Macro

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1. The production of durable goods is more stable than the production of nondurables over the business cycle.

FALSE

2. Unanticipated inflation benefits debtors at the expense of creditors.

TRUE

3. If the price level doubled in a 23-year period, we can conclude that the average annual rate of inflation over that period was about 3 percent.

TRUE

4. The business cycle is so named because upswings and downswings in business activity are equal in terms of duration and intensity.

FALSE

5. People who work part time, but desire to work full time, are considered to be officially unemployed.

FALSE

6. The natural rate of unemployment in the United States is about 4 to 5 percent.

TRUE

7. An annual rate of inflation of 7 percent will double the price level in about 15 years.

FALSE

8. Unanticipated inflation benefits some groups in the economy. TRUE

TRUE

9. If the nominal interest rate is 8 percent and the real interest rate is 5 percent, then the inflation premium is 13 percent.

FALSE

10. During the past ten years the U.S. economy has experienced three recessions.

FALSE

11. During the past ten years the annual rate of inflation in the United States has averaged less than 1 percent.

FALSE

12. During recent years the U.S. unemployment rate has been substantially higher than the rate in most of the other major industrial nations.

FALSE

13. The business cycle is best defined as alternating periods of increases and decreases in the level of economic activity

TRUE

14. The unemployment rate is equal to the number of people who are unemployed divided by the number of people in the labor force. TRUE

TRUE

15. If the total population is 175 million, the labor force is 100 million, and 89 million workers are employed, then the unemployment rate is 11 percent.

TRUE

16. The U.S. full-employment unemployment rate is currently thought by most economists to be 8 percent.

...

17. Unemployment that is the result of deregulation, corporate downsizing, and the closure of military bases is best categorized as frictional unemployment.

...

19. The economy's GDP gap is negative when actual GDP is greater than potential GDP.

...

20. The unemployment rate for managerial and professional workers tends to be high.

...

21. If the rate of inflation is 7 percent per year, then the price level will double in fourteen years.

FALSE

22. If the price level rises from 125 to 150 from one year to the next, then the rate of inflation that year is 15 percent.

FALSE

23. From one year to the next, the Consumer Price Index rose from 140.3 to 144.5. The rate of inflation was therefore 7.1%.

FALSE

24. The percentage change in real income can be approximated by subtracting the percentage change in the price level from the percentage change in nominal income

TRUE

25. Unanticipated inflation benefits creditors and savers.

FALSE

26. The nominal interest rate is the sum of the real interest rate and the premium paid to the lender to offset the expected rate of inflation.

TRUE

27. Deflation is a decline in the price level.

TRUE

28. Cost-push inflation increases real output and employment.

FALSE

29. Proponents of zero inflation argue that even mild inflation (1 to 3 percent) reduces the economy's real output.

TRUE

30. Economists who are willing to accept mild inflation consider it to be a necessary by-product of high and growing spending that produces high levels of output, full employment, and economic

TRUE

31. Hyperinflation may stimulate significant increases in real output in an economy.

FALSE

1. The Council of Economic Advisors was established to give economic advice and assistance to the U.S. President.

TRUE

2. Discretionary fiscal policy is independent of Congress and based on the progressivity of the tax system.

FALSE

3. An increase in taxes and a decrease in government spending would be characteristic of a contractionary fiscal policy.

TRUE

4. An increase in taxes would be an expansionary fiscal policy.

FALSE

5. A decrease in government spending and taxes would be an example of fiscal policies that reinforce each other.

FALSE

6. Built-in stability refers to the fact that net tax revenues vary inversely with the level of GDP.

FALSE

7. If taxation becomes more progressive, the built-in stability in the economy will increase.

TRUE

8. The greater the progressivity of the tax system, the less is the built-in stability of the economy.

FALSE

9. The key to assessing whether fiscal policy is expansionary is to observe the change in the standardized budget as a percentage of GDP.

TRUE

10. The actual and standardized budgets will be equal when the economy is at full employment.

TRUE

11. The standardized budget measures what the Federal budget deficit or surplus would be at full employment output with existing tax and spending decisions.

TRUE

12. State and local governments' fiscal policies typically reinforce the fiscal policy of the Federal government to counter recession and inflation.

FALSE

13. The concept of a "political business cycle" suggests that a possible cause of macroeconomic instability is due to the use of fiscal policy for political purposes.

TRUE

14. The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

FALSE

15. Critics contend that the crowding-out effect will be minimal when the economy is in a recession.

TRUE

16. The crowding-out effect of an expansionary fiscal policy is likely to be fully or partially offset during a recession.

TRUE

17. If there is a Federal budget surplus, then government revenues are greater than its expenditures.

TRUE

18. Interest payments as a percent of GDP reflect the level of taxation (average tax rate) required to service the public debt.

TRUE

19. Half of the public debt is owned by foreign individuals and institutions.

FALSE

20. Over 95 percent of the total public debt is held by banks and private individuals.

FALSE

21. A large public debt will not bankrupt the Federal government because it can refinance the debt or increase taxes to pay it.

TRUE

22. The payment of interest on the public debt probably decreases income inequality.

FALSE

23. The additional taxes needed to pay the interest on the public debt reduce incentives to work, save, invest, and bear risks.

TRUE

1. Aggregate demand is a schedule which shows the various amounts of goods and services that only consumers and businesses desire to purchase at each possible price level.

FALSE

2. The aggregate demand curve shows that when the price level rises, the quantity of real GDP demanded decreases.

TRUE

3. A rise in the price level decreases the real value of financial assets with fixed money values and, as a result, decreases spending by the holders of these assets.

TRUE

4. A change in household indebtedness will cause a movement along an existing aggregate demand curve.

FALSE

5. An increase in real interest rates will increase aggregate demand.

FALSE

6. An increase in consumer wealth will decrease aggregate demand.

FALSE

7. A fall in real interest rates will reduce aggregate demand

FALSE

8. Depreciation of the dollar relative to foreign currencies will tend to increase net exports and aggregate demand.

TRUE

9. The long-run aggregate supply curve slope is horizontal.

FALSE

10. The shape of a short-run aggregate supply curve basically depends on what happens to production costs and therefore to the prices which businesses must receive to cover costs and make a profit as real domestic output expands.

...

11. Below the full-employment level of output, per unit production costs rise and firms must receive higher product prices for them to be profitable.

FALSE

12. Per-unit production cost is determined by dividing output by total input cost.

FALSE

13. A rightward shift of the aggregate demand curve will increase real domestic output and the price level.

TRUE

14. When there is an increase in aggregate demand, there will be an increase in the price level but not in the level of output or employment.

FALSE

15. A decrease in aggregate demand will have no effect on the real equilibrium GDP of the economy and will lower its price level.

FALSE

16. If the prices of imported resources increase, then aggregate supply will decrease.

TRUE

17. Cost-push inflation can be described as a rightward shift of the aggregate supply curve.

FALSE

18. An increase in aggregate supply increases the real domestic output and reduces the price level effects from an increase in aggregate demand.

TRUE

19. Minimum wage laws tend to make the price level more flexible rather than less flexible.

FALSE

20. The price level in the United States is more flexible downward than upward.

FALSE

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