ECON Exam 2

1.

1 point

the long-run aggregate supply curve is vertical because

input prices and output prices move together

the economy is on the production possibilities frontier and only real factors affect long-term growth

potential GDP is independent of the price level

all of the above are true

2.

1 point

Purchasing power parity prices are used to

do not omit the underground economy

can be used to make more valid per capita GDP comparisons between one country and another

adjust for differences in population

is a proper measure of economic welfare

3.

1 point

The income approach measures GDP by adding together compensation of employees,proprietors' income,

net interest, rental income, and corporate profits

net investment, saving, and farmers' income

net investment,rental income, and corporate profits

net saving, investment income, and profits

4.

1 point

Greater optimism about the expected profits from investment projects

shifts the demand for loanable funds curve rightward

causes a movement upward along the supply for loanable funds curve

shifts the demand for loanable funds curve leftward

causes a movement downward along the demand for loanable funds curve

5.

1 point

______ economist believe that the economy is self regulating and will be at fully employment

Democratic

Classical

Keynesian

All

6.

1 point

Lower taxes

decrease short run aggregate supply

increase aggregate demand

increase the short run aggregate supply

decrease aggregate demand

7.

1 point

the unemployment rate is the _________ who are unemployed

percentage of the working age population

number of people in the labor force

percentage of people in the labor force

percentage of people in the country

8.

1 point

Which of the following events will increase long-run aggregate supply

a decrease in expected profit

an advance in technology

an increase in the money supply

an increase in resource prices

an increase in the interest rate

9.

1 point

Which measure of unemployment measure includes both the official unemployed plus discouraged workers but EXCLUDES part time workers who want full time work

U1

U3

U6

U4

10.

1 point

According to the law of diminishing returns, an additional unit of

labor produces less output than the previous unit

capital produces more output than an additional unit of labor

labor produces more output than the previous unit

labor decreases output

11.

1 point

Economics became known as the "dismal science" because of the

classical growth theory prediction of sunsistence wage rates in the long run

trouble students have earning good grades in their Introductory Economics classes

neoclassical growth theory prediction that growth would not persist in the long run

tendency of competitive markets to keep prices and profits low

12.

1 point

According to the new growth theory of Paul Romer,

knowledge is not subject to diminishing returns

the concept of labor market is not necessary

the rate of technological progress is determined by chance

the labor demand curve does not shift upward over time

13.

1 point

Gross domestic product is the total____________ produced within a country in a given time period

market value of all goods and services

market value of all final goods and services

amount of final and intermediate goods and services

market value of all final and intermediate goods and services

14.

1 point

saving by households

is unaffected by the real interest rate

decreases when the real interest rate rises

increases when the real interest rate falls

increases when the real interest rate rises

15.

1 point

The classical school focuses on monetary policy and the Keynesian school focuses on fiscal policy

True

False

16.

1 point

the marginal product of labor is diminishing because as labor hours

decrease, capital will decrease

decrease;output falls very little

increase, capital and technology are fixed

increase, output increases

17.

1 point

Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is

137x121=258

(137/121)x100=113.2

(137-121)/100=.16

(137-121)/121)x100=13.2

18.

1 point

Which of the following means that the CPI overstates the actual inflation rate

outlet substitution bias

new goods bias

quality change bias

All of the above cause the CPI to overstate inflation

19.

1 point

The commodity substitution bias is that

national saving and foreign borrowing are itnerchangeable

government spending is a good subsistute for investment expenditures

consumers substitute high quality goods for low quality goods

consumers decrease quantity they buy of goods whos relative prices rise and increase the quantity of goods whose relative price falls

20.

1 point

The short-run aggregate supply curve is upward sloping because`

the money rage rate (and other input prices) remains constant so the higher the prices makes it profitable for firms to expand production

marginal costs rise with an increased output so firms have to receive higher prices to justify their increase in output

firms can increase their profits by increasing maintenance

the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits

Both A and B are correct

21.

1 point

According to the interest rate effect, a fall in the price level will

increase net exports, which causes the quantity of real gdp demanded to increase

increase the real value of wealth, which raises the interest rate so that the quantity of real GDP demanded decreases

decrease the real value of wealth, which increases the quantity of real GDP demanded

cause the interest rate to fall so that the investment increases and the quantity of real GDP demanded increases

22.

1 point

Misery index=inflation rate-unemployment rate

True

False

23.

1 point

a recession causes a decrease in the demand for housing, resulting in substantial layoffs in the construction industry. The people laid off are considered

frictioanlly unemployment

structuarally unemployment

seasonally unemployment

cyclically unemployment

24.

1 point

Personal consumption expenditures include all of the following except spending

consumer durable goods

new housing

consumer services

consumer non durable goods

25.

1 point

a recessionary gap means that short-run macroeconomic equilibrium GDP

is more than full employment GDP

equals full employment GDP

is less than full employment GDP

may be less than, more than, or the same as full employment GDP depending on the level of potential GDP

26.

1 point

When the economy is at full employment the unemployment equals the natural unemployment rate

True

False

27.

1 point

Labor Productivity

is real GDP per unit of capital

is real GDP per hour of labor

increases when aggregate labor hours increase

is labor per unit of capital

28.

1 point

Which of the following will shift the supple of loanable funds curve leftward

a decrease in expected future income

a decrease in disposable income

a decrease in the real interest rate

a decrease in real wealth

29.

1 point

If the central bank (FED) increases the money supply

interest rates will rise

interest rates will not be affected

interest rates will fall

neither the interest rates or exchange rates will be effected

30.

1 point

Net investment equals

the total quantity of plant, equipment, and buildings

gross investment/depreciation

gross investment minus depreciation

capital stock minus depreciation

31.

1 point

Net exports of good and services equal the

exports of goods and services minus the imports of goods and services

imports of goods and services minus the exports of good and services

exports of good and services divided by the imports of goods and services

exports of goods and services plus the imports of goods and services

32.

1 point

An advance in technology shifts the production function upward and shifts the labor

demand curve rightward

supply curve leftward

demand curve leftward

supply curve rightwars

33.

1 point

Which growth theory models growth as a perpetual motion machine

New growth theory

all growth theories model growth as a perpetual motion machine

classical growth theory

neoclassical growth theory

34.

1 point

The largest component of GDP in the income approach(i.e national income) is

government expenditure on goods and services

labor income (compensation of employees)

rents

gross private domestic investment

personal consumption expenditures

35.

1 point

A decrease in the input prices (such as the money wage) ceteris paribus

increases the long-run aggregate supply

increases the short-run aggregate supply

decreases the short-run aggregate supply

increases aggregate demand

decreases the long-run aggregate supply

36.

1 point

GDP using the expenditure approach equals the sum of the personal cosumption expenditures plus

gross private investment plus government expenditure on goods and services

gross private investment

gross private investment plus government expenditure on goods and services minus imports of goods and services

gross private investment plus government expenditure on goods and services plus net exports if goods and services

37.

1 point

The equilibrium real interest rate is determined by the

demand for loanable funds curve and the supply of loanable funds curve

government spending curve and the taxing curve

demand for loanable funds curve and the consumption demand curve

consumption demand curve and the supply of loanable funds curve

38.

1 point

At potential GDP

unemployment is at its natural rate

only cyclical unemployment remains, no structural or frictional unemployment

there are no unemployed persons in the US

None of the above are correct

39.

1 point

The working-age population is defined as the number of

people who have a job

people over the age of 16 who are no in jail, hospital, or other institution

people working full-time jobs who are over the age of 16

people looking for work

40.

1 point

If the nominal interest rate is 10 percent and inflation is 7 percent, the real interest rate is approximately

-3 percent

17 percent

1.4 percent

3 percent

41.

1 point

Unlike Cyclical unemployment, both frictional and structural unemployment rise during recessions and fall during expansions

True

False

42.

1 point

An assumption of the neoclassical theory of growth is that

knowledge has diminishing returns

the marginal product of all types of capital increases as more capital is accumulated

people earn only a subsistence real wage rate

all technological advances are the result of chance

43.

1 point

According to the Boskin Commission, the CPI

is accurately measured

overstates inflation by 3.9 percentage points per year

understates inflation by 1.1 percentage points per year

overstates inflation by 1.1 percentage points per year