question

Which statement is the most accurate?

answer

It was not until the massive arms build up leading up to our involvement in World War 2 that we finally began to emerge from the Great Depression.

question

During the depths of the Great Depression our official unemployment rate reached

answer

25 percent

question

The longest economic expansion in our history began in

answer

the 1990s

question

The economic problem is essentially one of the deciding how to make the best use of

answer

limited resources to satisfy unlimited wants

question

The opportunity cost of producing one additional truck is

answer

the amount of other goods that could not be produced because productive resources were used instead

question

Capital refers to

answer

man made goods used to produce other goods or services

question

Adam Smith believed that the best way to promote the public interest was to

answer

let people pursue their own selfish interests

question

"From each according to his ability to each according to his needs is from"

answer

The Communist Manifesto

question

The adjustment of the ___ is the rationing mechanism in market economies

answer

Price

question

Our economy does a very good job with respect to

answer

efficiency but not equity

question

If supply increases and demand remains unchanged, equilibrium quantity will ___ and equilibrium price will ___

answer

rise, fall

question

If the government were today to set a price ceiling of 50 cents for a gallon of gasoline, the most likely consequence would be

answer

a shortage of gasoline

question

When quantity supplied equals quantity demanded

answer

the market is cleared

question

For there to be demand for a good, people must

answer

be willing and able to buy the good at the market price

question

Shortages are associated with price___ surpluses are associated with price ___

answer

ceilings, floors

question

If government legislates a price floor that is below the equilibrium price

answer

market price and quantity sold will be unaffected

question

The largest component of GDP is

answer

consumption

question

Autonomous consumption expenditures are

answer

not influenced by income

question

The consumption function

answer

is a relationship between annual consumption and annual disposable income in an economy

question

Autonomous consumption is

answer

3000

question

When disposable income is 6000, C is

answer

3900

question

Investment will tend to be low when the

answer

capacity utilization rate is low and the interest rate is high

question

The only time to invest is when the expected rate of profit is ____ the interest rate

answer

greater than

question

Limited liability means that

answer

creditors have no legal claim on the personal assets of a corporate stockholder

question

If your firm had 300,000 the going rate of interest rate on business loans was 12 percent and your firms expected profit rate was 17 percent what would you do with this money

answer

use it to finance your own expansion

question

when disposable income is 1,000 I is

answer

400

question

The most important determinant of investment is

answer

the sales outlook

question

Double taxation is a disadvantage of the ____ type of business firm

answer

corporate

question

The economic policy of the U.S. government could have been described as laissez faire until about

answer

1933

question

If your taxable income rises from 35,000 to 45,000 and the taxes you pay rise from 12,000 to 15,000 your marginal tax rate is

answer

30 percent

question

If Mr. Smith faces a 90 percent marginal tax rate

answer

he has strong incentive to work less

question

If U.S. imports of goods and services exceeds exports

answer

GDP in the United States will be less than the sum of consumption, investment, and government purchases

question

The basis for international trade is

answer

specialization

question

If more foreign tourists visited the United States this would

answer

lower our overall trade imbalance

question

The most important economic concept to consider when deciding whether to produce a product domestically or import the product is

answer

opportunity cost

question

The GDP is the value of all final goods and services produced

answer

within the nations boundaries

question

The largest sector of GDP is

answer

consumption

question

Which of the following would Not be included in this years GDP?

answer

the purchase of 100 shares of Microsoft stock

question

Real GDP is

answer

GDP adjusted for inflation

question

The recovery phase of the business cycle ends when

answer

we reattain the level of the previous peak

question

in general ___by unanticipated inflation

answer

creditors are hurt and debtors are helped

question

the traditional Phillips curve suggests a conflict or tradeoff between

answer

the level of unemployment and price level stability

question

people are classified as unemployed if

answer

they are willing and able to work but cannot find a job

question

The difference between real and nominal interest rate is

answer

the expected inflation rate

question

Stagflation involves simultaneous high levels of

answer

unemployment and inflation

question

____ results from shifts in the demand for goods and services or changes in technology in the economy

answer

Structural unemployment

question

the term recession refers to

answer

a period of decline in real GDP for two business quarters

question

the consumer price index is based on

answer

a basket of goods and services purchased by a typical urban family

question

one form of cost push inflation economists refer to are

answer

attempts by labor to raise wages that result in increases in prices

question

under what condition will an increase in aggregate demand result in no increase in the price level

answer

the aggregate demand curve intersects the horizontal segment of the aggregate supply curve

question

If the economy is in the vertical portion of the AS curve, what will be the effect of an increase in the price level on output produced

answer

output will not change

question

according to Keynes lengthy recessions can occur because

answer

there is significant downward rigidity in prices and wages

question

the aggregate supply curve will be horizontal if

answer

the economy is operating with considerable idle capacity

question

if aggregate demand shifts from AD1 to AD2

answer

output will rise and the price level will remain the same

question

if aggregate demand shifts from AD4 to AD5

answer

the price level will rise and output will remain unchanged

question

in explaining why the level of investment spending fell to such a lower level during the Great Depression Keynes argued that

answer

businesses held bleak expectations concerning future businesses activity and were unwilling to borrow even at low interest rates

question

Say's laws states that supply creates its own demand because

answer

the act of producing creates an income sufficient to purchase all that is produced

question

A vertical aggregate supply curve was postulated by the classical economists because they believed that

answer

the economy naturally tended toward that level of output which would fully employ all resources.

question

Budget deficits are appropriate during

answer

recessions and inflations

question

Which statement is true about the graph above

answer

equilibrium GDP is to small

question

As a result of the existence of automatic stabilizers

answer

the government budget deficit will always increase during a period of economic recession

question

if the MPC is .6 and investment spending falls by 50 billion GDP will fall by ___ billion

answer

100

question

interest rates in the U.S. would have been higher in recent years had it not been for

answer

the federal budget deficits

question

money is created when someone

answer

takes out a bank loan

question

the demand for money schedule shows that the quantity of money that people want to hold

answer

rises as income rises

question

it is generally agreed that when the rate of monetary growth exceeds the rate of growth in real GDP in the long run

answer

the average price level will tend to increase over time

question

the precautionary demand for money arises

answer

because individuals are uncertain about the future

question

when inflation occurs

answer

money loses purchasing power

question

the most important policy weapon of the Fed is

answer

open market operations

question

the larger the reserve ratio the

answer

smaller the deposit expansion multiplier

question

when the fed buys U.S. bonds

answer

excess reserves in commercial banks are increased immediately

question

the discount rate refers to

answer

the rate of interest that the Fed charges on loans directly to commercial banks and thrift institution

question

if the current equlibrium output level is above the full employment output level the Fed should consider

answer

selling government securities, raising the disount rates, and raising the required reserve ratio

question

expansionary fiscal policy involves

answer

an increase in government spending and or decrease in taxes

question

during a recession banks are likely to

answer

hold excess reserves

question

excess reserves are important to a banker because

answer

they represent the funds available to use to acquire income production assets such as loans and securities

question

money is created when

answer

depository instituitions make loans

question

The Glass Stegall Act

answer

allowed banks to become more diverse in the investments they were allowed to make

question

according to the concept of the liquidity trap

answer

at very low interest rates people would put their money in the bank

question

money is destroyed when

answer

loans are repaid

question

John Maynard Keynes believed that a recession was caused entirely by

answer

inadequate aggregate demand

question

to the monetarists the most important thing is

answer

the rate of growth of the money supply

question

according to the laffer curve when very high marginal tax rates are lowered, tax revenue will

answer

increase

question

which one of the following statements best describe the monetarist view of government attempts to stabilize the economy

answer

discretionary policies often do more harm than good

question

most modern monetarists believe that

answer

inflation is explained by too rapid a rate of growth of the nominal money supply, resulting in too much money chasing too few goods

question

which of the following theories of expectations holds that individuals form expectations by looking only to past values of the variable to be forecast

answer

adaptive expectations theory

question

a conclusion of the theory of rational expectations is that the impact of discretionary fiscal policies designed to shift the aggregate demand curve will

answer

be anticipated and compensated for causing no significant change in real GDP or employment levels

question

accoring to supply side economists

answer

high tax rates discourage productive market exchanges because it pays for you to work less at your regular job and more at household tasks

question

During inflationary recessions

answer

neither conventional monetary nor fiscal policy would work

question

A budget___, designed to stimulate the economy, necessitates massive Treasury borrowing, driving__ interest rates, and ultimately choking off recovery

answer

deficit, up

question

The malthusian theory said that population tended to grow in an___ progression, while the food supply tended to grow in an___ progression

answer

geometric, arithmetic

question

Increases in the total real output of any LDCS do not increase the nations standard of living because

answer

population increases may dissipate the increase in real output

question

how would we expect the economic growth rates in future years of country A and country B to compare

answer

country A will have a higher growth rate

question

Lorenz curve tell us about the

answer

relative distribution of income

question

a tax that fell very heavily on the rich and the upper middle class might shift the Lorenz curve from

answer

L to K

question

If nations trade on the basis of comparative advantage

answer

all trading partners mutually gain

question

if the dollar rises in value against other currencies, this will

answer

make our exports more expensive and our imports cheaper

question

As the dollar devalues

answer

inflationary pressures are increased and our standard of living is reduced

question

devaluation of a nations currency is an attempt to

answer

increase exports and decrease imports under the gold standard

question

if the rate of inflation in the U.S. falls relative to the rate of inflation in foreign nations, U.S. exports___ and imports ___

answer

decrease, increase

question

if the rate of inflation in the U.S. falls relative to the rate of inflation in foreign nations, U.S. exports___ and imports ___

answer

decrease, increase

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