Macro Exam 2
4. Before the Great Depression the popular view of government was: A. laissez-faire; and after the Great Depression, the popular view of government was activist.
A. laissez-faire; and after the Great Depression, the popular view of government was activist.
If the market price is above equilibrium, then
A. quantity supplied is greater than quantity demanded.
Emerging markets:
B. are a group of developing countries that have on average posted stronger growth rates compared to the rest of the world.
24. A change in business inventories is: A. not counted in GDP because it does not represent final sales. B. counted in GDP as investment. C. counted in GDP as consumption. D. counted in GDP as net exports
B. counted in GDP as investment.
As a seller raises the price of its product by 10%, the quantity demanded decreases by 20%. What do you think happens to revenue?
B. decreases
The quantity of goods and services available to society:
B. depends on human action. The quantity of goods and services available depends on the incentives to work.
60. If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will: A. rise by 3 percent. B. fall by 3 percent. C. rise by 7 percent. D. fall by 7 percent
B. fall by 3 percent.
87. If per capita output increases by 5 percent and output grows by 3 percent, the population must be: A. falling at a rate of 8 percent. B. falling at a rate of 2 percent. C. increasing at a rate of 2 percent. D. increasing at a rate of 8 percent
B. falling at a rate of 2 percent.
93. In the early 2000s, analysts feared that low academic achievement in math in the United States may reduce U.S. economic growth by as much as half a percentage point a year. In terms of factors leading to growth, the low math scores indicate that the U.S. may be at a disadvantage in terms of: A. social capital. B. human capital. C. growth-compatible institutions. D. technology
B. human capital.
45. An increase in the price level: A. increases the purchasing power of money, leading to lower interest rates and increases investment. B. increases the purchasing power of money, leading to higher interest rates and decreases investment. C. decreases the purchasing power of money, leading to lower interest rates and increases investment. D. decreases the purchasing power of money, leading to higher interest rates and decreases investment.
B. increases the purchasing power of money, leading to higher interest rates and
Based on in-class discussions the U-3 official U.S. unemployment rate of 6.6% as of January 2014 is:
B. one of few labor market indicators available.
Before the Great Depression the popular view of government was:
A. laissez-faire; and after the Great Depression, the popular view of government was activist.
55. If the dollar appreciates while foreign income rises: A. the U.S. AD curve would likely shift to the left. B. the U.S. AD curve would likely shift to the right. C. the U.S. AD curve would likely remain unchanged. D. what happens to the U.S. AD curve is unclear.
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92. Suppose that consumers decide to save less and spend more. What effect would this have in the market for loanable funds? A. It will increase interest rates and the quantity of funds lent will rise. B. It will decrease interest rates and the quantity of funds lent will rise. C. It will increase interest rates and the quantity of funds lent will fall. D. It will decrease interest rates and the quantity of funds lent will fall.
...
Which of the following is not held constant as you move along the demand curve?
A. The price of that good A movement along a demand curve shows the effect of a change in the price of that good. Anything else will shift the entire demand curve.
91. What effect would we expect the market for loanable funds if people increase their saving? A. Supply will shift right and demand will not change. B. Supply will shift left and demand will not change. C. Demand will shift right and supply will not change. D. Demand will shift left and supply will not change.
A. Supply will shift right and demand will not change.
Refer to the table shown that depicts a third-party payer market. What is the cost of this program to the third-party if a $2 co-pay is established?
A. $0 The co-payment equals the equilibrium price, so the cost to the third party is zero.
86. If a country's population is 30 million and its GDP is $8.5 billion, its per capita output is: A. $283. B. $850. C. $2,830. D. $8,500.
A. $283.
25. Which of the following is not included in GDP but is included in GNP? A. A foreign company's production in the United States B. Income of a citizen of Germany working in the United States C. Economic activity of U.S. citizens working abroad D. Sales of a good by one firm to another firm
A. A foreign company's production in the United States
4 of 24 pages 14. Refer to the graph shown. A complete business cycle is represented by: A. A to G. B. O to C. C. A to F. D. C to F.
A. A to G.
Deion Sanders is a two-sport athlete who plays both pro football and pro baseball. He could earn $1,000,000 playing either sport. Troy Aikman is also a two-sport athlete who plays both football and auto racing. He could earn $1,000,000 playing football or $200,000 racing cars. Garo Yepremian can play both football and soccer. He could earn $1,000,000 playing football or $50,000 playing soccer. Assuming that all three men have only two options for work and can pursue only one sport full-time, who has the highest opportunity cost of playing football?
A. Deion Sanders Opportunity cost is the benefit forgone of the next best alternative. The opportunity cost of playing football is $1,000,000 for Sanders, $200,000 for Aikman, and $50,000 for Yepremian. The highest opportunity cost of playing football is for Sanders, who would earn $1,000,000 playing baseball.
1. "Classical economist" is often used interchangeably with which term? A. Laissez-faire economist B. Keynesian economist C. Activist economist D. Marxian economist
A. Laissez-faire economist
Refer to the graphs shown. The consequences of improved technology combined with an increase in the number of consumers can best be illustrated by:
A. a Improved technology causes supply to shift to the right. An increase in the number of consumers causes demand to shift to the right.
17. A recession is often considered to be: A. an economic downturn that persists for more than two consecutive quarters of the year. B. an economic downturn that persists for more than four consecutive quarters of the year. C. any period of more than six months in which unemployment is rising. D. any period when the unemployment rate exceeds 6 percent.
A. an economic downturn that persists for more than two consecutive quarters of the year.
52. If the multiplier effect did not exist, the aggregate demand curve would: A. be steeper. B. be flatter. C. be horizontal. D. not exist.
A. be steeper.
11. Per capita real output is a: A. better measure of personal material consumption than output. B. worse measure of personal material consumption than output. C. better measure of the physical environment than output. D. worse measure of the physical environment than output.
A. better measure of personal material consumption than output.
Per capita real output is a:
A. better measure of personal material consumption than output.
79. During WWII, the U.S. government increased spending: A. by more than it raised taxes. B. by the same amount as it raised taxes. C. by less than it raised taxes. D. but did not increase taxes.
A. by more than it raised taxes.
The standard supply/demand framework:
A. can be modified to explain real-world events
22. The largest expenditure component of GDP is: A. consumption. B. investment. C. net exports. D. government spending
A. consumption.
36. In 2009, the personal savings rate rose. If the additional savings were not translated into investment, Keynes would predict that aggregate income would: A. decline and remain there. B. rise indefinitely. C. decline, but rise in the future. D. would rise and remain there
A. decline and remain there.
21. Most economists agree that during a depression: A. economic policy should be used to improve economic conditions. B. economic policy is ineffective. C. economic policy is counterproductive. D. the demand for output is excessive.
A. economic policy should be used to improve economic conditions.
27. GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then: A. exports are equal to imports. B. exports exceed imports. C. imports exceed exports. D. net exports cannot be determined from the available information.
A. exports are equal to imports.
Suppose farmers can use their land to grow either wheat or corn. The law of supply predicts that an increase in the market price of wheat will cause:
A. farmers to substitute wheat for the production of corn. The increase in the price of wheat causes a movement along the supply curve for wheat (change in quantity supplied), not a shift.
94. Growth compatible institutions: A. have incentives built into them that lead people to put forth effort. B. encourage people to pursue activities that inhibit growth in others. C. allow people to gain income for themselves by creating impediments for others. D. encourage people to spend a lot of time in leisure pursuits.
A. have incentives built into them that lead people to put forth effort.
72. Refer to the graph shown. In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is: A. in a recessionary gap. B. in an inflationary gap. C. in a long-run equilibrium. D. fully employed.
A. in a recessionary gap.
98. Classical economists predicted that population growth would eventually reduce economic growth because they believed: A. in the law of diminishing marginal productivity. B. in the law of increasing marginal productivity. C. that production involved decreasing returns to scale. D. that production involved increasing returns to scale.
A. in the law of diminishing marginal productivity.
53. A fall in the value of the dollar relative to other currencies will: A. increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the right. B. increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the left. C. decrease demand for U.S. goods, shifting the U.S. aggregate demand curve to the right. D. decrease demand for U.S. goods, shifting the U.S. aggregate demand curve to the left.
A. increase demand for U.S. goods, shifting the U.S. aggregate demand curve to the right.
10 of 24 pages 39. The paradox of thrift will not arise if: A. increases in saving are translated into identical increases in investment. B. increases in saving are translated into identical decreases in consumption. C. decreases in saving are translated into identical increases in investment. D. decreases in saving are translated into identical decreases in consumption.
A. increases in saving are translated into identical increases in investment.
73. Refer to the graph shown. If the price level is P1, then: A. input prices will fall and output will rise in the long run. B. both input prices and output will fall in the long run. C. input prices will rise and output will fall in the long run. D. both input prices and output will rise in the long run.
A. input prices will fall and output will rise in the long run.
70. If potential output exceeds actual output, eventually: A. input prices will rise and output will fall. B. both input prices and output will rise. C. input prices will fall and output will rise. D. both input prices and output will fall.
A. input prices will rise and output will fall.
69. If actual output exceeds potential output, the economy: A. is experiencing an inflationary gap. B. is experiencing a recessionary gap. C. may be in a long-run equilibrium but is not in a short-run equilibrium. D. is in neither a short-run nor long-run equilibrium
A. is experiencing an inflationary gap.
According to some research discussed in class and NYU Classes forum, efficient workplace automation:
A. is inevitable and will affect every job including junior research analyst positions.
58. The short-run aggregate supply curve specifies how shifts in aggregate demand affect: A. real output and the price level in the short run. B. real output and unemployment in the short run. C. inflation and real output in the short run. D. unemployment and inflation in the short run
A. real output and the price level in the short run.
61. If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will: A. rise by 1 percent. B. fall by 1 percent. C. rise by 7 percent. D. fall by 7 percent.
A. rise by 1 percent.
If supply and demand both shift to the right, equilibrium quantity:
A. rises, but the equilibrium price may rise, fall, or stay the same.
56. If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will: A. shift left by more than 20. B. shift left by less than 20. C. shift left by exactly 20. D. not shift at all.
A. shift left by more than 20.
59. An increase in production costs is most likely to shift the: A. short-run aggregate supply curve up (to the left). B. short-run aggregate supply curve down (to the right). C. aggregate demand curve to the left. D. aggregate demand curve to the right.
A. short-run aggregate supply curve up (to the left).
7. Policies that affect aggregate expenditures are primarily relevant to the: A. short-run business cycle framework. B. long-run growth framework. C. short-run growth framework. D. long-run business cycle framework.
A. short-run business cycle framework.
Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. To study for an hour for her economics quiz, however, she will have to work one fewer hour at her part-time job. Alexandra should:
A. study for the quiz as long as her hourly wage rate is less than $20. It is efficient for Alexandra to study if the marginal benefit exceeds the marginal cost. The marginal benefit is $20 and the marginal cost is equal to her hourly wage rate, and so marginal benefit exceeds marginal cost as long as her hourly wage rate is less than $20.
81. According to Say's Law, people: A. supply goods in order to obtain other goods. B. supply goods in order to accumulate profits. C. demand goods in order to maximize their welfare. D. demand goods so they can supply them to others.
A. supply goods in order to obtain other goods.
Markets coordinate economic activity through:
A. the price mechanism. Markets are based upon the price mechanism—encouraging the production and discouraging the consumption of goods which are in shortage by raising their price
The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused:
A. the supply curve for gasoline to shift inward.
62. In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth. The Bank President called the higher prices "a sizeable adverse shock" to the economy. In terms of the AS/AD framework, this shock would be represented as a shift: A. up (to the left) of the AS curve. B. down (to the right) of the AS curve. C. left of the AD curve D. right of the AD curve.
A. up (to the left) of the AS curve.
54. A change in the distribution of income affects the AD curve because: A. workers are more likely than stockholders to spend the income they receive. B. stockholders are more likely than workers to spend the income they receive. C. workers and stockholders are equally likely to spend the income they receive. D. the distribution of income is always shifting in favor of stockholders.
A. workers are more likely than stockholders to spend the income they receive.
67. Which of the following factors will shift the long-run aggregate supply curve? A. A change in aggregate demand B. A change in available resources C. A change in the price level D. A change in sales or excise taxes
B. A change in available resources
15. Which of the following institutional changes would tend to reduce the target rate of unemployment? A. Greater ease with which families may support unemployed family members B. An increased number of people reaching the age at which they are more employable C. The availability of unemployment insurance D. The increased incidence of two-earner families
B. An increased number of people reaching the age at which they are more employable
75. Refer to the graph shown. A policy that cuts government spending would be most appropriate when the economy is at point: A. A. B. B. C. C. D. D
B. B.
12. Which of the following statements best characterizes the Classical view of business cycles? A. Fluctuations in business activity occur in regular and predictable patterns. B. Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted. C. Expansions and recessions are symptoms of underlying problems and should be addressed by macroeconomic policy. D. The appropriate macroeconomic policy can eliminate fluctuations in business activity
B. Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted.
Which of the following statements best characterizes the Classical view of business cycles?
B. Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted.
A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?
B. Price is too low, quantity demanded exceeds quantity supplied
50. In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that: A. U.S. exports to Japan would rise and U.S. imports from Japan would decline. B. U.S. exports to Japan would decline and U.S. imports from Japan would rise. C. both U.S. exports to Japan and U.S. imports from Japan would rise. D. both U.S. exports to Japan and U.S. imports from Japan would fall.
B. U.S. exports to Japan would decline and U.S. imports from Japan would rise.
Refer to the graph shown. Suppose Country X exports agricultural goods to Country Y in exchange for industrial goods. This pattern of trade increases consumption in both countries only if:
B. X's production possibility curve is B and Y's is A. Since the opportunity cost of producing agricultural goods is lower along B than in A (and vice versa for industrial goods), trade based on comparative advantage will occur only if X's production possibility is B and Y's is A.
77. Suppose output exceeds potential output and a contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce: A. a lower output level and a lower price level than would otherwise have occurred. B. a lower price level than would otherwise have occurred. C. a lower output level than would otherwise have occurred. D. neither a lower price level nor a lower output level than would otherwise have occurred.
B. a lower price level than would otherwise have occurred.
New York City has been experiencing a housing emergency for quite some time. Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent since World War II. The most likely cause of the housing emergency is:
B. a price ceiling on rent lower than equilibrium price. In New York City, many apartments have government-imposed rents below market price. As a result, the quantity of apartments demanded exceeds quantity supplied. The price ceiling (rent control) has perpetuated the housing emergency.
37. The paradox of thrift occurs when: A. an increase in saving raises output. B. an increase in saving reduces output. C. saving is unrelated to output. D. a decrease in saving reduces output.
B. an increase in saving reduces output.
74. Contractionary fiscal policies are most appropriate when the economy is in: A. a recessionary gap. B. an inflationary gap. C. a short-run equilibrium. D. a long-run equilibrium.
B. an inflationary gap.
47. If the price level rises, the interest rate effect will cause investment: A. and the quantity of aggregate demand to increase. B. and the quantity of aggregate demand to decrease. C. to increase and the quantity of aggregate demand to decrease. D. to decrease and the quantity of aggregate demand to increase.
B. and the quantity of aggregate demand to decrease.
99. Classical growth economists who applied the law of diminishing marginal productivity to capital concluded that: A. both output and per capita output could grow indefinitely. B. output could grow indefinitely but per capita output could not. C. per capita output could grow indefinitely but output could not. D. neither output nor per capita output could grow indefinitely.
B. output could grow indefinitely but per capita output could not.
29. The relationship between real GDP and nominal GDP can be expressed by: A. real GDP = nominal GDP + inflation. B. percent change in real GDP = percent change in nominal GDP - inflation. C. real GDP = nominal GDP - inflation. D. Real GDP = nominal GDP + inflation.
B. percent change in real GDP = percent change in nominal GDP - inflation.
A change in which of the following factors does not bring about a shift in the demand curve for a particular good?
B. price of the good itself
23. If you decide not to spend $1,000 you earned at your summer job but instead intend to buy shares in a mutual fund, in terms of aggregate economic accounting you would be: A. consuming. B. saving. C. investing. D. transferring
B. saving.
41. The reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that: A. in groups, people do not make the same choices as when they are alone. B. the AS/AD model considers total output. There are no goods to substitute. C. the AS/AD model considers the effects of other countries' decisions. D. other things remain constant in the AS/AD model.
B. the AS/AD model considers total output. There are no goods to substitute.
8. Policies that affect work, capital accumulation, and technological change are primarily relevant to: A. the short-run business cycle framework. B. the long-run growth framework. C. the short-run growth framework. D. the long-run business cycle framework.
B. the long-run growth framework.
34. According to the Keynesian model, A. wages are flexible because workers wouldn't otherwise be able to keep their jobs. B. the price level is fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment. C. prices are subject to significant fluctuations as demand and supply change. D. the government puts price controls on the economy, keeping the price level fixed
B. the price level is fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment.
Keynesian economists focus their analysis on:
B. the short run
2. Keynesian economists focus their analysis on: A. the long run. B. the short run. C. aggregate supply. D. economic growth.
B. the short run.
In a third-party payer system:
B. total expenditures generally rise.
31. Equilibrium income is that level of income: A. the economy always produces. B. toward which the economy gravitates in the short-run. C. an economy is capable of producing without generating accelerating inflation. D. an economy is capable of producing without generating unemployment.
B. toward which the economy gravitates in the short-run.
The law of demand states that the quantity demanded of a good is inversely related to the price of that good. Therefore, as the price of a good goes:
B. up, the quantity demanded goes down.
Refer to the table shown that depicts a third-party payer market. What is the cost of this program to the third-party if a $1 co-pay is established?
C. $1,800 For $1 co-payment, the consumer demands 600 units. The supplier requires $4 per unit for that quantity, for a total of $2,400. The third party pays $2,400 minus $600, or $1,800.
85. If a country's population is 10 million and its GDP is $113 billion, its per capita output is: A. $113. B. $1,130 C. $11,300. D. $113,000.
C. $11,300.
10. Suppose a country's output is $440 billion and its population is 240 million. Now suppose that both its price level and its population increase by 24 percent. As a result of these changes, its new level of per capita output will be: A. $400. B. $440. C. $4,000. D. $4,400.
C. $4,000.
Suppose caviar sales soars at the same time price increases. What would lead to both a higher quantity sold and higher price of caviar?
C. A shift in demand to the right and a shift in supply to the left
66. Which of the following factors will not shift the long-run aggregate supply curve? A. An increase in capital accumulation B. An increase in available resources C. An increase in the price level D. An improvement in production technology
C. An increase in the price level
5. Growth in the graph shown is depicted by: A. A. B. B. C. C. D. D.
C. C.
76. Refer to the graph shown. No changes in fiscal policy are advisable when the economy is at point: A. A. B. B. C. C. D. D.
C. C.
Refer to the graphs shown. The arrow that would best illustrate the impact on consumers of reducing sales tax on a good paid by suppliers is:
C. C. Reducing the sales tax on suppliers shifts the supply curve to the right. Equilibrium price falls and consumers move down along their demand curve.
90. What effect would we expect in the market for loanable funds if some people discover a new business opportunity that requires investment? A. Supply will shift right and demand will not change. B. Supply will shift left and demand will not change. C. Demand will shift right and supply will not change. D. Demand will shift left and supply will not change.
C. Demand will shift right and supply will not change.
Refer to the graphs shown. The discovery of a new supply of resources used only in the production of guns can be shown by which movement?
C. From X to Y to X to Z in diagram b Since the new resources will not increase the maximum amount of butter that can be increased but will increase the maximum number of guns, the production possibility curve will rotate up, staying anchored at X.
95. Which of the following is an example of human capital? A. Robots used to manufacture cars B. Well-developed financial markets C. On-the-job training D. Trust among firms that allows short-term credit
C. On-the-job training
71. Refer to the graph shown. In the graph, an inflationary gap exists if the price level is: A. P0 and the aggregate demand curve is AD0. B. P0 and the aggregate demand curve is AD1. C. P1 and the aggregate demand curve is AD0. D. P1 and the aggregate demand curve is AD1.
C. P1 and the aggregate demand curve is AD0.
Which of the following cannot be determined by using a production possibility table?
C. What combination of outputs is bestA production possibility table indicates what combinations of goods can be produced, not what combination is best.
Assume the graphs shown reflect the egg market. The arrow that would best capture the impact of cheaper, prefabricated henhouses on the egg market is:
C. Y A cheaper, prefabricated henhouse is a shift factor of supply. Specifically it reduces the cost of production, which would shift the supply curve to the right.
3. Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on: A. an increase in the minimum wage. B. an increase in the bargaining power of labor unions. C. a decline in the level of aggregate demand. D. a decline in aggregate supply.
C. a decline in the level of aggregate demand.
Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian economist would most likely blame this increase in unemployment on:
C. a decline in the level of aggregate demand. Keynesian economists view short-run fluctuations in unemployment and output as the result of fluctuations in the level of household and business spending.
Suppose a price floor is imposed on eggs above their equilibrium price. The likely result will be:
C. a decrease in the quantity of eggs demanded. A price floor above equilibrium price will result in a higher quantity supplied and a lower quantity demanded. Price floors will not shift the supply or demand curves for the good in question. A higher price will result in a decrease in the quantity demanded, according to the law of demand.
If the supply curve for houses has the normal positive slope, rent controls will likely
C. aggravate the housing shortage
32. Potential income is that level of income that: A. the economy always produces. B. toward which the economy gravitates in the short-run. C. an economy is capable of producing without generating higher inflation. D. an economy is capable of producing without generating unemployment.
C. an economy is capable of producing without generating higher inflation.
68. At the intersection of the short-run aggregate supply curve, the aggregate demand curve, and the long-run aggregate supply curve, the economy is in: A. a short-run equilibrium but not a long-run equilibrium. B. a long-run equilibrium but not a short-run equilibrium. C. both a short-run and long-run equilibrium. D. neither a short-run nor long-run equilibrium
C. both a short-run and long-run equilibrium.
35. In the short run, deflation in asset prices A. is the easiest way for expenditures and production to return to their normal levels. B. is impossible because social forces keep prices from fluctuating in a market economy. C. can create problems because borrowers would lose collateral and reduce expenditures. D. leads to expansions as an economy comes out of a recession by lowering the unemployment rate.
C. can create problems because borrowers would lose collateral and reduce expenditures.
8 of 24 pages 30. Aggregate demand management policies are designed most directly to: A. minimize unemployment. B. minimize inflation. C. control the aggregate level of spending in the economy. D. prevent budget deficits or surpluses.
C. control the aggregate level of spending in the economy.
65. An increase in aggregate demand: A. raises potential output. B. reduces potential output. C. does not change potential output. D. has an unpredictable effect on potential output.
C. does not change potential output.
The graph indicates that as more eggs are produced, the marginal opportunity cost of:
C. eggs increases while the marginal opportunity cost of rye decreases. Since the production possibility curve is bowed outward, we know that it demonstrates the principle of increasing opportunity cost. As more eggs are produced, the marginal opportunity cost of eggs increases and the marginal opportunity cost of rye decreases.
88. If per capita output increases by 2 percent and population grows by 3 percent, output: A. falls by 5 percent. B. falls by 1 percent. C. grows by 1 percent. D. grows by 5 percent.
C. grows by 1 percent.
83. Economic growth: A. does not affect living standards at all. B. has a relatively small effect on living standards over long periods of time. C. has a relatively large effect on living standards over long periods of time. D. is the sole determinant of living standards over any time period.
C. has a relatively large effect on living standards over long periods of time.
If the demand curve for houses has the normal negative slope, rent controls will likely
C. increase the quantity of housing demanded.
28. If real GDP has increased by 3 percent and nominal GDP has increased by 5 percent, then: A. depreciation is 2 percent. B. net factor income is 2 percent. C. inflation is 2 percent. D. net exports are 2 percent.
C. inflation is 2 percent.
51. In the AS/AD model, the repercussions that a change in quantity demanded has on production and subsequently on income and expenditures is called the: A. accelerator effect. B. expenditure effect. C. multiplier effect. D. money wealth effect.
C. multiplier effect.
84. Per capita growth: A. occurs only when the population is growing. B. occurs only when output is growing. C. occurs when there is an increase in goods and services per person. D. always improves the distribution of income.
C. occurs when there is an increase in goods and services per person.
19. In order of their occurrence, the phases of the business cycle are: A. peak, downturn, upturn, trough. B. peak, upturn, downturn, trough. C. peak, downturn, trough, upturn. D. peak, upturn, trough, downturn
C. peak, downturn, trough, upturn.
96. The most important policy implication of the Classical growth model is that: A. policies to slow population growth will accelerate economic growth. B. policies to stimulate technological development will stimulate economic growth. C. policies to stimulate saving and investment will stimulate economic growth. D. budget deficits will stimulate economic growth.
C. policies to stimulate saving and investment will stimulate economic growth.
97. According to the Classical growth model, an economy that increases its saving will grow: A. slowly because consumption and aggregate demand will be reduced. B. slowly because interest rates will fall, causing investment to decline. C. quickly since the increase in saving will permit greater investment. D. quickly since the increase in saving will permit more rapid technological progress.
C. quickly since the increase in saving will permit greater investment.
9. Per capita output would be certain to increase if: A. both output and population increase. B. both output and population decrease. C. real output increases and population decreases. D. real output decreases and population increases.
C. real output increases and population decreases.
Per capita output would be certain to increase if:
C. real output increases and population decreases.
82. The idea behind Say's Law is that people work because: A. they like to work. B. they want to buy things. C. they want to accumulate wealth. D. work gives them social status.
C. they want to accumulate wealth.
57. If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve: A. to the right by $15 billion. B. to the left by $15 billion. C. to the right by $60 billion. D. to the left by $60 billion.
C. to the right by $60 billion.
A decrease in the equilibrium price for a product will result:
C. when there is an increase in supply and a decrease in demand for the product.
6. What turns a business cycle into a structural stagnation? A. A trough that is lower than the peak. B. Multiple business cycles in a short period of time. C. A slow expansion that keeps the economy below trend. D. A downturn that doesn't end.
D. A downturn that doesn't end.
42. Refer to the following graphs. Which of the graphs correctly labels the axes of the AS/AD model? A. A B. B C. C D. D
D. D
With which curve does the opportunity cost of an additional unit of good Y decrease as more units of good Y are produced?
D. D A production possibility curve that exhibits decreasing marginal opportunity cost must be bowed inward.
16. Refer to the graph shown. A recession occurs when the economy moves from point: A. B to point E. B. C to point F. C. A to point D. D. D to point G.
D. D to point G.
Which of the following will move the supply curve for housing in Florida, a popular retirement state, to the left?
D. Higher construction costs
Which statement is not consistent with the law of supply?
D. Quantity supplied of a good is inversely related to the good's price. The law of supply states that, other things constant as the price of a good goes up, the quantity supplied goes up and as the price of a good goes down, the quantity supplied goes down. Price and quantity supplied are directly related.
18. The business cycle consists of several stages or phases. Which is the accurate sequence? A. Recession, peak, expansion, trough B. Recession, peak, trough, expansion C. Recession, expansion, peak, trough D. Recession, trough, expansion, peak
D. Recession, trough, expansion, peak
78. Refer to the following graph. The massive increase in defense spending that occurred in the United States during WWII is best represented by the: A. AD curve shifting from AD0 to AD1. B. AD curve shifting from AD1 to AD0. C. SAS curve shifting from SAS0 to SAS1. D. SAS curve shifting from SAS1 to SAS0
D. SAS curve shifting from SAS1 to SAS0
An increase in equilibrium price and a decrease in equilibrium quantity is most likely the result of:
D. a decrease in supply
13. The top of the business cycle is called: A. an expansion. B. a recession. C. an upturn. D. a peak
D. a peak
33. Keynes believed the economy was: A. not generally at potential income. B. always at potential income. C. always moving away from potential income. D. always moving toward potential income.
D. always moving toward potential income.
46. If the price level falls but people don't feel richer because of that fall, then the AD curve would likely: A. shift in. B. shift out. C. be flatter than it otherwise would be. D. be steeper than it otherwise would be
D. be steeper than it otherwise would be
63. The long-run aggregate supply curve shows the output level that an economy can produce when: A. firms adjust quantity rather than price. B. capital is fully employed. C. labor is fully employed. D. both capital and labor are fully employed.
D. both capital and labor are fully employed.
89. If median income is unchanged from one year to the next, then per capita income: A. is also constant. B. is increasing. C. is decreasing. D. could be increasing, decreasing, or constant.
D. could be increasing, decreasing, or constant.
Because you can get more of one good only by giving up some of another good, the shape of a production possibility curve is:
D. downward-sloping. The negative slope of a production possibility curve represents the opportunity cost concept—you get more of one benefit only if you get less of another benefit
49. A rise in the U.S. price level will cause: A. both exports and imports to increase. B. both exports and imports to decrease. C. exports to increase and imports to decrease. D. exports to decrease and imports to increase
D. exports to decrease and imports to increase
20. During the business cycle, an economic expansion occurs: A. at the peak of the business cycle. B. at the trough of a business cycle. C. in between the peak and trough. D. in between the trough and peak.
D. in between the trough and peak.
26. Aggregate income is a measure of: A. household and business earnings from the sale of productive resources. B. the market value of total output. C. income households have available to spend before paying personal taxes. D. income households have available to spend after paying personal taxes
D. income households have available to spend after paying personal taxes
44. A fall in the price level: A. reduces the value of money in peoples' pockets, so people buy less goods. B. reduces the value of money in peoples' pockets, so people buy more goods. C. increases the value of money in peoples' pockets, so people buy less goods. D. increases the value of money in peoples' pockets, so people buy more goods.
D. increases the value of money in peoples' pockets, so people buy more goods.
Scarcity exists because:
D. new wants continue to develop and willingness to meet them is limited. Scarcity is perceived because human desires have always exceeded human willingness to meet those desires
0. The shapes of the curves in the AS/AD model are based: A. upon the principle of substitution. B. upon the principle of opportunity cost. C. upon the relationship between a single good and its price. D. on the relationship between the price level and total output.
D. on the relationship between the price level and total output.
64. The long-run aggregate supply curve plays an important role in determining: A. the price level in the short run. B. output in the short run. C. output in the short run and long run. D. output in the long run.
D. output in the long run.
48. The interest rate effect exists because changes in the price level affect: A. the multiplier. B. exchange rates. C. real wealth. D. real cash balances
D. real cash balances
38. Keynes believed that an increase in savings would: A. raise aggregate demand by reducing investment. B. raise aggregate demand by increasing consumption C. reduce aggregate demand by reducing investment. D. reduce aggregate demand by reducing consumption.
D. reduce aggregate demand by reducing consumption.
80. An example of countercyclical fiscal policy is: A. raising government spending when the economy is above potential. B. raising government spending when the economy is at potential. C. reducing government spending when the economy is above potential. D. reducing government spending when the economy is below potential.
D. reducing government spending when the economy is below potential.
In a market economy
D. supply and demand determine prices and, in turn, prices allocate scarce resources
43. As prices fall, people become richer and buy more. This occurs as a result of: A. the international effect. B. the multiplier effect. C. the interest rate effect. D. the money wealth effect.
D. the money wealth effect.
