Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alt

Question

Exam

Name___________________________________

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

1) What are the two critical measures of a nation's economic health? 1)

A) wages and raises B) income and spending

C) production and income D) sales and taxes

2) As depicted in the circular flow diagram, firms 2)

A) supply the goods and services that households demand in product markets.

B) demand the goods and services that households supply in product markets.

C) demand the resources that households supply in product markets.

D) supply the resources that households demand in factor markets.

3) The value of all final goods and services produced during a given time period measures a nation's 3)

A) net exports. B) gross domestic product.

C) consumer price index. D) net national product.

4) "Final goods and services" are those that are 4)

A) double counted in the calculation of GDP.

B) used in the production of other goods and services.

C) sold to ultimate or final purchasers.

D) produced outside the United States.

5) A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who

cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells

sweaters. In calculating GDP we would count

5)

A) only the sweaters. B) only the raw wool and the yarn.

C) only the yarn and the sweaters. D) the raw wool, the yarn and the sweaters.

6) How does real gross domestic product (GDP) differ from nominal GDP? 6)

A) Nominal GDP can be used to directly compare the amount of output produced from year to

year, while real GDP cannot be used for such comparison.

B) Nominal GDP controls for price changes, while real GDP does not.

C) Real GDP controls for price changes, while nominal GDP does not.

D) There is no difference between nominal GDP and real GDP.

7) When there are sustained increases in real GDP over time, we say that the economy is undergoing 7)

A) massive changes in productive capacity. B) economic growth.

C) economic stagnation. D) a recession.

8) The largest component of GDP is 8)

A) government spending. B) private investment expenditures.

C) consumption expenditures. D) net exports.

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9) Which of the following is an example of a consumption expenditure? 9)

A) the salary paid to the mayor of Denver

B) the construction of a new public library

C) the purchase of a new fire truck

D) the purchase of a ticket to a New Orleans Saints game

10) Depreciation is subtracted from GNP to determine 10)

A) net GDP. B) net income.

C) net imbalance on exports. D) net national product (NNP).

11) The amount of income that households keep after paying taxes is 11)

A) personal income. B) value added income.

C) personal disposable income. D) national income.

Recall the Application about the size of Wal-Mart to answer the following question(s). During 2008, Wal-Mart's sales

were approximately $374 billion, or roughly 2.6 percent of U.S. GDP, and its cost of sales was $286 billion.

12) In listing both the amount and cost of Wal-Mart's 2008 sales, this Application is addressing the

economic concept of

12)

A) real versus nominal GDP. B) GDP as a measure of welfare.

C) value added. D) chain-weighted indexes.

Use the following information to answer the next several questions:

Scenario 1: Imagine that an economy produces two goods, flashlights and fishing lures. In 2009, the economy produced 70

flashlights and 40 fishing lures, and the prices of flashlights and fishing lures were $5 and $12, respectively. In 2010, the

economy produced 85 flashlights and 50 fishing lures, and the prices of flashlights and fishing lures were $7 and $15,

respectively.

13) Based on the information in Scenario 1, nominal GDP in 2010 in this economy was 13)

A) $830. B) $1,025. C) $1,090. D) $1,345.

14) Based on the information in Scenario 1, real GDP in 2010 (in 2009 dollars) in this economy was 14)

A) $830. B) $1,025. C) $1,090. D) $1,345.

15) When differences between nominal GDP and real GDP result due to price changes and nothing else

is compared, an index is created called the

15)

A) consumer price index. B) index of leading indicators.

C) inflation index. D) GDP deflator.

16) "Recession" refers to a period when the economy 16)

A) declines for at least six months. B) experiences a rise in living standards.

C) grows rapidly. D) suffers due to political instability.

17) When real GDP falls for two consecutive quarters the economy is in a 17)

A) depression. B) trough. C) peak. D) recession.

18) The date at which a recession starts is called the 18)

A) plateau. B) trough. C) peak. D) depression.

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Recall the Application about the link between happiness and GDP to answer the following question(s). Comparing

changes in happiness to changes in per capita income over the last 30 years, economists at Dartmouth College and

Warwick University have measured levels of happiness in the United States and United Kingdom based on income

levels, ethnicity, age, and gender.

19) According to the Application 19)

A) stable marriages account for no more happiness than marriages ending in divorce.

B) reported levels of happiness in the United States have increased over the past 30 years.

C) retired people report higher levels of happiness than people below the age of 40.

D) money does appear to buy happiness, ceteris paribus.

20) During periods of poor economic performance, real GDP 20)

A) declines but unemployment typically does not change.

B) declines and unemployment declines.

C) is unchanged but unemployment rises sharply.

D) declines and unemployment rises.

21) Economists define the unemployed as individuals who are 21)

A) working but looking for a different job.

B) not currently working but are actively looking for work.

C) not currently working.

D) working less than their desired amount of time.

22) Economists define the labor force to include 22)

A) people who are not working but are actively looking for a job, and people who are working.

B) people who are working.

C) all individuals of work age, regardless of whether they are working or looking for a job.

D) only people who are working full time.

23) If Sam does not have a job and is not currently looking for work but has looked in the past, he is

considered

23)

A) not in the labor force. B) unemployed and in the labor force.

C) unemployed and not in the labor force. D) unemployed.

24) People who are only working part-time, but want to be working full-time, are classified officially

as

24)

A) employed and out of the labor force. B) unemployed and out of the labor force.

C) employed and in the labor force. D) unemployed and in the labor force.

25) The fraction of the working-age population that is in the labor force is called the 25)

A) employment rate. B) nonresponse rate.

C) labor force participation rate. D) unemployment rate.

26) Suppose an economy consists of 500,000 individuals 16 years and older, 260,000 are employed, and

21,000 are unemployed but actively seeking work. In this example the labor force is

26)

A) 239,000. B) 260,000. C) 281,000. D) 500,000.

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27) Suppose an economy consists of 500,000 individuals 16 years and older, 260,000 are employed, and

21,000 are unemployed but actively seeking work. In this example the unemployment rate is

approximately

27)

A) 4.2 percent. B) 6.1 percent. C) 7.5 percent. D) 8.0 percent.

Recall the Application about women in the U.S. labor force to answer the following question(s). The labor force

participation rate for women 20 years and older grew from 32 percent in 1948 to 43 percent in 1970 and reached 60

percent by 1997.

28) According to this Application, the growth in the labor force participation rate for women between

1948 and the mid 1990s was due in part to

28)

A) the large increase in the number of "stay-at-home" fathers.

B) the ratification of the Equal Rights Amendment.

C) labor-saving devices for the home.

D) the decrease in the labor force participation rate for men.

29) The existence of discouraged workers will lead to an official unemployment rate that is 29)

A) understated. B) overstated.

C) either overstated or understated. D) unbiased.

30) Hector voluntarily left his job to search for a job in accounting, the field in which he has his

bachelor's degree. Hector is considered

30)

A) cyclically unemployed. B) frictionally unemployed.

C) structurally unemployed. D) not to be unemployed.

31) Auto workers laid off from Hot-Rod Autoworks as the result of a recession are considered 31)

A) cyclically unemployed. B) seasonally unemployed.

C) frictionally unemployed. D) structurally unemployed.

32) Customer service representatives who have lost their jobs as a result of call centers being

outsourced to India are an example of

32)

A) frictional unemployment. B) structural unemployment.

C) voluntary unemployment. D) cyclical unemployment.

33) Economists say that the economy is at "full employment" when the 33)

A) structural unemployment rate is zero. B) cyclical unemployment rate is zero.

C) frictional unemployment rate is zero. D) total unemployment rate is zero.

The following table lists the basket of goods in the

Astro Price Index (Assume 2008 is the base year.)

2008

Quantity

2008

Price

2009

Quantity

2009

Price

2010

Quantity

2010

Price

Sunglasses 8 $9.00 10 $11.00 7 $10.00

Toothpaste 15 3.00 18 4.00 15 4.00

Ferrets 6 12.00 4 15.00 9 18.00

Table 6.2

34) Using the information in Table 6.2, the Astro Price Index for 2008 is 34)

A) 24. B) 100. C) 124. D) 189.

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35) Using the information in Table 6.2, the Astro Price Index for 2009 is 35)

A) 87. B) 99. C) 126. D) 238.

36) Using the information in Table 6.2, the inflation rate from 2008 to 2009 is about 36)

A) 26 percent. B) 38 percent. C) 42 percent. D) 49 percent.

37) The percentage rate of change in the price level is called the 37)

A) rate of inflation. B) Consumer Price Index.

C) rate of absorption. D) chain-weighted price index.

38) The biggest problem caused by a deflation is that 38)

A) interest rates rise. B) wages fall.

C) prices fall. D) people cannot repay their debts.

39) One of the necessary conditions for the classical model to be true is that 39)

A) wages and prices will not change. B) wages and prices are partly flexible.

C) wages and prices are fully flexible. D) wages were flexible and prices are fixed.

40) If the real wage rises, 40)

A) the marginal cost of labor falls.

B) firms will hire additional labor.

C) firms will hire less labor.

D) the marginal benefit of the worker increases.

41) A wage rate that is adjusted for changes in the price level is known as the 41)

A) minimum wage. B) nominal wage.

C) real wage. D) functional wage.

42) An increase in a firm's capital stock ________ in the marginal benefit of hiring labor. 42)

A) will cause no change

B) will cause an increase

C) will cause a decrease

D) may cause an increase, a decrease, or no change

43) As more efficient capital equipment becomes available, the demand for labor will ________, the

real wage will ________, and the quantity of labor hired will ________.

43)

A) increase; remain the same; decrease B) increase; decrease; remain the same

C) increase; remain the same; increase D) increase; increase; increase

44) Which of the following is a problem with the price system that can lead to a breakdown in the

coordination of economic activity?

44)

A) The price system works silently in the background.

B) Prices may be flexible.

C) Prices can be slow to adjust.

D) all of the above

45) Workers often have ________ contracts and so their wages are ________. 45)

A) long-term; sticky B) long-term; flexible

C) short-term; sticky D) short-term; flexible

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46) Aggregate demand refers to the relationship between 46)

A) prices and the quantity of a good demanded.

B) the price level and the quantity of real GDP demanded.

C) the price level and the quantity of real GDP supplied.

D) prices and the quantity of a good supplied.

47) As the price level ________, the purchasing power of money ________. 47)

A) increases; decreases B) increases; increases

C) decreases; stays the same D) decreases; decreases

48) The increase in spending that occurs because the demand for investment goods increases when the

price level falls is known as the

48)

A) wealth effect. B) international trade effect.

C) interest rate effect. D) price effect.

49) The purchasing power of money increases as the 49)

A) price level falls. B) unemployment decreases.

C) production increases. D) demand increases.

50) Which of the following does NOT shift the U.S. aggregate demand curve? 50)

A) an increase in the supply of money B) a decrease in the price level

C) a decrease in taxes D) an increase in GDP in Japan

51) Assuming the price level has not changed, how would an increase in the aggregate demand affect

real GDP?

51)

A) It decreases. B) It increases.

C) It only changes with changes in exports. D) It only changes with changes in imports.

52) The relationship between the level of prices and total quantity of goods and services producers are

willing to supply is represented by the

52)

A) GDP multiplier. B) aggregate demand curve.

C) sticky price curve. D) aggregate supply curve.

53) Assuming a long-run aggregate supply curve, an increase in the money supply results in ________

in output and ________ in prices.

53)

A) a decrease; a decrease B) an increase; no change

C) no change; an increase D) a decrease; no change

54) In the long run 54)

A) the level of output is independent of the price level.

B) price and output levels are mutually dependent.

C) the level of output depends on the price level.

D) the price level depends on the level of output.

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Recall the Application about the factors involved in causing recessions, and the causes of recessions in the United States

from 1893 to 1990 to answer the following question(s).

55) Recall the Application. Recessions can occur either when there is a(n) ________ in aggregate

demand or a(n) ________ in aggregate supply.

55)

A) increase; increase B) decrease; decrease

C) increase; decrease D) decrease; increase

56) According to this Application, the recessions in 1973 and 1979 were caused by 56)

A) foreign monetary developments.

B) supply shocks.

C) arbitrage losses in the foreign exchange market.

D) deflation.

57) According to this Application, the recession in 1991 was caused by 57)

A) massive immigration from Europe to the United States.

B) an decrease in aggregate supply resulting from U.S. bank collapses.

C) increasing oil prices which resulted in a decrease in aggregate supply.

D) the government cutting back on aggregate demand to reduce inflation.

58) What are the two tools of fiscal policy that governments can use to stabilize an economy? 58)

A) government spending and taxation

B) taxation and controlling exports

C) taxation and controlling imports

D) government spending and technology improvements

59) In order to ________, a government must increase spending and decrease taxation. 59)

A) decrease aggregate supply B) decrease aggregate demand

C) increase aggregate supply D) increase aggregate demand

60) As a result of an increase in the personal income tax rate, consumers are likely to 60)

A) earn more money. B) spend less.

C) save more. D) spend more.

61) Policies taken to move the economy closer to potential output 61)

A) must necessarily be expansionary policies.

B) must necessarily be contractionary policies.

C) are lagging policies or automatic policies.

D) are called stabilization policies.

62) The fact that it takes time for government to identify and recognize a problem is one reason for the

occurrence of

62)

A) structural lags. B) outside lags.

C) implementation lags. D) inside lags.

63) The time it takes for a policy to actually work is known as 63)

A) inside lags. B) outside lags. C) fiscal policy. D) crowding out.

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64) Spending on programs that Congress authorizes ________ is known as discretionary spending. 64)

A) after approval from the Federal Reserve B) on an off-budget emergency basis

C) on an annual basis D) by prior law

65) Automatic stabilizers 65)

A) increase taxes during recessions.

B) work without the need for decisions from Congress or the White House.

C) magnify fluctuations in the economy.

D) require explicit actions by policy makers to become active.

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