Untitled 5

Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Macroeconomics A) studies the behavior of the economy as a whole. B) studies the behavior of individual consumers, firms and markets. C) involves the interaction between different countries in specific markets. D) deals with both individual decisions and the sum of those individual decisions.

1)

Answer: A 2) Macroeconomics is best described as the study of A) the relationship between inflation and wage inequality. B) the choices made by individual households, firms, and governments. C) very large issues. D) the nation's economy as a whole.

2)

Answer: D 3) We can use macroeconomic analysis to A) understand marginal changes in the macroeconomy. B) learn how to balance a checkbook. C) understand why economies grow. D) study the choices made by households.

3)

Answer: C 4) The mechanism that normally coordinates what goes on in an economy is the A) stock market. B) price system. C) Federal Reserve. D) government.

4)

Answer: B 5) The demand for steel has decreased in July without any change in supply. Six months later there still has been no change in steel prices. This is an example of a A) sticky price. B) price control. C) macroeconomic price. D) price floor.

5)

Answer: A 6) The demand for auto mechanics increased in the summer of 2010, but the starting wages paid to auto mechanics was still the same at the end of 2010. This is an example of a A) price control. B) sticky price. C) flexible price. D) highly regulated market.

6)

Answer: B 7) Inflation refers to a(n) ________ in the overall ________. A) decrease; price level B) increase; price level C) decrease; unemployment rate D) increase; unemployment rate Answer: B

1

7)

8) The behavior of all households and firms together is known as A) conglomerate behavior. B) aggregate behavior. C) synergy behavior. D) synchronized behavior.

8)

Answer: B 9) An increase in the overall price level is known as A) recession. C) economic growth.

9)

B) inflation. D) deflation.

Answer: B 10) A decrease in the overall price level is known as A) economic growth. C) inflation.

10)

B) recession. D) deflation.

Answer: D 11) Hyperinflation refers to a(n) A) very rapid decrease in the overall price level. B) very rapid increase in the overall price level. C) increase in both price level and output. D) decrease in unemployment which is accompanied by a rapid increase in wages.

11)

Answer: B 12) The short-term ups and downs in the level of economic activity is known as a(n) A) circular flow model. B) business cycle. C) recovery model. D) unemployment trend.

12)

Answer: B 13) A period during which aggregate output falls is known as a(n) A) hyperinflation. B) expansion. C) inflation.

D) recession.

13)

Answer: D 14) Slump, downturn and contraction are all words for a(n) A) hyperinflation. B) recession. C) expansion.

D) stagflation.

14)

Answer: B 15) In a business cycle, a peak occurs before the beginning of a(n) ________ and a trough occurs before the beginning of a(n) ________. A) depression; expansion B) recession; expansion C) trough; peak D) expansion; recession

15)

Answer: B 16) In a business cycle, the end of an expansion is represented by A) an inflation. B) a trough. C) a depression.

D) a peak.

16)

Answer: D 17) In a business cycle, the end of a recession is represented by A) a depression. B) a trough. C) a peak. Answer: B

2

D) an inflation.

17)

18) It has become conventional to classify an economic downturn as a ________ when aggregate ________ declines for two consecutive quarters. A) depression; supply B) deflation; spending C) trough; demand D) recession; output

18)

Answer: D 19) If the labor force is 400 and employment is 380, then the unemployment rate is A) 20%. B) 38%. C) 90%. D) 5%.

19)

Answer: D 20) A depression is a A) prolonged and deep recession. B) period of economic growth which is offset by stagflation. C) recession combined with hyperinflation. D) period of decreasing unemployment and decreasing price levels.

20)

Answer: A 21) The economy goes through an expansion between a ________ and a ________. A) deflation; stagflation B) peak; recession C) trough; peak D) boom; bust

21)

Answer: C 22) The economy goes through a recession between a ________ and a ________. A) trough; peak B) bust; boom C) stagflation; deflation D) peak; trough

22)

Answer: D 23) Economists define the unemployed as individuals who are A) working but looking for a different job. B) working less than their desired amount of time. C) not currently working. D) not currently working but are actively looking for work.

23)

Answer: D 24) Unemployment implies that in the labor market there is an excess A) supply of labor. B) demand for increased wages. C) supply of available jobs. D) demand for labor.

24)

Answer: A 25) The employment rate equals A) labor force/population. C) unemployed/employed.

B) (employed - unemployed)/labor force. D) (labor force - unemployed)/labor force.

25)

Answer: D 26) The employment rate equals A) labor force/population. C) unemployed/employed.

B) (employed - unemployed)/labor force. D) employed/labor force.

Answer: D

3

26)

27) If the labor force is 200 million and 4 million are unemployed then the employment rate is A) 4%. B) 6%. C) 96%. D) 98%.

27)

Answer: D 28) If 5 million workers are unemployed and 45 million workers are employed, then the unemployment rate is A) 5%. B) 10%. C) 11.1%. D) 40%.

28)

Answer: B 29) The period in the business cycle from a ________ to a ________ is called an expansion. A) trough; new trough B) peak; trough C) trough; peak D) peak; new peak

29)

Answer: C 30) If output is falling and unemployment is rising, the economy must be in a(n) A) expansion. B) depression. C) contraction. D) hyperinflationary period.

30)

Answer: C 31) The period in the business cycle from a ________ to a ________ is called a recession. A) peak; new peak B) trough; new trough C) trough; peak D) peak; trough

31)

Answer: D 32) Unemployment generally rises during ________ and falls during ________. A) peaks; troughs B) recession; expansion C) booms; busts D) inflation; deflation

32)

Answer: B 33) Microeconomics is concerned with A) economic growth. C) price level stability.

B) individual prices. D) unemployment.

33)

Answer: B TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 34) Microeconomics is concerned with inflation or deflation, output growth and unemployment. Answer:

True

False

35) Microeconomics is concerned with the market price and equilibrium quantity of each good or service. Answer:

True

True

True

36)

False

37) Stagflation occurs when there is a decline in the unemployment rate. Answer:

35)

False

36) The employment rate is the number of people employed divided by number of people in the population. Answer:

34)

False

4

37)

38) Microeconomic behavior is the sum of all the microeconomic decisions made by individual households and firms. Answer:

True

False

39) All business cycles are asymmetric the length of an expansion is not necessarily the same as the length of a recession. Answer:

True

True

True

True

True

42)

False

43) A contraction is associated with a negative rate of growth of the economy. Answer:

41)

False

42) An expansion is usually associated with rising employment. Answer:

40)

False

41) A recession is usually associated with high inflation. Answer:

39)

False

40) The following is a correct order in a business cycle: trough, recession, peak, expansion. Answer:

38)

43)

False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 44) If the central bank increases the money supply, it is conducting A) supply-side policy. B) monetary policy. C) incomes policy. D) fiscal policy.

44)

Answer: B 45) If Congress decreases government spending, it is using A) supply-side policy. B) incomes policy. C) monetary policy. D) fiscal policy.

45)

Answer: D 46) Fiscal policies are government policies regarding ________ and ________. A) taxes; expenditures B) money supply; money demand C) revenues; earnings D) income; saving

46)

Answer: A 47) When the government changes taxes and spending, it is implementing A) fiscal policy. B) incomes policy. C) monetary policy. D) supply-side policy.

47)

Answer: A 48) The government wants to discourage consumer spending through raising income taxes. This is an example of A) a fiscal policy. B) a monetary policy. C) an incomes policy. D) a supply-side policy. Answer: A

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48)

49) The ________ regulates the amount of money in circulation. A) Treasury Department B) Federal Reserve C) Congress D) Office of the Comptroller of the Currency

49)

Answer: B 50) The ________ affecting the supply of money is known as monetary policy. A) Congress B) Treasury Department C) Commerce Department D) Federal Reserve

50)

Answer: D 51) Monetary policies are designed to affect the A) volume of tax revenues. C) size of income tax brackets.

B) quantity of money. D) denominations of currency.

51)

Answer: B 52) The income received and payments made by each sector of the economy are represented by a(n) A) circular flow diagram. B) aggregate demand-aggregate supply diagram. C) income-production diagram. D) income flow diagram.

52)

Answer: A 53) In the circular flow diagram, the different payments made by ________ to ________ include wages, rent and profits. A) firms; the government B) the government; households C) households; firms D) firms; households

53)

Answer: D 54) Welfare payments are an example of A) interest payments. C) wages.

B) transfer payments. D) a tax.

54)

Answer: B 55) A cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment is a(n) A) transfer payment. B) "in kind" payment. C) dividend payment. D) budget deficit.

55)

Answer: A 56) A household that spends more than it receives in income during a given period is A) running a deficit. B) saving. C) dissaving. D) receiving transfer payments.

56)

Answer: C 57) The major lesson of the circular flow diagram is that total ________ must equal total ________. A) surplus; shortage B) income; spending C) wages; income D) spending; saving Answer: B

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57)

58) Funds are demanded and supplied in the A) goods and services market. C) labor market.

B) transfer market. D) money market.

58)

Answer: D 59) In the goods-and-services market, ________ only demand(s). A) households B) firms C) the rest of the world D) the Federal Reserve

59)

Answer: A 60) The suppliers in the goods-and-services market are A) the government and business firms. B) business firms and the rest of the world. C) households and business firms. D) households, the government, and the rest of the world.

60)

Answer: B 61) In which basic market would MP3 players be traded? A) the money market B) the goods and services market C) the capital market D) the labor market

61)

Answer: B 62) In the circular flow diagram, ________ demand labor and ________ demand goods and services. A) households; firms B) firms; households C) households; households D) firms; firms

62)

Answer: B 63) In the circular flow diagram, households ________ goods and services and ________ labor. A) supply; supply B) demand; supply C) supply; demand D) demand; demand

63)

Answer: B 64) Treasury bonds are ________ issued by the federal government when it borrows money. A) promissory notes B) derivative securities C) certificates of deposit D) private stocks

64)

Answer: A 65) A corporate bond is a ________ issued by a corporation when it borrows money. A) private stock B) derivative security C) certificate of deposit D) promissory note

65)

Answer: D 66) Corporate profits distributed among shareholders are called A) retained earnings. B) Treasury bills. C) private bonds. D) dividends. Answer: D

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66)

67) Which of the following is NOT a correct statement? A) Bondholders earn dividends but shareholders don't. B) Companies can issue shares and issue bonds. C) The government issues bonds but does not issue shares. D) Shareholders earn dividends but bondholders don't.

67)

Answer: A 68) An increase in the value of an asset over the price initially paid for it is a A) budget surplus. B) capital gain. C) price floor.

D) neutral profit.

68)

Answer: B 69) ________ in the value of an asset over the price initially paid for it is a capital gain. A) No change B) An increase C) A decrease D) The depreciation

69)

Answer: B 70) If Teresa purchases a share of stock for $15 and three years later sells it for $60, she will realize a A) capital gain of $45. B) dividend of $60. C) dividend of $45. D) capital gain of $60.

70)

Answer: A 71) If Raoul purchases a share of stock for $40 and four years later sells it for $160, he will realize a A) dividend of $200. B) capital gain of $120. C) capital gain of $160. D) dividend of $120.

71)

Answer: B 72) Eddie purchased an autographed Kobe Bryant basketball when he was 17 years old for a total cost of $200 and then sold the basketball 4 years later for $700. Due to these transactions A) Eddie earned a dividend of $500. B) Eddie earned a capital gain of $500. C) Eddie earned a dividend of $900. D) Eddie earned a capital gain of $700.

72)

Answer: B 73) Javier purchased a 1972 Dodge Charger in 2009 for $17,000 and a year later he sold it for $21,000. Due to these transactions A) Javier earned a dividend of $21,000. B) Javier earned a dividend of $17,000. C) Javier earned a capital gain of $4,000. D) Javier earned a capital gain of $21,000.

73)

Answer: C 74) Celine purchased 5000 shares of stock for $500,000. A year later the stock is valued at $650,000. Instead of selling the stock, Celine held onto it for another year. Which of the following is true? A) The total capital gain will be at least $150,000. B) The $150,000 increase in the value of the stock represents a dividend. C) The $150,000 increase in the value of the stock represents an unrealized capital gain. D) To determine the capital gain, it is first necessary to know the normal rate of return on capital.

74)

Answer: C 75) The portion of a corporation's profits that the firm pays out each period to its shareholders is a A) dividend. B) retained earning. C) stock option. D) capital gain. Answer: A 8

75)

76) The portion of a corporation's ________ that a firm pays out each period to ________ is a capital gain. A) profits; its shareholders B) revenues; the government C) profits; its board of directors D) taxes; the government

76)

Answer: A TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 77) Fiscal policy refers to government policies concerning taxing and spending. Answer:

True

False

78) Expansionary fiscal policy includes raising taxes. Answer:

True

78)

False

79) Fiscal policy includes changing the level of household taxes. Answer:

True

True

80)

False

81) In the circular flow diagram everyone's expenditure is someone else's cost. Answer:

True

True

True

True

83)

False

84) A capital gain is the increase in value of an asset above its depreciated cost. Answer:

82)

False

83) A transfer payment is the revenue one receives when filing for a tax refund. Answer:

81)

False

82) A corporate bond is a promissory note issued by a firm when it sells stock. Answer:

79)

False

80) Dividends are paid by firms to shareholders. Answer:

77)

84)

False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 85) Keynes believed that the government should ________ taxes and/or ________ government spending to get the economy out of a slump. A) decrease; decrease B) increase; increase C) decrease; increase D) increase; decrease

85)

Answer: C 86) Keynes argued that the government should ________ taxes and/or ________ government spending to bring the economy out of an inflationary period. A) decrease; decrease B) increase; decrease C) decrease; increase D) increase; increase

86)

Answer: B 87) One assumption used by Classical economists is that wages A) adjust both upward and downward. B) adjust upward but not downward. C) are inflexible. D) adjust downward but not upward. Answer: A 9

87)

88) According to the Classical model, unemployment could not persist because ________ would ________ to eliminate the excess ________. A) prices; rise; supply of goods B) wages; rise; supply of labor C) wages; fall; supply of labor D) prices; fall; demand for goods

88)

Answer: C 89) According to Classical economists, if the quantity of labor supplied exceeds the quantity demanded, there is a A) surplus of labor and wages will fall. B) shortage of labor and wages will rise. C) surplus of labor and wages will rise. D) shortage of labor and wages will fall.

89)

Answer: A 90) According to ________ economists, the economy is self-correcting. A) Classical B) Marxist C) command system D) Keynesian

90)

Answer: A 91) Starting with the Great Depression, macroeconomic policies became more influenced by A) Classical Theories. B) supply-side theories. C) Keynes' theories. D) Marxist theories.

91)

Answer: C 92) According to ________ models, the level of employment is determined primarily by prices and wages. A) Keynesian B) Classical C) command system D) Marxist

92)

Answer: B 93) According to ________, the level of employment is determined by the level of aggregate demand for goods and services. A) Keynes B) Marx C) supply-side economists D) the Classicals

93)

Answer: A 94) ________ defended the economic concept of "market clearing." A) Demand-side economists B) Classical economists C) Keynesian economists D) Fine-tuning economists

94)

Answer: B 95) Suppose the economy suffers a high rate of inflation. According to Keynesian economists, the government should decrease employment by A) decreasing government spending. B) not doing anything. C) balancing the budget. D) increasing money supply.

95)

Answer: A 96) The phrase used by Walter Heller to refer to the government's role in regulating inflation and unemployment is A) fine-tuning. B) market clearing. C) price adaptation. D) stagflation. Answer: A 10

96)

97) Rapid increases in prices during periods of recession is known as A) price gouging. B) stagflation. C) depression.

D) stagnation.

97)

Answer: B 98) Stagflation occurs when the economy's inflation rate is ________ and the unemployment rate is ________. A) low; low B) low; high C) high; high D) high; low

98)

Answer: C 99) Related to the Economics in Practice on p. 417: F. Scott Fitzgerald's The Great Gatsby is set in the 1920s. During the 1920s, the U.S. economy was primarily in which phase of the business cycle? A) trough B) recession C) peak D) expansion

99)

Answer: D 100) Related to the Economics in Practice on p. 417: John Steinbeck's The Grapes of Wrath is set in the early 1930s, a period in U.S. history most noted for A) rapid economic expansion. B) World War I. C) the Great Depression. D) hyperinflation.

100)

Answer: C 101) Related to the Economics in Practice on p. 419: The General Theory of Employment, Interest, and Money is an economic treatise written by A) John Maynard Keynes. B) Winston Churchill. C) Karl Marx. D) Adam Smith.

101)

Answer: A 102) Related to the Economics in Practice on p. 419: John Maynard Keynes sought to solve the economic paradox of the Great Depression, which was the coexistence of A) hyperinflation and low unemployment. B) low production and low unemployment. C) high unemployment and low production. D) economic expansion and deflation.

102)

Answer: C TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 103) Keynes believed that contractionary fiscal policy could help to slow down increases in unemployment. Answer:

True

False

104) According to the Classical model, an excess supply of labor would push wages down to a new equilibrium level and therefore unemployment would not persist. Answer:

True

True

True

105)

False

106) According to Keynes, the government's role during periods when private demand is low is to stimulate aggregate supply and, by so doing, lift the economy out of recession. Answer:

104)

False

105) According to Keynes, aggregate demand determines the level of economic activities in the economy. Answer:

103)

False

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106)

107) In the Classical model, the level of employment is determined by the level of aggregate supply. Answer:

True

False

108) "Fine tuning" is any government attempt to regulate supply or demand. Answer:

True

108)

False

109) Keynesian economists believed that economic slowdowns are self-correcting. Answer:

True

107)

109)

False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 110) Since 1970, the U.S. economy has experienced ________ period(s) of high inflation. A) 1 B) 2 C) 3 D) 4

110)

Answer: B 111) Since 1970, the U.S. economy has experienced ________ recession(s). A) 2 B) 3 C) 5

D) 6

111)

Answer: C 112) Since 1970, the highest unemployment rate in the U.S was associated with the recession of A) 1974-1975. B) 1980-1982. C) 1990-1991. D) 2008-2009.

112)

Answer: B 113) Since 1970, the highest inflation rate in the U.S. occurred in A) 1975. B) 1981. C) 1983.

D) 1994.

113)

Answer: A Refer to the information for this hypothetical economy provided in Table 5.1 below to answer the questions that follow.

2009 Quarter I Output 90

II 94

III 98

IV 102

Table 5.1 2010 I II III 96 91 88

IV 84

2011 I 87

II 94

III 90

IV 87

114) Refer to Table 5.1. In this economy, an expansion existed around the A) first to fourth quarter of the year 2011. B) first to third quarter of the year 2009 C) first to fourth quarter of the year 2009. D) second quarter of the year 2010.

114)

Answer: C 115) Refer to Table 5.1. In this economy, a contraction existed around the A) second quarter of the year 2011. B) first to third quarter of the year 2009. C) first to fourth quarter of the year 2010. D) third quarter of the year 2009.

115)

Answer: C 116) Refer to Table 5.1. We would expect the period from after the first quarter of 2009 until before the fourth quarter of 2009 to be categorized as a period of A) high unemployment. B) low production. C) low unemployment. D) low inflation. Answer: C 12

116)

117) Refer to Table 5.1. Which of the following quarters would we most expect to be associated with high unemployment? A) the fourth quarter of the year 2010 B) the second quarter of the year 2011 C) the second quarter of the year 2009 D) the third quarter of the year 2009

117)

Answer: A TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 118) Since 1994, the average annual inflation rate in the U.S. has been greater than 8 percent. Answer:

True

False

119) Since 1970, the U.S. economy has experienced four recessions. Answer:

True

True

119)

False

120) Since 1970, the U.S. economy has experienced two periods of high inflation. Answer:

118)

False

13

120)