Macro Test #2

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Product quality has improved.

Under what circumstances do rates of economic growth understate the growth of economic well-being?

move toward more democratic forms of government.

Countries that have experienced modern economic growth have also tended to:


Which of the following economic regions has experienced the least growth in real GDP per capita since 1820?

tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs.

Economic growth rates in follower countries:

he United States has a higher percentage of the working-age population in the labor force and because U.S. employees average about 20 percent more hours worked per year.

Real GDP per capita in the United States (as of 2007) exceeds that of France primarily because:

A well-enforced system of patents and copyrights.

Which of the following institutional structures is most likely to promote growth?

1, 2, 5, and 6 only

Use the list below to answer the following questions:
1. Improvements in technology
2. Increases in the supply (stock) of capital goods
3. Purchases of expanding output
4. Obtaining the optimal combination of goods, each at least-cost production
5. Increases in the quantity and quality of natural resources
6. Increases in the quantity and quality of human resources

Which set of items in the above list would shift an economy's production possibilities curve outward?

real GDP declined.

Suppose that an economy's labor productivity fell by 3 percent and its total worker-hours remained constant between year 1 and year 2. We could conclude that this economy's:

the number of worker-hours must be 500.

Suppose total output (real GDP) is $4000 and labor productivity is $8. We can conclude that:

labor force participation rate.

The percentage of the working-age population in the labor force (= employed + officially unemployed) is called the:

an increase in the size of the labor force

Which of the following would not be expected to increase labor productivity?

technological advances account for about 40 percent of U.S. productivity growth.

Empirical studies suggest that:

increased the average productivity of labor.

The historical reallocation of labor from agriculture to manufacturing in the United States has

the reallocation of labor from less-productive to more-productive uses.

Economies of scale refer to:

29 percent

What percentage of the U.S. adult population has a college or post-college education (as of 2009)?

9th and 11th, respectively.

Globally, on average test scores of eighth-grade math and science students, the U.S. ranks (as of 2007):

23 years.

If the growth trend of labor productivity is 3 percent per year, the number of years that it will take for the standard of living to double will be about:

network effects.

Increases in the value of a product to each user, including existing users, as the total number of users rises are called:


The fundamental invention underpinning the recent rise in the average rate of productivity growth is the:

increased entrepreneurial activity, application of information technology, and global competition.

Economists who believe that the recent rise in the average rate of productivity growth may be long-lasting claim that the above-normal economic growth in the United States between 1995 and 2009 was caused by:

occurs, not because of growth, but because common resources are treated as free goods.

Proponents of economic growth say that pollution:

durables purchases are postponable.

The production of durable goods varies more than the production of nondurable goods because:

real domestic output falls.

A recession is defined as a period in which:

Unexpected financial bubbles that eventually burst.
Shocks to the money supply by the nation's central bank.
Supply shocks caused by major innovations.

Which of the following is seen by economists as an underlying cause of business cycle fluctuations?

Prices are sticky in the short run.

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

frictionally unemployed.

Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is:

higher than the full-employment rate of unemployment.

The natural rate of unemployment is:


Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:


Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would:

structural unemployment.

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon where she anticipates that a new job will be available. We can say that Susie is faced with:

a deficiency of spending on goods and services.

Cyclical unemployment results from:


Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as

the official unemployment rate will remain unchanged.

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:

$320 billion.

the official unemployment rate will remain unchanged.:

the actual unemployment rate will be higher than the natural unemployment rate.

If actual GDP is less than potential GDP:

prices on average are rising, although some particular prices may be falling.

Inflation means that:

deflation of 3.33 percent.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

3.5 percent.

Between 1980 and 2000 the price level approximately doubled. The average annual rate of inflation over this 20-year period was about:

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

Demand-pull inflation:

moves the economy inward from its production possibilities curve.

Cost-push inflation:

a negative supply shock.

Cost-push inflation may be caused by:

Demand-pull inflation

Which of the following would most likely occur during the expansionary phase of the business cycle?

rise by about 15 percent.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

tie wage increases to changes in the price level.

Cost-of-living adjustment clauses (COLAs):

3 percent.

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

consume is three-fifths.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

all the points at which consumption and income are equal.

The 45-degree line on a graph relating consumption and income shows:

increase absolutely, but decline as a percentage of income.

The consumption schedule is drawn on the assumption that as income increases, consumption will:

relatively stable.

In contrast to investment, consumption is:

APC is greater than 1.

Suppose a family's consumption exceeds its disposable income. This means that its:

saving is zero.

At the point where the consumption schedule intersects the 45-degree line:

a currently low level of household debt

Which of the following will not tend to shift the consumption schedule upward?

will shift downward.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

both the consumption and saving schedules downward.

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:

enable more investment projects to be undertaken profitably.

The investment demand slopes downward and to the right because lower real interest rates:

purchase the machine because the expected rate of return exceeds the interest rate.

Assume a machine which has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. If the firm finds it can borrow funds at an interest rate of 10 percent the firm should:

an increase in the real rate of interest will reduce the level of investment.

Given the expected rate of return on all possible investment opportunities in the economy:


Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but that there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:

have no effect on the location of the investment-demand curve.

Other things equal, a 10 percent decrease in corporate income taxes will:

a decrease in business taxes.

The investment demand curve will shift to the left as a result of:

the percentage increase in purchasing power that the lender receives on a loan.

The real interest rate is:

22 percent.

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

all of these contribute to the instability.

Investment spending in the United States tends to be unstable because:

increase by $10 billion.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

consumption by $80 billion.

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase:

in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.

The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:

Prices are fixed.

The aggregate expenditures model is built upon which of the following assumptions?

does not change when real GDP changes.

In the aggregate expenditures model, it is assumed that investment:

business inventories will fall.

In a private closed economy, when aggregate expenditures exceed GDP:

we can expect businesses to lower the level of production.

If an unintended increase in business inventories occurs:

planned; actual

In a private closed economy _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____ investment is equal to saving.

upward and increase aggregate expenditures.

In the aggregate expenditures model, technological progress will shift the investment schedule:

U.S. real GDP will fall.

Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then:

a country's net exports to fall.

If the dollar appreciates relative to foreign currencies, we would expect:

depress real output and employment in the U.S. economy.

Other things equal, serious recession in the economies of U.S. trading partners will:

Sa + M + T = Ig + X + G.

In a mixed open economy the equilibrium GDP is determined at that point where:

$40 billion.

Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by:

increase taxes by $28 billion.

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.75. The Federal government now finds that it must increase spending on military goods by $21 billion in response to deterioration in the international political situation. To sustain full-employment-noninflationary GDP government must:

the larger the MPC.

An increase in taxes will have a greater effect on the equilibrium GDP:

a $20 billion decrease in government spending

Which of the following would reduce GDP by the greatest amount?

MPS in this economy is .4.

Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the:

downward by $16 billion.

If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will shift:

$9 billion.

If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by:

shift the aggregate expenditures line upward.

In an aggregate expenditures diagram equal increases in government spending and in lump-sum taxes will:

GDP will remain at $400 billion unless aggregate expenditures change.

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion:

a rapid decline in investment spending.

The recessionary expenditure gap associated with the recession of 2007-2009 resulted from:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

The interest-rate effect suggests that:

leftward by $40 billion at each price level.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

The aggregate supply curve (short-run) is upsloping because:


Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question(s) on the basis of this information.

Refer to the above information. The level of productivity is:


Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question(s) on the basis of this information.

The per unit cost of production in the economy described above is:

input prices are fixed, but output prices are flexible

The short-run aggregate supply curve represents circumstances where:

eventually rise and fall to match upward or downward changes in the price level.

The economy's long-run AS curve assumes that wages and other resource prices:

rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a:

the price level is inflexible downward and a recession has occurred.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

diminished if inflation occurs

The size of the multiplier associated with an initial increase in spending will be:

above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Efficiency wages are:

wage contracts.

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

reduce prices when a decline in aggregate demand occurs.

The fear of unwanted price wars may explain why many firms are reluctant to:

the composition of GDP has changed from larger, heavier items such as earth movers and steel products toward smaller, lighter items such as software and microchips.

Relative to previous decades, the U.S. economy is less affected by changes in the price of oil partly because:

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Discretionary fiscal policy refers to:

decreasing taxes by $25 billion

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:

an excess of government expenditures over tax receipts.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

increase tax rates and/or reduce government spending.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should:

shift the AD curve to the left.

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

a $30 billion decrease in government spending

Which of the following represents the most contractionary fiscal policy?

larger is the economy's MPC.

A tax reduction of a specific amount will be more expansionary, the:

require no legislative action by Congress to be made effective.

A major advantage of the built-in or automatic stabilizers is that they:

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Which of the following best describes the built-in stabilizers as they function in the United States?

tax revenues would exceed government expenditures if full employment were achieved.

If the economy has a cyclically-adjusted budget surplus, this means that:

contractionary fiscal policy.

Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n):

rose to -7.3 percent of potential GDP in 2009.

The cyclically-adjusted budget deficit for the United States:


(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.

Refer to the above information. The operational lag of fiscal policy is reflected in event(s):

1 and 2

(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.

Refer to the above information. The recognition lag of fiscal policy is reflected in events:

3 and 4.

(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.

Refer to the above information. The administrative lag of fiscal policy is reflected in events:

politicians will manipulate the economy to enhance their chances of being reelected.

The political business cycle refers to the possibility that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The crowding-out effect of expansionary fiscal policy suggests that:

An increase in government spending on infrastructure that increases private sector productivity.

Which of the following fiscal policy actions is most likely to increase aggregate supply?

the Federal government owes to holders of U.S. securities.

The public debt is the amount of money that:

increased by $20 billion.

Suppose the Federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have:

reducing national income and therefore tax revenues.

Recessions have contributed to the public debt by:


What percentage of the U.S. public debt is held by Federal agencies and the Federal Reserve?

the bulk of the public debt is owned by U.S. citizens and institutions.

To say that "the U.S. public debt is mostly held internally" is to say that:

reducing the current level of investment.

The most likely way the public debt burdens future generations, if at all, is by:

construction of highways

Which of the following is the best example of public investment?

5:1; 2:1

In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______; by 2040 it is projected to be _________.

Restricting Immigrant skilled working age

Which of the following would NOT help to relieve the Social Security and Medicare shortfalls?

Creates jobs by responsibly paying for investments in education, manufacturing, clean energy, infrastructure, and small business.

Includes $1.8 trillion of additional deficit reduction over 10 years, bringing total deficit reduction achieved to $4.3 trillion.

Represents more than $2 in spending cuts for every $1 of new revenue from closing tax loopholes and reducing tax benefits for the wealthiest.

Deficit is reduced to 2.8% of GDP by 2016 and 1.7% by 2023 with debt declining as a share of the economy, while protecting the investments we need to create jobs and strengthen the middle class.

Includes $400 billion in health savings that crack down on waste and fraud to strengthen Medicare for years to come.

President's Budget Proposal


4th Quarter GDP


Final GDP report


March Unemployment

94.8; +.5

Feb. LEI

105.1; +.2

Feb. CEI

1.1; (-.6)

March Producer Price Index


March Consumer Price Index


March CPI one month change in core

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