Econ Test Practise

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  • 1. 
    The CPI was 138 in one year and 146 the following year. Approximately how much did prices rise between the two years?
    • A. 

      4.29 percent

    • B. 

      5.5 percent

    • C. 

      5.8 percent

    • D. 

      0.06 percent


  • 2. 
    If the CPI is 100 in the base year and 150 in the current year, how much did prices rise between these two years?
    • A. 

      50 percent

    • B. 

      150 percent

    • C. 

      1.50 percent

    • D. 

      0.15 percent


  • 3. 
    Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are $1.20 for each unit of X, $0.96 for each unit of Y, and $1.30 for each unit of Z. Base-year prices are $1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?
    • A. 

      17

    • B. 

      70.20

    • C. 

      117

    • D. 

      270


  • 4. 
    One measure of the inflation rate is the
    • A. 

      Sum of the CPIs of adjacent years.

    • B. 

      Percentage change in the CPI of adjacent years.

    • C. 

      Percentage change in the Real GDP of adjacent years.

    • D. 

      GDP minus the Real GDP in a year.


  • 5. 
    The civilian non-institutional population consists of everyone in the population who is
    • A. 

      At least 16 years of age, in the armed forces, or institutionalized.

    • B. 

      At least 16 years of age.

    • C. 

      Not in the armed forces.

    • D. 

      Not institutionalized.

    • E. 

      B, c, and d


  • 6. 
    The civilian non-institutional population can be broken down into two groups:
    • A. 

      Employed persons and unemployed persons.

    • B. 

      Persons working and persons not working.

    • C. 

      Persons working in service jobs and persons working in manufacturing jobs.

    • D. 

      Persons not in the labor force and persons in the labor force.


  • 7. 
    Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?
    • A. 

      In the civilian labor force

    • B. 

      In the civilian labor force

    • C. 

      Employed

    • D. 

      Unemployed


  • 8. 
    A person in the civilian labor force falls into one of two categories:
    • A. 

      A person who works in a service industry or a person who works in a manufacturing industry.

    • B. 

      Unemployed or employed.

    • C. 

      Disemployed or unemployed.

    • D. 

      A self-employed worker or a non-self-employed worker.


  • 9. 
    If a person is waiting to be called back to a job from which she has been laid off, how is she classified?
    • A. 

      As not in the labor force

    • B. 

      As an unemployed person

    • C. 

      As an employed person

    • D. 

      None of the above


  • 10. 
    In order to be classified as unemployed, a person must
    • A. 

      Not have a job, have been actively looking for work within the past four weeks, and currently be available for work.

    • B. 

      Not have a job, and currently be available for work.

    • C. 

      Actively have looked for work within the past six weeks.

    • D. 

      Not have a job.


  • 11. 
    The unemployment rate equals the
    • A. 

      Number of employed persons divided by the number of unemployed persons.

    • B. 

      Number of unemployed persons divided by the civilian non-institutional population.

    • C. 

      Number of unemployed persons divided by the civilian labor force.

    • D. 

      Sum of unemployed persons and discouraged workers divided by the civilian labor force.


  • 12. 
    The employment rate equals the number of
    • A. 

      Employed persons divided by the number of unemployed persons.

    • B. 

      Unemployed persons divided by the civilian non-institutional population.

    • C. 

      Employed persons divided by the civilian labor force.

    • D. 

      Employed persons divided by the civilian non-institutional population.

    • E. 

      None of the above


  • 13. 
    Suppose the civilian non-institutional population equals 100,000; the civilian labor force equals 75,000; there are 70,000 employed persons and 5,000 unemployed persons. If 5,000 persons who are currently "not in the labor force" decide to join the civilian labor force, and 3,000 are unemployed, then
    • A. 

      Both the unemployment and the employment rate rise.

    • B. 

      Both the unemployment and the employment rate fall.

    • C. 

      The unemployment rate rises and the employment rate falls.

    • D. 

      The unemployment rate falls and the employment rate rises.


  • 14. 
    Suppose there are 50 million people in the population, 25 million people in the civilian labor force, and 20 million people are employed.  The number of people unemployed is _______ million and the unemployment rate is ___________ percent.
    • A. 

      25; 50

    • B. 

      5; 10

    • C. 

      5; 20

    • D. 

      10; 10


  • 15. 
    Suppose there are 200 million people in the population, 120 million people in the civilian labor force, and 90 million people are employed.  The number of people unemployed is _______ million and the unemployment rate is ___________ percent.
    • A. 

      30; 25

    • B. 

      30; 33

    • C. 

      30; 5

    • D. 

      80; 40


  • 16. 
    If the CPI is 170 and nominal income is $45,000, approximately what does real income equal?
    • A. 

      $127,500

    • B. 

      $26,471

    • C. 

      $76,500

    • D. 

      $44,118


  • 17. 
    Juan lost his job as a nuclear physicist working for a defense contractor.  He can not find a job because no firms in the defense industry or any other industry are hiring people with his skills.  Juan is ______________ unemployed.
    • A. 

      Frictionally

    • B. 

      Cyclically

    • C. 

      Structurally

    • D. 

      Naturally


  • 18. 
    If there are 10 job losers, 12 job leavers, 13 reentrants, and 12 new entrants, then there are __________ unemployed persons.
    • A. 

      35

    • B. 

      47

    • C. 

      25

    • D. 

      37

    • E. 

      There is not enough information to answer the question.


  • 19. 
    If a person did at least one hour of work as a paid employee during the survey week, how is she classified?
    • A. 

      As an employed person

    • B. 

      As not in the labor force

    • C. 

      As an unemployed person

    • D. 

      None of the above


  • 20. 
    Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?
    • A. 

      In the civilian labor force

    • B. 

      Not in the labor force

    • C. 

      Employed

    • D. 

      Unemployed


  • 21. 
    In order to be classified as unemployed, a person must
    • A. 

      Not have a job, have been actively looking for work within the past four weeks, and currently be available for work.

    • B. 

      Not have a job, and currently be available for work.

    • C. 

      Actively have looked for work within the past six weeks.

    • D. 

      Not have a job.


  • 22. 
    In an economy with 100 million people, 70 million hold jobs and 19 million are not working but are looking for jobs. The number counted as unemployed is
    • A. 

      81 million.

    • B. 

      19 million.

    • C. 

      51 million.

    • D. 

      70 million.

    • E. 

      49 million.


  • 23. 
    In an economy with 100 million people, 70 million hold jobs and 19 million are not working but are looking for jobs. The unemployment rate is
    • A. 

      12.86%

    • B. 

      21.35%.

    • C. 

      9.19%.

    • D. 

      27.14%.

    • E. 

      2.87%


  • 24. 
    Unemployment that arises as a result of the time it takes for unemployed people to locate a job utilizing their transferable skills is called __________ unemployment.
    • A. 

      Structural

    • B. 

      Cyclical

    • C. 

      Natural

    • D. 

      Frictional


  • 25. 
    The unemployment due to changes in the types of skills employers require is called __________ unemployment.
    • A. 

      Structural

    • B. 

      Cyclical

    • C. 

      Natural

    • D. 

      Frictional


  • 26. 
    The cyclical unemployment rate is defined as the __________ unemployment rates.
    • A. 

      Sum of the structural and the frictional

    • B. 

      Difference between the structural and the frictional

    • C. 

      Difference between the existing (actual) and the natural

    • D. 

      Sum of the natural and the frictional


  • 27. 
    "Full employment" is said to exist when the unemployment rate equals
    • A. 

      Zero

    • B. 

      The cyclical unemployment rate.

    • C. 

      The structural unemployment rate.

    • D. 

      The natural unemployment rate.


  • 28. 
    A market basket is made up of three goods, 10X, 12Y, and 18Z. The prices in the base year are $1.20, $2.10, and $3.25, respectively. The prices in the current year are $1.44, $2.23, and $3.88. What is the approximate consumer price index in the current year?
    • A. 

      103

    • B. 

      111

    • C. 

      116

    • D. 

      110

    • E. 

      96


  • 29. 
    Smith's income was $50,000 in year 1 and $55,600 in year 2. The CPI was 114 in year 1 and 124 in year 2. What was the approximate percentage change in Smith's real income between the two years?
    • A. 

      -2.2 percent

    • B. 

      +3.4 percent

    • C. 

      -1.7 percent

    • D. 

      +5.6 percent

    • E. 

      +2.2 percent


  • 30. 
    A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is said to be ___________________ unemployed
    • A. 

      Frictionally

    • B. 

      Structurally

    • C. 

      Cyclically

    • D. 

      Underemployed


  • 31. 
    Gross Domestic Product (GDP) is the total market value of all
    • A. 

      Final goods and services produced annually within a country's borders.

    • B. 

      Final and intermediate goods and services produced annually within a country's borders.

    • C. 

      Intermediate goods and services produced annually within a country's borders.

    • D. 

      Final goods and services produced every month within a country's borders.


  • 32. 
    In the definition of GDP, the words "total market value" refer to total
    • A. 

      Dollar value at base prices.

    • B. 

      Dollar value at current prices.

    • C. 

      Subjective value.

    • D. 

      Objective value.


  • 33. 
    Which of the following illustrates double counting?
    • A. 

      The total market value of the steel used to produce a car and the total market value of the car itself are summed.

    • B. 

      The total market value of tennis rackets and the total market value of tennis balls are summed.

    • C. 

      The total market value of picture frames and the total market value of camera film are summed.

    • D. 

      The total market value of eyeglasses and the total market value of carpet are summed.

    • E. 

      B and c


  • 34. 
    The best reason economists take only final goods and services into account when calculating GDP is that
    • A. 

      This is the way things have always been done.

    • B. 

      They want to avoid the problem of final counting.

    • C. 

      They want to avoid the problem of double counting.

    • D. 

      This is the only way things can be done.


  • 35. 
    Which of the following items is a final good?
    • A. 

      Mustard in a deli

    • B. 

      Tin purchased by a can company

    • C. 

      A sweater purchased by someone in a department store

    • D. 

      A and b

    • E. 

      A, b, and c


  • 36. 
    Underground activities are not counted in GDP because
    • A. 

      Some underground activities are illegal and the government doesn't want to place, for instance, drug dealers on an equal footing with small businesses.

    • B. 

      There are no written records of underground activities.

    • C. 

      Of a decision made in the 1930s and no one has gotten around to changing it yet.

    • D. 

      Although it is possible to accurately measure underground activities, it is harder than measuring above-ground activities because with the latter, one doesn't have to dig as deep.


  • 37. 
    Which of the following is counted in GDP?
    • A. 

      The purchase of 100 shares of Microsoft stock

    • B. 

      The services of a real estate broker

    • C. 

      Government transfer payments

    • D. 

      The sale of a used car

    • E. 

      None of the above


  • 38. 
    Which of the following would not be included in the measurement of GDP?
    • A. 

      A bill from a car mechanic

    • B. 

      Wages of a card dealer working in a Las Vegas casino

    • C. 

      Commissions of a stockbroker

    • D. 

      The increased value of shares of stock

    • E. 

      C and d


  • 39. 
    Which of the following would definitely not be included in the measurement of GDP?
    • A. 

      Value of the services of a painter who paints your garage

    • B. 

      Value of the services of a person who mows his or her own lawn

    • C. 

      Value of the services of a maid who cleans your house

    • D. 

      Value of the services of a plumber who fixes your kitchen sink


  • 40. 
    Gross Domestic Product is computed by using
    • A. 

      Base-year prices.

    • B. 

      Wholesale prices.

    • C. 

      Previous-year prices.

    • D. 

      Current-year prices.


  • 41. 
    Which of the following is a nonmarket good?
    • A. 

      The corn you grow in your home garden and consume

    • B. 

      The clothes you sew and sell to a neighbor who pays by check

    • C. 

      The self-portrait hanging in your den

    • D. 

      A and c

    • E. 

      A, b, and c


  • 42. 
    Which of the following statements is false?
    • A. 

      The market value of all nonmarket goods is omitted from GDP.

    • B. 

      The sale of used goods is omitted from GDP.

    • C. 

      The market value of a person mowing his or her own lawn is omitted from GDP.

    • D. 

      If a good is produced but not sold, it is included in GDP.


  • 43. 
    Disposable income is
    • A. 

      Equal to GDP minus the capital consumption allowance.

    • B. 

      That portion of personal income that can be used for consumption and saving.

    • C. 

      The sum of all payments to suppliers of the factors of production.

    • D. 

      The amount of income that individuals actually receive.

    • E. 

      Another term for personal income.


  • 44. 
    Personal income is
    • A. 

      Equal to GDP.

    • B. 

      That portion of national income that can be used for consumption and saving.

    • C. 

      The sum of all payments to suppliers of the factors of production.

    • D. 

      The amount of income that individuals actually receive.

    • E. 

      Another term for disposable income.


  • 45. 
    In the United States, by far the largest expenditure component in GDP is
    • A. 

      Gross private domestic investment.

    • B. 

      Government purchases of goods and services.

    • C. 

      Consumption expenditures.

    • D. 

      Net exports.

    • E. 

      None of the above


  • 46. 
    In 2009, the U.S. GDP was approximately
    • A. 

      $14.26 trillion.

    • B. 

      $8.15 trillion.

    • C. 

      $12.67 trillion

    • D. 

      $19.83 trillion


  • 47. 
    John just bought shares of stock in IBM for $10,000 and paid a $90 commission to his broker. How did this affect GDP?
    • A. 

      It had no impact on GDP.

    • B. 

      GDP increased by $90.

    • C. 

      GDP increased by $10,000.

    • D. 

      GDP increased by $9,990.


  • 48. 
    Which of the following would not be included in the calculation of this year's GDP?
    • A. 

      A headlight bulb purchased at Joe's Auto Supply by Susan to replace a burnt out bulb in her car

    • B. 

      A headlight bulb purchased by Ford Motor Co. from a supplier

    • C. 

      A headlight bulb produced but not sold this year and thus ending up as inventory

    • D. 

      None of the above, i.e., all would be included


  • 49. 
    If in the process of calculating GDP, the market value of all intermediate goods is added to the market value of all final goods, this would
    • A. 

      Overstate the actual value of GDP.

    • B. 

      Produce the correct value of GDP.

    • C. 

      Understate the actual value of GDP.

    • D. 

      Avoid the possible error of double counting.


  • 50. 
    Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real GDP in the current year equals _________ and GDP equals _________.
    • A. 

      $550; $150

    • B. 

      $130; $530

    • C. 

      $150; $550

    • D. 

      $530; $130

    • E. 

      None of the above


  • 51. 
    Real GDP is always measured in
    • A. 

      Cheaper dollars.

    • B. 

      Quality of goods produced.

    • C. 

      Base-year dollars.

    • D. 

      Nominal dollars.

    • E. 

      Current dollars.


  • 52. 
    What is the proper sequence of the phases of a business cycle?
    • A. 

      Peak, contraction, trough, expansion, recovery

    • B. 

      Peak, contraction, recovery, trough, expansion

    • C. 

      Peak, contraction, trough, recovery, expansion

    • D. 

      Contraction, peak, trough, recovery, expansion

    • E. 

      Recovery, trough, peak, expansion, contraction


  • 53. 
    If Real GDP was $8,742 billion in year 2 and it had been $8,509 billion in year 1, what was the approximate economic growth rate during this time period?
    • A. 

      9.73 percent

    • B. 

      2.67 percent

    • C. 

      3.58 percent

    • D. 

      2.74 percent


  • 54. 
    What does annual economic growth refer to?
    • A. 

      Annual increases in GDP

    • B. 

      Annual increases in consumption spending

    • C. 

      Annual increases in investment spending

    • D. 

      Annual increases in Real GDP

    • E. 

      None of the above


  • 55. 
    "Economic growth" has occurred if the
    • A. 

      Inflation rate between this year and last year is zero or less.

    • B. 

      GDP this year exceeds the Real GDP this year.

    • C. 

      Unemployment rate this year is above the natural rate of unemployment.

    • D. 

      Real GDP this year exceeds the Real GDP of last year.


  • 56. 
    The standard definition of "recession" is
    • A. 

      A period of a positive frictional unemployment rate.

    • B. 

      Two or more consecutive quarters of falling Real GDP.

    • C. 

      The lowest point in a business cycle.

    • D. 

      A period of negative inflation.


  • 57. 
    A recession is always part of a
    • A. 

      Contraction.

    • B. 

      Recovery.

    • C. 

      Detraction

    • D. 

      Remission.


  • 58. 
    Which of the following does GDP omit?
    • A. 

      Jack purchases $2,300 worth of stock in company X.

    • B. 

      Bob mows his lawn and washes and irons his shirts.

    • C. 

      Helen receives $4,000 a year in Social Security payments.

    • D. 

      A and b

    • E. 

      A, b, and c


  • 59. 
    Look at the following data: GDP = $7,920 billion; investment = $2,100 billion; exports = $300 billion; government purchases = $1,450 billion; consumption = $4,500 billion. What does import spending equal?
    • A. 

      $430 billion

    • B. 

      $374 billion

    • C. 

      $200 billion

    • D. 

      $274 billion

    • E. 

      $474 billion


  • 60. 
    Increases in import spending
    • A. 

      Raise GDP.

    • B. 

      Lower GDP.

    • C. 

      Are always balanced off in GDP by changes in exports.

    • D. 

      May raise or lower GDP.


  • 61. 
    Look at the following data: personal income = $4,900 billion; personal taxes = $900 billion; transfer payments = $980 billion. What is disposable income?
    • A. 

      $3,200 billion

    • B. 

      $4,000 billion

    • C. 

      $4,980 billion

    • D. 

      $1,880 billion

    • E. 

      There is not enough information to answer the question.


  • 62. 
    The sum of durable goods, nondurable goods, and services equals
    • A. 

      Investment

    • B. 

      Fixed investment.

    • C. 

      Government purchases.

    • D. 

      Consumption.

    • E. 

      Net exports.


  • 63. 
    You have data for compensation of employees, proprietors' income, rental income, and net interest. Can you compute national income?
    • A. 

      Yes

    • B. 

      No, since data on indirect business taxes are missing.

    • C. 

      No, since data on corporate profits is missing.

    • D. 

      No, since data on the capital consumption allowance is missing.

    • E. 

      No, since net interest has not been adjusted for profits.


  • 64. 
    Which of the following is the correct equation for computing personal income?
    • A. 

      Personal income = National income + undistributed profits - social insurance taxes - corporate profits taxes + transfer payments.

    • B. 

      Personal income = National income - undistributed profits - social insurance taxes + corporate profits taxes + transfer payments

    • C. 

      Personal income = National income - taxes

    • D. 

      Personal income = National income - undistributed corporate profits - social insurance taxes - corporate profits taxes + transfer payments


  • 65. 
    Exhibit 7-1    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. Which of the following summations represents GDP using the expenditure approach?
    • A. 

      $2,150 + $692 + $250 + $300

    • B. 

      $2,150 + $692 + $250 - $331 + $300

    • C. 

      $2,150 + $692 + $250 + $331 + $300 - $320

    • D. 

      $2,150 + $692 + $250 + $331 + $300 - $320 + $188


  • 66. 
    Exhibit 7-1    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. Which of the following summations represents net domestic product?
    • A. 

      GDP - $147

    • B. 

      GDP - $355

    • C. 

      GDP - $412

    • D. 

      GDP - $295

    • E. 

      GDP + $147


  • 67. 
    Exhibit 7-1    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5  Refer to Exhibit 7-1. What is the value of  gross domestic product?
    • A. 

      $3,403

    • B. 

      $4,043

    • C. 

      $3,072

    • D. 

      $3,108

    • E. 

      $2,637


  • 68. 
    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. What is the value of  net domestic product?
    • A. 

      $3,403

    • B. 

      $4,043

    • C. 

      $3,072

    • D. 

      $3,108

    • E. 

      $2,637


  • 69. 
    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. What is the value of  personal income?
    • A. 

      $2,618

    • B. 

      $1,774

    • C. 

      $3,072

    • D. 

      $1,996

    • E. 

      $2,252


  • 70. 
    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. What is the value of  national income?
    • A. 

      $2,542

    • B. 

      $1,774

    • C. 

      $3,072

    • D. 

      $1,996

    • E. 

      $2,252


  • 71. 
    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. What is the value of  disposable income?
    • A. 

      $2,618

    • B. 

      $1,795

    • C. 

      $1,727

    • D. 

      $2,207

    • E. 

      $2,017


  • 72. 
    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. Which of the following summations represents personal income?
    • A. 

      National income + $111 + $222 + $23 + $66

    • B. 

      National income - $111 - $222 - $23 - $66

    • C. 

      National income - $111 - $222 - $23 + $66

    • D. 

      National income + $111 - $222 - $23 - $66


  • 73. 
    Consumption expenditures $ 2,150 Federal government purchases of goods and services 250 State and local government’s purchases 331 Investment 692 Proprietors income 150 Compensation of employees 2,080 Corporate profits 134 Corporate profits taxes 23 Rental income 31 Capital consumption allowance 295 Indirect business taxes 146 Net interest 147 Exports 300 Imports 320 Undistributed corporate profits 111 Transfer payments 66 Personal taxes 45 Dividends                        0 Income Earned from the Rest of the World                     252 Income Earned by the Rest of the World                     667 Social Insurance taxes 222 Statistical discrepancy 5 Refer to Exhibit 7-1. Which of the following summations represents disposable income?
    • A. 

      Personal income - $222

    • B. 

      Personal income - $ 45

    • C. 

      Personal income - $222 - $23 - $45

    • D. 

      Personal income - $147


  • 74. 
    Durable goods $2,000 Services   4,000 Business purchases of capital goods     200 Fixed investment    600 Exports     600 Imports     800 Nondurable goods     500 Inventory investment                300 Government transfer payments     400 Purchases of new residential housing     400 Government purchases     900 Refer to Exhibit 7-3.  Consumption is equal to
    • A. 

      $7,200.

    • B. 

      $6,000.

    • C. 

      $5,500.

    • D. 

      $8,200.

    • E. 

      $6,500.


  • 75. 
    Durable goods $2,000 Services   4,000 Business purchases of capital goods     200 Fixed investment    600 Exports     600 Imports     800 Nondurable goods     500 Inventory investment                300 Government transfer payments     400 Purchases of new residential housing     400 Government purchases     900 Refer to Exhibit 7-3.  Investment is equal to
    • A. 

      $900.

    • B. 

      $2,000.

    • C. 

      $500.

    • D. 

      $2,200.

    • E. 

      $1,500.


  • 76. 
    Durable goods $2,000 Services   4,000 Business purchases of capital goods     200 Fixed investment    600 Exports     600 Imports     800 Nondurable goods     500 Inventory investment                300 Government transfer payments     400 Purchases of new residential housing     400 Government purchases     900   111.   Refer to Exhibit 7-3.  Net exports is equal to
    • A. 

      $200.

    • B. 

      -$200.

    • C. 

      $600.

    • D. 

      -$1,400.

    • E. 

      $1,400.


  • 77. 
    Durable goods $2,000 Services   4,000 Business purchases of capital goods     200 Fixed investment    600 Exports     600 Imports     800 Nondurable goods     500 Inventory investment                300 Government transfer payments     400 Purchases of new residential housing     400 Government purchases     900 Refer to Exhibit 7-3.  GDP is equal to
    • A. 

      $10,200.

    • B. 

      $8,800.

    • C. 

      $8,600.

    • D. 

      $10,400.

    • E. 

      $8,100.


  • 78. 
    An aggregate demand (AD) curve shows the
    • A. 

      Amount of a particular good people are willing and able to buy at a particular price, ceteris paribus.

    • B. 

      Real output (Real GDP) people are willing and able to sell at different price levels, ceteris paribus.

    • C. 

      Real output (Real (GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.

    • D. 

      Real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.


  • 79. 
    Aggregate demand curves are
    • A. 

      Downward sloping.

    • B. 

      Upward sloping.

    • C. 

      Horizontal.

    • D. 

      Vertical.


  • 80. 
    One of the reasons why the AD curve slopes downward is that as the
    • A. 

      Price level rises, purchasing power rises.

    • B. 

      Price level falls, purchasing power rises.

    • C. 

      Nation's income level rises, purchasing power rises.

    • D. 

      Nation's income level rises, purchasing power falls.

    • E. 

      This is a trick question, because the curve is upward sloping.


  • 81. 
    If some of a person's wealth is in cash, it follows that
    • A. 

      This person's wealth will change as the price level changes.

    • B. 

      This person's wealth will not change as the price level changes.

    • C. 

      This person is wealthier than a person who holds all his wealth in nonmonetary form.

    • D. 

      A and c

    • E. 

      B and c


  • 82. 
    The change in the purchasing power of dollar-denominated assets (such as cash holdings) is the
    • A. 

      Money effect.

    • B. 

      Dollar effect.

    • C. 

      Asset effect.

    • D. 

      Real balance effect.

    • E. 

      None of the above


  • 83. 
    As the price level falls,
    • A. 

      The purchasing power of cash holdings rises.

    • B. 

      The purchasing power of cash holdings falls.

    • C. 

      The purchasing power of cash holdings remains constant.

    • D. 

      Cash holdings turn into dollar-denominated assets.

    • E. 

      None of the above


  • 84. 
    The real balance effect describes the change in
    • A. 

      Checking account balances that occur when the money supply increases or decreases.

    • B. 

      The value of physical assets (e.g., houses) that results from a change in the price level.

    • C. 

      The output producers produce as they attempt to balance their production in response to changes in consumers' demand.

    • D. 

      The value of cash holdings that results from a change in the price level.

    • E. 

      The balance of cash holdings that results from a change in the amount of income earned.


  • 85. 
    As the price level rises, ceteris paribus, people holding some of their wealth in monetary form become
    • A. 

      Less wealthy and they buy less.

    • B. 

      More wealthy and they buy more.

    • C. 

      Less wealthy and they buy more.

    • D. 

      More wealthy and they buy less.


  • 86. 
    As the price level falls, ceteris paribus, people holding some of their wealth in monetary form become
    • A. 

      Less wealthy and they buy less.

    • B. 

      More wealthy and they buy more.

    • C. 

      Less wealthy and they buy more.

    • D. 

      More wealthy and they buy less.


  • 87. 
    Suppose consumption decreases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.
    • A. 

      Increases; leftward

    • B. 

      Decreases; leftward

    • C. 

      Increases; rightward

    • D. 

      Decreases; rightward


  • 88. 
    Suppose consumption increases at each price level. As a result, aggregate demand __________, and the AD curve shifts __________.
    • A. 

      Increases; leftward

    • B. 

      Decreases; leftward

    • C. 

      Increases; rightward

    • D. 

      Decreases; rightward


  • 89. 
    The real balance effect is one of the
    • A. 

      Reasons why an AD curve is downward-sloping.

    • B. 

      Shifters of an AD curve.

    • C. 

      Reasons why a short-run aggregate supply curve can be derived.

    • D. 

      Shifters of a short-run aggregate supply curve.


  • 90. 
    The interest rate effect is one of the
    • A. 

      Reasons why an AD curve is downward-sloping.

    • B. 

      Shifters of an AD curve.

    • C. 

      Reasons why a short-run aggregate supply curve can be derived.

    • D. 

      Shifters of a short-run aggregate supply curve.


  • 91. 
    The real balance effect helps to create "a change in
    • A. 

      Aggregate demand."

    • B. 

      The quantity demanded of Real GDP."

    • C. 

      Aggregate supply."

    • D. 

      The quantity supplied of Real GDP."


  • 92. 
    Part of the story of the interest rate effect is that a lower price level causes __________ in the supply of credit, which then causes the interest rate to __________.
    • A. 

      A decrease; fall

    • B. 

      A decrease; rise

    • C. 

      An increase; fall

    • D. 

      An increase; rise


  • 93. 
    Which of the following factors can shift the AD curve?
    • A. 

      Net exports

    • B. 

      Government purchases

    • C. 

      The money supply

    • D. 

      B and c

    • E. 

      A, b, and c


  • 94. 
    If the price level is constant, but consumption increases, then the real balance effect will
    • A. 

      Cause the AD curve to shift rightward.

    • B. 

      Cause the AD curve to shift leftward.

    • C. 

      Not have any effect on the position of the AD curve.

    • D. 

      Will have some effect on the AD curve, but we cannot predict that effect.


  • 95. 
    If consumption changes because of a change in a factor other than the price level, then the
    • A. 

      Economy moves from one point on an AD curve to another point on the same curve.

    • B. 

      AD curve shifts.

    • C. 

      Economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same curve.

    • D. 

      SRAS curve shifts.

    • E. 

      None of the above


  • 96. 
    If investment changes because of a change in a factor other than the price level, then the
    • A. 

      Economy moves from one point on an AD curve to another point on the same curve.

    • B. 

      AD curve shifts.

    • C. 

      Economy moves from one point on a short-run aggregate supply (SRAS) curve to another point on the same curve.

    • D. 

      SRAS curve shifts.


  • 97. 
    If consumption changes because of a change in the price level, then the
    • A. 

      Economy moves from one point on an AD curve to another point on the same curve.

    • B. 

      AD curve shifts.

    • C. 

      Economy moves from one point on a SRAS curve to another point on the same curve.

    • D. 

      SRAS curve shifts.

    • E. 

      None of the above


  • 98. 
    If investment changes because of a change in the price level, then the
    • A. 

      Economy moves from one point on an AD curve to another point on the same curve.

    • B. 

      AD curve shifts.

    • C. 

      Economy moves from one point on a SRAS curve to another point on the same curve.

    • D. 

      SRAS curve shifts.

    • E. 

      None of the above


  • 99. 
    Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.
    • A. 

      Movement down along

    • B. 

      Movement up along

    • C. 

      A rightward shift of

    • D. 

      A leftward shift of


  • 100. 
    Greater wealth makes __________ people willing to spend the national income, causing __________ the economy's AD curve.
    • A. 

      More; movement down along

    • B. 

      More; a rightward shift of

    • C. 

      Less; movement up along

    • D. 

      Less; a rightward shift of


  • 101. 
    Expectation of lower future prices is a
    • A. 

      Rightward shifter of AD.

    • B. 

      Leftward shifter of AD.

    • C. 

      Leftward shifter of AD.

    • D. 

      Reason for moving up along AD.


  • 102. 
    Expectation of higher future income is a
    • A. 

      Rightward shifter of AD.

    • B. 

      Leftward shifter of AD.

    • C. 

      Reason for moving up along AD.

    • D. 

      Reason for moving down along AD.


  • 103. 
    An economic policy initiative results in the AD curve shifting to the right. As a result,
    • A. 

      The price level will rise.

    • B. 

      The price level will stay constant.

    • C. 

      The price level will fall.

    • D. 

      Real GDP will rise in the short run.

    • E. 

      A and d


  • 104. 
    Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause __________ of some consumption plans, resulting in __________ the AD curve.
    • A. 

      Postponement; a rightward shift of

    • B. 

      Postponement; a leftward shift of

    • C. 

      Acceleration; a rightward shift of

    • D. 

      Acceleration; movement down along


  • 105. 
    An increase in the interest rate __________ purchases of consumer __________.
    • A. 

      Increases; durables

    • B. 

      Increases; nondurables

    • C. 

      Reduces; durables

    • D. 

      Reduces; nondurables


  • 106. 
    A falling interest rate affects the demand for consumer __________ and shifts AD to the __________.
    • A. 

      Nondurables; right

    • B. 

      Nondurables; left

    • C. 

      Durables; right

    • D. 

      Durables; left


  • 107. 
    As the interest rate rises, the cost of a given investment project __________ and businesses invest __________.
    • A. 

      Rises; more

    • B. 

      Rises; less

    • C. 

      Falls; more

    • D. 

      Falls; less


  • 108. 
    As the interest rate rises, businesses invest __________ and the AD curve shifts to the __________.
    • A. 

      More; right

    • B. 

      More; left

    • C. 

      Less; right

    • D. 

      Less; left


  • 109. 
    A lower income tax rate __________ consumption, causing a __________ the AD curve.
    • A. 

      Stimulates; rightward shift of

    • B. 

      Stimulates; movement down along

    • C. 

      Depresses; leftward shift of

    • D. 

      Depresses; movement up along


  • 110. 
    Suppose the real exchange rate of 10 Mexican pesos to the dollar moves to 9 pesos to the dollar. The dollar has ________________, making Mexican goods __________ expensive for Americans.
    • A. 

      Appreciated; less

    • B. 

      Appreciated; more

    • C. 

      Depreciated; less

    • D. 

      Depreciated; more


  • 111. 
    Suppose the real exchange rate of 115 Japanese yen to the dollar moves to 105 yen to the dollar. The dollar has __________, making Japanese goods __________ expensive for Americans.
    • A. 

      Appreciated; less

    • B. 

      Appreciated; more

    • C. 

      Depreciated; less

    • D. 

      Depreciated; more


  • 112. 
    An appreciation of the U.S. dollar tends to __________ U.S. net exports and shift the U.S. AD curve to the __________.
    • A. 

      Raise; right

    • B. 

      Raise; left

    • C. 

      Lower; right

    • D. 

      Lower; left


  • 113. 
    A depreciation of the U.S. dollar tends to __________ U.S. net exports and shift the U.S. AD curve to the __________.
    • A. 

      Raise; right

    • B. 

      Raise; left

    • C. 

      Lower; right

    • D. 

      Lower; left


  • 114. 
    An increase in the money supply may __________ total expenditures, leading to a __________ shift of the AD curve.
    • A. 

      Increase; rightward

    • B. 

      Increase; leftward

    • C. 

      Decrease; rightward

    • D. 

      Decrease; leftward


  • 115. 
    A decrease in the money supply may __________ total expenditures and thus __________ aggregate demand.
    • A. 

      Raise; raise

    • B. 

      Raise; lower

    • C. 

      Lower; raise

    • D. 

      Lower; lower


  • 116. 
    A short-run aggregate supply curve shows the
    • A. 

      Amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.

    • B. 

      Real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.

    • C. 

      Real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.

    • D. 

      Real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.


  • 117. 
    The short-run aggregate supply curve is
    • A. 

      Downward sloping.

    • B. 

      Upward sloping.

    • C. 

      Vertical.

    • D. 

      Horizontal.


  • 118. 
    A rise in wage rates
    • A. 

      Causes the AD curve to shift leftward.

    • B. 

      Causes the short-run aggregate supply (SRAS) curve to shift rightward.

    • C. 

      Does not affect the present position of the SRAS curve.

    • D. 

      Causes the AD curve to shift rightward.

    • E. 

      Causes the SRAS curve to shift leftward.


  • 119. 
    Changes in which of the following will not cause the SRAS curve to shift?
    • A. 

      The wage rate

    • B. 

      Prices of nonlabor inputs

    • C. 

      The price level

    • D. 

      Productivity

    • E. 

      All of the above will cause the SRAS curve to shift.


  • 120. 
    An increase in the price of nonlabor inputs
    • A. 

      Shifts the AD curve leftward.

    • B. 

      Shifts the SRAS curve leftward.

    • C. 

      Is the same thing as a beneficial supply shock.

    • D. 

      Shifts the AD curve rightward.

    • E. 

      Shifts the SRAS curve rightward.


  • 121. 
    If the price level remains constant but the wage rate increases, then there will be __________ in production and the SRAS curve will shift __________.
    • A. 

      An increase; rightward

    • B. 

      A decrease; rightward

    • C. 

      An increase; leftward

    • D. 

      A decrease; leftward


  • 122. 
    A decrease in the price of electricity will cause
    • A. 

      A movement down the SRAS curve.

    • B. 

      A movement up the SRAS curve.

    • C. 

      A leftward shift in the SRAS curve.

    • D. 

      A rightward shift in the SRAS curve.

    • E. 

      No change regarding the SRAS curve.


  • 123. 
    An increase in the price of oil will cause
    • A. 

      A movement down the SRAS curve.

    • B. 

      A movement up the SRAS curve.

    • C. 

      A leftward shift in the SRAS curve.

    • D. 

      A rightward shift in the SRAS curve.

    • E. 

      No change regarding the SRAS curve.


  • 124. 
    An increase in labor's productivity will cause the SRAS curve to shift __________ and the price level to __________.
    • A. 

      Leftward; increase

    • B. 

      Rightward; decrease

    • C. 

      Rightward; increase

    • D. 

      Leftward; decrease


  • 125. 
    An increase in labor productivity shifts the
    • A. 

      AD curve rightward.

    • B. 

      AD curve leftward.

    • C. 

      Short-run aggregate supply (SRAS) curve leftward.

    • D. 

      SRAS curve rightward.

    • E. 

      None of the above


  • 126. 
    If aggregate quantity supplied is greater than aggregate quantity demanded at a particular price level, then a
    • A. 

      Shortage exists and consumers will bid the price level up.

    • B. 

      Surplus exists and consumers will bid the price level up.

    • C. 

      Surplus exists and the price level will decline.

    • D. 

      Shortage exists and the price level will decline.

    • E. 

      C and d


  • 127. 
    Short-run equilibrium exists
    • A. 

      Where the AD curve intersects the short-run aggregate supply (SRAS) curve.

    • B. 

      Where the AD curve intersects the long-run aggregate supply (LRAS) curve.

    • C. 

      On the AD curve only.

    • D. 

      On the SRAS curve only.


  • 128. 
    If consumption increases,
    • A. 

      The SRAS curve will shift rightward, which will push the price level up.

    • B. 

      The SRAS curve will shift leftward, which will push the price level up.

    • C. 

      The AD curve will shift leftward, which will push the price level down.

    • D. 

      The AD curve will shift rightward, which will push the price level up.


  • 129. 
    An increase in the price level
    • A. 

      Shifts the AD curve to the right.

    • B. 

      Shifts the AD curve to the left.

    • C. 

      Causes an upward movement along the existing AD curve.

    • D. 

      Causes a downward movement along the existing AD curve.

    • E. 

      A and c


  • 130. 
    A decrease in the price level
    • A. 

      Shifts the AD curve to the right.

    • B. 

      Shifts the AD curve to the left.

    • C. 

      Causes an upward movement along the existing AD curve.

    • D. 

      Causes a downward movement along the existing AD curve.

    • E. 

      None of the above


  • 131. 
    As interest rates rise, the  ____________ curve shifts _____________ resulting in a(n) 
    • A. 

      AD; leftward; decrease; decrease

    • B. 

      AD; rightward; increase; increase

    • C. 

      SRAS; rightward; decrease; increase

    • D. 

      SRAS; leftward; increase; decrease


  • 132. 
    After an adverse supply shock occurs, the  ____________ curve shifts _____________ resulting in a(n) _________________ in the U.S. price level and a(n) ________________ in Real GDP.
    • A. 

      AD; leftward; decrease; decrease

    • B. 

      AD; rightward; increase; increase

    • C. 

      SRAS; rightward; decrease; increase

    • D. 

      SRAS; leftward; increase; decrease


  • 133. 
    Suppose that C = $700, I = $200, G = $200, NX = $100, and that the money supply is equal to $400.  Based upon these assumptions, velocity is equal to ________________.  If consumption and velocity both rise beyond their initial levels, then it follows that another component of spending ___________ necessarily fall.
    • A. 

      3; must

    • B. 

      3; does not

    • C. 

      4; must

    • D. 

      4; does not


  • 134. 
    Velocity is the average number of times a dollar is spent to buy
    • A. 

      Final goods and services in a year.

    • B. 

      Final and intermediate goods and services in a year.

    • C. 

      Final goods, but not services, in a year.

    • D. 

      Services in a year.


  • 135. 
    Given Change in Economic Factor Real GDP Price Level Increase in foreign real national income (1) (2) Decrease in wage rates (3) (4) Beneficial supply shock (5) (6) Decrease in government purchases (7) (8) Increase in personal income taxes (8) (10) Decrease in labor productivity (11) (12) Refer to Exhibit 8-2.  Based on the given change, what word (rises or falls) should go in blank (1) and blank (2), respectively, to summarize the resulting impact on short run equilibrium?
    • A. 

      Rises; rises

    • B. 

      Falls; falls

    • C. 

      Rises; falls

    • D. 

      Falls; rises


  • 136. 
    Given Change in Economic Factor Real GDP Price Level Increase in foreign real national income (1) (2) Decrease in wage rates (3) (4) Beneficial supply shock (5) (6) Decrease in government purchases (7) (8) Increase in personal income taxes (8) (10) Decrease in labor productivity (11) (12) Refer to Exhibit 8-2.  Based on the given change, what word (rises or falls) should go in blank (3) and blank (4), respectively, to summarize the resulting impact on short run equilibrium?
    • A. 

      Rises; rises

    • B. 

      Falls; falls

    • C. 

      Rises; falls

    • D. 

      Falls; rises


  • 137. 
    Given Change in Economic Factor Real GDP Price Level Increase in foreign real national income (1) (2) Decrease in wage rates (3) (4) Beneficial supply shock (5) (6) Decrease in government purchases (7) (8) Increase in personal income taxes (8) (10) Decrease in labor productivity (11) (12) Refer to Exhibit 8-2.  Based on the given change, what word (rises or falls) should go in blank (5) and blank (6), respectively, to summarize the resulting impact on short run equilibrium?
    • A. 

      Rises; rises

    • B. 

      Falls; falls

    • C. 

      Rises; falls

    • D. 

      Falls; rises


  • 138. 
    Given Change in Economic Factor Real GDP Price Level Increase in foreign real national income (1) (2) Decrease in wage rates (3) (4) Beneficial supply shock (5) (6) Decrease in government purchases (7) (8) Increase in personal income taxes (8) (10) Decrease in labor productivity (11) (12) Refer to Exhibit 8-2.  Based on the given change, what word (rises or falls) should go in blank (7) and blank (8), respectively, to summarize the resulting impact on short run equilibrium?
    • A. 

      Rises; rises

    • B. 

      Falls; falls

    • C. 

      Rises; falls

    • D. 

      Falls; rises


  • 139. 
    Given Change in Economic Factor Real GDP Price Level Increase in foreign real national income (1) (2) Decrease in wage rates (3) (4) Beneficial supply shock (5) (6) Decrease in government purchases (7) (8) Increase in personal income taxes (8) (10) Decrease in labor productivity (11) (12) Refer to Exhibit 8-2.  Based on the given change, what word (rises or falls) should go in blank (9) and blank (10), respectively, to summarize the resulting impact on short run equilibrium?
    • A. 

      Rises; rises

    • B. 

      Falls; falls

    • C. 

      Rises; falls

    • D. 

      Falls; rises


  • 140. 
    Given Change in Economic Factor Real GDP Price Level Increase in foreign real national income (1) (2) Decrease in wage rates (3) (4) Beneficial supply shock (5) (6) Decrease in government purchases (7) (8) Increase in personal income taxes (8) (10) Decrease in labor productivity (11) (12) Refer to Exhibit 8-2.  Based on the given change, what word (rises or falls) should go in blank (11) and blank (12), respectively, to summarize the resulting impact on short run equilibrium?
    • A. 

      Rises; rises

    • B. 

      Falls; falls

    • C. 

      Rises; falls

    • D. 

      Falls; rises


  • 141. 
    When the economy is at its full employment Real GDP, the unemployment rate is equal to
    • A. 

      Zero

    • B. 

      The natural unemployment rate.

    • C. 

      The frictional unemployment rate.

    • D. 

      The structural unemployment rate.


  • 142. 
    If Real GDP is less than Natural Real GDP, the economy is in
    • A. 

      An inflationary gap.

    • B. 

      A recessionary gap.

    • C. 

      An unemployment gap.

    • D. 

      A real gap.


  • 143. 
    If the SRAS curve intersects the AD curve to the left of Natural Real GDP, the economy is
    • A. 

      In a recessionary gap.

    • B. 

      At Natural Real GDP.

    • C. 

      In an inflationary gap.

    • D. 

      At full-employment Real GDP.


  • 144. 
    If Real GDP is greater than Natural Real GDP, the economy is in a(n)
    • A. 

      Frictional gap.

    • B. 

      Structural gap.

    • C. 

      Recessionary gap.

    • D. 

      Inflationary gap.


  • 145. 
    If the natural unemployment rate is 5 percent and the current unemployment rate is 6 percent, then the economy is
    • A. 

      Producing more Real GDP than it does at full employment.

    • B. 

      In an inflationary gap.

    • C. 

      Producing less Real GDP than it does at full employment.

    • D. 

      A and b

    • E. 

      B and c


  • 146. 
    If the economy is in a recessionary gap,
    • A. 

      Real GDP is greater than Natural Real GDP.

    • B. 

      Real GDP is equal to Natural Real GDP.

    • C. 

      Real GDP is less than Natural Real GDP.

    • D. 

      The (actual) unemployment rate is less than the natural unemployment rate.

    • E. 

      A and d


  • 147. 
    Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP. Which of the following is true?
    • A. 

      The economy is in an inflationary gap.

    • B. 

      The economy is in a recessionary gap.

    • C. 

      The economy is in long-run equilibrium.

    • D. 

      This situation is actually impossible.


  • 148. 
    An inflationary gap exists when AD and SRAS
    • A. 

      Fail to intersect.

    • B. 

      Intersect to the right of Natural Real GDP.

    • C. 

      Intersect to the left of Natural Real GDP.

    • D. 

      Both have a positive slope.


  • 149. 
    According to Say's law,
    • A. 

      If there is demand for a good, someone will supply it.

    • B. 

      Production creates demand sufficient to purchase all goods and services produced.

    • C. 

      Supply and demand work together to determine price.

    • D. 

      Trading takes longer in a barter economy than in a money economy.

    • E. 

      None of the above


  • 150. 
    According to the classical theorists, it is impossible to have
    • A. 

      A surplus of a particular product.

    • B. 

      A shortage of a particular product.

    • C. 

      A decrease in the demand for a product.

    • D. 

      A decrease in the supply of a product.

    • E. 

      General overproduction of products.


  • 151. 
    According to classical economists, the relationship between the amount of funds firms plan to invest and the interest rate is
    • A. 

      Direct

    • B. 

      Inverse.

    • C. 

      Indirect

    • D. 

      Independent


  • 152. 
    According to classical economists, the relationship between the amount of funds households plan to save and the interest rate is
    • A. 

      Indirect.

    • B. 

      Inverse

    • C. 

      Direct

    • D. 

      Independent


  • 153. 
    According to Say's law, there can be
    • A. 

      Neither a general overproduction nor a general underproduction of goods.

    • B. 

      A general overproduction but not a general underproduction of goods.

    • C. 

      A general underproduction but not a general overproduction of goods.

    • D. 

      Both a general overproduction and a general underproduction of goods.


  • 154. 
    Say's law says
    • A. 

      Demand creates its own supply.

    • B. 

      The more supply there is, the lower prices are.

    • C. 

      Supply creates supply.

    • D. 

      Supply creates its own demand.

    • E. 

      None of the above


  • 155. 
    Which of the following is not consistent with a self-regulating economy?
    • A. 

      Flexible prices

    • B. 

      Flexible wages

    • C. 

      A labor market in which wages fall if there is a surplus

    • D. 

      A labor market in which wages rise if there is a shortage

    • E. 

      None of the above; that is, all are consistent with a self-regulating economy.


  • 156. 
     If the economy is self-regulating and in a recessionary gap,
    • A. 

      Wages and prices will fall.

    • B. 

      Wages will fall, but prices will rise.

    • C. 

      Neither wages nor prices will change.

    • D. 

      Wages will rise, but prices will fall.

    • E. 

      Wages and prices will rise.


  • 157. 
    If the economy is self-regulating and in an inflationary gap,
    • A. 

      Wages and prices will fall.

    • B. 

      Wages will rise, but prices will fall.

    • C. 

      Wages and prices will rise.

    • D. 

      Wages will fall, but prices will rise.

    • E. 

      Neither wages nor prices will change.


  • 158. 
    The natural rate of unemployment exists at
    • A. 

      Some point within the interior of the PPF but outside the limits of the institutional PPF.

    • B. 

      Some point within the interior of the physical PPF, but we cannot locate it with more accuracy.

    • C. 

      Some point within the interior of the institutional PPF, but we cannot locate it with more accuracy.

    • D. 

      Every point on the institutional PPF.

    • E. 

      Every point on the physical PPF.


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