Econ practice test 1

Which of the following will increase macroeconomic equilibrium real gross domestic product?

A decrease in taxes.

Which of the following can make the unemployment rate fall?

A decrease in the number of people who are looking for work and an increase in the number of people with jobs.

A decrease in government spending will cause

AD to decrease (move to the left).

A decrease in taxes will cause

AD to increase (move to the right).

An increase in input prices will cause

AS to decrease (move to up and to the left).

The expenditures approach to GDP equals

Consumption + Gross Investment + Government Purchases + Net Exports.

If GDP is $10 trillion, Personal Consumption Expenditure is $6.5 trillion, Gross Private Investment is $2.0 trillion, and Government Consumption and Investment Expenditures together are $2.0 trillion

Net Exports are -$0.5 trillion.

Which of the following is NOT a reason that the CPI overstates the cost of living?

There are too frequent updates of the market basket.

Economists consider deflation

dangerous, as it can lead to a depression.

If members of the labor force who had been classified as "unemployed" fail to find a suitable job and stop looking for work, their decision tends to make the unemployment rate

decrease as the labor force decreases.

The fact that when temperature rises snow cone sales rise suggests the two are

directly correlated

When domestic prices rise

interest sensitive consumption falls because interest rates rise

Policy initiatives typically associated with "supply-side economics" would include

investment tax credits

The Consumer Price Index (CPI) is a heavily criticized measure of inflation because

it consistently overstates the increase in the cost-of-living

One problem with using Real Gross Domestic Product as a measure of social welfare is that

it fails to count home production.

As the baby boom starts to retire, you would expect to see the

labor for participation rate steadily fall.

A decrease in household income for a good that is considered normal would

move its demand curve to the left

If a subsidy (going to consumers) is created for a good this would

move its demand curve to the right.

Production possibilities frontier models

the choices we make in setting output alternatives.

If goods A and B are considered complements, an increase in the price of A would cause

the demand curve for B to the left.

If goods A and B are considered substitutes, an increase in the price of A would cause

the demand curve for B to the right

Many forms of seafood (lobster, crab legs etc.) are consumed by dipping the meat in melted garlic butter. If someone suggested that it would therefore be equally appealing to drink melted butter after having eaten garlic and unseasoned seafood, you would know they had fallen victim to which of the following?

the fallacy of composition

The notion that the money in your possession will buy less when the price rises is provided as the explanation for

the real-balances effect.

The fact that we are operating at a point inside a bowed out production possibilities frontier, indicates there is

unemployment

Each person is better off with a bigger tax return than with a small tax return. That means that everyone would be better off if all taxes were zero. A person saying that is

wrong and have fallen victim to the fallacy of composition.

If the inflation rate turns out to be less than what is expected to be, the clear losers are

borrowers

The increase in the price of a good would

cause a movement along the demand curve to a (higher price, lower quantity) point.

If the (steadily increasing) marginal cost of another day spent in the hospital exceeds the (steadily decreasing) marginal benefit of an additional day spent in the hospital, the rational consumer of health care services would be predicted to

choose not to stay in the hospital for that additional day.

An increase in the excise tax imposed upon consumers of gasoline

shifts the demand for gasoline to the left

Elimination of government regulations undertaken explicitly to influence the aggregate supply curve would be an example of

supply-side economics.

Reduction of marginal tax rates undertaken explicitly to increase incentives of innovate, take risks, and work hard would be an example of

supply-side economics.

An increase in taxes will immediately shift

aggregate demand to the left

Congress and the President have control of the tax system and government spending. As a result their policies will directly impact

aggregate demand.