1. society
2. work
3. unemployment

Econ 261, Pretest 2,Spring 2015
Professor Mohabbat
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. In general, as the amount of labor input increases, the amount of output
a. increases.
b. decreases.
c. remains constant.
d. increases only if the capital stock also increases.
2. A productivity decrease would be illustrated by a shift in the production function
a. downward.
b. leftward.
c. upward.
d. rightward.
3. The definition of human capital refers to
a. worker education and workers' equipment.
b. worker education and workers' physical capital.
c. workers' equipment and workers' physical capital.
d. worker education and worker training.
4. Which of the following is not one of the three pillars of productivity growth?
a. rate of capacity utilization
b. rate of technological improvement
c. rate of improvement in workforce quality
d. rate of capital expansion
5. Which of the following countries has the lowest level of average educational attainment?
a. Canada
b. Italy
c. India
d. Sudan
6. The wealthy nations of the world have
a. the largest populations.
b. more supplies of natural resources.
c. more supplies of capital.
d. larger labor forces.
7. Which of the following countries would find it easiest to achieve rapid growth in per capita GDP?
a. United States
b. United Kingdom
c. France
d. Mexico
8. A country's level of productivity determines its
a. productivity growth rate.
b. rate of population growth.
c. current standard of living.
d. future income potential.
9. The productivity growth rates of poorer countries tend to be
a. higher
b. lower
c. increasing slower
d. decreasing faster
than those of richer countries.
10. Imitation as a strategy for acquiring new technology is based on the difference in effort between
a. creating it and thinking of it.
b. creating it and looking it up.
c. looking it up and writing it down.
d. discovering it and innovating it.
11. Given the economy's existing resources and technology, the only way to enjoy more consumer goods today is
to
a. devote more resources to investment goods today.
b. accumulate more capital today.
c. have a slower economic growth rate in the future.
d. devote more resources to consumer goods in the future.
12. Capital is a(n)
variable and investment is a(n)
a. physical, financial
b. stock, flow
c. asset, liability
d. flow, stock
variable.
13. Capital gains are profits that you earn on the sale of your
a. labor.
b. money.
c. financial asset.
d. economics textbook.
14. In 2010, in order to stimulate capital investment, President Obama proposed
a. a reduction in real interest rates.
b. an increase in the money supply.
c. increased write-offs for businesses purchasing equipment.
d. an increase in the tax on capital gains.
15. In 2008-2009 the U.S. economy provided a
a. healthy climate for investment spending.
b. change in aggregate demand that fostered more capital formation.
c. sluggish climate for investment spending.
d. booming economy that spurred investment spending.
16. Laws that assign owners the rights to use assets as they see fit are called
a. human rights.
b. economic rights.
c. property rights.
d. government rights.
17. Property rights uncertainty will usually cause
a. lower levels of investment spending.
b. lower levels of real interest rates.
c. higher levels of investment spending.
d. higher levels of real interest rates.
18. Studies of data support the view that higher levels of education are associated with higher levels of real
a. interest rates.
b. per capita GDP.
c. price inflation.
d. income decline.
19. In most rich countries, adult citizens typically have a
a. primary education.
b. secondary education.
c. higher education.
d. graduate-level education.
20. With regard to investments in human capital, China has been
a. devoting resources to investment in education that could have been used for consumer
goods.
b. upgrading its school systems.
c. sending many Chinese students to universities in other countries.
d. all of the above
21. The wage premium in the United States represents a
a. cost of higher education.
b. decreasing return to higher education.
c. higher return to college education.
d. result of declining college attendance since 1973.
22. The expansion of information technology and the increasing complexity of the economy should make the
wage premium
a. continue rising.
b. continue falling.
c. rise.
d. fall.
23. The lack of a universal productivity effect of higher education was demonstrated by the experience of
a. the United Kingdom.
b. Ireland.
c. France.
d. the Soviet Union.
24. The type of human capital formation that occurs in the business sector is called
a. vocational education.
b. business education.
c. on-the-job training.
d. productivity enhancement.
25. Increases in the supply of scientists and engineers can increase the level of
a. investment.
b. consumption.
c. government spending.
d. technology.
26. To promote rapid economic growth, the new growth theory would argue for increased scholarships in
a. women's studies.
b. deconstructionist literature.
c. post-modern sociology.
d. biology.
27. The process of innovation is the act of
a. discovering a new production process.
b. discovering a new product.
c. basic scientific research.
d. adopting a new product to a market demand.
28. Compared to the 1948 to 1973 period, the period from 1973 to 1995 can be characterized as a period of
a. faster real GDP growth.
b. faster labor productivity growth.
c. slower labor productivity growth.
d. lower labor force growth.
29. From 1973 to 1995 the growth rate of labor productivity in the U.S. was approximately
a. −0.8%.
b. 1.4%.
c. 2.9%.
d. 5.1%.
30. Which period of recent U.S. history shows the lowest rates of productivity growth?
a. 1948-1973
b. 1973-1995
c. 1995-2000
d. All periods had similar growth rates.
31. The productivity slowdown in the U.S. from 1973 to 1995
a. can be explained easily with economic theory.
b. continued into the third millennium.
c. still confuses economists.
d. was a continuation of the slowdown from 1948 to 1973.
32. From the late 1960s to the late 1980s, SAT scores in the United States
a. help explain the productivity increases.
b. rose consistently throughout the period.
c. declined throughout the period.
d. indicated improving workforce quality.
33. Workforce quality arguments are very difficult to prove for the period of 1970 to 1990 because during that
period SAT scores
a. and graduation rates increased.
b. increased and graduation rates decreased.
c. and school attendance rates decreased.
d. decreased and school attendance rates increased.
34. Labor productivity growth in the United States during the 1973-1995 period could be explained by a
slowdown.
a. labor force
b. capital formation
c. technological
d. population growth
35. The productivity speed-up in the United States could be explained by
a. improvements in labor force quality.
b. falling energy prices.
c. rising rates of domestic saving.
d. advances in information technology.
36. The labor productivity speed-up in the United States could be explained by a delayed
a. educational benefit.
b. technology benefit.
c. military spending benefit.
d. baby boom benefit.
37. Compared to college tuition, the prices of automobiles in the United States have
a. fallen.
b. risen.
c. stayed the same.
d. risen at the same rate as the CPI.
38. Productivity increases are most likely to be achieved by
a. Tony Soprano's psychiatrist.
b. major league baseball teams.
c. symphony orchestras.
d. personal computer manufacturers.
39. Compared with the U.S., developing countries
a. face geographic conditions that limit productivity.
b. have universal health care that prevent the spread of diseases.
c. more political stability.
d. higher levels of educational attainment.
40. Part of the tremendous growth in China can be attributed to
a. loans received from the international financial bodies like World Bank, ADB.
b. FDI inflows and its ability to save and invest nearly half of its GDP.
c. financial aid received from foreign governments.
d. development assistance inflows from developed countries.
41. Melissa purchases shares in a government bond mutual fund. Is this included in the aggregate demand
component "Investment"?
a. Yes, if it is a domestic mutual fund.
b. Yes, if the purchase is made out of current income.
c. No, unless the funds are deposited in a domestic financial institution.
d. No, it would never be included.
42. Which of the following is considered to be an investment in economists' point of view?
a. Serena buys bonds issued by Citibank.
b. John purchases a new house.
c. Venus invests hundred thousand dollars in Bear Stearns stock.
d. Allen sells the old truck he used for transporting goods.
43. Aggregate demand is the sum of
a. C + I + G + (X − IM).
b. C + I + X.
c. C + I + X − IM.
d. C + I + G.
44. Which of the following would be counted as investment in the national income accounts?
a. the purchase of a newly issued stock
b. the purchase of a newly built apartment house
c. the purchase of a newly minted coin
d. the payment of tuition at a private college
45. The largest component of aggregate demand is
a. investment spending.
b. consumer spending.
c. government spending.
d. total imports.
46. Which of the following would be added to U.S. national income?
a. an American consumer buying French wine
b. an American business selling aircraft to British Airways
c. a Swedish firm selling mobile phones to Americans
d. a French firm buying a Swedish cellular phone
47. Government spending is an injection in the sense that it
a. increases the amount of total spending.
b. increases the size of the federal deficit.
c. decreases the amount of household saving.
d. decreases the amount of taxes paid.
48. When saving leaks out of the circular flow of income and spending,
a. total income necessarily falls.
b. it leaks out of the financial system.
c. it flows to borrowers.
d. it increases the size of the spending flow.
49. Historical data depicted on a scatter diagram show that consumer spending and disposable income
a. converge as income grows.
b. generally move together.
c. diverge as income grows.
d. show no clear relationship.
50. The relationship between consumer spending and disposable income is called the
a. conjunction function.
b. consumption function.
c. aggregate demand function.
d. marginal spending function.
51. Economists expect the relationship between consumption and disposable income to be
a. unpredictable.
b. transitory.
c. fixed.
d. inverse
e. stable.
52. If disposable income increases by $400 billion and consumption increases by $300 billion, the MPC equals
a. 0.75
b. 0.60
c. 0.80
d. 0.68
53. If you fit a line through a scatter diagram of points that represent coordinates of consumer spending and
disposable income, the slope of this line will equal the
a. propensity to consume
b. variable propensity to consume.
c. marginal propensity to consume.
d. average propensity to consume.
54. In 1963, government economists assumed that the MPC for the United States was approximately 0.90. If
taxes were cut by $9 billion, then consumer expenditures would initially be expected to
a. decrease by $9.0 billion.
b. increase by $9.0 billion.
c. decrease by $8.1 billion.
d. increase by $8.1 billion.
55. Assume that consumption in the United States is $9,000 billion in 2009. If the MPC is 0.8 and disposable
income increases by $1,000 billion in 2010, then the level of consumption in 2010 will be
a. $10,000 billion.
b. $9,800 billion.
c. $9,000 billion.
d. $7,200 billion.
56. If the MPC is .80, then a change in disposable income of $60 billion will lead to an initial change in
consumption of
a. $30 billion.
b. $42 billion.
c. $48 billion.
d. $60 billion.
e. $70 billion.
57. For each $1 of a tax cut, economists expect consumption to
a. decrease by $1.
b. decrease by less than $1.
c. increase by less than $1.
d. increase by $1.
58. Which of the following would cause an upward shift in the consumption function?
a. a stock market crash
b. an increase in the price level
c. a decrease in disposable income
d. a decrease in the price level
59. Which of the following would lead you to predict an upward shift in the consumption function?
a. a decrease in the value of real wealth
b. a decrease in disposable income
c. an increase in the value of real wealth
d. an increase in the price level
60. A decrease in the price level will most likely have what effect on the consumption function?
a. It will shift upward.
b. It will shift downward.
c. It will cause movement downward along the function.
d. It will cause movement upward along the function.
61. Why does an increase in the price level tend to cause the consumption function to shift downward?
a. An increase in the price level decreases disposable income.
b. An increase in the price level increases the demand for fixed money assets.
c. An increase in the price level decreases the value of fixed money assets.
d. An increase in the price level decreases saving and increases debt.
62. If real interest rates decrease, we generally expect
a. saving to increase.
b. saving to decrease.
c. consumption spending to decrease.
d. no significant change in saving.
63. We should expect the consumption function to shift downward if
a. real interest rates rise.
b. price levels fall.
c. consumers become more optimistic about future incomes.
d. consumers become more pessimistic about future incomes.
64. A major employer in a small town announces upcoming major layoffs of employees. What should we expect
to happen to the consumption functions of the affected employees?
a. the consumption functions will shift upward.
b. most employees will move upward along their consumption functions
c. the consumption functions will shift downward
d. most employees will move downward along their consumption functions
65. Most people base their current consumption spending at least partially on
a. short-run debt.
b. long-run debt.
c. long-run real interest rates.
d. long-run income.
66. Which of the following is not a factor that influences investment spending?
a. transfer payment policy
b. business confidence
c. business expectations
d. technical change
67. U.S. imports are most likely to increase when
a. U.S. GDP decreases.
b. U.S. unemployment rates fall.
c. U.S. prices fall.
d. foreign prices rise.
68. The book that is the basis for modern macroeconomic theory is
a. The Wealth of Nations.
b. Principles of Political Economy.
c. The General History of Money and Banking.
d. The General Theory of Employment, Interest, and Money.
69. When computing gross domestic product, government services are valued at the
a. price consumers pay for them.
b. value of the resources used to produce them.
c. value of comparable outputs from the private sector.
d. value of taxes collected from consumers.
70. The one category of goods that are not sold but are, nevertheless, included in GDP is
a. inventories.
b. imports.
c. consumer services.
d. exports.
71. Which of the following observations concerning GDP calculations is true?
a. Goods and services produced by governments are valued at market price.
b. Inventories are treated as if they are yet to be sold.
c. Goods produced but not sold during the year are counted in that year's GDP.
d. Goods that firms add to their inventories do not count in the GDP.
72. Which of the following is not part of the investment component of GDP?
a. residential construction
b. plant, equipment, and software
c. net imports
d. business structures
73. GDP can be calculated as the final demand for goods and services by consumers, businesses,
a. and governments.
b. and foreigners.
c. governments, and foreigners.
d. governments, and financial institutions.
74. The equation representing the final demand approach to calculating GDP is
a. Y = C + I + X + IM.
b. Y = C + I + G.
c. Y = G + I + X − IM.
d. Y = C+ I + G + (X − IM).
75. The majority of payments made by the federal government are for
a. transfer payments.
b. administrative expenses.
c. foreign aid.
d. defense purchases
76. The difference between Gross National Product and Net National Product is the
a. rate of inflation.
b. statistical discrepancy encountered in calculating GDP.
c. difference between real versus nominal GDP.
d. depreciation of the economy's capital stock.
77. The value of intermediate goods is not included in the calculation of GDP to avoid the problem of
a. depreciation.
b. inflation.
c. double counting.
d. transfer payments.
78. National income can be calculated by subtracting
a. depreciation from GDP.
b. indirect business taxes from GDP.
c. depreciation and indirect business taxes from GDP.
d. transfer payments and taxes from GDP.
79. Whirlpool Corporation buys steel in sheets to manufacture refrigerators. Whirlpool also buys a new factory
and a metal press to mold the steel. Which purchases are included in GDP?
a. the steel
b. the steel, the factory, and the metal press
c. the factory and the metal press
d. the steel and the metal press
Table 8-1
Item
Personal Consumption Expenditures
Depreciation
Wages
Indirect Business Taxes
Rental Income
Gross Private Domestic Investment
Corporate Profits
Net Exports
Government Purchases of Goods and Services
Government Transfer Payments
Amount (billions)
600
50
800
10
25
150
75
5
200
50
80. According to the data in Table 8-1, the value of NNP is
a. 900.
b. 805.
c. 750.
d. 705.
81. One of the primary functions of markets could be labeled
a. stimulation.
b. coordination.
c. planification.
d. decentralization.
82. Which of the following questions are not answered by the process of demand side GDP determination?
a. How large is equilibrium GDP?
b. Does the economy have unemployment?
c. Is demand side equilibrium consistent with supply side equilibrium?
d. Does the economy have inflation?
e. All of the above are not answered.
83. If total spending exceeds total output, then
a. inventory levels will rise.
b. inventory levels will remain constant.
c. inventory levels will fall.
d. output will eventually decrease.
84. Equilibrium GDP on the demand side occurs when total spending
a. equals total production, and inventories are zero.
b. equals total production, and firms are unable to adjust inventories.
c. exceeds total production, and inventories are rising.
d. equals total production, and inventories remain at desired levels.
e. is less than total production, and inventories are falling.
85. Which of the following shows the relationship between national income (GDP) and total spending?
a. Demand schedule
b. Consumption curve
c. Expenditure schedule
d. Balance schedule
86. If net exports decrease, the expenditure schedule will
a. get steeper.
b. get flatter.
c. shift upward.
d. shift downward.
87. The expenditure schedule will shift upward when
a. net exports decrease.
b. net exports increase.
c. total imports increase.
d. total exports decrease.
88. Investment spending might be larger when GDP is higher. Such added investment as GDP rises is called
a. mutual investment.
b. induced investment.
c. positive investment.
d. net investment.
89. 45° line diagrams show how
a. investment varies with income.
b. expenditures vary with income.
c. investment spending rises when GDP rises.
d. GDP is affected by government purchases.
90. A higher price level would mean
a. an increase in real income
b. a decrease in real wealth
c. a decrease in nominal income
d. an increase in nominal income
91. The aggregate demand curve
a. slopes upward.
b. slopes downward.
c. is perfectly vertical.
d. is perfectly horizontal.
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for a person who has a bank deposit of $2 million.
Figure 9-1
92. In Figure 9-1, at $7,000 billion real GDP,
a. inventories are increasing.
b. spending falls short of output.
c. spending exceeds output.
d. Both a and b are correct.
93. In Figure 9-1, the economy is
a. experiencing an inflationary gap, shown by the horizontal distance EB.
b. at full employment without inflation.
c. experiencing a recessionary gap, shown by the horizontal distance EB.
d. experiencing a recessionary gap, shown by the distance between EF.
94. Using the standard 45-degree line diagram, how does a decrease in investment spending effect the
expenditure schedule?
a. It increases the slope of the expenditure schedule.
b. It decreases the slope of the expenditure schedule.
c. It shifts the expenditure schedule downward.
d. It shifts the expenditure schedule upward.
95. The federal government could stimulate investment spending by
a. phasing out the depreciation allowance on corporate income taxes.
b. enacting an investment tax credit.
c. reinstating the windfall profits tax.
d. reducing the tax rate on capital gains.
e. Both b and d are correct.
96. Government stabilization policy would be unnecessary if the economy automatically gravitated toward
a. full inflation.
b. full employment.
c. full recession.
d. an inflationary gap.
97. If total spending is greater than the value of output, firms will
a. cut prices.
b. decrease production levels.
c. tend to raise prices.
d. see inventories rise.
98. One of the main conclusions of Keynes in The General Theory of Employment, Interest, and Money is that the
economy
a. will usually be at full employment.
b. will not automatically gravitate to full employment.
c. will automatically move quickly toward full employment without inflation.
d. is usually on the verge of a major depression or hyperinflation.
99. The equilibrium level of GDP is the level at which
a. aggregate demand exceeds output.
b. aggregate demand equals output.
c. aggregate demand is less than output.
d. inventories are being depleted to meet demand.
100. Writing during the Great Depression, Keynes naturally focused on problems of
a. hyperinflation.
b. budget deficits.
c. trade deficits.
d. unemployment.
101. Recessionary gaps are most likely to be accompanied by
a. inflation.
b. inventory reductions.
c. unemployment.
d. expanding output.
102. When the expenditure level is above the full employment level of GDP, a possible consequence is
a. falling prices.
b. rising prices.
c. falling disposable income.
d. high levels of unemployment.
103. Equilibrium GDP will not exist where output exceeds aggregate demand because businesses will notice that
a. their profits are positive.
b. inventory stocks are building up.
c. inventory stocks are being depleted.
d. their level of depreciation is rising.
104. According to Baumol and Blinder, from the demand side a decrease in the price level causes aggregate
expenditures to
a. fall, resulting in a lower level of equilibrium income.
b. fall, resulting in a higher level of equilibrium income.
c. rise, resulting in a higher level of equilibrium income.
d. rise, resulting in a lower level of equilibrium income.
105. In a simple economy (no government sector), the equilibrium level of GDP will be less than the full
employment level of income if, at the full employment level of income, the
a. saving that consumers want to do is less than investing that businesses want to do.
b. saving that consumers want to do is greater than investing that businesses want to do.
c. saving that consumers want to do is less than spending that consumers want to do.
d. inventories are being depleted.
Figure 9-3
106. In Figure 9-3, saving at equilibrium GDP is.
a. $1,200 billion.
b. $1,000 billion.
c. $800 billion.
d. $600 billion.
e. $400 billion.
107. In Figure 9-3, investment plus net exports equals
a. $200 billion.
b. $400 billion.
c. $600 billion.
d. $800 billion.
e. $1,200 billion.
Figure 9-4
108. In Figure 9-4, which expenditure level will result in a recessionary gap?
a. 1
b. 2
c. 3
d. There will be no deflationary gap.
109. If, at the full employment level of income, the amount that businesses plan to invest is greater than the
amount that consumers plan to save, then
a. there will be an inflationary gap.
b. there will be a deflationary gap.
c. total demand will fall short of potential GDP.
d. the economy will suffer from increasing unemployment.
110. Which of the following occurs when party A would like to change his behavior if party B would change hers,
and vice versa, and yet the two changes do not take place because the decisions of A and B are made
independently?
a. Moral hazard
b. Coordination failure
c. Leakage
d. Lemon problem
111. To avoid a coordination failure, the intentions of savers and investors must be both
a. increasing.
b. at their planned levels.
c. more than full employment GDP.
d. at levels set by the government.
112. If saving exceeds investment, then the level of GDP will
a. increase.
b. remain constant.
c. decrease.
d. rise above potential GDP.
113. The reason for the multiplier effect is that
a. businesses make decisions about investment projects based on anticipated profits.
b. one person's additional expenditure creates a new source of income for another person,
and this additional income leads to still more spending.
c. changes in government spending typically deepen recessions and exacerbate inflationary
conditions in the economy.
d. additional spending lowers the rate of interest and leads to further borrowing and
spending.
Figure 9-5
114. If the shift in the C + I + (X − IM) in Figure 9-5 was caused by a 80 dollar increase in investment, then the
multiplier is
a. 0.
b. 2.
c. 3.
d. 4.
e. 5.
115. If the government increases defense spending by $1 billion and the MPC is 0.8, how much additional
spending will occur in the third "round" of spending?
a. $640 million
b. $800 million
c. $1 billion
d. $1.8 billion
116. Assume that the MPC is .9 and investment falls by $30 billion. What is the change in real GDP?
a. −$300 billion
b. −$270 billion
c. −$93 billion
d. −$39 billion
117. In comparison to the oversimplified formula for the multiplier, the real-world multiplier is
a. lower.
b. higher.
c. almost equal to it.
d. higher if taxes are included.
118. If we observe that every increase in income of $120 million generates an increase in consumption of $80
million, then the simple multiplier is
a. 2/3.
b. 3/2.
c. 2.
d. 3.
e. 8.
119. The oversimplified multiplier formula assumes that the
a. level of consumption spending is fixed.
b. price level is fixed.
c. government spending is fixed.
d. net exports depend on income.
120. In the standard 45-degree line expenditure model, the C + I line and the C line are parallel because,
a. all I is assumed to be autonomous.
b. all I is assumed to be induced.
c. consumption depends on disposable income.
d. I rises with GDP at the same rate as C.
121. Recessionary gap arises when
a. inventory stock falls.
b. government spending increases.
c. when the general price level increases.
d. there is less spending than desired.
122. The combination of high unemployment and high inflation is termed
a. reflation.
b. stagflation.
c. depression.
d. unflation.
123. In the period from 1996-2000, the United States economy experienced the unusual combination of
a. high unemployment and high inflation.
b. high unemployment and low inflation.
c. low unemployment and high inflation.
d. low unemployment and low inflation.
124. For most firms in the economy, the largest part of factor costs is the cost of
a. labor.
b. capital.
c. property and machinery.
d. land and natural resources.
125. To calculate a firm's per unit of output profit, it is necessary to subtract
a. price from cost per unit.
b. price from resource costs.
c. cost per unit from product price.
d. cost per unit from cost of resources.
126. If profit per unit equals (price - cost per unit) and costs are temporarily fixed, then the aggregate supply curve
will have
a. a basic "U" shape.
b. a negative slope.
c. a positive slope.
d. All of the above could be correct.
127. A statement issued by the president's economic advisors stating that growth can continue without price
increases indicates that they believe the relevant aggregate supply curve is
a. vertical.
b. horizontal.
c. downward sloping.
d. upward sloping.
128. A company succumbs to a wage increase demand without any changes in the productivity of labor, price of
the product, and the total output sold. Which of the following would happen?
a. Total revenue of the company will fall.
b. Investment by the company will increase.
c. Profit per unit of the product will fall.
d. Average profit per unit will increase.
129. The aggregate supply curve shows for each price level the
a. total amount of money supply at each price level.
b. amount of frictional unemployment that will occur.
c. amount of structural unemployment that will occur.
d. quantity of goods and services that businesses are willing to produce.
130. An economist who claims that an increase in government spending would result mainly in a higher price level
believes the economy is operating where
a. the MPC is small.
b. the MPC is large.
c. aggregate supply curve is flat.
d. aggregate supply curve is steep.
131. If the price level rises, what will happen to the level of real GDP supplied?
a. It will usually decrease.
b. It will usually increase.
c. Nothing.
d. It will decrease at first and then increase.
132. If the price level decreases, what will happen to the level of real GDP supplied?
a. It will usually decrease.
b. It will usually increase.
c. Nothing.
d. It will decrease at first and then increase.
133. What is the usual response of firm to an increase in the price of what they sell?
a. An increase in output.
b. An increase in hiring factors of production.
c. An increase in the profit level of the firm.
d. An increase in employment at the firm.
e. All of the above.
134. The aggregate supply curve slopes upward because firms
a. seek to maximize profits and output.
b. normally can purchase inputs at fixed prices.
c. employ technology, which is always fixed.
d. purchase inputs whose prices rise as output rises.
135. Increases in productivity are caused by
a. better education and training of the labor force.
b. higher levels of literacy.
c. improvements in technology.
d. All of the above are correct.
136. The typical movement of the aggregate supply curve resulting from an increase in productivity is that it
a. shifts inward and becomes flatter.
b. shifts inward.
c. shifts outward.
d. becomes flatter.
e. becomes steeper.
137. At levels of output close to full employment, the aggregate supply curve is probably
a. very flat.
b. very steep.
c. sloped downward.
d. perfectly elastic.
138. Many economists are in favor of increased immigration of adult foreigners who possess high levels of skills
and education. Why?
a. Economists are very caring individuals.
b. Economists believe this is a way to increase understanding among different ethnic groups.
c. Economists believe foreigners will work cheaper.
d. Economists believe this will increase aggregate supply.
139. If aggregate quantity demanded exceeds aggregate quantity supplied, we can expect an unplanned
a. depletion of inventories, causing firms to raise prices.
b. depletion of inventories, causing firms to lower prices.
c. accumulation of inventories, causing firms to raise prices.
d. accumulation of inventories, causing firms to lower prices.
Figure 10-1
140. If the price level in Figure 10-1 were 110,
a. inventories would be accumulating.
b. firms would have to lower their prices.
c. aggregate quantity demanded would equal aggregate quantity supplied.
d. shortages of goods would exist.
141. What does inflation do to the value of the oversimplified multiplier?
a. Inflation increases the value of the multiplier above the value of the oversimplified
formula.
b. Inflation does not change the value of the multiplier.
c. Inflation decreases the value of the multiplier below the value of the oversimplified
formula.
d. Inflation increases the value of the multiplier unless the level of unemployment also rises.
Figure 10-2
142. In Figure 10-2, which segment of the aggregate supply curve has the smallest multiplier effect?
a. AB
b. BC
c. CD
d. DG
143. The reason why inflation reduces the value of the multiplier is that part of the change in demand is
a. absorbed by price changes.
b. saved rather than spent.
c. matched by changes in supply.
d. matched by changes in income.
Figure 10-4
144. In Figure 10-4, if full employment occurs at an output level of 4,000 and the economy is currently at an
output level of 5,000 then we can expect a(n)
a. increase in autonomous consumer spending that shifts the aggregate demand curve to the
left.
b. increase in wages that will shift the aggregate supply curve to the left.
c. decrease in investment spending that shifts the aggregate demand curve to the left.
d. decrease in wages that will shift the aggregate supply curve to the left.
145. If the price level does not fall or only falls very slowly, then the result will be a prolonged period of
a.
b.
c.
d.
inflation whenever supply increases.
production below potential GDP.
production above potential GDP.
rapid price increases when demand changes.
146. The post-World War II record shows that recessionary gaps may be long-lasting because
occur.
a. deflation
b. reflation
c. stagflation
d. disinflation
tends not to
147. The Japanese economy has been consistently weak throughout the 1990s. This has caused a slight deflation,
illustrating the
a. negligible cost of eliminating inflation.
b. very slow operation of the economy's self-correcting mechanism.
c. tendency of inflation to accelerate during recessions.
d. rapidity with which inflation can be stopped.
148. Many economists describe the 2007-2009 period in the United States as being a condition of a(n)
a. deflationary gap.
b. recessionary gap.
c. inflationary gap.
d. reflationary gap.
149. An inflationary gap will exist when
a. aggregate demand grows more slowly than aggregate supply.
b. there is downward pressure on prices.
c. expenditures are not equal to aggregate demand.
d. equilibrium GDP is greater than full employment GDP.
150. The existence of an inflationary gap would tend to benefit most
a. bankers.
b. retired persons.
c. unemployed workers.
d. stock owners.
151. An economic boom that creates an inflationary gap is usually followed later by
a. falling prices.
b. a period of stagflation.
c. an increase of potential GDP.
d. an increase in aggregate supply.
152. A period of stagflation can be considered as part of the normal aftermath of a
a. decrease in aggregate demand.
b. period of high unemployment.
c. period of low unemployment.
d. period of inward shifting aggregate demand.
153. The economy's self-correcting mechanism appears to be more efficient at curing
a. recessionary gaps by reducing price levels.
b. inflationary gaps by reducing price levels.
c. unemployment by reducing wage levels.
d. inflationary gaps through inflation.
154. The self-correcting mechanism would be expected to be very rapid in an economy with
a. a large multiplier.
b. flexible prices.
c. rigid wages.
d. high labor productivity.
155. During 2008-2010, the U.S. economy showed signs of a(n)
a. mild recession.
b. recessionary gap.
c. inflationary gap.
d. deflationary gap.
156. The primary effect of OPEC actions in the period from 1973 to 1980 was to increase
a. wage rates.
b. interest rates.
c. employment and output.
d. energy prices.
157. The usual results of an adverse supply shock are
a. a rise in prices and a fall in output.
b. a fall in prices and a rise in output.
c. increased growth and lower inflation.
d. higher net exports.
Figure 10-6
158. In Figure 10-6, which graph best illustrates an autonomous increase in consumption spending?
a. (1)
b. (2)
c. (3)
d. (4)
Figure 10-9
159. Figure 10-9 illustrates a period of
a. economic growth and high inflation.
b. economic growth and low inflation.
c. economic recession and high inflation.
d. economic recession and low inflation.
160. The case for government stabilization policy is made more compelling if the
a. self-correcting mechanism works very slowly.
b. self-correcting mechanism works too fast.
c. value of the multiplier is very small.
d. aggregate supply curve is very flat.