Exam Number 2 Econ 202
. As the aggregate price level in an economy rises, ____________________. A. interest rates increase B. consumer demand increases C. exports decrease D. investment increases
A
. In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation. A. cost of living adjustments B. inflation protection plans C. inflation ceiling guarantees D. wage protection clauses
A
A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the nation's waste-water treatment plants and to develop efficient rapid transit systems, creating substantial gainful employment for its workforce. Thereafter, the country began to quickly repay its past borrowing debt. Which of the following most strongly supported this country's successful economic recovery? A. ensuring borrowed funds were invested in long-term productive economic assets B. ensuring that larger borrowing reduced the need for more private savings C. the creation of a trade deficit through more aggressive buying of imports D. global policies of low interest rates charged on funds borrowed by governments
A
According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession. A. increased spending by the government on health care B. increased taxes on business investments C. decreased military spending D. increased consumer tax rate
A
An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms to conclude his comparison analysis. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 2010; the 2000 deflator was 24 and 51 in 2010. What is the real gain? A. 18.34% B. 38.58% C. 151.48% D. 70.61%
A
In an AD/AS model, the point where the economy has excess capacity is called the: A. Keynesian zone of the AS curve B. intermediate zone of the AS curve C. neoclassical zone of the AS curve D. crossing point of the potential GDP line
A
In macroeconomics, a _________________ is used to show the relationship between output and the input price level. A. Phillips curve B. microeconomic model C. expenditure-output model D. Keynesian framework
A
One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, is: A. substitution bias B. attribution bias C. complimentary bias D. preference bias
A
Refer to the graph above. A government creating economic policy in these circumstances should be most concerned about: A. unemployment but not inflation. B. inflation but not unemployment. C. inflation and unemployment. D. neither inflation nor unemployment.
A
Refer to the graph shown below. At point B: A. economic growth it low or even negative. B. output is expanding. C. unemployment is very low. D. businesses may raise prices.
A
The ________________ refers to the gap that can exist between what a nation's _____________, and a nation's ____________________. A. balance of trade; producers sell abroad; imports B. merchandise trade balance; exports; imports C. trade surplus; exported services; imported goods D. trade deficit; producers purchase abroad; exports
A
The following table shows the aggregate supply and demand data for a country. If input prices decrease and AS shifts to the right by 3,000 units at each price level. Price Level Aggregate Demand Aggregate Supply 200 10,000 4,000 300 9,000 6,000 400 8,000 8,000 500 7,000 8,500 600 6,000 9,000 700 5,000 9,500 800 4,000 10,000 What will the new price equal? A. 600 B. 800 C. 300 D. 400
A
The most commonly cited measure of inflation in the United States is: A. the Consumer Price Index (CPI). B. the Deflationary Price Index (DPI) C. the Cumulative Price Index (CPI) D. the Inflationary Price Index (IPI)
A
The situation where the buying power of money in terms of goods and services increases is called: A. deflation. B. inflation. C. stationary pricing. D. hyperinflation.
A
When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________. A. indexed B. COLAed C. nominally adjusted D. semi-indexed
A
When some countries increase their imports as a result of worldwide economic growth, other countries must be increasing their: A. exports as demand in all countries substantially rises. B. trade deficits since all of their imports significantly rise. C. trade surplus since all of their exports gradually rise. D. imports, but their trade deficits gradually decrease.
A
If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected? A. determinates of total supply for the economy will be traded-off B. trade-offs and connections may differ in the short run and the long run C. the economy will face genuine limits to how much can be produced D. institutional and market structures will connect factors of production
B
In an AD/AS diagram, an increase in structural unemployment will: A. shift AS to the right. B. have no effect on AS or AD. C. shift AS to the left. D. shift AD to the left.
B
In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________. A. more than half of total production; less than half of total production B. less than half of total production; more than half of total production C. the merchandise trade balance; the capital trade balance D. the merchandise trade balance; the retail trade balance
B
One insight that can be obtained from the national saving and investment identity is that a nation's balance of trade is determined by: A. foreign investment as a part of supply of financial capital. B. each nation's own levels of domestic saving and domestic investment. C. foreign investment as part of the demand for financial capital. D. all of the world government budgets and the overall global trade balance.
B
Only one of the following statements about trade surplus and capital flow is correct. Which one is it? A. a trade surplus means that there is a net inflow of capital B. a trade surplus means that there is a net outflow of capital C. a trade surplus exists if there is a net inflow of capital excluding foreign borrowing and lending D. a trade surplus exists if there is a net outflow of capital excluding foreign borrowing and lending
B
The Producer Price Index is based on prices paid for supplies and inputs by: A. consumers B. producers of goods and services C. government D. the small business sector
B
The __________________ in an AD/AS diagram is most relevant to Keynes's Law. A. AS curve B. flat portion of the AS curve C. AD curve D. steep portion of the AS curve
B
The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called: A. real GDP. B. potential GDP. C. aggregate supply. D. aggregate demand.
B
The term __________ is used to describe what those in one country buy from those in other countries. A. exports B. imports C. trade D. surplus
B
If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy: A. is producing at its potential GDP. B. is producing at a point where output is more than potential GDP. C. is producing at a point where output is less than potential GDP. D. is producing at its equilibrium point.
C
In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP? A. expenditure-output B. inflationary gap C. recessionary gap D. national income (Y)
C
Inflation implies that the level of all prices _____________________. A. decrease B. stay the same C. increase D. none of the above
C
Potential GDP in the U.S. will be unaffected by ____________________. A. technology B. the amount of capital available C. the unemployment rate D. government institutions
C
The _________________ means that a higher price level leads to lower real wealth. A. employment effect B. interest rate effect C. wealth effect D. foreign price effect
C
The following table shows the aggregate supply and demand data for a country. Price Level Aggregate Demand Aggregate Supply 100 10,000 4,000 200 9,000 5,000 300 8,000 5,000 400 7,000 7,000 500 6,000 8,500 600 5,000 9,000 700 4,000 9,500 What is the equilibrium output? A. 8,000 B. 4,000 C. 7,000 D. 9,000
C
What name is given to the index based on the prices of exported or imported merchandise? A. U.S. Producer Trade Index B. International Trade Index C. International Price Index D. U.S. Producer Price Index
C
When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by? A. 100 B. 300 C. 500 D. 900
C
Which of the following is an example of one of the major categories in the overall CPI? A. apparel and accessories B. entertainment C. recreation D. transportation and insurance
C
__________ implies that pressure for price increases reaches across _______________markets, not just one. A. inflation; all B. deflation; most C. inflation; most D. deflation; all
C
____________________ will not cause a shift of the AS curve in a Keynesian framework. A. Prices of inputs B. Changes in input prices C. Changes in output prices D. Changes in inputs
C
_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment. A. The foreign price effect B. Stagflation C. Full employment GDP D. The interest rate effect
C
. Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy. A. potential GDP; value of supply B. total quantity of goods; price level for output C. natural rate of unemployment; full employment GDP D. value of supply; value of demand
D
A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic savings rises, while the level of domestic investment and private saving remains unchanged. In this instance: A. less foreign financial capital is required to meet investment needs. B. government policy will involve increasing private savings. C. the country's trade deficit will decline. D. all of the above
D
According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions. A. sticky wage and price B. sticky wage C. Keynesian D. coordination
D
Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be? A. $430 billion B. $835 billion C. $2,063 billion D. $2,449 billion
D
An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it? A. Consumer Price Index B. GDP Price Index C. Consumer GDP D. GDP Deflator
D
Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________. A. current trade balance; foreign aid announced by the government. B. current trade balance; finance, law, and software product design. C. current account balance; telecommunications, computers, finance, law, and advertising. D. current account balance; goods, services, international income flows, and foreign aid.
D
If imports ______________, then the economy is said to have a trade deficit. A. precede exports B. follow exports C. equal exports D. exceed exports
D
If the price index moves from 107 to 110, the rate of inflation is: A. 3% B. 30% C. 28% D. 2.8%
D
If the price level of what firms produce is rising across an economy, but the costs of production are constant, then: A. the maximum potential GDP will be exceeded. B. increase in quantity produced won't be large. C. a majority of industries will start running into limits. D. higher profits will induce expanded production.
D
Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects. A. pricing strategy B. macro-economic model C. set of menu costs D. policy prescription
D
Referring to the above diagram, which of the following is a true statement? A. Macroeconomic policy will be needed to address rising inflation. B. There is sufficient aggregate demand to cause inflationary pressures. C. The equilibrium in the economy is at a level of output above full employment. D. There is insufficient aggregate demand to reach full employment.
D
The ____________________ is based on the prices of merchandise that are exported or imported. A. International Product Index B. Producer Price Index C. Foreign Price Index D. International Price Index
D
The equilibrium quantity of labor and the equilibrium wage increase when: A. labor supply shifts to the right, if wages are flexible. B. labor demand shifts to the right, if wages are flexible. C. labor demand shifts to the left, if wages are flexible. D. labor supply shifts to the left, if wages are flexible.
D
The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result? A. unemployment is likely to rise B. natural rate of unemployment is likely to fall C. lower inflationary pressures D. short run increase in economic growth
D
The term _____________ describes circumstances where a country's imports exceed its exports. A. trade imbalance B. trade balance C. trade surplus D. trade deficit
D
Under what circumstances would it most likely be considered beneficial for a government to be a large borrower of foreign investment capital? A. never as there is no economic merit in a policy of running trade deficits B. if the inflow of capital is absorbed by greater government borrowing C. when borrowing larger amounts is based on unconventional macroeconomic wisdom D. when those funds are invested in a way that sustains economic growth over time
D
Under what conditions would a nation be viewed as being neither a net borrower nor a net lender in the international economy? A. it has a low level of trade and a large trade surplus B. it has a medium to high level of trade and a moderate trade surplus C. it has a high level of trade and a moderate trade deficit D. its trade balance is zero
D
What is the most common method of measuring flows of trade? A. amount of physical items transported between countries B. amount of manufactured items transported by truck C. comparing annual amounts of goods and services exchanged between countries D. comparing exports of goods, services, and financial capital between countries
D
When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders' gym membership? A. 8.6% B. 5.4% C. 7.87% D. 16.66%
D
With respect to the national saving and investment identity for any country, the quantity of _______________ at any given time by savings must ________________ for purposes of making investments. A. foreign aid supplied; be lower than the quantity of domestic aid demanded B. foreign financial capital imports; equal to supply of domestic capital available C. foreign capital imports; less than the supply of domestic capital available D. financial capital supplied; equal the quantity of capital financial demanded
D
A lender demands an interest rate in part to compensate for any expected ___________, so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned. A. risk premium B. inflation C. compound interest D. opportunity costs
B
A payment is said to be ________________ if it is automatically adjusted for inflation. A. cross referenced B. indexed C. matched D. maintained
B
A recession tends to make a _____________________. A. trade surplus smaller B. trade deficit smaller C. trade deficit larger D. both a and b above
B
According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession. A. decrease; interest rates B. an increase; domestic investment C. a decrease; a major trading partner's economy D. a decrease; a major trading partner's export prices
B
An economics professor is discussing a measure of trade that involves a comparison of exports and imports of goods for the year just ended. What name is given to this measurement? A. export trade balance B. merchandise trade balance C. import trade balance D. current account balance
B
Another term used to describe negative inflation is: A. counter inflation B. deflation C. hyperinflation D. GDP deflator
B
At the outset of the 21st century, most global trade took the form of: A. services, rather than goods. B. goods, rather than services. C. equal trade in goods and services. D. trade surpluses in the service sector.
B
Changes in the price level of the different components of aggregate demand are reflected in the AD/AS macroeconomic model by a ________________________. A. flatter top portion of AD curve B. longer distance to equilibrium point C. downward sloping AD curve D. shorter distance to equilibrium point
C
When the economy of a country is operating close to its full capacity: A. the unemployment rate is greater than the natural rate of unemployment. B. cyclical unemployment is close to zero. C. unemployment is close to zero. D. the unemployment rate is less than the natural rate of unemployment.
B
While one occasionally sees references to inflation over short time periods, the term typically implies a(n)_____________ in prices. A. ongoing decrease B. ongoing rise C. short term rise D. short term decrease
B
A country finds itself in the following situation: a government budget deficit of $800; total domestic savings of $1800, and total domestic physical capital investment of $1300. According to the national saving and investment identity, what is the current account balance? A. deficit of $1300 B. surplus of $300 C. deficit of $300 D. surplus of $1300
C
A country's current account balance refers to a broad measure of the balance of trade that includes: A. merchandise, services, and foreign capital investments. B. goods, foreign capital investments, exported domestic services. C. goods and services, international flows of income, and foreign aid. D. merchandise, foreign aid and imported domestic services.
C
According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the: A. neoclassical expenditure-output model. B. Keynesian cross diagram. C. Keynesian Phillips curve tradeoff. D. Keynesian Inflation trade-off model.
C
Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output. A. relatively flat; remain flat B. relatively steep; remain steep C. relatively flat; relatively steep D. relatively steep; relatively flat
C
