Economics Review Chapters 13-17
Review of Chapters 12-17 in "Principles of Macroeconomics."
- 1.
After the Great Depression of the 1930's and particularly since World War II until the 1970's, the ideas of the ____ school became conventional wisdom.
- A.
Classical
- B.
Keynesian
- C.
Monetarism
- D.
Supply-side
- E.
Rational expectation
Correct Answer
B. KeynesianExplanation
After the Great Depression and World War II, the ideas of the Keynesian school of economics became widely accepted. Keynesian economics emphasizes the importance of government intervention in the economy to stimulate growth and stabilize fluctuations. This approach was seen as a solution to the economic challenges faced during the time period mentioned.Rate this question:
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- 2.
In the view of the classical school, unemployment
- A.
Is a permanent condition
- B.
Disappears when everyone who is willing to work at the equilibrium wage finds employment
- C.
Exists because people do not interfere with the competitive process
- D.
Is only temporary because all wages and prices are rigid
- E.
Is necessary and not really harmful to the economy
Correct Answer
B. Disappears when everyone who is willing to work at the equilibrium wage finds employmentExplanation
According to the classical school, unemployment disappears when everyone who is willing to work at the equilibrium wage finds employment. This implies that in a perfectly competitive market, where wages are determined by the equilibrium between labor supply and demand, there will be no involuntary unemployment. In other words, if individuals are willing to work at the prevailing wage rate, they will be able to find employment, leading to the disappearance of unemployment.Rate this question:
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- 3.
The Phillips curve traces a set of combinations of rates of
- A.
Interest and unemployment
- B.
Real GDP and inflation
- C.
Real GDP and interest
- D.
Inflation and interest
- E.
Unemployment and inflation
Correct Answer
E. Unemployment and inflationExplanation
The Phillips curve shows the relationship between unemployment and inflation. It suggests that when unemployment is low, inflation tends to be high, and vice versa. This is because when the economy is at full employment, wages and prices tend to rise as demand for goods and services increases. Conversely, when there is high unemployment, there is less pressure on wages and prices, leading to lower inflation. Therefore, the correct answer is unemployment and inflation.Rate this question:
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- 4.
When the economy enteres a prosperity phase personal income tax collections
- A.
Fall along with consumption and real GDP
- B.
Rise along with real GDP but unemployment insurance payments to workers fall
- C.
Rise but real GDP and unemployment insurance payments to workers fall
- D.
Fall along with real GDP but unemployment insurance payments to workers rise
- E.
Fall causing real incomes and employment to fall
Correct Answer
B. Rise along with real GDP but unemployment insurance payments to workers fallExplanation
During a prosperity phase in the economy, real GDP is increasing, indicating a growth in overall economic activity. As real GDP rises, personal income tax collections also increase since individuals are earning higher incomes. At the same time, consumption levels are also increasing, contributing to the rise in real GDP. However, unemployment insurance payments to workers fall during this phase as more individuals find employment and fewer people are in need of unemployment benefits. Therefore, the correct answer is that personal income tax collections rise along with real GDP, while unemployment insurance payments to workers fall.Rate this question:
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- 5.
City streets, sewage systems, and police protection are all examples of
- A.
Public goods
- B.
Private goods
- C.
Exclusive goods
- D.
Rival goods
- E.
Consumer goods
Correct Answer
A. Public goodsExplanation
City streets, sewage systems, and police protection are all examples of public goods. Public goods are goods or services that are non-excludable, meaning that once they are provided, it is difficult to exclude anyone from benefiting from them. Additionally, public goods are non-rivalrous, meaning that one person's use or enjoyment of the good does not diminish its availability for others. In the case of city streets, sewage systems, and police protection, these are all provided by the government and are accessible to all members of the public without exclusion or rivalry.Rate this question:
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- 6.
The highest expenditure on a security item found in national spending at the federal, state, and local level is on
- A.
Social Security
- B.
Fire
- C.
Corrections
Correct Answer
A. Social SecurityExplanation
The highest expenditure on a security item found in national spending at the federal, state, and local level is on Social Security. This is because Social Security is a government program that provides financial support to retired and disabled individuals, as well as to the families of deceased workers. It is a significant expenditure due to the large number of beneficiaries and the long-term nature of the benefits provided.Rate this question:
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- 7.
Social Security is financed, in part, by
- A.
Sales taxes
- B.
Excise taxes
- C.
Payroll taxes
- D.
Alcohol and cigarette taxes
- E.
State lotteries
Correct Answer
C. Payroll taxesExplanation
Social Security is primarily financed through payroll taxes. These taxes are deducted from employees' wages and matched by their employers. The funds collected from payroll taxes are then used to provide benefits to retired workers, disabled individuals, and the dependents of deceased workers. Sales taxes, excise taxes, alcohol and cigarette taxes, and state lotteries do not directly contribute to the financing of Social Security.Rate this question:
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- 8.
Contributions to and payments from Social Security
- A.
Represent transfers from the young to the elderly
- B.
Represent transfers from the elderly to the young
- C.
Are voluntary
- D.
Represent transfers from high-income to low-income people
- E.
Are part of the government's public goods purchases
Correct Answer
A. Represent transfers from the young to the elderlyExplanation
Contributions to and payments from Social Security represent transfers from the young to the elderly because the system is designed to redistribute income from current workers to retired individuals. The younger generation pays into the Social Security system through payroll taxes, and these funds are then used to provide benefits to the elderly population. This transfer of funds helps to support the financial well-being of older individuals who may no longer be working or have limited income, and it is intended to provide a form of social insurance for retirement.Rate this question:
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- 9.
The term used to describe the situation in which government spending causes interest rates to increase and private sector investment to fall is
- A.
Negative feedback
- B.
Crowding out
- C.
Positive pressure
- D.
Transfer of burden
- E.
Investment shift
Correct Answer
B. Crowding outExplanation
Crowding out refers to the situation when government spending increases, causing interest rates to rise and private sector investment to decrease. This occurs because the government borrows funds from the private sector, reducing the available funds for private investment. As a result, interest rates increase, making it more expensive for businesses and individuals to borrow and invest. This can lead to a decrease in overall investment and economic growth.Rate this question:
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- 10.
Unlike an internally held public debt, an externally held public debt
- A.
Cannot pass the debt burden on to future generations
- B.
Can pass the debt burden to future generations
- C.
Expires upon maturity
- D.
Cannot be reduced because foreigners hold the debt
- E.
Causes crowding out
Correct Answer
B. Can pass the debt burden to future generationsExplanation
An externally held public debt can pass the debt burden to future generations because it is held by foreign entities or individuals. This means that the interest payments and principal repayments on the debt will need to be made to these foreign creditors, potentially burdening future generations with the responsibility of paying off the debt. Unlike an internally held public debt, where the debt burden remains within the country and can be managed more easily, an externally held public debt transfers the burden to foreign entities, which can have long-term implications for the economy and future generations.Rate this question:
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- 11.
Compared to the rest of the industrial world, the United State's tax revenues
- A.
As a percent of GDP is the lowest
- B.
As a percent of GDP ranks among the highest
- C.
As a percent of GDP ranks among the lowest
- D.
As a percent of GDP is the highest
- E.
Is the lowest
Correct Answer
C. As a percent of GDP ranks among the lowestExplanation
The correct answer is "as a percent of GDP ranks among the lowest." This means that compared to other industrialized countries, the United States has relatively low tax revenues as a percentage of its Gross Domestic Product (GDP). In other words, the United States collects less tax revenue in proportion to the size of its economy compared to other countries in the industrial world.Rate this question:
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- 12.
When a person's income rises and the tax rate is constant, the tax is a
- A.
Regressive tax
- B.
Poll tax
- C.
Progressive tax
- D.
Head tax
- E.
Proportional tax
Correct Answer
E. Proportional taxExplanation
When a person's income rises and the tax rate is constant, the tax is considered proportional. This means that regardless of the individual's income level, they will pay the same percentage of tax. For example, if the tax rate is 10%, someone earning $50,000 would pay $5,000 in taxes, while someone earning $100,000 would pay $10,000. The tax burden increases proportionally with income.Rate this question:
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- 13.
A nation should specialize in the production of the good for which it has a(n)
- A.
Absolute advantage
- B.
Exchange rate
- C.
Specialization
- D.
Comparative advantage
- E.
Terms of trade
Correct Answer
D. Comparative advantageExplanation
A nation should specialize in the production of the good for which it has a comparative advantage. This means that the nation can produce the good at a lower opportunity cost compared to other goods. By specializing in the production of the good in which it is most efficient, the nation can maximize its overall production and trade with other nations to obtain goods that it cannot produce as efficiently. This allows for increased efficiency and overall economic growth.Rate this question:
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- 14.
Since the 1930's, average U.S. tariff rates on imports have
- A.
Risen dramatically
- B.
Risen slowly
- C.
Declined dramatically
- D.
Declined slowly
- E.
Remained about the same
Correct Answer
C. Declined dramaticallyExplanation
The correct answer is "declined dramatically". This is because since the 1930's, the average U.S. tariff rates on imports have decreased significantly. This decline can be attributed to various factors such as the promotion of free trade policies, the establishment of international trade agreements, and the recognition of the benefits of open markets. As a result, the U.S. has gradually reduced its tariff rates to encourage global trade and economic growth.Rate this question:
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- 15.
A tariff is a tax on _____ goods that is designed to ____.
- A.
Exported; protect domestic industries
- B.
Exported; hurt foreign industries
- C.
Imported; make domestic consumers pay more
- D.
Imported; protect domestic industries
- E.
Domestic; discourage imports
Correct Answer
D. Imported; protect domestic industriesExplanation
A tariff is a tax on imported goods that is designed to protect domestic industries. By imposing a tax on imported goods, the government aims to make them more expensive compared to domestically produced goods. This makes domestic industries more competitive and encourages consumers to purchase locally produced goods. The tariff acts as a barrier to foreign competition, allowing domestic industries to thrive and grow.Rate this question:
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- 16.
A lawyer once boasted, "I can fix my plumbing problem faster than that plumber." His friend replied, "Then why don't you fix it?" The lawyer explained: "Because
- A.
The plumber could practice law, and I prefer law."
- B.
I have an absolute advantage practicing law."
- C.
The plumber uses fewer labor resources."
- D.
The plumber is more efficient."
- E.
I have a comparative advantage practicing law."
Correct Answer
E. I have a comparative advantage practicing law."Explanation
The lawyer's statement about having a comparative advantage practicing law means that he believes he is more efficient or skilled in the practice of law compared to the plumber. This implies that he can generate more output or provide legal services more effectively than the plumber can. It does not necessarily mean that the lawyer is more efficient in fixing plumbing problems, but rather that his skills and abilities are better suited for practicing law.Rate this question:
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- 17.
An appreciation of Canadian currency means that
- A.
Canada's exports will become less expensive
- B.
Canada's imports will become more expensive
- C.
Canada's imports will become less expensive
- D.
It now requires more Canadian currency to exchange for one unit of another currency
- E.
It now requires less of other currencies to exchange for a unit of Canadian currency
Correct Answer
C. Canada's imports will become less expensiveExplanation
An appreciation of Canadian currency means that it now requires less of other currencies to exchange for a unit of Canadian currency. This implies that Canada's imports will become less expensive, as it will take fewer units of foreign currency to purchase a unit of Canadian currency.Rate this question:
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- 18.
If foreign exchange rates are determined by the interaction of supply and demand forces for the various currencies, then the exchange rate is
- A.
Fixed
- B.
Government determined
- C.
Set by the value of gold
- D.
Said to float
- E.
Not in equilibrium
Correct Answer
D. Said to floatExplanation
The correct answer is "said to float". When foreign exchange rates are determined by the interaction of supply and demand forces, the exchange rate is said to float. This means that the exchange rate is not fixed or determined by the government, and it is not set by the value of gold. Instead, it fluctuates based on market conditions and the balance between the supply and demand for different currencies. Floating exchange rates allow for more flexibility and adjustment in response to economic factors.Rate this question:
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- 19.
The current account in a balance of payments records
- A.
All money flows among countries
- B.
Exports and imports of goods and services
- C.
Only the international transaction involving capital goods
- D.
Only the international transactions involving consumer goods
- E.
Only exports and imports purchased on credit
Correct Answer
B. Exports and imports of goods and servicesExplanation
The current account in a balance of payments records exports and imports of goods and services. This means that it tracks the flow of money between countries resulting from the buying and selling of goods and services. It includes both exports (goods and services sold to other countries) and imports (goods and services purchased from other countries). This is an important measure of a country's international trade and economic activity.Rate this question:
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- 20.
If the United States government wants to eliminate an unfavorable balance of trade, it could
- A.
Reduce tariffs
- B.
Encourage imports
- C.
Reduce quotas on imports
- D.
Depreciate the dollar
- E.
Increase taxes on exported goods
Correct Answer
D. Depreciate the dollarExplanation
Depreciating the dollar would make US goods cheaper for foreign buyers, encouraging exports and reducing imports. This would help to decrease the unfavorable balance of trade, as it would increase the demand for US goods and decrease the demand for foreign goods.Rate this question:
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Dec 07, 2010Quiz Created by
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