question

Which of the following defines the business cycle?

answer

A pattern of expansion, then recession, then expansion again.

question

Which of the following changes is most likely to help end a recession?

answer

An increase in new home construction.

question

Which of the following is true?

answer

Unanticipated inflation harms savers.

question

Which of the following would NOT likely follow the introduction of a new technology?

answer

An increase in fixed incomes.

question

What is the value of the implicit price deflator for 2004?

answer

1.2

question

A recovery will lead to a decrease in ________ unemployment.

answer

cyclical

question

Consider the following: A country's structural unemployment rate is 3.2%, the natural unemployment rate is 5.6%, and the cyclical unemployment rate is 4.7%. Calculate the frictional unemployment rate and the unemployment rate.

answer

frictional unemployment rate = 2.4%; the unemployment rate = 10.3%

question

Unemployment that results from a mismatch between worker qualifications and the characteristics employers require is called _________ unemployment.

answer

structural

question

Which of the following exemplifies the outlet bias in the computation of the CPI?

answer

Yu-Jen does most of her family's shopping at Costco instead of Safeway because the prices at Costco are more competitive.

question

The formula for calculating a price index is

answer

current cost of basket ÷ base-period cost of basket.

question

Economic data that are adjusted for price-level changes are said to be expressed in terms of

answer

real dollars.

question

The inflation rate can be calculated using

answer

any price index.

question

Calculate the real income for an assistant professor in 1967.

answer

$10,000

question

A quality-change bias in the construction of the CPI arises because

answer

quality differences between the goods priced in two different periods cannot be accurately measured and deducted from the accompanying price difference between the goods.

question

Table 5.4 In which year(s) was the increase in nominal GDP (over the previous year) due exclusively to the increase in price?

answer

in 1999

question

GDP measures the value of final goods and services. Consider a pizza parlor that buys flour to make pizzas. Which of the following statements is true?

answer

Only the value of the pizza is counted in GDP to avoid double counting.

question

Your grandfather tells you that his Social Security payments are indexed.Â What does this mean?

answer

It means that the dollar value of his Social Security payment is adjusted for changes in the price level so that his purchasing power is constant.

question

What has happened to an assistant professor's salary between 1967 and 1997?

answer

The purchasing power of an assistant professor's salary has increased by about 3.2%

question

Which of the following statements best describes the substitution bias in the construction of the CPI?

answer

The failure to recognize that over time consumers alter the goods they buy, switching from relatively high priced goods toward lower-priced alternatives.

question

Consider the following scenario. In January, 8 million people were seeking jobs but had not found them. In February, 2 million of these people gave up their searches and stopped looking for work. Holding all else constant, what happen to the unemployment rate in February?

answer

It falls.

question

What has happened to a mechanic's real hourly wage between 1975 and 2005?

answer

It rose by 5%.

question

Table 5.3 What is the value of the implicit price deflator for 2004?

answer

1.2

question

A nation records a trade surplus when

answer

net exports are positive

question

A New York restaurant purchases 1,000 cases of french wine. This transaction is recorded as part of

answer

Net exports and the flow is represented by 4

question

The Pfister Company, located in New York, is a German manufacturer of heavy-duty glass shower doors. For example, it uses glass-cutting machinery imported from Germany for its production.Â The value of the company's output

answer

increases both U.S. gross domestic product and gross national product.

question

Which of the following would not be included in the measurement of GDP?

answer

federal government payments for Jeeps

question

Table 6-6 ACME mining - iron ore - $100,000 Fuller Mill - steel - $225,000 Crane construction - building - $950,000 Table 6-6 shows the different stages in the production of an office building. A miner extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. Suppose the value-added tax is 10%. What is the amount paid by Fuller Mill to Acme Mining?

answer

$110,000

question

Transfer payments are

answer

not included in GDP because they do not represent income derived from current production.

question

The purchases of U.S. products by citizens of Mexico are

answer

considered as an income transfer from the U.S. to Mexico.

question

Goods that are produced in a particular period but not sold in the current period

answer

end up in inventories and are included in gross private investment.

question

GDP may be calculated by totaling either the market values of all final goods and services or the income earned during production of those final goods and services.

answer

true

question

Personal income equals

answer

national income minus income earned but not received plus income received but not earned in the production of GNP.

question

Which of the following statements about gross national product is correct? It measures the market value of

answer

all final goods and services produced by residents and firms of a nation regardless of the location of production.

question

The income earned by those who supply entrepreneurial talent is called

answer

profits.

question

All else constant, an outbreak of avian flu

answer

is likely to increase GDP because it drives up health-care spending.

question

The Pfister Company, located in New York, is a German manufacturer of heavy-duty glass shower doors. For example, it uses glass-cutting machinery imported from Germany for its production.Â The value of the company's output

answer

increases both U.S. gross domestic product and gross national product.

question

-Gross Domestic Produce - 1,000 (billions) -Earnings received from by residents from foreign producers - 200 (billions) -Payments by domestic producers to foreign owners of factors of production - 100 (billions) Table 6-4 shows some output and income data for Manna Land. What is the value of Manna Land's net foreign income?

answer

$100 billion

question

Which of the following would not be included in GDP?

answer

used car sales

question

GDP can be found by adding the final value of all goods and services produced or by totaling all factor incomes (including indirect business taxes and depreciation) for the period.

answer

true

question

"B" represents

answer

the flow personal consumption expenditures.

question

Suppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium?

answer

Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H.

question

Which of the following is false about potential output?

answer

It is the long run output level that guarantees price stability.

question

All else constant, a lower price level

answer

increases imports and decreases exports, resulting in an upward movement along the economy's aggregate demand curve.

question

Suppose the price of an important natural resource such as oil falls. What will be the effect on the short-run aggregate supply curve?

answer

The aggregate supply curve will shift to the right.

question

Table 7-1 shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. If policymakers adopt a nonintervention policy, the economy gap

answer

would return to potential output at a price level of 2.8.

question

The use central bank policies to influence the level of economic activity is called

answer

monetary policy.

question

A decrease in aggregate demand, all other things unchanged, will generate _______ in potential output and _______ in the price level.

answer

no change; a decrease

question

How will a recession in the economies of our foreign trading partners affect U.S. aggregate demand?

answer

U.S. aggregate demand will decrease.

question

An increase in the prices of natural resources will lead to a decrease in short-run aggregate supply.

answer

true

question

A movement along the aggregate demand curve is called a

answer

change in the aggregate quantity of good and services demanded.

question

In the long run, a decrease in aggregate demand, all other things unchanged, will cause the price level to _______ and potential output to _______ .

answer

decrease; remain stable

question

How will a recession in the economies of our foreign trading partners affect U.S. aggregate demand?

answer

U.S. aggregate demand will decrease.

question

Suppose the economy is initially in short-run equilibrium at K. Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own. What is the difference between the two policy choices, if any?

answer

A stabilization policy would return real GDP to its potential at a price level of Pj while a nonintervention policy would return real GDP to its potential at a price level of Ph.

question

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

answer

The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption.

question

Suppose the economy is initially at A. Now suppose an increase in government purchases shifts the aggregate demand curve to AD2. Which of the following is false about the economy after it adjusts to its new long-run equilibrium?

answer

Firms employ more workers than in the short-run equilibrium.

question

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run?

answer

a sharp fall in stock market prices

question

Aggregate demand is the total value of real GDP that

answer

all sectors of the economy are willing to purchase at various average price levels, all other things unchanged.

question

The short run in macroeconomic analysis is a period

answer

in which wages and some other prices do not respond to changes in economic conditions.

question

What happens in the domestic economy when there is an increase in foreign prices, all other things unchanged?

answer

Net exports and aggregate demand increase.

question

Suppose the economy is initially in long-run equilibrium. Which of the following events leads to a decrease in the price level and an increase in real GDP in the short run?

answer

a decrease in health insurance premiums paid by firms raises the cost of employing labor

question

In Panel (c), the long-run aggregate supply curve is vertical because

answer

perfectly flexible nominal wages in the long run allow any number of wage/price level combinations to result in a real wage that equilibrates the labor market.

question

The determinants of economic growth include all of the following except

answer

growth in money supply.

question

In the long run, economic growth can be expected to lead to <UL type=I increases in consumption. increases in the capital stock. increases in the savings rate. outward shifts in the production possibilities curve.

answer

I, II, and IV only

question

If a change in technology moves the aggregate production function in Panel (a) upwards, what happens to the economy's potential output?

answer

Potential output increases.

question

Assume that the economy is initially in long-run equilibrium. What happens if investment spending increases?

answer

The aggregate demand curve shifts right and the price level increases.

question

All other things unchanged, higher saving rates contribute to higher rates of capital formation.

answer

true

question

For economic growth to take place, we must consume more and save less.

answer

false

question

Economic growth can be represented by

answer

a rightward shift of an economy's long-run aggregate supply curve.

question

If the production possibilities curve shifts outward, the long-run aggregate supply curve will shift rightward.

answer

true

question

Assume that the economy is initially in long-run equilibrium. What happens in the long-run if the capital stock in this economy increases over time?

answer

The nation's capacity to produce will increase as represented by a rightward shift of the long-run aggregate demand curve.

Chapters 5, 6, 7, 8 (for exam 2)

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