Econ: Ch. 7

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Economics practice quiz. Chapter 7.

Questions and Answers

1.

In this chapter, we examine how the amount of GDP when the economy is at full employment is determined by:
- A.
  
  The government
- B.
  
  The level of unemployment and inflation
- C.
  
  The demand for goods and services
- D.
  
  The amount of capital and labor
Correct Answer
D. The amount of capital and labor
2.

The relationship between the total level of output, or GDP, and the corresponding amount of factors of production, or inputs needed to produce it, is called:
- A.
  
  A supply curve
- B.
  
  Productivity
- C.
  
  Efficiency
- D.
  
  The production function
Correct Answer
D. The production function
3.

Refer to the figure below. Select the statement below that best describes what this graph portrays.
- A.
  
  For a given amount of labor, only variations in the stock of capital can change the level of output in the economy
- B.
  
  With the stock of capital fixed, only variations in labor can change the level of output in the economy
- C.
  
  The level of output in the economy can increase only with increases in the amounts of labor and capital used in production
- D.
  
  A given amount of output generates a specific level of employment in the economy
Correct Answer
B. With the stock of capital fixed, only variations in labor can change the level of output in the economy
4.

Refer to the table below. Which statement below best describes what the table portrays?
- A.
  
  As the amount of labor increases, output increases at an increasing rate
- B.
  
  As the amount of labor increases, output increases at a diminishing rate
- C.
  
  Labor can increase only as output increases
- D.
  
  The quantity of capital required to produce each level of output must be less and less as output increases
Correct Answer
B. As the amount of labor increases, output increases at a diminishing rate
5.

Refer to the figure below. Which graph best depicts the impact of an increase in the stock of capital?
- A.
  
  The graph on the left
- B.
  
  The graph on the right
- C.
  
  Both graphs shift simultaneously with an increase in the stock of capital
- D.
  
  Neither graph. Changes in the stock of capital do not affect the labor market
Correct Answer
A. The graph on the left
6.

If someone told you that in a small European country employment and wages have risen, you could use your understanding of labor markets to deduce that there has been:
- A.
  
  An increase in labor supply in that country
- B.
  
  A decrease in labor supply in that country
- C.
  
  An increase in labor demand in that country
- D.
  
  A decrease in labor demand in that country
Correct Answer
C. An increase in labor demand in that country
7.

Combining the production function for the economy as a whole and the demand and supply for labor yields a model that helps to determine:
- A.
  
  How output will be divided among shares of GDP
- B.
  
  How taxes can be used to achieve equilibrium in the labor market
- C.
  
  How much output the economy can produce when it is operating at full employment
- D.
  
  How crowding out works
Correct Answer
C. How much output the economy can produce when it is operating at full employment
8.

The concept of full-employment output is based on the idea that:
- A.
  
  The economy produces the maximum level of output that it can produce
- B.
  
  The government budget is in balance
- C.
  
  The labor market is in equilibrium
- D.
  
  All of the above
Correct Answer
C. The labor market is in equilibrium
9.

The level of potential output in an economy increases as
- A.
  
  The supply of labor increases or the stock of capital decreases
- B.
  
  The supply of labor increases or the stock of capital increases
- C.
  
  The supply of labor decreases or the stock of capital increases
- D.
  
  The supply of labor decreases or the stock of capital decreases
Correct Answer
B. The supply of labor increases or the stock of capital increases
10.

According to the full employment model presented in the textbook, the extent of a decline in output following the imposition of a labor tax on employers depends primarily on:
- A.
  
  The slope of the labor supply curve
- B.
  
  The slope of the demand for labor curve
- C.
  
  How much the labor supply curve increases as a result of the tax
- D.
  
  How much the labor supply curve decreases as a result of the tax
Correct Answer
A. The slope of the labor supply curve
11.

When will a tax that affects labor demand have no effect on employment and therefore no effect on output?
- A.
  
  When labor demand is horizontal
- B.
  
  When labor supply is upward sloping
- C.
  
  When labor supply is horizontal
- D.
  
  When the labor supply curve is vertical
Correct Answer
D. When the labor supply curve is vertical
12.

The real business cycle theory suggests that:
- A.
  
  Economic fluctuations are the result of “real” factors (as opposed to nominal) such as technology changing shifting the demand for labor and thus full employment
- B.
  
  Government policies shift the demand for goods and services thus full employment
- C.
  
  The business cycle can be demonstrated in many countries and is therefore a proven phenomenon
- D.
  
  The business cycle is caused by rapid fluctuations in wages that occur when the supply and demand of goods changes
Correct Answer(s)
A. Economic fluctuations are the result of “real” factors (as opposed to nominal) such as technology changing shifting the demand for labor and thus full employment
D. The business cycle is caused by rapid fluctuations in wages that occur when the supply and demand of goods changes
13.

According to the real business cycle theory, changes in technology are capable of:
- A.
  
  Creating fluctuations in demand for goods and services in the short run
- B.
  
  Revolutionizing the structure of the labor market
- C.
  
  Changing the level of full employment or potential output
- D.
  
  Explaining the sources of all post–World War II recessions
Correct Answer
C. Changing the level of full employment or potential output
14.

At full employment, the opportunity cost of increased government spending is:
- A.
  
  Zero
- B.
  
  Wealth
- C.
  
  Government spending itself
- D.
  
  A decrease in some other component of GDP
Correct Answer
D. A decrease in some other component of GDP
15.

Increases in government spending in a closed economy at full-employment, with the supply of output (Y) fixed, will:
- A.
  
  Necessarily result in reductions in consumption and/or investment
- B.
  
  Have no impact on consumption or investment
- C.
  
  Result in crowding in
- D.
  
  Have an impact on net exports, but not on consumption or investment
Correct Answer
A. Necessarily result in reductions in consumption and/or investment
16.

Fill in the blanks. During World War II, as the share of government spending rose sharply, the share of consumption spending __________ and the share of investment spending __________.
- A.
  
  Increased; increased
- B.
  
  Decreased; decreased
- C.
  
  Increased; decreased
- D.
  
  Decreased; increased
Correct Answer
B. Decreased; decreased
17.

Crowding in occurs when:
- A.
  
  Governments cut spending, and the level of output is fixed, thus some other type of spending must increase
- B.
  
  Consumption and investment decrease, leading to an increase in GDP
- C.
  
  All the components of GDP increase at the same time
- D.
  
  An economy is open to net exports, thereby increasing the value of GDP
Correct Answer
A. Governments cut spending, and the level of output is fixed, thus some other type of spending must increase

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Current Version
Jan 10, 2013

Quiz Edited by
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Mar 22, 2010

Quiz Created by
Mruegg91

Econ: Ch. 7

In this chapter, we examine how the amount of GDP when the economy is at full employment is determined by:

The relationship between the total level of output, or GDP, and the corresponding amount of factors of production, or inputs needed to produce it, is called:

Refer to the figure below. Select the statement below that best describes what this graph portrays.

Refer to the table below. Which statement below best describes what the table portrays?

Refer to the figure below. Which graph best depicts the impact of an increase in the stock of capital?

If someone told you that in a small European country employment and wages have risen, you could use your understanding of labor markets to deduce that there has been:

Combining the production function for the economy as a whole and the demand and supply for labor yields a model that helps to determine:

The concept of full-employment output is based on the idea that:

The level of potential output in an economy increases as

According to the full employment model presented in the textbook, the extent of a decline in output following the imposition of a labor tax on employers depends primarily on:

When will a tax that affects labor demand have no effect on employment and therefore no effect on output?

The real business cycle theory suggests that:

According to the real business cycle theory, changes in technology are capable of:

At full employment, the opportunity cost of increased government spending is:

Increases in government spending in a closed economy at full-employment, with the supply of output (Y) fixed, will:

Fill in the blanks. During World War II, as the share of government spending rose sharply, the share of consumption spending __________ and the share of investment spending __________.

Crowding in occurs when:

Fill in the blanks. During World War II, as the share of government spending rose sharply, the share of consumption spending and the share of investment spending .