People become labor force participants when they:
(a) Take a full-time job.
Which of the following is not a consequence of unemployment?
(b) Improved confidence for workers
If a recent college graduate is looking for a job but cannot find one, this is known as
(d) Unemployment
Ceteris paribus, as the rate of employment moves closer to the level of full employment, then the:
(a) Level of output moves closer to the production possibilities curve, but not beyond it.
Ceteris paribus, when the size of the labor force increases in a economy, then the:
(c) Production possibilities curve shifts outward.
When the growth rate of the labor force is more rapid than the growth rate of unemployment workers, then it is certain that the:
(c) Percentage of the labor force that is employed is rising.
When an economy enters recession, the:
(d) Number of discouraged workers rises.
According to Okun's Law, a two-percent decrease in unemployment will result in a :
(b) Four percent increase in real output
Individuals who are working part-time while seeking full-time employment are classified as:
(a) Underemployed
The official underemployment statistics may exaggerate the significance of unemployment by including the:
(b) Phantom unemployed
Which of the following groups typically has the highest unemployment rate in the United States?
(d) Minority teenagers
When a person who worked as a camp counselor all summer seeks employment during the winter, the unemployment rate goes up. This situation is an example of:
(a) seasonal unemployment
Frictional unemployment goes up when:
(c) A worker quits one job in order to search for another.
Cutbacks in national defense spending during the 1990's caused an increase in:
(d) Structural unemployment
In terms of the musical chairs analogy in the text, which of the following is a description of cyclical unemployment?
(d) There are too few chairs.
Which of the following government programs would be most appropriate to counteract cyclical unemployment?
(a) Those that stimulate economic growth.
The Employment Act of 1946:
(d) Committed the government to pursue a goal of "maximum" employment.
Which of the following groups would be the most likely to qualify for unemployment benefits?
(b) People who lose their jobs due to increased foreign competition and are looking for work.
Between 1956 and 1979 greater proportions of teenagers and women entered the labor force causing :
(d) An increase in the structural unemployment rate.
Which of the following is true concerning the outsourcing of jobs?
(c) It allows U.S. firms to become more globally competitive.
If the price of MP3 players falls 5 percent during a period when the level of average prices falls 3 percent, the relative price of MP3 players compared with other goods:
(c) Decreases.
When an economy experiences a zero rate of inflation, which of the following statements is definitely true?
(b) There is no redistribution of income and wealth because of inflation.
As a result of inflation:
(c) Tension between labor and management increases.
Which of the following is not a consequence of inflation?
(d) The horizon effect.
If actual inflation is greater than anticipated inflation in an economy:
(a) Borrowers would experience an increase in real income.
Which of the following groups is likely to lose as a result of unanticipated inflation?
(b) Fixed-income groups.
Suppose you get a 5 percent raise during a year in which the price level rises by 8 percent. Then over the year your real:
(c) Income falls, but your nominal income rises.
Which of the following best describes the impact of uncertainty caused by inflation?
(c) Investment decisions are more difficult to make because of uncertain but rising costs.
Which of the following does not characterize consumers' or businesses' reactions to the uncertainties caused by inflation?
(d) Businesses lengthen their time horizons and plan to build new facilities.
Which of the following is a macro consequence of inflation?
(a) Shortened time horizons.
Speculation during periods of inflation can cause:
(d) The hording of resources for future sale.
At the beginning of 1960 the CPI was 29.6. At the beginning of 2009 it was approximately 170.8. Which of the following most closely approximates the forty-year rate of inflation?
(b) 477 percent
If you were interested in charting "price changes" for all goods and services produced, which of the following would be the most appropriate to use?
(c) The GDP deflator.
The reason that policy makers are reluctant to force the economy to a zero percent inflation rate is that:
(a) Unacceptable levels of unemployment might result.
If the CPI doesn't adjust for product quality improvements, then the CPI tends to:
(b) Overstate the inflation rate.
Which one of the following statements about inflation in the U.S. is correct?
(a) Prior to World War II, the U.S. experienced periods of both deflation and inflation.
COLAs are desired because:
(a) The real value of wages can be maintained, since COLAs correct for the effects of inflation.
For an economy in which nominal interest rates are equal to real interest rates, which of the following statements is definitely true?
(d) No inflation occurred.
The most fundamental function of prices in a market economy is to provide:
(c) Information about the relative scarcities of resources and goods and services.
The most desirable inflation rate is the rate:
(b) That least affects the behavior of companies, investors, consumers and workers.
According to classical theorists, when consumer demand slowed down, ____ would ____ and all the output would be sold.
(d) Prices; fall
Business cycles in the United States:
(b) Vary greatly in length, frequency, and intensity.
Which of the following is inherent in the classical view of a self-adjusting economy?
(a) Flexible wages and prices.
Keynesian theory became important when classical economic theory did not adequately explain a prolonged period of:
(c) Economic contraction
In the aggregate demand-aggregate supply diagram:
(c) The intersection of the two curves marks the macro equilibrium.
Which of the following is a reason for a downward-sloping aggregate demand curve?
(a) The foreign-trade effect.
The difference between market demand and aggregate demand is:
(d) Market demand applies to a given market while aggregate demand applies to the entire economy.
The interest-rate effect helps explain the downward slope of the aggregate demand curve because as the price level falls, the need to borrow:
(b) Decreases which cause the interest rate to fall and loan-financed sales increase.
When the average price level falls in our economy, consumers tend to buy:
(c) Fewer imported goods and more domestic goods, ceteris paribus.
Which of the following is a reason why the aggregate supply curve is upward sloping?
(a) Profit effect
The cost effect implies all of the following except:
(b) That demand increases when production decreases.
In macro equilibrium:
(a) Aggregate quantity demanded equals aggregate quantity supplied.
When aggregate demanded exceeds aggregate supply, what will happen to the price level?
(c) Prices will rise.
Which of the following shifts would definitely result in higher unemployment?
(b) Demand shifts to the left and supply shifts to the left.
Controversies between Keynesian, monetarist, supply-side, and eclectic theories focus on:
(a) The shape and sensitivity of aggregate demand and aggregate supply curves.
According to Keynes, policy makers should respond to a downturn in the business cycle by:
(a) Cutting taxes and increasing government spending.
According to classical and monetarist theories, in the long run the aggregate supply curve is:
(d) Vertical at the natural rate of output.
Which of the following is not typically used to shift the aggregate demand curve or the aggregate supply curve?
(d) A laissez-faire approach.
If equilibrium GDP is less than full employment GDP, an appropriate fiscal policy action would be to:
(b) Increase AD by increasing government spending.
If an economy is suffering from excessively high rates of inflation, an appropriate monetary policy lever would be to:
(b) Decrease AD by increasing interest rates.
The point where aggregate demand and aggregate supply are equal always represents:
(b) Macro equilibrium.
If, in the aggregate, consumers spend 87 cents out of every additional dollar received:
(c) The MPS is 0.13
Suppose the MPC is 0.9 and the level of consumption spending independent of current disposable income is $1 billion. At a disposable income is $12 billion, what is the level of consumption?
(b) $11.8 billion.
Which of the following includes all the components of aggregate demand?
(d) Consumption, government spending, net exports, and investment.
A change in autonomous consumption would correspond to:
(a) A shift of both the consumption function and the aggregate demand curve.
In the consumption function C=a+bYD, the value of a is determined in part by:
(c) Consumer confidence.
The line described by the consumption function C=a+bYd will change its slope when:
(a) The MPC changes.
The marginal propensity to consume is the:
(b) Additional consumption because of additional income.
An increase in interest rates will likely cause:
(a) A decrease in both aggregate demand and the consumption function.
With respect to the aggregate demand curve, improved consumer confidence will:
(a) Shift the curve rightward.
The determinants of consumption include:
(d) Wealth, credit, current income, and taxes.
Any event that causes a decrease in consumer confidence, such as the terrorist attacks on the World Trade Center and The Pentagon on September 2001, will cause:
(a) A downward shift of the consumption function and decrease in aggregate demand.
Which of the following is included in investment spending?
(d) The purchase of new accounting software by a small business.
Which of the following causes a movement along the investment demand curve?
(c) A change in the rate of interest.
The growth in the value of the U.S. stock market in the 1990s caused aggregate demand to increase primarily because of:
(b) The wealth effect.
U.S. aggregate demand can shift due to changes in expectations on the part of:
(b) U.S. businesses, foreign businesses, and U.S. consumers.
Dissaving:
(c) Can be financed with savings from a prior period.
If aggregate demand is too great:
(c) There will be an inflationary GDP gap.
When consumers, government, businesses, and the foreign sector do not buy all of the output that is produced, then:
(a) Inventories accumulate.
When aggregate demand falls below the full-employment level of output, which of the following types of unemployment is most likely to inrease?
(a) Cyclical.
According to the Keynesian view od the macro economy, when the economy is at equilibrium:
(a) Aggregate supply equals aggregate demand.
When the economy is in equilibrium, all of the following are true except:
(b) Saving equals spending.
Equilibrium GDP could be upset by a change in:
(c) Any leakage or injection.
A leakage from the circular flow is:
(c) A diversion of income from spending on output.
When an economy is at full employment and consumption spending decreases, if all other levels of spending remain constant:
(a) Increased unemployment results.
Given C=100+0.90Yd the multiplier is:
(b) 10
If actual investment exceeds desired investment then:
(a) Inventories are increasing.
Which of the following is not consistent with Keynes' view of the economy?
(d) Increased consumer spending is the only solution for a recession.
Suppose that as a result of higher interest rates, desired investment and aggregate demand decrease. Additional decreases in aggregate demand will occur because of:
(c) The multiplier effect.
Assuming an upward-sloping aggregate supply curve, when aggregate demand increases:
(b) Unemployment decreases and the price level increases.
Suppose that an economy has an upward-sloping aggregate supply curve and a GDP gap equal to $66 billion. If aggregate demand increases by a total of $66 billion:
(b) The resulting equilibrium GDP will be lower than full employment GDP because some of the additional spending will drive up prices instead of increasing output.
Using a consumption function of the form c=a+bYd, which of the following would best measure the total impact on output of a change in autonomous spending?
(d) 1/1-MPC
When output exceeds desired spending, which of the following is included in the Keynesian adjustment process?
(d) All of the Above.
Because the aggregate supply curve rises more steeply as the economy approached full employment:
(a) Inflation tends to accelerate.
In which of the following cases would cyclical unemployment tend to increase, ceteris paribus?
(b) Total value of goods supplied exceeds the total value of goods demanded.
If the equilibrium level of output is less than full employment, to achieve a full-employment equilibrium the AD curve must shift to the right by an amount:
(c) Greater than the GDP gap because the spending increase raises the price level.
In an inflationary GDP gap situation:
(c) There is excess demand for goods and consumers bid up prices.
A rightward shift in the aggregate demand curve will cause:
(a) Both higher prices and higher output if the aggregate supply curve is upward sloping.
With an MPC of 0.70 an increase of $4 billion in autonomous consumption would cause:
(c) Income to change by a total of $13.33 billion.
A basic conclusion of Keynesian analysis is that:
(d) All of the above.
Fiscal policy works principally through shifts of:
(b) The aggregate demand curve.
Which of the following is not a tool of fiscal policy?
(a) Increasing the money supply.
In a diagram of aggregate demand and aggregate supply curves, the GDP gap is measured:
(b) As the horizontal distance between the equilibrium output and the full employment output.
If the economy is operating below full employment, which of the following policies will increase aggregate spending but will not increase the size of the government?
(c) Leave government spending unchanged and decrease taxes.
Ceteris paribus, if income is transferred from individuals with a higher MPC to those with a low MPC, aggregate demand will:
(a) Decrease
To eliminate the AD shortfall of $100 billion when the economy has an MPC of 0.80, the government should increase its purchase by:
(a) $20 Billion
Assuming an MPC of 0.5, the change in total spending for the economy as a result of a $100 billion new government spending injection would be:
(d) $200 billion
1�(1-MPC) multiplied by a new spending injection gives the:
(c) Total change in income generated from the new spending.
An MPS of 0.20 means a $100 tax increase ultimately causes spending to fall by:
(b) $400
Suppose the consumption function is C=100+.75Yd. If the government stimulates the economy with $50 billion in increased spending, total aggregate expenditure will ultimately rise by:
(c) $200 billion.
Which of the following will cause the level of income to change by the greatest amount, ceteris paribus?
(c) An increase in defense spending of $100 million.
The desired fiscal stimulus that will eliminate an AD shortfall should equal the:
(d) All of the above
The desired tax cut necessary to close an AD shortfall is given by:
(b) desired fiscal stimulus � MPC.
For the balanced-budget multiplier to equal 1, the budget:
(a) Need not be balanced, but the changes in taxes and spending must be equal.
Which of the following is most powerful in shifting the aggregate demand curve?
(c) an increase in defense of $10 billion.
The initial, or first round, increase in consumption because of a tax cut is equal to:
(a) MPC x the amount of the tax cut.
If the desired fiscal restraint is $10 billion and the excess AD is $100 billion, we can conclude that the multiplier is:
(a) 10
Crowding out occurs when the government:
(b) Issues debt, thus making it more difficult for the privare sector to issue debt.
All of the following limit the effectiveness of fiscal policy in the real world except:
(d) The multiplier effect.
The federal government approves a new highway the injects $100 million of new spending into the economy during the first year of the project. Ceteris paribus, if the consumption function for theis economy is given by the equation C=250+0.9Yd, how much is
(c) $90 million