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. Macroeconomics deals with:
A) bits and pieces of the economy.
B) the question of how a business unit should operate profitably.
C) the working of the entire economy or large sectors of it.
D) how individuals make decisions.

C) the working of the entire economy or large sectors of it.

2. The primary emphasis in macroeconomics is on:
A) how firms set prices.
B) the national economy.
C) marginal analysis.
D) bits and pieces of the economy.

B) the national economy.

The problem of scarcity is confronted by:
A) industrialized societies only.
B) preindustrialized societies only.
C) societies governed by communist philosophies only.
D) all societies.

D) all societies.

A key theme fundamental to all of economics is:
A) There are limited wants.
B) We are a rich country but are simply not aware of it.
C) People have unlimited wants facing limited means to satisfy them.
D) There are unlimited resources.

C) People have unlimited wants facing limited means to satisfy them.

6. Scarcity in economics means:
A) We do not have sufficient resources to produce all of the goods and services we
want.
B) The wants of people are limited.
C) There must be poor people in rich countries.
D) Economists are clearly not doing their jobs.

A) We do not have sufficient resources to produce all of the goods and services we
want.

8. The opportunity cost of something is:
A) greater during periods of rising prices.
B) equal to the money cost.
C) less during periods of falling prices.
D) what is given up to acquire it.

D) what is given up to acquire it.

9. Which of the following demonstrates how people respond to incentives to make themselves better off?
A) More students major in economics when they hear that salaries for economists are
rising.
B) Students are assigned dorm rooms through a lottery system.
C) Students are encouraged to donate blood because it is the "right thing to do."
D) Students and faculty are encouraged to wear college apparel to support the college
athletic teams.

A) More students major in economics when they hear that salaries for economists are
rising.

10. Which of the following policies is most likely to reduce traffic congestion in a large metropolitan area?
A) a limited number of free "early bird" parking passes given only to those who arrive
prior to 6 A.M.
B) a toll road that requires each car to pay a fee to enter the city center
C) an increase in the price of subway and bus fare to and from the city
D) asking citizens to carpool

B) a toll road that requires each car to pay a fee to enter the city center

11. A simplified representation that is used to study a real situation is called:
A) a model.
B) a production possibility frontier.
C) an assumption.
D) a trade-off.

A) a model.

13. (Figure: Guns and Butter) Look at the figure Guns and Butter. On this figure, points A, B, E, and F:
A) indicate combinations of guns and butter that society can produce using all of its factors efficiently.
B) show that the opportunity cost of more guns increases but that of more butter decreases.
C) indicate that society wants butter more than it wants guns.
D) indicate constant costs for guns and increasing costs for butter.

A) indicate combinations of guns and butter that society can produce using all of its factors efficiently.

14. (Figure: Guns and Butter) Look at the figure Guns and Butter. This production possibility frontier is:
A) bowed out from the origin because of increasing opportunity costs.
B) bowed in toward the origin because of increasing opportunity costs.
C) bowed in toward the origin because of constant costs of guns and butter.
D) linear because of constant costs.

A) bowed out from the origin because of increasing opportunity costs.

15. All points inside the production possibility frontier represent:
A) efficient production points.
B) inefficient production points.
C) infeasible production points.
D) economic growth.

B) inefficient production points.

16. All points on the production possibility frontier are: A) efficient production points.
B) inefficient production points.
C) infeasible production points.
D) economic growth.

A) efficient production points.

19. Which of the following is a normative statement?
A) Women's labor force participation rate has increased during the past 100 years.
B) The federal minimum wage is higher today than it was in 1990.
C) Children in the United States are required to go to school until they reach a certain
age.
D) The best way to encourage growth in the economy is through government
spending.

D) The best way to encourage growth in the economy is through government
spending.

20. Which of the following is a normative statement?
A) International trade leads to expanded consumption opportunities.
B) Higher expenditures on health care will reduce infant mortality rates.
C) We would all be better off if we could reduce our dependence on oil imports.
D) Increased defense spending will lead to higher budget deficits.

C) We would all be better off if we could reduce our dependence on oil imports

21. An example of a positive statement is:
A) the rate of unemployment is 4%.
B) a high rate of economic growth is good for the country.
C) everyone in the country should be covered by national health insurance.
D) baseball players should not be paid higher salaries than the president of the United
States.

A) the rate of unemployment is 4%.

22. An example of a positive statement is:
A) the rate of unemployment should be 4%.
B) a high rate of economic growth is good for the country.
C) the federal government spends half of its budget on national defense.
D) everyone in the country should be covered by national health insurance.

C) the federal government spends half of its budget on national defense.

23. (Figure: Cold Drinks Sold and Temperature) Look at the figure Cold Drinks Sold and Temperature. If we move from point C to point E in the figure, the outside temperature has ________ and the number of cold drinks sold has ________.
A) decreased by 30 degrees; decreased by 30 drinks
B) increased by 20 degrees; increased by 20 drinks
C) increased by 30 degrees; increased by 30 drinks
D) increased by 40 degrees; increased by 40 drinks

D) increased by 40 degrees; increased by 40 drinks

24. (Figure: Cold Drinks Sold and Temperature) Look at the figure Cold Drinks Sold and Temperature. If we move from point B to point C in the figure, the outside temperature has ________ and the number of cold drinks sold has ________.
A) decreased by 30 degrees; decreased by 30 drinks
B) increased by 20 degrees; increased by 20 drinks
C) increased by 30 degrees; increased by 30 drinks
D) increased by 40 degrees; increased by 40 drinks

C) increased by 30 degrees; increased by 30 drinks

25. (Figure: Demand and Supply) Look at the figure Demand and Supply. The slope of the curve labeled D is:
A) -1.
B) 0.
C) 1. D) 3.

A) -1.

26. (Figure: Demand and Supply) Look at the figure Demand and Supply. The slope of the curve labeled S is:
A) -1.
B) 0.
C) 1. D) 3.

C) 1.

27. (Figure: Unemployment Rate over Time) Look at the figure Unemployment Rate over Time. In the time-series graph, as we move from the beginning of 2001 to the beginning of 2003, we see that the unemployment rate has:
A) decreased from approximately 5% to approximately 4%.
B) increased from approximately 5.3% to approximately 7.3%.
C) decreased from approximately 7.7% to approximately 5.5%.
D) increased from approximately 4% to approximately 6%.

D) increased from approximately 4% to approximately 6%.

28. (Figure: Unemployment Rate over Time) Look again at the figure Unemployment Rate over Time. In the time-series graph, as we move from 1993 to 1995, we see that the unemployment rate has:
A) decreased from approximately 5% to approximately 4%.
B) increased from approximately 5.3% to approximately 7.3%.
C) decreased from approximately 7% to approximately 5.5%.
D) increased from approximately 4% to approximately 6.3%.

C) decreased from approximately 7% to approximately 5.5%.

32. Which of the following statements is correct?
A) A change in demand is a movement along the demand curve, and a change in
quantity demanded is a shift of the demand curve.
B) Both a change in quantity demanded and a change in demand are movements along
the demand curve, only in different directions.
C) Both a change in quantity demanded and a change in demand are shifts of the
demand curve, only in different directions.
D) A change in quantity demanded is a movement along the demand curve, and a
change in demand is a shift of the demand curve.

D) A change in quantity demanded is a movement along the demand curve, and a
change in demand is a shift of the demand curve.

33. If the demand for tires goes down when the price of gas goes up, then tires and gas are:
A) substitutes.
B) complements.
C) both expensive.
D) both inexpensive.

B) complements.

35. If chicken and beef are substitutes, then a fall in the price of chicken will bring about:
A) an increase in the demand for beef.
B) a decrease in the demand for beef.
C) a decrease in the quantity demanded of beef.
D) no change in the demand for beef.

B) a decrease in the demand for beef.

36. An increase in the price of hamburger would probably result in ________ in the demand for hamburger buns.
A) a decrease
B) an increase
C) no change
D) random fluctuations

A) a decrease

43. The market equilibrium is found at the:
A) price where quantity demanded exceeds quantity supplied.
B) price where quantity demanded equals quantity supplied.
C) price where quantity supplied exceeds quantity demanded.
D) highest price the market will bear.

B) price where quantity demanded equals quantity supplied.

44. If the quantity supplied in a market exceeds the quantity demanded in a market, we would expect prices to:
A) stay the same.
B) rise.
C) fall.
D) rise in order to clear the market.

C) fall.

45. Excess supply occurs when:
A) the price is above the equilibrium price.
B) the quantity demanded exceeds the quantity supplied.
C) the price is below the equilibrium price.
D) the quantity demanded exceeds the quantity supplied and when the price is below
the equilibrium price.

A) the price is above the equilibrium price.

46. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and quantity (at intersection of S1 and D) of gasoline are:
A) $2.00 and 450 gallons.
B) $1.50 and 400 gallons.
C) $2.00 and 200 gallons.
D) $2.50 and 300 gallons.

D) $2.50 and 300 gallons.

47. (Figure: Demand and Supply of Gasoline) Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1 and D, any price lower than ________ will create pressure for the price to ________.
A) $2.00; fall
B) $2.50; rise
C) $3.00; rise
D) $2.50; fall

B) $2.50; rise

48. A shift of a demand curve to the right, all other things unchanged, will:
A) increase equilibrium price and quantity.
B) decrease equilibrium price and quantity.
C) decrease equilibrium quantity and increase equilibrium price.
D) increase equilibrium quantity and decrease equilibrium price.

A) increase equilibrium price and quantity

49. Which of the following always results in an increase in price and quantity?
A) an increase in supply and a decrease in demand
B) an increase in demand with no change in supply
C) an increase in supply with no change in demand
D) a decrease in demand and supply

B) an increase in demand with no change in supply

50. A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect:
A) an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and higher beef prices.
B) an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and lower beef prices.
C) a decrease in the supply of beef, leading to a shift to the left in the supply curve for beef and higher beef prices.
D) a decrease in the demand for beef, leading to a shift to the left in the demand curve for beef and higher beef prices.

A) an increase in the demand for beef, leading to a shift to the right in the demand curve for beef and higher beef prices.

51. A new wonder diet that results in a dramatic weight loss sweeps through America. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can expect:
A) a decrease in the supply of poultry, leading to a shift to the left in the supply curve for poultry and higher poultry prices.
B) an increase in the supply of poultry, leading to a shift to the right in the supply curve for poultry and higher poultry prices.
C) a decrease in the demand for poultry, leading to a shift to the right in the demand curve for poultry and lower beef prices.
D) a decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices.

D) a decrease in the demand for poultry, leading to a shift to the left in the demand curve for poultry and lower poultry prices.

52. Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?
A) The price will increase, but quantity may increase, decrease, or stay the same.
B) The price will decrease, but quantity may increase, decrease, or stay the same.
C) The price will decrease and quantity will decrease.
D) The price will increase and quantity will increase.

B) The price will decrease, but quantity may increase, decrease, or stay

54. (Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for big-screen televisions, a normal good?
A) panel A
B) panel B
C) panel C
D) panel D

B) panel B

55. (Figure: Shifts in Demand and Supply IV) Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose the Surgeon General announces that eating chocolate prevents heart disease. Which panel best describes how this will affect the market for chocolate?
A) panel A
B) panel B
C) panel C
D) panel D

B) panel B

56. Good X and good Y are related goods. If the price of good X increases and the demand for good Y shifts left, these goods are:
A) complements.
B) substitutes.
C) inferior. D) normal.

A) complements.

57. Good X and good Y are related goods. Holding everything else constant, if the price of X decreases and the demand for Y increases, then this most likely means that X and Y are:
A) complements.
B) substitutes. C) inferior. D) normal.

A) complements.

#58 is a graph

c.

60. Milk is an important ingredient in the production of ice cream. If the price of milk increases, then one would expect, holding all other things constant:
A) the supply curve for ice cream to shift left.
B) the supply curve for ice cream to shift right.
C) no change in the supply curve for ice cream.
D) a movement along the supply curve for ice cream curve, resulting in more ice
cream supplied.

A) the supply curve for ice cream to shift left.

61. High-fructose corn syrup, which is derived from corn, is an important ingredient in the production of many soft drinks. If the price of corn increases, one would expect:
A) the supply curve for soft drinks to shift left.
B) the quantity supplied of soft drinks to increase.
C) the demand for soft drinks to increase.
D) the supply curve for soft drinks to shift right.

A) the supply curve for soft drinks to shift left.

62. When a market is in equilibrium, one will find that the:
A) quantity demanded is equal to zero.
B) quantity demanded is equal to quantity supplied.
C) quantity demanded is greater than quantity supplied.
D) quantity supplied is zero.

B) quantity demanded is equal to quantity supplied.

63. (Table: Competitive Market for Good Z) Look at the table Competitive Market for Good Z. If the current price of good Z is $15, there will be:
A) excess demand of 25 units.
B) excess supply of 25 units.
C) a shortage of 20 units.
D) a surplus of 45 units.

B) excess supply of 25 units.

64. (Table: Competitive Market for Good Z) Look at the table Competitive Market for Good Z. A surplus of the good will occur at a price of ________.
A) $0
B) $5
C) $10 D) $15

D) $15

67. The topics studied in macroeconomics include:
A) inflation.
B) unemployment.
C) economic growth.
D) inflation, unemployment, and economic growth.

D) inflation, unemployment, and economic growth.

68. Macroeconomics involves the study of the:
A) overall behavior of the economy.
B) individual decision makers in the economy.
C) different market structures that exist in the economy.
D) cost and production decisions made by firms

A) overall behavior of the economy.

69. If all of the households and businesses in the economy start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as:
A) the quantity theory.
B) the crowding-out theory.
C) the paradox of thrift.
D) the permanent income hypothesis.

C) the paradox of thrift.

70. A rubbernecking traffic jam is an example of:
A) microeconomics in action.
B) individual behavior that has a large aggregate impact.
C) the paradox of thrift.
D) an outcome smaller than the sum of its parts.

B) individual behavior that has a large aggregate impact.

71. In the paradox of thrift:
A) firms that are pessimistic about the future lay off the most saving-conscientious
workers.
B) when families and business are feeling pessimistic about the future, they spend
more today.
C) increased saving by individuals increases their chances of becoming unemployed.
D) profligate behavior during economic tough times has large negative consequences
for society.

C) increased saving by individuals increases their chances of becoming unemployed.

77. Periods in which output and employment are falling are known as: A) recessions.
B) booms.
C) expansions. D) deflations.

A) recessions.

80. The short-run alternation between economic downturns and recessions, then economic upturns and expansions is known as the:
A) business cycle.
B) contractionary cycle.
C) expansionary cycle.
D) disequilibrium cycle.

A) business cycle.

81. A business cycle is:
A) a very deep and prolonged economic downturn.
B) a period in which output and employment are rising.
C) a period in which output and employment are falling.
D) a short-run alternation between economic upturns and downturns.

D) a short-run alternation between economic upturns and downturns.

82. An economic expansion in the United States is typically associated with:
A) a falling inflation rate.
B) an increase in the poverty rate.
C) a falling unemployment rate.
D) a decrease in corporate profits.

C) a falling unemployment rate.

87. Which of the following measures is typically used as an indicator of the conditions in the labor market?
A) the unemployment rate
B) the population growth rate
C) the inflation rate
D) the trade deficit

A) the unemployment rate

88. The purpose of macroeconomic policy is to:
A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate, rein in excessively strong
expansions, and reduce the severity of recessions.

D) bring unemployment closer to the natural rate, rein in excessively strong
expansions, and reduce the severity of recessions.

89. Long-run growth is the sustained upward trend in:
A) aggregate output per person over several decades.
B) nominal GDP over time.
C) interest rates over time.
D) aggregate output per person over the business cycle.

A) aggregate output per person over several decades.

90. Long-run growth is:
A) the sustained upward trend in aggregate output per person over several decades.
B) the expansion phase of business cycles.
C) the downturn phase of business cycles.
D) the sustained downward trend in the employment rate over several decades.

A) the sustained upward trend in aggregate output per person over several decades.

92. If wages grew at a 5% rate last year and average prices grew at a 3% rate, then the average worker is:
A) better off.
B) worse off.
C) no better or worse off.
D) unaffected.

A) better off.

94. An increase in the nation's overall price level is:
A) long-term economic growth.
B) unemployment.
C) inflation.
D) deflation.

C) inflation.

95. With inflation:
A) overall prices are increasing, although some prices may be increasing and some
may be decreasing.
B) all prices must be increasing.
C) the economy must be contracting.
D) the economy must be producing at full employment.

A) overall prices are increasing, although some prices may be increasing and some
may be decreasing.

98. Which of the following is true about inflation and deflation?
A) Both are good for the economy.
B) Inflation is always good for the economy and deflation is always bad for the
economy.
C) Inflation is always bad for the economy and deflation is always good for the
economy.
D) Both inflation and deflation can pose problems for the economy.

D) Both inflation and deflation can pose problems for the economy.

103. The trade balance is the difference between the value of the:
A) trade deficit and the budget deficit.
B) goods and services that a country sells to other countries and the value of the goods
and services it buys in return.
C) exchange rates of two countries that are engaged in international trade.
D) national debt and the foreign debt.

B) goods and services that a country sells to other countries and the value of the goods
and services it buys in return.

107. During a recession, one will often observe:
A) rising aggregate output.
B) rising unemployment rates and falling aggregate output.
C) rising employment rates.
D) zero unemployment rates.

B) rising unemployment rates and falling aggregate output.

108. When an economy is operating between the business cycle trough and the business cycle peak, it is called:
A) an expansion.
B) a contraction.
C) a short-run phenomenon.
D) the beginning of a fall in aggregate spending.

A) an expansion.

110. When an economy is in an expansion, unemployment:
A) tends to fall, and overall prices tend to rise.
B) and overall prices tend to fall.
C) tends to rise, and overall prices tend to fall.
D) and overall prices tend to rise.

A) tends to fall, and overall prices tend to rise.

111. An overall decrease in the price level is called.
A) inflation.
B) deflation.
C) long-run growth.
D) the result of an increase in economic production.

B) deflation.

113. According to the circular-flow diagram, which of the following economic agents engages in consumer spending?
A) firms
B) households
C) factor markets
D) financial markets

b. households

114. Households derive income from all of the following except:
A) wages or labor income.
B) interest from lending.
C) rent from allowing firms to use their land.
D) imports.

d. imports

115. (Figure: Circular-Flow Model) What is GDP in this economy? A) $100
B) $400 C) $500 D) $600

c. $500

123. If we add up the consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's:
A) disposable income.
B) gross domestic product.
C) trade deficit.
D) value added.

b. gross domestic product

128. Gross domestic product is defined as:
A) consumer spending + government purchases + financial spending + exports -
imports.
B) consumer spending + government transfers + investment spending + exports -
imports.
C) disposable income + taxes + investment spending + exports + imports.
D) consumer spending + government purchases + investment spending + exports -
imports.

D) consumer spending + government purchases + investment spending + exports -
imports.

129. Which of the following is false? Gross domestic product:
A) is aggregate output.
B) is the total production of final goods and services.
C) grows during an expansion.
D) is the total production of all final and intermediate goods and services.

D) is the total production of all final and intermediate goods and services.

130. (Table: Calculating GDP) Using the information in the table provided, which of the following is the correct calculation for GDP?
A) $47,475
B) $12,200
C) $21,485 D) $34,085

B) $12,200

131. The Boeing Company buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model of aircraft at $10 million. The value added by Boeing is equal to:
A) $3.5 million.
B) $16.5 million.
C) $13 million.
D) $15.5 million.

A) $3.5 million.

133. The total volume of business sales in the economy is much larger than GDP because:
A) GDP understates the value of total output.
B) the output approach to measuring GDP excludes intermediate transactions.
C) GDP includes transfer payments.
D) GDP excludes exports.

B) the output approach to measuring GDP excludes intermediate transactions.

135. If your professor wins the lottery:
A) GDP goes up.
B) GDP goes down.
C) GDP is not affected.
D) the economy will clearly be better off.

C) GDP is not affected.

136. Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each. How much do these transactions add to GDP?
A) $86,000 B) $36,000 C) $31,000 D) $50,000

D) $50,000

139. Suppose a consumer buys a frozen cheese pizza at the grocery store for $10. The frozen pizza company sold the pizza to the store for $5. The frozen pizza company purchased the pizza dough and tomato sauce from a food processing company at a price of $2 and bought the cheese from a dairy at a price of $1. How much has GDP increased?
A) $2 B) $5 C) $10 D) $18

C) $10

140. The inflation-adjusted measure of aggregate output typically used by economists is called:
A) aggregated output.
B) nominal gross national product.
C) net domestic product.
D) real gross domestic product.

D) real gross domestic product.

141.
Use the
Real GDP is nominal GDP adjusted for:
A) double counting.
B) changes in prices.
C) population.
D) imports.

b. changes in prices

144. f nominal GDP decreases from one year to the next:
A) prices must have fallen from one year to the next.
B) real GDP must have fallen from one year to the next.
C) prices and real GDP must have fallen from one year to the next.
D) either output or prices or both must have fallen from one year to the next.

D) either output or prices or both must have fallen from one year to the next.

145. Nominal GDP is:
A) the inflation-adjusted GDP .
B) the real GDP minus depreciation.
C) the current-dollar GDP .
D) the constant-dollar GDP .

c. the current dollar GDP

147. A country's living standard is best measured by the:
A) per capita nominal GDP .
B) real GDP .
C) nominal GDP .
D) per capita real GDP .

D. Per capita real GDP

148. Assume that the real GDP of the United States is approximately $12 trillion and the population of the United States is approximately 300 million. What is per capita real GDP?
A) $4,000
B) $36,000
C) $40,000
D) Real per capita GDP can't be determined without more information.

C) $40,000

149. (Table: Pizza Economy III) Considering 2010 as the base year, nominal GDP in 2011 was:
A) $47,000. B) $69,000. C) $72,000. D) $114,000.

A) $47,000

152. (Table: Pizza Economy III) Considering 2010 as the base year, given that total population was 1,140 in 2010 and 1,300 in 2011, real GDP per capita in 2010 was: A) $80.
B) $53.
C) $60.
D) $100.

D. $100

153. The aggregate price level is:
A) the average price of shares on the stock market.
B) the average price of commodities.
C) the overall level of prices in the economy.
D) the average rate of inflation.

C) the overall level of prices in the economy.

154. Inflation is:
A) a rising aggregate price level.
B) an expansion of output.
C) a rise in wages.
D) a rise in the unemployment rate.

A) a rising aggregate price level.

158. (Table: The Consumer Price Index) The approximate rate of inflation in year 5 is: A) 5%.
B) 10%. C) 19%. D) 20%.

D) 20%.

159. If the CPI changes from 120 to 125 between December 2009 and December 2010, the:
A) inflation rate for 2010 is 4.2%.
B) inflation rate for 2010 is 5%.
C) deflation rate for 2010 is 5%.
D) deflation rate for 2010 is 4.2%

A) inflation rate for 2010 is 4.2%.

160. If the CPI is 180 in year 1 and 190 in year 2, the inflation rate between year 1 and year 2 is about:
A) 5.26%. B) 5.56%. C) 6.5%. D) 10%.

B) 5.56%.

163. The CPI reflects:
A) changes in the prices of goods and services typically purchased by consumers.
B) the level of prices for intermediate goods and services purchased by business.
C) the level of prices for raw materials.
D) the prices of all goods and services computed from the ratio of nominal GDP to
real GDP.

A) changes in the prices of goods and services typically purchased by consumers.

164. (Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2010.
A) 111 B) 104 C) 90 D) 96

A) 111

165. (Table: GDP II) Using the information in the table provided, calculate the GDP deflator for 2011.
A) 111 B) 104 C) 90 D) 96

B) 104

166. The major difference between the CPI and the producer price index is that:
A) the producer price index is based on retail prices and CPI is based on wholesale
prices.
B) the producer price index measures the cost of living of self-employed workers and
the CPI measures the cost of living of salaried workers.
C) the producer price index generally registers a higher rate of inflation than the CPI.
D) the producer price index is based on the cost of a basket typically purchased by
producers, while the CPI is based on the cost of a basket typically purchased by consumers.

D) the producer price index is based on the cost of a basket typically purchased by
producers, while the CPI is based on the cost of a basket typically purchased by consumers.

168. (Table: Price and Output Data) The value of year 4's output in nominal dollars is: A) $6.
B) $24. C) $30. D) $36.

D) $36.

169. (Table: Price and Output Data) The value of year 3's output in real dollars is: A) $5.
B) $20. C) $27. D) $36.

B) $20.

171. The instrument by which a household makes a loan to a firm and the firm pays interest to the household is known as:
A) a stock.
B) a bond.
C) a transfer payment.
D) disposable income.

B) a bond.

172. Private saving by households is:
A) the portion of disposable income not spent on goods and services.
B) the portion of income coming from transfer payments.
C) often larger than consumption spending.
D) not related to consumption spending.

A) the portion of disposable income not spent on goods and services.

173. Within the circular-flow diagram, the value of household income, the sum of wages, dividends, interest, and rent plus transfer payments equals the sum of:
A) the value of household tax payments.
B) consumer spending, private saving, and the value of household tax payments.
C) the money supply.
D) transfer payments and household tax payments.

B) consumer spending, private saving, and the value of household tax payments.

174. Transfer payments:
A) are a means by which government raises funds.
B) are a redistribution of funds from one individual to another individual in the
economy.
C) are counted in GDP .
D) is another term for government taxation.

B) are a redistribution of funds from one individual to another individual in the
economy.

175. An economy's gross domestic product is made up of:
A) consumption, saving, investment, and government spending.
B) consumption, investment, government spending, and net exports.
C) consumption, saving, inventories, financial markets, and government spending.
D) consumption and saving.

B) consumption, investment, government spending, and net exports.

176. Suppose only two countries existed in the world. Country A imported $200 million worth of goods and services from country B. Country B imported $100 million worth of goods and services from country A. Net exports for:
A) country A equal $200 million.
B) country B equal $200 million.
C) country A equal -$100 million.
D) country B equal -$100 million.

C) country A equal -$100 million.

177. (Scenario: Good A and Good B) In 2010, nominal GDP is:
A) greater than the nominal GDP in 2011.
B) greater than the nominal GDP in 2009.
C) equal to the nominal GDP in 2011.
D) equal to the nominal GDP in 2009.

B) greater than the nominal GDP in 2009.

178. (Scenario: Good A and Good B) Using 2009 as the base year, one would find that the real GDP in 2009:
A) is equal to the real GDP in 2010.
B) is equal to the nominal GDP in 2009.
C) is greater than the real GDP in 2010.
D) cannot be calculated.

B) is equal to the nominal GDP in 2009.

181. Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is:
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) counted as employed, since she is likely to receive a job offer soon.

A) frictionally unemployed.

182. Unemployment that is due to the time workers spend in job search is considered:
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) natural unemployment.

A) frictional unemployment.

183. A person who spends time looking for work is:
A) engaged in job search.
B) counted as employed.
C) counted as out of the labor force.
D) usually counted as a discouraged worker.

A) engaged in job search.

185. Efficiency wages are:
A) above equilibrium to encourage better performance.
B) below equilibrium to encourage better performance to get a raise.
C) responsible for all structural unemployment.
D) above equilibrium to encourage better performance and are responsible for all
structural unemployment.

A) above equilibrium to encourage better performance.

186. The natural rate of unemployment is:
A) the rate of unemployment that exists during recessions.
B) equal to the sum of frictional and cyclical unemployment.
C) equal to the sum of frictional and structural unemployment.
D) cyclical unemployment less frictional unemployment.

C) equal to the sum of frictional and structural unemployment.

187. The rate of unemployment that exists when the economy is at full employment is:
A) zero.
B) the natural rate of unemployment.
C) the structural rate of unemployment.
D) less than full employment rate of unemployment.

B) the natural rate of unemployment.

188. Cyclical unemployment:
A) rises during a recession.
B) falls during a recession.
C) rises during an expansion.
D) is a part of natural unemployment.

A) rises during a recession.

190. Generous unemployment benefits are likely to have which of the following consequences?
A) an increase in the employment level
B) a reduction in job search time
C) a decrease in the unemployment rate
D) an increase in the unemployment rate

D) an increase in the unemployment rate

191. Suppose that immigration laws are relaxed and many workers from other nations enter the U.S. labor force. How will this affect the U.S. labor market?
A) The demand for labor will increase.
B) The demand for labor will decrease.
C) The supply of labor will decrease.
D) The supply of labor will increase.

D) The supply of labor will increase.

192. The natural rate of unemployment would:
A) increase if a larger percentage of the labor force were over 25 years old.
B) increase if union membership fell.
C) increase if unemployment benefits were increased.
D) always remain fixed.

C) increase if unemployment benefits were increased.

195. If deflation occurs and your income is fixed, your real income:
A) will fall.
B) will go up.
C) will still be equal to your nominal income.
D) is constant.

B) will go up.

197. Increases in the average level of prices are called: A) depreciation.
B) deflation.
C) inflation.
D) expectations.

C) inflation.

199. The invention of ATMs reduced the:
A) menu costs of inflation.
B) shoe-leather costs of inflation.
C) unit-of-account costs of inflation.
D) seignorage.

B) shoe-leather costs of inflation.

201. Menu costs of inflation are the:
A) costs associated with money being a less reliable unit of measurement.
B) costs of transactions associated with avoiding the inflation tax.
C) costs associated with businesses changing prices.
D) revenue the government gets from printing money.

C) costs associated with businesses changing prices

202. Menu costs refer to the increased cost:
A) of food in a time of inflation.
B) eating out when inflation increases.
C) of changing listed prices.
D) the minimum wage.

C) of changing listed prices.

203. Unanticipated inflation:
A) reduces the value of money.
B) increases the value of future obligations.
C) increases certainty about the future.
D) helps lenders.

A) reduces the value of money.

205. Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is equal to:
A) 3%. B) 4%. C) 10%. D) 7%.

B) 4%.

206. The nominal interest rate equals the:
A) real interest rate times the rate of inflation.
B) real interest rate minus the rate of inflation.
C) real interest rate plus the rate of inflation.
D) real interest rate when inflation is correctly anticipated.

C) real interest rate plus the rate of inflation.

207. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The equilibrium wage rate is:
A) $16.
B) $15.
C) $14. D) $17.

B) $15.

208. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The level of employment at the equilibrium wage rate is:
A) 80,000.
B) 110,000
C) 100,000. D) 90,000.

C) 100,000.

209. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The size of the labor force at equilibrium wage rate is:
A) 80,000.
B) 110,000.
C) 100,000. D) 200,000.

C) 100,000.

211. Sally works twenty hours a week for an accounting firm. She would like to work full
time and expects that she will in the future. Sally is a(n):
A) discouraged worker
B) unemployed worker
C) underemployed worker
D) full time worker

C) underemployed worker

212. Radhika just graduated from college. She recently quit her part time job to focus on finding a full time job that better uses the skills she has acquired in college. Radhika is considered to be:
A) structurally unemployed.
B) frictionally unemployed.
C) cyclically unemployed.
D) employed since she is focusing on finding a full time job.

B) frictionally unemployed.

214. In a particular labor market, the demand for labor is given by W = 20 - (1/100)L and the supply of labor is given by W = 4 + (1/100)L where W is the wage rate, and L is the number of workers. What is the equilibrium wage and number of workers in this market?
A) The equilibrium wage is $10, and the equilibrium number of workers is 1000.
B) The equilibrium wage is $12, and the equilibrium number of workers is 800.
C) The equilibrium wage is $8, and the equilibrium number of workers is 1200.
D) The equilibrium wage is $20, and the equilibrium number of workers is 1000.

B) The equilibrium wage is $12, and the equilibrium number of workers is 800.

217. High rates of inflation often result in people spending inordinate amounts of time trying to make transactions and finding ways to keep the real value of their money from decreasing. This is an example of _______ costs.
A) shoe-leather
B) menu
C) efficiency wage
D) unit-of-account

A) shoe-leather

218. A key statistic to measure economic growth is:
A) the size of the government's budget.
B) real GDP per capita.
C) life expectancy.
D) the Dow Jones stock market index.

B) real GDP per capita.

219. If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5 million, then its GDP per capita is:
A) $500.
B) $5,000.
C) $50,000.
D) $5 million.

B) $5,000.

220. The ______________in an economy whose aggregate real output is growing faster than the total population.
A) real GDP per capita is rising
B) standard of living is declining
C) national income is falling
D) nominal GDP per capita is rising

A) real GDP per capita is rising

221. China has much higher rate of growth than the United States, but the average Chinese household is:
A) as well off as a typical U.S. household, because China's real GDP per capita is catching up with that of the United States.
B) richer than a typical U.S. household, because China's real GDP per capita is much higher than that of the United States.
C) still a bit poorer than a typical U.S. household, but China's real GDP per capita is growing faster to equal that of the United States in a matter of few years.
D) still far poorer than a typical U.S. household, because China's real GDP per capita is much lower than that of the United States.

D) still far poorer than a typical U.S. household, because China's real GDP per capita is much lower than that of the United States.

222. The rule of 70 indicates that a 6% annual increase in the potential level of real GDP would lead to the potential output doubling in _______ years.
A) 6
B) 12
C) 24 D) 30

B) 12

223. The rule of 70 states that a variable's approximate doubling time equals:
A) 70 times the growth rate.
B) the growth rate divided by 70.
C) 70 divided by the doubling time.
D) 70 divided by the growth rate.

D) 70 divided by the growth rate.

224. If real GDP grows at an average rate of 3% per year, it will double in approximately _______ years.
A) less than 10
B) 20
C) 23
D) 36

C) 23

225. If real GDP doubles in 12 years, its average annual growth rate is approximately: A) 6%.
B) 5%. C) 4%. D) 3%.

A) 6%.

226. (Table: Kenya's Economy in 2010) Aggregate output per capita in Kenya at the beginning of 2010 was:
A) $5,000.
B) $10,000.
C) $775. D) $7,750.

C) $775.

227. (Table: Kenya's Economy in 2010) Aggregate output in Kenya at the end of 2010, assuming no changes in the price level, was about:
A) $326 billion.
B) $32.632 billion.
C) $3,635 billion.
D) $6,500 billion.

B) $32.632 billion.

228. (Table: Kenya's Economy in 2010) The population in Kenya at the end of 2010 was about:
A) 400 million.
B) 41 million.
C) 14.002 million.
D) 401,000,200.

B) 41 million.

229. Long-run economic growth depends almost entirely on:
A) labor productivity growth.
B) population growth.
C) agricultural production growth.
D) the number of hours worked.

A) labor productivity growth.

231. The term human capital describes:
A) improvement made possible by better machines and the equipment available.
B) improvement in the technology available to the work force.
C) improvement in a worker's skills made possible by education, training and
knowledge.
D) improvement in the robotics technology that can substitute for a human worker.

C) improvement in a worker's skills made possible by education, training and
knowledge.

232. The skills, training, and education possessed by workers that contribute to economic growth are known as:
A) saving.
B) human capital.
C) natural resources.
D) output of labor.

B) human capital.

233. Technological progress allows workers to produce more:
A) because it increases the amount of physical capital available.
B) because it increases the amount of human capital available.
C) even when the amount of physical capital and human capital do not change.
D) only if the amount of physical capital grows at the same rate.

C) even when the amount of physical capital and human capital do not change.

234. If technology advances, then:
A) more output can be obtained from the same inputs.
B) more inputs are needed to produce the same output.
C) less output can be obtained from the same inputs.
D) less output can be produced even with more inputs.

A) more output can be obtained from the same inputs.

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