A)

a Toyota sedan

B)

a movie ticket

C)

a six-pack of beer

D)

an hour with a masseuse

2.

In the national income and product accounts system the two main approaches to measuring the size of the economy are:

A)

income and expenditures.

B)

imports and exports.

C)

production and consumption.

D)

government and private.

3.

Because GDP excludes nonmarket transactions, the level of economic activity in a country is understated.

A)

True

B)

False

4.

The rental income component in the income approach to calculating GDP includes the incomes of real estate agents and brokers.

A)

True

B)

False

5.

What does M represent in the following formula? GDP = C + I + G + (X – M)

A)

exports

B)

government spending

C)

personal consumer spending

D)

imports

6.

Which of the following is NOT included in gross private domestic investment?

A)

construction of residential housing

B)

new equipment purchased by businesses

C)

purchases of common stock by investors

D)

an increase in business inventories

7.

Child care provided by a nanny is not included in the GDP if the parents pay the nanny under the table.

A)

True

B)

False

8.

Which of the following is TRUE within the circular flow of economic activity?

A)

Households are buyers of products and sellers of production factors.

B)

Business firms are buyers and sellers of production factors.

C)

Households are sellers of products and buyers of production factors.

D)

Business firms are buyers of products and sellers of production factors.

9.

Government spending is generally a very unstable component of GDP.

A)

True

B)

False

10.

Investment in structures, equipment, software, and net inventory is known as:

A)

total business spending.

B)

gross private domestic investment.

C)

net business spending.

D)

net investment in durables.

11.

The largest component of GDP is:

A)

consumption expenditure.

B)

gross private domestic investment.

C)

government spending.

D)

net exports.

12.

Which organization determines the beginning and end dates of a recession?

A)

the Council of Economic Advisers

B)

the National Bureau of Economic Research

C)

the U.S. Treasury Department

D)

the Federal Reserve Board of Governors

13.

Which of the following statements is CORRECT?

A)

Households supply both labor and nonlabor resources.

B)

In the circular flow model, incomes and resources flow in the same direction.

C)

The four main factors of production are water, land, entrepreneurial ability, and energy.

D)

Owners of factors of production pay income to firms.

14.

It is possible for the unemployment rate at the beginning of a recession to be lower than the unemployment rate at the beginning of a recovery.

A)

True

B)

False

15.

Gross private domestic investment is an important determinant of how severe recessions will be mitigated.

A)

True

B)

False

16.

The classical form of the production function states that output is determined by:

A)

population growth.

B)

some function of available labor or capital.

C)

some function of the money supply.

D)

the government.

17.

Schumpeter thought that the capitalist system was doomed by the forces it helped develop.

A)

True

B)

False

18.

Which is NOT a characteristic of a stable financial system?

A)

stable prices

B)

flourishing credit markets

C)

ease of making financial transactions

D)

unanticipated high inflation

19.

Increases in ___________ often lead to economic growth.

A)

capital

B)

public goods

C)

money supply

D)

government regulations

20.

The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by:

A)

ensuring a stable legal system.

B)

enhancing physical and human capital.

C)

ensuring a stable and secure financial system.

D)

promoting free and competitive markets.

21.

The natural gas deposits found in the United States over the past decade are an example of an increase in:

A)

land and natural resources.

B)

labor.

C)

physical capital.

D)

entrepreneurial ability, technology, and ideas.

22.

By investing heavily in consumption goods, the government promotes a higher level of labor productivity in the United States.

A)

True

B)

False

23.

If the actual growth rate of U.S. GDP was 1.25% from the first quarter to the second quarter, the Bureau of Economic Analysis would report the annualized rate as:

A)

0.3125%.

B)

1.25%.

C)

5%.

D)

15%.

24.

If real GDP per capita has decreased, the standard of living in the country has improved.

A)

True

B)

False

25.

There is a positive correlation between economic freedom and high per capita real GDP.

A)

True

B)

False

26.

Absence of enforcement of contracts would encourage economic development, because people would be more willing to incur risks if they did not have to worry about getting sued.

A)

True

B)

False

27.

To sustain growth beyond the small fluctuations common in the business cycle, an economy's ability to produce must increase.

A)

True

B)

False

28.

Policymakers look at _____________ to compare growth rates over an entire year without seasonal ups and downs.

A)

year-over-year GDP growth rates

B)

annualized GDP growth rates

C)

quarter-to-quarter annualized growth rates

D)

quarterly growth rates

29.

Long-run economic growth can be achieved by making better use of underutilized resources.

A)

True

B)

False

30.

On-the-job training can lead to an increase in:

A)

the capital-to-labor ratio.

B)

the quality of the labor force.

C)

the financial capital ratio.

D)

population.

31.

One reason so many people focus on the trade deficit is that if we import more, equilibrium income will rise, ceteris paribus.

A)

True

B)

False

32.

The recessionary gap is equal to the GDP gap divided by the multiplier.

A)

True

B)

False

33.

Exports are injections and imports are withdrawals from the domestic spending cycle.

A)

True

B)

False

34.

If the marginal propensity to consume is 0.8, full-employment output is $14 trillion, and current output is $13.5 trillion, then investment spending must _____________________ to reach full-employment output.

A)

increase by $0.5 trillion

B)

decrease by $0.5 trillion

C)

increase by $0.1 trillion

D)

increase by $0.4 trillion

35.

What are injections and withdrawals in the simple Keynesian model? Why must they be equal at equilibrium?

Disposable Income

Consumption

$1,000

$1,200

$1,200

$1,300

$1,400

$1,400

$1,600

$1,500

$1,800

$1,600

36.

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?

A)

0.5

B)

−0.5

C)

1.5

D)

−1.5

37.

If income grows from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

A)

1.25

B)

0.8

C)

1.09

D)

0.91

38.

The slope of the saving schedule is:

A)

the marginal propensity to consume.

B)

1 minus the marginal propensity to consume.

C)

the average propensity to consume.

D)

the average propensity to save.

39.

In the simple Keynesian model with no government and foreign sectors, assume that the economy is in equilibrium at an output of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

A)

$1.95 billion

B)

$2.5 billion

C)

$1.9 billion

D)

$1.5 billion

40.

If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is:

A)

0.10.

B)

0.30.

C)

0.70.

D)

0.80.

41.

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

A)

$800

B)

$1,000

C)

$5,000

D)

$8,000

42.

The multiplier works for increases in spending but not for cuts in spending.

A)

True

B)

False

43.

_____ is the change in consumption associated with a change in income.

A)

The average propensity to consume

B)

The marginal propensity to consume

C)

The average propensity to save

D)

The marginal propensity to save

44.

MPC + MPS:

A)

equals 1.

B)

equals 0.75.

C)

equals zero.

D)

is always a negative number.

45.

If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent?

A)

$40

B)

$160

C)

$200

D)

$1,000

46.

Last year, Megan's salary was $65,000. The consumer price index increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be?

A)

$61,553

B)

$61,320

C)

$67,564

D)

$68,578

47.

Measuring changes in a fixed basket of goods to assess changes in price is a ______ method.

A)

cost-of-goods index

B)

cost-of-living index

C)

cost-of-production

D)

utility maximization

48.

A politician who called a rate of inflation of 15% hyperinflation would be criticized by an economist for using inaccurate terminology.

A)

True

B)

False

49.

The goal of unemployment policy is to eliminate frictional unemployment.

A)

True

B)

False

50.

The conversion formula for the current dollar value to constant dollar value is:

A)

real × (base year index / current year index).

B)

nominal × (base year index / current year index).

C)

real / (base year / current year index).

D)

nominal / (base year / current year index).

51.

Which statement about chained consumer price index for urban consumers (C-CPI-U) is TRUE?

A)

It does a better job in approximating a cost-of-living index than the CPI.

B)

It takes less time to estimate than the CPI.

C)

It is generally higher than the CPI.

D)

It has no advantage over the CPI.

52.

People often resort to bartering for goods and services during periods of hyperinflation because money is virtually worthless.

A)

True

B)

False

53.

The price of feed corn would be included in the:

A)

consumer price index.

B)

personal consumption expenditures price index.

C)

producer price index.

D)

core consumer price index.

54.

When a high-quality counterfeit bill is circulated, the government ultimately loses.

A)

True

B)

False

55.

The natural rate of employment:

A)

explains why some people are underemployed.

B)

explains why the unemployment rate is too high.

C)

occurs when the actual inflation rate is lower than the consumer's inflationary expectations.

D)

is the rate at which the actual inflation rate is equal to people's inflationary expectations.

56.

Tom is living with his parents. He looks at the help wanted ads but has not replied to any in the past four weeks. Tom is:

A)

unemployed.

B)

not in the labor force.

C)

temporarily in the labor force.

D)

near-employed.

57.

In the United States, people are counted as employed if they have a job but are having child care problems.

A)

True

B)

False

58.

A consumer price index of 115 means that prices rose by 15% since the base year.

A)

True

B)

False

59.

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114?

A)

$49,114

B)

$50,114

C)

$50,300

D)

$51,818

60.

_____ is a measure of the changes in the average prices received by domestic producers for their output.

A)

The consumer price index

B)

The producer price index

C)

Personal consumption expenditure

D)

The GDP deflator