economics chapter 4-9

Quiz: chapter seven

Question 1 0 / 1 point

The unemployment rate is the number of people:

without a job divided by the population.

without a job and looking divided by the population.

without a job divided by the labor force.

without a job and looking divided by the labor force.

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A person has to be looking for a job, not just be without a job, to be counted as unemployed.


Which of the following is a statement Classicals would likely make?

Most unemployment is frictional unemployment.

Frictional unemployment is only a small part of total unemployment.

The unemployment rate underestimates the true extent of unemployment.

Society owes a person a job commensurate with his or her training.

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Another term for what the text calls the "target rate of unemployment" is:

Keynesian unemployment.

nominal unemployment.

real unemployment.

the natural rate of unemployment.

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A recession is often considered to be:

an economic downturn that persists for more than two consecutive quarters of the year.

an economic downturn that persists for more than four consecutive quarters of the year.

any period of more than six months in which unemployment is rising.

any period when the unemployment rate exceeds 6%.

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With respect to the unemployment problem, Keynesian economists generally take the position that:

government should guarantee each person a satisfying and high-paying job.

government should eliminate only frictional unemployment.

each person should have a job commensurate with their training or past job experience.

individuals should be responsible for finding their own jobs.

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Structural unemployment is caused by:

a general downturn in the economy.

people quitting a job just long enough to look for and find another one.

people over 65 who don't really want to work.

people losing a job when their skills become obsolete due to technological innovations.

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Use the following table to calculate the unemployment rate. Select the correct answer from the options below.

2 percent.

4 percent.

6 percent.

8 percent.

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The output level that would be produced at the target rate of unemployment and the target rate of capacity utilization is called:

nominal output.

real output.

potential output.

actual output.

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If the labor force is 90 million and the number of people who are looking for jobs but cannot find them is 9 million, the unemployment rate is:

9 percent.

10 percent.

81 percent.

91 percent.

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Which of the following statements best characterizes the Keynesian view of business cycles?

Fluctuations in business activity occur in regular and predictable patterns which cannot be altered.

Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are accepted.

Expansions and contractions of the business cycle are symptoms of underlying problems and should be dealt with through activist government policies.

The appropriate macroeconomic policy can easily eliminate all fluctuations in business activity.

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Which of the following is not a leading economic indicator?

Common stock prices.

New orders for non-defense capital goods.

Consumer expectations.

Export sales.

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The lowest sustainable rate of unemployment that policy makers believe is achievable under existing conditions is:

zero.

called the target rate of unemployment.

called the optimal rate of unemployment.

called cyclical unemployment.

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Which of the following types of unemployment is considered to be the most controllable through macroeconomic policy?

Frictional unemployment.

Natural unemployment.

Cyclical unemployment.

Structural unemployment.

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Real gross domestic product is best defined as:

the market value of intermediate goods and services produced in an economy, including exports.

all goods and services produced in an economy, stated in the prices of a given year and multiplied by quantity.

the market value of all final goods and services produced in an economy, stated in the prices of a given year.

the market value of goods and services produced in an economy, stated in current-year prices.

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If prices rose by 5% and real output fell by 8%, nominal output:

rose by 3%.

rose by 13%.

fell by 3%.

fell by 13%.

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John has received a 3% pay increase but the rate of inflation is 6%. Economists would tell John that his real wage has:

risen by 3%.

fallen by 3%.

risen by 2%.

fallen by 2%.

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The U.S. government reported that in March 2009 there were 685,000 discouraged workers. What is one reason the government tries to collect data about workers?

Some people argue that the unemployment rate underestimates true unemployment because it does not include discouraged workers.

Some people argue that the unemployment rate overestimates true unemployment because it includes discouraged workers.

The number of discouraged workers is a better indicator of unemployment.

The number of discouraged workers is an indication of labor unrest and potential for riots.

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Any attempt to put people into categories has weaknesses--there are always fuzzy borderline cases. The discouraged workers are a borderline case--many of them consider themselves as unemployed. However, the Department of Labor had to draw a line somewhere, and they decided that if a person who was not working did not actively search for work in the past four weeks, they would not be counted as unemployed. The existence of discouraged workers suggests that the unemployment rates are biased to the low side. (There also are other factors biasing the numbers lower or higher.)


One reason expectations of inflation are important from a macroeconomic point of view is that people:

tend to raise prices and wages more when they do not expect inflation.

tend to raise prices and wages more when they expect inflation.

do not seem to notice increases in the cost-of-living that were not anticipated.

seem to notice increases in the cost-of-living more when those increases were anticipated.

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If nominal output is $5.28 trillion and the GDP deflator is 20 percent higher than in the base year, then real output is:

$4.84 trillion.

$4.4 trillion.

$4 trillion.

$3.84 trillion.

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The number of people over age 16 in an economy willing and able to work, is known as the:

labor force participation rate.

unemployment rate.

labor force.

employment force.

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The unemployment that occurs when people first enter the labor force or are in the process of changing jobs, is called:

frictional unemployment.

cyclical unemployment.

natural unemployment.

structural unemployment.

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Real output is:

all tangible goods and services produced in an economy.

output that people think of as real-goods, and certain essential services.

GDP after the effects of inflation has been removed.

nominal GDP after it has been compared to other country's GDPs.

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People who work part-time, or have a full-time job that doesn't use all their skills, are included in:

the underemployed.

discouraged workers.

phantom employment.

cyclical unemployment.

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Which of the following is a statement Keynesians would likely make?

All unemployment is frictional unemployment.

If a person isn't working, that's his or her choice.

Structural and cyclical unemployment are more common than frictional unemployment.

The unemployment rate overstates actual unemployment.

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Most economists agree that during a depression:

economic policy should be used to improve economic conditions.

economic policy is ineffective.

economic policy is counterproductive.

the demand for output is excessive.

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The region of the world or country that has achieved the highest secular trend per capita growth rate since 1950 is:

North America.

China.

Africa.

Latin America.

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A situation in which the price level increases at an extremely high rate is called:

hyperinflation.

disinflation.

inflation.

stagflation.

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A price index in years beyond the base year:

is never 100.

is always greater than 100.

is always less than 100.

can be less than, greater than, or equal to 100.

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Cyclical unemployment is defined as unemployment that results from:

fluctuations in economic activity.

structural changes in the economy.

changes in technology.

the aging of the population.

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Per capita real output would be certain to increase if:

both real GDP and population increase.

both real GDP and population decrease.

real GDP increases and population decreases.

real GDP decreases and population increases.

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Nominal output is best defined as a measure of the:

quantity of output.

value of output at prices in the current year.

value of output at prices in the base year.

quality of output.

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Which of the following people would be considered unemployed?

A 55-year-old steel worker who was laid off 18 months ago and has given up trying to find a job.

A woman who has quit college to move to New York where she is looking for a modeling job.

A young man who has recently received his Ph.D. but who is driving a taxi because of an inability to find a teaching job.

A student who plans to look for a job after graduation.

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Individuals are considered unemployed if they do not have a job and are currently seeking one. Only the woman who aspires to be a model is actively seeking a job, so only she would be considered unemployed.

Quiz: chapter eight


Investment includes:

an increase in corporate stock volumes during the year.

the purchase of medical supplies by the National Guard.

an increase in government purchases.

an increase in business inventories.

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Double counting in the national income accounts will occur if GDP is computed by summing up:

final output sales.

value added.

all sales.

the income earned by a country's residents.

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For the purposes of calculating GDP using the expenditure approach, which of the following payments is not included in the government purchases component?

social security payments.

the wages paid by a local government to its road crew.

the wages paid by a state government to the workers in its welfare department.

the federal government's purchase of a submarine from a shipbuilder.

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Transfers of assets, such as stock sales are:

included in GDP because they raise domestic production.

included in GDP because they increase domestic wealth.

not included in GDP because they do not increase domestic production.

not included in GDP because they do not increase domestic wealth.

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In 2008, gross investment was $2,593 billion and net investment was $873 billion; therefore depreciation was:

$873 billion.

$1,720 billion.

$2,593 billion.

$3,466 billion.

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The reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods:

do not create value added.

do not add to economic welfare.

have no social value.

would be double counted otherwise.

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Conceptually, a country's GDP equals:

the sum of the value of its final output and the value of the intermediate goods used to produce that output.

the difference between the value of its final output and the value of the intermediate goods used to produce that output.

the sum of the value added at all stages of production.

the sum of the value of all the intermediate goods used to produce final output.

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The sum of the value added at all stages of production represents the total increase in the value of output produced by a country, which is just its GDP.


GDP is a:

stock concept and refers to the market value of all output sold.

stock concept and refers to the market value of final output.

flow concept and refers to the market value of all output sold.

flow concept and refers to the market value of final output.

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Which of the following would increase this year's GDP?

A mother quits her job to take care of her newborn child.

A commission charged by your broker when you sold 100 shares of Borden stock.

A $10,000 inheritance from Aunt Mary.

Receipts from a yard sale.

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Which of the following economic activities would be included in U.S. gross domestic product (GDP)?

Illegal drug sales.

Pure services, such as haircuts.

Illegal prostitution.

Work performed and paid for in cash to avoid income tax.

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Which of the following is an example of an intermediate product?

A pair of skis sold by a sporting goods retailer to a skier.

A share of IBM stock.

The lumber produced by Boise Cascade and sold to a builder of old houses.

An antique car sold to the highest bidder.

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If U.S. net exports are positive, then U.S.:

GDP is less than the sum of consumption, investment, and government purchases.

GDP exceeds the sum of consumption, investment, and government purchases.

imports must exceed U.S. exports.

GDP equals the sum of consumption, investment and government purchases.

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Calculate GDP using the table above.

5,570

5,600

6,050

6,320

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If nominal GDP increases by 2% and the price level drops by 1%, real GDP:

increases by 1%.

decreases by 1%.

increases by 3%.

decreases by 3%.

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Calculate net exports using the table above.

170

200

450

650

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If depreciation is zero, then net domestic product:

exceeds gross domestic product.

equals gross domestic product.

is less than gross domestic product.

cannot be defined.

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The largest component of aggregate income is:

interest.

rents.

employee compensation.

profits.

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The sum of the value added by all of a nation's individuals and businesses in a year equals:

the value of intermediate products.

the value of investment goods.

total profits.

GDP.

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Value added is the increase in value that a firm or an individual contributes to a product or service. Summing value added is one way to calculate GDP.


Value added is calculated by:

subtracting the cost of materials used in production from the value of sales.

adding the cost of materials used in production to the value of sales.

subtracting the value of sales from the cost of materials used in production.

adding the value of output to the value of inputs.

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How does stock differ from flow?

A flow concept has meaning over a specified period of time, while a stock concept is a value at a point in time.

A flow concept is a value at a point in time, while a stock concept has meaning over a specified period of time.

They do not differ; both flow and stock concepts have meaning only over a specified period of time.

They do not differ; both flow and stock concepts are values at a point in time.

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Personal consumption expenditures consist of:

household and individual purchases of services and durable and nondurable goods.

foreign investments in the United States.

foreign plus domestic investments.

domestic investments.

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Great Basin National Park, the only national park wholly within the borders of Nevada, occupies 77,180 acres and contains 42 known caves. In 2003, it had 25 permanent staff, who with the seasonal staff collected $281,241 in fees for 2003, mostly for the 2,344 cave tours they gave during that year. The park also had 79 volunteers contribute 9,410 hours of work during 2003. No acres of land were burned in 2003, a year in which the park was surveying for springs in the 25 watersheds. During 2003, 87,679 people visited the park.

Some of the data in the paragraph above are flow measurements and some are stock measurements. An example of a flow measurement is:

staff positions in the park.

acres in the park.

cave tours given.

caves in the park.

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The largest expenditure component of GDP is:

consumption.

investment.

net exports.

government spending.

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In what category is the purchase of a computer by a business in national income accounting?

It is ignored because computers are considered intermediate goods--an input in the production of other goods and services.

It is considered consumption.

It is a form of investment spending.

It is a form of savings.

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If economic activity increases, it follows that economic welfare:

increases as more goods and services become available.

decreases as more resources are depleted.

does not change since it does not depend on the level of economic activity.

may increase, decrease, or remain unchanged depending on the nature of the increase in economic activity.

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An increase in nominal GDP implies an increase in:

the price level.

output.

both the price level and output.

either the price level or output or both.

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Nominal output is GDP calculated at existing prices. Comparisons over time can be misleading because changes in nominal output are produced by changes in both real output and the price level.


Using the expenditure approach, gross domestic product equals:

gross national product.

gross national product minus net exports.

the sum of consumption, investment, government purchases.

the sum of consumption, investment, government purchases and net exports.

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Aggregate income is the sum of:

employee compensation and profits.

employee compensation, rent, and profits.

employee compensation, rent, profits, and interest.

employee compensation, rent, profits, interest, and transfer payments.

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Government expenditures for social security and unemployment insurance are, for GDP accounting purposes, considered:

transfers, and are included in government spending as part of GDP.

transfers, and are not included in government spending as part of GDP.

purchases, and are included in government spending as part of GDP.

purchases, and are not included in government spending as part of GDP.

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According to the aggregate accounting identity:

GNP equals GDP.

aggregate income equals aggregate production.

assets equal liabilities.

supply equals demand.

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The income approach to measuring GDP:

focuses on how income is spent.

uses the factors payments made by businesses to households to estimate GDP.

adds up all household expenditures to calculate aggregate income and GDP.

ignores how income is earned and focuses instead on how it is used.

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GDP is the:

market value of an economy's production of final goods and services in a one year period.

sum of coins, bills, and demand deposits circulating in an economy in a one year period.

total expenditures of the federal government over the period of one year.

market value of an economy's production of all goods and services in a one year period.

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Given the following information, aggregate income equals:

$2,900.

$3,400.

$3,900.

$4,400.

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Attempt Score:

29 / 33 - 87.88 %

Overall Grade (highest attempt):

29 / 33 - 87.88 %

Quiz: chapter nine


Which of the following is an example of human capital?

Robots used to manufacture cars.

Well-developed financial markets.

On-the-job training.

Trust among firms that allows short-term credit.

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If decreasing returns to scale exist, then an increase in output of 5 percent is most likely to be produced by:

a decrease in all inputs of 5 percent.

an increase in all inputs of less than 5 percent.

an increase in all inputs of 5 percent.

an increase in all inputs of more than 5 percent.

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New growth theory emphasizes the importance of all of the following except:

positive externalities.

diminishing marginal productivity.

technology.

learning by doing.

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If a country's population is 5 million and its output is 196 billion, its per capita output is about:

$1,960.

$9,800.

$19,960.

$39,000.

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The idea behind Say's Law is that people work because:

they like to work.

they want to buy things.

they want to accumulate wealth.

work gives them social status.

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Increasing returns to scale exist when doubling all inputs:

increases output.

increases output but by less than double.

doubles output.

more than doubles output.

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The legal system is an example of:

social capital.

physical capital.

human capital.

entrepreneurial capital.

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The most important policy implication of the Classical growth model is that:

policies to slow population growth will accelerate economic growth.

policies to stimulate technological development will stimulate economic growth.

policies to stimulate saving and investment will stimulate economic growth.

budget deficits will stimulate economic growth.

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All of the following are important sources of growth except:

institutions with incentives compatible with growth.

technological development.

entrepreneurship.

government planning.

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If per capita output falls by 2 percent and population grows by 3 percent, output:

falls by 5 percent.

falls by 1 percent.

grows by 1 percent.

grows by 5 percent.

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As a result of the Great Depression, economic thought placed greater emphasis on:

long-run growth.

short-run fluctuations.

international transactions.

the problem of inflation.

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Keynes said that in the long run we are all dead. Economists shifted to worry more about the short run.


Macroeconomics emerged as a separate field largely in response to:

Adam Smith's Wealth of Nations.

Alfred Marshall's distinction between the long run and short run.

Irving Fisher's development of the quantity theory of money.

John M. Keynes's explanation of depression.

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Economist Hernando DeSoto believes that the lack of formal property rights:

has no impact on growth because both legal and illegal businesses both produce goods.

limits growth because the lack of formal property rights leads to higher taxes.

encourages growth because formal property rights require regulations.

limits growth by limiting access to loans.

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According to estimates in the text, which of the following factors made the most important contribution to U.S. growth between 1928 and today?

Technology.

Human capital.

Physical capital.

Labor.

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Financial markets are a key institution of growth because:

without them there would be no incentive to save.

without them there would be no incentive to invest.

they move funds from those who save to those who invest.

they allow people to plan better for retirement.

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Which of the following best explains why per capita income levels across countries have failed to converge?

Increasing returns to scale are more significant in some countries than in others.

Growth rates of human capital vary across countries.

Population growth rates across countries have failed to converge.

Diminishing marginal productivity no longer applies.

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To an economist, a production function is:

any use of output.

a list of all factors that affect growth.

another name for a production-possibility curve.

an equation showing how much output can be produced from various combinations of inputs.

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Economic growth:

does not affect living standards at all.

has a relatively small effect on living standards over long periods of time.

has a relatively large effect on living standards over long periods of time.

is the sole determinant of living standards over any time period.

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As the examples in the text illustrate, small differences in growth rates are ultimately translated into large differences in living standards. Of course living standards are not determined entirely by growth rates but also depend on other factors such as political freedom, respect for human rights, environmental quality, etc.


Compounding means that changes in living standards depend:

only on the initial level of income.

only on the accumulation of changes in income since the initial year.

on both the initial level of income and the accumulation of changes in income since the initial year.

on neither the initial level of income nor the accumulation of changes in income since the initial year.

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Per capita growth:

occurs only when the population is growing.

occurs only when output is growing.

occurs when there is an increase in goods and services per person.

always improves the distribution of income.

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Economic growth through the market has:

hurt the poor.

not affected the poor.

helped both rich and poor.

helped the poor at the expense of the rich.

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Scale economies describe what happens to output when:

one input changes.

all inputs change by the same percentage.

technology changes.

institutions change.

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The Rule of 72 implies that a country with a growth rate of 8 percent will double its income in about:

4 years.

6 years.

9 years.

12 years.

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If per capita output increases by 5 percent and output grows by 3 percent, the population must be:

falling at a rate of 8 percent.

falling at a rate of 2 percent.

increasing at a rate of 2 percent.

increasing at a rate of 8 percent.

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Growth in per capita output equals the difference between the growth rate of output and the growth rate of population.


The growth produced by markets:

makes everyone better off and improves the distribution of income as well.

makes the rich better off at the expense of the poor.

makes the average person better off but may worsen the distribution of income.

affects the level of income but not its distribution.

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The effect of specialization and the division of labor is to make us:

more productive and more dependent on others.

more productive and less dependent on others.

less productive and more dependent on others.

less productive and less dependent on others.

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Haiti has a literacy rate (the percentage of those over 15 who can read and write) of about 66%. In terms of the various factors that explain the wealth of nations, where does this low literacy rate fit?

It indicates that Haiti is short of physical capital.

It shows that it lacks entrepreneurship.

It shows a lack of natural resources.

It indicates that Haiti is short on human capital.

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We can show economic growth in terms of the production possibility curve by:

movement along the production possibility curve.

shifting from a point inside the curve to a point on the production possibility curve.

shifting the production possibility curve outward.

jumping to a point outside the production possibility curve.

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Positive externalities of technological change result from:

capital accumulation.

the common knowledge embodied in many technologies.

patents.

increasing returns to scale.

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The convergence hypothesis expects per capita incomes to narrow between nations by the:

poorer nations growing faster than the richer nations.

poorer nations growing slower than the richer nations.

richer nations dropping down to the level of the poorer nations.

richer nations declining and the poorer nations rising so they meet somewhere in the middle.

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The growth model in which capital accumulation plays the key role is called the:

new growth model.

Classical growth model.

new Classical growth model.

Keynesian model.

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Growth compatible institutions:

have incentives built into them that lead people to put forth effort.

encourage people to pursue activities that inhibit growth in others.

allow people to gain income for themselves by creating impediments for others.

encourage people to spend a lot of time in leisure pursuits.

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Quiz: chapter ten


Keynes believed that an increase in savings would:

raise aggregate demand by reducing investment.

raise aggregate demand by increasing consumption.

Incorrect Response reduce aggregate demand by reducing investment.

Correct Answer reduce aggregate demand by reducing consumption.

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Aggregate demand will fall if the increase in saving reduces consumption more than it increases investment.


Picture

Refer to the graph above. The economy is in a long-run equilibrium at:

Incorrect Response point A.

point B.

Correct Answer point C.

no point in the graph.

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A long-run equilibrium exists at the point at which the aggregate demand curve intersects the long-run aggregate supply curve.


At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

Correct Response a short-run equilibrium but not necessarily a long-run equilibrium.

a long-run equilibrium but not necessarily a short-run equilibrium.

both a short-run and a long-run equilibrium.

neither a short-run nor a long-run equilibrium.

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Unexpected large increases in income in the late 1990s:

Correct Response helped to push the budget out of deficit and into surplus.

caused larger budget deficits.

reduced the budget surplus.

led to a balanced budget.

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An example of countercyclical fiscal policy is:

raising government spending when the economy is above potential.

Incorrect Response raising government spending when the economy is at potential.

Correct Answer reducing government spending when the economy is above potential.

reducing government spending when the economy is below potential.

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Countercyclical fiscal policy contracts the economy when equilibrium income is above potential income or stimulates it when it is below potential.


The AD curve:

will shift as much as the initial shift factor when the multiplier is greater than one.

Correct Response will shift by more than initial shift factor when the multiplier is greater than one.

will shift by less than the initial shift factor due to leakages.

could shift by more or less than the initial shift factor.

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Picture

Refer to the graph above. In 1975 Gerald Ford instituted a large tax cut. At the same time, the Fed expanded the money supply. The effect of these policies on the AD curve is best shown as a movement from:

A to B

Correct Response D to A

A to D

B to A

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Which of the following statements best depicts laypeople's explanation of the Depression at that time?

Government policies kept prices too high.

Correct Response An oversupply of goods had glutted the market.

Unions were keeping the good jobs for themselves.

An oversupply of goods is impossible.

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An inflationary gap exists when:

aggregate demand exceeds output.

Correct Response actual output exceeds potential output.

output exceeds aggregate demand.

potential output exceeds actual output.

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Equilibrium income is that level of income:

the economy always produces.

Correct Response toward which the economy gravitates in the short-run.

an economy is capable of producing without generating accelerating inflation.

an economy is capable of producing without generating unemployment.

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Keynesian economists believe:

government policies do not affect economic activity.

Correct Response government can implement policy proposals that can positively impact the economy.

most government policies would probably make things worse.

the economy ought to be left to market forces.

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The new government of Pakistan transfers money from the rich to the poor. This will likely:

shift the Pakistani AD curve to the left.

Correct Response shift the Pakistani AD curve to the right.

make the Pakistani AD curve flatter.

make the Pakistani AD curve steeper.

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The paradox of thrift occurs when:

an increase in saving raises output.

Correct Response an increase in saving reduces output.

saving is unrelated to output.

a decrease in saving reduces output.

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Keynes believed the economy was:

Correct Answer not generally at potential income.

always at potential income.

always moving away from potential income.

Incorrect Response always moving toward potential income.

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Keynes believed potential income was a level of income about which equilibrium income fluctuated.


Fiscal policies are policies that directly affect:

interest rates.

Correct Response government spending and taxes.

the money supply.

the price level.

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An increase in production costs is most likely to shift the:

Correct Response short-run aggregate supply curve up (to the left).

short-run aggregate supply curve down (to the right).

aggregate demand curve to the left.

aggregate demand curve to the right.

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The Classical economists argued that:

a market economy will not experience unemployment.

Correct Response if unemployment occurs, it will cure itself because wages and prices will fall.

aggregate expenditures may be too low.

if inflation occurs it will cure itself because prices, wages, and interest rates will rise.

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Laissez-faire economists believe:

government policies do not affect economic activity.

government can implement policy proposals that can positively impact the economy.

Correct Response most government policies would probably make things worse.

government intervention in the market is necessary for a smoothly operating economy.

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Governments are said to fine tune the economy when they attempt to use fiscal policy to:

offset fluctuations in aggregate supply.

offset only large fluctuations in aggregate demand.

Correct Response keep the economy always at its target or potential level of income.

eliminate unemployment.

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Picture

Refer to the above graph. A decrease in production costs is likely to cause a movement from:

C to D.

B to D.

Correct Response B to A.

C to A.

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If actual output exceeds potential output, the economy:

Correct Response is experiencing an inflationary gap.

is experiencing a recessionary gap.

may be in a long-run equilibrium but is not in a short-run equilibrium.

is in neither a short-run nor long-run equilibrium.

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In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:

shifted the AD curve to the left.

Correct Response shifted the AD curve to the right.

made the AD curve flatter.

made the AD curve steeper.

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Before the Great Depression the popular view of government was:

Correct Response laissez-faire, and after the Depression, the popular view of government was activist.

activist, and after the Depression, the popular view of government was laissez-faire.

activist, and after the Depression, the popular view of government was still activist.

laissez-faire, and after the Depression, the popular view of government was still laissez-faire.

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A rise in the U.S. price level will cause:

both exports and imports to increase.

both exports and imports to decrease.

exports to increase and imports to decrease.

Correct Response exports to decrease and imports to increase.

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The U.S. budget surplus dwindled in 2001 in part because:

taxes were increased and government spending was decreased.

Correct Response taxes were decreased and government spending was increased.

the economy grew too rapidly.

the government enacted a contractionary fiscal policy to reduce the threat of inflation.

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Potential income is that level of income that:

the economy always produces.

toward which the economy gravitates in the short-run.

Correct Response an economy is capable of producing without generating higher inflation.

an economy is capable of producing without generating unemployment.

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A change in the distribution of income affects the AD curve because:

Correct Response workers are more likely than stockholders to spend the income they receive.

stockholders are more likely than workers to spend the income they receive.

workers and stockholders are equally likely to spend the income they receive.

the distribution of income is always shifting in favor of stockholders.

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Keynes argued that:

the long-run is a more important policy concern than the short-run.

Correct Response the short-run is a more important policy concern than the long-run.

both the short-run and the long-run are equally important.

the distinction between the short-run and the long-run is irrelevant.

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The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services cheaper than before and also gave rise to completely new services. We would show this change in the aggregate-demand/aggregate-supply model by moving the aggregate:

Incorrect Response demand curve right with little change in aggregate supply.

demand curve left with little change in aggregate supply.

Correct Answer supply curve down (to the right) with little change in aggregate demand.

supply curve up with little change in aggregate demand.

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Improvements in technology increase potential output and reduce costs, moving the short aggregate supply curve down and the long-run aggregate supply curve to the right.


The long-run aggregate supply curve shows the output level that an economy can produce when:

firms adjust quantity rather than price.

capital is fully employed.

labor is fully employed.

Correct Response both capital and labor are fully employed.

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The interest rate effect helps to explain why:

Correct Response an increase in the price level reduces the quantity of aggregate demand.

an increase in the price level raises investment.

a decrease in the price level reduces the quantity of aggregate demand.

a decrease in the price level reduces investment.

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Which of the following is an example of an expansionary fiscal policy?

An increase in taxes.

Correct Response An increase in government spending.

An increase in the money supply.

A decrease in government spending.

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An increase in the price level:

increases the purchasing power of money, leading to lower interest rates and increases investment.

increases the purchasing power of money, leading to higher interest rates and decreases investment.

decreases the purchasing power of money, leading to lower interest rates and increases investment.

Correct Response decreases the purchasing power of money, leading to higher interest rates and decreases investment.

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Quiz: chapter eleven


Suppose that to cool down an overheating economy the U.S. government decides to decrease income by 2,000. If the mpe is 0.8, the government should decrease its spending by:

Correct Response 400.

500.

1,000.

1,600.

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Which of the following will not shift the AE curve?

A change in defense spending

A change in consumer confidence

A change in business sentiment

Correct Response A change in production

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Say foreign income increases and this pushes U.S. exports up. The U.S. AE curve will likely:

become steeper.

become flatter.

Correct Response shift up.

shift down.

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For levels of income to the left of the point where the expenditures function intersects the aggregate production curve:

Correct Response planned expenditures exceed production and businesses increase production.

planned expenditures exceed production and businesses decrease production.

production exceeds planned expenditures and businesses decrease production.

production exceeds planned expenditures and businesses increase production.

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All else equal, the multiplier is larger when:

Correct Response the mpe is larger.

the mpe is smaller.

induced expenditures are smaller.

the economy is in equilibrium.

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The reason the multiplier is greater than 1 is that:

Correct Response spending generates income that is in turn spent again.

savings are positive.

the marginal propensity to save is 1.

the marginal propensity to consume is 1.

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Expenditures that would exist at an income level of zero are called:

endogenous expenditures.

aggregate expenditures.

induced expenditures.

Correct Response autonomous expenditures.

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In the multiplier model, if the mpe is 0.8, then the multiplier is:

1.25.

2.

Correct Response 5.

8.

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The multiplier model is best used to:

explain why changes in autonomous expenditures occur.

estimate the equilibrium level of output.

Correct Response estimate how changes in autonomous expenditures alter the equilibrium level of output.

estimate how changes in the price level affect the equilibrium level of output.

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The marginal propensity to expend equals the ratio of:

income to aggregate expenditure.

the change in income to a change in aggregate expenditure.

aggregate expenditure to income.

Correct Response the change in aggregate expenditure to a change in income.

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Suppose that political unrest in North Korea causes investment to decline by 40. The multiplier model implies that if the mpe is 0.75, income would decline by:

30.

53.33.

120.

Correct Response 160.

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The marginal propensity to consume:

equals zero because increases in income do not affect consumption.

Correct Response is less than one because consumers tend to save some portion of any increase in income.

equals one because consumers save each additional dollar of income earned.

is greater than one because consumers tend to spend more than they earn.

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The multiplier equation can be used to determine how changes in:

autonomous expenditures affect consumption.

Correct Response autonomous expenditures affect output.

output affect consumption.

output affect autonomous expenditures.

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The aggregate expenditure function:

Correct Response gives the relationship between an economy's expenditures and its income.

shifts upward if aggregate household wealth declines.

implies that annual expenditures in an economy are zero if income is zero.

is a horizontal line.

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The multiplier equals:

the mpe.

1/mpe.

Correct Response 1/(1 - mpe).

1/(mpe - 1).

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The multiplier equation is:

AE = AE0 + mpe Y.

Y = 1/(1 - mpe).

Correct Response Y = AE0 [1/(1 - mpe)].

AE = C + I + G + (X - M).

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The multiplier model:

provides numerical estimates of how equilibrium output changes in response to changes in the price level.

Correct Response provides numerical estimates of how equilibrium output changes in response to changes in aggregate expenditures.

is inconsistent with the AS/AD model if the price level is fixed.

identifies the factors that cause the AS curve to shift over time.

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In the table below, if income is $2,000, induced expenditures are:

Picture

$1,000

Correct Response $1,600

$1,800

$2,600

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In the multiplier model, aggregate expenditure equals:

autonomous expenditures.

induced expenditures.

Correct Response the sum of autonomous and induced expenditures.

the difference between autonomous and induced expenditures.

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Picture

In the figure above, induced expenditures equal:

$400 no matter what the income level.

$1,000 no matter what the income level.

Correct Response $400 if the income level is $1,000.

$1,000 if the income level is $1,000.

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The multiplier equation shows the relationship between:

autonomous expenditures and savings.

autonomous expenditures and government spending.

Correct Response autonomous expenditures and the equilibrium income level.

investment spending and savings.

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The multiplier effect implies that:

investors respond to changes in interest rates.

the economy is in a recession.

Correct Response a change in autonomous purchases will cause aggregate income to change by a larger amount.

consumers respond to a price change.

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According to the multiplier equation, an increase in the marginal propensity to expend:

raises output because it leads to an increase in autonomous expenditure.

reduces aggregate expenditure because it reduces the multiplier.

Correct Response increases output because it increases the multiplier.

increases aggregate expenditure because it increases autonomous expenditure.

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The total level of expenditures in an economy equals:

C + I + G + M.

C + I + G - M.

C + I + G + X.

Correct Response C + I + G + X - M.

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According to the multiplier model, if the mpe is 0.75, a $50 billion upward shift in autonomous expenditures will cause equilibrium income to increase by:

$37.5 billion.

$50 billion.

Correct Response $200 billion.

$500 billion.

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The consumption function gives the relationship between consumption and:

the price level.

wealth.

Correct Response income.

interest rates.

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In the table below, the marginal propensity to expend is:

Picture

$1,000.

$5,000.

Correct Response 0.8.

0.2.

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Refer to the graph below.

Picture

Which of the graphs accurately depicts the aggregate production curve?

Correct Response A.

B.

C.

D.

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Picture

Refer to the graph above. A decrease in foreign income is most likely to cause the AE curve to shift from:

Incorrect Response AE3 to AE1.

AE2 to AE1.

Correct Answer AE0 to AE2.

AE0 to AE1.

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Since a drop in foreign income decreases one type of autonomous expenditures (exports), it shifts the AE curve down.


In the multiplier model, induced expenditures are a function of:

consumer confidence.

Correct Response income.

interest rates.

wealth.

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If an increase in income of $200 causes aggregate expenditure to increase from $1,000 to $1,100, then the marginal propensity to expend equals:

0.1.

0.2.

Correct Response 0.5.

1.

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Picture

Refer to the graph above. If income is $1,200:

Incorrect Response inventories are at the desired level.

Correct Answer inventories are above their desired level.

inventories are below their desired level.

real income cannot be determined.

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At this income level, aggregate production exceeds planned expenditure, so inventories are increasing beyond what is desired.

economics chapter 4-9

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