Q&A Hero

Q: Which of the following is included in GDP?A) A newly laid-off worker receives his $400 unemployment compensation check from the state government.B) A college senior receives a $1,000 graduation gift from a grandparent.C) You buy a $12 snow shovel to have on hand for the next snow storm.D) You purchase $300 worth of clothes from a thrift shop selling second -hand clothing.

Q: In the table shown above, the total cost of the market basket in 2010 wasA) $6.00. B) $8.50. C) $60.00. D) $85.00.

Q: When there is an increase in the duration of unemployment, the U.S. Congress typically responds by A) lowering income taxes. B) extending unemployment benefits. C) encouraging unemployed U.S. workers to seek employment overseas. D) redefining ʺunemployedʺ so the unemployment rate does not look so bad.

Q: Laws that make it difficult to start a new business lead to aA) high rate of economic growth. B) low rate of economic growth.C) more political freedom. D) laissez-faire.

Q: Unemployment that deviates from the natural rate of unemployment is referred to asA) frictional unemployment. B) cyclical unemployment.C) seasonal unemployment. D) structural unemployment.

Q: The income velocity of money is A) the time it takes to produce money. B) the time lag from when the Fed decides to increase the money supply until the effect takes place. C) the number of times per year a dollar is spent on final goods and services. D) the time it takes for monetary policy to have an effect on world financial markets.

Q: Suppose the Fed purchases $1 million in bonds in the open market. Explain how the money supply can increase by more than $1 million.

Q: A checking account balance in a commercial bank isA) part of the currency supply.B) a time deposit.C) not liquid enough to be considered money.D) an asset readily usable for most transactions.

Q: Today, U.S. government spending on entitlements represents of the total federal budget.A) about 10 percent B) less than 25 percentC) nearly 60 percent D) nearly 90 percent

Q: An increase in government spending without an accompanying increase in taxesA) does not increase aggregate demand.B) would effectively eliminate an inflationary gap. C) causes investment spending to increase.D) requires additional government borrowing.

Q: When real GDP is in equilibrium with no government and no international trade, A) real planned investment spending equals real planned saving.B) real planned investment equals real planned consumption spending. C) unplanned inventories are increasing.D) unplanned inventories are decreasing.

Q: According to Keynes, A) consumption is positively related to the interest rate. B) consumption is directly related to income but saving is inversely related to income. C) both consumption and saving are positively related to real disposable income. D) consumption is directly related to income but saving has no relationship with income.

Q: Keynesian economics predicts that if government policy makers deem current equilibrium realGross Domestic Product (GDP) to be ʺtoo low,ʺ then an appropriate policy action would be toA) do nothing, because the economy is self-adjusting.B) raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences.C) increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences.D) reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.

Q: The aggregate demand curve will shift to the left if A) people are more optimistic about their future. B) a reduction in the price level pushes down borrowing costs. C) government expenditures increase. D) the national incomes of our trading partners decrease.

Q: A system of private property rightsA) enhances economic growth by creating incentives to the Fed to maintain stable prices. B) enhances economic growth by increasing the probability that a person can gain from making investments today.C) retards economic growth by serving the interests of the wealthy only.D) retards economic growth by limiting the options of people who own nothing.

Q: Suppose nominal GDP in Canada increased by 5% in 2010. Given this information, we know with certainty thatA) the aggregate price level in Canada increased in 2010. B) real GDP in Canada increased in 2010 .C) both the aggregate price level AND real GDP increased in Canada in 2010.D) more information is needed to answer this question.

Q: Which one of the following is NOT included in GDP?A) You look after your neighborʹs plants during her vacation in exchange for her agreement to feed your fish while you are gone.B) A homeowner hires a cleaning service to take care of household chores she chooses not to do because of the demands of her job.C) A bicycle manufacturer pays an advertising agency to develop a new promotional campaign.D) You purchase new tires for your old car.

Q: In the table shown above, the total cost of the market basket of commodities in 2005 wasA) $6.00. B) $8.50. C) $60.00. D) $85.00.

Q: The number of people that are fired in a month isA) a stock. B) a flow.C) both a stock and a flow. D) neither a stock nor a flow.

Q: The right to openly support and to elect leaders in a democratic way is known asA) political freedom. B) economic freedom. C) constitutional freedom. D) external freedom.

Q: If everyone in the economy correctly anticipates the inflation rate, the unemployment rateA) will be the natural rate of unemployment. B) will be the cyclical rate of unemployment.C) will be inversely related to the expected inflation rate. D) will be positively related to the expected inflation rate.

Q: A decrease in the supply of money will, according to the quantity theory of money, lead to A) a higher price level. B) a higher nominal Gross Domestic Product (GDP). C) a lower real Gross Domestic Product (GDP). D) a lower price level.

Q: Explain what happens to the money supply when the Fed sells bonds on the open market. What happens to the assets and liabilities of the Fed?

Q: Checking accounts are included inA) certificates of deposit. B) currency.C) lines of credit. D) M1.

Q: Guaranteed benefits under government programs such as Social Security or Medicare are calledA) discretionary spending. B) controllable expenditures. C) entitlements. D) automatic stabilizers.

Q: A government proposal to increase marginal tax rates on the wealthiest 2 percent of U.S. residents is supposed to generate an additional $100 billion in tax revenues. It is likely thatA) the actual revenue raised will exceed the $100 billion, because the other 98 percent of the population will increase their work effort with a more fair tax system.B) the actual revenue raised will be more than $100 billion, because the short -run aggregate supply curve is upward sloping.C) the actual revenue raised will be less than $100 billion, because some of the people will respond by working less and earning less income that can be taxed.D) the actual revenue raised will be close to $100 billion, because the wealthy donʹt respond to work incentives the way poorer workers do.

Q: Autonomous real investment spending isA) the level of investment expenditure required to keep the economy expanding at its current growth rate.B) the level of investment expenditure that is independent of real GDP.C) the level of investment expenditure required to replace capital lost to depreciation. D) the level of investment expenditure that would prevail if interest rates were zero.

Q: The consumption function shows how muchA) households plan to consume per year at each level of real disposable income. B) households plan to consume per year at each possible interest rate.C) real disposable income people will earn at each income tax bracket. D) households plan to consume per year at each level of savings.

Q: Keynes suggested that the short-run aggregate supply (SRAS) curveA) is vertical. B) is horizontal.C) slopes downward. D) is not a relevant concept.

Q: Which of the following will NOT shift the aggregate demand curve? A) a change in the domestic marginal tax rates B) a change in government expenditures C) a change in the domestic price level D) depreciation in the value of the national currency

Q: The more certain private property rights are, A) the less people need to invest in education or human capital development. B) the less entrepreneurship there will be. C) the more capital accumulation there will be. D) the more an economy must grow to maintain a certain living standard.

Q: If a nationʹs nominal GDP is $3,257 million and its price level is 132, then its real GDP isA) $4.05 million. B) $24.67 million.C) $4299.24 million. D) $2467.42 million.

Q: Which one of the following is NOT included in GDP?A) You pay a roofer $3,000 to repair your roof after it is damaged in a hailstorm.B) You pay a roofer $3,000 to repair your roof after you discover leaks have appeared due to normal wear and tear.C) You give up a weekend of leisure to repair your roof yourself.D) You purchase $60 worth of first aid supplies at the local drugstore to treat the cuts and scrapes you suffered while crawling around on the roof.

Q: The purchasing power of the dollarA) increases as the price of basic goods and services increases.B) is the amount of goods and services that can be purchased with the dollar. C) has been rising in the United States since 1945.D) has remained unchanged in the last 20 years.

Q: Which of the following is a stock variable? The number ofA) unemployed people. B) reentrants. C) job losers. D) job leavers.

Q: The general set of rights to own private property and exchange goods, services, and financial assets with minimal government interference is defined asA) capitalism. B) market socialism.C) economic freedom. D) economic privilege.

Q: Refer to the above figure. The economy initially is at point A. The Fed unexpectedly increases the money supply. Which of the following statements are true?A) In the short run, the economy will move from point A to point C. In the long run, the economy will move to point B.B) In the short run, the economy will move from point A to point C. In the long run, the economy will move back to point A.C) In the short run, the economy will move from point A to point B. In the long run, the economy will stay at point B.D) In the short run, the economy will move from point A to point B. In the long run, the economy will move back to point A.

Q: According to the quantity theory of money, an excess quantity of money supplied will lead toA) a reduction in spending and higher interest rates.B) a reduced level of real Gross Domestic Product (GDP).C) a higher level of employment. D) a higher price level.

Q: As far as reserves and deposits are concerned, describe the assets and liabilities of a bank.

Q: The largest component of M1 isA) transaction deposits. B) currency and coins.C) travelers checks. D) savings accounts.

Q: The largest expenditure component of the federal budget is spending onA) the military. B) entitlement programs. C) environmental protection programs. D) foreign aid.

Q: Supply-side economicsA) promotes expansionary fiscal policy by increasing government spending.B) promotes reducing taxes to create incentives to increase productivity.C) promotes increasing taxes to create additional revenue for government spending. D) is based on the Ricardian equivalence theorem.

Q: Suppose that there is no government and no international trade. When C + I is less than the level of real GDP,A) unplanned inventories decrease, and real GDP expands. B) unplanned inventories increase, and real GDP contracts.C) unplanned inventories equal zero, and there is no change in the level of real GDP.D) real planned investment spending equals real planned saving.

Q: According to Keynes, an individualʹs level of saving is primarily determined byA) the interest rate.B) the individualʹs current level of disposable real income.C) the individualʹs assessment of the future direction of the stock market. D) real Gross Domestic Product (GDP) for the economy.

Q: In an economic downturn, sticky wages and prices reduce the economyʹs speed of adjustment becauseA) businesses are unable to adjust quickly to changes in aggregate demand. B) they cause deflation.C) hyperinflation will likely occur.D) union workers would likely quit and look for work elsewhere.

Q: All of the following would cause the aggregate demand curve to shift EXCEPT A) a rise in real interest rates.B) an increase in taxes.C) improvements in economic conditions in other countries.D) a decrease in the price level.

Q: Which of the following will NOT lead to increased capital investment within a country? A) Increased uncertainty about private property rights B) Increased certainty about private property rights C) The decreased possibility of nationalization of private property D) Increased certainty about being able to reap the gains from investing

Q: YearNominal GDPPrice DeflatorReal GDP2000$3405.087.2 2001 91.0$4146.220024038.794.4 2003 96.94405.220044539.9 4539.920054900.4103.9 2006 108.54839.420075222.2113.1 2008 117.84819.620095967.1 4923.620106158.8122.9 Refer to the above table. Real GDP for year 2007 wasA) $4819.6 billion. B) $5222.2 billion.C) $4617.3 billion. D) uncertain without more information.

Q: Which of the following is a main limitation of GDP?A) GDP figures are grossly inaccurate due to sampling errors.B) The real definition of what is and is not included in GDP is unclear. C) GDP is not a good measure of a nationʹs overall welfare.D) GDP includes some products, which by their very nature are bad products, such as military weapons.

Q: The government agency which has been given the task of calculating the Consumer Price Index (CPI) isA) the Bureau of Economic Research. B) the Department of State.C) the Council of Economic Advisors. D) the Bureau of Labor Statistics.

Q: Which category of unemployed individuals makes up the greatest share of those who are unemployed?A) New entrants B) Reentrants C) Job losers D) Job leavers

Q: Which of the following is the term used to describe the expansion of a countryʹs per capita real GDP?A) economic growth B) technological changeC) change in the labor force D) change in factor incomes

Q: Policymakersʹ attempts to use the Phillips curve to reduce the unemployment rate below the natural rateA) will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate.B) will be successful if monetary policy is used.C) will be unsuccessful if monetary policy is used since monetary policy leads to higher prices.D) will be unsuccessful since workersʹ expectations adjust to attempts to reduce unemployment below the natural rate.

Q: According to the equation of exchange, if V = 5, P = 3, and Y = $50, then the money supply equalsA) $10. B) $30. C) $150. D) $300.

Q: What are reserves? Discuss the various types of reserves used in the U.S. banking system.

Q: Which of the following is NOT included in M1?A) transaction deposits B) currencyC) small time deposits D) travelers checks

Q: Why is it unlikely that tax increases will be the way to eliminate current U.S. federal budget deficits?A) Increasing every workerʹs taxes by the same amount could eliminate the deficit, but it is likely this action would be viewed as too burdensome for workers with modest incomes. B) The revenues generated by increasing taxes on the rich would only pay for a small portion of the federal budget deficit in any recent year.C) Since World War II, on average when taxes were increased by a dollar, federal government spending increased by that much and more. D) All of the above.

Q: The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply isA) supply-side economics. B) demand-side economics.C) the Ricardian equivalence theorem. D) consistent with crowding out.

Q: When graphing the consumption function, we include a 45 -degree reference line. What is true at the points at which the consumption function crosses this line?A) Planned real saving is zero.B) Planned real consumption spending is zero.C) Real disposable income is zero. D) Real GDP is zero.

Q: According to Keynes, the primary determinant of a personʹs saving is NOT A) the personʹs level of income but the desired real income of the person.B) the personʹs level of savings but the expected interest rate in the near future. C) the interest rate but the level of savings the person has.D) the interest rate but the level of the personʹs real disposable income.

Q: The Keynesian short-run aggregate supply (SRAS) curveA) shows that real Gross Domestic Product (GDP) will increase only if the price level increases.B) assumes a full-employment level of real Gross Domestic Product (GDP). C) is horizontal.D) does not reflect any changes in nominal Gross Domestic Product (GDP).

Q: Which one of the following would NOT increase aggregate demand? A) an increase in long-run aggregate supply B) a reduction in real interest rates C) tax decreases D) an increase in the amount of money in circulation

Q: Of the following views on the effects of immigration on the receiving nationʹs economic growth, which have NOT been suggested by economists Michael Kremer and Julian Simon?A) Technological progress is driven by population growth.B) Immigrants raise the standard of living of a nationʹs native population. C) Immigration increases a nationʹs labor pool and encourages ingenuity.D) Immigration costs the local population jobs and greatly lowers their incomes.

Q: YearNominal GDPPrice DeflatorReal GDP2000$3405.087.2 2001 91.0$4146.220024038.794.4 2003 96.94405.220044539.9 4539.920054900.4103.9 2006 108.54839.420075222.2113.1 2008 117.84819.620095967.1 4923.620106158.8122.9 Refer to the above table. The nominal GDP for 2008 isA) $4819.6. B) $4091.3.C) $5677.5. D) Uncertain without more information.

Q: When considering GDP as a measure of the nationʹs economic performance, which of the following statements is NOT true?A) GDP is a good measure of a nationʹs overall welfare.B) GDP is useful to map changes in the economyʹs domestic economic performance over time.C) GDP is underestimated because it does not include illegal activities.D) GDP would be a better measure of economic performance if it included nonmarket activities.

Q: The price index for any designated base year must always equalA) the CPI for that year. B) 0.C) 100.D) one divided by the nominal price change for the year.

Q: Increases in the duration of unemployment mayA) reflect a general downturn in economic activity that depresses job openings.B) increase the number of discouraged workers.C) increase the unemployment rate. D) all of the above.

Q: The per capita real GDP is theA) rate of growth in real GDP plus the population growth rate. B) real GDP divided by the population.C) rate of growth in real GDP times the population growth rate. D) rate of growth in real GDP minus the population growth rate.

Q: Refer to the above figure. Suppose the natural rate of unemployment is 5 percent. If the government tried to reduce unemployment to 4 percent and keep it there, it mustA) raise unemployment benefits.B) accept a permanent inflation rate of 1 percent.C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent.D) use contractionary fiscal and expansionary monetary policy.

Q: The velocity of money A) is, according to the equation of exchange, equal to P/M. B) indicates the number of times per year a dollar is spent on final goods and services. C) is, according to the equation of exchange, equal to M/Y. D) indicates the speed with which the U.S. Treasury can mint new coins.

Q: What is a fractional reserve banking system? How long has the fractional reserve banking system been in existence?

Q: Suppose your $50,000 certificate of deposit matures and you transfer the funds to your checking account. This causesA) M1 to decrease by $50,000 and M2 to increase by $50,000.B) M1 to increase by $50,000 and M2 to remain the same. C) both M1 and M2 to increase by $50,000.D) no change to either M1 or M2.

Q: One of the long-run effects of higher government budget deficits isA) a redistribution of real Gross Domestic Product (GDP) away from government -provided goods and toward more privately provided goods.B) an increase in the governmentʹs share of the nationʹs economic activity.C) growth in the economyʹs private sector at the same time the government sector shrinks. D) a fall in the equilibrium price level.

Q: According to supply-side economics, lower tax rates on wagesA) generate higher revenues for the government and increased unemployment.B) create incentives to work more, which increases real GDP. C) are less productive than lower tax rates on consumers.D) have little effect on the economy.

Q: In the above figure, what is the equilibrium level of real consumption spending?A) $0.0 trillion B) $1.0 trillion C) $2.0 trillion D) $3.0 trillion

Q: Saving equalsA) disposable income minus taxes.B) disposable income minus consumption spending. C) disposable income minus savings.D) consumption spending minus savings.

Q: The Keynesian portion of the short-run aggregate supply (SRAS) curve impliesA) an upward slope. B) no price level changes.C) a downward slope. D) flexible prices and wages.

Q: Which of the following will cause a leftward shift in the aggregate demand curve?A) a reduction in the money supply B) an increase in taxesC) a reduction in government spending D) all of the above

Q: Explain Paul Romerʹs ideas concerning economic growth.

Q: YearNominal GDPPrice DeflatorReal GDP2000$3405.087.2 2001 91.0$4146.220024038.794.4 2003 96.94405.220044539.9 4539.920054900.4103.9 2006 108.54839.420075222.2113.1 2008 117.84819.620095967.1 4923.620106158.8122.9 Refer to the above table. Between 2009 and 2010 real GDPA) increased by $191.7 billion. B) increased by $1.7 billion.C) increased by $87.6 billion. D) increased by $158.2 billion.