Macroeconomics chapters 7,8 and 10

Economists consider profit to be a reward for incurring losses. something that should be eliminated by antitrust laws. the same as a salary. a cost of producing goods and services.

Correct a cost of producing goods and services.

C + I + G + X equals

GDP

All of the following statements are correct EXCEPT Gross Domestic Product (GDP) = NDP + capital consumption allowance (depreciation). net exports = total exports - total imports. NDP = Gross Domestic Product (GDP) - depreciation (capital consumption allowance). NI = NDP + indirect business taxes.

NI = NDP + indirect business taxes.

Which of the following can cause supply-side inflation? an increase in human capital increases in the money supply tax cuts None of these

None of these

What happens when the price level falls? Total planned real spending also falls. Total planned real spending increases. Total planned real spending remains constant. Planned real spending on goods increases but planned real spending on services falls.

Total planned real spending increases.

The long-run trend in business activity is such that it cannot be described as a trend. upward. constant. downward.

Upward .

Under which one of the following situations would you be better off?

You borrowed $2,500 at 7 percent to pay for this year's college expenses and unanticipated inflation is 12 percent during the year.

Contractions are characterized by increases in the rate of growth of economic activity. a downward movement toward a trough in economic activity. an upward movement toward a peak in economic activity. a long period in which no cycles are observed in economic activity.

a downward movement toward a trough in economic activity.

The aggregate demand curve has a positive relationship between the price level and real GDP. a negative relationship between the price level and real GDP. a positive relationship between the price level and nominal GDP. no relationship between the price level and real GDP.

a negative relationship between the price level and real GDP.

A recession may be defined as an increase in real economic output from one period to the next. no change in the dollar (money) value of economic output over a period of time. no change in real economic output over a period of time. a period during which the rate of growth of business activity is consistently less than its long-term trend.

a period during which the rate of growth of business activity is consistently less than its long-term trend.

Structural unemployment is a result of the seasonal pattern of work in specific industries. a result of business recessions that occur when aggregate demand is insufficient to create full employment. due to the fact that workers must search for appropriate job offers. a result of a poor match of worker's abilities and skills with current requirements of employers.

a result of a poor match of worker's abilities and skills with current requirements of employers.

Cyclical unemployment is a result of business recessions that occur when aggregate demand is insufficient to create full employment. a result of the seasonal pattern of work in specific industries. a result of a poor match of worker's abilities and skills with current requirements of employers. related to job search difficulties for potential workers.

a result of business recessions that occur when aggregate demand is insufficient to create full employment.

Economic growth can be shown by no change in the aggregate supply curve. a leftward shift in the production possibilities curve. a leftward shift in the aggregate supply curve. a rightward shift in the aggregate supply curve.

a rightward shift in the aggregate supply curve.

All of the following are signals of a recession EXCEPT increasing unemployment. a cyclical reduction in employment of labor. a falling level of economic activity. a slight reduction in a currently high rate of growth in economic activity.

a slight reduction in a currently high rate of growth in economic activity.

Because of terrible winter storms, gross domestic product for the first quarter of the calendar year falls by 10 percent. As a result, gross domestic income would not change since the time span is less than a year. falls by less than 10 percent. falls by more than 10 percent because incomes always vary more than GDP. also falls by 10 percent because they always have to be equal.

also falls by 10 percent because they always have to be equal.

National income accounting is how the amount of unemployment in the system is measured. an approach to measuring an economy's aggregate performance. used only to determine the government deficit. the system that measures the value of the Dow Jones average.

an approach to measuring an economy's aggregate performance.

All of the following would shift the LRAS curve to the right EXCEPT an increase in the overall price level. an increase in the size of the labor force. a net inflow of human capital. an improvement in technology.

an increase in the overall price level.

The labor force participation rate includes both employed workers and discouraged workers not seeking jobs. only those employed but looking for a job. only those who are employed. both employed workers and those unemployed but seeking employment.

both employed workers and those unemployed but seeking employment.

Business fluctuations can influence inflation and unemployment. influence unemployment but not inflation. have no influence on inflation and unemployment. influence inflation but not unemployment.

can influence inflation and unemployment.

Many economists would argue that some frictional unemployment creates massive economic disruptions and should be eliminated as quickly as feasible. cannot and probably should not be eliminated. should be eliminated whatever the cost. no longer exists becau

cannot and probably should not be eliminated.

Holding nominal money balances constant, a decrease in the price level generates a reduction in the value of the money balances, leading to higher interest rates and a decrease in total planned real expenditures. causes the real value of the money balances to increase, thereby increasing the interest rate. causes the real value of the money balances to decrease, in turn decreasing total planned real expenditures. causes the real value of the money balances to increase, in turn increasing total planned real expenditures.

causes the real value of the money balances to increase, in turn increasing total planned real expenditures.

The term "business fluctuations" refers to changes in overall business activity, as evidenced by changes in national income, employment, and the price level. changes in the full employment level of economic activity. changes in the general price level from inflation to deflation, or vice versa. changes in the value of the dollar.

changes in overall business activity, as evidenced by changes in national income, employment, and the price level.

Which of the following price indexes is designed to measure changes in the prices of goods and services purchased by a typical individual? Gross Domestic Product (GDP) Deflator Consumer Price Index Index of Leading Economic Indicators Producer Price Index

consumer price index

in calculating GDP using the expenditure approach, the largest component is government spending. consumption spending. spending on durable goods. investment spending.

consumption spending.

An unexpected reduction in inflation would tend to benefit which of the following? neither creditors nor debtors debtors creditors creditors and debtors

creditors

A higher domestic price level should decrease net exports. increase desired investment. increase real wealth and consumption. none of these.

decrease net exports.

Individuals who have stopped looking for work because they are convinced that they will not find a job are considered underemployed. part of the labor force. structurally unemployed. discouraged workers.

discouraged workers

All of the following are considered to be unemployed EXCEPT discouraged workers. job leavers. job reentrants. new job entrants.

discouraged workers.

The total value added equals the retail price. equals the retail price less the wholesale price. equals the wholesale price. equals the sum of the prices on the intermediate goods.

equals the retail price.

Which of the following factors could cause the economy to experience supply-side inflation? Develop new technology to increase productivity. Increase the number of immigrants allowed into the country. government laws which say that the average work week must be reduced by one hour every year increased security about jobs and future income

government laws which say that the average work week must be reduced by one hour every year

A durable good has a life span of more than 3 years. is an intangible commodity. applies only to services. is used up within 3 years.

has a life span more than three years

If a nation's production possibilities curve shifts outward, we should expect its long-run aggregate supply curve to have a downward movement along the curve. have a leftward shift. have a rightward shift. have an upward movement along the curve.

have a rightward shift.

When an individual is frictionally unemployed, the unemployment arises from a reduction in the overall demand for labor's skills. imperfect labor market information which requires individuals to search for appropriate employment. a short-term elimination of jobs because of a slowdown in business activity. the permanent elimination of jobs because of a change in the structure of the economy.

imperfect labor market information which requires individuals to search for appropriate employment.

When an individual is frictionally unemployed, the unemployment arises from a reduction in the overall demand for labor's skills. the permanent elimination of jobs because of a change in the structure of the economy. a short-term elimination of jobs because of a slowdown in business activity. imperfect labor market information which requires individuals to search for appropriate employment.

imperfect labor market information which requires individuals to search for appropriate employment.

A rightward shift of the long-run aggregate supply curve is caused by an increase in the average duration of unemployment. improvements in technology and resource endowments. an increase in the GDP deflator. an increase in the minimum wage.

improvements in technology and resource endowments.

The faster the drop in the purchasing power of money, the faster the increase in the deflation rate. drop in the inflation rate. drop in the deflation rate. increase in the inflation rate.

increase in the inflation rate.

The long-run aggregate supply curve shifts to the right when there is a tax increase. indicates the level of output (GDP) that occurs when resources are fully employed. shifts to the right when the Federal Reserve increases the money supply. indicates that an increase in the overall price level will cause an increase in production.

indicates the level of output (GDP) that occurs when resources are fully employed.

An example of an increase in gross private domestic investment spending that also increases Gross Domestic Product (GDP) is when government increases spending on infrastructure. a family sells its home because of a transfer. a farmer buys a used tractor. inventories of new cars accumulate on the lots of car dealers

inventories of new cars accumulate on the lots of car dealers

A nondurable good has a life span of more than 3 years. applies only to services. is used up within 3 years. is an intangible commodity.

is used up within 3 years.

Unanticipated positive inflation will create losses for both creditors and debtors. losses for creditors and gains for debtors. gains for both creditors and debtors. gains for creditors and losses for debtors.

losses for creditors and gains for debtors.

Typically, nominal interest rates and anticipated inflation rates move in opposite directions. are not related. move in the same direction. are such that the nominal rate is one-half the anticipated rate.

move in the same direction.

Income received by the factors of production is called personal income. disposable personal income. national income. gross domestic income.

national income

When the unanticipated inflation rate is zero debtors gain at the expense of creditors. neither creditors not debtors gain or lose. creditors gain at the expense of debtors. both creditors and debtors lose at the expense of the government.

neither creditors not debtors gain or lose.

GDP minus depreciation equals aggregate spending. net domestic product. national income. personal income.

net domestic product

An increase in the level of prices of goods and services will do what to the long-run aggregate supply curve? not shift the curve at all shift it to the left shift it to the right depends upon the long-run aggregate demand curve

not shift the curve at all

A capital good is part of investment spending when purchased by either private businesses or by the federal government. one that is purchased in order to make other goods and services. one produced by the government. not part of Gross Domestic Product (GDP) because it is an intermediate product.

one that is purchased in order to make other goods and services. one produced by the government.

Disposable personal income is equal to Gross Domestic Product (GDP) minus depreciation. national income minus personal income taxes. personal income plus transfer payments. personal income minus personal income tax payments.

personal income minus personal income tax payments.

Economic growth causes the production possibilities curve to shift rightward and the long-run aggregate supply curve to shift rightward. production possibilities curve to shift leftward and the long-run aggregate supply curve to shift leftward. production possibilities curve to shift leftward and the long-run aggregate supply curve to shift rightward. production possibilities curve to shift rightward and the long-run aggregate supply curve to shift leftward.

production possibilities curve to shift rightward and the long-run aggregate supply curve to shift rightward.

Higher interest rates increase total planned real expenditures because they lower the costs of building new plants and equipment. reduce total planned real expenditures because they increase the cost of borrowing funds. increase total planned real expenditures because they increase the incomes of all people in the economy. reduce total planned real expenditures because they reduce the income of bankers and other creditors.

reduce total planned real expenditures because they increase the cost of borrowing funds.

The seasonally adjusted unemployment rate removes the seasonal variation from the unemployment rate. reports only seasonal unemployment. is impossible to compute since no one knows what the seasonal component equals. is another name for structural unemployment

removes the seasonal variation from the unemployment rate.

Which of the following items is NOT included in GDP? sales at a grocery store sale of Microsoft security stock purchase of a hamburger at a fast-food restaurant downloads of iTunes music charged to a credit card

sale of Microsoft security stock

Indirect business taxes refer to depreciation expenses. payments for low-skilled labor. sales and local taxes paid by business. dividend taxes paid by the corporation.

sales and local taxes paid by business

A lifeguard who is out of work in the winter is structurally unemployed. seasonally unemployed. cyclically unemployed. frictionally unemployed.

seasonally unemployed.

Which of the following items is excluded from GDP? services a barber performs in repairing his own hair-cutting equipment services a barber performs in cutting hair the construction of a new barbershop production and sale of hair-cutting equipment

services a barber performs in repairing his own hair-cutting equipment

Suppose that unemployment increases because the government requires employers to provide more funds for their employees' retirement programs. The increase in unemployment is most likely a result of an increase in cyclical unemployment. the natural rate of unemployment. structural unemployment. frictional unemployment.

structural unemployment

If there are steady decreases in aggregate supply, the economy will experience supply-side inflation. an expansionary gap. a slow decrease in price levels. demand-side inflation.

supply-side inflation.

fully anticipated inflation occurs when the inflation rate is zero. the actual inflation rate is less than the anticipated inflation rate. the anticipated inflation rate and the unanticipated inflation rate are equal. the actual inflation rate equals the anticipated inflation rate.

the actual inflation rate equals the anticipated inflation rate.

Deflation is defined as a situation in which the Gross Domestic Product's growth rate is less for a given quarter than it was for the prior quarter. the average of all prices of goods and services in an economy is falling. the value of the dollar is rising relative to other currencies. the rate of inflation is below 2 percent.

the average of all prices of goods and services in an economy is falling.

if the price level increases, the economy tends to grow faster. there is no effect on buying power. the buying power of your checking accounts rises with it. the buying power of your checking account falls.

the buying power of your checking account falls.

The real-balance effect refers to the economy's ability to balance recession and expansion. the change in net exports. the change in the value of cash balances due to price level changes. the economy's response to interest rate changes.

the change in the value of cash balances due to price level changes.

A price index shows the relative price of necessities. the cost of today's goods expressed in terms of the cost of goods in a base year. the price of goods in the future. the current cost of a basket of goods.

the cost of today's goods expressed in terms of the cost of goods in a base year.

The unemployment rate will rise when the size of the labor force increases without an increase in employment. the duration of unemployment increases. people get discouraged and quit looking for a job. the average work week falls from 40 hours to 39 hours.

the duration of unemployment increases.

All of the following are components of aggregate demand EXCEPT net foreign spending on domestic production. the level of technology. government purchases. consumption spending.

the level of technology.

The real rate of interest is the market rate of interest expressed in today's dollars. the nominal rate of interest divided by the anticipated rate of inflation. negative if the anticipated rate of inflation is zero. the nominal rate of interest minus the anticipated rate of inflation.

the nominal rate of interest minus the anticipated rate of inflation.

In the simple circular flow model, the funds received by a carmaker when it sells a car goes to the workers who helped build the car. the owners of firms who sold materials to the carmaker, and the rest stays with the firm. only the owners of the carmaker. the owners of all of the resources used to make the car.

the owners of all of the resources used to make the car.

The trough of a contraction is an external shock that causes economic activity to decline. the point in time at which the level of national business activity reaches a minimum before expanding again. the rate at which the level of business activity is declining. the point in time at which the level of national business activity reaches a maximum before contracting again.

the point in time at which the level of national business activity reaches a minimum before expanding again.

The foreign exchange rate is the price of one currency in terms of another. part of the circular flow diagram. an adjustment that takes into account differences in the true cost of living across countries. another name for purchasing power parity.

the price of one currency in terms of another

The statistical measure of a weighted average of prices of goods and services that firms produce and sell is known as the producer price index (PPI). the inflation rate. the Gross Domestic Product (GDP) deflator. the consumer price index (CPI).

the producer price index (PPI).

Long-run aggregate supply is the possible combinations of real GDP and inputs after full adjustments have been made. all of the physical and human resources in the economy. the real production of goods and services after full adjustments have been made. the extraction of natural resources.

the real production of goods and services after full adjustments have been made.

A rise in the price level has a direct effect on spending because people like to spend more when prices are higher. a higher price gives people more money, and so the more goods and services they can buy. the real value of the money people have varies directly with the price level. the real value of the money people have decreases and they can buy less with it.

the real value of the money people have decreases and they can buy less with it.

The wealth effect is another term for the the indirect effect. the real-balance effect. the interest rate effect. substitution effect.

the real-balance effect.

Gross domestic income can be defined as the sum of all incomes earned by all factors of production in a year. the sum of all profits earned minus depreciation. the sum of all profits earned by businesses in a year. the sum of all incomes earned by individuals.

the sum of all incomes earned by all factors of production in a year.

Aggregate supply is the stock of all goods in the economy. the summation of all product supply curves. the sum of all planned production in the economy. the horizontal summation of all supply curves for services.

the sum of all planned production in the economy.

U.S. Gross Domestic Product (GDP) does NOT include which of the following? the value of goods produced in a foreign country by U.S. owned firms U.S. exports to other countries the purchase of all final goods and services by U.S. households business investment in the United States

the value of goods produced in a foreign country by U.S. owned firms

A major element of the concepts of inflation and deflation is their dependence on average rather than individual prices. the idea that price changes are measured daily. the requirement that ALL prices must be moving in the same direction. each household's willingness to report what they pay for goods and services each month.

their dependence on average rather than individual prices

According to the circular flow, the dollar value of a nation's output is equal to wages. total income. profits. net income minus taxes.

total income

An economy recovering from a recession moves up from its trough to a period of expansion. up from its peak to a period of expansion. down from its peak to a period of expansion. down from its trough to a period of depression.

up from its trough to a period of expansion.

Net exports equal the value of exports minus the value of imports. total value of all exports. total value of all government produced exports. value of imports minus the value of exports.

value of exports minus the value of imports

Net exports equal the total value of all exports. total value of all government produced exports. value of imports minus the value of exports. value of exports minus the value of imports.

value of exports minus the value of imports.

A car sold from a used car lot would be counted in Gross Domestic Product (GDP). would only be counted in Gross Domestic Product (GDP) if it was a foreign made car. would fall under net exports, and would then be counted in Gross Domestic Product (GDP). would not be counted in Gross Domestic Product (GDP).

would not be counted in Gross Domestic Product (GDP).