Econ final

Occurs when workers spend time searching for the jobs that best suit their skills and tastes Short term for most

Frictional unemployment

rises with inflation, leading to a misallocation of resources

Relative‐price variability

Occurs when there are fewer jobs than workers, there is excess supply of labor in some sector of the economy

Structural unemployment

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes a. the interest rate to fall, so aggregate demand shifts right. b. the interest rate to fall, so aggregate demand shifts left. c. the interest rate to rise, so aggregate demand shifts right. d. the interest rate to rise, so aggregate demand shifts left.

a

An adverse supply shock causes inflation to a. rise and the short‐run Phillips curve to shift right. b. rise and the short‐run Phillips curve to shift left. c. fall and the short‐run Phillips curve to shift right. d. fall and the short‐run Phillips curve to shift left.

a

Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is a. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200. b. U.S. consumption purchases increase by $200 and U.S. GDP increases by $10,000. c. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200. d. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200.

a

Minimum‐wage laws can keep wages a. above equilibrium and cause a surplus of labor. b. above equilibrium and cause a shortage of labor. c. below equilibrium and cause a surplus of labor. d. below equilibrium and cause a shortage of labor.

a

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run? 21 a. Expected inflation would exceed actual inflation, and unemployment would exceed its natural rate. b. Expected inflation would exceed actual inflation, and unemployment would be below its natural rate. c. Actual inflation would exceed expected inflation, and unemployment would exceed its natural rate. d. Actual inflation would exceed expected inflation, and unemployment would be below its natural rate.

a

The initial impact of an increase in an investment tax credit is to shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.

a

The sticky‐wage theory of the short‐run aggregate supply curve says that when the price level rises more than expected, a. production is more profitable and employment rises. b. production is more profitable and employment falls. c. production is less profitable and employment rises. d. production is less profitable and employment falls

a

A permanent reduction in inflation would a. permanently reduce menu costs and permanently lower unemployment. b. permanently reduce menu costs and temporarily raise unemployment. c. temporarily reduce menu costs and temporarily lower unemployment. d. temporarily reduce menu costs and temporarily raise unemployment.

b

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit? a. Output will rise by more than it did when the previous unit was added. b. Output will rise but by less than it did when the previous unit was added. c. Output will fall by more than it did when the previous unit was added. d. Output will fall but by less then it did when the previous unit was added.

b

As opposed to an increase in government expenditures, a tax cut a. is likely to impact spending faster and according to traditional theory has a larger multiplier. b. is likely to impact spending faster, but according to traditional theory has a smaller multiplier. c. is likely to impact spending with a longer lag, but according to traditional theory has a larger multiplier. d. is likely to impact spending with a longer lag and according to traditional theory has a smaller multiplier

b

If aggregate demand shifts because of a wave of pessimism about stock prices, those who favor a policy that "leans against the wind" would advocate the a. Federal Reserve increase the money supply or the government increase taxes. b. Federal Reserve increase the money supply or the government decrease taxes. c. Federal Reserve decrease the money supply or the government increase taxes. d. Federal Reserve decrease the money supply or the government decrease taxes

b

If the short‐run Phillips curve were stable, which of the following would be unusual? a. an increase in government spending and a fall in unemployment b. an increase in inflation and a decrease in output c. a decrease in the inflation rate and a rise in the unemployment rate d. a decrease in the money supply and a rise in the unemployment rate.

b

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right? a. the short‐run and the long run Phillips curves b. the short‐run but not the long run Phillips curve c. the long‐run but not the short‐run Phillips curve d. neither the short‐run nor the long‐run Phillips curves

b

Real GDP will increase a. only when prices increase. b. only when output increases. c. when prices increase or output increases. d. All of the above are correct.

b

Suppose that the money supply decreases. In the short run, this increases prices according to a. both the short‐run Phillips curve and the aggregate demand and aggregate supply model. b. neither the short‐run Phillips curve nor the aggregate demand and aggregate supply model. c. the short‐run Phillips curve, but not according to the aggregate demand and aggregate supply model. d. the aggregate demand and aggregate supply model but not according to the short‐run Phillips curve.

b

Which of the following is considered part of the supply of U.S. dollars in the market for foreign‐currency exchange in the open‐economy macroeconomic model? a. both a U.S. bank wanting to lend money to a Canadian company and a U.S. firm wanting to buy computers made in South Korea b. a U.S. bank wanting to lend money to a Canadian company, but not a U.S. firm wanting to buy computers made in South Korea c. a U.S. firm wanting to buy computers made in South Korea, but not a U.S.bank wanting to lend money to a Canadian company d. neither a U.S. bank wanting to lend money to a Canadian company nor a U.S. firm wanting to buy computers made in South Korea

b

As the price level rises, a. the exchange rate falls, so net exports fall. b. the exchange rate falls, so net exports rise. c. the exchange rate rises, so net exports fall. d. the exchange rate rises, so net exports rise.

c

Efficiency is illustrated by a. both the production possibilities frontier and the circular‐flow diagram. b. neither the production possibilities frontier nor the circular‐flow diagram. c. the production possibilities frontier only. d. the circular‐flow diagram only

c

If the budget deficit increases, then a. U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase more U.S. assets b. U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase fewer U.S. assets c. U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets d. U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase fewer U.S. assets

c

Which of the following accounts for about two‐thirds of the decline in output during a recession? a. the decline in government purchases. b. the decline in total consumption spending. c. the decline in investment spending. d. the decline in net exports.

c

Which of the following is the most accurate statement? a. The one argument for restricting trade that almost all economists accept as valid is the infant‐industry argument. b. Almost all economists insist that it is never appropriate to protect "key" industries, even when there are legitimate concerns about national security. c. The idea that one nation might want to threaten another nation with a trade restriction is associated with the protection‐as‐a‐bargaining‐chip argument for restricting trade. d. The protection‐as‐a‐bargaining‐chip argument for restricting trade is also known as the infant‐industry argument.

c

A production possibilities frontier is bowed outward when a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. b. an economy is self‐sufficient instead of interdependent and engaged in trade. c. the rate of tradeoff between the two goods being produced is constant. d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced

d

Which of the following would help explain why the aggregate demand curve slopes downward? a. An unexpectedly low price level raises the real wage, which causes firms to hire fewer workers and produce a smaller quantity of goods and services. b. A lower price level causes domestic interest rates to rise and the real exchange rate to appreciate, which stimulates spending on net exports. c. A higher price level increases real wealth, which stimulates spending on consumption. d. A lower price level reduces the interest rate, which encourages greater spending on investment goods

d

if the U.S. were to impose import quotas a. the demand for loanable funds and the demand for dollars in the market for foreign‐ currency exchange would both increase. b. nether the demand for loanable funds nor the demand for dollars in the market for foreign‐currency exchange would increase. c. the demand for loanable funds would increase, but the demand for dollars in the market for foreign‐currency exchange would not. d. the demand for dollars in the market for foreign‐currency exchange would increase, but the demand for loanable funds would not.

d

An item buyers give to sellers when they want to purchase goods and services

medium of exchange

an item people can use to transfer purchasing power from the present to the future→ in this case money is an asset

store of value

The yardstick people use to post prices, record debts and bank deposits, and so on

unit of account

The circular‐flow diagram is a

visual model of the relationships among money, prices, and businesses.