question

Assume that in the base year (2008), a country's nominal GDP is 10,000 billion dollars. The country has been experiencing inflation at a rate of 5% each year since the year 2003. Based on this information, the real GDP of 2008 is equal to:

answer

$10,000 billion

question

The reason the dollar value of only final goods and services are counted in GDP is that:

answer

if we counted the value of all goods we would count inputs, like the value of steel in a new automobile, more than once

question

A decrease in demand and a decrease in supply will lead to a __________ in equilibrium quantity and an ___________ in equilibrium price.

answer

decrease; indeterminate change

question

Suppose the economy is at point G (lies under the curve). This implies that:

answer

the economy is experiencing unemployment and/or inefficient allocation of resources

question

Given a supply curve for lamps, when the price of lamps increases, the:

answer

quantity supplied increases

question

The circular-flow diagram illustrates how firms ______ goods and services and ________ factors of production.

answer

sell; buy

question

The primary difference between a change in supply and a change in the quantity supplied is that:

answer

a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve

question

A decrease in the prices of DVD players (a complement) would result in a change illustrated by:

answer

the move from h to i (shift of demand curve to the right)

question

When building a model, economists:

answer

simplify reality in order to highlight what really matters

question

The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

answer

the U.S. has a comparative advantage in wheat and an absolute advantage in wheat

question

An example of a government transfer is a:

answer

Social Security payment

question

A small town has a thriving market for acupuncture treatments. In an effort to regulate this market, the town requires each acupuncture therapist to purchase a license. Initially, the government issues only enough licenses to provide for 20 treatments per month. This quota creates a quota rent equal to:

answer

$200

question

Which is not an inefficiency caused by price floors?

answer

inefficiently low prices

question

Equity means that:

answer

everyone gets his or her fair share of the goods and services produced

question

Long-run growth is:

answer

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

question

Which of the following demonstrates one of the three principles of economy-wide interactions?

answer

fearing a recession, Congress approved a White House proposal to send tax rebates to 2007 taxpayers

question

When the supply curve shifted from the initial equilibrium, the new intersection of supply and demand has a price of _______ and quantity of 400. This could have resulted from ______.

answer

$1.50; an increases in refining technology

question

The trough of the business cycle:

answer

is a temporary minimum level of real GDP

question

The U.S. production possibility frontier will _______ if there is a large influx of immigrants.

answer

shift out

question

Which of the following is true about inflation and deflation?

answer

both inflation and deflation can pose problems for the economy

question

If an economy has used up all opportunities to make someone better off (without making someone else worse off) then it has achieved ______.

answer

efficiency

question

When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have:

answer

a trade deficit

question

if macroeconomic policy has been successful over a period of time, it is likely that the economy has not seen:

answer

severe recessions

question

Which of the following is most likely a macroeconomics question rather than a microeconomics question?

answer

"is the national unemployment rate rising or falling?"

question

Specialization and trade should lead to all of the following except:

answer

a decrease intotal economic output

question

If the government imposes a price floor of $1.00per can of soda, there will be a(n):

answer

surplus of 3 units

question

A binding price ceiling is designed to:

answer

keep prices low

question

Technological improvements will:

answer

shift the production possibility frontier outward

question

The GDP for 2007 was:

answer

C + G + I + E - IM $94 billion

question

The law of demand is illustrated when:

answer

an increase in the purchases of personal computers results from lower prices

question

In the graph, an effective price ceiling would be the price indicated at ______ and a ______ would exist as the difference between _______.

answer

point d (below equilibrium); shortage, points i and h

question

In recent times the U.S. government has been trying to help the economy through one of the worse economic slumps. The policies used are based on:

answer

Keynesian theory

question

All points on the production possibility frontier represent:

answer

efficient production points

question

Scarcity in economics means:

answer

not having sufficient resources to produce all the gods and services we want

question

The quota rent refers to:

answer

the difference between the demand price and the supply price at the quota limit; Pd-Ps

question

An example of investment spending would be:

answer

a purchase of anew productive machine

question

The government of a small town has decided to ban smoking in all restaurants, stores, and government offices. This is an example of which principle?

answer

when markets fail to achieve efficiency, government intervention can improve society's welfare

question

Margo spends $10,000 on one year's college tuition. The opportunity cost of spending on year in college for Margo is:

answer

whatever should would have purchased with the $10,000 and whatever she would have earned had she not been in college

question

Inflation can be measured by:

answer

the percentage change in the CPI

question

You read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical market basket in 2008 would have cost:

answer

20% more than the same market basket purchased in the base year

question

The equilibrium real GDP is:

answer

$500 billion

question

If planned investment spending increases autonomously by $100, GDP will:

answer

increase by $250

question

Frictional unemployment is:

answer

good since that means people may be seeking jobs that match their job skills

question

Changes in taxes shift the aggregate demand curve ______ equal-sized changes in government purchases

answer

by less than

question

Which of the following is an expansionary fiscal policy?

answer

an increase in unemployment benefits

question

A process that brings the inflation rate down, is called:

answer

disinflation

question

The percentage of the labor force who are unemployed is the:

answer

unemployment rate

question

In order to be officially unemployed, a person must be:

answer

looking for work in the past 4 weeks

question

Structural unemployment means there are:

answer

more people seeking work than there are jobs in a particular industry

question

One of the shortcomings of fiscal policy is that:

answer

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

question

Which of the following is true?

answer

unexpected inflation benefits borrowers and hurts lenders

question

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

answer

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

question

if real GDP is less than aggregate expenditure, then inventories will:

answer

fall and firms will increase their future production

question

Suppose investment spending increases by $50 billion, and as a result the equilibrium income increases by $200 billion. The value of the MPC is:

answer

0.75

question

If government increases income tax rates, the aggregate demand curve is likely to:

answer

shift to the left

question

Deviations from the natural rate of unemployment are known as:

answer

cyclical unemployment

question

The government has a budget surplus if:

answer

its total revenues are greater than its total expenditures

question

The short-run aggregate supply curve will decrease if:

answer

commodity prices rise

question

If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your MPC is:

answer

0.6

question

If the aggregate consumption equals $100,000,000 + .75 x YD, then autonomous consumption is:

answer

$100,000,000

question

To close an inflationary gap employing fiscal policy, the government could:

answer

reduce budget allocations to interstate highway maintenance

question

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

answer

interest rates and this affect the quantity of investment and consumption demand

question

When the economy is producing output below potential, it has a:

answer

recessionary gap

question

As an inflationary gap is eliminated through self-correcting adjustment, the equilibrium price level _____ and the equilibrium real output ______.

answer

increases; decreases

question

The country of Livonia has an adult population of 100 million. 60% of Livonia's population are employed, but 10% of the people are unemployed. The Labor Force Participation Rate in Livonia is:

answer

70%

question

Government payments to households for which no good or service is provided in return are called:

answer

transfer payments

question

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

answer

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

question

Menu costs are:

answer

the real cost of changing listed prices

question

In the short run, an increase in net exports is illustrated by:

answer

a shift to the right in the aggregate demand curve

question

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

answer

rises; aggregate output demand falls

question

In the long-run if all prices, including the nominal wage, rate doubled, then aggregate output supplied would:

answer

remain unchanged

question

The only government policy that has a DIRECT effect on the aggregate demand curve is:

answer

changing the level of government purchases of final goods and services

question

The accompanying graph shows the current short-run equilibrium in the economy. Appropriate fiscal policy action in this situation would be:

answer

a decrease in transfer payments

question

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

answer

an unexpected increase in consumer spending

question

If the stock market crashes:

answer

the aggregate consumption function will shift down

question

Which of the following is an automatic stabilizer?

answer

unemployment compensation payment to the unemployed auto-workers

question

Discouraged workers are those individuals:

answer

who have given up looking for a job

question

Implicit liabilities refer to the promises made by the government, such as:

answer

Social Security and Medicare

question

The SRAS curve is upward rising because:

answer

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

question

If MPC = .9, the multiplier is

answer

1/1-.9 = 10

question

Which of the following would be a part of macroeconomics?

answer

a study of recessions

question

A key theme fundamental to all economics is:

answer

people have unlimited wants facing limited means to satisfy them

question

The best measure of the opportunity cost of any choice is:

answer

whatever you have given up to make that choice, even if no monetary costs are involved

question

You are planning to study eight hours this week for your economics final and are considering studying a ninth hour. You should:

answer

make our decision based on the cost of your next best alternative use of your time compared to the benefit of one more hour of study

question

The phrase "gains from trade" refers to the:

answer

increase in total output that is realized when an individual specialize in particular tasks and trade with each other

question

In most cases, economic efficiency is achieved through:

answer

incentive built into a market economy

question

Market failure occurs when:

answer

individual actions have side effects that are not properly taken into account

question

The models used in economics:

answer

emphasize basic relationships by abstracting from complexities in the everyday world

question

An economy is said to have a comparative advantage if it:

answer

has the lowest cost for producing a particular good

question

Eastland and Westland produce only two goods, peaches and oranges, and this figure shows each nation's production possibilities frontier for the two goods. Eastland has a comparative advantage in producing:

answer

oranges only; because it has a steeper slope

question

Which of the following is NOT a factor of production?

answer

money

question

A decrease in the price of a good will result in:

answer

an increase in the quantity demanded

question

If people demand more of product A when the price of B falls, then A and B are:

answer

complements

question

Which of the following is likely to cause a rightward shift in the demand for home-delivered pizza?

answer

a larger population

question

The typical supply curve illustrates that:

answer

other things equal, the quantity for a good is positively related to the price of a good

question

If the price of mozzarella cheese declines due to a major technological breakthrough in the dairy industry, there would be:

answer

an increase in the supply of pizza

question

In the market for wheat, what would happen if the price of ethanol increases dramatically?

answer

a decrease in the supply of wheat

question

A decrease in demand and a decrease in supply will lead to a(n) _____ in equilibrium quantity and a(n) _____ in equilibrium price.

answer

decrease; indeterminate change

question

If rent controls are set at RENT3:

answer

rent would remain at RENT2 (equilibrium)

question

If the minimum wage is a binding price floor then:

answer

the number of workers who want to work will be greater than the number of jobs available

question

The modern tools of macroeconomic policy are:

answer

fiscal policy and monetary policy

question

Keynesian economics propagates the economic ideas:

answer

that argue that the government can help a depressed economy through fiscal and monetary policies

question

The short-run alternation between economic downturns, and economic upturns and expansions is known as the:

answer

business cycle

question

Suppose an economy experiences rising total output accompanied by increasing employment; this is generally known as:

answer

expansion

question

Long-run growth is:

answer

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

question

If the economy grew at a 3% rate this year and average prices grew ____, people would be better off this year compared with last year

answer

slower than 3%

question

The annual percentage change in the aggregate price level is negative when there is:

answer

deflation

question

Households derive income from all of the following except:

answer

imports

question

Which of the following would NOT be considered a government transfer?

answer

payment by the defense department for a new weapons system

question

Investment spending represents spending on:

answer

productive physical capital

question

Which of the following is false? Gross domestic product:

answer

the total production of all final and intermediate goods and services

question

Real GDP is the same as:

answer

inflation and adjusted GDP

question

Positive unplanned inventor investment occurs when:

answer

actual sales are less than expected sales

question

An example of an automatic stabilizer that works when the economy contracts is:

answer

a rise in government transfers, as more people receive unemployment insurance benefits

question

An inflationary gap can be closed with:

answer

a decrease in government purchases

question

If planned investment spending increases autonomously by $100, GDP will:

answer

increase by $250

question

Consider a simple economy; MPC = 0.75, income = $400 billion and aggregate consumption spending = $400 billion. The autonomous consumption is:

answer

$100 billion

question

Keynesian economists believe that the budget be "balanced" each fiscal year. Is this correct?

answer

No, a budget needs to be balanced only on average; it can be in a deficit when there is a recession and offset by surpluses when the economy is doing well

question

If GDP is smaller than planned aggregate spending, then:

answer

unplanned inventory investment is negative

question

Which of the following would be the appropriate response of the North-west government? (using graph)

answer

expand aggregate demand by decreasing taxes to close the recessionary gap (move curve to equilibrium)

question

Discretionary fiscal policy involves:

answer

using government spending or tax policy to affect aggregate demand

question

The short-run aggregate supply curve slopes upward because of:

answer

wage and price stickiness

question

Cyclical unemployment is characterized as:

answer

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

question

According to the accelerator principle:

answer

there is a positive relationship between expected future growth and planned investment spending

question

The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:

answer

consumption and investment

question

A downward shift in the consumption function can be caused by:

answer

a decline in consumer wealth

question

Aggregate demand will decrease if:

answer

the government raises the tax rate

question

Contractionary fiscal policy would include:

answer

increased taxes

question

"Income-expenditure equilibrium" can be defined as a situation in which:

answer

there is no unplanned inventory investment

question

All of the following are examples of fiscal policy EXCEPT:

answer

reducing the money supply in order to raise the interest rate

question

Because of the pressure existing at the short-run equilibirum at Y2 and P2:

answer

the SRAS curve will shift to the left

question

Stagflation may result from:

answer

an increase in the price of imported oil

question

If the actual inflation rate is less than the expected inflation rate, then:

answer

the lenders gain and the borrowers lose

question

Suppose that U.S. debt is $7 trillion 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:

answer

$7.5 trillion

question

Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.80. Assuming no taxes and no trade, by how much will real GDP change?

answer

$500 billion decrease (1/1-.8*100)

question

In 2007, the Bureau of Labor Stats. concluded the unemployment rate to be 7.5%. If the frictional unemployment was 3% and the structrual unemployment was 2%, then the cyclical unemployment rate would be:

answer

2.5% (actual-natural)

question

Menu costs refer to the increase cost:

answer

of changing listed prices

question

In the short run, an increase in wages is illustrated by:

answer

the SRAS1 curve shifting to the left to SRAS2

question

The rate of unemployment that exists when the economy is at full employment is:

answer

the natural rate of unemployment

question

Discretionary fiscal policy may fail to stabilize the economy or even make the economy less stable due to:

answer

lags in deciding and implementing a policy change

question

Among the costs of inflation are all of the following except:

answer

efficiency wage costs

question

If your disposable income increase from $10,000 to $15,000 and your consumption increase from $9,000 to $12,000, your MPC is:

answer

0.6

question

Suppose that the economy is in a recessionary gap, the policy makers in the government can:

answer

increase the money supply, lower the interest rate, increase investment and consumption spending and thus increase aggregate demand

question

The rate of unemployment is found by dividing the:

answer

number of people looking for work by the number of people looking for work plus the number of people employed

question

People who are in the process of changing jobs are accounted for in the category of:

answer

frictional unemployment

question

Changes in taxes shift the aggregate demand curve______ equal-sized changes in government purchases.

answer

by less than

question

The consumption of aggregate demand are:

answer

C, I, G, X-IM

question

In the consumption function, an individual household's consumer spending:

answer

is positively related to its current disposable income

question

All of the following will increase the economy's potential output EXCEPT:

answer

a decrease in the aggregate price level

question

The relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world is called:

answer

aggregate demand

question

The official unemployment rate reported by the government may tend to understate the amount of unemployment by:

answer

excluding discouraged workers who are not actively seeking employment

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