APMacroPracFINAL
Multiple Choice
Identify the choice that best completes the statement or answers the question.
Exhibit 3-2
____ 1. Refer to Exhibit 3-2. Suppose equilibrium is at point B. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point B to C (assuming that this is a normal good)?
a.
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There was an increase in resource prices and income stayed constant.
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b.
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There was a decrease in resource prices and income stayed constant.
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c.
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There was an increase in resource prices and income decreased.
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d.
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There was an increase in resource prices and income increased.
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____ 2. Refer to Exhibit 3-2. Suppose equilibrium is at point A. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point A to C (assuming that this is a normal good)?
a.
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There was an increase in income and production technology advanced.
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b.
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There was a decrease in income and production technology advanced.
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c.
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There was an increase in the price of a substitute and an increase in wages.
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d.
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There was a decrease in the price of a complement and an increase in wages.
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Exhibit 3-4
____ 3. Refer to Exhibit 3-4. If this is a competitive market, price and quantity will gravitate toward
a.
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$6 and 10 units, respectively.
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b.
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$6 and 20 units, respectively.
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c.
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$4 and 15 units, respectively.
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d.
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$2 and 15 units, respectively.
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____ 4. Which of the following statements represents a correct and sequentially accurate economic explanation?
a.
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X is an inferior good and Y is a substitute for X. Income rises, the demand for X falls, the price of X falls, and the demand for Y rises.
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b.
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X is an inferior good and Y is a substitute for X. Income rises, the demand for X falls, the price of X falls, and the demand for Y falls.
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c.
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X is an inferior good and Y is a substitute for X. Income falls, the demand for X rises, the price of X rises, and the demand for Y falls.
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d.
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X is an inferior good and Y is a substitute for X. Income rises, the quantity demanded of X rises, the price of X rises, and the demand for Y falls.
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e.
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none of the above
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____ 5. Which of the following statements best represents the law of supply?
a.
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Price and quantity supplied are inversely related.
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b.
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Price and quantity supplied are directly related.
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c.
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Price and quantity supplied are inversely related, ceteris paribus.
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d.
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Price and quantity supplied are directly related, ceteris paribus.
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e.
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Price and supply are directly related, ceteris paribus.
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____ 6. If the CPI is 100 in the base year and 140 in the current year, how much did prices rise between these two years?
a.
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40 percent
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b.
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140 percent
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c.
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1.40 percent
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d.
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0.14 percent
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____ 7. The base year is the year
a.
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in which prices are unstable.
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b.
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in which prices are lowest.
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c.
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in which prices are highest.
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d.
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that serves as a reference point or benchmark.
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e.
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in which nominal output is largest.
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____ 8. The unemployment rate equals the
a.
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number of employed persons divided by the number of unemployed persons.
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b.
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number of unemployed persons divided by the civilian non-institutional population.
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c.
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number of unemployed persons divided by the civilian labor force.
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d.
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sum of unemployed persons and discouraged workers divided by the civilian labor force.
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____ 9. A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is said to be __________ unemployed
a.
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frictionally
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c.
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cyclically
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b.
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structurally
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d.
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underemployed
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____ 10. Gross Domestic Product (GDP) is the total market value of all
a.
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final goods and services produced annually within a country's borders.
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b.
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final and intermediate goods and services produced annually within a country's borders.
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c.
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intermediate goods and services produced annually within a country's borders.
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d.
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final goods and services produced every month within a country's borders.
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____ 11. Which of the following illustrates double counting?
a.
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The total market value of the steel used to produce a car and the total market value of the car itself are summed.
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b.
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The total market value of tennis rackets and the total market value of tennis balls are summed.
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c.
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The total market value of picture frames and the total market value of camera film are summed.
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d.
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The total market value of eyeglasses and the total market value of carpet are summed.
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e.
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b and c
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____ 12. Which of the following is counted in GDP?
a.
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the purchase of 100 shares of Microsoft stock
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b.
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the services of a real estate broker
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c.
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government transfer payments
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d.
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the sale of a used car
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e.
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none of the above
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____ 13. Which of the following would definitely not be included in the measurement of GDP?
a.
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value of the services of a painter who paints your garage
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b.
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value of the services of a person who mows his or her own lawn
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c.
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value of the services of a maid who cleans your house
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d.
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value of the services of a plumber who fixes your kitchen sink
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____ 14. A business cycle refers to the
a.
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continued expansion in Real GDP.
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b.
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recurrent swings (up and down) in Real GDP.
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c.
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continued decline in Real GDP.
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d.
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period when Real GDP grows at unusually high rates.
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e.
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none of the above
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____ 15. What does annual economic growth refer to?
a.
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annual increases in GDP
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b.
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annual increases in consumption spending
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c.
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annual increases in investment spending
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d.
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annual increases in Real GDP
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e.
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none of the above
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____ 16. An aggregate demand (AD) curve shows the
a.
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amount of a particular good people are willing and able to buy at a particular price, ceteris paribus.
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b.
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real output (Real GDP) people are willing and able to sell at different price levels, ceteris paribus.
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c.
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real output (Real (GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
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d.
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real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
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____ 17. Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.
a.
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movement down along
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b.
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movement up along
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c.
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a rightward shift of
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d.
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a leftward shift of
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____ 18. A short-run aggregate supply curve shows the
a.
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amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.
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b.
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real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
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c.
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real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
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d.
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real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
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____ 19. Can a change in the price level change aggregate demand?
a.
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Yes, as the price level rises, aggregate demand falls.
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b.
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Yes, but only under the condition that the real balance effect is operational.
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c.
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No, only a change in a nonprice factor can change aggregate demand.
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d.
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No, a change in the price level can only change aggregate supply.
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e.
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none of the above
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____ 20. Business taxes fall. This raises __________, which raises __________ and the __________ curve shifts rightward.
a.
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consumption; aggregate demand (AD); AD
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b.
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investment; government purchases; AD
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c.
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investment; aggregate demand (AD); AD
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d.
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net exports; aggregate demand (AD); AD
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e.
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none of the above
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____ 21. Personal income taxes rise. This lowers __________, which lowers __________ and the __________ curve shifts __________.
a.
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net exports; aggregate demand (AD); AD; leftward
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b.
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consumption; short-run aggregate supply (SRAS); SRAS; rightward
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c.
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government revenue; net exports; AD; rightward
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d.
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consumption; aggregate demand (AD); AD; leftward
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e.
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none of the above
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____ 22. An economy is producing its Natural Real GDP when the rate of unemployment is equal to the __________ unemployment rate.
a.
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frictional
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b.
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structural
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c.
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sum of the frictional unemployment rate and the structural
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d.
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seasonal
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e.
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cyclical
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____ 23. An inflationary gap exists when AD and SRAS
a.
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fail to intersect.
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b.
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intersect to the right of Natural Real GDP.
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c.
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intersect to the left of Natural Real GDP.
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d.
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both have a positive slope.
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____ 24. A recessionary gap exists when AD and SRAS
a.
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fail to intersect.
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b.
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intersect to the right of Natural Real GDP.
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c.
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intersect to the left of Natural Real GDP.
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d.
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both have a positive slope.
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Exhibit 8-1
____ 25. Refer to Exhibit 8-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n)
a.
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inflationary gap.
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b.
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recessionary gap.
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c.
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unemployment gap.
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d.
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high Real GDP gap.
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e.
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none of the above
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____ 26. Refer to Exhibit 8-1. The economy is currently producing Q1. If an economist believes the economy (itself) can move to QN, then he believes that the
a.
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LRAS curve will shift leftward until it intersects the SRAS and AD curves at Q1.
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b.
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AD curve will shift rightward and intersect the SRAS curve at point B.
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c.
|
SRAS curve will shift rightward and intersect the AD curve at point A.
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d.
|
economy will likely stay "stuck" in short-run equilibrium.
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____ 27. Refer to Exhibit 8-1. The unemployment rate is lower at
a.
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Q1 than QN.
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b.
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QN than Q1.
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c.
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point A than point B.
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d.
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point B than point A.
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____ 28. Refer to Exhibit 8-1. The price level is
a.
|
lower in short-run equilibrium than in long-run equilibrium.
|
b.
|
lower in long-run equilibrium than in short-run equilibrium.
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c.
|
higher in long-run equilibrium than in short-run equilibrium.
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d.
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lower when the economy is in a recessionary gap than when it is in long-run equilibrium.
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____ 29. Refer to Exhibit 8-1. The economy is currently producing Q1. An economist who believes wages are flexible in the downward direction would argue that
a.
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it is likely the economy will soon move to point B.
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b.
|
it is likely the economy will soon move to point A.
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c.
|
it is not likely the economy will move to point A on its own accord now or anytime soon.
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d.
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Real GDP will soon take a downturn.
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____ 30. When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural rate of unemployment.
a.
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greater than; less than
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b.
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greater than; greater than
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c.
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less than; greater than
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d.
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less than; less than
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e.
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less than; equal to
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____ 31. Which of the following statements is true?
a.
|
If current Real GDP is greater than Natural Real GDP, the economy is in a recessionary gap.
|
b.
|
If current Real GDP is less than Natural Real GDP, the economy is in long-run equilibrium.
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c.
|
Wages are flexible if the economy is self-regulating.
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d.
|
Wages rise but prices remain constant in long-run equilibrium.
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e.
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All economists believe the economy is self-regulating.
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____ 32. A person who believes the economy is self-regulating also believes that
a.
|
when there is a surplus in the labor market, the wage rate falls, and when there is a shortage in the labor market, the wage rate rises.
|
b.
|
it is better if the economy is in an inflationary gap than a recessionary gap.
|
c.
|
prices are flexible but wages are not.
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d.
|
the economy is always in long-run equilibrium.
|
e.
|
the real balance effect does not operate in a recessionary gap.
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____ 33. If total production is greater than total expenditures,
a.
|
there will be an increase in saving.
|
b.
|
there will be an increase in inventories.
|
c.
|
firms will then increase production.
|
d.
|
firms will then increase prices.
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____ 34. The efficiency wage model contains the assumption that labor productivity __________ the wage rate, so that a firm maximizing its profits __________ pay workers an above-market wage rate.
a.
|
is independent of; may
|
b.
|
is independent of; will never
|
c.
|
depends on; may
|
d.
|
depends on; will never
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____ 35. Two economists, Smith and Jones, are discussing the currently high unemployment rate. Smith says that something ought to be done quickly because the economy may not be able to restore itself to full employment. Jones says that it is better to take a "hands-off" approach. Which of the following is most likely to be true?
a.
|
Smith and Jones are most likely both Keynesian economists with a few minor differences of opinion.
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b.
|
Smith and Jones are most likely both classical economists with a few minor differences of opinion.
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c.
|
Jones is likely to be a Keynesian economist and Smith is likely to be a classical economist.
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d.
|
Smith is likely to be a Keynesian economist and Jones is likely to be a classical economist.
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e.
|
none of the above.
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____ 36. Which of the following is consistent with the classical view of Say's law?
a.
|
Saving increases by $2 billion and investment decreases by $2 billion.
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b.
|
Saving increases by $2 billion and consumption rises by $2 billion.
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c.
|
Saving increases by $2 billion, consumption decreases by $2 billion, and investment rises by something less than $2 billion.
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d.
|
Saving decreases by $2 billion and consumption decreases by more than $2 billion.
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e.
|
none of the above
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____ 37. According to Keynes, the private sector (by itself)
a.
|
can always move the economy out of a recessionary gap.
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b.
|
cannot always move the economy out of a recessionary gap.
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c.
|
can never move the economy out of a recessionary gap.
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d.
|
can only move the economy out of a recessionary gap if the SRAS curve drops.
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e.
|
can only move the economy out of a recessionary gap if the SRAS curve rises.
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____ 38. Suppose Congress decreases income taxes. This is an example of
a.
|
expansionary fiscal policy.
|
b.
|
expansionary monetary policy.
|
c.
|
contractionary fiscal policy.
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d.
|
contractionary monetary policy.
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____ 39. Suppose the economy is at a position below the institutional production possibilities frontier. In response to this situation, Keynesian economists would propose that the government should __________ purchases, which will cause the aggregate demand curve to shift to the __________, which, in turn, will correct this __________ gap.
a.
|
decrease; left; inflationary
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b.
|
increase; right; inflationary
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c.
|
decrease; right; inflationary
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d.
|
increase; right; recessionary
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e.
|
decrease; left; recessionary
|
____ 40. With complete crowding out, an increase in government spending
a.
|
is completely offset by a reduction in private spending.
|
b.
|
is matched by an increase in private spending.
|
c.
|
results in an increase in aggregate supply.
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d.
|
results in an increase in aggregate demand.
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