Macroeconomics EC112

Technological progress has made it possible for firms such as Apple and Alivecor to develop small electronic devices, including smartwatches, smartphones, and products that can be attached to the smartwatches and smartphones, to serve consumers who have become more health conscious and wish to monitor various health conditions. These firms are reacting to which of the three key economic ideas?
A) firms attempt to maximize revenues
B) optimal decisions are made at the margin
C) people are rational
D) people respond to economic incentives

d

The term "market" in economics refers to ______________
A) a place where money changes hands.
B) a legal institution where exchange can take place.
C) a group of buyers and sellers of a product and the arrangement by which they come together to trade.
D) an organization which sells goods and services.

c

Which of the following best describes an assumption economists make about human behavior?
A) They assume that individuals act rationally all the time in all circumstances.
B) They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time.
C) They assume that people take into account the question of fairness in all decisions they make.
D) They assume that individuals act randomly.

b

1. In the first six months of 2003, branches of Commerce Bank in New York City were robbed 14 times. The New York City Police recommended steps the bank could take to deter robberies, including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice. According to a deputy commissioner of police, "Commerce does very little of what we recommend. They’ve told our detectives they have no interest in ever putting in the barriers."

It would seem that Commerce Bank would have a strong incentive to install "bandit barriers" to deter robberies. Why wouldn’t they do it?

A) The banks would rather delay installation of any theft deterring equipment in anticipation of new, lower-cost innovations in the security devices market.
B) The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers."
C) The banks are concerned that "bandit barriers" would send the wrong message to customers — that the bank is unsafe.
D) The banks probably resent any interference from the police department.

b

Economics promotes which of the following as the way to make the best decision?
A) Continue an enjoyable activity as long as you do not have to pay for it.
B) Continue an enjoyable activity until it is no longer enjoyable.
C) Continue an enjoyable activity until you cannot afford to pursue it.
D) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost.

d

Which of the following is an example of a "how much" decision?
A) Octavia is debating whether to buy a pair of Jimmy Choo shoes or Steve Madden boots.
B) Humberto has taken a second job to earn money to buy a Harley-Davidson SuperLow Sportster.
C) You plan on going to Las Vegas for your birthday and are deciding if you should fly or drive.
D) Diana is trying to decide if she should open her pet shop on Sundays.

d

Every society faces economic trade-offs. This means ______
A) me people live better than others do.
B) not everyone can have enough goods to survive.
C) producing more of one good means less of another good can be produced.
D) society’s output cannot be made available to all.

c

Which of the following statements is false?
A) Anytime you have to decide which action to take you are facing an economic trade-off.
B) Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as a stock clearance sale.
C) Every individual, no matter how rich or poor, is faced with making trade-offs.
D) Economics is a social science that studies the trade-offs we are forced to make because of scarcity.

b

Who, in a modern mixed economy, decides what goods and services will be produced with the scarce resources available in that economy?
A) the government
B) producers
C) consumers
D) consumers and producers
E) the government, consumers, and producers

e

In a market economy, who decides what goods and services will be produced?
A) only the producers
B) only consumers
C) consumers and producers
D) the government

c

How does a market system prevent people from getting as many goods and services as they wish?
A) Governments interfere with the market mechanism to influence the allocation of goods and services.
B) In a market system, firms can charge any price they want, thus preventing poor people from getting as many goods and services as they wish.
C) The market system allocates goods and services to those who are able to pay for those products and therefore income is a limiting factor.
D) The government imposes taxes on those who earn beyond a certain amount of income.

c

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs
A) allocative efficiency
B) productive efficiency
C) equity
D) efficient central planning

a

Which of the following statements about positive economic analysis is true?
A) Positive analysis uses an economic model to estimate the costs and benefits of different course of actions.
B) There is much less disagreement among economists over normative economic analysis than over positive economic analysis.
C) There is much more disagreement among economists over positive economic analysis than over normative economic analysis.
D) Unlike positive economic analysis, normative economic analysis can be tested.

a

Which of the following is a microeconomics question?
A) When will the government better secure the borders?
B) Why hasn’t the federal government raised the minimum wage?
C) How does Fiat decide on the price of the 500 Pop model?
D) What determines the level of U.S. imports and exports?

c

Which of the following is a macroeconomics question?
A) What determines the minimum wage?
B) What determines the production of video game consoles?
C) What factors determine the price of Oreo cookies?
D) What determines the salaries of college professors?

a

The production possibilities frontier model assumes all of the following except____________
A) labor, capital, land and natural resources are fixed in quantity.
B) the economy produces only two products.
C) any level of the two products that the economy produces is currently possible.
D) the level of technology is fixed and unchanging.

c

The ________ production points on a production possibilities frontier are the points along and inside the production possibilities frontier.
A) attainable
B) unattainable
C) productively efficient
D) allocatively efficient

a

An outward shift of a nation’s production possibilities frontier can occur due to
A) a reduction in unemployment.
B) a natural disaster like a hurricane or bad earthquake.
C) a change in the amounts of one good desired.
D) an increase in the labor force.

d

The opportunity cost of taking an on-line history class is
A) the knowledge and enjoyment you receive from taking the class.
B) the value of the time spent on line.
C) equal to the highest value of an alternative use of the time and money spent on the class.
D) zero because there is no classroom time involved if you are enrolled in the course.
E) the cost of tuition and fees only.

d

Which of the following is an example of spending on factors of production in the circular flow model?
A) Tuan purchases a cappuccino at the student union.
B) Laurence rents a car to drive to a wedding in San Diego.
C) Yvette pays $50 to join a softball league.
D) The "Lucky Ducky" casino buys a new crabs table for the casino floor.

d

The ability to exercise control over one’s own resources within the confines of the law refers to
A) the free market.
B) one’s property rights.
C) entrepreneurship.
D) having an absolute advantage.

b

Which of the following is an example of spending on goods and services in the circular flow model?
A) Micah purchases a new wrench for his auto repair business.
B) Chester buys a first-class ticket from Atlanta to London for his long-awaited vacation.
C) Toby buys a new lawn mower to use in his lawn care business.
D) Lily purchases a new massage table for use in her therapy center.

b

A(n) ________ is represented by a rightward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve.
A) increase in demand; decrease in demand
B) increase in demand; increase in quantity demanded
C) decrease in demand; decrease in quantity demanded
D) increase in quantity demanded; increase in demand

b

If, in response to a decrease in the price of coffee, the quantity of coffee demanded increases, economists would describe this as_______
A) an increase in demand.
B) an increase in quantity demanded.
C) a change in consumer income.
D) an increase in consumers’ taste for coffee.

b

The phrase "demand has increased" means that ___________
A) a demand curve has shifted to the left.
B) there has been an upward movement along a demand curve.
C) there has been a downward movement along a demand curve.
D) a demand curve has shifted to the right.

d

The ________ effect of a price change refers to the impact of a change in the price of a good on a consumer’s purchasing power
A) income
B) substitution
C) demographics
D) ceteris paribus

a

The income effect of a price change results in a _________
A) shift of the demand curve when income changes.
B) movement along the demand curve due to a change in relative prices.
C) shift of the demand curve due to a change in purchasing power brought about by the price change.
D) movement along the demand curve due to a change in purchasing power brought about by the price change.

d

Suppose that when the price of ice cream increases, Liza decreases her purchase of hot fudge. To Liza,
A) ice cream and hot fudge are complements.
B) ice cream and hot fudge and substitutes.
C) ice cream and hot fudge are normal goods.
D) ice cream is a normal good and hot fudge is an inferior good

a

How does the increasing use of digital cameras affect the market for traditional camera film?
A) The demand curve for traditional camera film shifts to the right.
B) The quantity of traditional camera film demanded decreases.
C) The quantity of traditional camera film demanded increases.
D) The demand curve for traditional camera film shifts to the left.

d

Technological advancements have led to lower prices and an increase in the sale of color laser printers. How does this affect the market for traditional inkjet printers?
A) The demand curve for inkjet printers shifts to the right.
B) The demand curve for inkjet printers shifts to the left.
C) The quantity of inkjet printers demanded increases.
D) The quantity of inkjet printers demanded decreases

d

Last month, the Tecumseh Corporation supplied 400 units of three-ring binders at $6 per unit. This month, the company supplied the same quantity of binders at $4 per unit. Based on this evidence, Tecumseh has experienced
A) a decrease in supply.
B) an increase in supply.
C) an increase in the quantity supplied.
D) a decrease in the quantity supplied

b

If the United States lifts the embargo on Cuban products, what will happen in the U.S. market for Cuban cigars?
A) The supply curve will shift to the left.
B) The supply curve will shift to the right.
C) The demand curve will shift to the right.
D) The demand curve will shift to the left.

b

If a firm expects that the price of its product will be lower in the future than it is today
A) the firm has an incentive to increase supply now and decrease supply in the future.
B) the firm has an incentive to decrease supply now and increase supply in the future.
C) the firm has an incentive to increase quantity supplied now and decrease quantity supplied in the future.
D) the firm will not change supply until it knows for certain what will happen to its price.

a

Electric car enthusiasts want to buy more electric cars at a lower price. All of the following events would have this effect except
A) technological advancement in the production of electric car batteries.
B) an increase in the number of manufacturers of electric cars.
C) a decrease in the price of lithium, which is used in the electric car batteries.
D) an increase in the price of gasoline.

d

Assume that the price for lawn care has fallen and sales of lawn care services have also fallen. One can conclude that
A) the law of supply has been violated.
B) the number of lawn care service companies has increased.
C) the demand for lawn care service has decreased.
D) lawn care services are deliberately charging low prices because they want to discourage people from maintaining their own lawns.

c

A decrease in input costs in the production of LCD televisions caused the price of LCD televisions to decrease. Holding everything else constant, how would this affect the market for video game consoles (a complement to LCD televisions)?
A) The supply of video game consoles would increase and the equilibrium price of video game consoles would decrease.
B) The demand for video game consoles would decrease and the equilibrium price of video game consoles would decrease.
C) The demand for video game consoles would decrease because consumers could afford to buy fewer LCD televisions and video game consoles.
D) The demand for video game consoles would increase and the equilibrium price of video game consoles would increase.

d

Select the phrase that correctly completes the following statement. "A decrease in the number of manufacturers caused a decrease in the supply of sailboats. As a result, _____________
A) the price of sailboats increased and the demand for sailboats decreased."
B) the equilibrium quantity of sailboats increased."
C) the price of sailboats increased and the quantity of sailboats demanded decreased."
D) the price of sailboats increased. The higher price caused the supply of sailboats to increase."

c

Suppose a drought resulted in a major reduction in the California lettuce crop. In the market for lettuce,
A) the supply curve shifted to the left resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in a decrease in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.

a

In cities with rent control, people have an incentive to list their apartments on sites such as Airbnb at rents ________ the controlled rates, because rent control causes a ________ of apartments.
A) above; surplus
B) above; shortage
C) below; surplus
D) below; shortage

b

Marco goes to the pet store to buy a dozen Koi fish for his new Koi pond. He is willing to pay $200 for the dozen fish, but buys them for a total of $140. Marco’s consumer surplus from the purchase is
A) $5.
B) $60.
C) $140.
D) $200.

b

Each point on a demand curve shows
A) the willingness of consumers to purchase a product at different prices.
B) the consumer surplus received from purchasing a given quantity of a product.
C) the economic surplus received from purchasing a given quantity of a product.
D) the legally determined maximum price that sellers may charge for a given quantity of a product.

a

Which of the following statements is not true?
A) Consumer surplus measures the difference between the highest price a consumer is willing to pay for a product and the price she actually pays.
B) Marginal benefit is the additional benefit to a consumer from consuming one more unit of a product.
C) Consumer surplus measures the net benefit from participating in a market.
D) Producer surplus measures the total benefit received by producers from participating in a market.

d

Deadweight loss refers to
A) the opportunity cost to firms from producing the equilibrium quantity in a competitive market.
B) the sum of consumer and producer surplus.
C) the loss of economic surplus when the marginal benefit equals the marginal cost of the last unit produced.
D) the reduction in economic surplus resulting from not being in competitive equilibrium.

d

________ is defined as a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which the sum of consumer surplus and producer surplus is at a maximum.
A) Economic efficiency
B) Consumer efficiency
C) Producer efficiency
D) Deadweight efficiency

a

When ________ in a market, the total net benefit to society is maximized.
A) deadweight loss is maximized
B) a competitive equilibrium is achieved
C) consumer surplus is minimized
D) producer surplus is minimized

b

A black market is a market where buying and selling take place
A) at prices that violate government price regulations.
B) in non-licensed shops and warehouses.
C) after regular office hours.
D) on foreign soil.

a

Buyers will bear the entire burden of a unit tax if the demand curve for a product is
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.

b

A tax is imposed on employers and workers that are used to fund Social Security and Medicare. This tax is sometimes referred to as
A) the Income Security Tax.
B) the federal income tax.
C) the ACIF.
D) the payroll tax.

d

Economists have shown that the burden of a tax is
A) greater on the buyer when the tax is collected from the buyer.
B) greater on the seller when the tax is collected from the seller.
C) greater on the buyer when the tax is collected from the seller and greater on the seller when the tax is collected from the buyer.
D) the same whether the tax is collected from the buyer or the seller.

d

Despite the Obama administration’s support of the Trans-Pacific Partnership (TPP), the AFL-CIO labor union has argued that the TPP will not
A) create jobs.
B) protect the environment.
C) ensure safe imports.
D) all of the above

d

The 1994 agreement that eliminated most tariffs among the United States, Canada, and Mexico is known as
A) the Pacific Trade Association.
B) Trade Without Borders.
C) NAFTA.
D) the Western Trade Union.

c

If the ________ cost of production for two goods is different between two countries then mutually beneficial trade is possible.
A) marginal
B) explicit
C) opportunity
D) implicit

c

Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country
A) total employment is greater.
B) total consumption of goods is greater.
C) wages are higher.
D) total welfare is greater.

b

All of the following are sources of comparative advantage except
A) climate and natural resources.
B) relative abundance of labor and capital.
C) a strong foreign currency exchange rate.
D) technology.

c

In the past two decades the United States lost its comparative advantage in automobiles to Japan. What factor was most responsible for the development of Japan’s comparative advantage in automobiles?
A) Japanese firms excelled in process technology.
B) Japan has abundant supplies of labor.
C) Japanese firms benefited from external economies.
D) Japan has abundant supplies of natural resources needed to produce automobiles.

a

In 2015, the U.S. auto industry experienced rising sales. The automobile industry was experiencing the effects of _______
A) inflation.
B) the underground economy.
C) the business cycle.
D) depreciation.

c

During a business cycle expansion, total production ________ and total employment ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

a

Macroeconomics, as opposed to microeconomics, includes the study of what determines the ____________
A) average price levels of goods and services in the economy.
B) price charged for laptop computers by Dell.
C) wages paid to employees by Dell.
D) quantity of Dell employees.

a

Suppose in 2016, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2016?
A) the value of the house in 2016
B) the value of the house in 2003
C) the value of the house in 2016 minus depreciation
D) the value of the services of the real estate agent

d

Which of the following goods is directly counted in GDP?
A) he lettuce that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches

c

Which of the following transactions represents the purchase of a final good?
A) Starbucks purchases coffee beans.
B) Delta buys a new European-made jetliner.
C) Apple computer buys computer processors from Intel.
D) Your father buys a new John Deere riding lawn mower.

d

The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that _______
A) the value of output in 2015 was around $17.3 trillion.
B) total income in 2015 was around $17.3 trillion.
C) total spending in 2015 was around $17.3 trillion.
D) all of the above are true.

d

Which of the following is not a durable good?
A) urniture
B) automobile
C) clothing
D) refrigerator

c (has a lifetime of more than 3 years)

Investment, as defined by economists, would not include which of the following? Ford
A) buys a new robotic machine (from a plant in Ohio) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the United States.
D) buys U.S. government bonds.

d

In the United States in 2013, the Bureau of Economic Analysis began counting spending by firms and individuals on developing entertainment products as investment. This change will______________
A) take away from GDP.
B) add to GDP.
C) not change GDP.
D) only change GDP if the development occurs within the borders of the United States.

b

In the first half of 2011, automobile sales in the United States were lower than they were in the first half of 2010. The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses.
A) nondurable goods; durable goods
B) consumption; investment
C) investment; consumption
D) durable goods; nondurable goods

b

How are intermediate goods treated in the calculation of GDP?
A) Their value is not counted separately, but included as part of the value of the final good for which they are an input.
B) Their value is counted separately, and their value is also included as part of the value of the final good for which they are an input.
C) Their value is counted separately, but is not included as part of the value of the final good for which they are an input.
D) They are included only if they are imported

b

Which of the following are not considered part of government purchases?
A) welfare benefits
B) teachers’ salaries paid by a local government
C) a tank purchased by the federal government
D) a bridge purchased by the state government

a

The size of the underground economy would tend to decrease if the government of a country __________________
A) decreased government regulations on businesses.
B) made over-the-counter drugs illegal.
C) increased income tax rates.
D) increased business taxes.

a

The size of the underground economy would tend to increase if the government of a country ________________
A) decreased government regulations on businesses.
B) increased income tax rates.
C) legalized prostitution.
D) legalized marijuana.

b

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

b

Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck and Marla get married, Marla continues to work on designing the home, but she no longer charges Chuck for her work. As a result, GDP ________ because ________.
A) falls; Marla’s work takes place in the underground economy once she’s married
B) falls; Marla’s work becomes less valuable once she’s married
C) falls; Marla’s architectural design services are no longer bought by Chuck once they’re married
D) rises; Marla becomes more productive once she’s married

c

Scott is a woodworker and charges $125 an hour for his time manufacturing custom-made wood products. For his wife’s birthday, he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts?
A) GDP rises by $1,875.
B) GDP is not affected by Scott’s production of the jewelry box.
C) GDP rises by $125.
D) GDP falls by $1,875.

b

Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that ________
A) the price level in 2016 was greater than the price level in the base year.
B) the price level in 2016 was less than the price level in the base year.
C) real GDP in 2016 was less than real GDP in the base year.
D) real GDP in 2016 was greater than real GDP in the base year.

b

The output of U.S. citizens who work in Canada would be included in the _____________
A) gross domestic product of Canada.
B) gross national product of Canada.
C) gross domestic product of the United States.
D) gross national product of Canada and the gross national product of the United States.

b

Which of the following is included in both the U.S. GDP and U.S. GNP?
A) the value of all cars produced by General Motors in the United States
B) the value of all cars produced by Ford in Mexico
C) the value of all cars produced by Toyota in the United States
D) the value of all cars produced by Nissan in Japan and the United States

a

Depreciation is _________
A) the value of worn-out equipment, machinery, and buildings.
B) the value of the decrease in business inventory stocks.
C) the value of the addition to the capital stock.
D) the decline in the value of the stock market, net of dividends.

a

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

b

If a German firm produces cars in the United States, that production should count towards
A) U.S. GNP.
B) German GDP.
C) U.S. GDP.
D) both U.S. GNP and German GDP.

c

When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada, the value of the furniture produced will be counted as a final good in
A) U.S. GDP.
B) Canada’s GDP.
C) Brazil’s GDP.
D) Brazil’s GNP.

b

The economy has gone into a recession. You have majored in computer science and, because of the recession, have difficulty in finding a job. Should you go back to school and get a second major?
A) Yes, the recession will ensure that you will never find a job as a programmer.
B) Yes, the recession will lower income in my field permanently.
C) No, the recession will most likely be short-lived and I can get a job after it is over.
D) No, the recession will have no impact on my ability to get a job or my future income.

c

The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill
A) employed
B) unemployed
C) a discouraged worker
D) out of the labor force

a

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would
A) increase the measured unemployment rate.
B) increase the measured labor force participation rate.
C) decrease the number of persons in the labor force.
D) decrease the number of persons in the working-age population.

b

If the BLS counted persons that are on active military service in the totals for employment, the labor force, or the working-age population, this would _______________
A) decrease the measured unemployment rate.
B) decrease the measured labor force participation rate.
C) decrease the number of persons in the labor force.
D) decrease the number of persons in the working-age population.

a

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?
A) inflation
B) discouraged workers
C) people employed in the underground economy
D) unemployed persons falsely report themselves to be actively looking for a job

b

Upon your graduation from college, you find that the economy is in recession and the unemployment rate is relatively high. Nonetheless, you continue along your career path looking for a new job because _____________
A) the cost of additional education is always higher during recession.
B) high unemployment rates do not usually last for very long.
C) looking for work is your only option.
D) the wages of college graduates do not fall during recession.

b

Mike has been unemployed for over a year. He hasn’t looked for a job in the last three months, but he’s just started looking for work again. Because Mike started looking for a new job ______________
A) the unemployment rate increased.
B) the labor force participation rate decreased.
C) the unemployment rate decreased.
D) the working-age population increased.

a

Which of the following would reduce the labor force participation rate, all else equal?
A) an increase in the number of people in the labor force
B) an increase in the unemployment rate
C) a decrease in the unemployment rate
D) an increase in the working-age population

d

Which of the following causes the unemployment rate to understate the true extent of joblessness?
A) Many full time workers really want to be part time workers.
B) Persons who collect unemployment benefits report themselves to be searching for a job.
C) Discouraged workers are not counted as unemployed.
D) A drug dealer reports herself as unemployed.
E) Discouraged workers are counted as unemployed.

e

The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following types of unemployment?
A) frictional unemployment
B) structural unemployment
C) cyclical unemployment
D) seasonal unemployment

a

Structural unemployment is the result of ____________
A) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs.
B) the search process of matching workers with jobs.
C) the ups and downs in inflation.
D) a slowdown in the economy

a

According to the text, economists consider full employment to occur when
A) everyone who wants a job has a job.
B) frictional unemployment equals zero.
C) the sum of frictional unemployment and structural unemployment equals zero.
D) the unemployment rate consists of only frictional and structural unemployment.

d

Full employment is not considered to be zero unemployment, because
A) some cyclical unemployment always exists.
B) some people do not want a job.
C) there are not enough jobs for everyone who wants one.
D) people do not find jobs instantaneously.

d

Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing?
A) cyclical
B) structural
C) frictional
D) Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force.

d

Which of the following would increase the unemployment rate?
A) a law making it illegal to work more than 35 hours per week
B) a cut in unemployment compensation
C) an increase in unemployment insurance payments
D) a decrease in the minimum wage

c

Which of the following policies would reduce structural unemployment?
A) an increase in the minimum wage
B) a job retraining program
C) implementing an unemployment insurance policy
D) building an online job database that helps workers find jobs

b

Minimum wage laws cause unemployment because the legal minimum wage is set
A) below the market wage, causing labor demand to be greater than labor supply.
B) below the market wage, causing labor demand to be less than labor supply.
C) above the market wage, causing labor demand to be greater than labor supply.
D) above the market wage, causing labor demand to be less than labor supply.
E) too low.

d

Which of the following explains why many European countries have unemployment rates that are higher than in the United States?
A) Technological change occurs at a faster rate in Europe, so structural unemployment is higher in Europe.
B) European countries offer higher unemployment benefits than the United States.
C) Firms in European countries offer employees higher wages and higher benefits than do firms in the United States.
D) The minimum wage in Europe is lower than it is in the United States.

b

The equilibrium wage in a local labor market is $10 per hour. If a minimum wage of $15 per hour is imposed, which of the following will occur?
A) There will be an increase in unemployment.
B) There will be an increase in the quantity of labor demanded by firms.
C) There will be a decrease in the quantity of labor supplied by households.
D) All of the above will occur.

a

If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would ________
A) increase.
B) remain the same.
C) decrease.
D) equal 20%.

c

Which of the following would be the best measure of the cost of living?
A) real GDP
B) real GDP per person
C) GDP deflator
D) consumer price index

d

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961. You earn _________
A) 5 times as much as your grandfather in terms of real income.
B) more than 5 times as much as your grandfather in terms of real income.
C) less than 5 times as much as your grandfather in terms of real income.
D) less than 5 times as much as your grandfather in terms of nominal income.

c

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket
A) change; overestimates
B) change; underestimates
C) do not change; overestimates
D) do not change; underestimates

a

To reduce the bias in the consumer price index, the Bureau of Labor Statistics
A) updates the market basket every two years, rather than every 10 years.
B) updates the market basket every 10 years, rather than every two years.
C) incorporates substitutions by consumers when prices of specific products rise rapidly.
D) incorporates substitutions by consumers when prices of specific products fall rapidly.

a

If your nominal wage rises faster than the price level, we can say your real wage has ________ and the purchasing power of your income has ________
A) fallen; fallen
B) fallen; risen
C) risen; risen
D) risen; fallen

a

You earned $30,000 in 2007, and your salary rose to $80,000 in 2016. If the CPI rose from 82 to 202 between 2007 and 2016, which of the following is true?
A) There was deflation between 2007 and 2016.
B) The purchasing power of your salary fell between 2007 and 2016.
C) The purchasing power of your salary remained constant between 2007 and 2016.
D) The purchasing power of your salary increased between 2007 and 2016.

d

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?
A) -9.5%
B) -3.5%
C) 1.5%
D) 3.5%
E) 9.5%

d

The real rate of interest is ______________
A) the nominal interest rate plus the inflation rate.
B) the nominal interest rate minus the inflation rate.
C) the interest rate determined by the supply and demand in the money market.
D) the nominal interest rate.

b

If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
A) -3%.
B) 3%.
C) 6.67%.
D) 15%.

a

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

c

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. If inflation over the year is 2%, what is the real interest rate you are paying?
A) 2%
B) 2.5%
C) 3%
D) 5%

c

If inflation is positive and is perfectly anticipated ____________
A) those that borrow money lose.
B) those that lend money lose.
C) those that hold paper money lose.
D) no one in the economy loses.

c

Which of the following individuals would be most negatively affected by anticipated inflation?
A) a retired railroad engineer who receives a fixed income payment every month
B) a union contractor whose pay is adjusted based on changes in the CPI
C) a full-time employee at a pizza parlor who makes more than the minimum wage
D) a student who borrows $10,000 at a nominal interest rate of 5% to finance educational expenses

a

President Obama has discussed raising income taxes for individuals earning over $250,000 in income. Explain how these higher income taxes will affect the aggregate demand curve.

Raising the income tax decreases the amount of disposable income available to those households. Lower disposable income decreases consumption at every price level. The result is a shift in the aggregate demand curve to the left.

If Congress passed a one-time tax cut in order to stimulate the economy in 2014, and tax rate levels returned to their pre-2014 level in 2015, how should this tax cut affect the economy?
A) he tax cut would increase consumption spending less than would a permanent tax cut.
B) The tax cut would increase consumption spending more than would a permanent tax cut.
C) The tax cut would increase consumption spending by the same amount as would a permanent tax cut.
The tax cut would lower the price level in 2014

a

Which of the following would be classified as fiscal policy?
A) The federal government passes tax cuts to encourage firms to reduce air pollution.
B) The Federal Reserve cuts interest rates to stimulate the economy.
C) A state government cuts taxes to help the economy of the state.
D) The federal government cuts taxes to stimulate the economy.
E) States increase taxes to fund education.

d

Automatic stabilizers refer to
A) the money supply and interest rates that automatically increase or decrease along with the business cycle.
B) government spending and taxes that automatically increase or decrease along with the business cycle.
C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives.
D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

b

The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of
A) automatic stabilizers.
B) discretionary fiscal policy.
C) discretionary monetary policy.
D) automatic monetary policy

a

Since the Social Security system began in 1935, the number of workers per retiree has __________
A) stayed roughly the same.
B) continually risen.
C) continually declined.
D) risen and declined with different generations

c

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment
A) taxes; interest rates
B) taxes; the money supply
C) interest rates; money supply
D) taxes; expenditures

d

Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________
A) automatic stabilizers; discretionary fiscal policy
B) discretionary fiscal policy; automatic stabilizers
C) automatic stabilizers; monetary policy
D) discretionary fiscal policy; conscious fiscal policy

b

Which of the following is a government expenditure, but is not a government purchase?
A) The federal government buys a Humvee.
B) The federal government pays the salary of an FBI agent.
C) The federal government pays out an unemployment insurance claim.
D) The Federal government pays to support research on AIDS.

c

________ and ________ are the largest sources of revenue collected by the federal government
A) Individual income taxes; corporate income taxes
B) Individual income taxes; social insurance taxes
C) Corporate income taxes; excise and other taxes
D) Excise and other taxes; individual income taxes

b

Expansionary fiscal policy involves
A) increasing government purchases or decreasing taxes.
B) increasing taxes or decreasing government purchases.
C) increasing the money supply and decreasing interest rates.
D) decreasing the money supply and increasing interest rates.

a

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in ____________
A) the money supply and a decrease in interest rates.
B) government purchases.
C) oil prices.
D) taxes.

b

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower

a

Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower

d

If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?
A) a decrease in the money supply and an increase in the interest rate
B) an increase in government spending
C) an increase in taxes
D) an increase in oil prices

c

From an initial long-run equilibrium, if aggregate demand grows faster than long-run and short-run aggregate supply, then Congress and the president would most likely ________
A) decrease the required reserve ratio.
B) decrease government spending.
C) decrease oil prices.
D) decrease tax rates.

b

If the economy is slipping into a recession, which of the following would be an appropriate fiscal policy?
A) an increase in the money supply and a decrease in interest rates
B) a decrease in government purchases
C) a decrease in taxes
D) a decrease in oil prices

c

The aggregate demand curve will shift to the left ________ the initial decrease in government purchases.
A) by less than
B) by more than
C) by the same amount as
D) sometimes by more than and other times by less than

b

A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending
A) an induced; an autonomous
B) an expansionary; a contractionary
C) an autonomous; an induced
D) a contractionary; an expansionary

a

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should ______________
A) lower government purchases by an amount less than $200 billion.
B) lower government purchases by $200 billion.
C) raise taxes by $200 billion.
D) lower taxes by $200 billion.
E) raise taxes by an amount more than $200 billion.

a

Cutting taxes _______
A) will lower disposable income and lower spending.
B) will raise disposable income and lower spending.
C) will lower disposable income and raise spending.
D) will raise disposable income and raise spending.

d

The impact of crowding out may be the least _____________
A) during a deep recession.
B) when real GDP is above but close to potential GDP.
C) during an expansion.
D) when real GDP is below but close to potential GDP.

a

In the long run, most economists agree that a permanent increase in government spending leads to ________ crowding out of private spending
A) no
B) partial
C) complete
D) more than complete

c

A tax rebate, like the one issued in 2008, is likely to ________ consumption spending ________ than would a permanent tax cut.
A) increase; more
B) increase; less
C) decrease; more
D) decrease; less

b

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally _______________
A) less difficult than with monetary policy.
B) far less difficult than with monetary policy.
C) more difficult than with monetary policy.
D) about the same difficulty as with monetary policy.

c