Final Test

Question 1

An increase in _ GDP guarantees that more goods and services are being produced by an economy.

Answer 1

Real

Question 2

Net Exports are

Answer 2

Exports less imports

Question 3

GDP can be calculated by summing:

Answer 3

Consumption, Investment, Government Expenditure and Net Exports

Question 4

Transfer payments are excluded when calculating the GDP because:

Answer 4

They do not reflect current production

Question 5

If the demand for a firm’s output unexpectedly decreases and prices are sticky, you would expect its inventory to:

Answer 5

Increase

Question 6

Assume that price is fixed at $37,000 and that Buzzer Auto needs 5 workers for every 1 automobile produced. How many cars will Buzzer produce and how many workers will it hire?

Answer 6

900 cars and 4500 workers

Question 7

Which of the following transactions are counted in GDP?

Answer 7

Kerry buys a new sweater to wear this winter

Question 8

If real GDP grows at 7 percent per year, then real GDP will double in approximately _ years.

Answer 8

10

Question 9

Place the phases of the business cycle in order, starting with the highest level of GDP:

Answer 9

Peak,Recession, Trough, Expansion

Question 10

Most economists agree that the immediate cause of the large majority of cyclical changes in the levels of real output and employment is unexpected changes in _

Answer 10

The level of total spending

Question 11

9 million full time employees, 1 million actively seeking work but are currently unemployed, 2 million discouraged workers who have given up looking for work and are currently unemployed. What is the economy’s unemployment rate?

Answer 11

10 percent

Question 12

The unemployment rate that is consistent with full emplyment is

Answer 12

The natural rate of unemployment

Question 13

A country’s current unemployment rate is 11 percent. Economists estimate that its natural rate of unemployment is 6 percent. About how large is this economy’s negative GDP gap?

Answer 13

10 percent

Question 14

Cost-Push inflation occurs in the presence of _

Answer 14

Rising per-unit production costs

Question 15

Economists agree that _ inflation reduces real output

Answer 15

Cost-push

Question 16

Suppose that the CPI was 110 last year and is 108 this year. What is this called

Answer 16

Deflation

Question 17

Frictional and structural unemployment is inevitable in dynamic economy

Answer 17

True

Question 18

Unemployment due to economic downturn and low demand is called

Answer 18

Cyclical unemployment

Question 19

Full employment is when every worker is employed

Answer 19

False

Question 20

If the MPS rises, then the MPC will?

Answer 20

Fall

Question 21

Irving owns a chain of movie theaters. He is considering whether he should build a new theater downtown. The expected rate of return is 15 percent per year. He can borrow money at a 12 percent interest rate to finance the project. Should Irving proceed with this project?

Answer 21

Yes

Question 22

Which of the following scenarios will shift the investment demand curve right?

Answer 22

The expected return on capital increases

Question 23

If a $50 billion initial increase in spending leads to a $250 billion change in real GDP, how big is the multiplier?

Answer 23

5.0.

Question 24

Larger MPCs imply larger multipliers

Answer 24

True

Question 25

If total spending is just sufficient to purchase an economy’s output, then the economy is in:

Answer 25

Equilibrium

Question 26

If the multiplier is 5 and investment increases by $3 billion, equilibrium real GDP will increase by:

Answer 26

$15 billion

Question 27

Cost-of-living adjustment clauses (COLAs):

Answer 27

Tie wage increases to changes in the price level

Question 28

During periods of hyperinflation

Answer 28

People tend to hold goods rather than money

Question 29

Which of the following will reduce and shift the aggregate demand curve?

Answer 29

Interest rates rise.

Question 30

Which of the following will increase and shift the aggregate supply curve?

Answer 30

A new networking technology increases productivity all over the economy

Question 31

state and explain the tools of monetary policy

Answer 31

Actions that the Federal Reserve System takes
– To change interest rates and the money supply
– It is aimed at affecting the economy

Question 32

what is arbitrage

Answer 32

arbitrage is the practice of taking advantage of a difference in prices in two or more markets – striking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded

Question 33

what is a tariff?

Answer 33

Tax on imported goods

Question 34

Why do governments impose tariffs

Answer 34

to raise revenue, protect domestic industries, or exert political leverage over another country

Question 35

State and explain the basic equation of exchange of monetarism

Answer 35

the equation of exchange, which is expressed as MV = PQ. Here M is the supply of money, and V is the velocity of turnover of money

Question 36

Demand pull inflation

Answer 36

Demand Pull Inflation, too much money chasing too few goods, demand outweighs supply

Question 37

What is the major cause of macroeconomic instability, as viewed by monetarists?

Answer 37

he monetarists believe that the most significant cause of macroeconomic instability has been inappropriate monetary policy

Question 38

Cost push inflation

Answer 38

the input increases

Question 39

Demand pull

Answer 39

continues as long as the excess spending continues

Question 40

cost push

Answer 40

ends in a recession- but it is self limiting

Question 41

core inflation

Answer 41

represents the long run trend in the price level