Q&A Hero

Q: If the net public debt remains unchanged during a given period, but the gross public debt increases, then which of the following statements must be correct? A) Government interagency borrowing must have increased during the period. B) Government interagency borrowing must have decreased during the period. C) Foreign ownership of U.S. Treasury securities must have risen during the period. D) Foreign ownership of U.S. Treasury securities must have fallen during the period.

Q: Suppose that real GDP is initially $14 trillion and the government attempts to increase real GDP to $15 trillion. The marginal propensity to consume is 0.8, and every $1.00 increase in real government spending crowds out $0.50 in real planned investment expenditures. Which increase in government spending below could yield the desired level of real GDP?A) $100 billion B) $125 billion C) $200 billion D) $400 billion

Q: What determines investment in the Keynesian framework? How is investment related to real Gross Domestic Product (GDP)?

Q: How is investment defined as an economic concept?A) Investment is primarily the market value of all shares of stock held by the public.B) Investment is primarily the market value of all equipment, buildings, and inventories held by corporations, partnerships, and proprietorships.C) Investment is primarily the sum of expenditures by businesses on new capital goods that will yield a future stream of income.D) Investment is primarily the portion of your savings held in an interest-earning account.

Q: Saving is a leakage from the circular flow. Why didnʹt the classical economists think saving might cause consumption expenditures to fall short of total output?

Q: What is measured on the vertical axis of the aggregate demand graph?A) nominal income B) real GDP per yearC) the price level D) unemployment

Q: When considering international trade, which of the following would be most conducive to domestic economic growth? A) a closed economy B) an economy in which its domestic industries are protected by tariffs C) an economy with free and open markets to the outside world D) an economy in which most decisions are made by a central governmental authority

Q: Nominal values areA) measured in terms of actual market prices at which the goods are sold.B) based on inflation -adjustments.C) based on Gross Domestic Product (GDP) per capita.D) measured in terms of total purchasing power.

Q: The farmer pays 15 cents for wheat seeds. When the wheat is grown and harvested, the farmer sells it to the miller for 30 cents, who makes flour and sells the flour to the baker for 60 cents. The baker makes bread and sells it to the grocer for 90 cents, and the grocer sells it to a family for $1.25. The contribution to GDP isA) 35 cents. B) $1.25. C) $1.95. D) $3.20.

Q: The GDP deflator isA) an index that utilizes a consumerʹs market basket of goods in calculating the inflation rate. B) the most general indicator of inflation since it measures changes in the prices of all goods and services in the economy.C) an index used to calculate inflation at the wholesale level.D) the least used index because it is so costly to calculate.

Q: Individuals who have stopped looking for work because they are convinced that they will not find a job are consideredA) structurally unemployed. B) discouraged workers. C) part of the labor force. D) underemployed.

Q: Assume that in the economy real GDP grows at a constant rate. There has just been a decrease in the rate of growth of the population. This implies that theA) rate of growth of per capita real GDP will decrease.B) rate of growth of per capita real GDP will increase. C) rate of growth of capital accumulation will decrease. D) rate of growth of capital accumulation will increase.

Q: Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 7 percent, then the cyclical unemployment rateA) is 2 percent. B) is -2 percent. C) is 12 percent.D) cannot be determined given the information.

Q: When the U.S. dollar appreciates,A) foreign residents demand more of U.S. goods, and U.S. residents desire to purchase more foreign goods.B) foreign residents demand more of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.C) foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase more foreign goods.D) foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.

Q: The larger is the reserve ratio,A) the greater is the increase in the money supply for an increase in bank deposits.B) the more likely it is there will be currency drains.C) the smaller is the maximum potential money multiplier.D) the more difficult it is for the Federal Reserve to control the money supply.

Q: Which of the following is a time deposit with a fixed maturity date offered by banks and other financial institutions?A) Savings depositB) Money market deposit accountC) Time depositD) Small-denomination certificate of deposit

Q: The two ways in which deficit spending can impose a burden on future generations areA) by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods.B) by requiring future generations to face lower government spending and to utilize a smaller stock of human capital.C) by substituting private goods for public goods and thereby shifting resources to foreign residents.D) by substituting private goods for public goods and thereby benefiting only large businesses.

Q: To the extent that a direct expenditure offset results from an expansionary fiscal policy, A) the stimulative effect will be less than anticipated.B) the stimulative effect will be more than anticipated.C) the fiscal policy will not be discretionary.D) the time lags associated with the implementation of fiscal policy will shorten.

Q: The investment schedule is downward sloping and the saving schedule is upward sloping with respect to the interest rate. Suppose the equilibrium real investment per year at the market rate of interest is $1 trillion. How is this represented when real national income per year is on the horizontal axis? How is this incorporated into the consumption-function graph?

Q: Nonconsumable goods that firms use to make other goods areA) consumption goods. B) capital goods.C) dissaving. D) the MPC.

Q: What is Sayʹs Law and what does it mean?

Q: Total planned real expenditures measured along the aggregate demand curve are made up ofA) consumption spending, investment spending, government spending, and net export spending.B) consumption spending, income, government spending, and net export spending.C) consumption spending, saving, investment spending, and government spending.D) consumption spending, factor payments, investment spending, and net export spending.

Q: Which of the following factors are considered under ʺnew growth theoryʺ?A) technology B) researchC) innovation D) All of the above are correct.

Q: To determine how well an economy is doing, it is better to useA) nominal Gross Domestic Product (GDP) figures. B) real Gross Domestic Product (GDP) figures.C) Gross Domestic Product (GDP) figures measured by the expenditure approach. D) Gross Domestic Product (GDP) figures measured by the income approach.

Q: GDP does NOT include intermediate goods because A) intermediate goods are not valuable. B) intermediate goods are not useful to consumers. C) that would count the value of intermediate goods twice. D) that would understate the true size of GDP.

Q: When computing a price index, the base year isA) the earliest year for which data are available.B) the year that is chosen as the point of reference for comparison of prices with other years.C) the most recent year for which data are available.D) the most recent year in which the inflation rate was close to zero.

Q: According to the text, during which time period did the United States have the highest unemployment rates?A) 1930s B) 1950s C) 1980s D) 2000s

Q: What will happen to the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of 4.5 percent and the annual rate of population growth goes from 3 percent to 3.5 percent?A) The annual rate of growth of per capita real GDP will increase from 7.5 percent to 8 percent.B) The annual rate of growth of per capita real GDP will increase from -1.5 percent to -1 percent.C) The annual rate of growth of per capita real GDP will remain unchanged.D) The annual rate of growth of per capita real GDP will decrease from 1.5 percent to 1 percent.

Q: Deviations of the actual unemployment rate away from the natural rate areA) cyclical unemployment. B) frictional unemployment.C) structural unemployment. D) the monetary rule.

Q: An appreciation of the U.S. dollar occurs when A) the international price of the dollar falls. B) the international price of the dollar rises.C) the U.S. demand for foreign currencies increases.D) the supply of dollars in international markets increases.

Q: For the past several decades, the U.S. M1 multiplier has been between .A) 1.0 and 2.0. B) 2.5 and 3.0. C) 3.0 and 6.0. D) 6.5 and 10.0.

Q: A deposit in a financial institution that requires notice of intent to withdraw is aA) savings deposit. B) money market deposit account. C) time deposit. D) certificate of deposit.

Q: Borrowing to finance the increases in government expenditures A) reduces current private investment expenditures. B) increases interest rates. C) reduces growth in the nationʹs private capital stock. D) all of the above

Q: Refer to the above figure. The government has just engaged in expansionary fiscal policy shifting the aggregate demand curve from AD1 to AD2. Interest rates have started to rise. Which of the following statements is true in the short run?A) Real GDP will be $14 trillion since the effect of government spending is not influenced by interest rates.B) Real GDP will fall back to $11 trillion since the effect that increased government spending has on real GDP is short lived.C) Real GDP will go beyond $14 trillion as businesses and consumers react to the increase in interest rates.D) Real GDP will end up somewhere between $11 and $14 trillion as businesses and consumers reduce their spending in response to the increase in interest rates.

Q: If we observe that interest rates rise but real investment spending still increases, what must have happened to the function relating investment to the interest rate?A) It shifted to the right. B) It shifted to the left.C) There was a movement up the function relating investment to the interest rate.D) There was a movement down the function relating investment to the interest rate.

Q: Investment is A) a flow concept and is made up of fixed investment and inventory investment. B) a flow concept and is made up of fixed investment. C) a stock concept and is made up of fixed investment and inventory investment. D) a stock concept and is made up of fixed investment.

Q: ʺSupply creates its own demandʺ implies that A) the very act of supplying a particular level of goods and services necessarily equals the level of goods and services demanded. B) the very act of demanding a particular level of goods and services necessarily equals the level of goods and services supplied. C) the government will buy up any surplus of goods and services in a country to avoid economic problems. D) the very act of supplying a particular level of goods and services will not necessarily equal the level of goods and services demanded.

Q: When a higher price level generates an increase in the interest rate that induces consumers to borrow less and buy less, this chain of events is referred to asA) the real-balance effect. B) the interest rate effect. C) the open economy effect. D) the price level effect.

Q: The development of human capitalA) is a form of investment.B) does not appear to enhance economic growth.C) enhances economic growth, but it does not improve the productivity of the labor force. D) enhances economic growth, but the individuals acquiring the capital are not made better off themselves.

Q: If deflation is occurring and nominal Gross Domestic Product (GDP) is increasing over time, then real Gross Domestic Product (GDP) isA) decreasing.B) increasing at the same rate as nominal Gross Domestic Product (GDP).C) increasing more slowly than nominal Gross Domestic Product (GDP). D) increasing faster than nominal Gross Domestic Product (GDP).

Q: Intermediate goods are A) goods that are used up entirely in the production of final goods. B) the stock of all resources excluding labor. C) goods that get sold to the U.S. government. D) equal to the receipts of firms.

Q: If all prices in the economy go up from one year to the next, the CPI index, using the previous year as the base wouldA) be less than 100.B) be greater than 100.C) not be influenced since quantities have remained unchanged. D) not be determined since enough information is given.

Q: The term ʺunemploymentʺ is best described as the total number of A) people not working. B) people who have been laid off and have stopped looking for work. C) adults who work fewer hours than they wish to work. D) adults who are looking for work but have not found a job.

Q: What is the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of 4 percent per year and the annual rate of population growth is 3 percent?A) 1 percent B) 3 percent C) 4 percent D) 87 percent

Q: During a recession, theA) natural rate of unemployment has fallen.B) cyclical rate of unemployment is positive. C) cyclical rate of unemployment is zero.D) cyclical rate of unemployment is negative.

Q: It has been observed that a change in monetary policy in the United StatesA) impacts net exports.B) has little or no effect on foreign markets.C) leads to corresponding changes in other countries. D) has only short run influences.

Q: With a reserve ratio of 10 percent, the maximum potential money multiplier isA) 1. B) 5. C) 10. D) 100.

Q: An account issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions is aA) savings deposit. B) money market deposit account. C) time deposit. D) certificate of deposit.

Q: Net public debt is equal toA) the gross public debt minus current year tax revenue collection.B) the gross public debt minus taxes paid by foreign corporations on their profits made in the United States.C) the gross public debt plus all governmental interagency borrowing.D) the gross public debt minus all governmental interagency borrowing.

Q: A direct expenditure offset occurs when an increase in government spending A) results in an increase in household saving for retirement. B) is followed by an increase in consumer spending C) results in a decrease in private spending. D) is followed by an increase in taxes.

Q: The relationship between planned real investment spending and the interest rate isA) inverse. B) direct. C) constant. D) highly volatile.

Q: Fixed investment isA) when a firm adds to its inventories of goods. B) when a firm accumulates profits.C) dissavings.D) an expenditure by firms on new machines that are expected to produce income in the future.

Q: In the classical model, what happens to the level of real GDP if aggregate demand increases?A) Real GDP increases. B) Real GDP decreases.C) Real GDP would increase at first, then decrease. D) Real GDP would remain the same, at equilibrium.

Q: Which of the following cause the aggregate demand curve to slope downward and to the right? A) the prices of key goods B) the interest rate effect C) military expenditures of the government D) the demand-shock effect

Q: New growth theorists conclude thatA) invention is more important than innovation in spurring economic growth.B) the amount of technological innovation in an economy is independent of the rewards offered for innovation.C) rates of global economic growth are limited by the amount of raw materials available. D) economic growth can continue as long as we keep coming up with new ideas.

Q: Nominal income per person in the United States in 1960 was about $2,800 per year, while in 1990 nominal income per person was about $21,000. This indicates thatA) nominal income was about 7.5 times greater in 1990, but we canʹt tell if this increase is due to inflation, economic growth, or a combination of the two.B) people enjoyed a standard of living about 7.5 times higher in 1990 than in 1960.C) a dollar in 1960 was worth less than a dollar in 1990.D) the average person would consider him/herself about 7.5 times happier in 1990 than in 1960.

Q: When dealing with anything that is measured as a flow, one mustA) use dollar values.B) make sure the thing can be measured accurately. C) specify a time period.D) specify one day in time.

Q: Refer to the above table. You are given information on Janeʹs consumption for 2005 and 2010.Using 2005 as the base year compute the price index for 2010. The index equalsA) 40.35. B) 247.826. C) 0.4035. D) 0.2478.

Q: Which of the following people would be considered unemployed? A) Homer, who lost his job at the power plant and is not looking for work B) Lenny, who is working part time at a fast food restaurant C) Abe, who is retired D) Edna, who lost her job as a teacher and is currently searching for a new job

Q: What is the annual rate of growth of per capita real GDP if real GDP grows at a constant rate of 5 percent per year and the annual rate of population growth is 3 percent?A) 1.7 percent B) 2 percent C) 5 percent D) 8 percent

Q: When the economy is operating at a level of real GDP that is greater than its potential level, we know thatA) the actual unemployment rate is greater than the natural rate of unemployment. B) the structural rate of unemployment is negative.C) the frictional unemployment is zero.D) the cyclical rate of unemployment is negative.

Q: A contractionary monetary policy causes A) higher interest rates, which increases the international price of the dollar and decreases net exports. B) higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. C) lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. D) higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports.

Q: If the reserve ratio is 25 percent, the maximum potential money multiplier isA) 1. B) 4. C) 8. D) 25.

Q: An interest-earning account that can be withdrawn at any time without payment of a penalty is aA) savings deposit. B) money market deposit account. C) time deposit. D) certificate of deposit.

Q: Which of the following statements is false?A) The federal budget deficit in 2004 was about 4 percent of the GDP.B) A budget deficit of $25 billion in a given year increases the public debt by $25 billion.C) The public debt of $25 billion is the accumulated debt of all U.S. individuals, firms, and institutions.D) During the past five years, the U.S. public debt has been increasing.

Q: If the crowding-out effect is complete and the marginal propensity to save is 0.25, then an increase in government spending of $100 billion will generate how much more real GDP?A) $0 B) $25 billion C) $100 billion D) $400 billion

Q: Real planned investment spending is inversely related toA) real disposable income. B) wealth.C) the interest rate. D) producer expectations of future profit.

Q: Changes in business inventories are known asA) consumer durable. B) consumption goods. C) fixed investment. D) inventory investment.

Q: In the classical view, flexible wage rates would assureA) low inflation.B) high rates of unemployment.C) high secular inflation rates. D) full employment.

Q: The curve that displays total planned real spending on goods and services at each price level by households, businesses, the government, and foreign residents is calledA) the aggregate supply curve. B) the aggregate demand curve. C) the price level curve. D) the employment curve.

Q: One of the implications of new growth theory is that economic growth arises from A) limits on international trade. B) investments in knowledge. C) financial safety nets for the poor, such as Medicaid. D) reductions in the birth rate.

Q: The price-corrected value for Gross Domestic Product isA) real Gross Domestic Product (GDP). B) net Gross Domestic Product (GDP).C) net national product. D) per capita income.

Q: GDP is aA) stock because it measures income for the entire country.B) stock because it measures wealth at a distinct point in time. C) flow because dollar values are used.D) flow because it measures income over a period of time.

Q: Refer to the above table. You are given information on Janeʹs consumption for 2005 and 2010.Using 2005 as the base year compute the price index for 2010. The index equalsA) 170. B) 58.823. C) 0.5823. D) 0.17.

Q: A countryʹs labor force is equal to A) the population between the ages of 16 and 65. B) the number of employed people. C) the total number of employed and unemployed people. D) the total number of employed people, unemployed people, and discouraged workers.

Q: The rate of growth in real GDP minus the rate of growth of the population is theA) rate of growth of nominal GDP. B) unemployment rate.C) population growth rate. D) rate of growth of per capita real GDP.

Q: Deviations of the actual unemployment rate from the natural rate of unemployment are calledA) frictional unemployment. B) cyclical unemployment.C) seasonal unemployment. D) underemployment.

Q: As the world economy becomes more integrated through globalization, A) the Fed will find it easier to conduct monetary policy.B) the Fed will have a more difficult time reaching its money supply growth rate targets.C) the Fed will rely less on open market operations and more on changing the required reserve ratio when conducting monetary policy.D) U.S. interest rates will determine world interest rates.

Q: The maximum potential money multiplier is equal toA) the reserve ratio. B) the inverse of the required reserve ratio. C) one minus the reserve ratio D) the number of dollars on reserve.

Q: The liquidity approach to measuring the money supply usesA) M1 only. B) near moneys only.C) M1 plus some highly liquid assets. D) M2 plus some highly liquid assets.