores, the CPI has Selected Answer: an outlet substitution bias. Question 23 Because a third of government outlays are linked directly to the CPI, as time passes, the CPI bias means that the government's outlays are Selected Answer: larger than needed to keep pace with the cost of living. Question 24 The GDP deflator is Selected Answer: a measure of the price level. Question 25 When we compare the records of the CPI and the PCE price index over time, the Selected Answer: CPI tends to exceed the PCE price index. Question 26 The difference between nominal and real is Selected Answer: nominal is measured in current dollars and real is measured in dollars of a given year. Question 27 To compare the price of a loaf of bread produced in 1993 with the price of a loaf produced in this year, you should compare the value of the bread in Selected Answer: real prices. Question 28 February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars? Selected Answer: $1.29 per gallon Question 29 If average annual tuition at public 4- year colleges was $1,908 in 1990, when the CPI was 130.7, and $8,655 in 2012 when the CPI was 229.6, then the real cost of annual tuition Selected Answer: rose by 158 percent during that period. Question 30 During 1990, a Hershey candy bar cost $.85. By 2007, the same Hershey candy bar cost $1.25. If the CPI was 130.7 in 1990 and 180.5 in 2007, the price of the 1990 Hershey candy bar in 2007 prices is Selected Answer: less than the price of the 2007 Hershey candy bar. Question 31 If for a given year nominal GDP is $2000 billion and real GDP is $1500 billion, then the GDP price index is Selected Answer: 133. Question 32 Which of the following formulas would you use to calculate the Real wage rate? Selected Answer: Real wage rate = (Nominal wage rate ÷ CPI) × 100 Question 33 If the nominal wage is $30 in 2011 and the CPI is 202 in 2011, then the real wage in 1982- 1984 dollars Selected Answer: is $14.85. Question 34 If you are earning $20,000 this year and the CPI is 165, your real income in base year prices is Selected Answer: $12,121.21. Question 35 Your wage this year is $15 per hour and the CPI is 178. Next year you get a raise to $17 and the CPI rises to 185. What has happened? Selected Answer: Your real wage has increased but by a smaller percentage than your nominal wage. Question 36 The real interest rate equals the Selected Answer: nominal interest rate - inflation rate. Question 37 If the inflation rate is greater than the nominal interest rate, then the Selected Answer: real interest rate will be negative. Question 38 Citicorp charges an 11 percent interest rate on all new car loans. If the inflation rate is 6 percent, Citicorp receives a real interest rate of Selected Answer: 5 percent. Question 39 If the bank returns $1,060 on the $1,000 deposited for a year during which inflation was 4 percent, the real interest rate is Selected Answer: 2 percent. Question 40 If the real interest rate is 5 percent when the inflation rate is 4 percent, the nominal interest rate is Selected Answer: 9 percent.

Chapter 16

Question 1 The federal budget is defined as Selected Answer: an annual statement of expenditures and tax revenues of the U.S. government. Question 2 In the United States for the year 2012, the federal government had a ________ so the national debt was ________. Selected Answer: budget deficit; increasing Question 3 The last U.S. president to be in office when the government had a budget surplus was Selected Answer: Bill Clinton. Question 4 When tax revenues exceed the government's outlays, the budget Selected Answer: has a surplus and the national debt is decreasing. Question 5 When tax revenues ________ outlays is negative, then the government has a budget ________. Selected Answer: minus; deficit Question 6 When the government's outlays equal its tax revenues, then the budget Selected Answer: is balanced. Question 10 The national debt is Selected Answer: the amount borrowed by the government to finance past budget deficits. Question 11 When the government's outlays equal its tax revenue, the budget Selected Answer: is balanced and the national debt is not changing. Question 12 The national debt can only be reduced if Selected Answer: the federal budget is in surplus. Question 13 What two parts of the government determine the federal budget? Selected Answer: the Congress and the President Question 14 Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________. Selected Answer: deficit; increased Question 15 Automatic stabilizers are defined as Selected Answer: policy that stabilizes without the need for action by the government. Question 16 An example of automatic fiscal policy is Selected Answer: expenditure for unemployment benefits increasing as economic growth slows. Question 17 Induced taxes are defined as taxes Selected Answer: that vary with real GDP. Question 18 Needs- tested spending is defined as Selected Answer: spending on programs for people qualified to receive benefits. Question 19 In a recession, needs- tested spending ________ and induced taxes ________. Selected Answer: increases; decrease Question 20 Discretionary fiscal policy is a fiscal policy action, such as Selected Answer: a tax cut, initiated by an act of Congress. Question 21 If government expenditure on goods and services increase by $10 billion, then aggregate demand Selected Answer: increases by $10 billion multiplied by the government expenditure multiplier. Question 22 If the government reduces expenditure on goods and services by $30 billion, then aggregate demand Selected Answer: decreases by more than $30 billion and real GDP decreases. Question 23 If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand Selected Answer: increases by more than $100 billion. Question 24 The government expenditure multiplier and the tax multiplier are Selected Answer: different in size and the government expenditure multiplier is larger. Question 25 The balanced budget multiplier is based on the point that the ________ multiplier is larger than the ________ multiplier so that an equal increase in government expenditure and taxes ________ aggregate demand. Selected Answer: expenditure; tax; increases Question 26 Ignoring any supply- side effects, if government expenditure on goods and services decrease by $10 billion and taxes decrease by $10 billion, then real GDP ________ and the price level ________. Selected Answer: decreases; falls Question 27 An economy is at a short- run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to Selected Answer: increase government expenditure and move the economy to a full- employment equilibrium at point b. Question 28 Which of the following is an example of a fiscal stimulus? Selected Answer: decrease in taxes Question 29 Which of the following is a limitation of discretionary fiscal policy? i. law- making lags ii. estimating potential GDP iii. income gap Selected Answer: i and ii Question 30 The law- making time lag is best described as the time that it takes Selected Answer: Congress to pass laws needed to change taxes or spending.

Chapter 5&9:

Question 1 The total production within an economy is measured as Selected Answer: Gross Domestic Product. Question 2 Gross Domestic Product is the market value of all ________ produced within a country in a given period of time. Selected Answer: final goods and services Question 3 GDP is best defined as the ________ in a given time period. Selected Answer: market value of all final goods and services produced within a country Question 4 Which of the following is included in Germany's GDP? i. BMWs produced in a German- owned factory in South Carolina ii. the value of the stocks sold on the German stock exchange, the Frankfurt Stock Exchange iii. china produced by the English- owned Wedgewood Company at a factory in Berlin, Germany Selected Answer: iii only Question 5 Which of the following is included in U.S. GDP? i. the rental value of homes owned by U.S. citizens ii. the production of Suburban SUVs by GM in its plant in Mexico iii. tickets sold by U2 for concerts held in the United States Selected Answer: i and iii Question 6 A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is Selected Answer: an intermediate good. Question 7 One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $15. A second bag of coffee is sold directly to Joan for $7, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee? Selected Answer: $22 Question 8 Consumption expenditure includes spending Selected Answer: by households. Question 9 Investment is defined as the purchase of Selected Answer: new capital goods and additions to inventories. Question 10 Investment is the expenditure done by Selected Answer: firms. Question 11 Bob's Funky T- shirts began the year with 1,000 shirts in inventory, produced 10,000 shirts during the year and ended the year with 1,100 shirts in inventory. The 100 shirts added to his inventory will be classified as Selected Answer: investment. Question 12 Government expenditures on goods and services include i. the New York City Library's purchase of new books. ii. Washington D.C.'s purchase of gas for its city buses. iii. California's payment of wages to prison guards. Selected Answer: i, ii and iii Question 13 Net exports of goods and services are defined as the Selected Answer: value of exports minus the value of imports. Question 14 Gross Domestic Product equals Selected Answer: Y = C + I + G + NX . Question 15 Total expenditure equals total income Selected Answer: because firms pay out everything they receive as income to the factors of production. Question 16 In the circular flow, how are the "value of production," "income," and "expenditures" related? Selected Answer: Expenditures on GDP equals the value of production which equals income. Question 17 In order to measure gross domestic product, we can follow Selected Answer: two approaches: the expenditure approach and the income approach. Question 18 The largest expenditure category in the United States is Selected Answer: consumption expenditure. Question 19 The following table reports transactions that occurred in Whoville. Nominal GDP in Whoville is ________. Selected Answer: $120 Question 20 The table gives data for a nation. What is the amount of the country's GDP? Selected Answer: $6,200 billion Question 21 The table gives data for a nation. The value of the country's net exports of goods and services shows that the country's Selected Answer: value of its exports exceeded the value of its imports. Question 22 If you buy a five- year- old TV from a friend, the amount you paid for the TV is Selected Answer: not included in this year's GDP. Question 23 According to the income approach to measuring GDP, the largest income category is Selected Answer: wages. Question 24 Adding wages, interest, rent, and profits yields Selected Answer: net domestic product at factor cost. Question 25 To measure GDP by using the income approach, we must add all incomes and then ________ depreciation and ________ net taxes less subsidies. Selected Answer: add; add Question 26 The table above has information about an economy. Using this information, GDP equals Selected Answer: $7,800 billion. Question 27 Nominal GDP increases Selected Answer: if either prices and/or total production increase. Question 28 Data for 2009 Data for 2010 The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is nominal GDP in 2009? Selected Answer: $450 Question 29 Data for 2009 Data for 2010 The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is real GDP in 2010? Selected Answer: $530 Question 30 Economists define investment to include purchases of Selected Answer: capital goods and inventories. Question 31 Although imperfect, which of the following is used as a measure of the standard of living? Selected Answer: real GDP ÷ population Question 32 In 1961, real GDP totaled $575 billion and in 2011 it totaled $1,255 billion. Between 1961 and 2011, the population increased from 50 million to 100 million. Between 1961 and 2011, the standard of living based on real GDP per person Selected Answer: increased from $11,500 to $12,550. Question 33 The business cycle is defined as Selected Answer: irregular ups and downs in production and jobs. Question 34 A business cycle has two turning points, which are the Selected Answer: trough and peak. Question 35 The business cycle has two phases, Selected Answer: recession and expansion. Question 36 In order to be classified as a recession, a contraction of general economic activity must last at least Selected Answer: six months. Question 37 As measured, GDP omits which of the following? i. Illegal sales of goods and services ii. Changes in the amount of leisure time iii. Household production of goods and services Selected Answer: i, ii, and iii Question 38 Which of the following is likely to be an unreported economic activity? Selected Answer: tips paid to a taxi driver Question 39 Which of the following goods and services are omitted from GDP? Selected Answer: household production Question 40 A country with a real GDP per person similar to real GDP per person in the United States but with limited political freedom is generally considered to have Selected Answer: a lower standard of living than the United States. Question 41 Economic growth is a sustained expansion of production possibilities, as measured by the increase in ________ over time. Selected Answer: real GDP Question 42 A country will likely experience an increase in poverty if Question 43 The growth rate of real GDP equals Selected Answer: [(real GDP in current year - real GDP in previous year) ÷ real GDP in previous year] × 100. Question 44 If real GDP was $13.1 trillion in 2013 and $13.3 in 2014, what is the growth rate? Selected Answer: 1.5 percent Question 45 U.S. real GDP in 2007 was $13.25 trillion and U.S. real GDP in 2008 was $13.31 trillion. What was the economic growth rate of the United States during this period? Selected Answer: 0.45 percent Question 46 Using the data in the table above, the growth rate of real GDP for 2010 is equal to Selected Answer: 7.00 percent. Question 47 Using the data in the table above, real GDP per person in 2009 is Selected Answer: $70,000. Question 48 Using the data in the table above, the growth rate of real GDP has Selected Answer: increased from year to year. Question 49 Suppose India wants to measure how much the standard of living has changed over the last decade. Which piece of data should India use? Selected Answer: real GDP per person Question 50 Growth in the standard of living is measured by the increase in Selected Answer: real GDP per person. Question 51 If real GDP grows at a faster rate than does population, then the standard of living, as measured by real GDP per person, Selected Answer: improves. Question 52 If an economy's growth rate of real GDP is 3 percent per year and the growth rate of the population is 2.5 percent per year, the growth rate of real GDP per person is Selected Answer: 3 - 2.5 = 0.5 percent per year. Question 53 If a country experiences a real GDP growth rate of 1 percent and population growth of 2 percent, then the growth rate of real GDP per person is Selected Answer: - 1 percent. Question 54 If Country A's real GDP per person is growing at 6 percent and Country B's real GDP per person is growing at 3 percent, then Selected Answer: the standard of living is growing more rapidly in Country A. Question 55 The Rule of 70 can be used to calculate the Selected Answer: number of years it would take for the level of any variable to double. Question 56 If Country A's real GDP grows at a rate of 14 percent per year, about how many years will it take for Country A's real GDP to double? Selected Answer: 5 Question 57 A nation's annual growth rate of real GDP per person is 2 percent. Its standard of living will Selected Answer: double in 35 years. Question 58 If it took 20 years for real GDP to double, what was the growth rate of real GDP? Selected Answer: 3.5 percent

Chapter 13

Question 1 Which of the following does NOT affect potential GDP? Selected Answer: the quantity of money Question 2 Potential GDP Selected Answer: is independent of the price level. Question 3 The aggregate supply curve shows the relationship between Selected Answer: the quantity of real GDP supplied and the price level. Question 4 The aggregate supply curve illustrates that the Selected Answer: higher the price level, the greater the quantity of real GDP supplied. Question 5 If there is a rise in the price level, there is ________ in the quantity of real GDP supplied and a movement ________ along the AS curve. Selected Answer: an increase; upward Question 6 Moving along the AS curve, when the price level increases, the Selected Answer: real wage rate falls, and there is an increase in the quantity of real GDP supplied. Question 7 Which of the following changes aggregate supply and shifts the aggregate supply curve? i. change in the price level ii. change in potential GDP iii. change in the money wage rate Selected Answer: ii and iii Question 8 The change reflected in the above figure might be a result of Selected Answer: a decrease in the money wage rate. Question 9 The change reflected in the above figure might be a result of Selected Answer: a rise in the money wage rate. Question 10 A change in the price level produces a ________ the aggregate demand curve. i. shift in ii. change in the slope of iii. movement along Selected Answer: iii only Question 11 The AD curve is a graph depicting the Selected Answer: relationship between the price level and the quantity of real GDP demanded. Question 12 In the short run, a rise in the price level brings a ________ in the real interest rate that ________ investment, bringing ________ in the quantity of real GDP demanded. Selected Answer: rise; decreases; a decrease Question 13 A rise in the U.S. price level brings a ________ in the price of U.S. exports relative to imports that ________ exports of U.S. goods, bringing ________ in the quantity of U.S. real GDP demanded. Selected Answer: rise; decreases; a decrease Question 14 The aggregate demand curve shifts when any of the following factors change EXCEPT Selected Answer: the price level. Question 15 If there is an increase in expected future income, then Selected Answer: the aggregate demand curve shifts rightward. Question 16 A tax cut ________ aggregate demand and ________. Selected Answer: increases; shifts the AD curve rightward Question 17 In the figure above, the shift in the aggregate demand curve from AD1 to AD2 could be result of Selected Answer: an increase in government expenditures on goods and services. Question 18 In the figure above, the shift in the aggregate demand curve from AD1 to AD3 could be the result of an increase in Selected Answer: the foreign exchange rate. Question 19 If a country is trying to recover from a recent recession, it is unlikely their government officials will decide to ________ because it would ________. Selected Answer: raise interest rates; decrease aggregate demand Question 20 If the Fed increases the quantity of money, then Selected Answer: aggregate demand increases and the AD curve shifts rightward. Question 21 Because of the existence of the aggregate demand multiplier, a $10 billion change in expenditure Selected Answer: shifts the aggregate demand curve by more than $10 billion. Question 22 A macroeconomic equilibrium occurs when the Selected Answer: quantity of real GDP demanded equals the quantity of real GDP supplied even if they are not equal to potential GDP. Question 23 If the economy is at macroeconomic equilibrium, then real GDP Selected Answer: might be equal to, greater than, or less than potential GDP Question 24 If the quantity of real GDP demanded is less than the quantity of real GDP supplied, then Selected Answer: the price level falls and firms decrease production. Question 25 If the equilibrium price level is 135 but the actual price level is 150, then Selected Answer: the quantity of real GDP demanded is less than the quantity of real GDP supplied. Question 26 If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP more than potential GDP, there is Selected Answer: an inflationary gap. Question 27 If real GDP is less than potential GDP, then the ________ and the price level ________. Selected Answer: aggregate supply curve shifts rightward; falls Question 28 Based on the table above, equilibrium real GDP is Selected Answer: $7 trillion. Question 29 Based on the table above, the equilibrium price level is Selected Answer: 110. Question 30 Based on the table above. If the price level is 120, then the aggregate quantity demanded is ________ than the aggregate quantity supplied and the price level ________. Selected Answer: less; falls Question 31 Based on the table above, If the price level is 90, then the price level will ________ because ________. Selected Answer: rise; the aggregate quantity demanded is greater than the aggregate quantity supplied Question 32 The table above gives data for the nation of Pearl, a small island in the South Pacific. The economy is at full employment when real GDP is Selected Answer: $25 billion. Question 33 The table above gives data for the nation of Pearl, a small island in the South Pacific. When the economy is at full employment the price level is Selected Answer: 120. Question 34 The table above gives data for the nation of Pearl, a small island in the South Pacific. If a supply shock decreases the quantity of real GDP supplied by $6 billion at each price level, the new equilibrium real GDP is Selected Answer: $22 billion. Question 35 The table above gives data for the nation of Pearl, a small island in the South Pacific. If aggregate demand increases so that the quantity of real GDP demanded is $6 billion more at each price level, the new equilibrium real GDP is Selected Answer: $28 billion. Answers: $31 billion. $25 billion. $23 billion. $28 billion. $34 billion. Question 36 The table above gives data for the nation of Pearl, a small island in the South Pacific. If aggregate demand increases so that the quantity of real GDP demanded is $6 billion more at each price level, the new equilibrium real GDP is ________, and the nation is now experiencing a(n) ________. Selected Answer: $28 billion; inflationary gap Question 37 In the figure above, the economy is at an equilibrium with real GDP of $16 trillion and a price level of 110. At this point there is Selected Answer: a recessionary gap. Question 38 Inflation can be started by Selected Answer: a decrease in aggregate supply or an increase in aggregate demand. Question 39 Demand pull inflation can be started by Selected Answer: an increase in government expenditure. Answers: Question 40 In a demand- pull inflation, money wage rates rise because Selected Answer: an increase in aggregate demand creates a labor shortage. Question 41 To prevent demand- pull inflation, Selected Answer: the Fed must not let the quantity of money persistently rise. Question 42 Cost- push inflation can start with Selected Answer: an increase in oil prices. Question 43 When cost- push inflation starts, real GDP ________ and the unemployment rate ________. Selected Answer: decreases; rises Question 44 Reasons that the recession of 2008- 2009 did not become a depression include: i. The Fed bailed out troubled financial institutions. ii. The government aggressively balanced its budget. iii. The government increased its expenditures, which increased aggregate demand. Selected Answer: i and iii