1. Suppose people in households decide to spend less. How will this impact an ec
ID: 1091422 • Letter: 1
Question
1. Suppose people in households decide to spend less. How will this impact an economy?
A) It will have no impact since this group makes up a small portion of any economy.
B) It will decrease the level of income of other people since household spending becomes
someone else's income.
C) It will cause prices for many goods to increase.
D) It will increase the level of income in the economy since other groups will spend more.
2. If government decided to increase taxes or decrease its spending, most likely this was to
correct:
A) a recession.
B) an inflation.
C) high unemployment.
D) equilibrium.
3. An inward shift in the U.S. economy's production possibility frontier could represent which of
the following?
A) U.S. workers moving to Canada
B) U.S. workers moving from New Jersey to Massachusetts
C) U.S. economic growth
D) U.S. economic growth as workers move to different states
4. Which of the following is not part of the investment function?
A) Business purchase capital equipment.
B) Businesses decide to save profits and buy stocks and bonds.
C) Businesses decide to produce more than they plan to sell.
D) Individuals buy newly constructed homes.
5. Technological improvements will:
A) leave the production possibility frontier unchanged.
B) shift the production possibility frontier inward.
C) shift the production possibility frontier outward.
D) necessarily lead to increased unemployment.
6. Controlling interest rates is an example of:
A) fiscal policy.
B) tax policy.
C) monetary policy.
D) exchange rate policy.
7. An expansion is a period in which:
A) output declines.
B) the price level falls.
C) output rises.
D) unemployment rises.
8. A recession leads to all of the following EXCEPT:
A) higher unemployment.
B) reduced output.
C) reduced income and living standards.
D) higher employment.
9. Per capita economic growth is:
A) economic growth per unit of capital.
B) economic growth per person.
C) economic expansion over the business cycle.
D) sustained increase in aggregate output.
10. An example of a government transfer is a(n):
A) expenditure on an interstate highway.
B) bequest from a deceased relative.
C) Social Security payment.
D) salary for members of the armed forces.
11. Of the following items, which would NOT be included in GDP?
A) the dollar value of a repair job done by your professor on his or her own car
B) the dollar value of a lawyer's service
C) new car sales by a local car dealer
D) the production of new cars that were not sold in the current year
12. Real GDP is nominal GDP adjusted for:
A) double counting.
B) changes in prices.
C) population.
D) imports.
13. A country's living standard is best measured by the:
A) per capita nominal GDP.
B) real GDP.
C) nominal GDP.
D) per capita real GDP.
14. Smalltown USA has 100 people in the workforce. 90 of them are working full-time (40
hours per week) and 10 of them are only working half time (20 hours per week). The
unemployment rate in Smalltown is
A) 10%.
B) 5%.
C) 15%
D) 0
15. You are a college student who is not working or looking for work. You are:
A) unemployed.
B) considered in the labor force but not employed.
C) not part of the labor force.
D) not described by any of the above.
16. If discouraged workers were included in the workforce then:
A) the unemployment rate would be higher.
B) the unemployment rate would be lower.
C) the unemployment rate would be no different.
D) none of the above.
17. Anna recently moved to Boston in order for her husband Joe to begin a new job as an
economics professor at Harvard. Anna is an experienced surgeon who is currently
interviewing with several different hospitals in Boston. Anna is currently:
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) counted as employed since she is likely to receive a job offer soon.
18. If actual unemployment is 6.2% and the natural rate of unemployment is 4%, cyclical
unemployment is:
A) 6.2%.
B) 10.2%.
C) 4%.
D) 2.2%.
19. Unanticipated inflation:
A) reduces the value of money.
B) increases the value of future obligations.
C) increases certainty about the future.
D) helps lenders.
20. Human capital refers to:
A) output per worker.
B) the education and knowledge embodied in the workforce.
C) society's investment in capital goods.
D) people working with capital goods.
21. Economic growth will likely involve:
A) a reduction in investment.
B) a decrease in the capital stock.
C) higher saving.
D) lower saving.
22. If technology advances, then:
A) more output can be obtained from the same inputs.
B) more inputs are needed to produce the same output.
C) less output can be obtained from the same inputs.
D) less can be obtained even with more inputs.
23. An economist walks into a sandwich shop with $8. All that is left is tuna, turkey and ham.
Each of these sandwiches cost $8 including tax. She likes tuna the most, turkey second best
and ham third best. She
A) Orders tuna and it cost her $8.
B) Orders turkey and it cost her $8.
C) Orders tuna and it cost her not being able to order turkey.
D) Orders turkey and it cost her not being able to order tuna or ham.
24. Which of the following is an example of investment spending?
A) The owner of a Domino's Pizza store has employed two students to deliver pizzas.
B) The manager of a local Domino's Pizza has taken some cash to the bank to make a deposit.
C) A local Domino's Pizza store has purchased a new pizza oven.
D) The owner of the Domino's Pizza store has used some of her salary to buy shares of stock in
the Domino's corporation.
25. Dissatisfaction with public school education has led many parents to try home schooling for
their children. If parents cut back on their jobs outside the home in order to spend time
teaching their children at home, how will this affect GDP?
A) GDP will increase.
B) Real GDP will increase and nominal GDP will decrease.
C) Both real and nominal GDP will increase.
D) GDP will decrease.
26. Which of the following is NOT included in Government Spending?
A) A destroyer is built at Bath Iron Works (BIW).
B) 150 are laid off from BIW and become eligible for food stamps.
C) Both are counted as Government Spending.
D) Neither are counted as Government Spending.
27 If GE, an American company manufactures a refrigerator in Maine in 2009 and sells it in
Canada in 2009 how is it counted in GDP?
A) US 2009 GDP.
B) Canadian GDP in 2009.
C) Both Canadian GDP and US GDP (it is split).
D) Neither US nor Canadian GDP.
28 If GE, an American company manufactures a refrigerator in Canada in 2009 and sells it in
Canada in 2009 how is it counted in GDP?
A) US 2009 GDP.
B) Canadian GDP in 2009.
C) Both Canadian GDP and US GDP (it is split).
D) Neither US nor Canadian GDP.
29. A jobless recovery could be attributed to
A) businesses clearing excess inventory.
B) part time workers being called back to working full time.
C) A and B.
D) not described by any of the above.
30. Suppose that the economy is recovering from a severe recession and the jobless recovery has
ended we know that it is possible that
A) the unemployment rate could increase in the short run.
B) the unemployment rate could decrease in the short run.
C) A or B.
D) not described by any of the above.
31. Unanticipated inflation
A) hurts lenders.
B) hurts borrowers.
C) does not hurt lenders or borrowers.
D) does not hurt lenders or borrowers but does hurt wage earners in the long run.
32. Suppose that savings does not equal investment, that taxes do not equal government spending
and that imports to not equal exports.
A) It is impossible that the economy could be in equilibrium.
B) It is possible that the economy could be in equilibrium.
C) It is irrelevant because leakages and injections do not affect equilibrium.
D) not described by any of the above.
33. Suppose that gross investment = $100B and depreciation = $110B then we can expect
A) the PPF to shift out and that Real GDP per Capita increases
B) the PPF to shift inward and that Real GDP per Capita increases
C) the PPF to shift out and that Real GDP per Capita decreases.
D) the PPF to shift inward and that Real GDP per Capita decreases
Explanation / Answer
1. B) It will decrease the level of income of other people since household spending becomes
someone else's income.
2) B) an inflation.
3) A) U.S. workers moving to Canada
4) B) Businesses decide to save profits and buy stocks and bonds.
5) C) shift the production possibility frontier outward.
6) A) fiscal policy.
7) C) output rises.
8) B) reduced output.
9) B) economic growth per person.
10) C) Social Security payment.
11) A) the dollar value of a repair job done by your professor on his or her own car
12) B) changes in prices.
13) D) per capita real GDP.
14)
15) C) not part of the labor force.
16)
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