A nation that protects its workers from unemployment by limiting the use (by employers) of technological improvements will
b. grow less rapidly because technological change is an important factor contributing to the growth of output.
Which statement represents most correctly the relationship between nominal GDP and real GDP?
c. Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.
Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?
a. The real figures will reflect changes in the quantity of output and not changes in the general level of prices.
Which one of the following events will leave GDP unchanged?
b. You lose $500 playing blackjack with friends.
Which of the following events will leave GDP unchanged?
c. You purchase 100 shares of Wal-Mart stock.
Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this cha
d. caused GDP to rise.
One difficulty of computing the value of GDP is that there are no market prices for
b. government goods and services.
Which of the following is a positive effect of job search and the unemployment that often accompanies it?
d. It permits individuals to better match their skills and preferences with the requirements of a job.
Actual GDP will be below potential GDP
c. during a recession.
When full employment is present,
c. the actual rate of unemployment will equal the natural rate.
Which of the following is true?
b. Inflation will tend to increase the nominal values of both prices and wages.
The recessionary phase of the business cycle is characterized by
a. decreasing real output and increasing unemployment.
Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate
c. increases, and the labor-force participation rate increases.
Which of the following would generally cause firms to expand output in the short run?
d. higher profit margins as the result of an unexpected increase in the prices of goods and services
The potential output of an economy is the level of output produced when the
e. expected price level equals the actual price level.
When prices in the goods and services market are below the level anticipated,
b. output will temporarily fall short of the economy's long-run potential.
If net exports are negative, then
c. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.
Imagine that there are only two nations in the world, the United States and Mexico. If Americans buy more goods made in Mexico, other things constant, the
d. U.S. demand curve for Mexican pesos will shift rightward
A positive real interest rate indicates
b. how fast the purchasing power of your savings account is rising over time.
Which of the following is most likely to throw an economy into a recession?
b. an unanticipated reduction in aggregate demand
Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?
d. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity.
Within the AD/AS model, how does an economy adjust to an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand?
d. Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate.
For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be
a. a decrease in real output and an increase in the general level of prices.
Other things constant, an increase in the real interest rate will
a. cause consumers to reduce their purchases of durable items like appliances and automobiles.
If an improvement in the quality of education in the United States increases the productivity of labor, this will
a. increase both long-run and short-run aggregate supply.
If the economy is simultaneously in long-run and short-run equilibrium, which of the following is true?
c. Aggregate quantity demanded is equal to potential output.
After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?
b. Price will increase, and quantity will increase.
If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?
c. Encourage farmers to produce less milk.
Suppose demand decreases and supply increases. Which of the following will happen?
e. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.
Real GDP per person
b. provides more meaningful comparisons across time and countries than real GDP.
In an economy with persistent inflation,
c. nominal GDP will grow faster than real GDP.
If a local shop buys a used motorcycle for $1,000, refurbishes it, and resells it for $2,500, the
a. shop contributes value added equal to $1,500, and consequently $1,500 is added to GDP.
If U.S. net exports are negative,
a. U.S. consumers are spending more on foreign goods than foreign consumers are spending on U.S. goods
If the underground economy is sizable, then GDP will
b. understate the economy's performance.
Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this cha
a. caused GDP to rise.
In a dynamic economy under ideal conditions,
a. some unemployment would be present due to workers temporarily being out of work while changing jobs.
During a boom, the actual rate of unemployment will be
d. less than the natural rate of unemployment.
After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was
d. equal to expected inflation.
Tom loses his job and immediately begins looking for another. Other things the same, the unemployment rate
a. increases, and the labor-force participation rate is unaffected.
The expansionary phase of the business cycle is characterized by
d. increasing real output and declining unemployment.
If the actual price level exceeds the expected price level reflected in long-term contracts,
a. many firms will find production more profitable than they had expected and will increase the quantity of output supplied.
When an economy is in long run equilibrium,
a. the actual and natural rates of unemployment will be equal.
Which of the following is necessarily true when an economy is in long-run equilibrium?
a. The actual rate of unemployment equals the natural rate of unemployment.
As the dollar appreciates, which of the following is most likely to occur?
b. More Americans will travel abroad.
If net exports are negative, then
c. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.
If the expected rate of inflation is zero, the real interest rate must
c. be equal to the money (nominal) interest rate.
The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that
c. a market economy has a self-correcting mechanism that will help guide it toward full employment.
If an economy operates at a short-run equilibrium output that exceeds its long-run capacity, which of the following will be most likely to direct the economy toward full employment?
a. Resource prices will increase, causing the SRAS curve to shift to the left
For an oil-importing country such as the United States, the immediate effect of a supply shock caused by an increase in the price of imported oil would tend to be
b. a decrease in real output and an increase in the general level of prices.
When the economy is operating at an output rate below its full-employment level, the
a. actual level of unemployment will exceed the natural rate of unemployment.
Other things constant, an increase in the real interest rate will
d. cause consumers to reduce their purchases of durable items like appliances and automobiles.
A large grain crop resulting from favorable weather conditions would shift which of the following curves?
d. only short-run aggregate supply
An increase in capital formation that expands long-run aggregate supply will
d. increase output and decrease prices.
When price is the rationing criterion, individuals have a strong incentive to
a. provide services to others in exchange for income.
Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?
c. The real figures will reflect changes in the quantity of output and not changes in the general level of prices.
Suppose the dollar value of GDP increased approximately 2 percent between October 2007 and August 2008, but real GDP fell 1 percent during the period. Which of the following best explains these data?
a. Prices increased approximately 3 percent during period.
A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move
a. necessarily raises GDP.
A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,
b. U.S. investment and GDP increase, but German GDP is unaffected.
One difficulty of computing the value of GDP is that there are no market prices for
a. government goods and services.
Because of transactions which take place in the underground economy, the
b. GDP calculation tends to understate the actual value of goods sold in the economy.
If Sam Jackson voluntarily quits one job, possesses marketable skills, and expects to find a new job in a few weeks, then Mr. Jackson is considered
d. frictionally unemployed.
During an economic boom,
b. the output of the economy will exceed its long-run potential output.
During a boom, the actual rate of unemployment will be
b. less than the natural rate of unemployment.
After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was
a. equal to expected inflation.
Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate
a. increases, and the labor-force participation rate increases.
The expansionary phase of the business cycle is characterized by
c. increasing real output and declining unemployment.
If scientific research produces a technological breakthrough in the production of computer memory, then
c. business costs will fall, profits will improve, and production will increase.
If the actual price level is lower than the expected price level reflected in long-term contracts,
b. the actual rate of unemployment will exceed the natural rate of unemployment.
When the actual rate of unemployment is less than the natural rate of unemployment, the economy
d. operates at an output greater than its long-run potential.
As the dollar depreciates, which of the following is most likely to occur?
c. More foreigners will visit the United States.
If the dollar price of the English pound goes from $1.50 to $2.00, the dollar has
a. depreciated, and the English will find U.S. goods cheaper.
Which of the following events would cause the interest rate to rise?
a. an increase in the demand for loanable funds
Within the AD/AS model, if an unanticipated reduction in aggregate demand results in less than the full-employment rate of output,
c. lower resource prices and declining interest rates will direct the economy back to full employment.
The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that
d. a market economy has a self-correcting mechanism that will help guide it toward full employment.
Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices
d. are higher and output is the same as the original long-run equilibrium.
A recession abroad would
b. reduce U.S. net exports and reduce aggregate demand.
Other things constant, an increase in resource prices will
c. decrease short-run aggregate supply.
An increase in capital formation that expands long-run aggregate supply will
b. increase output and decrease prices.
According to the Keynesian view, the proper response to a severe recession would be
d. an increase in government spending financed by borrowing.
Historically, Keynesian economists have argued that government spending will stimulate aggregate demand more than tax cuts because
a. all of the spending will add to aggregate demand, but a portion of the tax cut will be saved.
Which of the following most accurately indicates the political incentive to spend and/or tax?
a. Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.
According to the Keynesian model, which of the following policies would be most appropriate during a period of rapid inflation?
c. a budget surplus
When the unemployment rate is low, the impact of additional spending on real output will
d. be smaller than when the unemployment rate is high.
According to the Keynesian view, if real GDP is slowing and the economy appears to be headed for a recession, a reduction in tax rates is
c. highly appropriate because it will stimulate aggregate demand and, thereby, help to strengthen the economy.
Which of the following best expresses the central idea of countercyclical fiscal policy?
d. Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.
The legal requirement that commercial banks hold reserves equal to some fraction of their deposits
d. limits the ability of banks to expand the money supply by extending additional loans.
If a customer deposits $1,000 cash into her checking account, the bank's
a. assets and liabilities both rise by $1,000.
If a budget surplus leads to a decrease in U.S. real interest rates, the lower rates will tend to cause
d. the dollar to depreciate.
The crowding-out effect refers to the tendency of
c. the additional borrowing accompanying larger budget deficits to increase interest rates and reduce private spending.
Which of the following best illustrates the use of discretionary countercyclical fiscal policy?
d. Congress passes a bill authorizing $100 billion in additional spending when it receives news of a deepening recession.
Long lags make discretionary policy less effective because
b. by the time the impact of a policy is felt, the problem may have been corrected by market forces.
An increase in the money supply
b. lowers the interest rate, causing an increase in investment and an increase in GDP.
When the Fed buys bonds and injects additional reserves into the banking system, this action will
c. place downward pressure on short-term interest rates.
When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because
c. real interest rates will fall, stimulating business investment and consumer purchases.
Which of the following would cause the money supply in the United States to expand?
c. a decrease in reserve requirements
If the Fed wanted to expand the money supply as part of an antirecession strategy, it could
d. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.
When the Federal Reserve System wants to increase the money supply, what does it typically do?
b. It purchases U.S. government securities.
b. It purchases U.S. government securities.
Though many assets can be used as a store of value, money is a particularly attractive method to store value because
a. it is the most liquid of all assets.
Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 p
c. the nominal interest rate will rise to 10 percent, but the real interest rate will remain at 4 percent.
Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?
d. a higher price level
Supply-side economics stresses that high marginal tax rates
b. discourage people from working harder and using their resources productively.
The immediate effect of a member bank's sale of U.S. government securities to the Fed is
d. an increase in that bank's excess reserves.
d. an increase in that bank's excess reserves.
d. reduce the size of the deposit expansion multiplier.
Criteria for rationing goods and resources must be established because of
d. scarcity imposed by nature.
A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago.
d. Her real salary has fallen and her nominal salary has risen.
If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?
b. The GDP of the United States because that is where it was built
U.S. imports are
c. not added to U.S. GDP because they are produced abroad
If the underground economy is sizable, then GDP will
b. understate the economy's performance.
Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this cha
a. caused GDP to rise.
Which type of unemployment is most likely to help the economy become more efficient?
d. frictional
The concept of full employment
d. reflects the "shopping" of employees looking for employment and of employers seeking to hire workers.
During a recession, the actual rate of unemployment will be
d. greater than the natural rate of unemployment.
Which of the following is true?
d. Inflation will tend to increase the nominal values of both prices and wages.
Anna has just finished high school and started looking for her first job, but has not yet found one. As a result, the unemployment rate
d. increases, and the labor-force participation rate increases.
Suppose that a large number of men who used to work or seek work now no longer do either. Other things the same, this makes the
a. the number of people unemployed and the labor force both falls.
Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will
a. increase output when product prices increase.
If the actual price level is lower than the expected price level reflected in long-term contracts,
a. the actual rate of unemployment will exceed the natural rate of unemployment.
When an economy is in long run equilibrium,
d. the actual and natural rates of unemployment will be equal.
If the dollar price of the English pound goes from $1.50 to $2.00, the dollar has
d. depreciated, and the English will find U.S. goods cheaper.
As the dollar appreciates, which of the following is most likely to occur?
c. More Americans will travel abroad.
Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.
a. The dollar value of savings increased at 4 percent, and the value of savings measured in goods increased at 3 percent.
Which of the following adjustments will most likely occur when output exceeds the economy's long-run capacity?
d. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy's long-run capacity.
Which of the following is most likely to throw an economy into a recession?
c. an unanticipated reduction in aggregate demand
When the economy is operating at an output beyond its full-employment potential, the
When the economy is operating at an output beyond its full-employment potential, the
When the economy is operating at an output rate below its full-employment level, the
d. actual level of unemployment will exceed the natural rate of unemployment.
If a currency depreciates, a country's net exports
d. rise and AD increases.
Other things constant, an increase in resource prices will
c. decrease short-run aggregate supply.
Which of the following, other things the same, would make the price level decrease and real GDP increase?
b. long-run aggregate supply shifts right
In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?
c. an increase in employment
When the Fed buys bonds and injects additional reserves into the banking system, this action will
a. place downward pressure on short-term interest rates.
The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be
d. lower interest rates, increase in aggregate demand, and an expansion in output.