Exam 2

Question 1

The unemployment rate is interpreted as the percentage of the

A) able-bodied population who are not working.

B) labor force that are not employed.

C) adult population who are unemployed.

D) workforce that have been laid off.

Answer 1

labor force that are not employed.

Question 2

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun’s law, the negative GDP gap as a percentage of potential GDP is

A) 2 percent

B) 10 percent

C) 4 percent

D) 8 percent

Answer 2

8 percent

Question 3

The presence of discouraged workers

A) may cause the official unemployment rate to overstate the true amount of unemployment.

B) may cause the official unemployment rate to understate the true amount of unemployment.

C) increases the size of the labor force but does not affect the unemployment rate.

D) reduces the size of the labor force but does not affect the unemployment rate.

C) increases the size of the labor force but does not affect the unemployment rate.

D) reduces the size of the labor force but does not affect the unemployment rate.

Answer 3

may cause the official unemployment rate to overstate the true amount of unemployment.

Question 4

As it relates to economic growth, the term long-run trend refers to

A) the long-run increase in the relative importance of durable goods in the U.S. economy.

B) fluctuations in business activity that average 40 months in duration.

C) the long-term expansion or contraction of business activity that occurs over 50 or 100 years.

D) fluctuations in business activity that occur around Christmas, Easter, and other major holidays.

Answer 4

the long-term expansion or contraction of business activity that occurs over 50 or 100 years.

Question 5

Which of the following is correct?

A) Teenagers experience approximately the same unemployment rates as do adults.

B) Laborers are less vulnerable to unemployment than are professional workers.

C) Unemployment rates for African-American and white workers are approximately the same.

D) During the Great Recession, unemployment rates for men rose above those of women.

Answer 5

During the Great Recession, unemployment rates for men rose above those of women.

Question 6

Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon, where she anticipates that a new job will be available. We can say that Susie is faced with

A) frictional unemployment.

B) seasonal unemployment.

C) cyclical unemployment.

D) structural unemployment.

Answer 6

structural unemployment

Question 7

During a period of hyperinflation,

A) the real value of the national currency rises.

B) income is redistributed away from borrowers.

C) people tend to hold goods rather than money.

D) creditors gain because their loans are repaid with dollars of higher value.

Answer 7

people tend to hold goods rather than money.

Question 8

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are

A) military goods and capital goods.

B) clothing and education.

C) capital goods and durable consumer goods.

D) services and nondurable consumer goods.

Answer 8

capital goods and durable consumer goods.

Question 9

The wealth effect is shown graphically as a

A) movement along an existing consumption schedule.

B) shift of the investment schedule.

C) movement along an existing investment schedule.

D) shift of the consumption schedule.

Answer 9

shift of the consumption schedule.

Question 10

In an economy, for every $1,600 increase in income, spending increases by $1,200. It can be concluded that the

A) marginal propensity to consume is 1.33.

B) marginal propensity to save is 0.25.

C) slope of the saving schedule is 0.75.

D) slope of the saving schedule is 1.33.

Answer 10

marginal propensity to save is 0.25.

Question 11

The relationship between the real interest rate and investment is shown by the

A) investment demand schedule.

B) aggregate supply curve.

C) consumption of fixed capital schedule.

D) saving schedule.

Answer 11

investment demand schedule.

Question 12

As disposable income increases, consumption

A) increases and saving decreases.

B) and saving both increase.

C) decreases and saving increases.

D) and saving both decrease.

Answer 12

and saving both increase.

Question 13

Assume the MPC is .75. If investment spending increases by $2 billion, the level of GDP will increase by

A) $3 billion

B) $2/3 billion

C) $2 billion

D) $8 billion

Answer 13

$8 billion

Question 14

An MPC value of less than 1.0 indicates that as income increases,

A) consumption also increases, and by more than the increase in income.

B) consumption also increases, and at the same rate as the increase in income.

C) consumption also increases, though not as much as income.

D) consumption will go in the opposite direction and decrease.

Answer 14

consumption also increases, though not as much as income.

Question 15

Net exports are negative when

A) exports exceed imports.

B) net exports exceed imports.

C) imports exceed exports.

D) depreciation exceeds exports.

Answer 15

imports exceed exports

Question 16

In the aggregate expenditures model, it is assumed that investment

A) does not change when real GDP changes.

B) changes by less in percentage terms than changes in real GDP.

C) does not respond to changes in interest rates.

D) automatically changes in response to changes in real GDP.

Answer 16

does not change when real GDP changes.

Question 17

An upward shift of the aggregate expenditures schedule might be caused by

A) an increase in imports, with no change in exports.

B) a decrease in exports, with no change in imports.

C) a decrease in imports, with no change in exports.

D) an increase in exports, with an equal decrease in investment spending.

Answer 17

a decrease in imports, with no change in exports.

Question 18

The short-run aggregate supply curve

A) becomes flatter at output levels above the full-employment output.

B) becomes steep at output levels above the full-employment output.

C) is upward-sloping.

D) is horizontal.

Answer 18

is upward-sloping

Question 19

Which would most likely shift the aggregate supply curve? A change in the prices of

A) financial assets.

B) foreign products.

C) resources.

D) domestic products.

Answer 19

resources

Question 20

1-Government Spending
2-Consumer Expectations
3-Degree of Excess Capacity
4-Personal Income Tax Rates
5-Productivity
6-National Income Abroad
7-Business Taxes
8-Domestic Resource Availability
9-Prices of Imported Products
10-Profit Expectations on Investments
Answer the question based on the accompanying list of items related to aggregate demand or aggregate supply. Changes in which two factors would most likely cause a change in aggregate demand?

A) 1 and 5

B) 5 and 7

C) 3 and 10

D) 8 and 9

Answer 20

3 and 10

Question 21

The American Recovery and Reinvestment Act of 2009 is a clear example of

A) discretionary fiscal policy that made the cyclically adjusted budget become more negative.

B) nondiscretionary fiscal policy that made the cyclically adjusted budget become more positive.

C) nondiscretionary fiscal policy that made the cyclically adjusted budget become more negative.

D) discretionary fiscal policy that made the cyclically adjusted budget become more positive.

Answer 21

discretionary fiscal policy that made the cyclically adjusted budget become more negative.

Question 22

Suppose the price level is fixed, the MPC is 0.8, and the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should

A) increase government expenditures by $200 billion.

B) increase government expenditures by $40 billion.

C) reduce taxes by $200 billion.

D) reduce taxes by $160 billion.

Answer 22

increase government expenditures by $40 billion.

Question 23

The Revenue is greater than the spending, the Federal budget is

A) the government had a budget deficit.

B) the rate of inflation were zero.

C) the economy were at full employment.

D) the MPC were zero.

Answer 23

the government had a budget deficit.

Question 24

The rate of unemployment when the economy is at its potential output is called the

A) structural rate of unemployment.

B) full-employment rate of unemployment.

C) natural rate of unemployment.

D) frictional rate of unemployment.

Answer 24

natural rate of unemployment.

Question 25

Which of the following statements is correct?

A) Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle.

B) Frictional unemployment is the result of friction between labor and management over how best to perform work.

C) Search unemployment is the broadest unemployment category because it covers all other types of unemployment.

D) Structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology.

Answer 25

Structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology.

Question 26

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by

A) $6 billion.

B) $54 billion.

C) $56 billion.

D) $9 billion.

Answer 26

$9 billion

Question 27

If the MPC is 0.75, the multiplier will be

A) 4

B) 2

C) 3

D) 3.5

Answer 27

4

Question 28

If the dollar appreciates in value relative to foreign currencies,

A) aggregate demand increases because C increases.

B) aggregate demand decreases because net exports decrease.

C) aggregate demand increases because net exports increase.

D) aggregate demand decreases because C decreases.

Answer 28

aggregate demand decreases because net exports decrease.

Question 29

To say that “the U.S. public debt is mostly held internally” is to say that

A) the bulk of the public debt is owned by U.S. citizens and institutions.

B) official figures understate the size of the public debt.

C) only interest payments on the public debt are an economic burden.

D) the public debt is equal to the land and building assets owned by the federal government.

Answer 29

the bulk of the public debt is owned by U.S. citizens and institutions.

Question 30

Which phase of the business cycle would be most closely associated with an economic contraction?

A) peak

B) recession

C) trough

D) recovery

Answer 30

recession

Question 31

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

A) aggregate demand curve would shift to the right.

B) aggregate demand curve would shift to the left.

C) aggregate supply curve would shift to the left.

D) aggregate supply curve would shift to the right.

Answer 31

aggregate demand curve would shift to the right.

Question 32

Assume that if there were no crowding out, an increase in government spending would increase GDP by $100 billion. On the other hand, if there had been full crowding out, then GDP would have

A) increased by less than $100 billion.

B) not increased.

C) increased by $100 billion.

D) increased by more than $100 billion.

Answer 32

not increased

Question 33

In which of the following cases would real income rise?

A) Nominal income falls by 4 percent, and the price level falls by 2 percent.

B) Nominal income rises by 8 percent, and the price level rises by 10 percent.

C) Nominal income rises by 2 percent, and the price level remains unchanged.

D) Real income will rise in all of these cases.

Answer 33

Nominal income rises by 2 percent, and the price level remains unchanged.