poe exam 2

Question 1

“transfer payments”

Answer 1

taxes in reverse

Question 2

SS contributions are part of

Answer 2

payroll taxes

Question 3

Joe complains that 32% of his income last year went to taxes. He is referring to his

Answer 3

average tax rate.

Question 4

Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government’s public debt would have

Answer 4

decreased by $150 billion.

Question 5

Proprietary income refers to

Answer 5

revenue generated by government-run businesses.

Question 6

The tax revenues of local governments are typically

Answer 6

less than one-half of their expenditures.

Question 7

In the diagram, solid arrows reflect real flows and broken arrows are monetary flows. Flow (8) might represent (product market to government)

Answer 7

automobile purchases by the state of Maine.

Question 8

The largest proportion of the U.S. public debt is held by

Answer 8

the U.S. public (individuals, businesses, financial institutions, and government).

Question 9

If the marginal tax rate is 20%, by how much must income have increased if your tax bill increases by $300?

Answer 9

$1,500
(300/.2)

Question 10

Which of the following is not a significant source of revenue for the U.S. federal government?

Personal income taxes

Corporate income taxes

Property taxes

Payroll taxes

Answer 10

Property taxes

Question 11

Which of the following is not an example of a final good or service (from the perspective of the national income accounts)?

Answer 11

seedlings and saplings purchased for resale by Wendy’s Garden Center

Question 12

If output increases by 8 percent from year 5 to year 6, then in that period

year 5: 125
year 6: 120

Answer 12

real GDP will rise faster than nominal GDP

Question 13

Most economists believe that property taxes

Answer 13

are regressive.

Question 14

A large underground economy results in an

Answer 14

understated GDP.

Question 15

In the second quarter (three-month period) of 2016, U.S. nominal GDP increased but U.S. real GDP declined. What can we conclude?

Answer 15

The price level rose by more than nominal GDP.

Question 16

GDP calculate

Answer 16

GDP = private consumption + gross private investment + government investment + government spending + (exports – imports)

Question 16

In an economy, the value of inventories was $75 billion in 2009 and $63 billion in 2010. In calculating total investment for 2010, national income accountants would

Answer 16

decrease it by $12 billion.

Question 17

GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be

Answer 17

use algebra and GDP formula

−$84 billion.

Question 17

A nation’s capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was

Answer 17

$75 billion.

the 50 from 300 to 350 plus the capital of 25

Question 18

A decrease in a country’s capital stock occurs when

Answer 18

the consumption of fixed capital exceeds gross domestic investment.

Question 19

Real GDP per capita

Answer 19

divide real gdp by population

Question 20

The base year is 2005, and the GDP price index in 2004 is 92.0. This implies that the

Answer 20

prices in 2005 were higher than in 2004.

Question 21

Personal consumption expenditures consist of

Answer 21

household and individual purchases of services and durable and nondurable goods.

Question 22

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would

Answer 22

add $10 billion to other elements of investment in calculating total investment.

Question 23

To calculate real GDP

Answer 23

multiply quantities of final goods and services in an economy in a year by their prices in a base year and then sum the values.

Question 24

A nation’s real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 122 million in 2014 and 125 million in 2015. What is the growth rate of real GDP per capita in 2015?

Answer 24

3.4%

Question 25

average price level

Answer 25

will not increase a nation’s real GDP

Question 25

increases in real GDP

Answer 25

Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy?

Question 26

The most likely cause for a shift in the production possibilities frontier from AB to CD is
(ab has less capital goods and less consumer goods (closer to origin)
cd has more capital goods and more consumer goods)

Answer 26

an increase in the quantity and quality of labor resources.

Question 27

Curve (a) is the initial frontier for the economy. If the economy’s production possibilities then shift to curve (b), then point

(curve a has less capital goods than capital b)

Answer 27

N would indicate some unemployment or underemployment of resources.

Question 28

A nation’s real GDP was $250 billion in 2014 and $265 billion in 2015. Its population was 120 million in 2014 and 125 million in 2015. What is its real GDP per capita in 2015?

Answer 28

$2,120 per person

Question 29

An increase in an economy’s labor productivity would

(curve ab has less capital goods and less consumer goods, curve CD has more of both)

Answer 29

shift the production possibilities frontier from AB to CD.

Question 30

Before the Industrial Revolution, living standards in the world

Answer 30

were relatively stagnant for long periods of time.

Question 31

For a nation’s real GDP per capita to rise during a year,

Answer 31

real GDP must increase more rapidly than population.

Question 32

If a nation’s real GDP is growing by 5 percent per year, its real GDP will double in approximately

Answer 32

14.4 years.

Question 33

A poor person in the United States has ___.

Answer 33

a higher per capita real income than the average poor person in the world

Question 34

The most likely cause of a shift of a production possibilities frontier of an economy AB to CD is

(curve ab has less capital goods and less consumer goods, curve CD has more of both)

Answer 34

technological progress.

Question 35

Which of the following does not correctly characterize modern economic growth?

Answer 35

It has not affected the average lifespan of human beings.

Question 36

Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living?

Answer 36

increases in real GDP per capita

Question 37

Human capital refers to the

Answer 37

education, training, and skills of workers.

Question 38

Consider two scenarios for a nation’s economic growth. Scenario A has real GDP growing at an average annual rate of 2%; scenario B has an average annual growth of 4%. The nation’s real GDP would double in about

Answer 38

36 years under scenario A, versus 18 years under scenario B.

Question 39

Which of the following will cause a decrease in the standard of living for an individual?

Answer 39

a decrease in socioeconomic status

Question 40

In the long run, if the production of all goods increases for a society (there is economic growth), it will cause the production possibility frontier to

Answer 40

shift outward.

Question 41

A headline states: “Real GDP falls again as the economy slumps.” This condition is most likely to produce what type of unemployment?

Answer 41

cyclical

Question 42

A trough in the business cycle occurs when

Answer 42

employment and output reach their lowest levels.

Question 43

For a given amount of nominal income, the real income will

Answer 43

fall if the price level rises.

Question 44

Suppose the yearly consumption of the household 61 loaves of bread, 52 jars of peanut butter, and 57 gallons of milk. What is CPI in year 2, using year 1 as a base year?

(year 1: price of bread is 2, pb is 3.5, milk is 4.1
year 2: price of bread is 2.25, pb is 3.65, milk is 4.15)

CPI= (cost of market basket in current period/cost of market basket in base period)*100

Answer 44

The CPI is 104.82.

Question 45

A person’s real income will increase by 3 percent if her nominal income increases by

Answer 45

5 percent while the price index rises by 2 percent.

Question 46

If the CPI declines from one year to the next, then which one of the following statements is not true?

Answer 46

The CPI turns negative in the next year.

Question 47

Official unemployment rate statistics may

Answer 47

understate the amount of unemployment because of the presence of “discouraged” workers who are not actively seeking employment.

Question 48

Which of the following is the correct way to calculate the unemployment rate?

Answer 48

(unemployed/labor force) × 100

Question 49

Use the following information to answer the next question.

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.

Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer.

George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.

Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.

Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work.

Which individual is cyclically unemployed?

Answer 49

George

Question 50

To calculate the Consumer Price Index, the BLS surveys

Answer 50

over 10,000 households.

Question 51

Use the following information to answer the next question.

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment.

Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer.

 

George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve.

 

Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. 

Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work.

Which individual is structurally unemployed?

Answer 51

Jeanette

Question 52

The Consumer Price Index includes

Answer 52

goods and services from eight major categories.

Question 53

The goods and services used to calculate the consumer price index represent

Answer 53

what an average household buys.

Question 54

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

Answer 54

expansion

Question 55

A peak in the business cycle

Answer 55

is a temporary maximum point.

Question 56

calculate equilibrium price

Answer 56

For a table:
look for values when Qd and Qs are equal, this is the equilibrium quantity. The price per bottle when these are equal is the equilibrium price.

If the table didn’t have an exact match, you’d look for the closest points where Qd and Qs intersect and use interpolation for more precise results

Qd is the quantity demanded minus the price per bottle with a P
Qs is the supplied plus the price per bottle with a P

Qd=x-yP
Qs=x-yP

Use Qd = Qs to find the equilibrium price.
Plug the price, or P, into either the supply equation or the demand equation to solve for equilibrium quantity.

Question 57

An infestation of banana spiders makes it extremely difficult to harvest Indian bananas. The U.S. Surgeon General has stated that there are numerous health benefits from eating bananas. As a result, one should expect

Answer 57

the equilibrium price to rise, but the equilibrium quantity to be indeterminate from the information given.

(Because bananas are more difficult and expensive to harvest, supply will decrease and the supply curve for bananas will shift to the left. The news about the health benefits of bananas will cause demand to increase, which moves the demand curve for bananas to the right. The two new curves will intersect above the initial equilibrium, which will cause the equilibrium price to increase. The change in equilibrium quantity is indeterminate because the two new curves could create an increased, decreased, or the same equilibrium quantity. Without knowing the exact size of the shifts in the curves, we cannot definitively know whether the new equilibrium quantity will increase, decrease, or remain the same.)

Question 58

After the excise tax is imposed, the price (or amount) producers keep after the tax is paid is _ per bottle.

Answer 58

The price (or amount) producers get to keep is the price paid by consumers after the tax is subtracted. Because the tax is $0.75 per bottle and the price paid by consumers is $2.00, the price producers get to keep is $2.00 – $0.75 = $1.25 per bottle.

Question 59

The government is able to collect $ _ billion of tax revenue from the tax.

Answer 59

The amount of tax revenue collected is equal to the quantity sold in the market multiplied by the amount of the tax. In this case, the market quantity sold is the new equilibrium quantity with the tax, which is 3 billion bottles times the tax of $0.75 per bottle: 3 billion bottles × $0.75 = $2.25 billion in tax revenue.

Question 60

Due to a recent hurricane there is a major loss of sugarcane crops. At the same time in the U.S. consumers are eating healthier and cutting back on eating items that have sugar in them. How will this affect the price and quantity in the sugar market?

Answer 60

Quantity decreases and price is indeterminate

Question 61

If a price ceiling is set below the equilibrium price in a market

Answer 61

the quantity demanded will exceed the quantity supplied.

Question 62

A television station reports that the price of coffee has increased but the quantity traded in the market has decreased. This situation would be caused by a(n)

Answer 62

decrease in supply.

Question 63

Which is of the following statements is correct?

Answer 63

If demand decreases, then price will decrease.

Question 64

Nebraska had an unseasonable cold winter requiring more salt for the roads than normal. If the supply does not change what would happen to the market for salt?

Answer 64

The increased demand but no change in quantity supplied causes a shortage of salt.

Question 65

A tax on suppliers will cause the ________ schedule to shift ________.

Answer 65

supply, left

Question 66

If a technological advance lowers production costs such that the quantity supplied increases by 60 units of this product at each price, the new equilibrium price would be

Answer 66

$12.

Question 67

What might happen to the equilibrium price and quantity of Disney World tickets if Universal Studios offers discounts to families?

Answer 67

Price of Disney World tickets decreases, and quantity bought decreases

Question 68

Which is of the following statements is correct?

Answer 68

If demand decreases, then price will decrease.

Question 69

With a tax of $4,000 on $24,000 taxable income, the average tax rate is

Answer 69

16.67%.

Question 70

Which of the following statements about payroll taxes is false?

They provide funds for Social Security.
They include Medicare taxes.
Both employers and employees pay these taxes.
They are lump-sum taxes not based on wages/salaries.

Answer 70

They are lump-sum taxes not based on wages/salaries.

Question 71

With a tax of $2,000 on $30,000 of income, and $2,000 on $70,000 of income, we can describe the structure of this tax as

Answer 71

regressive.

Question 72

Which of the following is not a government activity that is involved in public finance?
Providing public goods and services such as national defense and education.
Running government-owned enterprises such as hospitals, utilities, and lotteries.
Redistributing income through various taxes and income-transfer payments.
Regulating the activities of firms in the financial sector of the economy.

Answer 72

Regulating the activities of firms in the financial sector of the economy.

Question 72

An increase in the public debt and its subsequent repayment will tend to

Answer 72

mildly increase the income inequality in the U.S.

Question 73

Suppose a government wants to reduce its budget deficit. It could

Answer 73

reduce the number of activities that are considered illegal.

Question 73

The circular flow model with government included would show that government

Answer 73

provides goods and services to businesses and households and pays for them with net taxes.

Question 74

Which of the following is a primary use for national income accounts?

Answer 74

to measure changes in the value of production and income in the economy

Question 75

In the treatment of U.S. exports and imports, national income accountants

Answer 75

add exports but subtract imports in calculating GDP.

Question 76

“Net foreign factor income” in the national income accounts refers to the difference between the

Answer 76

income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the United States.

Question 77

Nominal GDP is

Answer 77

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

Question 78

“Full employment” refers to the situation when there is

Answer 78

no cyclical unemployment.

Question 79

The total population of an economy is 175 million, the labor force is 125 million, and the number of employed workers is 117 million. The unemployment rate for this economy is

Answer 79

6 percent.

Question 80

The Cronkite Medical Center purchases a new piece of equipment that will automatically send notifications of a change in a patient’s condition to their doctor and nurses. In the CPI, this would

Answer 80

not be counted.

Question 81

CPI=

Answer 81

(cost of market basket in current period/cost of market basket in base period)*100

Question 82

Real income will rise from one year to the next if nominal income

Answer 82

falls and the price level falls faster.

Question 83

to find labor force

Answer 83

add employed and unemployed population