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Use the following graph for questions 1 through 4. When moving from point A to B on the graph, the economy is going through a(n): peak b. trough c....

Use the following graph for questions 1 through 4.


1. When moving from point A to B on the graph, the economy is going through a(n):
a. peak b. trough c. expansion d. boom e. recession

2. When moving from point B to C on the graph, the economy is going through a(n):
a. peak b. trough c. expansion d. contraction e. recession

3. Point A would be referred to as a(n):
a. peak b. trough c. expansion d. boom e. recession

4. Point B would be referred to as a(n):
a. peak b. trough c. expansion d. boom e. recession

5. During a recession, output would be ____ , unemployment would be ____, and inflation would be ____ .
a. rising; falling, falling
b. rising, rising, falling
c. falling, falling, falling
d. falling, rising, rising
e. falling, rising, falling

6. Monetary policy refers to:
a. changes in the government debt.
*b. changes in the money supply.
c. changes in the banking system.
d. changes in the types of currency being issued.

7. Which of the following is an expansionary fiscal policy?
*a. an increase in the money supply.
b. a decrease in government spending.
c. a decrease in taxes.
d. a decrease in money supply.

8. According to Keynes:
a. fiscal policy should not be used to influence the economy
b. the economy eventually tends toward full employment
c. price and wages were flexible
d. the economy could be stuck at equilibrium below full employment for a prolonged period
e. deviations from full employment are short-lived

9. Classical economists believed in the self-correcting nature of the economic system. They believed that the major adjustment mechanisms:
a. was government assistance
b. were inflexible wages and prices
c. were flexible wages and prices
d. were sticky wages and prices

10. Gross domestic product (GDP) is:
a. the total value of all goods and services produced for the marketplace during a given year, within the nation's borders
b. the total value of all final goods and services produced for the marketplace during a given year, by a nation's citizens and businesses
c. the total value of all final goods and services produced for the marketplace during a given year, within a nation's borders
d. the total value of all goods and services produced for the marketplace during a given year, by a nation's citizens and businesses
e. the total value of all goods, services and inputs produced for the marketplace during a given year, within a nation's borders

11. Which of the following would be included in a year's GDP?
a. Susan cleans the fuel injectors on her car
b. a private individual purchases 100 shares of IBM stock
c. a timber company purchases land in Oregon
d. a consumer buys an antique desk
e. a college professor purchases a new computer

12. Which of the following would be included in GDP?
a. payment of the monthly telephone bill by Mr. Laconic
b. the purchase of corporate stock by Steven Jones
c. the purchase of a used limousine by Harold Abel
d. the value of a pair of mittens knitted for you by your mother
e. the $300 George spent to have the neighbor's teenager paint his garage

13. Consumer spending in GDP measurement includes:
a. spending by businesses on labor resources.
b. spending by government on office buildings.
c. spending by individual households on automobiles and durables.
d. exchanges in business inventories.
e. a firm's purchase of a radio made in Taiwan.

14. Which of the following would be classified as a consumer durable?
a. new clothing
b. a new central heating system
c. a new home
d. a tube of toothpaste
e. new toys


15. Economists say that investment occurs when:
a. someone buys stock on the New York Stock Exchange.
b. someone buys a U.S. government bond.
*c. a firm buys new equipment.
d. a government buys goods from another country.

16. Transfer payments are:
a. payments for goods or services that individuals provide
b. funds given to people or organizations when no good or service is received in exchange
c. included in the government purchases category of GDP
d. examples of government investment
e. used to pay state employees

17. Which of the following would not be included in GDP as government purchases?
a. The local township repairs the roads.
b. The state government funds a state university.
*c. The federal government sends out Social Security checks.
d. The federal government pays a lawyer as a public defender.
e. The state government buys computer time.

18. Gross Domestic Product (GDP) per capita is:
a. GDP in current dollars
b. GDP adjusted for inflation
c. GDP per person
d. GDP per dollar spent
e. GDP per day

19. Which of the following is an example of a consumption expenditure?
a. construction of a computer chip factory
b. admission to an amusement park
c. purchase of a commercial airplane
d. wages paid to members of Congress
e. building a new expressway

20. Durable goods:
a. last for short periods of time
b. generally are considered to be types of services
c. include, for example, automobiles and refrigerators
d. are counted as part of GDP in multiple years

21. Non-durable goods:
a. last for short periods of time
b. generally are considered to be types of services
c. include, for example, automobiles and refrigerators
d. are counted as part of GDP in multiple years

22. Television sets are examples of:
a. non-durable goods.
b. durable goods.
c. services.
d. transfer products.
e. none of the above


23. For the purposes of GDP accounting, government purchases include:
a. the purchases of new military equipment.
b. social security payments.
c. spending on highway construction.
d. both a and c
e. all of the above

24. Saving is:
a. the sum of the funds people hold in their checking accounts.
b. disposable income that is not spent on consumption.
c. equal to consumption.
d. equal to disposable income plus consumption.

Questions 25 through 33 use the following information:

Consumption 1,500 Factor receipts 15
Depreciation 80 Imports 15
Exports 30 Gross investment 450
Government purchases 860 Taxes 750
Factor payments 10

25. The trade balance is:
a. a 10 trade deficit
b. a 15 trade deficit
c. 0
d. a 20 trade surplus
e. a 15 trade surplus

26. The government is running:
a. a 110 deficit
b. a 75 deficit
c. a balanced budget
d. a 75 surplus
e. a 110 surplus

27. What is net investment?
a. 250
b. 370
c. 450
d. 530
e. 610

28. What is GDP?
a. 2,755
b. 2,795
c. 2,825
d. 2,890
e. 2,905

29. What is GNP?
a. 2,760
b. 2,800
c. 2,830
d. 2,895
e. 2,910

30. What is Net domestic product (NDP)?
a. 2,655
b. 2,700
c. 2,745
d. 2,795
e. 2,845

31. What is Net national product (NNP)?
a. 2,600
b. 2,650
c. 2,700
d. 2,750
e. 2,850

32. What is Disposable personal income (Yd)?
a. 2,075
b. 2,155
c. 2,195
d. 2,255
e. 2,295

33. What is savings?
a. -255
b. -160
c. 225
d. 475
e. 575

34. Nominal GDP is:
a. the dollar value of all goods and services produced in the economy in some year.
b. the dollar value of all goods and services sold in the economy in some year.
c. the dollar value of all final market goods and services produced in an economy in some year.
d. the inflation-adjusted dollar value of all final market goods and services produced in an economy in some year.

35. Real GDP refers to:
a. GDP measured in the prices in a certain base year.
b. GDP measured in the prices of the current year.
c. Nominal GDP divided by the consumer price index.
d. Nominal GDP divided by the producer price index.

Use the following table for questions 36 through 39. An economy produces only two goods, oranges and VCRs. The quantities and prices for the years 2005 and 2006 are shown in the table. The base year is 2005.

2005 2006
Price Quantity Price Quantity
Oranges $3 2,000 $4 3,000
VCRs $20 1,000 $30 2,000


36. Nominal GDP in 2005 is:
a. 26,000
b. 57,000
c. 49,000
d. 65,000
e. 72,000

37. Nominal GDP in 2006 is:
a. 26,000
b. 57,000
c. 49,000
d. 65,000
e. 72,000

38. Real GDP in 2005 is:
a. 26,000
b. 57,000
c. 49,000
d. 65,000
e. 72,000

39. Real GDP in 2006 is:
a. 26,000
b. 57,000
c. 49,000
d. 65,000
e. 72,000

40. Frictional unemployment is joblessness:
a. related to changes in weather and similar factors
b. arising from a mismatch between available jobs and workers' skills
c. resulting from macroeconomic fluctuations
d. that is short-term and is experienced by people who are between jobs
e. that is caused by structural changes in the economy

Use the following statistics for questions 41 through 43.

Population 500,000
Not in labor force 75,000
Labor force 425,000
Employed 405,200
Unemployed 20,000

41. The nation's unemployment rate is:
a. 3.6%
b. 4.7%
c. 5.1%
d. 5.9%

42. The nation's labor force participation rate is:
a. 81%
b. 85%
c. 87.5%
d. 90%
e. 95.3%

43. The nation's employment rate is:
a. 81%
b. 85%
c. 87.5%
d. 90%
e. 95.3%

44. Structural unemployment:
a. arises from a mismatch between available jobs and workers' skills or geographic location
b. is short-term joblessness experienced by those re-entering the labor force after a long absence
c. occurs because of changes in seasons, tourist patterns, and similar factors
d. does not occur when the economy is at full employment
e. is joblessness resulting from business cycle movements

Use the following information for questions 45 through 49.

Labor force 700,000
Labor Force Participation Rate 87.5%
Unemployment rate 5.0%
Natural rate of unemployment 3.0%

45. How many people are unemployed?
a. 35,000
b. 37,500
c. 40,000
d. 42,500
e. 45,000

46. How many people are employed?
a. 600,000
b. 625,000
c. 665,000
d. 700,000
e. 800,000

47. What is the country's population?
a. 600,000
b. 625,000
c. 665,000
d. 700,000
e. 800,000

48. How many would be labeled not in the workforce?
a. 100,000
b. 125,000
c. 150,000
d. 200,000
e. 225,000

49. How many people are cyclically unemployed?
a. 10,000
b. 14,000
c. 18,000
d. 20,000
e. 25,000
50. Cyclical unemployment:
a. is short-term joblessness experienced by those who are between jobs
b. is joblessness created by a mismatch between available jobs and workers' skills
c. is joblessness related to regular seasonal events such as holidays or weather changes
d. is joblessness caused entirely by microeconomic forces
e. does not exist when the economy is at full employment

51. The amount of money available for the economy to use is:
a. GDP.
b. nominal GDP.
c. the monetary base.
d. the money supply.

The following table shows the cost of a consumer market basket over a six year period.

Year Cost
1 11,000
2 11,330
3 11,738
4 12,207
5 12,659
6 13,178

52. Assume that Year 1 is the base year. The CPI for Year 4 (to one decimal place) is:
a. 96.2
b. 106.7
c. 111.0
d. 115.1
e. 119.8

53. Assume that Year 6 is the base year. The CPI for Year 4 (to one decimal place) is:
a. 89.4
b. 92.6
c. 95.7
d. 97.8
e. 100.0

Use the CPI shown for questions 54 through 56.

Year CPI Year CPI
1 86.4 6 100.0
2 88.5 7 103.2
3 91.4 8 108.4
4 95.0 9 114.6
5 97.8 10 120.4

54. The annual inflation rate for year 7 is:
a. 2.7%
b. 3.2%
c. 3.8%
d. 4.3%
e. 4.6%


55. Total inflation from year 1 through year 10 was:
a. 25.2%
b. 27.1%
c. 31.3%
d. 35.8%
e. 39.4%

56. Annualized inflation from year 1 through year 10 was:
a. 2.7%
b. 3.2%
c. 3.8%
d. 4.3%
e. 4.6%

57. The marginal propensity to consume (MPC) is:
a. the average amount of income that is consumed
b. the ratio of consumption to disposable income
c. the ratio of disposable income to consumption
d. the ratio of the change in disposable income to total consumption
e. the rate at which additional disposable income is consumed

58. The average propensity to save (APS) is:
a. the average amount of total income that is saved
b. the ratio of saving to disposable income
c. the ratio of disposable income to savings
d. the ratio of the change in disposable income to total savings
e. the rate at which additional disposable income is saved

59. As disposable income increases, APS will ____ and MPC will ____.
a. rise; fall
b. rise; rise
c. rise; remain constant
d. fall; rise
e. fall; fall

60. As disposable income increases:
*a. consumption and saving both increase
b. consumption increases and saving decreases
c. consumption and saving both decrease
d. consumption decreases but saving increases
e. saving increases, but we cannot predict what happens to consumption

Use the following consumption function and disposable income for questions 61 through 63.

C = 1,200 + .8 Yd
Disposable income: 8,000

61. Total consumption is:
a. 1,200
b. 4,800
c. 5,700
d. 7,600
e. 8,000


62. Total savings is:
a. -300
b. 0
c. 400
d. 600
e. 800

63. The APS is:
a. .05
b. .2
c. .5
d. .75
e. .8

64. According to the LCH, households will be dis-saving during:
a. youth
b. middle age
c. retirement
d. both a and b
e. both a and c

65. According to the LCH, as expected future income rises, consumption will:
*a. rise
b. fall
c. be unchanged
d. unable to determine from the information given

66. According to the PIH, which of the following would not increase current period consumption?
a. an increase in wealth
b. an increase in interest rates
c. a decrease in taxes
d. an increase in current period income
e. an increase in expected future income

67. The substitution effect of a decrease in the interest rate has:
a. just a negative effect on current consumption.
b. a positive effect on current consumption.
c. no effect on either current or future consumption.
d. a negative effect on current consumption and a positive effect on future consumption.

68. Assume that interest rates rise. If the income effect dominates the substitution effect, current consumption will:
a. rise
b. fall
c. be unchanged
d. unable to determine from the information given

69. A household will earn income of $40,000 in each of the next two years; the interest rate is 8%. If the household has consumption of $48,000 in Year 1, what is their maximum possible consumption in Year 2? Assume that all loans must be repaid in Year 2 and no additional borrowing is available.
a. $31,360
b. $32,000
c. $40,000
d. $46,480
e. $48,640
70. A household will earn income of $40,000 in each of the next two years; the interest rate is 8%. If the household has consumption of $34,000 in Year 1, what is their maximum possible consumption in Year 2? Assume that all loans must be repaid in Year 2 and no additional borrowing is available.
a. $31,640
b. $32,000
c. $40,000
d. $46,480
e. $48,640


This question was asked on Jan 27, 2013.

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