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47 terms

ECON FINAL 3/6

STUDY
PLAY
The U.S. economy has experienced alternating periods of expansion and contraction in economic activity relative to its long-term growth trend in the economy. These are called economic fluctuations or business cycles.
A. TRUE
B. FALSE
TRUE
A recession is a period during which:
A. employment, production, and income decrease
B. the price level is increasing
C. inventories are falling dramatically
D. the unemployment rate is falling while the price level is rising
E. the government attempts to reduce a budget deficit by reducing taxes and increasing government spending
employment, production, and income decrease
By a leading economic indicator, economists mean
a. an indicator of future economic activity
b. an indicator that measures current economic activity
c. a highly accurate indicator that is easily measured
d. an indicator that is accurate most of the time
e. any variable that can measure either past or present economic activity
an indicator of future economic activity
The aggregate demand curve slopes downward because households feel poorer after a decrease in the price level.
a. True
b. False
False
Given the following aggregate demand and aggregate supply schedules, determine the equilibrium level of prices and output.
(OTHER SIDE)

a. equilibrium output $1,000 and equilibrium price level 25 b. equilibrium output $800 and equilibrium price level 50 c. equilibrium output $200 and equilibrium price level 125 d. equilibrium output $400 and equilibrium price level 25 e. equilibrium output $600 and equilibrium price level 75
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equilibrium output $600 and equilibrium price level 75
Which of the following is the best example of an investment as defined by economists?
a. a household's purchase of 100 shares of Apple computer stock
b. a firm's purchase of 100 shares of General Electric stock
c. a firm's purchase of a bond issued by General Mills
d. a firm's purchase of a U.S. savings bond
e. a firm buying personal computers for its secretarial staff
a firm buying personal computers for its secretarial staff
If business leaders become optimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________.
a. increase; increases; fulfilled
b. increase; increases; not met
c. increase; decreases; fulfilled
d. decrease; decreases; fulfilled
e. decrease; increases; not met
increase; increases; fulfilled
According to Keynes, in order to get the economy out of a recession, the government should
a. plan for a budget deficit
b. encourage firms to export to other nations, thereby jump-starting the economy
c. follow an expansionary monetary policy
d. follow a contractionary monetary policy
e. do nothing and rely on the market system to heal itself
plan for a budget deficit
When the history of the U.S. economy, which economic era saw both high unemployment and high in inflation at the same time?
a. after the Great Depression to the early 1970s
b. since the early 1980s
c. the colonial period
d. before and during the Great Depression
e. from the early 1970s to the early 1980s
from the early 1970s to the early 1980s
Use the following data to calculate GDP: consumption = $2,000; gross investment = $600; government purchases = $500; net exports = -$40; transfer payments = $340.
a. GDP = $2,720
b. GDP = $3,060
c. GDP = $3,140
d. GDP = $3,400
e. GDP cannot be determined due to insufficient data
GDP = $3,060
Jimmy Earl, a farmer, sells $20 worth of peanuts to a factory that turns them into peanut butter, which is then sold for $45. Which of the following is true?
a. Total value added is $65.
b. The value of final sales is $65.
c. The value of final sales is $25.
d. Total value added is $25.
e. Total value added is $45.
Total value added is $45.
Taxes are an injection into the circular flow.
a. True
b. False
False
If nominal GDP increases by 4 percent, then:
a. real output has increased by 4 percent
b. the price level has increased by 4 percent
c. consumer spending must have increased by 4 percent
d. it is possible that all of the increase was caused by an increase in the price level
e. net exports increased by 4 percent
it is possible that all of the increase was caused by an increase in the price level
Refer to Exhibit 7-3. Between 2001 and 2002, real GDP for this nation (OTHERSIDE)

a. increased by slightly less than $10 billion
b. decreased by slightly more than $5 billion
c. remained constant
d. increased by only about $1 billion
e. cannot be determined from the information given
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increased by slightly less than $10 billion
In 2007, if the country of Moolah had consumption of $20 trillion, gross investment of $4 trillion, government purchases of $5 trillion, and GDP of $26 trillion, then net exports must have been
a. + $3 trillion
b. + $29 trillion
c. - $29 trillion
d. - $3 trillion
e. The question cannot be answered without knowing the amount of imports
- $3 trillion
If nominal GDP for a particular year is $4 trillion and real GDP for that year is $3 trillion, then the GDP price index is 133.
a. True
b. False
True
If Q is total real output, K is capital in use, and L is labor employed, the productivity of labor is measured by
a. K/L
b. L/K
c. Q/L
d. Q/K
e. (Q + K)/L
Q/L
The difference between human capital and physical capital is that:
a. human capital is used by humans whereas physical capital is not
b. only human capital increases labor productivity
c. human capital is not physical; an example of human capital is education
d. physical capital requires investment, whereas human capital does not
e. only physical capital increases labor productivity
human capital is not physical; an example of human capital is education
Which of the following does not contribute to labor productivity growth?
a. a steepening of the per-worker production function
b. an increase in amount of capital per unit of labor
c. growth of the labor force
d. an improvement in the quality of capital
e. a decrease in the labor-capital ratio
growth of the labor force
The reason why small changes in productivity growth rates have large long-term effects on economic growth over the long run is that
a. lower productivity growth makes labor discouraged, compounding the problem
b. lower productivity growth effects on the economy are compounded over the years,
leading to large cumulative effects
c. when the productivity growth rate falls, output actually falls
d. lower productivity growth for one resource means lower productivity growth for
all resources
e. output usually falls when productivity grows
lower productivity growth effects on the economy are compounded over the years,
leading to large cumulative effects
An increase in labor productivity necessarily means an increase in real GDP per capita if
a. real GDP increases
b. the employment growth rate is greater than the population growth rate
c. the employment growth rate is less than the population growth rate
d. the size of the labor force remains constant
e. real GDP increases more rapidly than nominal GDP
the employment growth rate is greater than the population growth rate
Basic research seeks to answer specific questions or to apply scientific discoveries to the development of specific products.
a. True
b. False
False
The economic theory that states that as time passes, economic systems become much more similar, with common rates of growth, common employment levels and common rates of inflation is known as
a. divergence theory
b. parallel path theory
c. convergence theory
d. non-competing economic systems theory
e. static state theory
convergence theory
Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number counted as unemployed is
a. 10
b. 15
c. 40
d. 30
e. 90
10
When workers are over-qualified for their current jobs or can find only part-time work, we say they are
a. unemployed
b. discouraged workers
c. not in the labor force
d. overemployed
e. underemployed
underemployed
Sharon was being treated unfairly by her boss, so she stormed off the job and two weeks later found another position. For two weeks Sharon experienced
a. cyclical unemployment
b. structural unemployment
c. seasonal unemployment
d. frictional unemployment
e. being out of the labor force
frictional unemployment
Which of the following is not consistent with full employment?
a. an unemployment rate of 5 percent or 6 percent
b. seasonal unemployment
c. structural unemployment
d. cyclical unemployment
e. frictional unemployment
cyclical unemployment
Which of the following factors is one reason that the official unemployment rate could overstate the actual level of unemployment in the economy?
a. exclusion of discouraged workers
b. inclusion of those only working part-time
c. inclusion of those who are overqualified for their current jobs
d. exclusion of those who work at a family business
e. inclusion of those who pretend to look for work in order to qualify for welfare
programs
inclusion of those who pretend to look for work in order to qualify for welfare
programs
If the aggregate supply curve shifts leftward,
a. the price level increases and output increases
b. the resulting increase in the price level is usually called cost-push inflation
c. the resulting increase in the price level is usually called demand-pull inflation
d. the price level increases only if there is also a rightward shift of the aggregate
demand curve
e. the price level decreases and output increases
the resulting increase in the price level is usually called cost-push inflation
Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true?
a. Your real wage fell.
b. Your nominal wage fell.
c. Both your nominal and real wages decreased.
d. Although your nominal wage fell, your real wage increased.
e. Both your nominal and real wages increased.
Both your nominal and real wages increased
Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070. If the actual inflation rate was 7 percent, what was the real rate of interest Tony received?
a. 14 percent
b. 7 percent
c. 4 percent
d. 0 percent
e. -7 percent
0 percent
During periods of inflation, the real value (purchasing power) of a given amount of nominal dollars decreases.
a. True
b. False
True
Induced consumption spending

a. represents consumption that is independent of income

b. plus saving equals total consumption spending

c. is positively related to disposable income

d. is equal to autonomous consumption spending in equilibrium

e. is the difference between autonomous consumption spending and disposable
income
is positively related to disposable income
If a household's income rises from $20,000 to $22,000 and its consumption spending rises from $19,000 to $20,500, then its

a. marginal propensity to save is 0.70
b. marginal propensity to save is 0.02
c. marginal propensity to consume is 0.93
d. marginal propensity to consume is 0.95
e. marginal propensity to consume is 0.75
marginal propensity to consume is 0.75
Expectations that the price level will decrease in the future will

a. make the current consumption function flatter
b. shift the current consumption function downward
c. result in a movement upward along the current consumption function
d. result in a movement downward along the current consumption function
e. make the current consumption function steeper
shift the current consumption function downward
A grocery store manager must decide whether to buy four rug cleaners to rent to customers. The manager estimates that the first would yield an income of $200 a year, the second $150, the third $75, and the fourth $20. If the interest rate is 12 percent and each rug cleaner costs $500, how many should the manager buy?

a. none
b. one
c. two
d. three
e. four
three
When economists say investment is autonomous, they mean that
a. investment is independent of the level of optimism about economic conditions
b. the forces motivating investment are not economic
c. investment is independent of the level of income
d. investment is independent of the level of saving
e. investment is independent of the rate of interest
investment is independent of the level of income
Net taxes are
a. taxes plus transfer payments
b. taxes minus transfer payments
c. an injection into the economic system
d. consumption after taxes
e. government spending minus taxes
taxes minus transfer payments
If incomes in the United States increase, other things equal, then U.S.
a. imports increase and exports remain constant
b. exports increase and imports decrease
c. imports decrease and exports decrease
d. imports remain constant and exports increase
e. net exports remain constant
imports increase and exports remain constant
A firm's level of investment is tied to the interest rate

a. only when the firm has to borrow funds to buy capital
b. only when the firm has to borrow funds to buy stocks
c. only when the firm already has the funds and could lend them
d. because the interest rate represents the opportunity cost of investing in capital
e. because investments are always made with borrowed funds
because the interest rate represents the opportunity cost of investing in capital
In Exhibit 10-1, which of the variables are autonomous? (OTHERSIDE)
a. saving and consumption only
b. net taxes and government purchases only
c. net exports and government purchases only
d. consumption, investment, and net exports only
e. investment, net exports, net taxes, and government purchases
investment, net exports, net taxes, and government purchases
At the equilibrium level of GDP in Exhibit 10-2, saving equals
a. $0.4 trillion
b. $0.6 trillion
c. $0.5 trillion
d. $0.2 trillion
e. $0.3 trillion
$0.3 trillion
At the equilibrium level of real GDP, unplanned inventory adjustment equals
A. planned investment
B. saving
C. zero
D. actual investment
E. consumption
zero
If planned investment saving zero actual investment consumption
the MPS is 0.25, the simple multiplier is
A. 25
B. 75
C. 5
D. 3/4
E. 4
4
Suppose that planned investment increases by $200 billion and that the marginal propensity to consume equals 0.80. The aggregate expenditure line will shift upward by __________ at every level of real GDP.
a. $40 billion
b. $160 billion
c. $200 billion
d. $250 billion e. $1,000 billion
$200 billion
An increase in the price level will

A. shift the aggregate expenditure line upward
B. shift the aggregate expenditure line downward
C. cause a movement up along the aggregate expenditure line
D. cause a movement down along the aggregate expenditure line
E. have no effect on the aggregate expenditure line or the equilibrium level of real GDP
shift the aggregate expenditure line downward
A decrease in the price level will have which of the following effects?

a. The real value of dollar-denominated assets will fall.
b. The aggregate expenditure line will shift downward.
c. The equilibrium level of output demanded will fall.
d. There will be downward movement along a particular aggregate demand curve.
e. The aggregate demand curve will shift leftward.
There will be downward movement along a particular aggregate demand curve.