Q&A Hero

Q: GDP does NOT measure the well-being of a nationʹs residents because itA) excludes the sale of secondhand goods.B) excludes the value of intermediate goods.C) includes the value of final goods and services produced in the economy.D) excludes nonmarket transactions.

Q: How has the pattern of movements in the U.S. price level changed since World War II?A) Periods of inflation have largely been eliminated. B) Periods of deflation have largely been eliminated.C) The annual rate of inflation has never risen above 3 percent. D) The price level has become more volatile.

Q: A person who previously had a full-time job has been paroled from prison and has applied for a job is consideredA) a reentrant. B) a job loser.C) a new entrant. D) not in the labor force.

Q: The right to private property and ability to exchange goods and services freely is known asA) political freedom. B) economic freedom. C) constitutional freedom. D) external freedom.

Q: Refer to the above figure. Suppose the economy is at C. If the government tried to reduce the unemployment rate to 3 percent, the new long -run outcome will be at pointA) A. B) C. C) D. D) H.

Q: According to both the equation of exchange and the quantity theory of money,A) an increase in the money supply will increase real Gross Domestic Product (GDP). B) an increase in the money supply will decrease real Gross Domestic Product (GDP). C) a decrease in the money supply will decrease the velocity of money.D) a decrease in the money supply will decrease the price level.

Q: Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits isA) $4,000,000. B) $10,000,000. C) $400,000. D) $25,000,000.

Q: Which of the following assets are counted in M2?A) goldB) balances in retail mutual funds accountsC) value of outstanding bondsD) lines of credit offered by commercial banks

Q: In the long run, what effect does a governmentʹs deficit spending have on equilibrium real Gross Domestic Product (GDP)?A) The governmentʹs deficit spending will increase equilibrium real Gross Domestic Product (GDP).B) Deficit spending will decrease the nationʹs equilibrium real Gross Domestic Product (GDP).C) Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.D) Equilibrium real Gross Domestic Product (GDP) will increase beyond the full-employment level and there will also be an inflationary effect.

Q: If the government wishes to promote a higher rate of growth of real GDP, a supply -side economist would argue the appropriate policy isA) engaging in expansionary fiscal policy by lowering marginal tax rates.B) engaging in expansionary fiscal policy of increasing government spending.C) lowering marginal tax rates on people and raising them on corporations.D) leaving the economy alone and letting the natural forces bring it into a long -run equilibrium.

Q: In the above figure, what is autonomous consumption?A) $0.0 trillion B) $1.0 trillion C) $2.0 trillion D) $3.0 trillion

Q: Dissaving occurs whenA) disposable income exceeds consumption.B) disposable income is less than consumption. C) the marginal propensity to save is less than .5.D) the marginal propensity to consume is less than .5.

Q: The simple Keynesian model assumes that A) gross private domestic investment exceeds net investment by the capital consumption allowance. B) prices, especially the price of wages, are ʺsticky downward.ʺ C) there will never be any excess capacity in the short run. D) aggregate demand will always equal aggregate supply.

Q: The aggregate demand curve would shift to the right as a result of A) a drop in the price level. B) tax increases. C) an increase in the U.S. real interest rate. D) a decrease in the amount of money in circulation.

Q: Would a new growth theorist expect economic growth to be very rapid in one of the Communist nations before the fall of Communism? Why or why not?

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 value of the GDP deflator in 2009 isA) 121.2. B) 122.1.C) 122.9. D) uncertain without more information.

Q: Which of the following is a significant weakness of GDP as a measure of the nationʹs economic performance?A) GDP excludes the secondhand good market because it is impossible to obtain an estimate of the amount sold.B) GDP excludes the value of the buying and selling of securities. C) GDP considers product and factor markets but not services.D) GDP excludes nonmarket production, such as black market activities.

Q: The GDP deflator is not a fixed -quantity price index, but the CPI is. What is the significance of this fact?A) The GDP deflator does not include enough items in its market basket. B) A base year cannot be defined for the GDP deflator.C) The GDP deflator reflects not only changes in prices, but also changes in consumption patterns as consumers substitute between goods.D) The GDP deflator overstates the true rate of inflation, whereas the CPI understates it.

Q: The U.S. Department of Labor classifies all individuals in the United States asA) labor force participants.B) either employed, unemployed, or not in the labor force. C) either overemployed or underemployed.D) potential employees.

Q: A reduction in the rate of population growth A) always causes an increase in economic growth. B) never causes an increase in economic growth. C) may or may not cause an increase in economic growth. D) will cause a reduction in economic growth if accompanied by an increase in the rate of growth of real GDP.

Q: Refer to the above figure. Government policy that moved the economy from A to B would be accomplished byA) an expansionary fiscal policy combined with a contractionary monetary policy. B) a contractionary fiscal policy combined with an expansionary monetary policy.C) a contractionary policy that would reduce the rate of inflation and would cause workers to remain unemployed longer than they were before. D) raising the minimum wage.

Q: The formula of the equation of exchange isA) MS = Y. B) MS = VPY. C) MSV = PY. D) MS/P = Y.

Q: An increase in the reserve ratioA) has an expansionary effect on the money supply.B) has a contractionary effect on the money supply. C) increases the money multiplier.D) will cause banks to make more loans.

Q: Which of the following assets are counted in M1?A) transaction deposits B) mutual funds accountsC) bonds D) line of credit

Q: What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?A) Aggregate demand increases, and the gap closes. B) Aggregate supply increases, closing the gap.C) Aggregate demand decreases, and the gap widens.D) Aggregate demand will increase, creating an inflationary gap.

Q: Refer to the above figure. Which panel is consistent with the Laffer curve?A) Panel A B) Panel B C) Panel C D) Panel D

Q: Along the 45-degree reference line,A) total planned real expenditures = real GDP.B) total planned real expenditures = planned nominal expenditures. C) total planned nominal expenditures = consumption.D) total planned investment spending = planned real expenditures.

Q: Along a linear consumption function,A) the average propensity to consume falls with an increase in income.B) the marginal propensity to consume rises with an increase in income.C) the average propensity to consume rises with income, but the marginal propensity to consume falls with an increase in income.D) both the average propensity to consume and the marginal propensity to consume rise with an increase in income.

Q: The Keynesian portion of the short-run aggregate supply (SRAS) curveA) is horizontal. B) is vertical.C) slopes upward. D) slopes downward.

Q: An increase in the money supply will cause which of the following to occur? A) a rightward shift of the aggregate supply curve B) a leftward shift of the aggregate demand curve C) a leftward shift of the aggregate supply curve D) a rightward shift of the aggregate demand curve

Q: Explain how the ʺnew growth theoryʺ treats technology differently from the way economists used to treat technology.

Q: Comparing two countriesʹ nominal GDP over time is likely to be misleading if one wants to determine whether standards of living are better in one country becauseA) the figures must be adjusted for different types of currency.B) the figures must be adjusted for price changes and population differences.C) the figures must be adjusted to account for production differences. D) NDP instead of GDP should be used.

Q: Which of the following statements is NOT true of GDP?A) GDP excludes nonmarket production.B) There are no significant weaknesses in using GDP as a measure of the nationʹs economic performance.C) GDP is the value of final goods and services produced in the economy.D) GDP is not a measure of a nationʹs overall welfare.

Q: Which is the broadest price index reported in the United States?A) the CPI-U B) the GDP deflatorC) the consumer price index D) the producer price index

Q: The labor force is defined as the number ofA) employed plus the number of unemployed.B) people who are working.C) people who are working in labor-type jobs. D) union members who are working.

Q: Which of the following is a barrier to economic growth in many developing nations? A) the shortage of labor B) the lack of natural resources C) the lack of economic freedom D) the low level of restrictions in the labor market

Q: Refer to the above figure. Line ABCD is a(n)A) aggregate demand curve. B) Phillips curve.C) discretionary-policy curve. D) natural rate of unemployment curve.

Q: According to the quantity theory of money,A) a change in the money supply can lead only to a proportionate change in the price level. B) the velocity of money is the least stable factor in monetary analysis.C) the rate of inflation is not related to changes in the money supply. D) price level changes can best be explained by Keynesian analysis.

Q: If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplierA) increases from 5 to 10. B) decreases from 10 to 5.C) does not change. D) decreases from 20 to 10.

Q: For a small-denomination certificate of deposit to be included in M2 it must be a denomination of less thanA) $1,000,000. B) $100,000. C) $10,000. D) $1,000

Q: Are federal budget deficits related to trade deficits?A) Yes. If U.S. consumers buy too many imported goods, they do not have funds to save, and a budget deficit results.B) No. The budget deficit is entirely a domestic matter, while the trade deficit only affects U.S. citizens who travel abroad.C) Yes. Higher deficit spending goes up results in more government borrowing, and foreign residents who lend funds to the U.S. government have fewer resources to spend U.S. export goods.D) Yes, but only if the quality of U.S. goods and services is deteriorating

Q: According to the Laffer curve, increases in the tax rate will lead to a(n) A) steady decrease in tax revenues.B) steady increase in tax revenues.C) initial decrease in tax revenues and then an increase in tax revenues.D) initial increase in tax revenues and then a decrease in tax revenues.

Q: In the Keynesian model, whenever planned saving is less than planned investment, A) there will be unplanned inventory accumulation.B) there will be unplanned inventory depletion. C) real GDP will not be influenced.D) the interest rate will remain unchanged.

Q: When an individual spends more than her/his disposable income, this person isA) saving. B) investing. C) dissaving. D) unemployed.

Q: According to Keynes, once a system attains an economy -wide equilibrium, A) there may or may not be excess productive capacity.B) planned consumption will be zero. C) planned investment will be zero.D) the economy will be at full productive capacity.

Q: An increase in total planned real expenditures that is caused by a factor other than the price level will lead to theA) aggregate supply curve shifting to the right. B) aggregate demand curve shifting to the right. C) aggregate supply curve shifting to the left.D) aggregate demand curve shifting to the left.

Q: According to Romer and other new growth theorists, what could poor countries do to stimulate greater economic growth?

Q: Real GDP isA) the nominal value of all real goods produced in the nation in a year.B) GDP corrected for changes in the average of overall prices.C) a misnomer since all GDP figures have to be in dollar values.D) the value of output in current dollars.

Q: A family sells the house they have lived in for two years to a friend. They received $150,000 and paid $120,000 two years ago. This transactionA) increases GDP by $150,000B) increases GDP by $30,000C) has no effect on GDP because the house was not made this yearD) has no effect on GDP because the house is an intermediate good

Q: Which government agency compiles the consumer price index?A) the Congressional Budget OfficeB) the Government Accounting OfficeC) the Bureau of Labor StatisticsD) It is not compiled by a government agency, but rather by an independent research institution called the Conference Board.

Q: Unemployment is measured asA) all teens and adults in the civilian labor force who are not working.B) all adults in the civilian labor force who are willing and able to work and who are actively looking for work, but have not found a job.C) all adults in the civilian labor force, regardless of whether or not they have been engaged in actively seeking employment, who do not have the job they want. D) all adults in the civilian labor force who are not working.

Q: The percentage change in per capita real GDP measures economic growth because it takes into account all of the following variables EXCEPT A) the percentage change in population. B) the percentage change in the inflation rates. C) the percentage change in nominal GDP. D) the percentage change in the quality of life.

Q: At one time, many economists believed thatA) the government could determine what the Phillips curve should be. B) the government could determine the slope of the Phillips curve.C) the government could make the Phillips curve vertical.D) the government could decide at which point on the Phillips curve the economy should be.

Q: According to the quantity theory of money, increases in the money supply lead toA) decreases in nominal Gross Domestic Product (GDP). B) increases in the price level.C) decreases in the price level. D) increases in taxes.

Q: The value of the money multiplier depends onA) the reserve ratio.B) the ratio of total assets to total liabilities for the banking system as a whole. C) the interest rate offered on bonds currently being sold by the Fed.D) the interest rate offered on bonds currently being purchased by the Fed.

Q: Money market mutual funds are funds pooled byA) a group of people to buy shares of stocks.B) a group of people to buy stock market funds.C) a group of people to buy short maturity credit instruments.D) a group of people to buy U.S. Treasury bonds.

Q: Which of the following is true of the U.S. trade balance and the federal government budget?A) In most years since the 1970s, both have been in surplus. B) In most years since the 1970s, both have been in deficit.C) Both exhibited greater variability before the 1970s than they have since.D) The federal government budget deficit was more variable before the 1970s, but the trade deficit has been more variable since.

Q: The Laffer curve indicates which of the following?A) There is an ideal interest rate that will maximize investment spending.B) There is an ideal amount of government spending that will lead to full national employment.C) There is an ideal tax -revenue-maximizing tax rate for government taxes.D) There is an ideal tariff rate that will maximize exports and minimize imports.

Q: In the Keynesian model, whenever planned saving exceeds planned investment, A) there will be unplanned inventory accumulation.B) there will be unplanned inventory depletion.C) real GDP will not be influenced.D) the interest rate will remain unchanged.

Q: The consumption function shows the relationship A) between householdsʹ disposable income and their consumption spending. B) between investment and rate of return. C) between consumption spending and capital gains. D) between government spending and tax collection.

Q: A key component of the Keynesian model is thatA) prices are sticky. B) prices are flexible. C) wages are flexible.D) people are not fooled by money illusion.

Q: An aggregate demand curveA) shifts to the right when a non-price level change increases total planned real expenditures. B) shifts to the right when a non-price level change decreases total planned real expenditures.C) shifts to the right when the price level falls. D) does not shift to the right or to the left.

Q: How does innovation differ from invention? Why is innovation required for economic growth?

Q: Measurement of economic values after adjustments have been made for changes in the average of prices between years in known asA) the price index. B) a deflator. C) nominal values. D) real values.

Q: GDP is a measure of all of the following EXCEPTA) the overall level of economic activity B) the total of productionC) overall welfare D) the total value of expenditures

Q: Economists agree that the structure of the Consumer Price Index has some problems that limit its usefulness as a reliable measure of inflation. What is one of these drawbacks?A) It is based on the faulty assumption that each consumer buys only one unit of each item. B) It is based on the faulty assumption that consumption choices are not influenced by income levels.C) It ignores changes in consumption patterns brought about by changes in the relative prices of consumer goods.D) It is based on a market basket of mail -order items and does not include the goods that consumers typically purchase.

Q: Including discouraged workers in the calculation of the unemployment rate wouldA) increase the reported rate. B) lower the reported rate.C) not change the reported rate.D) change the reported rate, but in an unpredictable manner.

Q: If the average annual growth rate in real GDP for a nation during the last decade was 4 percent per year and the average annual population growth rate was 3 percent per year during the same period, then the average annual growth rate of per capita GDP wasA) 1.00 percent. B) -1.00 percent. C) 0.75 percent. D) 1.33 percent.

Q: The nonaccelerating inflation rate of unemployment (NAIRU) is A) another name for the natural rate of unemployment. B) the unemployment rate associated with a steady rate of inflation. C) the unemployment rate associated with a decreasing rate of inflation. D) when the number of people entering the job market equals the number leaving the job market.

Q: Other things being equal, the quantity theory of money suggests that any increase in the money supplyA) causes a reduction in the demand for money.B) results in a decrease in the aggregate price level.C) causes the aggregate level of nominal Gross Domestic Product (GDP) to fall. D) results in a proportionate increase in the price level.

Q: If proceeds from loans are NOT deposited back in the banking system, thenA) the magnitude of the multiplier process is reduced.B) there is no effect on the magnitude of the multiplier process. C) the magnitude of the multiplier process is increased.D) the Fed intervenes by selling more Federal government bonds.

Q: The narrowest definition of the money supply isA) M1. B) M2.C) the difference between M2 and M1. D) the sum of M1 and M2.

Q: Which of the following is true of the relationship between U.S. trade deficits and federal government budget deficits?A) Increases in the budget deficit tend to be associated with increases in the trade deficit. B) Increases in the budget deficit tend to be associated with reductions in the trade deficit. C) Increases in the budget deficit are always associated with increases in the trade deficit. D) Increases in the budget deficit are always associated with reductions in the trade deficit.

Q: Supply-side economics focuses attention on how fiscal policy might be used toA) increase aggregate demand to the full -employment level of real GDP. B) shift the aggregate supply curve out.C) align aggregate demand and aggregate supply. D) increase consumption.

Q: In the Keynesian model, whenever planned investment is less than planned saving, A) the amount of planned investment will decrease, and real GDP will decrease.B) the amount of planned investment will decrease, and real GDP will remain unchanged. C) there will be an unplanned inventory decrease, and real GDP will eventually increase. D) there will be an unplanned inventory increase, and real GDP will eventually decrease.

Q: According to Keynes, planned consumptionA) decreases as disposable income increases.B) is unstable and fluctuates widely with changes in disposable income. C) is positively related to real disposable income.D) is indirectly related to the interest rate.

Q: Keynes and his followers believed thatA) capitalism was one economic system that guaranteed full employment.B) wages and prices in the short run were flexible.C) the economy could not operate at any level of real Gross Domestic Product (GDP) less than full capacity.D) there was no guarantee that a capitalist economy would reach a full employment equilibrium.

Q: Europe and Asia both fall into deep economic recessions. What impact will this have on U.S. aggregate demand?A) None. A nationʹs aggregate demand is only affected by its own economic conditions.B) U.S. aggregate demand will remain unchanged. C) U.S. aggregate demand will decrease.D) The U.S. aggregate demand curve will shift to the right.

Q: What is the economic role of a patent?

Q: The values of variables such as GDP expressed in current dollars are referred to asA) the price index. B) a deflator. C) nominal values. D) real values.