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Potential GDP refers to
A) the extent to which real GDP is above or below nominal GDP.
B) the difference between the highest level of real GDP per quarter and the lowest level of real GDP per quarter within any given year.
C) the level of GDP attained by the country with the highest growth in real GDP in a given year.
D) the level of GDP attained when all firms are producing at capacity.
State of being unemployed.
What are recent trends in gender as it relates to the LFPR?
leaving one job and looking for another that is better
"Take this job and shove it"
workers are being replaced with technology that is better than they are
"Horse and buggy drive"
"A computer took your job"
why is deflation bad
real gdp growth
real per capita gdp growth
importing more than exporting
Starting in long-run equilibrium when the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0, if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and a movement to a short-run equilibrium at point _____.
A) a leftward shift in AD1; a
B) a rightward shift in AD1; c
C) a rightward shift in SRAS2; c
D) a leftward shift in SRAS2; a
If you earn additional $500 in disposable income one week for painting your neighbors house, A) the total of your consumption and saving will increase by $500.
B) your consumption will increase by more than $500, even if your MPS is 0.1.
C) the total of your consumption and saving will increase by less than $500.
D) the total of your consumption and saving will increase by more than $500.
If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011
A) is 3.0%.
B) is 3.6%.
C) is 3.75%.
D) cannot be determined from the information given.
A falling aggregate price level ____ demand for a country's exports and therefore _____ output demanded.
A) increases; increases
B) increases; reduces
C) reduces; increases
D) reduces; reduces
From an aggregate expenditure model we know the following: C = 500 + 0.8Y
The equilibrium level of GDP is equal to:
A)150 B)500) C)3150 D)3250 E)4500
A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.
A) left; decrease
B) left; increase
C) right; increase
D) right; decrease
Figure: Determining SRAS Shifts) If there is an increase in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____.
A) SRAS1; P0
B) SRAS1; P1
C) SRAS2; P1
D) SRAS2; P2
Which of the following would encourage economic growth through increases in the capital stock? A) an increase in household saving
B) a change from an income tax to a consumption tax
C) a decrease in the government deficit
D) all of the above
Refer to Figure 8.1. An increase in the amount of consumption this household makes when this household's income is zero
A) shifts the saving function downward. B) shifts the consumption function downward.
C) makes the saving function flatter. D) makes the consumption function steeper.
A(n) __________ in government spending, a __________ domestic currency, and ________ interest rates will shift a country's aggregate demand to the left.
A) decrease; stronger; higher
B) increase; weaker; higher
C) increase; stronger; lower
D) decrease; weaker; lower
If aggregate output is greater than planned spending, then
A) unplanned inventory investment is positive. B) unplanned inventory investment is negative. C) actual investment equals planned investment.D) unplanned inventory investment is zero.
What two factors are the keys to determining labor productivity? A) the growth rate of real GDP and the interest rate
B) the business cycle and the growth rate of real GDP
C) the average level of education of the workforce and the price level D) technology and the quantity of capital per hour worked
Other things equal, when the U.S. aggregate price level falls, U.S. exports _______ and U.S. imports ________.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise
From an aggregate expenditure model we know the following:
C = 500 + 0.8Y
The multiplier is equal to:
A) 0.8 B) 2 C) 4 D) 5
If consumers decide to be more frugal and save more out of their income, then this will cause A) a movement to the right along the supply curve for loanable funds.
B) a shift in the supply curve for loanable funds to the left.
C) a movement to the left along the supply curve for loanable funds.
D) a shift in the supply curve for loanable funds to the right.
Refer to Figure 10-4. Which of the following is consistent with the graph depicted? A) an increase in tax revenues collected by the government
B) an increase in household income
C) an increase in the proportion of income after net taxes used for consumption
D) an increase in transfer payments to households
________ taxes and ________ interest rates in the United States, along with ___________ incomes in other countries, will shift the U. S. aggregate demand curve to the right.
A) Decreasing; rising; rising
B) Increasing; falling, rising
C) Decreasing; falling, rising
D) Decreasing; falling, fallingC
If government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the following is true?
A) Public saving is $500 million. B) The budget deficit is $500 million.
C) The budget deficit is $100 million. D) Public saving is $100 million.
Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred?
There was an unplanned increase in inventories equal to $2 million.
If oil prices decrease, the short-run aggregate supply curve shifts _____ and output supplied will be _____.
A) left; increased
B) left; reduced
C) right; increased
D) right; reduced
An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.
A) real GDP; real GDP B) the price level; the price level
C) the price level; real GDP D) real GDP; the price level
Refer to Figure 12-1. If the economy is at point L, what will happen?
A) Inventories have fallen below their desired level, and firms decrease production. B) Inventories have fallen below their desired level, and firms increase production. C) Inventories have risen above their desired level, and firms increase production. D) Inventories have risen above their desired level, and firms decrease production.
A breakthrough in solar energy research that halves the cost of electricity will:
A) have no effect on the aggregate supply curve.
B) shift the aggregate supply curve to the right.
C) shift the aggregate supply curve to the left.
D) cause the aggregate supply curve to become vertical.
How would the equilibrium interest rate respond to a change from an income tax to a consumption tax?
A) The equilibrium interest rate may rise or fall based on whether the demand or supply of loanable funds changes. B) The equilibrium interest rate would be unaffected.
C) The equilibrium interest rate would fall.
D) The equilibrium interest rate would rise.
Which of the following will shift the aggregate supply curve to the right?
A) the development of a cartel in the production of soybeans
B) an increase in corporate taxes
C) increased investment in human capital
D) an increase in the price of garbage collection
A good measure of the standard of living is
A) nominal GDP per capita. B) total nominal GDP. C) real GDP per capita. D) total real GDP.
If Inventory investment is higher than firms planned, A) actual investment must be negative.
B) actual investment is less than planned investment.
C) actual and planned investment are equal.
D) actual investment is greater than planned investment.
Which of the following is an investment?
A) the purchase of a corporate bond by a household B) the purchase of a new printing press by a business C) the purchase of a share of stock by a household D) a leveraged buyout of one corporation by another
In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
A) C + G -T B) Y - T + TR C) Y - C - T D) Y - C - G
If consumption is $10,000 when income is $10,000, and consumption increases to $11,000 when income increases to $12,000, the MPS is
A) 0.10. B) 0.25. C) 0.50. D) 0.90.
The MPC is
A) the change in consumption divided by the change in income. B) consumption divided by income.
C) the change in consumption divided by the change in saving. D) the change in saving divided by the change in income.
In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G =Government purchases, T = Taxes, and TR = Transfers)
A) Y + TR - C - T B) Y - G - T C) Y - C - T D) Y - G - T + TR
If autonomous consumption increases, the size of the multiplier would
A) either increase or decrease depending on the size of the change in autonomous consumption. B) increase.
D) remain constant.
Why does the short-run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?
A) Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices. B) Workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices. C) Workers and firms adjust their expectations of wages and prices downward and they push for higher wages and prices.
D) Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and prices.
Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds. A) demanders; demanders B) suppliers; demanders
C) suppliers; suppliers D) demanders; suppliers
Spending on the war in Afghanistan is essentially categorized as government purchases. spending on the war in Afghanistan affect the aggregate demand curve?
A) They will shift the aggregate demand curve to the left.
B) They will move the economy down along a stationary aggregate demand curve.
C) They will shift the aggregate demand curve to the right.
D) They will move the economy up along a stationary aggregate demand curve.
How do increases in
Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle.
A) increase; decrease B) decrease; decrease further
C) decrease; increase D) increase; increase further
The demand for durable goods
A) declines by a greater percentage than does GDP during a recession. B) rises by a greater percentage than does GDP during a recession.
C) declines by a smaller percentage than does GDP during a recession. D) has decreased over time.
The aggregate expenditure model focuses on the ________ relationship between real spending and ________. A) short-run; inflation B) long-run; real GDP
C) short-run; real GDP D) long-run; inflation
If Wanda's income is reduced to zero after she loses her job, her consumption will be ________ and her saving will be ________.
A) greater than zero; greater than zero B) less than zero; less than zero
C) less than zero; greater than zero D) greater than zero; less than zero
Assume that inventories declined by more than analysts predicted. This implies that A) planned aggregate expenditure is unrelated to real GDP.
B) planned aggregate expenditure was equal to real GDP.
C) planned aggregate expenditure was less than real GDP.
D) planned aggregate expenditure was greater than real GDP.
The ratio of the increase in ________ to the increase in ________ is called the multiplier. A) equilibrium real GDP; autonomous expenditure
B) autonomous expenditure; equilibrium real GDP
C) equilibrium nominal GDP; autonomous expenditure
D) induced expenditure; equilibrium real GDP
Workers expect inflation to rise from 3% to 5% next year. As a result, this should A) move the economy up along a stationary short-run aggregate supply curve.
B) move the economy down along a stationary short-run aggregate supply curve.
C) shift the short-run aggregate supply curve to the right.
D) shift the short-run aggregate supply curve to the left.
Related to the Economics in Practice on p. 472: According to the "paradox of thrift," as individuals increase their saving, A) income in the economy increases because interest rates will fall and the economy will expand.
B) income in the economy increases because there is more money available for firms to invest.
C) income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.
D) income in the economy will remain constant because the change in consumption equals the change in saving.
When the government runs a budget deficit, we would expect to see that A) public saving is positive. B) private saving will fall.
C) G + TR < T. D) investment will fall.
Which of the following is one explanation as to why the aggregate demand curve slopes downward? A) Decreases in the price level raise the interest rate and increase investment spending.
B) Decreases in the price level raise the interest rate and increase consumption spending.
C) Decreases in the U.S. price level relative to the price level in other countries lower net exports.
D) Decreases in the price level raise real wealth and increase consumption spending.
Firms react to unplanned increases in inventories by
A) increasing consumption. B) reducing output.
C) increasing output. D) increasing planned investment.
An increase in aggregate demand results in a(n) ________ in the ________. A) expansion; long run B) recession; long run
C) recession; short run D) expansion; short run
From an aggregate expenditure model we know the following:
C = 500 + 0.8Y
The equilibrium level of consumption is equal to: A)150 B)500) C)3150 D)3250 E)4500
Economic growth happens when:
1. we develop better technologies for producing goods and services
2. improve the quality of labor by education, on-the-job training, and work experience
3. acquire more machines to help us produce
the value of output in 2010 was around $14.6 trillion.
B. total income in 2010 was around $14.6 trillion. -- Your Answer
C. total spending in 2010 was around $14.6 trillion.
D. all of the above are true. -- Correct Answer
All of the following are true statements about the multiplier except
The multiplier makes the economy less sensitive to changes in autonomous expenditure.
________ consumption is consumption that does not depend upon the level of GDP.
How does a decrease in government spending affect the aggregate expenditure line?
It shifts the aggregate expenditure line downward.
6) Economies where goods and services are traded directly for other goods and services are called ________ economies.
little to no intrinsic value and is authorized by the central bank or governmental body.
8) The largest proportion of M1 is made up of
checking account deposits.
vault cash and deposits with the Federal Reserve.
10) If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to
11) If the central bank can act as a lender of last resort during a banking panic, banks can
satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.
13) A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.
14) The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by
the level of aggregate expenditure.
14) The aggregate expenditure model focuses on the ________ relationship between real spending and ________.
short-run; real GDP
Actual investment spending does not include
spending on consumer durable goods.
If inventories decline by more than analysts predict they will decline, this implies that
actual investment spending was greater than planned investment spending.
At macroeconomic equilibrium,
total spending equals total production.
If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?
Inventories will rise, and GDP and employment will decline.
The five most important variables that determine the level of consumption are
disposable income, wealth, expected future income, price level, and interest rate
Examples of assets that are included in household wealth would be
stocks, bonds, and savings accounts.
The slope of the consumption function is equal to
the change in consumption divided by the change in disposable income.
If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is
Refer to Table above. Given the consumption schedule in the table above, the marginal propensity to save is
If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will
decrease consumption by $7,500.
If firms are more optimistic that future profits will rise and remain strong for the next few years, then
investment spending will rise.
________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding.
29) To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could
buy Treasury securities.
30) On the 45-degree line diagram, for points that lie below the 45-degree line,
planned aggregate expenditure is less than GDP.
Refer to Figure above. If the economy is at a level of aggregate expenditure given by point K,
the economy is in equilibrium.
Refer to Figure above. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?
If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then
the multiplier is 8.
30) Which of the following is a true statement about the multiplier?
The multiplier rises as the MPC rises.
John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,
this may benefit the economy in the long run, but could be counterproductive in the short run.
In economics, money is defined as
any asset people generally accept in exchange for goods and services.
Which of the following is one of the most important benefits of money in an economy?
Money makes exchange easier, leading to more specialization and higher productivity.
Which of the following functions of money would be violated if inflation were high?
The Federal Reserve's narrowest definition of the money supply is
Refer to Scenario above. M2 in this simple economy equals
If the marginal propensity to save is 0.4, the multiplier is 2.5.
Money will fail to serve as a medium of exchange if it ceases to be a store of value.
Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports.
When Jack's income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to consume is 0.85.
When the dollar becomes stronger compared to the Japanese Yen, then the Japanese imports from the U.S. will increase.
Economies cannot function without money.
The amount of national income in an economy equals the money supply in an economy.
Liquidity increases as we move from the M1 to the M2 definition of the money supply.
If gold is used as money in an economy, the money supply is easy to control.
Commodity money can be used only as a medium of exchange.
What can serve as money? (5 criteria a good must meet)
1) must be acceptable to most people
2) should be of standardized quality so that two units are identical
3) should be durable
4) should be valuable relative to its weight
5) should be divisible so that it can be used to purchase both low and hig
Refer to Figure above. If the market price is $1.00, what is Arnold's consumer surplus?
Which country has a comparative advantage in the production of cotton?
A. a change from an income tax to a consumption tax
B. an increase in household saving
C. a decrease in the government defici
D. all of the above---Answer