Macro Chap 15
Suppose that the value of the multiplier has increased in recent years. Which of the following would have caused this
"Buy America" campaigns launched by many unions have succeeded in reducing the demand for imported goods
Refer to Table 15.2. What is the real wage rate in 2015 using 2016 as the base year?
$11.20
Refer to Table 15.1. What is the real wage rate in 2014 using 2016 as the base year?
$13.30
Refer to Table 15.2. What is the real wage rate in 2015 using 2017 as the base year?
$15.20
Refer to Table 15.1. What is the real wage rate in 2016 using 2014 as the base year?
$6.84
Refer to Table 15.1. What is the real wage rate in 2015 using 2014 as the base year?
$7.14
Refer to Table 15.2. What is the real wage rate in 2016 using 2015 as the base year?
$7.14
Refer to Table 15.2. What is the real wage rate in 2017 using 2015 as the base year?
$7.37
Refer to Table 15.1. What is the real wage rate in 2016 using 2015 as the base year?
$9.58
Nancy's Nail Salon employs five workers. Each worker works eight hours per day. The five workers are able to serve 20 customers per day. The labor productivity is therefore ________ customer(s) per person/hour.
.5
If Okun's Law holds true, then a 3% increase in GDP would lead to a ________ percentage point decrease in the unemployment rate.
1
Okun's Law states that the unemployment rate decreases about
1% point for every 3% increase in GDP
In practice, the size of the multiplier is about
1.4
Soozie's Smoothies employs 10 workers. Each worker works eight hours per day. The ten workers are able to make 240 smoothies per day. The labor productivity is therefore _____ smoothies per person/hour
1.5
At the beginning of 2017, the Shades of Gray Company has 8,000 pairs of sunglasses in stock. During 2017, the company produces 120,000 pairs of sunglasses and sells 112,000 pairs of sunglasses. The Shades of Gray Company's stock of inventory at the end of 2017 is ________ pairs of sunglasses.
16,000
Suppose that output in an economy is 1,000 units and the number of hours worked in the economy is 40. If the economy enters an expansion, which of the following combinations of output and hours worked would best reflect the expansion?
1600 units of output and 60 hours worked
Suppose that output in an economy is 50 units and the number of hours worked in the economy is 25. What is the value of labor productivity?
2 unites per worker hour
According to Okun's Law, if GDP increased by 6%, the unemployment rate would decrease by
2% points
From 1970 to 2014, plant and equipment investments of the firm sector of the U.S. economy reached its peak in the
2000s
Suppose that output in an economy is 1000 units and the number of hours worked in the economy is 20. What is the value of labor productivity?
25 units per worker hour
If Okun's Law holds true, then a 9% increase in GDP would lead to a _____ percentage point decrease in the unemployment rate
3
Suppose that output in an economy is 50 units and the number of hours worked in the economy is 25. If the economy enters an recession, which of the following combinations of output and hours worked would best reflect the expansion?
30 units of output and 20 hours worked
According to Okun's Law, if GDP increased by 12%, the unemployment rate would decrease by
4 percentage points
If Sammy does not have a full-time job but is working part-time at 4 different jobs, he is counted _____ in the job data, and ____ in the persons employed data
4 times; once
If the number of people employed is 190 million and the number of people in the labor force is 200 million, then the unemployment rate is
5%
At the beginning of 2017, the Absorbo Company has 10,000 sponges in stock. During 2017, the company produces 200,000 sponges and sells 160,000 sponges. The Absorbo Company's stock of inventory at the end of 2017 is ________ sponges.
50,000
Suppose that output in an economy is 1,000 units and the number of hours worked in the economy is 40. If the economy enters a recession, which of the following combinations of output and hours worked would best reflect the expansion?
600 units of output and 25 hours worked
If the employment rate is 93% then the unemployment rate is
7%
Suppose that output in an economy is 50 units and the number of hours worked in the economy is 25. If the economy enters an expansion, which of the following combinations of output and hours worked would best reflect the expansion?
70 units of output and 30 hours worked
If the unemployment rate is 13%, then the employment rate is
87%
The multiplier reaches its peak about _____ months after a spending increase began
9 to 12
If the number of people employed is 190 million and the number of people in the labor force is 200 million, the the unemployment rate is
95%
Refer to Figure 15.1. Which of the following could cause a movement from Point B to Point C?
A decrease in the interest rate
When output increases by 1%, the number of jobs does not tend to rise by 1% in the short run. Which of the following statements represents one of the reasons why this is true?
A firm is likely to meet some of the increase in output by increase the number of hours worked per job
Refer to Figure 15.1. Which of the following could cause a movement from Point A to Point B?
An increase in the interest rate
Assume that households have positive wealth. Which of the following explains how the income effect of an interest rate increase affects consumption?
As the interest rate increases, nonlabor income increases and current consumption increases.
Which of the following is not one of the "slippages" between changes in output and changes in the unemployment rate?
As the size of the labor force increases, the interest rate increases, and therefore output falls
Which of the following statements is true
Changes in output per worker over the business cycle have nothing to do with the long run potential of the economy
Refer to Figure 15.1. If the economy is currently at Point C, pessimism about future growth in aggregate output moves the economy to Point
E
A decrease in corporate profits, resulting in a decline in dividend payments, will decrease consumption and decrease labor supply
False
According to Okun's law, if output increased by 15%, unemployment should decrease by 3%
False
According to the permanent income hypothesis, a one time tax rebate will generally have a considerable impact on consumption
False
Any increase in non labor income unambiguously leads to a decrease in consumption and a decrease in labor supply
False
Consumption depends solely on income
False
Discouraged workers are counted as part of the labor force
False
For every 3% growth in output, the unemployment rate always declines 1%
False
If taxes are a fixed amount rather than dependent on income, the size of the multiplier is decreased
False
If the substitution effect dominates the income effect, a decrease in transfer payments will have a negative effect on both consumption and labor supply.
False
If the substitution effect dominates the income effect, an increase in transfer payments will have a positive effect on both consumption and labor supply
False
If the wage rate decreases, the substitution effect is for a person to work more and the income effect is for a person to take more leisure
False
If the wage rate increases, the substitution effect is for a person to work less and the income effect is for a person to take less leisure
False
If you have more than one job, you are counted more than once in the persons-employed data
False
Investment affect output, but output does not affect investment
False
Investments is a very stable component of GP
False
Labor productivity rises during a recession as firms retain their more experienced worker
False
Okun's Law demonstrates the relationship between unemployment and inflation
False
Productivity fluctuates over the business cycle, tending to fall during expansions and rise during contractions
False
Recent research and data have shown that the relationship between output and unemployment is as stable as Okun's Law predicts.
False
Temporary policy changes have a greater effect than permanent ones
False
The amount of output produced by an average worker in one hour is per capita output
False
The closer the economy is to full employment, the larger the multiplier is
False
The idea of the "Invisible Hand" is that people make lifetime consumption plans
False
The multiplier becomes smaller as the economy moves farther away from full employment
False
The optimal level of inventories is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is greater than the gain (in interest revenue and decreased storage costs).
False
The path of income over a lifetime is likely to be much more stable than the path of consumption
False
The presence of automatic stabilizers increases the size of the multiplier
False
The real wage rate measures the amount that wages can buy in current dollars
False
The smaller the percentage of people who work, the higher the potential output per capita
False
When firms hold excess labor, the unemployment rate drops faster during an expansion
False
When firms hold excess labor, the value of the multiplier increases
False
When input prices adjust slowly, the multiplier is smaller
False
The unemployment rate does not tend to fall as soon as the economy pulls out of a recession. Which of the following best explains this?
Firms are holding excess labor, so as the economy pulls out of the recession, firms do not need to hire new workers immediately.
Which of the following statements is true?
Increases in the interest rate crowd out both consumption and investment spending, and this reduces the size of the multiplier.
Which of the following is an example of non labor income?
Inheritance
To describe the feelings of investors, the phrase "animal spirits" of entrepreneurs was coined by
John Maynard Keynes
If a firm's sales turn out to be more than expected, inventories will be
Lower the expected, and there will be more production in the future
When your income decreases, which of the following items are you likely to postpone buying first?
New iPhone
The theory that the unemployment rate decreases about 1% for every 3% increase in real GDP is
Okun;s Law
Refer to Figure 15.1. If the economy is currently at Point C ____ in aggregate output moves the economy to I3
Pessimism about future growth
Which of the following statements is true?
Production will fluctuate somewhat over time, but not as much as sales fluctuates over time
Which of the following relationships is correct?
Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) + Production - Sales
______ reaches its peak about 9-12 months after a spending increase began
The multiplier
Which of the following statements is true?
The multiplier effects for policy changes that are perceived to be temporary are smaller than those for policy changes that are perceived to be permanent.
Suppose that the value of the multiplier has decreased in recent years. Which of the following could have caused this?
There has been an increase in the demand for imported goods
Which of the following is not true of a change in dividend payments?
There is no substitution effect because a change in dividend payments does not change a household's permanent income
Which of the following is true of a change in dividend payments?
There is no substitution effect because a change in dividend payments does not change the trade-off between work and leisure
Which of the following is true in non labor income?
There is no substitution effect because a change in nonlabor income does not change the trade-off between work and leisure.
A firm holds excess labor if it can reduce the amount of labor it employs and still produce the same amount of output
True
A phrase coined by John Maynard Keynes to describe investors feelings is "Animal Spirits"
True
According to the accelerator effect, there is a tendency for investment to decrease when aggregate output decreases, thus accelerating the decline of output
True
According to the life-cycle theory of consumption, people tend to consume less than they earn during their main working years
True
According to the life-cycle theory of consumption, people tend to consume more than they earn during their early working years
True
According to the life-cycle theory of consumption, people tend to dissave during their retirement years
True
According to the life-cycle theory of consumption, people tend to save during their main working years
True
An unexpected decrease in inventories has a positive effect on future production
True
An unexpected decrease in non labor income will have a negative effect on a household's consumption
True
An unexpected increase in inventories has a negative effect on future production
True
As the economy starts to contract, labor productivity falls as firms hold excess labor
True
As the economy starts to expand, labor productivity rises as firms starts using any excess labor they kept during the recession
True
Because many events cannot be foreseen, investments is made with imperfect knowledge
True
Employment does not fluctuate as much as output over the business cycle
True
Expenditures on services fluctuate less than expenditures on durable goods
True
Generally speaking, wreath starts out negative, turns positive, then approaches zero near the end of life
True
Inventory investment is the difference between the level of output and the level of sales
True
Output is likely to respond more to sales increases in high-output periods than in low-output periods, provided that firms have enough capital and labor to support the output increase.
True
Permanent income refers to the average level of a person's expected future income stream
True
The "crowding out" effect decreases planned investment and decrease the value of the multiplier
True
The amount a household would like to work within a giver period at the current wage rate if it could find the work is referred to as the unconstrained supply of labor.
True
The collective decision of firms determine output, labor demand, and investment
True
The cost that a firm incurs when it changes it production level are adjustment costs
True
The idea of the life-cycle theory of consumption is that people make lifetime consumption plans
True
The labor force increase when output increases because discouraged workers re-enter the labor force
True
The less inventories firms hold, the larger multiplier
True
The most volatile type of investment is inventory investment
True
The path of consumption over a lifetime is likely to be much more stable than the path of income
True
The quantity of labor supplied by households depends on factors such as the wage rate, prices, wealth, and non labor income
True
The real wage rate is the nominal wage rate adjusted for inflation since some base year
True
The relationship between output growth and unemployment depends on the state of the economy
True
Time is a key factor in investment decisions
True
When an economy expands the unemployment rate is slow to drop because the labor force expands too
True
When firms gold excess capital, the value of the multiplier decreases
True
Although the relationship between output and the unemployment rate is not as simple as Okun's Law represents it to be, it is true that
a 1% increase in output tends to correspond to less than 1% decrease in the unemployment rate
A decrease in transfer payments will result in
a decrease in consumption and an increase in labor supply
An unexpected increase in wealth or nonlabor income leads to
a decrease in labor supply
Which of the following causes an individual to increase his/her supply of labor?
a decrease in non labor
Refer to Figure 15.1. Which of the following could cause a movement from Point B to Point A?
a decrease in the interest rate
A decrease in consumption and an increase in labor supply would result from
a decrease in transfer payments
An unexpected increase in inventories has
a negative effect on future production
An unexpected increase in non labor income will have ____ effect on a household's leisure
a positive
The tendency for investment to decrease when aggregate output decreases is the result of the _____ effect
accelerator
The tendency for investment to increase when aggregate output increases is the result of the _____ effect
accelerator
The constrained supply of labor refers to the amount of household _____ in a given period at the current wage rate
actually work
The cost that a firm incurs when it changes its production are ____costs
adjustment
A firm is more likely to invest in new capital if
all of the above ( the productivity of capital is high, no excess capital, expects future sales to grow_
When output increases by 1%, the unemployment rate does not tend to fall by 1% in the short run because
all of the above (a firm is likely to meet some of the increase in output by increasing the number of hours worked per job, the number of people who become employed is less than the number of new jobs created, as output increases, the size of the labor force increases)
An unexpected decrease in wealth or non labor income leads to
an increase in labor supply
Refer to Figure 15.1. Which of the following could case a movement from Point C to Point B?
an increase in the interest rate
The discouraged worker effect reflects
an increase in the measured employment rate
The income effect of a wage rate decrease should lead to
an increase in the quantity of labor supplied and a decrease in leisure
An increase in consumption and a decrease in labor supply would result from
an increase in transfer payments
Which of the following causes a decrease in labor supply?
an increase in transfer payments
An increase in non labor income leads to ____ in consumption and _____ in labor supply
an increase; a decrease
The phrase that was coined bye John Maynard Keynes to describe the feelings of investors was the ______ of entrepreneurs
animal spritis
As the economy _____, the sizeof the multiplier will become smaller
approaches full employment
People who have two jobs
are counted twice in the job data, but only once in the persons- employed data
If the economy has no automatic stabilizers built in, the multiplier will
be larger than it would been with automatic stabilizers
If the economy has automatic stabilizers built in, the multiplier will
be smaller than it would have been in the absence of automatic stabilizers
As the economy approaches full employment, the size of the multiplier will
become smaller
At the beginning of 2017, Albert planned to buy a new home theater system, laptop computer, and hybrid car by borrowing money. Albert already owes $9,000 on other loans. He also planned to buy a new iPod and humidor out of current income. A decrease in interest rates during 2017 will most likely
cause Albert to decide to borrow money and to spend more on gods purchased with current income
At the beginning of 2017, Joey planned to buy a new iPhone, LCD TV, and motorcycle by borrowing money. Joey already owes $25,000 on other loans. He also planned to buy new clothing and DVDs out of current income. An increase in interest rates, during 2017, will most likely
cause Joey to decide to borrow less money and to spend less on goods purchased with current income.
Production minus sales equals
change in inventories
Adjustment costs are the costs that a firm incurs when it
changes its production level
When interest rates decrease, the substitution effect suggests that individuals will
consume more today
There is an increase in aggregate demand, and firms do not have sufficient capital and labor to support an output increase. In this case, inventory stocks will
continue to fall, there will be a large increase in the price level
On average, the inventory/sales ration has been _____ over time
declining
An increase in wealth will usually cause an individual to ______ his supply of labor
decrease
If it becomes less expensive for firms to hold excess capital and labor, the multiplier will
decrease
The Unique Toy Company rents space by the square foot in a warehouse to store its inventory. The owner of the warehouse just doubled the rent he charges the Unique Toy Company. Everything else equal, the rent increase is likely to ________ Unique's optimal level of inventory.
decrease
Due to a decrease in the birthrate, the Tiny Feet Company expects a decrease in the sale of its baby booties over the next few years. The Tiny Feet Company will most likely
decrease current production
If the substitution effect is greater than the income effect, a decrease in interest rates will
decrease saving and increase consumption spending by households
The government increases the corporate profits tax. As a result, corporate profits decrease. This will
decrease the non labor income of households, causing consumption to decrease and labor supply to increase
Firms have inventories that they can draw down to meet an increase in demand. This will
decrease the size of the multiplier, because output will not immediately respond to changes in demand
An unexpected_____ in inventories has ____ effect on future production
decrease; a positive
Assume that households have positive wealth. As the interest rate ________, nonlabor income ________ and current consumption ________.
decrease; decrease; decrease
Arnold's nominal wage increased by 3%, and the prices of goods that Arnold buys increased by 5%. Arnold's real wage has
decreased
If an individual is a debtor, an increase in the interest rate
decreases current consumption
The non labor income of households will increase, causing consumption to increase and labor supply to decrease, if the government
decreases the corporate profits tax
A fall in the interest rate
decreases the opportunity cost of consuming today
The labor soppy will generally increase when the income tax rate ____ ( if the substitution effect dominates) or transfer payments ______
decreases; decreases
Consumption will generally increase when the income tax rate ______ or transfer payments ______
decreases; increases
In general, the relationship between output and unemployment
depends on the state of the economy at the time of the output change
The _____ of inventories is the level at which the extra cost of adding to inventory is equal to the extra gain from such a addition
desired level
The decline in the measured unemployment rate that results when people who want to work, but who cannot find work, drop out of the ranks of the unemployed and the labor force is the
discouraged-worker effect
According to the life-cycle theory of consumption, people tend to ___ during their early and later years
dissave
The portion of a corporation's profits that the firm pays out each period to shareholders is known as
dividends
Which of the following is not a transfer payment?
dividends
When output increases by 1% the unemployment rate _____ in the short run because as output increases, the size of the labor force increases
does not tend to fall by 1%
When output increases by 1%, the number of jobs ________ in the short run. One of the reasons why this is true is that a firm is likely to meet some of the increase in output by increasing the number of hours worked per job.
does not tend to rise by 1%
Empirical data suggests that during recessions, individuals reduce more of their consumption of
durable goods
The employment rate is the ration of the number of people
employed to the number of people in the labor force
If a firm is able to produce the same amount of output even after reducing its labor workforce, this implies that the firm has
excess labor
When the economy is in a slump, labor productivity tends to fall because firms have
excess labor
As the economy _______, the labor force increases, and as the economy ______, the labor force decreases
expands; contracts
Capital has a life that typically
extends over many years
If discouraged workers were counted as unemployed, then as output increased the unemployment rate would
fall by more than if discouraged workers are not counted as unemployed
Productivity tends to
fall during contractions
Refer to Table 15.2. From 2015 to 2016 the real wage
falls
If wages rate falls, consumption
falls because the income and substitution effects are working in opposite directions to change consumptions
The trend of the inventory/ sales ratio over time indicated that
firms are becoming more efficient in their management of inventory stocks
An increase in output will cause the unemployment rate to fall by a larger percentage if
firms aren't holding excess labor
At low levels of output, the economy can expand with little or no increase in the overall price level because
firms likely hold excess labor and capital, and production can be increased without causing input prices to increase
Productivity fluctuates along a business cycle because
firms usually keep excess labor
A graduate student is likely to consume less than a factory worker because the
graduate student's permeant income is likely lower than the factory worker's permanent income
Assume households have positive wealth. If the income effect is ________ the substitution effect, a decrease in interest rates will increase saving and decrease consumption spending by households.
greater than
If the income effect is greater than the substation effect, the labor supply curve
has a negative slope
The government spending multiplier is likely to be smaller during periods of
high output and low unemployment
The larger the percentage of people who work, the ____ output per capita
higher the potential
The _____ labor- force participation rate is among prime-age
highest;men
Labor productivity will decrease if a firm
holds excess labor
Which of the following types of expenditures is more volatile than plant and equipment investment?
housing investment
Related to the Economics in Practice on p. 287: The Case-Shiller index of housing prices measures the change in price of
identical houses that have sold multiple times
If it becomes more expensive for firms to hold excess capital and labor, the multiplier will
increase
The Yum Yum Bubble Gum Company rents space in a warehouse to store its inventory. The owner of the warehouse just lowered the rent he charges the Yum Yum Bubble Gum Company. Everything else equal, the rent decrease is likely to ________ Yum Yum's optimal level of inventory.
increase
If discouraged workers were counted as unemployed, then as output decreased the unemployment rate would
increase by more than is the case if discouraged workers are not counted as unemployed.
Due to an increase in the birthrate, the Solid Wood Furniture Company expectes an increase in the sale of its scrubs over the next future years. The Solid Wood Furniture Company will most likely
increase current production
Assume households have positive wealth. If the income effect is greater than the substitution effect, a decrease in interest rates will
increase saving and decrease consumption spending by households
The government reduced the corporate profits tax. As a result, corporate profits increase. This will
increase the non labor income of households, causing consumption to increase and labor supply to decrease
A rise in the interest rate
increase the opportunity cost of consuming today
Firms have no inventories that they can draw down to meet an increase in demand. This will
increase the size of the multiplier, because output will need to immediately respond to changes in demand
Suppose that input prices respond very slowly to output price. This will
increase the value of the multiplier
Consumption will generally decrease when the income tax rate _____ or transfer payments _____
increase; decrease
The government reduces the corporate profit tax. As a result, corporate profits increase. This will _____ the non labor income of households, causing consumption to _____ and labor supply to ______
increase; increases decrease
Todd's nominal wage increased by 5% and the prices of goods that Todd buys increased by 3%. Todd's real wage has
increased
Related to the Economics in Practice on p 287. The Case-Shriller index of housing prices
increased by 125% from 1996 to 2006, fell by 38% from 2006-2011, showed an annual increase of over 7% in 2012 and early 2013.
The non labor income of households will decrease, causing consumption to decrease and labor supply to increase if the government
increases the corporate profits tax
As the economy expands, the labor force ____, and as the economy contracts, the labor force ______
increases; decreases
The labor supply will generally decrease when the income tax rate _____ (if the substitution effect dominates) or transfer payments ______
increases; increases
The substitution effect of a wage rate decrease suggests that
individuals will supply less work
The goods and services that firms purchases and turn into final goods and services are called
inputs
Which of the following types of investments is the most volatile?
inventory investment
The tendency for _____ to decrease when ____ decreases is the result of the accelerator effect
investment aggregate output
The two channels through which monetary policy can influence behavior in the goods market are
investment and consumption
The tendency for ______ to increase when ______ increases is the result of the accelerator effect
investment; aggregate output
A change in tax rates _____ affect individual's behavior regarding consumption and saving if the change in permanent
is likely to
A firm is less likely to invest in new capital if
it does not expect future sales to grow
The desired level of inventories is the level at which the extra cost ( in lost sales) from lowering inventories by a small amount is
just equal to the extra gain ( in interest revenue and decreased storage costs)
Output per worker hour is known as
labor productivity
The amount of output produced by an average worker in one hour is
labor productivity
The _______ refers to the amount a household actually works within a given period at the current wage rate
labor-force participation rate
Firms believe that the current economic downturn will be long-lasting and have decided to hold very little excess labor. The government reports that the unemployment rate is 12.5%. The government has decided to stimulate the economy by increasing government spending. In this situation the multiplier is
large
Firms report that their workers are working no overtime. The government reports that the unemployment rate is 13.5%. In this situation, the multiplier is likely to be
large
The government spending multiplier is likely to be _____ during periods of low output and high unemployment
larger
If the economy is on the flat part of the AS curve, the multiplier will be
larger than it would be if the economy were on the steep portion of the AS curve
Refer to Figure 15.2. Labor productivity at t ime t2 is
larger than labor productivity at time t1
Refer to Figure 15.2. Labor productivity at time t1 is
larger than labor productivity at time t3
Refer to Figure 15.2. Labor productivity at time t2 is
larger than labor productivity at time t3
The ____ in the labor force participation rate since 1970 is among prime age women
largest increase
An increase in dividend payments will
lead to a decrease in labor supply
A decrease in dividend payments will
lead to an increase in labor supply
Monetary policy is _____ it was in the past _____ the income effect of an interest rate change on consumption has increase
less effective as; even though
If a firm' sales turns out to be _______, inventories will be higher than expected, and there will be less production in the future
less than expected
Refer to Figure 15.2.Labor productivity at time t3 is
less than labor productivity at time t4
At ________ levels of output, the economy can expand with little or no increase in the overall price level because firms likely hold excess labor and capital, and production can be increased without causing input prices to increase.
low
The government spending multiplier is likely to be larger during periods of
low output and high unemployment
If inventory stocks are ______ and firms have enough capital and labor to support an output increase, monetary and fiscal policy will be _____
low; very effective
According to the life-cycle theory of consumption, people tend to save during their ____ years
main working
A medical student is likely to consume more than a high school student because the
medical student's permanent income is likely higher than the high school student's permanent income
The two channels through which ______ policy can influence behavior in the goods market are investment and consumption
monetary
If inventory stocks are low and firms have enough capital and labor to support an output increase
monetary and fiscal policy will be very effective
The measured unemployment rate does not fall as much as one might expect when output increases because, as the economy expands
more people enter the labor force
The measured unemployment rate does not rise as much as one might expect when output decreases because, as the economy contracts
more people leave the labor force
Refer to Figure 15.2. Between times t3 and t4 labor is
more productive because growth in employment is less than growth in output
According to the life-cycle theory of consumption, people tend to consume ____ they earn during they early and later years
more than
Refer to Figure 15.1. Suppose the economy is currently at Point B. If investors are optimistic about future growth in aggregate output, investment
moves to point D
The path of consumptions over a lifetime is likely to be ____ the path of income
much more stable than
In practice, the size of the ______ is about 1.4
multiplier
An unexpected decrease in non labor income will have ____ effect on a household's consumption
negative
Households are said to have _____ wealth when the value of their assets is less than the debts they owe
negative
Empirical evidence with respect to the labor supply decision suggest that the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds ____ in the wage rate
negatively to a decrease
The average level of expected future of income is
net income
Purchases of ____ are the most volatile type of expenditures because they are sensitive to the interest rate, which is highly volatile
new houses
Sammy won the Quartermania jackpot in Las Vegas and decides to work less. This is an example of the impact of
non labor income on Sammy's decision
Over time, spending on___ is "smoother" than spending on ____
nondurable goods; durable goods
When the substitution effect is greater than the income effect, Donna will supply more work if
none of the above
Which of the following types of expenditures is more volatile than plant and housing investment?
none of the above
An inheritance is an example of _____ income
nonlabor
Okun's Law has
not turned out to be a law- the relationship between changes in GDP and the unemployment rate is more complex than Okun's Law indicates
The amount of output produced by an average worker in _____ is labor productivity
one hour
The unemployment rate is
one minus the employment rate
The employment rate is
one minus the unemployment rate
Refer to Figure 15.1. Suppose the economy is currently at Point B. If investors are ______ in aggregate output, investment moves the economy to I2
optimism about future growth
The slippage between _____ occurs because the unemployment rate is calculated from data on the number of people employed
output and the unemployment rate
During economic downswings,
output falls faster than employment, and the ratio of output to workers falls
Provided that firms have sufficient capital and labor to suppose an output increase, monetary, and fiscal policy are likely to be the most effective when
output is lower and inventory stocks are low
During economic expansions
output rises by a larger percentage than employment, and the ratio of output to workers rises
An increase in ___ will cause the ____ to fall by a larger percentage if firms aren't holding excess labor
output; unemployment rate
Assume that the substitution effect dominates the income effect. When wages fall
people will work fewer hours
Assume that the income effect dominates the substitution effect. When wages rise
people will worker fewer hours
The average level of one's expected future income stream is
permanent income
Which. of the following types of investment is the least volatile?
plant and equipment investment
Generally speaking, when aggregate output does ____ investment does _____
poorly; poorly
The largest increase in the labor force participation rate since 1970 is among
prime age women
The highest labor-force participation rate is among
prime-age men
Changes in inventories equals the difference between
production and sales
The difference between the stock of inventories at the end of a specific period and the stock at the beginning of that period is equal to
production minus sales
The portion of a corporation's _____ that the firm pays out each period to a shareholders is known as dividends
profits
The wage rate that is adjusted for changes in the price level over time is the
real wage rate
If firms believe that a downturn in sales and output is temporary and that increased output will be needed in the future, they may choose to
reassign their workers to different jobs
Empirical data suggest that during recession, individuals _____ their consumption of durable goods
reduce
A firm is holding excess labor. This will
reduce labor productivity
If a policy maker wants to change taxes to encourage individuals to increase their labor supply, the policy maker should
reduce the income tax rates that individuals pay
Suppose that input prices respond very quickly to output price. This will
reduce the value of the multiplier
Refer to Table 15.1. From 2014 to 2016 nominal wages
rise
Productivity tends to
rise during expansions
Refer to Table 15.2. From 2016 to 2017 the real wage
rises
In general, the relationship between _____ and ____ depends on the state of the economy at the rime of the output change
saving; output
Refer to Figure 15.1. Growth in aggregate output causes a ______ through the accelerator effect
shift from I3 to I1
Refer to Figure 15.1. Growth in aggregate output causes a ____ though the accelerator effect
shift from I3 to I2
Firms believe that the current economic upturn will be long-lasting and have decided to hold a significant amount of excess labor. The government reports that the unemployment rate is 2.5%. The government has decided it needs to take very little action to stimulate the economy. In this situation the multiplier is likely to be
small
Firms report that their workers are working six hours of overtime per week. The government reports that the unemployment rate is 3.5%. In this situation, the multiplier is likely to be
small
The government spending multiplier is likely to be ______ during periods of high output and low unemployment
smaller
If the economy is on the steep part of the AS curve, the multiplier will be
smaller than it would be if the economy were on the flat portion on the AS curve
Over time, spending on nondurable goods is ______ spending on durable goods
smoother than
If the ________ effect is greater than the ________ effect, a decrease in interest rates will decrease saving and increase consumption spending by households.
substitution; income
Refer to Figure 15.2. Between times _____, labor is more productive because growth in employment is less than growth in output
t3 and t4
If firms believe that a downturn in sales and output is _____. the most likely course of action would be too reassign their workers to different jobs
temporary
Transfer payments are cash payments made by _____ directly to ______
the government; households
When forming their expectations, firms gather information about all the following factors expect
the historical supply of their competitors line of products
Caroline's hourly wage rate was reduced from $22 to $16. As a result of the age decrease, Caroline desires to work more hours and take fewer hours of leisure. For Caroline
the income effect dominates the substitution effect
Assume that Krystal has positive wealth. As interest rate increased, Krystal increased her current consumption. For Krystal
the income effect of an interest rate increase outweigh the substitution effect
Holding everything else constant, the less wealth household has
the less it will consume, both now and in the future
The slippage between output and the unemployment rate occurs because the unemployment rate is calculated from data on
the number of people employed
A firm has no cost other than inventory costs will always aim to produce in a period the volume of goods necessary to make its stock of inventories at the end of the period equal to
the optimal level
If a firm is able to produce _____ output even after reducing its labor workforce, this implies that the firm has excess labor
the same amount of
When the substitution effect is greater than the income effect, Juanita will not supply more work if
the wage rate and the price level increase proportionately, the percentage increase in the price level is greater than the percentage change in wages, wages are falling faster than prices.
The opportunity cost of leisure will fall if
the wage rate decreases
The opportunity cost of leisure will rise if
the wage rate increases
Cash payments made by the government directly to households are
transfer payments
The ______ refers to the amount a household would like to work within a given period at the current wage rate if it could find the work
unconstrained supply of labor
The unemployment rate is the ration of the number of people
unemployed to the number of people in the labor force
Okun's Law states that the _______ decreases about 1% point for every 3% increase in _____
unemployment rate; GDP
Generally speaking, ______ starts out negative, turns positive, then approaches zero near the end of life
wealth
Generally speaking, investment does _____ when aggregate output does ______
well; well
If the income effect is less than the substitution effect and the wage rate decreases, individuals
will supply less work
If the income effect is less than the substitution effect and the wage rate increases, individuals
will supply more work
If an individual is a debtor
the income and substitution effects of an increase in the interest rate work in the same direction
Jenny's hourly wage rate increased from $17 to $21. As a result of the wage increase, Jenny desires to work fewer hours and take more hours of leisure. For Jenny
the income effect dominates the substitution effect
Monetary policy is less effective than it was in the past because
the income effect of an interest rate change on consumption has increased
Assume that Brenda has positive wealth. As interest rate decreased, Brenda reduced her current consumption. For Brenda
the income effect of an interest rate decrease outweighs the substitution effect
Purchases of new houses are the most volatile type of expenditures because they are sensitive to ___ which is highly volatile
the interest rate
Holding everything else constant, the more wealth a household has
the more it will consume, both now and in the future
The wage rate that is adjusted for changes in ______ over time is the real wage rate
the price level
Megan took pay cut from $10 an hour to $7 an hour. As a result of the wage decrease, Megan desires
the substitution effect dominates the income effect
Mickey got a raise from $14 an hour to $20 an hour. As a result of the wage rate increase, Mickey desires to work more hours and take less hours of leisure. For Mickey
the substitution effect dominates the income effect
Empirical evidence with respect to the labor supply decision suggests that
the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds positively to an increase in the wage rate.
Households are said to have positive wealth when
the value of their assets is greater than the debts they owe
The unconstraint supply of labor refers to the amount a household _____ within a given period at the current wage rate if it could find the work
would like to work
The income effect of a wage rate increase should lead to
a decrease in quantity of labor supplied and an increase in leisure
Assume that the substitution effect dominates the income effect. An increase in both consumption and labor supply would result from
a decrease in tax rates
Which of the following causes an increase in labor supply?
a decrease in the general price level
A decrease in non labor income leads to _____ in consumption and ______ in labor supply
a decrease; an increase
When interest rates increase, the substitution effect suggest that individuals will
consume less today
Which of the following factors factors is not one of the determinants of a household's budget constraint?
consumer's preferences
The path of ____ over a lifetime is likely to be much more stable than the path of _____
consumption; income
According to the life-cycle theory of consumption, people tend to consume more than they earn during their ___ years
early/later
According to the life-cycle theory of consumption, people tend to dissolve during their _____ years
early/later
According to the life-cycle theory of consumption, people tend to consume less than they _____ during their main working years
earn
If the income effect is ____ the substitution effect, the labor supply is vertical
equal to
The average level of one's _____ income stream is permanent income
expected future
Assume that the substation effect dominates the income effect. When the government raises tax rates, after-tax wage rates
fall, consumption decreases, and labor supply decreases
Refer to Table 15.1. From 2015 to 2016 the real wage
falls
The substitution effect of a wage rate increase suggests that
individuals will supply more work
If the income effect is equal to the substitution effect, the labor supply curve
is vertical
According to the life-cycle theory of consumption, people tend to consume ____ they earn during their main working years
less than
The idea of the ____ is that people make lifetime consumption plans
life-cycle theory of consumption
The idea of the life-cycle theory of consumption is that people make ____ consumption plans
lifetime
The smaller the percentage of people who work, the
lower the potential output per capita
Refer to Table 15.2. From 2016 to 2017 nominal wages
rise
Refer to Table 15.1. From 2014 to 2016 the real wage
rises then falls
According to the life-cycle theory of consumption, people tend to ____ during their main working years
save
If the income effect is ____ the substitution effect, the labor supply curve has a positive slope
smaller than
Generally speaking, wealth
starts out negative, turns positive, then approaches zero near the end of life
Permanent income is
the average level of expected future income
A change in tax rates is likely to affect individuals' behavior regarding consumption and saving if
the change is permanent
