The command economy predominates

1. 
   In countries like the command economy predominates.
   

1. 
   China and Vietnam
   
2. 
   Cuba and North Korea
   
3. 
   South Africa and Kenya
   
4. 
   Germany and France Answer: B
   
1. 
   In which of the following countries will the national government have the greatest influence with respect to the nation's economy?
   

1. 
   China
   
2. 
   Cuba
   
3. 
   Canada
   
4. 
   Chile Answer: B
   

3. 
   In a command economy, the either makes most economic decisions itself or at least strongly influences how the decisions are made.
   

1. 
   government
   
2. 
   market
   
3. 
   firm
   
4. 
   business sector Answer: A
   

4. 
   In a , most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers and sellers.
   

1. 
   market-oriented economy
   
2. 
   macroeconomy
   
3. 
   microeconomy
   
4. 
   command economy Answer: A
   

5. 
   Which of the following best denotes the reason for the existence of substantial black markets?
   

1. 
   a market-oriented economy
   
2. 
   a command economy
   
3. 
   government laws and rules
   
4. 
   the microeconomy Answer: B
   

6. 
   In the first chapter of The Wealth of Nations, Smith introduces the idea of the , which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.
   

1. 
   division of labor
   
2. 
   interconnected economy
   
3. 
   task economy
   
4. 
   modern economy Answer: A
   

7. 
   If macroeconomics looks at the economy as a whole, it focuses on which of the following?
   

1. 
   households
   
2. 
   business firms
   
3. 
   unemployed people
   
4. 
   the division of labor Answer: C
   

8. 
   In the , households work and receive payment from firms.
   

1. 
   financial investment market
   
2. 
   financial capital market
   
3. 
   labor market
   
4. 
   savings market Answer: C
   
1. 
   In the , households receive goods and services and pay firms for them.
   

1. 
   labor market
   
2. 
   financial capital market
   
3. 
   goods and services market
   
4. 
   savings market Answer: C
   
1. 
   Which of the following best describes a monetary policy tool?
   

1. 
   interest rates
   
2. 
   taxes
   
3. 
   household savings
   
4. 
   government spending Answer: A
   

11. 
    Which of the following best describes a fiscal policy tool?
    

1. 
   government spending
   
2. 
   bank lending
   
3. 
   financial capital markets
   
4. 
   household spending Answer: A
   

12. 
    The two main tools of macroeconomic policy include monetary policy, and fiscal policy, which involves spending.
    

1. 
   business
   
2. 
   government
   
3. 
   household
   
4. 
   capital market Answer: B
   

13. 
    When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being:
    

1. 
   balanced budget
   
2. 
   prudent monetary policy
   
3. 
   low inflation
   
4. 
   assuring competition between firms Answer: C
   

14. 
    The basic difference between macroeconomics and microeconomics is:
    

1. 
   microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade.
   
2. 
   microeconomics concentrates on the behaviour of individual consumers while macroeconomics focuses on the behaviour of firms.
   
3. 
   microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.
   
4. 
   microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.
   

Answer: C

15. 
    Which of the following is most likely a topic of discussion in macroeconomics?
    

1. 
   an increase in the price of a hamburger
   
2. 
   a decrease in the production of DVD players by a consumer electronics company
   
3. 
   an increase in the wage rate paid to automobile workers
   
4. 
   a decrease in the unemployment rate Answer: D
   

16. 
    Which of the following statements most likely lies within the realm of microeconomics?
    

1. 
   Unemployment rises during a recession and falls during an expansion.
   
2. 
   An increase in government spending will increase the aggregate demand for goods and services in the economy.
   
3. 
   A rapid acceleration of the supply of money may create inflation.
   
4. 
   An increase in labor costs will increase the additional cost of producing another bus.
   

Answer: D

17. 
    Macroeconomic topics do not usually include:
    

1. 
   the profit maximizing decisions of an individual manufacturer.
   
2. 
   the rate of inflation.
   
3. 
   the rate of unemployment.
   
4. 
   economic growth.
   

Answer: A

18. 
    Macroeconomics primarily examines:
    

1. 
   the behaviour of individual households and firms.
   
2. 
   how prices are determined within individual markets.
   
3. 
   broad issues such as national output, employment and inflation.
   
4. 
   the output levels that maximize the profits of business firms Answer: C
   

19. 
    In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:
    

1. 
   all consumers.
   
2. 
   buyers and sellers.
   
3. 
   producers and input suppliers.
   
4. 
   producers and government planning committees.
   

Answer: B

20. 
    Which of the following statements most likely lies within the realm of macroeconomics?
    

1. 
   An increase in the price of automobiles will lead to a decrease in the quantity of automobiles demanded.
   
2. 
   Due to process innovations in computer chip manufacturing, the market supply of computers increased.
   
3. 
   Due to an economic recession, manufacturing firms began implementing layoffs of their workforces.
   
4. 
   Anticipating that the benefits would outweigh costs involved, an undergraduate student purchases the course textbook.
   

Answer: C

21. 
    Which of the following lies primarily within the realm of macroeconomics?
    

1. 
   a study of the demand for gasoline
   
2. 
   a study of how tax cuts stimulate aggregate production
   
3. 
   an analysis of supply and demand conditions in the electricity market
   
4. 
   a study of the impact of "mad cow" disease on the price of beef worldwide Answer: B
   

22. 
    Macroeconomics:
    

1. 
   is concerned with the expansion of a small business into a large corporation.
   
2. 
   is narrower in scope than microeconomics.
   
3. 
   analyzes mergers and acquisitions between firms.
   
4. 
   is concerned with the expansion and contraction of the overall economy.
   

Answer: D

23. 
    The basic difference between macroeconomics and microeconomics is that:
    

1. 
   microeconomics looks at the forest (aggregate markets) while macroeconomics looks at the trees (individual markets).
   
2. 
   macroeconomics is concerned with groups of individuals while microeconomics is concerned with single countries.
   
3. 
   microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).
   
4. 
   macroeconomics is concerned with generalization while microeconomics is concerned with specialization.
   

Answer: C

24. 
    The circular flow diagram of economic activity is a model of the:
    

1. 
   flow of goods, services, and payments between households and firms.
   
2. 
   influence of government on business behaviour.
   
3. 
   role of unions and government in the economy.
   
4. 
   interaction among taxes, prices, and profits.
   

Answer: A

25. 
    Which of the following best characterizes the circular flow of income?
    

1. 
   Businesses buy resources from the government, and households buy goods and services from businesses.
   
2. 
   Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.
   
3. 
   The government purchases resources from businesses and households and then sells goods and services to businesses and households.
   
4. 
   Households buy factors of production from businesses, and businesses buy goods and services from households.
   

Answer: B

26. 
    In the circular flow diagram model:
    

1. 
   households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses.
   
2. 
   businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households.
   
3. 
   households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses.
   
4. 
   Both (a) and (b) are correct.
   

Answer: D

27. 
    Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected doesn’t change.
    

1. 
   market
   
2. 
   economy
   
3. 
   production
   
4. 
   firm Answer: B
   

28. 
    - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.
    

1. 
   Skill
   
2. 
   Specialization
   
3. 
   Economies of scale
   
4. 
   Division of labor Answer: C
   

29. 
    Economic models like the are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories.
    

1. 
   financial capital market
   
2. 
   circular flow diagram
   
3. 
   financial investment market
   
4. 
   Specialization Model Answer: B
   

30. 
    The downward slope of the demand curve again illustrates the pattern that as rises, decreases.
    

1. 
   quantity demanded, price
   
2. 
   quantity supplied, quantity demanded
   
3. 
   price, quantity demanded
   
4. 
   price, quantity supplied Answer: C
   

31. 
    The nature of demand indicates that as the price of a good increases:
    

1. 
   suppliers wish to sell less of it.
   
2. 
   more of it is produced.
   
3. 
   more of it is desired.
   
4. 
   buyers desire to purchase less of it.
   

Answer: D

32. 
    A supply curve is a graphical illustration of the relationship between price, shown on the vertical axis, and , shown on the horizontal axis.
    

1. 
   demand
   
2. 
   quantity
   
3. 
   quantity supplied
   
4. 
   quantity demanded Answer: B
   

33. 
    Economists refer to the relationship that a higher price leads to a lower quantity demanded as the .
    

1. 
   income gap
   
2. 
   market equilibrium
   
3. 
   law of demand
   
4. 
   price model Answer: C
   

34. 
    A demand curve shows the relationship between price and on a graph.
    

1. 
   quantity demanded
   
2. 
   quantity produced
   
3. 
   economies of scale
   
4. 
   costs Answer: A
   

35. 
    refers to the total number of units that are purchased at that price.
    

1. 
   quantity
   
2. 
   quantity demanded
   
3. 
   supply
   
4. 
   market quantity Answer: B
   

36. 
    In economics, the demand for a good refers to the amount of the good that people:
    

1. 
   would like to have if the good were free.
   
2. 
   will buy at various prices.
   
3. 
   need to achieve a minimum standard of living.
   
4. 
   will buy at alternative income levels.
   

Answer: B

37. 
    The demand curve for a typical good has a(n):
    

1. 
   negative slope because some consumers switch to other goods as the price rises.
   
2. 
   negative slope because consumer incomes fall as the price of the good rises.
   
3. 
   negative slope because the good has less "snob appeal" as its price falls.
   
4. 
   inverse slope because as the price goes up, the good has more profitability.
   

Answer: A

38. 
    When economists talk about supply, they are referring to a relationship between price received for each unit sold and the .
    

1. 
   demand schedule
   
2. 
   market price
   
3. 
   quantity supplied
   
4. 
   demand curve Answer: C
   

39. 
    But nearly all supply curves share a basic similarity: they slope .
    

1. 
   down from left to right
   
2. 
   up from left to right
   
3. 
   up from right to left
   
4. 
   down from right to left Answer: B
   

40. 
    The demand schedule for a good:
    

1. 
   indicates the quantity that people will buy at the prevailing price.
   
2. 
   indicates the quantities that suppliers will sell at various market prices.
   
3. 
   is determined primarily by the cost of producing the good.
   
4. 
   indicates the quantities that will be purchased at alternative market prices.
   

Answer: D

41. 
    When quantity demanded decreases in response to a change in price:
    

1. 
   the demand curve shifts to the right.
   
2. 
   the demand curve shifts to the left.
   
3. 
   there is a movement down along the demand curve.
   
4. 
   there is a movement up along the demand curve.
   

Answer: D

42. 
    The is the only price where quantity demanded is equal to quantity supplied.
    

1. 
   equilibrium price
   
2. 
   horizontal axis intercept
   
3. 
   vertical axis intercept
   
4. 
   market price Answer: A
   

43. 
    After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the U.S. demand curve for beef from Canada is:
    

1. 
   no change; only the supply curve for beef is likely to be affected.
   
2. 
   a shift of the demand curve for beef to the left.
   
3. 
   a movement down along the demand curve for beef to the right.
   
4. 
   a shift of the demand curve for beef to the right.
   

Answer: B

44. 
    If new manufacturers enter the computer industry, then (ceteris paribus):
    

1. 
   the supply curve shifts to the left.
   
2. 
   the supply curve shifts to the right.
   
3. 
   the demand curve shifts to the left.
   
4. 
   some established manufacturers must exit the industry.
   

Answer: B

45. 
    If a firm faces , while the prices for the output the firm produces
    

remain unchanged, a firm’s profits will increase.

1. 
   higher demand
   
2. 
   lower costs of production
   
3. 
   equilibrium
   
4. 
   a shift in demand Answer: B
   

46. 
    When , a firm will supply a higher quantity at any given price for its output, and the supply curve will shift to the right.
    

1. 
   prices rise
   
2. 
   equilibrium is achieved
   
3. 
   costs of production fall
   
4. 
   there is a population increase Answer: C
   

47. 
    A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of:
    

1. 
   the supply curve.
   
2. 
   the demand curve, as consumers try to economize because of the shortage.
   
3. 
   both the supply and demand curves.
   
4. 
   the supply curve and a rightward shift of the demand curve, resulting in a higher equilibrium price.
   

Answer: A

48. 
    A drought decreases the supply of agricultural products, which means that at any given price a lower quantity will be supplied; conversely, especially good weather would shift the
    

.

1. 
   demand curve to the right
   
2. 
   supply curve to the left
   
3. 
   supply curve to the right
   
4. 
   demand curve to the left Answer: C
   

49. 
    A change in price of a good or service typically causes for that specific good or service.
    

1. 
   a new equilibrium price
   
2. 
   a change along the supply curve
   
3. 
   the supply curve to shift
   
4. 
   a decreased demand Answer: B
   

Reference:

50. 
    According to the law of supply:
    

1. 
   there is a direct relationship between price and the quantity supplied.
   
2. 
   there is an inverse relationship between price and the quantity supplied.
   
3. 
   there is a direct relationship between price and quantity demanded.
   
4. 
   there is an inverse relationship between price and quantity demanded.
   

Answer: A

51. 
    Which of the following would reduce the supply of microcomputers?
    

1. 
   a technological improvement that lowers the cost of producing the computers
   
2. 
   higher wage rates for the workers that assemble the computers
   
3. 
   a reduction in the price of computer chips used to produce the computers
   
4. 
   a reduction in the price of computers.
   

Answer: B

52. 
    Interpret the following statement: "An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."
    

1. 
   The statement is correct.
   
2. 
   The statement would be correct if "quantity of wheat demanded" were substituted for "quantity of wheat supplied."
   
3. 
   The statement is incorrect because it confuses a change in quantity supplied with a change in supply.
   
4. 
   The statement would be correct if it read that a "decrease in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market."
   

Answer: A

53. 
    are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.
    

1. 
   Rent controls
   
2. 
   Price ceilings
   
3. 
   Price floors
   
4. 
   Subsidies Answer: C
   

54. 
    Andy views beer and pizza as complements to one another. If the price of pizza decreases, economists would expect:
    

1. 
   Andy's demand for pizza to increase.
   
2. 
   Andy's demand for pizza to decrease.
   
3. 
   Andy's quantity of pizza demanded to decrease.
   
4. 
   Andy's demand for beer to increase.
   

Answer: D

55. 
    The is the quantity where quantity demanded and quantity supplied are equal at a certain price.
    

1. 
   quantity demanded
   
2. 
   equilibrium quantity
   
3. 
   demand schedule
   
4. 
   supply schedule Answer: B
   

56. 
    As the substitute for low-skill labor becomes available, the demand curve for low-skill labor will shift to the left.
    

1. 
   high-skill labor
   
2. 
   lower wage
   
3. 
   technology
   
4. 
   market Answer: C
   

57. 
    Improvements in the productivity of labor will tend to:
    

1. 
   decrease wages.
   
2. 
   decrease the supply of labor.
   
3. 
   increase wages.
   
4. 
   increase the supply of labor.
   

Answer: C

58. 
    Which of the following will not result in a leftward shift of the market demand curve for labor?
    

1. 
   a decrease in labor productivity
   
2. 
   a decrease in demand for the firm's product
   
3. 
   an increase in the wage rate
   
4. 
   a decrease in the firm's product price Answer: C
   

59. 
    Which of the following results in a rightward shift of the market demand curve for labor?
    

1. 
   a decrease in labor productivity
   
2. 
   a decrease in the firm's product price
   
3. 
   an increase in the wage rate
   
4. 
   an increase in demand for the firm's product Answer: D
   

60. 
    Which of the following will not result in a rightward shift of the market supply curve for labor?
    

1. 
   a decrease in non-wage income
   
2. 
   an increase in the working-age population
   
3. 
   an increase in labor productivity
   
4. 
   an increase in immigration Answer: C
   

61. 
    If the demand for software engineers slower than does supply, then wages of software engineers will .
    

1. 
   increases; remain constant
   
2. 
   increases, rise
   
3. 
   increases; fall
   
4. 
   decreases; fall Answer: C
   

62. 
    In contrast to goods and services markets, are rare in labor markets, because rules that prevent people from earning income are not politically popular.
    

1. 
   minimum wages
   
2. 
   price floors
   
3. 
   price ceilings
   
4. 
   living wage laws Answer: C
   

63. 
    Other things being equal, a supply of workers tends to _ real wages.
    

1. 
   smaller; not change
   
2. 
   larger; increase
   
3. 
   smaller; decrease
   
4. 
   larger; decrease Answer: D
   

64. 
    Many states do have , which impose an upper limit on the interest rate that lenders can charge.
    

1. 
   price ceiling laws
   
2. 
   usury laws
   
3. 
   price floor laws
   
4. 
   minimum interest rate Answer: B
   

65. 
    When consumers and businesses have greater confidence that they will be able to repay in the future, .
    

1. 
   the quantity demanded of financial capital at any given interest rate will remain unchanged.
   
2. 
   the quantity demanded of financial capital at any given interest rate will shift to the left.
   
3. 
   the quantity demanded of financial capital at any given interest rate will shift to the right.
   
4. 
   the quantity demanded of financial capital at any given interest rate will achieve equilibrium.
   

Answer: C

66. 
    If labor demand is downward sloping and labor supply is upward sloping, then when labor demand rises faster than labor supply, it is expected that real wages .
    

1. 
   will stay the same
   
2. 
   will decrease
   
3. 
   will increase
   
4. 
   may increase, decrease or stay the same depending on the relative slopes.
   

Answer: C

67. 
    The labor curve(s) will shift if there is an increase in productivity or an increase in the demand for the final product.
    

1. 
   demand; left
   
2. 
   supply; left
   
3. 
   demand; right
   
4. 
   supply; right Answer: C
   

68. 
    A straightforward example of a , often used for simplicity, is the interest rate.
    

1. 
   price ceiling
   
2. 
   financial investment
   
3. 
   rate of return
   
4. 
   price floor Answer: C
   

69. 
    Many economists believe that the trend toward greater wage inequality across the U.S. economy was primarily caused by .
    

1. 
   the recession
   
2. 
   new technologies
   
3. 
   the rise of global markets
   
4. 
   inflation Answer: B
   

70. 
    As the complement for high-skill labor becomes cheaper, the demand curve for high- skill labor will shift to the right.
    

1. 
   technology
   
2. 
   low-skill labor
   
3. 
   market
   
4. 
   lower wage Answer: A
   

71. 
    Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine:
    

1. 
   the equilibrium price will fall and the equilibrium quantity will fall.
   
2. 
   both the equilibrium price and quantity will rise.
   
3. 
   the equilibrium price will rise and the equilibrium quantity will decrease.
   
4. 
   the equilibrium price will rise, while the change to equilibrium quantity is indeterminate.
   

Answer: B

72. 
    The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to:
    

1. 
   a decline in college tuition.
   
2. 
   a sharp increase in the demand for and construction of wood-frame homes.
   
3. 
   an increase in the supply of lumberjacks.
   
4. 
   an end to government regulations that limit timber harvesting in national forests.
   

Answer: B

73. 
    Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel?
    

1. 
   There is an increase in the cost of producing steel, which shifts the supply curve of steel to the right, thereby increasing the price of steel.
   
2. 
   There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.
   
3. 
   There is a decrease in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.
   
4. 
   The increase in wage costs will shift the demand curve for steel to the left, increasing the cost of steel.
   

Answer: B

74. 
    How do apple growers react to the news of medical research findings that suggest that eating apples leads to greater health benefits than were previously known?
    

1. 
   They increase the supply of apples.
   
2. 
   They increase the quantity of apples supplied.
   
3. 
   They decrease the supply of apples.
   
4. 
   They decrease the quantity of apples supplied.
   

Answer: B

75. 
    Are markets always in equilibrium?
    

1. 
   No, they never "settle down" into a stable price and quantity.
   
2. 
   No, but if there is no outside interference, they tend to move toward equilibrium.
   
3. 
   Yes, because very few things tend to alter supply and demand.
   
4. 
   Yes, they are always at the equilibrium point, or very close to it.
   

Answer: B

76. 
    The imposition of a price ceiling on a market often results in:
    

1. 
   an increase in investment in the industry.
   
2. 
   a surplus
   
3. 
   a shortage
   
4. 
   a decrease in discrimination on the part of sellers.
   

Answer: C

77. 
    Whenever there is a shortage at a particular price, the quantity sold at that price will equal:
    

1. 
   the quantity demanded at that price.
   
2. 
   the quantity supplied minus the quantity demanded.
   
3. 
   the quantity supplied at that price.
   
4. 
   (quantity demanded plus quantity supplied)/2.
   

Answer: C

78. 
    Whenever there is a surplus at a particular price, the quantity sold at that price will equal:
    

1. 
   (quantity demanded plus quantity supplied)/2.
   
2. 
   the quantity supplied at that price.
   
3. 
   the quantity supplied minus the quantity demanded.
   
4. 
   the quantity demanded at that price.
   

Answer: D

79. 
    GDP is:
    

1. 
   the sum of all currency and coins in circulation.
   
2. 
   the value of all final goods and services produced by a government.
   
3. 
   the value of all final good and services produced anywhere in the world by a nation's firms.
   
4. 
   the value of all final goods and services produced domestically.
   

Answer: D

80. 
    Final goods or services used to compute GDP refer to:
    

1. 
   the sum of all wages paid to laborers.
   
2. 
   the factors of production used to produce output.
   
3. 
   goods and services purchased by the ultimate users.
   
4. 
   the value of outstanding shares of stock of manufacturing firms.
   

Answer: C

81. 
    The demand measure of GDP accounting adds together:
    

1. 
   wages and salaries, rent, interest, and profit.
   
2. 
   consumption, investment, government purchases, and trade balance.
   
3. 
   consumption, government purchases, wages and salaries, and trade balance.
   
4. 
   consumption, interest, government purchases, and trade balance.
   

Answer: B

82. 
    Consumption is the purchase of goods and services by:
    

1. 
   households.
   
2. 
   government.
   
3. 
   business firms.
   
4. 
   foreign buyers.
   

Answer: A

83. 
    Which of the following are most likely classified by economists as consumer durable goods?
    

1. 
   food, clothing
   
2. 
   drugs, toys, magazines, books
   
3. 
   automobiles, furniture
   
4. 
   stocks, bonds Answer: C
   

84. 
    Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:
    

1. 
   exports exceed imports by $50 billion.
   
2. 
   imports exceed exports by $50 billion.
   
3. 
   imports exceed exports by $150 billion.
   
4. 
   exports exceed imports by $150 billion.
   

Answer: A

85. 
    The value of what businesses provide to other businesses is captured in the final products at the end of the chain.
    

1. 
   service
   
2. 
   value
   
3. 
   production
   
4. 
   supply Answer: C
   

86. 
    is a small category that refers to the goods produced by one business that have yet to be sold to consumers, and are either still sitting in warehouses and on store shelves.
    

1. 
   Inventories
   
2. 
   Services
   
3. 
   Structures
   
4. 
   Durable goods Answer: A
   

87. 
    In order to avoid double counting, statisticians just count the .
    

1. 
   final inventories
   
2. 
   final goods and services
   
3. 
   intermediate goods and services
   
4. 
   durable goods and nondurable goods Answer: B
   

88. 
    Which of the following is included in the calculated Gross Domestic Product?
    

1. 
   Farmer Freddie sells his second tractor to his son.
   
2. 
   Suzanne buys a love seat and chair for $85 at the yard sale on the corner.
   
3. 
   A local ice cream store sells $17,000 worth of cones and sundaes on July 1.
   
4. 
   Mr. Farkle buys a used lawn mower from his neighbor, Mr. Sparkle.
   

Answer: C

89. 
    Which of the following is not counted as a part of GDP?
    

1. 
   the purchase of 100 shares of AT&T stock by your grandfather.
   
2. 
   the purchase of a snow plough by the city of Minneapolis.
   
3. 
   the unsold additions to inventory at an appliances store
   
4. 
   the purchase of a loaf of bread by a consumer Answer: A
   

90. 
    Which of the following is not included in GDP?
    

1. 
   the payments for a chiropractor's services
   
2. 
   cash income paid to a day laborer that is not reported to the tax authorities
   
3. 
   the replacement of brake pads on your six-year-old vehicle
   
4. 
   the fees for legal services rendered by your lawyer Answer: B
   

91. 
    To compare the GDP of two different countries with different currencies, it is necessary to use
    

.

1. 
   an exchange rate
   
2. 
   foreign currency
   
3. 
   currency rates
   
4. 
   per capita GDP Answer: A
   

92. 
    is about two-thirds of the demand side of GDP, but it moves relatively little over time.
    

1. 
   Government
   
2. 
   Consumption
   
3. 
   Investment
   
4. 
   Services Answer: B
   

93. 
    Which of the following is included in GDP?
    

1. 
   revenue from the sale of a three-year old car
   
2. 
   the fees charged for a stock broker's services
   
3. 
   the receipts from a sale of land
   
4. 
   the value of lawn care service provided by a sixteen-year-old as part of his weekly chores Answer: B
   

94. 
    GDP does not directly include:
    

1. 
   the value of goods produced domestically and sold abroad.
   
2. 
   the value of intermediate goods sold during a period.
   
3. 
   the value of services rendered during a period.
   
4. 
   the value of final goods and services produced, but not sold, during a period.
   

Answer: B

95. 
    Investment (I) includes:
    

1. 
   the amount spent on new factories and machinery.
   
2. 
   the amount spent on stocks and bonds.
   
3. 
   the amount spent on consumer goods that last more than one year.
   
4. 
   the amount spent on purchases of art.
   

Answer: A

96. 
    Middle-income countries, which include much of Latin America, Eastern Europe, and some countries in East Asia, have per capita GDP in the range of .
    

A. $60 to $120

B. $600 to $1200
C. $6,000 to $12,000
D. $60,000 to $120,000

Answer: C

97. 
    A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:
    

1. 
   trough, expansion, recession, peak
   
2. 
   contraction, recession, expansion, boom
   
3. 
   expansion, trough, recession, peak
   
4. 
   expansion, peak, recession, trough Answer: D
   

98. 
    Which of the following is true?
    

1. 
   A depression is a recession that is mild and relatively brief.
   
2. 
   The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.
   
3. 
   The timing of business fluctuations is regular and therefore easily predictable.
   
4. 
   During the contractionary phase of the business cycle, the rate of unemployment is generally quite low.
   

Answer: B

99. 
    For most high-income countries of the world, GDP over time.
    

1. 
   has proven to be stable
   
2. 
   has risen gradually
   
3. 
   has declined slightly
   
4. 
   has sharply risen Answer: B
   

100. 
     If imports exceed exports, as in recent years, then exists.
     

1. 
   a trade surplus
   
2. 
   a trade deficit
   
3. 
   a trade imbalance
   
4. 
   trade disequilibrium Answer: B
   

101. 
     On the demand side of GDP, consumption by is the largest component of GDP, accounting for about two-thirds of the GDP in any year.
     

1. 
   services
   
2. 
   businesses
   
3. 
   households
   
4. 
   government Answer: C
   

102. 
     India has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars.
     

A. $20.90

B. $20,909
C. $418
D. $4.18

Answer: C

103. 
     Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate per capita GDP for each country.
     

1. 
   Ethiopia = $14.50 Costa Rica = $2250.00
   
2. 
   Ethiopia = $14.50 Costa Rica = $225.00
   
3. 
   Ethiopia = $145.00 Costa Rica = $2250.00
   

D. Ethiopia = $1450.00 Costa Rica = $22,500.00 Answer: C

104. 
     In 1990, the GDP of Canada was $680 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 85 U.S. cents. In 2000, the GDP of Canada was $1000 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 69 U.S. cents. By what percentage did the GDP of Canada increase from 1990 to 2000 in Canadian dollars?
     

A. 19.4%
B. 47%

C. 68%
D. 147%

Answer: B

105. 
     The Czech Republic has a GDP of 2,000 billion koruny. The exchange rate is 20 koruny per U.S. dollar. The Czech population is 20 million. Calculate the per capita GDP of the Czech Republic in U.S. dollars.
     

A. $5
B. $100,000

C. $500
D. $5000

Answer: D

106. 
     The gap between exports and imports in a nation's economy is called the .
     

1. 
   trade surplus
   
2. 
   trade balance
   
3. 
   trade deficit
   
4. 
   trade inventory Answer: B
   

107. 
     , which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.
     

1. 
   Trade balance
   
2. 
   Inflation
   
3. 
   Education
   
4. 
   Economic growth Answer: D
   

108. 
     Which of the following statements is true?
     

1. 
   GDP includes spending on recreation and travel, but it does not cover leisure time.
   
2. 
   GDP does not include production that is exchanged in the market, but it does cover production that is not exchanged in the market.
   
3. 
   GDP does not include newly produced goods and services, but counts the buying and selling of previously existing assets
   
4. 
   GDP includes production that is not exchanged in the market Answer: A
   

109. 
     The difference between nominal GDP and real GDP is:
     

1. 
   nominal GDP measures actual productivity
   
2. 
   nominal GDP adjusts for inflation
   
3. 
   real GDP adjusts for inflation
   
4. 
   real GDP excludes imports and exports
   

110. 
     The nominal value of any economic statistic refers to the number that is actually announced at that time, while the refers to the statistic after it has been adjusted for inflation.
     

1. 
   empirical value
   
2. 
   adjusted value
   
3. 
   real value
   
4. 
   net value Answer: C
   

111. 
     is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s.
     

1. 
   GDP per capita
   
2. 
   The Industrial Revolution
   
3. 
   The living standard
   
4. 
   Investment and inventions Answer: B
   

112. 
     To achieve a high standard of living, a nation should:
     

1. 
   increase the tax deduction for child dependents.
   
2. 
   promote economic growth.
   
3. 
   use less capital and more labor in the production process.
   
4. 
   increase welfare payments to the poor.
   

Answer: B

113. 
     In the long run, the most important source of increase in a nation's standard of living is a:
     

1. 
   zero rate of population growth
   
2. 
   high rate of economic growth.
   
3. 
   high rate of consumption.
   
4. 
   high rate of labor force growth.
   

Answer: B

114. 
     In macroeconomics, the connection from inputs to outputs for the entire economy is called
     

.

1. 
   a production function
   
2. 
   an aggregate production function
   
3. 
   human capital
   
4. 
   physical capital Answer: B
   

115. 
     The value of what is produced per worker, or per hour worked, is called .
     

1. 
   economic growth
   
2. 
   human capital
   
3. 
   productivity
   
4. 
   GDP per capita Answer: C
   

116. 
     A nation can achieve higher economic growth if:
     

1. 
   it devotes more resources to research and development.
   
2. 
   the productivity of labor declines
   
3. 
   taxes are imposed on investment in capital.
   
4. 
   more resources are allocated to consumption goods.
   

Answer: A

117. 
     is output per hour in the business sector.
     

1. 
   Net exports
   
2. 
   Productivity
   
3. 
   Investment
   
4. 
   GDP per capita Answer: B
   

118. 
     Which of the following is correct?
     

1. 
   An increase in the quantity of labor always leads to economic growth.
   
2. 
   Increased education adds to the stock of human capital, not unlike building factories adds to the stock of physical capital.
   
3. 
   A decrease in the productivity of labor leads to economic growth.
   
4. 
   Third World countries are rich in human capital.
   

Answer: B

119. 
     Investment in human capital:
     

1. 
   is of minor importance to economic growth.
   
2. 
   can be acquired through on-the-job training.
   
3. 
   is an important source of economic growth.
   
4. 
   is characterized by both B) and C).
   

Answer: D

120. 
     Economists typically measure economic growth by tracking:
     

1. 
   the employment rate.
   
2. 
   the unemployment rate.
   
3. 
   averaged GDP growth
   
4. 
   real GDP per capita.
   

Answer: D

121. 
     Which of the following is most likely to contribute to economic growth as measured by GDP per capita?
     

1. 
   the imposition of tariffs and quotas on imported goods
   
2. 
   increased capital formation
   
3. 
   rapid population growth
   
4. 
   an increase in marginal tax rates Answer: B
   

122. 
     Which of the government policies below is most unlikely to encourage per capita economic growth?
     

1. 
   high taxes on companies that spend a lot on capital formation
   
2. 
   the use of tax revenues for investment and capital formation
   
3. 
   special subsidies for capital-intensive forms of production
   
4. 
   promotion of education and training programs for workers Answer: A
   

123. 
     Over the long run, per hour is the most important determinant of the average wage level in any economy.
     

1. 
   demand
   
2. 
   dollars
   
3. 
   productivity
   
4. 
   supply Answer: C
   

124. 
     Which of the following is unlikely to affect the rate of economic growth?
     

1. 
   the quality of available resources
   
2. 
   the quantity of available resources
   
3. 
   the level of government spending
   
4. 
   technological change Answer: C
   

125. 
     A country will roughly double its GDP in twenty years if its annual growth rate is:
     

1. 
   12 percent.
   
2. 
   7.5 percent.
   
3. 
   3.5 percent.
   
4. 
   2.5 percent.
   

Answer: C

126. 
     Which of the following factors contribute to economic growth?
     

1. 
   an increase in the average wage rate paid to workers
   
2. 
   an increase in the standard of living
   
3. 
   a decrease in the productivity of labor
   
4. 
   an increase in the proportion of the population that is college educated Answer: D
   

127. 
     Since the late 1950s, economists have performed “growth accounting” studies in the United States. These have determined that is typically the most important contributor to U.S. economic growth.
     

1. 
   human capital
   
2. 
   physical capital
   
3. 
   technology
   
4. 
   a market orientation Answer: C
   

128. 
     A nation's prosperity is sometimes measured in terms of .
     

1. 
   GNP
   
2. 
   GDP
   
3. 
   GDP per capita
   
4. 
   economic output Answer: C
   

129. 
     An economy’s rate of productivity growth is closely linked to the growth rate of its
     

, although the two aren’t identical.

1. 
   GNP
   
2. 
   output
   
3. 
   GDP per capita
   
4. 
   technology Answer: C
   

130. 
     The unemployment rate measures:
     

1. 
   the number of people unemployed divided by the number of people employed.
   
2. 
   unemployed workers as a percentage of the labor force.
   
3. 
   unemployed workers as a percentage of the population age over-sixteen.
   
4. 
   unemployed workers as a percentage of the population.
   

Answer: B

131. 
     Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:
     

1. 
   out of the labor force.
   
2. 
   unemployed.
   
3. 
   employed in the underground economy.
   
4. 
   underemployed.
   

Answer: A

132. 
     If the unemployment rate is 8 percent, then this means:
     

1. 
   8 percent of the population is unemployed.
   
2. 
   8 percent of the population age over sixteen is unemployed.
   
3. 
   8 percent of the labor force is unemployed.
   
4. 
   the number of unemployed persons equals 8 percent of the employed persons.
   

Answer: C

133. 
     If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals:
     

A. 32%.

B. 25%.
C. 20%.
D. 8%.

Answer: B

134. 
     A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be:
     

1. 
   frictionally unemployed.
   
2. 
   underemployed.
   
3. 
   cyclically unemployed.
   
4. 
   structurally unemployed.
   

Answer: A

135. 
     Frictional unemployment is:
     

1. 
   unemployment that is due to the friction of competing ideological systems.
   
2. 
   unemployment caused by lack of training and education.
   
3. 
   unemployment caused by automation in the workplace.
   
4. 
   unemployment that is due to normal turnover in the labor market.
   

Answer: D

136. 
     If a nation's labor force receives a significant influx of young workers:
     

1. 
   the natural rate of unemployment is likely to increase.
   
2. 
   the natural rate of unemployment is likely to decrease.
   
3. 
   the natural rate of unemployment is unlikely to change
   
4. 
   frictional unemployment will likely decrease to zero.
   

Answer: A

137. 
     The type of unemployment that occurs because of a recession is called:
     

1. 
   cyclical unemployment.
   
2. 
   the natural rate of unemployment.
   
3. 
   seasonal unemployment.
   
4. 
   frictional unemployment.
   

Answer: A

138. 
     The definition of market equilibrium states that at the , the quantity of labor demanded by employers will equal the quantity supplied.
     

1. 
   efficiency wage
   
2. 
   equilibrium wage
   
3. 
   sticky wage
   
4. 
   natural rate of unemployment Answer: B
   

139. 
     The rise in unemployment that occurs because of a recession is known as cyclical unemployment, because it is closely tied to the .
     

1. 
   natural rate of unemployment
   
2. 
   business cycle
   
3. 
   supply curve
   
4. 
   labor supply Answer: B
   

140. 
     The most significant real economic cost of high unemployment is:
     

1. 
   the potential goods and services that might have been produced but weren't.
   
2. 
   the money cost of retraining persons to obtain new jobs.
   
3. 
   the lost tax revenue that might have been paid by persons if they had worked.
   
4. 
   the money cost of unemployment insurance payments to the unemployed.
   

Answer: A

141. 
     Karen chooses to go to university fulltime rather than to work. Karen:
     

1. 
   is not part of the labor force.
   
2. 
   is part of the labor force and what economists call a discouraged worker.
   
3. 
   is part of the labor force, but not actively seeking work.
   
4. 
   is considered employed.
   

Answer: A

142. 
     The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals:
     

A. 20.2 %.

B. 16.8%.
C. 14.4%.
D. 11%.

Answer: B

143. 
     Freelife, New Hampshire has a labor force of 78,567 persons and employment of 74,382. The unemployment rate for the city is:
     

A. 5.3%.

B. 5.6%.
C. 6.0%.
D. 7.1%

Answer:B

144. 
     If the unemployment rate is 6 percent and the number of persons unemployed is 6 million, then the number of people employed is equal to:
     

1. 
   100 million.
   
2. 
   94 million.
   
3. 
   106 million.
   
4. 
   6 million.
   

Answer: B

145. 
     Gomer loses his job as a road construction worker and cannot find another position with equivalent pay and benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a weekly basis. He is considered to be:
     

1. 
   laid off.
   
2. 
   underemployed.
   
3. 
   out of the labor force.
   
4. 
   unemployed.
   

Answer: B

146. 
     Which of the following statements is incorrect?
     

1. 
   Employment insurance compensation encourages longer job searches, which may lead to a better match between jobs and employees.
   
2. 
   Employment insurance compensation increases the opportunity cost of being unemployed.
   
3. 
   The typical employment insurance compensation is roughly one third of one's latest salary for up to 26 weeks.
   
4. 
   Demand and supply curves for labor are constantly shifting.
   

Answer: B

147. 
     Craigburg has a working age population of 20 million. Of those, 11 million are employed and 1 million are unemployed. The unemployment rate is and the participation rate is
     

.

A. 5%; 55%.

B. 9.1%; 60%.
C. 8.3%; 55%.
D. 5%; 60%.

Answer: B

148. 
     Cyclical unemployment arises when:
     

1. 
   the agriculture sector completes the cycle of planting, cultivating, and harvesting the nation's food supply.
   
2. 
   labor unions strike for higher wages.
   
3. 
   the business cycle enters an expansionary phase.
   
4. 
   business activity in the macroeconomy declines.
   

Answer: D

149. 
     Frictional unemployment occurs when:
     

1. 
   there is friction between an employer and employee.
   
2. 
   a worker decides to quit one job to seek a different job.
   
3. 
   a large corporation transfers a worker to another city.
   
4. 
   college students go back to school at the end of the summer.
   

Answer: B

150. 
     A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:
     

1. 
   cyclically unemployed.
   
2. 
   underemployed.
   
3. 
   frictionally unemployed.
   
4. 
   naturally unemployed.
   

Answer: A

151 The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce:

1. 
   natural unemployment.
   
2. 
   frictional unemployment.
   
3. 
   seasonal unemployment.
   
4. 
   cyclical unemployment.
   

Answer: B

152. 
     The unemployment rate may overestimate the true extent of unemployment if:
     

1. 
   many part-time employees would like to work fulltime, but are unable to get the additional work.
   
2. 
   many people who claim to be unemployed actually work in the underground economy.
   
3. 
   people falsely claim that they are actively seeking work in order to receive unemployment benefits.
   
4. 
   either B) or C) occurs.
   

Answer: D

152. 
     The labor force consists of:
     

1. 
   discouraged workers, employed workers, plus those actively seeking work.
   
2. 
   all adults who are working or actively seeking work.
   
3. 
   all adults who are able to work.
   
4. 
   all adults who are working, plus those not working.
   

Answer: B

152. 
     The unemployment rate may underestimate the true extent of unemployment if:
     

1. 
   many part-time employees would like to work fulltime, but are unable to get the additional work.
   
2. 
   employees increase the number of hours they work overtime.
   
3. 
   there are a large number of people working in the underground economy.
   
4. 
   people are pretending to look for work so that they can continue receiving unemployment benefits.
   

Answer: A

152. 
     The unemployment rate may underestimate the true extent of unemployment if:
     

1. 
   many people have a part time as well as a full time job.
   
2. 
   there are a large number of people working in the underground economy.
   
3. 
   many people become discouraged and cease looking for work.
   
4. 
   employees increase the number of hours they work overtime.
   

Answer: C

152. 
     A university student who is enrolled in school fulltime and not seeking employment is considered:
     

1. 
   out of the labor force.
   
2. 
   unemployable, and not counted in official statistics.
   
3. 
   employed in leisure.
   
4. 
   underemployed.
   

Answer: A

152. 
     Suppose that everyone who has looked for a job for more than six months gave up in despair and stopped looking. What would happen to the unemployment rate?
     

1. 
   It would increase.
   
2. 
   It would fall.
   
3. 
   It would not change.
   
4. 
   It would change, but the effect cannot be predicted.
   

Answer: B

152. 
     The extent of will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy.
     

1. 
   frictional unemployment
   
2. 
   cyclical unemployment
   
3. 
   seasonal unemployment
   
4. 
   cyclical employment Answer: A
   

152. 
     implies that pressure for price increases reaches across markets, not just one.
     

1. 
   inflation; all
   
2. 
   deflation; most
   
3. 
   inflation; most
   
4. 
   deflation; all Answer: C
   

152. 
     While one occasionally sees references to inflation over short time periods, the term typically implies a(n) in prices.
     

1. 
   ongoing decrease
   
2. 
   ongoing rise
   
3. 
   short term rise
   
4. 
   short term decrease Answer: B
   

152. 
     The effects of inflation are seen in:
     

1. 
   goods and services only
   
2. 
   wages and income levels only
   
3. 
   services and wages only
   
4. 
   goods, services, wages and income levels Answer: D
   

152. 
     Inflation implies that the level of all prices .
     

1. 
   decrease
   
2. 
   stay the same
   
3. 
   increase
   
4. 
   none of the above Answer: C
   

152. 
     Inflation can be calculated in terms of how the overall cost of changes over time.
     

1. 
   all goods
   
2. 
   the basket of goods
   
3. 
   all goods and services
   
4. 
   all services Answer: B
   

152. 
     If the price index moves from 107 to 110, the rate of inflation is:
     

A. 3%
B. 30%

C. 28%
D. 2.8%

Answer: D

152. 
     The most commonly cited measure of inflation in the United States is:
     

1. 
   the Consumer Price Index (CPI).
   
2. 
   the Deflationary Price Index (DPI)
   
3. 
   the Cumulative Price Index (CPI)
   
4. 
   the Inflationary Price Index (IPI) Answer: A
   

152. 
     One of the reasons that a rise in the price of a fixed basket of goods over time tends to
     

overstate the rise in a consumer’s true cost of living, is:

1. 
   substitution bias
   
2. 
   attribution bias
   
3. 
   complimentary bias
   
4. 
   preference bias Answer: A
   

152. 
     The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the .
     

1. 
   inflation rate
   
2. 
   price index rate
   
3. 
   consumer price index
   
4. 
   producer price Index Answer: A
   

152. 
     The basket of goods in the Consumer Price Index consists of about products; that is, several hundred specific products in over broad-item categories.
     

A. 200; 800

B. 80,000; 400
C. 80,000; 200
D. 800; 200

Answer: C

152. 
     Two factors that complicate the calculation of the inflation rate are:
     

1. 
   substitution and quality/new product bias
   
2. 
   preferential bias
   
3. 
   complimentary product bias
   
4. 
   consumer behavior bias Answer: A
   

152. 
     When we want to measure wage inflation in the labor market, we use the:
     

1. 
   Consumer Price Index
   
2. 
   Product Price Index
   
3. 
   Employment Cost Index
   
4. 
   Employment Price Index Answer: C
   

152. 
     The Producer Price Index is based on prices paid for supplies and inputs by:
     

1. 
   consumers
   
2. 
   producers of goods and services
   
3. 
   government
   
4. 
   the small business sector Answer: B
   

152. 
     The is based on the prices of merchandise that are exported or imported.
     

1. 
   International Product Index
   
2. 
   Producer Price Index
   
3. 
   Foreign Price Index
   
4. 
   International Price Index Answer: A
   

152. 
     Another term used to describe negative inflation is:
     

1. 
   counter inflation
   
2. 
   deflation
   
3. 
   hyperinflation
   
4. 
   GDP deflator Answer: B
   

152. 
     In the early 1990’s extremely high inflation rates of 2500% were common in Russia. During that
     

time, we can say that as a result of those inflation rates, Russia was experiencing
.

1. 
   perpetual inflation
   
2. 
   ultra inflation
   
3. 
   hypo inflation
   
4. 
   hyperinflation Answer: D
   

152. 
     Which of the following is an example of one of the major categories in the overall CPI?
     

1. 
   apparel and accessories
   
2. 
   entertainment
   
3. 
   recreation
   
4. 
   transportation and insurance Answer: C
   

152. 
     The situation where the buying power of money in terms of goods and services increases is called:
     

1. 
   deflation.
   
2. 
   inflation.
   
3. 
   stationary pricing.
   
4. 
   hyperinflation.
   

Answer: A

152. 
     Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?
     

1. 
   Producer Price Index
   
2. 
   Consumer Price Index
   
3. 
   Employment Cost Index
   
4. 
   Processing Price Index Answer: A
   

152. 
     What name is given to the index based on the prices of exported or imported merchandise?
     

1. 
   U.S. Producer Trade Index
   
2. 
   International Trade Index
   
3. 
   International Price Index
   
4. 
   U.S. Producer Price Index Answer: C
   

152. 
     An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?
     

1. 
   Consumer Price Index
   
2. 
   GDP Price Index
   
3. 
   Consumer GDP
   
4. 
   GDP Deflator Answer: D
   

152. 
     The GDP deflator is a price index that includes the following components of GDP:
     

1. 
   Consumption
   
2. 
   Consumption plus Investment but not Exports
   
3. 
   Consumption, Investment plus Exports minus Imports
   
4. 
   Consumption, Investment, Government plus Exports minus Imports Answer: D
   

152. 
     With regard to the economy, the term negative inflation is synonymous with which of the following?
     

1. 
   recession
   
2. 
   depression
   
3. 
   deflation
   
4. 
   hyperinflation Answer: C
   

152. 
     An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms to conclude his comparison analysis. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 2010; the 2000 deflator was 24 and 51 in 2010. What is the real gain?
     

A. 18.34%

B. 38.58%
C. 151.48%
D. 70.61%

Answer: A

152. 
     Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be?
     

1. 
   $430 billion
   
2. 
   $835 billion
   
3. 
   $2,063 billion
   
4. 
   $2,449 billion Answer: D
   

152. 
     What distinguishes the real value of a statistic from the nominal value of a statistic?
     

1. 
   timing of announcement
   
2. 
   adjusting for inflation
   
3. 
   adjusting for GDP deflator
   
4. 
   real interest rate Answer: B
   

152. 
     Nancy's union has negotiated a three-year wage contract that provides for a 2.4% increase indexed to inflation. The rates of inflation are forecast to be 1.62%, 1.93% and 2.21% respectively. How will Nancy's wage increase be expressed in the new contract?
     

1. 
   COLA plus 1.6%
   
2. 
   COLA plus 1.9%
   
3. 
   COLA plus 2.4%
   
4. 
   COLA plus 2.2% Answer: C
   

152. 
     When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be
     

.

1. 
   indexed
   
2. 
   COLAed
   
3. 
   nominally adjusted
   
4. 
   semi-indexed Answer: A
   

152. 
     In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had
     

which guaranteed that their wages would keep up with inflation.

1. 
   cost of living adjustments
   
2. 
   inflation protection plans
   
3. 
   inflation ceiling guarantees
   
4. 
   wage protection clauses Answer: A
   

152. 
     The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to the rise in a consumer’s true cost of living, because it doesn’t take into account that the person can substitute between goods according to changes in their relative prices.
     

1. 
   stabilize
   
2. 
   understate
   
3. 
   overstate
   
4. 
   reduce Answer: C
   

152. 
     The is the nominal interest rate minus the rate of inflation.
     

1. 
   real GDP
   
2. 
   real interest rate
   
3. 
   nominally adjusted
   
4. 
   annualized interest rate Answer: B
   

152. 
     A payment is said to be if it is automatically adjusted for inflation.
     

1. 
   cross referenced
   
2. 
   indexed
   
3. 
   matched
   
4. 
   maintained Answer: B
   

152. 
     A lender demands an interest rate in part to compensate for any expected , so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.
     

1. 
   risk premium
   
2. 
   inflation
   
3. 
   compound interest
   
4. 
   opportunity costs
   

Answer: B Reference:

200. 
     Consumption, investment, government spending, exports, and imports are:
     

1. 
   all complementary elements of a market-orientated economy.
   
2. 
   some of the opposing elements found in a market-orientated economy.
   
3. 
   all components of aggregate demand.
   
4. 
   some of the building blocks of Keynesian analysis.
   

Answer: C

200. 
     If markets throughout the global economy all have flexible and continually adjusting prices, then:
     

1. 
   all market-oriented economies will implement coordinated wage reductions.
   
2. 
   each economy will always head for its natural rate of unemployment.
   
3. 
   each economy must shift in aggregate demand and create additional employment.
   
4. 
   all changes in prices and wages will create additional employment.
   

Answer: B

200. 
     Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a for minimizing their effects.
     

1. 
   pricing strategy
   
2. 
   macro-economic model
   
3. 
   set of menu costs
   
4. 
   policy prescription Answer: D
   

200. 
     Aggregate demand is more likely to than aggregate supply in the short run.
     

1. 
   shift substantially
   
2. 
   remain unchanged
   
3. 
   decrease substantially
   
4. 
   increase slightly Answer: A
   

200. 
     The equilibrium quantity of labor and the equilibrium wage level decrease when:
     

1. 
   labor supply shifts to the right, if wages are flexible.
   
2. 
   labor demand shifts to the right, if wages are flexible.
   
3. 
   labor demand shifts to the left, if wages are flexible.
   
4. 
   labor supply shifts to the left, if wages are flexible.
   

Answer: C

200. 
     The equilibrium quantity of labor and the equilibrium wage increase when:
     

1. 
   labor supply shifts to the right, if wages are flexible.
   
2. 
   labor demand shifts to the right, if wages are flexible.
   
3. 
   labor demand shifts to the left, if wages are flexible.
   
4. 
   labor supply shifts to the left, if wages are flexible.
   

Answer: B

200. 
     The equilibrium quantity of labor increases and the equilibrium wage decreases when:
     

1. 
   labor demand shifts to the left, if wages are flexible.
   
2. 
   labor supply shifts to the left, if wages are flexible.
   
3. 
   labor demand shifts to the right, if wages are flexible.
   
4. 
   labor supply shifts to the right, if wages are flexible, Answer: D
   

200. 
     The equilibrium quantity of labor decreases and the equilibrium wage increases when:
     

1. 
   labor supply shifts to the left, if wages are flexible.
   
2. 
   labor demand shifts to the left, if wages are flexible.
   
3. 
   labor demand shifts to the right, if wages are flexible.
   
4. 
   labor supply shifts to the right, if wages are flexible, Answer: A
   

200. 
     will not cause a shift of the AS curve in a Keynesian framework.
     

1. 
   Prices of inputs
   
2. 
   Changes in input prices
   
3. 
   Changes in output prices
   
4. 
   Changes in inputs Answer: C
   

200. 
     According to the Keynesian framework, in may cause inflation, but not a recession.
     

1. 
   decrease; interest rates
   
2. 
   an increase; domestic investment
   
3. 
   a decrease; a major trading partner's economy
   
4. 
   a decrease; a major trading partner's export prices Answer: B
   

200. 
     According to the Keynesian framework, may cause a recession, but not inflation.
     

1. 
   a major trading partner's economic slowdown
   
2. 
   a decrease in interest rates
   
3. 
   an increase in domestic investment
   
4. 
   a decrease in a major trading partners export prices Answer: A
   

200. 
     According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?
     

1. 
   increased spending by the government on health care
   
2. 
   an increase in taxes on business investments
   
3. 
   an increase in military spending
   
4. 
   a decrease in the tax rate on consumer income Answer: D
   

200. 
     According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?
     

1. 
   an increase in military spending
   
2. 
   a decrease in military spending
   
3. 
   increase in spending by the government on health care
   
4. 
   decrease in spending by government on health care Answer: B
   

200. 
     According to the Keynesian framework, will not help reduce inflation, but may help a country get out of a recession.
     

1. 
   increased spending by the government on health care
   
2. 
   increased taxes on business investments
   
3. 
   decreased military spending
   
4. 
   increased consumer tax rate Answer: A
   

200. 
     The Keynesian economic framework is based on an assumption that:
     

1. 
   an increase in government spending will cause the aggregate demand curve to shift to the left.
   
2. 
   prices and wages are sticky and do not adjust rapidly.
   
3. 
   an increase in government spending will cause the aggregate demand curve to shift to the left.
   
4. 
   people can afford a high level of government services.
   

Answer: B

200. 
     According to the argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.
     

1. 
   sticky wage and price
   
2. 
   sticky wage
   
3. 
   Keynesian
   
4. 
   coordination Answer: D
   

200. 
     If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?
     

1. 
   excess supply
   
2. 
   natural rate of unemployment
   
3. 
   coordinated wage reductions
   
4. 
   depression Answer: A
   

200. 
     When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?
     

1. 
   flatter consumption function due to low marginal propensity to tax
   
2. 
   steeper consumption function due to low marginal propensity to save
   
3. 
   flatter consumption function due to high marginal propensity to invest
   
4. 
   steeper consumption function due to high marginal propensity to consume Answer: D
   

200. 
     In macroeconomics, a is used to show the relationship between output and the input price level.
     

1. 
   Phillips curve
   
2. 
   microeconomic model
   
3. 
   expenditure-output model
   
4. 
   Keynesian framework Answer: A
   

200. 
     If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:
     

1. 
   is producing at its potential GDP.
   
2. 
   is producing at a point where output is more than potential GDP.
   
3. 
   is producing at a point where output is less than potential GDP.
   
4. 
   is producing at its equilibrium point.
   

Answer: C

200. 
     If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:
     

1. 
   is producing at its potential GDP.
   
2. 
   is producing at a point where output is more than potential GDP.
   
3. 
   is producing at a point where output is less than potential GDP.
   
4. 
   is producing at its equilibrium point.
   

Answer: B

200. 
     The sum of all the income received for contributing resources to GDP is called
     

.

1. 
   national income (Y)
   
2. 
   national revenue (Y)
   
3. 
   marginal income (X)
   
4. 
   marginal revenue (X) Answer: A
   

200. 
     Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle?
     

A. 3.59

B. 9.89
C. 3.37
D. 5.23

Answer: A

200. 
     Which of the following is a distinguishing characteristic of a Keynesian cross diagram?
     

1. 
   real GDP on the horizontal axis
   
2. 
   a flat line
   
3. 
   45-degree line
   
4. 
   several different Phillips curves Answer: C
   

200. 
     Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5-year period?
     

1. 
   interest rates
   
2. 
   exchange rates
   
3. 
   foreign income
   
4. 
   MPS
   

Answer: B

200. 
     Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?
     

1. 
   bigger leakages
   
2. 
   smaller leakages
   
3. 
   increased trade
   
4. 
   decreased trade Answer: A
   

200. 
     serves society in three functions: medium of exchange, unit of account, and store of value.
     

1. 
   Money
   
2. 
   Currency
   
3. 
   Barter
   
4. 
   A double coincidence of wants Answer: A
   

200. 
     Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?
     

1. 
   medium of exchange
   
2. 
   unit of account
   
3. 
   store of value
   
4. 
   unit of exchange Answer: C
   

200. 
     In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?
     

1. 
   unit of exchange.
   
2. 
   medium of exchange.
   
3. 
   store of value.
   
4. 
   unit of account.
   

Answer: B

200. 
     Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?
     

1. 
   a new car
   
2. 
   an iPod
   
3. 
   an estate
   
4. 
   gym membership
   

Answer: C

200. 
     If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?
     

1. 
   capital exchange
   
2. 
   currency exchange
   
3. 
   unit of exchange
   
4. 
   medium of exchange Answer: D
   

200. 
     Which of the following is a valid criticism of the use of money as a store of value in modern economies?
     

1. 
   annual inflationary loss of buying power
   
2. 
   money supply is too narrowly defined
   
3. 
   storing money is wasteful
   
4. 
   imperfect as a unit of account Answer: A
   

200. 
     Which of the following would be classified in the M1 category of the money supply?
     

1. 
   savings deposits
   
2. 
   money market deposit
   
3. 
   demand deposits
   
4. 
   certificates of deposit Answer: C
   

200. 
     With respect to measuring the money supply, which of the following terms describes a checking account?
     

1. 
   demand certificates
   
2. 
   currency deposits
   
3. 
   cash certificates
   
4. 
   demand deposits Answer: D
   

200. 
     are included in the aggregate amount of MI money currently in circulation.
     

1. 
   Savings deposits
   
2. 
   Traveler's checks
   
3. 
   Short-term bonds
   
4. 
   Foreign currency deposits Answer: B
   

200. 
     Which category of the money supply would you be contributing to if you invest in money market funds?
     

1. 
   M2
   
2. 
   M1
   
3. 
   time deposits
   
4. 
   savings deposits Answer: A
   

200. 
     Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
     

1. 
   savings
   
2. 
   money
   
3. 
   M2
   
4. 
   M1 Answer: D
   

200. 
     If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:
     

1. 
   his M1 funds.
   
2. 
   his M2 funds.
   
3. 
   the credit card company's M1 funds.
   
4. 
   the credit card company's M2 funds.
   

Answer: C

200. 
     If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:
     

1. 
   the debit card company's M1 funds.
   
2. 
   the debit card company's M2 funds.
   
3. 
   her M2 funds.
   
4. 
   her M1 funds.
   

Answer: D

200. 
     If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:
     

1. 
   Sarah's M1 funds.
   
2. 
   the smart card company's M1 funds.
   
3. 
   the smart card company's M2 funds.
   
4. 
   Sarah's M2 funds.
   

Answer: A

200. 
     In modern economies, receive money from savers and provide funds to borrowers.
     

1. 
   governments
   
2. 
   credit unions
   
3. 
   banks
   
4. 
   financial intermediaries Answer: D
   

200. 
     are funds that the bank keeps on hand that are not loaned out or invested in bonds.
     

1. 
   Certificates of deposit
   
2. 
   Reserves
   
3. 
   Time deposits
   
4. 
   Demand deposits Answer: B
   

200. 
     In macroeconomics, describes a situation where a bank’s
     

liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

1. 
   diversification
   
2. 
   reserve ratio
   
3. 
   an asset-liability time mismatch
   
4. 
   a negative net worth Answer: C
   

200. 
     Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of by adopting a strategy that will .
     

1. 
   rising interest rates; diversify its loans
   
2. 
   rising interest rates; provide loans to a variety of customers
   
3. 
   an increased reserve requirement; provide loans to a variety of customers
   
4. 
   an asset-liability time mismatch; diversify its loans Answer: D
   

200. 
     The money multiplier is equal to the in the economy divided by the original
     

.

1. 
   total money; quantity of money
   
2. 
   original quantity of reserves; reserve ratio
   
3. 
   quantity of money; total money
   
4. 
   reserve ratio; original quantity of reserves Answer: A
   

200. 
     The quantity of money in an economy and the are inextricably intertwined.
     

1. 
   value of assets for loans
   
2. 
   quantity of credit for loans
   
3. 
   financial stress in the banking system
   
4. 
   extraordinary gains that can be made with money Answer: B
   

200. 
     The process of banks making loans in financial capital markets is intimately tied to the:
     

1. 
   redistribution of wealth.
   
2. 
   financial stress levels of banks.
   
3. 
   creation of money.
   
4. 
   home construction industry.
   

Answer: C

200. 
     Banks typically come under financial stress because of:
     

1. 
   the money multiplier effect.
   
2. 
   a widespread decline in the value of their assets.
   
3. 
   diversification of loan assets.
   
4. 
   risks associated with extraordinary economic gains.
   

Answer: B

200. 
     If loans become far less available, then sectors of the economy that like business investment, home construction, and car manufacturing can be dealt a crushing blow.
     

1. 
   depend on borrowed money
   
2. 
   typically generate extraordinary gains
   
3. 
   make loans to financial capital markets
   
4. 
   failed to diversify risk Answer: A
   

200. 
     If the central bank increases the amount of reserves banks are required to hold to 20%, then:
     

1. 
   the money multiplier will increase and the supply of money in the economy will decrease.
   
2. 
   both the money multiplier and the supply of money in the economy will increase.
   
3. 
   the money multiplier will decrease and the supply of money in the economy will increase.
   
4. 
   both the money multiplier and supply of money in the economy will decrease.
   

Answer: D

200. 
     If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:
     

1. 
   the money multiplier will increase and the supply of money in the economy will decrease.
   
2. 
   both the money multiplier and the supply of money in the economy will decrease.
   
3. 
   both the money multiplier and the supply of money in the economy will increase.
   
4. 
   the money multiplier will decrease and the supply of money in the economy will increase.
   

Answer: C

200. 
     are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.
     

1. 
   Direct deposits
   
2. 
   Savings deposits
   
3. 
   Time deposits
   
4. 
   Demand deposits Answer: D
   

200. 
     pool the deposits of many investors together and invest them in a safe way like short-term government bonds.
     

1. 
   Money market funds
   
2. 
   Savings deposits
   
3. 
   Time deposits
   
4. 
   Certificates of deposit Answer: A
   

200. 
     that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called
     

.

1. 
   Demand deposits; certificates of deposit
   
2. 
   Certificates of deposit; time deposits
   
3. 
   Money market funds; time deposits
   
4. 
   Bonds; term deposits Answer: B
   

200. 
     The term describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.
     

1. 
   reserve ratio
   
2. 
   reserve funds
   
3. 
   term deposits
   
4. 
   bond reserves Answer: A
   

200. 
     are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.
     

1. 
   Certificates of deposit
   
2. 
   Bonds
   
3. 
   Money market funds
   
4. 
   Time deposits
   

Answer: B

200. 
     In an economy with , money loses some buying power each year, but it remains money.
     

1. 
   inflation
   
2. 
   currency
   
3. 
   deflation
   
4. 
   a market orientation Answer: A
   

200. 
     The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?
     

1. 
   5
   
2. 
   1
   
3. 
   20
   
4. 
   10 Answer: C
   

200. 
     The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?
     

1. 
   5
   
2. 
   10
   
3. 
   20
   
4. 
   1 Answer: B
   

200. 
     The market where loans are made to borrowers is called the:
     

1. 
   secondary loan market.
   
2. 
   money market.
   
3. 
   loan market.
   
4. 
   primary loan market.
   

Answer: D

200. 
     The market in which loans are bought and sold is called the:
     

1. 
   loan market.
   
2. 
   money market.
   
3. 
   secondary loan market.
   
4. 
   primary loan market.
   

Answer: C