questions multiple choice. choose the one alternative that ... · a) the potato chips sold by...

Questions

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is counted in GDP? 1)A) the value of goods and services produced in the underground economyB) the value of do-it-yourself workC) the value of leisureD) the cost of a speed boat purchased by drug smugglers

2) "Household production" refers to 2)A) home-based craft businesses.B) the manufacturing of durable household products.C) goods and services people produce for themselves.D) the home building sector of the economy.

3) In an "underground economy", the production of goods and services 3)A) are not measured but are included in GDP.B) are not measured nor included in GDP.C) are measured and included in GDP.D) are usually too insignificant to be included in GDP.

4) GDP is not a perfect measure of well-being because 4)A) the value of leisure is included in GDP.B) GDP is adjusted for changes in crime rates.C) GDP is not adjusted for pollution.D) GDP is adjusted for increases in drug addiction.

5) An example of an intermediate good would be 5)A) the potato chips sold by Quiznos.B) a sub sandwich sold by Quiznos.C) the soda pop sold by Quiznos.D) the bread that goes into a sub sandwich that is sold by Quiznos.

6) An example of a final good would be 6)A) the whipped cream sold to Starbucks. B) a soy latte sold by Starbucks to a student.C) the coffee beans sold to Starbucks. D) the soy milk sold to Starbucks.

7) An example of an intermediate good would be 7)A) new rims to replace old rims on a used car.B) a new car.C) the rims on a new car.D) a used car.

8) A transfer payment is a payment by the government to an individual 8)A) for a service.B) for a debt owed.C) for a consumption good.D) for which the government does not receive a good or service in return.E) for an investment good.

1

9) The largest component of spending in GDP is 9)A) consumption spending. B) net export spending.C) government spending. D) investment spending.

10) In a small economy, gross investment in 2009 is $1,500, consumption spending is $6,000, netinvestment is $200, government spending is $1,500, exports are $2,000 and imports are $1,000. Whatis GDP for this economy in 2009?

10)

A) $10,700 B) $10,300 C) $10,200 D) $10,000

11) Which of the following equations correctly measures GDP in an economy? 11)A) GDP = C + I + G + NX B) GDP = C + I + G + XC) GDP = C + G + I - taxes D) GDP = C + net I + G + NX

12) Which of the following would result in GDP for an economy equal to $10 trillion? 12)A) C = $7 trillion

I = $2 trillionG = $4 trillionNX = $3 trillion

B) C = $4 trillionI = $3 trillionG = $2 trillionNX = -$1 trillion

C) C = $5 trillionI = $5 trillionG = $2 trillionNX = -$2 trillion

D) C = $6 trillionI = $2 trillionG = $1.5 trillionNX = -$2 trillion

13) Which component of consumption spending is the greatest in a typical economy? 13)A) durable goods B) nondurable goodsC) new housing D) services

14) The ________ is a measure of the price level and is calculated by dividing ________ by ________and multiplying by 100.

14)

A) PPI; nominal GDP; real GDPB) CPI; real GDP; nominal GDPC) GDP deflator; real GDP; nominal GDPD) PPI; real GDP; nominal GDPE) GDP deflator; nominal GDP; real GDP

15) The measure of production that values output using base-year prices is called 15)A) nominal GDP. B) underground GDP.C) value-added GDP. D) real GDP.

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Table 19-4

2008 2009Nominal GDP $10,000 $12,000Real GDP 9,500 10,500

16) Refer to Table 19-4. Given the information above, what can we say has happened in the economyfrom 2008 and 2009?

16)

A) The price level has risen.B) The price level has fallen.C) The price level has remained constant.D) Not enough information is available to determine what has happened to prices.

Table 19-5

2004 2009Product Quantity Price Quantity Price

Movies 20 $6.00 30 $7.00Burgers 100 2.00 90 2.50Bikes 3 1,000.00 6 1,100.00

17) Refer to Table 19-5. Suppose that a very simple economy produces three goods: movies, burgers,and bikes. Suppose the quantities produced and their corresponding prices for 2004 and 2009 areshown in the table above. What is nominal GDP in 2009?

17)

A) $3,320 B) $3,690 C) $6,360 D) $7,035

18) Refer to Table 19-5. Suppose that a very simple economy produces three goods: movies, burgers,and bikes. Suppose the quantities produced and their corresponding prices for 2004 and 2009 areshown in the table above. What is nominal GDP in 2004?

18)

A) $3,320 B) $3,690 C) $6,360 D) $7,035

19) Refer to Table 19-5. Suppose that a very simple economy produces three goods: movies, burgers,and bikes. Suppose the quantities produced and their corresponding prices for 2004 and 2009 areshown in the table. What is real GDP in 2009, using 2004 as the base year?

19)

A) $3,320 B) $3,690 C) $6,360 D) $7,035

20) To make the calculation of real GDP more accurate, in 1996 the BEA switched to using 20)A) market prices. B) chain-weighted prices.C) current prices. D) base-year prices.

21) If nominal GDP rises we can say that 21)A) production has fallen and prices have risen.B) prices have risen and production remains constant.C) production has risen and prices remain constant.D) production has risen or prices have risen or both have risen.

3

Table 19-7

2008 2009Nominal GDP $10,000 $12,000Real GDP 9,500 10,500

22) Refer to Table 19-7. Given the information above, calculate the GDP deflator in 2009. 22)A) 114 B) 105 C) 95 D) 87

23) Refer to Table 19-7. Given the information above, calculate the GDP deflator in 2008. 23)A) 87 B) 95 C) 105 D) 114

24) National income is equal to 24)A) GNP plus depreciation.B) GDP minus depreciation.C) Disposable personal income plus depreciation plus personal taxes.D) Personal income minus personal taxes.

25) National income is defined as 25)A) gross domestic product less retained earnings plus transfer payments.B) gross national product plus transfer payments.C) gross national product less retained earnings plus transfer payments.D) gross domestic product less the consumption of fixed capital.

26) Disposable personal income is defined as 26)A) personal income less personal taxes.B) personal income less personal taxes plus indirect sales taxes.C) personal income less depreciation.D) personal income less transfer payments plus personal taxes.

Table 19-13

Billions ofDollars

GDP $3,250Depreciation 300Retainedearnings 1,000Personalincome 2,500Transferpayments 50

27) Refer to Table 19-13. Based on the table above, what is national income for this economy? 27)A) $1,950 billion B) $2,250 billion C) $2,950 billion D) $3,550 billion

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Table 19-14

Billions ofDollars

GDP $5,250TransferPayments 50Retainedearnings 700Depreciation 1,250

28) Refer to Table 19-14. Based on the table above, what is national income for this economy? 28)A) $4,700 billion B) $4,000 billion C) $3,150 billion D) $2,450 billion

29) Discouraged workers are classified by the BLS as 29)A) part-time employees.B) employed.C) out of the labor force.D) part of the labor force.E) unemployed.

30) A full-time student who is not working is categorized as 30)A) a discouraged worker.B) not in the labor force.C) unemployed.D) employed.E) frictionally unemployed.

31) Which of the following would reduce the labor force participation rate, all else equal? 31)A) a decrease in the unemployment rateB) an increase in the number of people in the labor forceC) an increase in the working-age populationD) an increase in the unemployment rate

32) If the number employed is 190 million, the working-age population is 230 million, and the numberunemployed is 10 million, then the unemployment rate is

32)

A) 5%. B) 5.2%. C) 8%. D) 10%. E) 50%.

33) If the number of unemployed workers is 200 million, and the number in the labor force is 500million, what is the unemployment rate?

33)

A) 0.4% B) 4% C) 14% D) 40%

34) If the number of unemployed workers is 19 million, the number in the working-age population is500 million, and the unemployment rate is 4%, what is the labor force participation rate?

34)

A) 4.75% B) 7.8% C) 95% D) 96.2%

35) If the number of unemployed workers is 19 million, the number in the working-age population is500 million, and the unemployment rate is 4%, how many workers are in the labor force?

35)

A) 1 million B) 20 million C) 475 million D) 481 million

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36) Jack just received a promotion at work and now works 50 hours per week instead of 35. As a result, 36)A) neither the unemployment rate nor the labor force participation rate changed.B) the unemployment rate decreased.C) the unemployment rate increased.D) the labor force participation rate increased.

37) Unemployment arising from a persistent mismatch between the skills and characteristics ofworkers and the requirements of jobs is called

37)

A) cyclical unemployment.B) structural unemployment.C) unnatural unemployment.D) seasonal unemployment.E) frictional unemployment.

38) People who lost their jobs as hand-drawn animators because of the popularity ofcomputer-generated 3D animation are examples of persons who are suffering

38)

A) seasonal unemployment.B) structural unemployment.C) cyclical unemployment.D) unnatural unemployment.E) frictional unemployment.

39) Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarahexperiencing?

39)

A) frictionalB) structuralC) cyclicalD) Sarah is not experiencing unemployment of any kind because she is not currently part of the

labor force.

40) Emma is a road construction worker. During the winter months, emmy finds it more difficult to getwork. The unemployment Emma experiences in the winter is

40)

A) cyclical. B) functional. C) seasonal. D) structural.

41) When the labor market is at full employment 41)A) the unemployment rate is 0%.B) there is only cyclical unemployment in the economy.C) there is no cyclical unemployment in the economy.D) there is only structural unemployment in the economy.

42) The natural rate of unemployment is made up of 42)A) cyclical and structural unemployment.B) seasonal and structural unemployment.C) frictional, cyclical, and structural unemployment.D) frictional and structural unemployment.E) frictional and cyclical unemployment.

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43) An increase in cyclical unemployment will result in 43)A) an increase in the unemployment rate.B) a decrease in frictional unemployment.C) an increase in the natural rate of unemployment.D) an increase in structural unemployment.

44) Establishing a state employment agency that speeds up the process of matching unemployedworkers with unfilled jobs is an attempt to lower

44)

A) unnatural unemployment.B) cyclical unemployment.C) seasonal unemployment.D) frictional unemployment.E) structural unemployment.

45) Which of the following has a tendency to raise the unemployment rate? 45)A) implementing a minimum wage in an economyB) reducing labor unions membership in an economyC) reducing unemployment insurance in an economyD) offering wages at the market-clearing rate

46) An efficiency wage 46)A) is higher than the market wage and tends to decrease productivity.B) is lower than the market wage and tends to increase productivity.C) is higher than the market wage and tends to increase productivity.D) is lower than the market wage and tends to decrease productivity.

Figure 20-1

47) Refer to Figure 20-1. Based on the graph of the labor market above, if a minimum wage of $8 perhour is imposed, which of the following will result?

47)

A) The quantity of labor demanded by firms will rise.B) The quantity of labor demanded by firms will fall.C) The unemployment rate will fall.D) Both A and C will occur.

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48) Refer to Figure 20-1. Based on the graph of the labor market above, if a minimum wage is set at $5per hour, which of the following will occur?

48)

A) The unemployment rate will fall.B) The level of unemployment will rise, but the percentage of the labor force unemployed will

not change.C) The unemployment rate will rise.D) None of the above will occur.

49) Labor unions cause unemployment because the union contract wage is set 49)A) below the market wage, causing a surplus of labor.B) above the market wage, causing a shortage of labor.C) below the market wage, causing a shortage of labor.D) above the market wage, causing a surplus of labor.

50) The CPI is also referred to as 50)A) the GDP deflator. B) the producer price index.C) the inflation-consumption index. D) the cost-of-living index.

Table 20-2

Year CPI(1982-1984 =100)

2008 1002009 120

51) Refer to Table 20-2. Suppose that the data in the table above reflect the price levels in the economy.What is the inflation rate in between 2008 and 2009?

51)

A) 2% B) 5% C) 10% D) 12% E) 20%

Table 20-3

Year CPI(1982-1984 =100)

2008 1002009 113

52) Refer to Table 20-3. Suppose that the data in the table above reflect the price levels in the economy.Given that data, we can say that the cost of living rose by ________ between 2008 and 2009?

52)

A) 2% B) 5% C) 8% D) 11% E) 13%

53) If consumers purchase fewer of those products that increase most in price and more of thoseproducts that decrease in price as compared to the CPI basket, then

53)

A) changes in the CPI are unrelated to the true rate of inflation.B) changes in the CPI overstate the true rate of inflation.C) changes in the CPI accurately reflect the true rate of inflation.D) changes in the CPI understate the true rate of inflation.

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54) The formula for calculating the CPI is 54)A) (Expenditures in the base year/Expenditures in the current year).B) (Expenditures in the base year × 100)/(Expenditures in the current year).C) (Expenditures in the current year × Expenditures in the base year)/100.D) (Expenditures in the current year/Expenditures in the base year) × 100.

55) The base period for CPI calculations is generally 1982-84. In 2005, 50% of households accessed theInternet through a broadband connection that would not have existed in the 1980s. This potentialfor bias in the CPI is referred to as ________ bias and results in ________.

55)

A) new product; the CPI overestimating the true change in the cost of livingB) net product; the CPI underestimating the true change in the cost of livingC) outlet bias; the CPI overestimating the true change in the cost of livingD) outlet bias; the CPI underestimating the true change in the cost of living

Table 20-4

ProductQuantity

(2004) Price (2004)Expenditure

(2004)Price(2009)

Expenditure(on base year

quantities)(2009)

Computers 1 $1,200 $1,200 $900 $900Books 10 25 250 30 300Burgers 50 3 150 4 200 Total $1,600 $1,400

56) Refer to Table 20-4. Suppose an economy has only three goods and the typical family purchases theamounts given in the table above. If 2004 is the base year, then what is the CPI for 2009?

56)

A) 14.3 B) 87.5 C) 114.3 D) 160

Table 20-5

ProductQuantity

(2000)Price (2000)

Expenditure(2000)

Price(2008)

Expenditure(on base year

quantities)(2008)

Hair cuts 6 $50 $300 $70 $420Backpacks 4 25 100 30 120Tacos 100 1 100 5 500 Total $500 $1,040

57) Refer to Table 20-5. Suppose an economy has only three goods and the typical family purchases theamounts given in the table above. If 2000 is the base year, then what is the CPI for 2008?

57)

A) 40.08 B) 100 C) 180 D) 208

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Table 20-10

Year Nominal Average HourlyEarnings

CPI(1982-1984 =100)

2007 $10 1002008 10 1052009 12 110

58) Refer to Table 20-10. Looking at the table above, what is the approximate rate of growth of realaverage hourly earnings from 2007 to 2008?

58)

A) 15% B) 4.4% C) -1.5% D) -4.8%

59) Refer to Table 20-10. Looking at the table above, what is the rate of growth of the average pricelevel from 2008 to 2009?

59)

A) 1% B) 2% C) 3.5% D) 4.76% E) 5.25%

60) If the nominal interest rate is 6% and the inflation rate is 2% then the real interest rate is 60)A) 8%. B) 4%. C) 3%. D) 2%. E) 1%.

61) You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that yearrises from 180 to 190. What is the real rate of interest you will earn?

61)

A) 0% B) 4.4% C) 5.5% D) 5.8%

62) Deflation occurs when 62)A) there is a decline in the price level.B) there is a decrease in the expected rate of inflation.C) there is a one-time increase in the price level.D) there is a sustained increase in the price level.

63) If inflation is completely anticipated, 63)A) borrowers lose in the economy. B) no one loses in the economy.C) lenders lose in the economy. D) firms lose because they incur menu costs.

64) What are menu costs? 64)A) the cost to a household of borrowing money when there is deflationB) the opportunity cost of dining in a restaurant instead of at homeC) the full list of a firm's costs of productionD) the costs to a firm of changing prices

65) The costs to firms of changing prices are called 65)A) money illusion costs. B) anticipation costs.C) redistribution costs. D) menu costs.

66) A decrease in ________ can put your job at risk if aggregate expenditures fall. 66)A) the natural rate of unemployment B) consumer confidenceC) the inflation rate D) the length of a business cycle

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67) Which of the following is not one of the four main categories of spending identified by JohnMaynard Keynes?

67)

A) planned investment B) consumptionC) government purchases D) transfer payments

68) Macroeconomic equilibrium occurs when 68)A) aggregate expenditure = C+ I + G + net transfers.B) aggregate expenditure = GDP.C) aggregate income = planned inventories.D) aggregate expenditure = planned inventories.

69) Consumption spending is $5 million, planned investment spending is $8 million, unplannedinvestment spending is $2 million, government purchases are $10 million, and net export spendingis $2 million. What is aggregate expenditure?

69)

A) $15 million B) $23 million C) $25 million D) $27 million

70) Consumption spending is $5 million, planned investment spending is $8 million, unplannedinvestment spending is -$2 million, government purchases are $10 million, and net export spending is $2million. What is GDP?

70)

A) $15 million B) $23 million C) $25 million D) $27 million

71) Consumption spending is $5 million, planned investment spending is $8 million, actual investment spending is $8 million, government purchases are $10 million, and net export spending is $2million. Based on this information, which of the following is true?

71)

A) Aggregate expenditure is less than GDP.B) There was an unplanned change in inventories.C) Aggregate expenditure is equal to GDP.D) Aggregate expenditure is greater than GDP.

72) If aggregate expenditure is greater than GDP, how will the economy reach macroeconomicequilibrium?

72)

A) Inventories will rise, and GDP and employment will decline.B) Inventories will decline, and GDP and employment will rise.C) Inventories will rise, and GDP and employment will rise.D) Inventories will decline, and GDP and employment will decline.

73) If firms sell what they expected to sell, which of the following will be true? 73)A) Aggregate expenditure will be less than GDP.B) Aggregate expenditure will be greater than GDP.C) Inventories will rise, and GDP and employment will fall.D) There is no unplanned change in inventories.

74) Consumption spending will ________ when disposable income ________. 74)A) increase; decreases B) change unpredictably; decreasesC) increase; increases D) decrease; increases

75) An increase in Social Security payments will 75)A) increase government spending. B) increase consumption spending.C) increase investment spending. D) increase export spending.

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76) A decrease in the real interest rate will 76)A) cause consumers to spend less and save more.B) most likely increase consumer's purchases of durable goods.C) most likely increase the cost of borrowing.D) most likely increase the reward to savings.

77) If disposable income falls by $40 billion and consumption falls by $30 billion, then the slope of theconsumption function is

77)

A) 1.33. B) 0.75. C) 0.4. D) 0.3.

78) ________ is defined as national income + transfers - taxes. 78)A) GDP B) Disposable incomeC) Personal income D) Gross private domestic investment

79) If the MPC is 0.95, then a $10 million increase in disposable income will 79)A) increase consumption by $9.5 million. B) increase consumption by $950 million.C) increase consumption by $200 million. D) decrease consumption by $105 million

80) If national income increases by $75 million and consumption increases by $15 million, the marginalpropensity to consume is

80)

A) 5. B) 0.75. C) 0.20. D) 0.15.

81) The sum of the marginal propensity to consume and the marginal propensity to save is alwaysequal to

81)

A) zero. B) 0.5. C) 1. D) 100.

82) If the marginal propensity to consume is 0.6, the marginal propensity to save is 82)A) 0.4. B) 0.6. C) 1. D) 1.5.

83) Purchases of information processing equipment and software ________ during the 2007-2009recession.

83)

A) remained stable B) rose by 3 percentC) declined by 75 percent D) declined by 12 percent

84) Investment spending will decrease when 84)A) the interest rate falls.B) firms become more optimistic about earning future profits.C) business cash flow decreases.D) the corporate income tax decreases.

85) The consumption function describes the relationship between 85)A) consumption spending and national income.B) consumption spending and disposable income.C) consumption spending and personal income.D) consumption spending and aggregate income.

86) The change in consumption divided by the change in disposable income is equal to 86)A) household saving. B) the slope of the consumption function.C) real GDP. D) aggregate expenditure.

12

87) When we graph consumption as a function of national income rather than as a function of________, the slope of this consumption function is the ________.

87)

A) disposable income; MPC B) personal income; MPSC) personal income; MPC D) disposable income; MPS

88) Investment spending increases during ________, and decreases during ________. 88)A) a deflation; an inflation B) a recession; a depressionC) a recession; an expansion D) an expansion; a recession

89) ________ spending follows a smooth trend whereas, ________ spending is more volatile and subjectto fluctuations.

89)

A) Investment; consumer B) Government; consumerC) Consumer; government D) Consumer; investment

90) If inflation in the United States is lower than inflation in other countries, what will be the effect onnet exports for the United States?

90)

A) Net exports will rise as U.S. exports increase.B) Net exports will decrease as U.S. exports decrease.C) Net exports will rise as U.S. imports increase.D) Net exports will decrease as U.S. imports decrease.

Figure 23-3

91) Refer to Figure 23-3. Suppose that investment spending decreases by $5 million, decreasingaggregate expenditure and decreasing real GDP from GDP2 to GDP1. If the MPC is 0.8, then whatis the change in GDP?

91)

A) -$4 million B) -$5 million C) -$25 million D) -$40 million

13

92) Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregateexpenditure line. GDP increases from GDP1 to GDP2, and this amount is $200 billion. If the MPCis 0.8, then what is the distance between N and L or by how much did government spendingchange?

92)

A) $16 billion B) $40 billion C) $200 billion D) $1,000 billion

93) Autonomous expenditure is a type of expenditure that does not depend on 93)A) expectations. B) GDP. C) wealth. D) rates.

94) The ratio of the increase in equilibrium real GDP to the increase in autonomous expenditure iscalled the

94)

A) MPS. B) consumption function.C) multiplier. D) MPC.

95) A general formula for the multiplier is 95)

A) 1(1 - MPS)

. B) 1(1 - MPC)

. C) 1(MPS -1)

. D) 1(MPC)

.

96) An increase in the price level ________ real wealth, which causes consumption to ________. 96)A) lowers; decrease B) raises; decreaseC) raises; increase D) lowers; increase

97) An increase in the price level in the United States will have what effect on the aggregateexpenditure line?

97)

A) Aggregate expenditure will shift downward.B) Aggregate expenditure will shift upward.C) Aggregate expenditure will become steeper.D) Aggregate expenditure will not be affected by an increase in the price level in the United

States.

98) A decrease in aggregate expenditure has what result on equilibrium GDP? 98)A) Equilibrium GDP is not affected by a decrease in aggregate expenditure.B) Equilibrium GDP falls.C) Equilibrium GDP rises.D) Equilibrium GDP may rise or fall depending on the size of the decrease in aggregate

expenditure relative to the initial level of GDP.

99) Government expenditure ________ change potential GDP and taxes ________ change potentialGDP.

99)

A) can; canB) cannot; canC) cannot; cannotD) can; cannotE) None of the above answers is correct.

14

100) An increase in the income tax ________ potential GDP by shifting the labor ________ curve________.

100)

A) decreases; demand; leftwardB) increases; demand; rightwardC) increases; supply; rightwardD) decreases; supply; leftwardE) decreases; supply; rightward

101) An income tax hike 101)A) increases potential GDP.B) increases employment.C) decreases potential GDP.D) Both answers A and B are correct.E) Both answers B and C are correct.

102) The crowding out effect refers to the ________ from ________ in the government's budget deficit. 102)A) decrease in investment; an increaseB) decrease in employment; an increaseC) increase in consumption; an increaseD) increase in investment; an increaseE) decrease in consumption; a decrease

103) The standard view in economics is that tax cuts without ________ will ________ the budget deficitresulting in ________.

103)

A) increasing spending; decrease; unemploymentB) spending cuts; decrease; unemploymentC) spending cuts; decrease; crowding out investmentD) increasing spending; increase; crowding out investmentE) spending cuts; increase; crowding out investment

104) If a tax cut increases aggregate demand more than aggregate supply, real GDP ________ and theprice level ________.

104)

A) decreases; fallsB) increases; does not changeC) increases; fallsD) decreases; risesE) increases; rises

105) Increasing the income tax rate ________ the ________. 105)A) increases; demand for laborB) decreases; supply of laborC) decreases; demand for laborD) does not change; supply of laborE) increases; supply of labor

15

106) An income tax on labor income decreases the ________ of potential GDP, and a tax on interestincome decreases the ________ of potential GDP.

106)

A) level; levelB) growth rate; growth rateC) level; growth rateD) growth rate; levelE) None of the above answers is correct.

107) An income tax cut ________ aggregate demand and ________ aggregate supply. 107)A) increases; decreasesB) increases; increasesC) decreases; increasesD) decreases; decreasesE) does not change; increases

108) If fiscal stimulus creates a large budget ________, then in the long run economic growth ________. 108)A) surplus; decreasesB) surplus; increasesC) deficit; increasesD) deficit; decreasesE) None of the above answers is correct.

109) When the economy is in a recession, ________ taxes decrease while ________ spending increasesand, as a result of this automatic fiscal policy, aggregate demand ________.

109)

A) induced; discretionary; is not changedB) discretionary; induced; is not changedC) needs-tested; induced; decreasesD) discretionary; needs-tested; increasesE) induced; needs-tested; increases

110) A barter economy is an economy where 110)A) money is exchanged for goods and services.B) goods and services are exchanged for money.C) goods and services are exchanged for liabilities.D) goods and services are exchanged for other goods and services.

111) Commodity money is a good 111)A) used as money that has no intrinsic value.B) that is designated as money by law.C) used as money that also has value independent of its use as money.D) used as money that has no secondary use.

112) Which of the following is a function that money serves? 112)A) store of value B) medium of exchangeC) unit of account D) All of the above are correct.

113) Which of the following is the most liquid asset? 113)A) money B) a carC) a Renoir painting D) bonds

16

114) Gold is an example of 114)A) M1. B) barter money.C) commodity money. D) fiat money.

115) A good can serve as money only if 115)A) government mandates that the good must be accepted in payment of debts.B) it has intrinsic value or if it is backed by precious metals.C) citizens accept the good as a means of payment for transactions and debts.D) it is declared by authorities to be legal tender.

116) A bank's largest liability is its 116)A) short-term borrowing. B) deposits of its customers.C) shareholder equity. D) long-term debt.

117) Typically, a bank's largest asset is its 117)A) reserves. B) deposits of its customers.C) holdings of securities. D) loans.

118) Which of the following is a true statement? 118)A) excess reserves = deposits - loansB) excess reserves = actual reserves - required reservesC) excess reserves = loans - required reservesD) excess reserves = deposits - required reserves

119) Suppose the reserve ratio is RR. Then, 119)A) required reserves = RR × loans. B) required reserves = RR × excess reserves.C) required reserves = RR × actual reserves. D) required reserves = RR × deposits.

120) Suppose a transaction changes the balance sheet of Wells Fargo bank as indicated in the followingT-account.

Assets LiabilitiesReserves + $1,000 Deposits + $1,000

At this point, what percentage of the new deposits does Wells Fargo hold in reserves?

120)

A) 100 percent B) 10 percent C) 5 percent D) 1 percent

121) If the required reserve ratio is RR, the simple deposit multiplier is defined as 121)

A) 1(RR)

. B) 1(1- RR)

× change in bank reserves.

C) 1(RR)

× change in bank reserves. D) 1(1- RR)

.

122) The ________ the reserve ratio, the ________ the money multiplier. 122)A) larger; larger B) smaller; smallerC) smaller; larger D) None of the above are correct.

17

123) Consider the following T-account for National City Bank

Assets LiabilitiesReserves $10,000 Deposits $100,000Loans $90,000

If the required reserve ratio is lowered to 8 percent, how much can National City loan out?

123)

A) $10,000 B) $8,000 C) $2,000 D) $0

124) Open market operations refer to the buying and selling of ________ by the ________ to control themoney supply.

124)

A) stocks and bonds; Federal Reserve B) Treasury securities; Treasury DepartmentC) Treasury securities; Federal Reserve D) stocks and bonds; Treasury Department

125) The primary tool the Federal Reserve uses to increase the money supply is 125)A) lowering the required reserve ratio. B) lowering the discount rate.C) printing more money. D) buying Treasury securities.

126) Which of the following tools of monetary policy is used least often? 126)A) acting as a lender of last resort B) open market operationsC) setting the discount rate D) setting the required reserve ratio

127) To increase the money supply, the Federal Reserve could 127)A) raise the required reserve ratio.B) conduct an open market sale of Treasury securities.C) lower the discount rate.D) decrease income taxes.

128) An increase in the discount rate ________ bank reserves and ________ the money supply if banksrespond appropriately to the change in the rate.

128)

A) decreases; decreases B) increases; increasesC) decreases; increases D) increases; decreases

129) The quantity equation states that 129)A) the money supply (M) divided by the velocity of money (V) equals the price level (P) divided

by real output (Y), i.e., M/V = P/Y.B) M + V = P + Y.C) M × V = P × Y.D) M - V = P - Y.

130) Hyperinflation is caused by 130)A) the money supply growing more slowly than GDP.B) a constant increase in the money supply.C) Real GDP growing more rapidly than the money supply.D) a high rate of growth in the money supply.

131) An increase in the purchasing power of money would not, on average, result in an increase in thepurchasing power of people's income because a ________ price level would likely mean ________wages and salaries.

131)

A) falling; rising B) falling; falling C) rising; falling D) rising; rising

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132) The business cycle ________ on FedEx since the company's inception over 40 years ago. 132)A) has had virtually no effect B) has always had a positive effectC) has always had a negative effect D) has had a large effect

133) When the price level in the United States rises relative to the price level of other countries, ________will rise, ________ will fall, and ________ will fall.

133)

A) net exports; exports; imports B) exports; imports; net exportsC) imports; exports; net exports D) net exports; imports; exports

134) Inflation will 134)A) increase the quantity of real GDP demanded.B) decrease the quantity of real GDP demanded.C) decrease aggregate demand.D) increase aggregate demand.

135) Which of the following will shift the aggregate demand curve to the left, ceteris paribus? 135)A) an increase in disposable income B) an increase in net exportsC) an increase in interest rates D) an increase in expected profits for firms

Figure 24-1

136) Refer to Figure 24-1. Ceteris paribus, a decrease in the price level would be represented by amovement from

136)

A) AD1 to AD2. B) AD2 to AD1.C) point A to point B. D) point B to point A.

137) Refer to Figure 24-1. Ceteris paribus, a decrease in interest rates would be represented by amovement from

137)


138) Refer to Figure 24-1. Ceteris paribus, a decrease in personal income taxes would be represented by amovement from

138)


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139) Refer to Figure 24-1. Ceteris paribus, a decrease in households' expectations of their future incomewould be represented by a movement from

139)


140) The level of real GDP in the long run is called 140)A) potential GDP. B) low-capacity GDP.C) short-run GDP. D) frictional GDP.

141) The ________ curve is vertical. 141)A) long-run aggregate demand B) long-run aggregate supplyC) short-run aggregate supply D) short-run aggregate demand

142) Potential GDP is also referred to as 142)A) politico-economic GDP. B) balanced-budget GDP.C) full-employment GDP. D) realized GDP.

143) If technological change occurs in the economy, 143)A) the long-run aggregate supply curve will shift to the left.B) we will move down along the long-run aggregate supply curve.C) we will move up along the long-run aggregate supply curve.D) the long-run aggregate supply curve will shift to the right.

144) A decrease in the price level will 144)A) move the economy up along a stationary short-run aggregate supply curve.B) move the economy down along a stationary short-run aggregate supply curve.C) shift the short-run aggregate supply curve to the right.D) shift the short-run aggregate supply curve to the left.

145) If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like? 145)A) It is a vertical line at a level of GDP below $600 billion.B) It is a horizontal line at $600 billion of GDP.C) It is a vertical line at $600 billion of GDP.D) It is a vertical line at a level of GDP above $600 billion.

146) Workers expect inflation to fall from 4% to 1% next year. As a result, this should 146)A) move the economy up along a stationary short-run aggregate supply curve.B) move the economy down along a stationary short-run aggregate supply curve.C) shift the short-run aggregate supply curve to the left.D) shift the short-run aggregate supply curve to the right.

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Figure 24-2

147) Refer to Figure 24-2. Ceteris paribus, a decrease in the labor force would be represented by amovement from

147)

A) SRAS1 to SRAS2. B) SRAS2 to SRAS1.C) point A to point B. D) point B to point A.

148) Refer to Figure 24-2. Ceteris paribus, an increase in the capital stock would be represented by amovement from

148)


149) A decrease in aggregate demand results in a(n) ________ in the ________. 149)A) recession; short run B) expansion; short runC) recession; long run D) expansion; long run

150) Stagflation occurs when inflation ________ and GDP ________. 150)A) rises; falls B) rises; rises C) falls; falls D) falls; rises

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Figure 24-4

151) Refer to Figure 24-4. In the figure above,AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS inyear 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy isat point A in year 1, what is the actual growth rate in GDP in year 2?

151)

A) 2.5% B) 7.3% C) 8.0% D) 10.0%

152) Refer to Figure 24-4. Given the economy is at point A in year 1, what is the difference between theactual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

152)

A) 0.3% B) 1.1% C) 2.7% D) 3.7%

153) Refer to Figure 24-4. Given the economy is at point A in year 1, the unemployment rate will________ and the price level will ________ in year 2.

153)

A) rise; rise B) fall; rise C) fall; fall D) rise; fall

154) When people became ________ concerned with the underlying value of their houses and became________ with the expectations of the prices of their houses increasing, a housing bubble occurred.

154)

A) more; less B) less; less C) more; more D) less; more

155) In the dynamic aggregated demand and aggregate supply model, inflation occurs if 155)A) AD shifts faster than SRAS. B) LRAS shifts faster than AD.C) AD shifts slower than SRAS. D) SRAS shifts faster than AD.

156) Stagflation is often a result of 156)A) a negative supply shock. B) an increase in aggregate supply.C) an increase in aggregate demand. D) a decrease in aggregate demand.

157) There has been a decrease in investment. As a result, real GDP will ________ in the short run, and________ in the long run.

157)

A) increase; decrease to its initial value B) increase; increases furtherC) decrease; decrease further D) decrease; increase to its initial level

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158) An increase in investment causes the price level to ________ in the short run and ________ in thelong run.

158)

A) increase; decrease B) increase; increase furtherC) decrease; decrease further D) decrease; increase

159) Short-run macroeconomic equilibrium occurs when 159)A) the equilibrium lies on the long-run aggregate supply curve.B) aggregate demand and short-run aggregate supply intersect.C) structural and frictional unemployment equal zero.D) A and B

160) An increase in aggregate demand in the economy will have what effect on macroeconomicequilibrium in the long run?

160)

A) The price level will fall, and the level of GDP will rise.B) The price level will rise, and the level of GDP will fall.C) The price level will fall, and the level of GDP will fall.D) The price level will rise, and the level of GDP will be unaffected.

161) Suppose the economy is at full employment and firms become more pessimistic about the futureprofitability of new investment. Which of the following will happen in the short run?

161)

A) The aggregate demand curve will shift to the right.B) Output will rise.C) Prices will rise.D) Unemployment will rise.

Figure 24-3

162) Refer to Figure 24-3. Which of the points in the above graph are possible short-run equilibria? 162)A) A and C B) A and D C) A and B D) A, B, C, and D

163) Refer to Figure 24-3. Which of the points in the above graph are possible long-run equilibria? 163)A) B and D B) A and B C) C and D D) A and C

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164) Refer to Figure 24-3. Suppose the economy is at point C. If investment spending decreases in theeconomy, where will the eventual long-run equilibrium be?

164)

A) A B) B C) C D) D

165) Refer to Figure 24-3. Suppose the economy is at point A. If government spending increases in theeconomy, where will the eventual long-run equilibrium be?

165)

A) A B) B C) C D) D

166) ________ of unemployment during ________ make it easier for workers to ________ wages. 166)A) Low levels; an expansion; accept lowerB) High levels; an expansion; negotiate higherC) High levels; a recession; accept lowerD) Low levels; a recession; negotiate higher

167) Which of the following is considered a negative supply shock? 167)A) a decline in wagesB) increasing investment in the economy causes the capital stock to riseC) an unexpected increase in the price of natural gasD) an improvement in technology

168) In the long run, 168)A) GDP = potential GDP. B) unemployment is below its natural rate.C) unemployment is above its natural rate. D) LRAS and SRAS lie on the same line.

169) When the price of oil falls unexpectedly, the equilibrium price level ________ and theunemployment rate ________ in the short run.

169)

A) rises; rises B) falls; rises C) falls; falls D) rises; falls

170) After an unexpected increase in the price of oil, the long-run adjustment ________ the price leveland ________ the unemployment rate as they return to their original levels.

170)

A) increases; decreases B) decreases; decreasesC) increases; increases D) decreases; increases

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Figure 24-2

171) Refer to Figure 24-2. Ceteris paribus, a decrease in productivity would be represented by amovement from

171)


172) Refer to Figure 24-2. Ceteris paribus, a decrease in the price level would be represented by amovement from

172)


173) Refer to Figure 24-2. Ceteris paribus, a decrease in the expected future price level would berepresented by a movement from

173)


174) Refer to Figure 24-2. Ceteris paribus, an increase in workers and firms adjusting to havingpreviously underestimated the price level would be represented by a movement from

174)


175) Refer to Figure 24-2. Ceteris paribus, a decrease in the expected price of an important naturalresource would be represented by a movement from

175)


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Answer KeyTestname: ECON 120

1) D2) C3) B4) C5) D6) B7) C8) D9) A

10) D11) A12) C13) D14) E15) D16) A17) D18) A19) C20) B21) D22) A23) C24) B25) D26) A27) C28) B29) C30) B31) C32) A33) D34) C35) C36) A37) B38) B39) D40) C41) C42) D43) A44) D45) A46) C47) B48) D49) D50) D

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51) E52) E53) B54) D55) A56) B57) D58) D59) D60) B61) B62) A63) D64) D65) D66) B67) D68) B69) C70) B71) C72) B73) D74) C75) B76) B77) B78) B79) A80) C81) C82) A83) D84) C85) B86) B87) A88) D89) D90) A91) C92) B93) B94) C95) B96) A97) A98) B99) A

100) D27


101) C102) A103) E104) E105) B106) C107) B108) D109) E110) D111) C112) D113) A114) C115) C116) B117) D118) B119) D120) A121) A122) C123) C124) C125) D126) D127) C128) A129) C130) D131) B132) D133) C134) B135) C136) C137) A138) A139) B140) A141) B142) C143) D144) B145) C146) D147) B148) A149) A150) A

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151) B152) C153) A154) D155) A156) A157) D158) B159) B160) D161) D162) D163) D164) A165) C166) C167) C168) A169) C170) B171) B172) D173) A174) B175) A

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questions multiple choice. choose the one alternative that ... · a) the potato chips sold by...

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