### the total of people employed and unemployed

The labor force is

### be out of work and be actively looking for a job

To be counted as unemployed, one must

### 20%

If a country has a working-age population of 200 million, 120 million people with jobs, and 30 million people unemployed and seeking employment, then its unemployment rate is

### a discouraged worker

A person who is out of work, would like to work, but has given up looking for work, is called

### It rises to 28.6%

A survey reveals that on a small island initially 100 people have jobs, 25 people are looking for jobs, and 45 people are neither working nor looking for work. Suppose that 15 of the 45 people who weren't looking for work now begin looking for work. There are now 40 people looking for work and 100 people working. What happens to the unemployment rate?

Unemployment=

### 13 million

If the rate of unemployment is 10% and the labor force is 130 million, the number of unemployed workers is

### not included in the labor force

In calculating the unemployment rate, discouraged workers are

### unemployment increases and the growth rate of real GDP decreases

During a recession

### frictional unemployment

Unemployment that is due to the time workers spend in job search is considered

### the minimum wage

Frictional unemployment exists because of all of the following except

### unemployment that results when there are more people seeking jobs than there are jobs available at the current wage rate

Structural unemployment is

### employers are willing to hire more people at lower wages

The labor demand curve is negatively sloped because

### structural

When the demand for labor is falling and employers have committed to high wages, ______ unemployment will result

### provide an incentive for better performance

Efficiency wages are usually set by employers to

### equal to the sum of frictional and structural unemployment

The natural rate of unemployment is

### the entrance of large numbers of women into the work force

Which of the following is likely to result in pushing the natural rate of unemployment upward?

### the deviation in the actual rate of unemployment away from the natural rate.

Cyclical unemployment is characterized as

### job training and employment subsidies

Which pair of policies is likely to have the effect of reducing the natural rate of unemployment?

### autoworker who is laid off from an automobile company due to a decline in sales caused by a recession.

An example of cyclical unemployment is a(n):

### inflation

Increases in the average level of prices is

### increased cost of transactions due to inflation

Shoe-leather costs refer to the

When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level, economists say that Pedro is experiencing a

### costs associated with money being a less reliable unit of measurement

Unit-of-account costs of inflation are the

### Unexpected inflation benefits borrowers and hurts lenders.

Which of the following is true?

### disinflation

A process that brings the inflation rate down, is called

### makes people reluctant to loan money for long periods

The threat of future inflation

### the change in consumer spending divided by the change in aggregate disposable income

The marginal propensity to consume is

### one

The MPS plus the MPC must equal

### 1/[1-MPC]

The multiplier is

### 0.8

If your disposable personal income increases from \$10,000 to \$15,000 and your consumption increases from \$9,000 to \$13,000, your MPC is:

### increase by \$250 billion

Suppose the government increases its spending by \$100 billion as a stimulus package. If the MPC is 0.6, then equilibrium income will

### its current disposable income

The most important factor affecting a household's consumer spending is

### rises

When future disposable income rises, then current consumption

### disposable income, expected future disposable income, and wealth

The aggregate consumption function depends on

### plan spending over their lifetime

The life-cycle hypothesis suggests that consumers

### investment spending by the firms is positively related to the expected future growth of real GDP

The Accelerator Principle states that

### a decrease in aggregate demand

Most recessions originate from

### actual sales are less than expected sales

Positive unplanned inventory investment occurs when

### an unexpected increase in consumer spending

Which of the following will cause a decrease in unplanned inventory investment?

### \$6,900

GDP is \$8,000, autonomous consumption is \$500, and planned investment spending is \$200. The marginal propensity to consume is 0.8. How much is consumption?

### \$3,100

GDP is \$8,000, autonomous consumption is \$500, and planned investment spending is \$200. The marginal propensity to consume is 0.8. If GDP is \$3,000, planned aggregate spending is

### PEplanned= \$350 + 0.6 Ć YD

In an economy without government purchases, government transfers, or taxes, aggregate autonomous consumer spending is \$250 billion, planned investment spending is \$100 billion, and the marginal propensity to consume is 0.6. What is the expression for planned aggregate spending?

### 10

If the MPS = .1, then the value of the multiplier equals

### consumer spending divided by the change in disposable income

The marginal propensity to consume (MPC) is equal to the change in

### increase by \$250 billion

Suppose the government increases its spending by \$100 billion as a stimulus package. If the MPC is 0.6, then equilibrium income will

### disposable income

The most important determinant of consumer spending is

### C = \$500 + 0.7 Ć YD.

When David has no income, he spends \$500. If his income increases to \$2,000, he spends \$1,900. Which of the following represents his consumption function?

### households expect an increase in the minimum wage in the future

The consumption function will shift up if

### decrease autonomous consumption; down

Other things being equal, expectations of lower disposable income in the future would ________ and shift the consumption function _________.

### disposable income, expected future disposable income, and wealth

The aggregate consumption function depends on

### plan spending over their lifetime.

The life-cycle hypothesis suggests that consumers

### 0.25

If MPC=.75, then the MPS is

### Actual Investment = Planned Investment + Unplanned Investment

Which one of the following accurately describes actual investment spending

### fluctuates more than consumption

Investment spending

### negatively related; a rise in the market interest rate makes any given investment project less profitable

Planned investment spending is _______ to the interest rate because ______.

### the opportunity cost of investment is greater

If the interest rate rises, then

### positive; slowing

Rising inventories typically indicate _______ unplanned inventory investment and a _________ economy.

### higher; higher planned investment spending

According to the accelerator principle, a _______ rate of growth in real GDP leads to _______.

### the marginal propensity to consume.

The slope of the planned aggregate spending line is determined by

### a downward slope

The negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve

### rises; aggregate output demanded falls

According to the aggregate demand curve, when the aggregate price level _________, the quantity of _________.

### wealth; aggregate demand; downward

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.

### interest rates and thus affect the quantity of investment and consumption demanded.

The interest rate effect is the tendency for changes in the price level to affect

### the aggregate demand curve shifts to the left

Suppose that the stock market crashes. Which of the following is most likely to occur?

### changes in the price level

Which of the following is a factor which can not shift the aggregate demand curve?

### a fall in consumers' wealth. a decrease in the amount of money in circulation. more pessimistic consumer expectations.

The aggregate demand curve would shift to the left for all the following reasons

### the government raises the tax rate

Aggregate demand will decrease if

### U.S. Congress approves an economic stimulus package. taxpayers receive a \$1500 per family rebate government spends on building and repairing the nation's bridges and roads.

All of the following are examples of fiscal policy

### the aggregate price level and the quantity of aggregate output supplied

The aggregate supply curve shows the relationship between

### a higher aggregate price level leads to higher output since most production costs are fixed in the short run.

The SRAS curve is upward rising because

### wages are sticky or don't readily adjust to changes in economic conditions in the short run.

The short-run aggregate supply curve is positively sloped because

### upward sloping

The short-run aggregate supply curve is

### an economy-wide decrease in commodity prices

Which of the following will shift the short-run aggregate supply curve to the right?

### a change in commodity prices

Which of the following would cause a shift in the short-run aggregate supply curve?

### supply shifts to the right

If nominal wages fall, then short-run aggregate

### flexible because contracts and informal agreements are renegotiated in the long run

In the long run, nominal wages are

### vertical.

The long-run aggregate supply curve is

Potential output

### potential output

The level of output in the long run is known as

### SRAS and aggregate demand

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of

### a demand shock

An event that shifts the aggregate demand curve is called

### a reduction in money supply. a tax increase. an increase in government expenditure.

All of the following are examples of demand shocks

### reduces aggregate output and increases the aggregate price level

A negative short-run supply shock

### actual real GDP is less than potential output

A recessionary gap occurs if

### -10%

Potential real GDP is equal to \$10,000 and the current level of real GDP is equal to \$9,000. The output gap is therefore equal to

### lower; SRAS curve rightward

A recessionary gap can be closed by _______ wages that shift the _______ .

### nominal wages rise and fall in order to close an inflationary or a recessionary gap

In the long run, inflationary and recessionary gaps are self-correcting because, eventually

### self-correcting as nominal wages increase during recessionary gaps and decrease during inflationary gaps to move the economy to long-run equilibrium

In the long run, the economy is

### economic self-correction can take several years

An advantage of stabilizing macroeconomic policy over economic self-correction is that

### a decrease in unemployment and an increase in the aggregate price level

In response to a negative supply shock, the government decreases taxes. The most likely result of the government's tax decrease is

### social insurance taxes. the corporate profits tax. the personal income tax.

All of the following are sources of federal tax revenue

### Social Security payments to retired postal workers

Which of the following is a government transfer?

### personal income taxes

The largest source of federal tax revenues is

### G ; C and I

In the basic equation of national income accounting, the government directly controls _____ and influences ______.

### decrease government purchases

Suppose the economy is experiencing an inflationary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to

### increasing government spending

If the economy experiences a decline in overall spending, and thus a contraction, the government could counter this by

### expansionary fiscal policy; shifts the aggregate demand curve to the right, increasing aggregate output

An increase in government transfers is considered to be an example of ________ because it ________.

### taxes increase

Consumer spending will fall, if

### increasing government expenditures

Expansionary fiscal policy includes

### decreasing government expenditures

Contractionary fiscal policy includes

### a recessionary gap

Consider the economy of Arcadia. The households of Arcadia spend 75% of their income. There are no taxes and no foreign trade. The currency of Arcadia is called "Arcs". The level of potential output in Arcadia is 600 billion arcs. Refer to the information provided. Suppose the actual real GDP in Arcadia is 500 billion arcs. Then, the economy has

### it has time lags and sometimes it may end up destabilizing the economy as a result of these lags

One of the shortcomings of fiscal policy is that

### Increase government spending by \$20 billion

Assume that marginal propensity to consume is 0.8, and potential output is \$800 billion. If current real GDP is \$700 billion, which of the following policies would bring the economy to potential output?

### 1/(1 - MPC)

The multiplier effect of changes in government purchases of goods and services is equal to

### 3

Consider the economy of Arcadia. The households of Arcadia spend 75% of their income. There are no taxes and no foreign trade. The currency of Arcadia is called "Arcs". The level of potential output in Arcadia is 600 billion arcs. Refer to the information provided. Suppose the government of Arcadia decides to tax its citizens. The tax multiplier is

### people with a high MPC

A cut in taxes will have a greater impact on aggregate demand if it is given to

### decreases the size of the multiplier

The presence of an automatic stabilizer in government tax revenue that occurs when GDP rises

### cause fiscal policy to be expansionary when the economy contracts

Automatic stabilizers are government spending and taxation rules that

### tax receipts decrease but unemployment insurance payments increase

When the economy is in a recession

### deficit; contracts

The federal budget tends to move toward _____ as the economy ____.

### Taxes - Government purchases - Government transfers

The government budget balance equals

### its total revenues are less than its total expenditures

The government has a budget deficit if

### its total revenues are greater than its total expenditures

The government has a budget surplus if

### experience more severe business cycles than those not required to balance their budgets

States that are required by their constitutions to have annually balanced budgets are likely to

### \$7.5 trillion

Suppose that U.S. debt is \$7 trillion dollars at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are \$2 trillion and tax revenues equal \$1.5 trillion. At the end of the fiscal year, the debt is

Public debt is

### implicit liabilities

Fiscal experts in the United States are currently most concerned about the country's

### spending promises, like Social Security benefits, that are effectively debt although no bond is associated with the promise

Implicit liabilities of a government are

### increase their money holdings, which increases interest rates and decreases investment spending.

According to the interest rate effect, an increase in the price level causes people to:

### \$3.5 million.

The Boeing Corporation buys \$3 million worth of steel from the Steel manufacturers,
\$2.5 million worth of computerized hardware and software, and \$1 million worth of
mechanical tools to manufacture a certain model of aircraft. Boeing Corporation sells
this particular model of aircraft at \$10 million. The value-added by Boeing is equal to:

### higher prices lead to higher profit and higher output.

The short-run aggregate supply curve is positively sloped because

### The aggregate demand curve shifts right, output increases, and prices increase.

Suppose that the U.S. government doubles its spending on health care. Which of the
following is most likely to occur?

### C + I + G + X - IM

Which one of the following equations correctly measures GDP?

### of changing listed prices.

Menu costs refer to the increased cost:

### 2%.

If the actual unemployment rate is 7% and the natural rate of unemployment is 5%,
then the cyclical unemployment rate is:

### discouraged workers who have given up looking for a job.

The official unemployment rate ignores:

### 6%.

discouraged workers who have given up looking for a job.

### 4%

Suppose that the nominal rate of interest is 7% and the inflation rate is 3% then the
real rate of interest is equal to:

### below

If the economy is currently in a recessionary gap, real GDP will be ________ potential
output.

### changes in prices.

Real GDP is nominal GDP adjusted for:

### 0.8

If disposable income increases by \$5 billion and consumer spending increases by \$4
billion, the marginal propensity to consume is equal to:

### 0.2

Suppose that the consumption function is: C = \$500 + 0.8 Ć YD where YD is
disposable income. The marginal propensity to save is:

### decrease autonomous consumption; down

Other things being equal, expectations of lower disposable income in the future would
________ and shift the consumption function _________.

### the CPI market basket doesn't reflect the fact that consumers shift consumption away from more expensive goods.

Many economists believe that the CPI overstates inflation because:

### a decrease in the amount of money in circulation. more pessimistic consumer expectations. a fall in consumers' wealth.

The aggregate demand curve would shift to the left for all the following reasons

### Over 16 Not currently working Looked for work in the last 4 weeks (Non-institutionalized)

Who is unemployed?

### Retirees Students Inmates Discouraged workers

unemployment Does not include?

Labor Force

### Labor Force/Non-institutionalized population over 16

Labor force participation rate=

### Unemployed/Labor Force

Unemployment rate =

### Would like to work, but have given up looking

Discouraged workers

### Looked in the last 12 months, but not in the last 4 weeks

Marginally attached workers

### Forced to work part-time, but would like to work full-time

Underemployed workers

### 2.5-3%

GDP growth just to keep the unemployment rate steady?

### 3.9%

Current forecast for 2011 GDP Growth?

### 5 million separations (quits or fired) 5 million hires Numbers have fallen a bit, but still around 4 million

Constant Churning in the Labor Market
In a typical month...

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