question
Compared to poorer countries, people in richer countries are ____ likely to have access to physicians and experience ____ infant mortality rates.
answer
more; lower
question
Which of the following would be classified as human capital?
answer
obtaining a college degree
question
In countries where women are discriminated against, policies that increase the likelihood of career success and educational opportunities for women are likely to decrease the birth rate.
answer
True
question
Average world income began to increase rapidly during:
answer
the Industrial Revolution.
question
When computing economic growth, changes in nominal gross domestic product (GDP) must be adjusted to reflect changes in the price level because:
answer
an increase in prices will increase nominal GDP without any actual economic growth.
question
Annual real per capita gross domestic product (GDP) in the United States was roughly $44,000 in 2000. If it grew by 3% the following year, by 2001 the annual real per capita GDP would be:
answer
$45,320.
question
Which of the following is an example of an institution that promotes economic growth?
answer
private property rights
question
Which of the following is true about income levels in Western Europe and Latin America before 1700?
answer
Average income in Western Europe was higher than that in Latin America
question
Holding other factors constant, Bolivia is likely to experience _________ rates of economic growth than India because it is _________.
answer
lower; landlocked
question
In 2010, per capita real gross domestic product (GDP) in Germany was $40,197.67. By 2011, it had increased to $43,741.55. At what rate did Germany's economy grow in that time?
answer
8.82%
question
Competitive markets contribute significantly to economic growth because:
answer
people who want to participate don't face barriers to entry.
question
Which of the following years roughly presents a historical break for an unprecedented increase in average world living standards?
answer
1800
question
Which of the following was responsible for slower economic growth before the Industrial Revolution?
answer
Population growth caught up to the rate of technological innovation.
question
To increase growth, governments should do all of the following except
answer
nationalize major industries.
question
From 2006 to 2010, per capita real gross domestic product (GDP) in Japan grew an average of 0.46% per year. At that rate, according to the Rule of 70, in roughly how many years will the Japanese economy double in size?
answer
152 years
question
Japan is a nation of over 6,800 islands, none of which is very large. The largest island, Honshu, is roughly the same size as the state of Montana in the western United States. Does this mean that Japan is destined to have low economic growth and standards of living?
answer
No, Japan is rich in other resources and has advanced levels of technology
question
Growth theory began with _____________, which was introduced in _____________.
answer
The Solow growth model; the 1950s
question
Bob owns and manages an apple orchard. In Bob's business, an example of human capital would be:
answer
the time spent by the workers picking apples.
question
On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L).
answer
production function.
question
Consider the following table that shows the number of trucks owned by a delivery firm and the corresponding number of deliveries made. Use the table to answer the questions that follow.
answer
6 deliveries.
question
Which of the following are key sources of economic growth?
answer
resources, technology and institutions
question
Real per capita GDP in China in 1959 was about $350, but it doubled to about $700 by 1978, when Deng Xiao Ping started market reforms. What was the average annual economic growth rate in China over the 20 years from 1959 to 1978?
answer
3.5%
question
If you earn a subsistence-level income, much of your time is spent acquiring:
answer
basic necessities such as food, clothing, and shelter.
question
In economics, technology is defined as:
answer
the knowledge available for use in production.
question
People face trade-offs. The growth that arises from capital accumulation is not a free lunch. It requires that society
answer
sacrifice consumption goods and services now in order to enjoy more consumption in the future.
question
An example of physical capital is:
answer
a factory.
question
Long-run per capita world income growth was basically flat until around what year?
answer
1800
question
Which of the following are the three major categories of resources?
answer
natural resources, physical capital, human capital
question
In some countries in Sub-Saharan Africa real GDP per person has been stagnant for many years.
answer
True
question
Which of the following is the correct expression for calculating economic growth?
answer
%Δ Real GDP - %Δ Population
question
Use the data in the table to compute economic growth rates for the United States from 2008 to 2009. Note that all data is from the end of the year specified.
answer
-3.52%
question
From 2009 to 2010, nominal gross domestic product (GDP) in the United States grew by 3.8%. Given that prices increased by 1% and per capita real GDP grew by 1.8%, we know that the population grew by:
answer
1%.
question
Zimbabwe has recently experienced an increase in its growth rate, although the total quantity of resources in the country has remained unchanged. This growth must have been caused by
answer
a technological advance.
question
Which of the following not likely to lead to economic growth?
answer
More immigrant workers are added to a nation
question
If you attempted to determine if the standard of living of a country has increased by looking only at changes in its nominal gross domestic product (GDP), what would you be missing?
answer
The fact that an increase in nominal GDP does not necessarily mean that standards of living are rising, due to changes in prices and the population
question
In 2011, Canada's gross domestic product (GDP) was roughly $1.396 trillion. Given that Canada's population was roughly 33.4 million people, per capita GDP in Canada in 2011 was roughly:
answer
$41,796.
question
Residents of poor countries tend to have higher rates of infant mortality because:
answer
lower per capita real gross domestic product (GDP) growth rates allow for less spending on health care.
question
You are an economics consultant and have been contacted by an official from a developing country. She tells you that her country's economy is currently growing at 2% per year. She asks you how long it will take for her country's economy to double in size; you tell her it will take 35 years. She then asks you what the government can do to shorten the time necessary to double the size of the country's economy. What should you tell her?
answer
Encourage the development of growth-positive institutions.
question
Which of the following provides the correct interplay between the real world and economic theory?
answer
real-world observations lead to economic theory, which then leads to policy
question
According to modern growth theory, the key to economic growth is:
answer
institutions.
question
Which of the following combination of institutions would lead to positive economic growth?
answer
private property rights, efficient taxes, and open trade
question
The Solow Growth Model serves as a foundation of
answer
growth theory.
question
Once a country is wealthy, it may be harder for it to grow quickly because of the diminishing returns to capital.
answer
True
question
(Above). Which of the long-run aggregate-supply curves is consistent with a recession?
answer
LRAS3
question
Long-run aggregate supply is ____________ while short-run aggregate supply is ______________.
answer
vertical; upward sloping
question
Refer to the above graph, which shows an aggregate demand. If the economy is at point C and the price level increases by 100, then the wealth, interest-rate, and international trade effects will:
answer
Move the economy to point A
question
Aggregate demand is determined by adding up the spending of:
answer
consumers, firms, the government, and foreigners that buy goods and services produced in the United States.
question
The price index used to illustrate the aggregate demand curve is the:
answer
gross domestic product (GDP) deflator.
question
Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level. This means wages either increase or decrease depending on the percent change in the general price level. In this economy:
answer
business cycles are less severe.
question
If consumers decide to save a larger percentage of their income, it will be:
answer
beneficial in the long run because interest rates will fall.
question
An increase in the value of the dollar will __________ exports and __________ imports.
answer
decrease; increase
question
Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point __________ and in the long run to point __________.
answer
B; E
question
When the dollar depreciates, U.S.
answer
exports increase, while imports decrease.
question
Look at the above graph, which shows that the equilibrium point of aggregate demand and aggregate supply is below potential output (LRAS). What could Congress do in order to push the economy back to full employment?
answer
All of the above.
question
Small businesses are a major source of employment generation in the United States, accounting for over 60% of new private-sector jobs per year. However, the Affordable Care Act (Obamacare) of 2010 required businesses with 50 or more workers to offer health insurance, substantially raising their business costs. According to macroeconomic theory, if the economy is initially at full-employment output, it would go from equilibrium ______ to equilibrium ______ after this law begins to take effect in the economy.
answer
A; D
question
Which one of the following events would have as the main effect to increase aggregate supply and shift the AS rightward, thereby lowering the price level and unemployment, and increasing GDP? (Hint: Remember the labor supply curve is part of AS)
answer
Congress abolishes the minimum wage.
question
Which of the following would shift long-run aggregate supply (LRAS) to the right?
answer
All of the above are correct.
question
Which one of the following events would have as the main effect to increase both aggregate demand and aggregate supply? Both AD & AS curves would shift rightward.
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
answer
Congress substantially increases the budget for construction and repair of interstate highways and bridges.
question
Which of the following events would have as the main effect to increase aggregate supply and shift the AS rightward, thereby lowering the price level and unemployment, and increasing GDP? (There is more than one answer to this question).
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.
answer
The Republic of Mali passes a law requiring girls to stay in high school as long as boys.
The information technology boom increases US worker productivity.
The information technology boom increases US worker productivity.
question
Which one of the following events would have as the main effect to increase aggregate supply and shift the AS rightward, thereby lowering the price level and unemployment, and increasing GDP?
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
answer
Congress increases earmarks for scholarships for US community colleges
question
Refer to the above diagram. If the equilibrium price level is P1, then:
answer
producers will supply output level Q1.
question
Which of the following would shift long-run aggregate supply to the right?
answer
All of the above are correct.
question
(Above) The long-run aggregate supply curve (LRAS) would shift rightwards if the amount of labor available:
answer
increased or Congress abolished the minimum wage
question
Which one of the following events would have as the main effect to increase aggregate supply and shift the AS rightward, thereby lowering the price level and unemployment, and increasing GDP?
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
answer
Oil companies are allowed to drill in Alaska National Wildlife Refuge.
question
Which one of the following events would have as the main effect to decrease aggregate supply and shift the aggregate supply (AS) curve leftward, thereby increasing the price level and unemployment, decreasing GDP and slowing down economic growth?
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions.
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions.
answer
OPEC decides to decrease production of crude petroleum by a substantial amount.
question
Which of the following events would have the effect of reducing aggregate demand, shifting the AD curve to the left, decreasing the price level but also decreasing GDP?
There is more than one answer to this question.
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
There is more than one answer to this question.
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.)
answer
The Canadian economy slides into a recession.
The US Congress greatly decreases defense spending.
The US Congress greatly decreases defense spending.
question
The long-run aggregate supply curve would shift right if the government were to
answer
reduce the minimum-wage.
question
Which of the following events would have no effect on the aggregate supply (AS) curve? (There is more than one answer).
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.
answer
Toyota Inc. builds factories to produce the Prius hybrid auto in Tennessee & Florida.Low interest rates cause an expansion of residential housing construction.
question
__________ would cause a leftward shift of the aggregate demand curve.
answer
A decrease in foreign income
question
Suppose the majority of students who are graduating in May from a large university have found jobs and signed employment contracts by February. Starting in February, these students are likely to __________ spending and __________ saving.
answer
increase; decrease
question
An increase in the wealth level in China will
answer
both increase aggregate demand in China and increase aggregate demand in the U.S.
question
Which of the long-run aggregate-supply curves is consistent with a recession?
answer
LRAS3
question
Investment is a
answer
small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
question
Refer to the above graph, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:
answer
increase by $200 billion
question
Based on the figure, if the economy starts at point A and ends up at point E, then in the short run, there was:
answer
an increase in aggregate demand.
question
Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to __________ and output in the long run to __________.
answer
decrease; be unaffected
question
Perfect summer weather increases farm output by 30%. In the short run, this can be expected to __________ the price level and __________ real wealth.
answer
decrease; increase
question
A weak dollar will ___________ net exports and shift the AD curve to the _________.
answer
increase; right.
question
Which one of the following events would have as the main effect to increase aggregate supply and shift the AS rightward, thereby lowering the price level and unemployment, and increasing GDP?
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions.
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions.
answer
The information-technology boom increases US worker productivity.
question
Refer to the above diagram. If the equilibrium price level is P2, then:
answer
producers will supply output level Q2.
question
Which one of the following events would have as the main effect to decrease aggregate supply and shift the AS curve leftward, thereby increasing the price level and unemployment, and decreasing GDP?
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions.
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions.
answer
The "baby-boomers" retire and exit the work force.
question
Which of the following events would have as the main effect to increase aggregate supply and shift the AS curve rightward, thereby lowering the price level and unemployment, and increasing GDP?
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In. Remember also that the labor supply curve is part of AS).
(Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In. Remember also that the labor supply curve is part of AS).
answer
B, C, D.
question
Recessions in Canada and Mexico would cause
answer
the U.S. price level and real GDP to fall.
question
Which one of the following events would have no effect on the aggregate demand (AD) curve?
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.
Hint: Remember that aggregate supply (AS) shifters are resources, technology and institutions. Demand shifters are any of the components C + I + G + In.
answer
All of the above would have no effect on AD.
question
Which one of the following events would have as the main effect to increase aggregate demand and shift the AD rightward, thereby raising the price level but lowering unemployment and increasing GDP?
(Hint: Demand shifters are any of the components C + I + G + In)
(Hint: Demand shifters are any of the components C + I + G + In)
answer
Congress increases defense spending.
question
The graph above shows that the
answer
equilibrium of AD & AS occurs above the full-employment level.
question
Aggregate demand is about _________ and aggregate supply is about _________.
answer
spending; production
question
Based on the figure, an increase in _________ could cause the economy to move from point A to point D.
answer
the price of oil
question
The wealth effect is best described as resulting from:
answer
an increase in the price level reducing the real value of wealth.
question
When an economy has a more stable and well-developed financial system, it is reasonable to expect:
answer
a rightward shift of the long-run aggregate supply curve.
question
All else being equal, as the population ages and many people leave the labor force:
answer
ong-run aggregate supply will fall.
question
The long-run output of an economy depends on:
answer
resources, technology, and institutions.
question
Based on the figure, a decrease in _________ could cause the economy to move from point A to point B.
answer
taxes
question
Suppose OPEC members met and decided to increase their oil production (and thus lower prices) for six months. This change will cause many firms' input prices in the U.S. to __________. This change in input prices will cause a _____________ aggregate supply curve.
answer
decrease; shift in the short-run
question
When prices in the economy have not fully adjusted, we say that:
answer
we are in the short run.
question
When a change in the price level leads to a change in saving, this is known as the:
answer
interest rate effect.
question
Because short-run output is __________ full employment output, in the long run we would expect the price level to __________.
answer
less than; fall
question
Imagine an economy in a recession with a multiplier of 3 at an initial equilibrium of $5,000. Saving and investment equal $300, and assume full employment income is $7,000. From the initial equilibrium, if investment grows by $200, what will be the new equilibrium level of income?
answer
$5,600
question
Who is less concerned with economic growth and more concerned with demand management?
answer
A Keynesian economist.
question
The Great Depression lasted longer and was deeper than the average recession, in part, because:
answer
the government raised taxes and did not allow the money supply to increase.
question
Classical economists believe that government intervention in the economy is unnecessary because:
answer
prices are flexible and, therefore, the economy will adjust back to full employment on its own.
question
Classical economists believe that savings is crucial for economic growth because:
answer
savings leads to investment spending, which increases output.
question
As a result of several factors, aggregate demand decreased during the Great Depression. One factor would be:
answer
a decrease in expected income.
question
During the Great Recession, long-run aggregate supply decreased. This was caused by __________.
answer
a breakdown in the loanable funds market
question
Which of the following were common to the Great Depression and the Great Recession?
answer
In both cases AD declined.
question
Which of the following policy statements would a Keynesian economist tend to support?
answer
The government should intervene in the economy to promote full employment.
question
The Great Recession was different from other recessions since World War II in that:
answer
the increase in unemployment was much greater and lasted longer.
question
When U.S. housing prices declined prior to and during the Great Recession, it caused aggregate demand to decrease because:
answer
household wealth decreased, causing a decline in consumer spending.
question
During the Great Recession, a major financial crisis followed the collapse of housing prices, which led to:
answer
the decline in the health of many large financial firms and banks.
question
During the Great Recession, consumer sentiment in the United States declined, leading to a decrease in consumer spending. Which of the following factors caused this decrease in consumer sentiment?
answer
a decrease in expected income
question
During the 2008-9 Great Recession, the Obama administration proposed several stimulus packages with an aim to recover the economy from the economic crisis. Which school of thought will most likely support the administration's policy prescriptions?
answer
Keynesian
question
The back-to-back recessions that began in 1929 and ended in 1938 are collectively known as:
answer
the Great Depression.
question
When U.S. aggregate demand and long-run aggregate supply decreased during the Great Recession:
answer
real gross domestic product (GDP) also decreased.
question
The recession of 2008-2009 was preceded by
answer
all of the above
question
How many years passed before the United States reached its lowest real GDP level during the Great Depression?
answer
4
question
If asked about the basic functioning of the economy, a Keynesian economist would state that:
answer
the market tends toward instability and cyclical unemployment.
question
Which of the following would have caused aggregate demand to decrease in the graph, such as occurred during the Great Recession?
answer
a decrease in housing prices and stock prices
question
One similarity between the Great Depression and the Great Recession is that in both cases:
answer
there was noticeable stress in financial markets.
question
During the Great Recession, __________ caused long-run aggregate supply to decrease.
answer
financial market turmoil
question
The Great Recession was similar to other recessions since World War II in that:
answer
real gross domestic product (GDP) initially declined and then recovered sometime later.
question
Keynesian economists believe that prolonged recessions are possible because:
answer
prices are sticky and do not adjust quickly during economic downturns.
question
Which of the following economic statements would a Keynesian economist tend to support?
answer
The short run deserves more attention than the long run.
question
If you asked a classical economist which economic time frame she prioritized, how might she respond?
answer
"The long run is key."
question
According to classical economics, a decrease in aggregate demand causes the price level to _____________ in the long run. On the other hand, an increase in aggregate demand causes the price level to _____________ in the long run. These changes occur because of _____________.
answer
decrease; increase; price flexibility
question
During the Great Depression, a major financial crisis followed the collapse of the stock market, which led to:
answer
the failure of many banks.
question
Which of the following has been suggested as a cause of the Great Depression?
answer
All of the above are correct.
question
In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right?
answer
both the increased funding for states and the tax cuts
question
During the Great Recession, real gross domestic product (GDP) decreased yet the aggregate price level remained largely unchanged, as depicted in the graph. Unemployment increased to above-normal levels. Which of following best explains why this happened?
answer
A decline in housing prices and stock prices, plus a financial crisis, caused a recession.
question
As a result of aggregate demand and long-run aggregate supply decreasing, we can see that the price level _________ and real gross domestic product (GDP) _________.
answer
remained unchanged; decreased
question
Which of the following led to the Great Recession?
answer
a decline in both AD and LRAS
question
Identify the series from the graphs given below
answer
Series A: Great Recession real GDP; Series B: Great Depression real GDP; Series C: Great Recession unemployment rate; Series D: Great Depression unemployment rate
question
Classical economists believe that when aggregate demand changes, the economy remains at full employment because:
answer
prices are very flexible.
question
Keynesian economists believe that savings is a drain on demand because:
answer
when a recession occurs, households tend to spend less, which only worsens the recession.
question
When considering the magnitude of the Great Depression in comparison to other recessions, the Great Depression:
answer
was the most severe recession in U.S. history.
question
Classical economists believe that savings is ____________, while Keynesian economists believe that savings is ____________.
answer
crucial to growth; a drain on demand
question
Which of the following is a reason the 2007-2009 recession came to be known as the Great Recession?
answer
There was noticeable stress in financial markets.
question
Keynesian economists believe that the economy is unstable and tends toward cyclical unemployment because:
answer
prices are sticky and prevent the economy from adjusting to full employment.
question
When compared to other recessions, the Great Depression:
answer
ad much larger decreases in real gross domestic product (GDP).
question
During the last half of 2012, the U.S. unemployment rate was just under 8 percent. Historical experience suggests that this is
answer
above the natural rate, so real GDP growth was likely low.
question
Which of the following policy statements would a Keynesian economist tend to support?
answer
The government should intervene in the economy to promote full employment.
question
Which of the following would have caused aggregate demand to decrease during the Great Depression?
answer
a decrease in the money supply
question
Which of the following has been suggested as a cause of the Great Depression? (multiple-answers)
answer
a major decline in the stock markethe collapse of the banking systemt
question
Who is less concerned with economic growth and more concerned with short-term demand management?
(Hint: See the "Two Broad Types of Economists" Table in the Module.)
(Hint: See the "Two Broad Types of Economists" Table in the Module.)
answer
A Keynesian economist.
question
During the Great Recession, U.S. household wealth declined, leading to a decrease in aggregate demand. Which pair of factors contributed to this decline in wealth?
answer
a decrease in stock prices and a decrease in housing prices
question
Which of the following would have caused aggregate demand to decrease in the graph, such as occurred during the Great Depression?
answer
a decrease in expected income
question
In the diagram above, which panel represents the US economy as viewed by a Keynesian after Congress passes a federal minimum wage of $20/hour?
(Hint: See the "Two Broad Types of Economists" Table in the Module.)
(Hint: See the "Two Broad Types of Economists" Table in the Module.)
answer
Panel A.
question
What characteristics below would be associated with a Keynesian economist? (multiple-answer)
(Hint: See Table "Broad Types of Economists" in Modules)
(Hint: See Table "Broad Types of Economists" in Modules)
answer
Focus on aggregate demand (spending)The short-term is most important policy period..
question
Which of the following led to the Great Recession?
answer
a decline in both AD and LRAS
question
According to your text book, which of the above panels would represent the US economy after passage of the Dodd-Frank Act Wall Street Reform and Consumer Protection Act in July, 2010?
answer
Panel (d)
question
In the above graph, a Keynesian economist would assert that which line would represent the AS curve?
(Hint: See the "Two Broad Types of Economists" Table in the Module.)
(Hint: See the "Two Broad Types of Economists" Table in the Module.)
answer
3
question
Which of the following statements is consistent with what happened during the Great Recession?
answer
Aggregate demand and long-run aggregate supply decreased, causing unemployment to rise to 10%.
question
Over the next 20 years, the number of workers per Social Security beneficiary is predicted to be:
answer
less than 3 but more than 2.
question
Which country holds the most U.S. debt?
answer
China
question
Suppose you use your entrepreneurial spirit and economics training to start your own business. In your first year of work, you are able to earn $58,000 in gross income. What is the total amount of social insurance taxes you owe the federal government?
answer
$8,874.00
question
According to the textbook, the country with the highest debt-to-GDP (gross domestic product) ratio in the world, in terms of publicly held debt, is:
answer
Japan.
question
According to the table, which country appeared to be in the worst fiscal shape in 2012?
answer
Italy
question
The federal government started running a budget surplus in 1998. By 2002, the budget surplus had turned into a budget deficit. Why do you think the budget deficit returned in 2002?
answer
There was increased military spending in response to the 9/11 terrorist attacks.
question
If government revenues in 2000 were $2.0 trillion and government outlays were $1.8 trillion, this means that:
answer
the federal budget surplus was $200 billion.
question
Beside government spending on such things as infrastructure, human capital improvement and resource extraction, demand-side fiscal policy usually does not have any effect on the full-employment level of output (LRAS).
answer
True
question
The Smith household's annual income is $250,000. Based on the U.S. federal tax rates below, calculate the total income tax that the Smiths have to pay on their household income. Assume zero tax deductions for solving this problem.
answer
$67,028
question
During the Great Recession, government outlays were _________ and government revenues were _________ their long-run averages over the period 1960-2012.
answer
above; below
question
Why did tax revenues fall so sharply after 2007?
answer
A slowdown in economic activity increased unemployment.
question
Typically, the average tax rate for a person is ____________ their marginal tax rate, because ____________.
answer
below; the marginal tax rate applies to the last dollars taxed, but not to all income
question
Due to ____________, government outlays have risen quickly since 2000.
answer
an aging population
question
Refer to the above data. The public debt declined in year:
answer
6.
question
You have been hired as an economic advisor for a politician running for national office. The politician, at a recent campaign event, said that corporations are paying too much in taxes and are funding most of the federal government's operations. When you speak to the politician after the event, what would you say?
answer
"We have a great deal of work to do. On the news tonight I predict there will be an expert correcting you and questioning why anyone would vote for you. Individuals, through income tax and social insurance taxes, provide the bulk of government revenue."
question
The poorest 40% of households in the United States:
answer
pay negative income taxes because of tax credits and income assistance.
question
Which of the following is considered mandatory government spending?
answer
payments to Social Security recipients
question
Which of the following would be considered a transfer payment by the government?
answer
The government helps senior citizens cover their monthly expenses with a cash payment.
question
The top 1% of households in the United States:
answer
contribute nearly 40% of all federal income tax revenues.
question
Using the table, what is the marginal income tax rate for someone who makes $67,000 per year?
answer
25%
question
Why do Social Security and Medicare pose problems for the federal government budget?
answer
Life expectancy of retirees is increasing
question
Which of the following is included in government outlays?
answer
interest paid by the Federal Reserve to member banks for deposits.
question
Use the marginal income tax rates shown here to calculate the average tax rate on an income of $200,000.
answer
25.26%
question
A U.S. federal government budget deficit occurs when:
answer
government outlays exceed revenue.
question
Suppose you return to college and earn an MBA, after which you get an upper-management position with Yum! Brands. If the tax rates are the same as in 2012 and your starting salary is $125,000, how much will you owe in federal social insurance taxes?
answer
more than $8,400 but less than $8,800
question
Which of the following is considered discretionary government spending?
answer
payments to government employees
question
Which country holds the most U.S. debt?
answer
United States
question
The largest portion of the federal budget is dedicated to:
answer
mandatory outlays.
question
The _____ is the sum of past _____.
answer
public debt; budget deficits
question
According to the U.S. Federal Tax Rates chart from the textbook (Figure 15.6), a person earning $100,000 in a given year is in the 28% tax bracket. How much will this individual owe in taxes for that year?
answer
less than $28,000 but greater than $15,000
question
If the government reduces the retirement age from 67 to 65, what effect will this have on government entitlement programs like Social Security?
answer
It will increase the government's burden from entitlement programs.
question
Refer to the above data. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is:
answer
$275 billion.
question
Suppose you land a job with Google right out of college. Your economics training is very valuable to them, so you receive a starting annual salary of $65,000. What is the total amount of social insurance taxes you will be responsible for after your first year of work?
answer
$4,972.50
question
Why does the federal debt tend to increase during periods of recession?
answer
Economic activity decreases, which decreases revenues and increases outlays.
question
The number of workers per Social Security beneficiary in 1960 was approximately:
answer
5.1.
question
Suppose that over the past 50 years, the nominal and real deficit of a country grew from $100 billion to $200 billion. Suppose that, over the same time, real GDP grew from $100 billion to $300 billion. Using __________, we can give an accurate picture of what happened in the country and conclude that the country is __________.
answer
deficit-to-GDP ratio; better off
question
The largest source of tax revenue for the government is:
answer
individual income taxes.
question
The Smith household's annual income is $250,000. Based on the U.S. federal tax rates below, calculate the average tax rate for the Smith household. Assume zero tax deductions for solving this problem.
answer
26.8%
question
Which of the following is considered discretionary government spending?
answer
payments to Social Security recipients
question
During the Great Recession, government outlays were _________ and government revenues were _________ their long-run averages over the period 1960-2012.
answer
above; below
question
The wealthiest 20% of households in the United States:
answer
contribute the vast majority of all federal income taxes.
question
In 2012, the U.S. national debt was $16.7 trillion. If the national debt grows by the long-run deficit as a percentage of GDP average; how long will it take the national debt to double?
answer
26.9 years
question
The United States has a:
answer
progressive income tax system.
question
Which of the following statements are true about deficits versus debt?
answer
e sum of all deficits equal the debt.
question
Using the table, what is the marginal income tax rate of a $5,000 raise for someone who currently makes $85,650 per year?
answer
28%
question
Budget deficits tend to:
answer
increase during wars.
question
Which country faces the most severe fiscal challenges—in terms of debt-to-GDP ratio—according to the accompanying table?
answer
Jamaica
question
Suppose you land a job with Google right out of college. Your economics training is very valuable to them, so you receive a starting annual salary of $65,000. What is the total amount of social insurance taxes you will be responsible for after your first year of work?
answer
$4,972.50
question
The most recent federal budget surplus occurred:
answer
2001.
question
Based on the information given below, comment on the debt situation of countries X and Y.
answer
X and Y are equal in terms of their debt situation.
question
Over the next 20 years, an increasing number of baby boomers are expected to retire. Which of the U.S. government's budget categories is likely to be most affected due to this trend?
answer
mandatory
question
In 2008, in the midst of the Great Recession, the national debt was $10,024 billion. Nominal GDP in 2009 was $13,973 billion. What was the debt-to-GDP ratio in 2009?
answer
82%
question
Since 1990, for how many years has the government run a budget surplus?
answer
4
question
Entitlement programs such as Social Security and Medicare are primarily funded with
answer
payroll taxes.
question
Which of the following represents a mandatory government outlay?
answer
rental assistance payments made to those who are poor
question
Suppose you graduate with an accounting degree and then become a certified public accountant. You work for a big firm, but are offered a chance to prepare tax documents for your city government as an independent contractor. The city offers to pay you a consulting fee of $10,000. When deciding whether to accept the additional work, the most important tax factor in your decision is:
answer
your marginal tax rate.
question
Between 2000 and 2010, real government outlays in the United States grew:
answer
by more than 50%.
question
Lower income tax rates will affect
answer
AD only, if you are a believer in demand-side fiscal policy.
question
When the government decreases spending or increases taxes to slow economic expansion, the government is conducting:
answer
contractionary fiscal policy.
question
Countercyclical fiscal policy:
answer
is fiscal policy that seeks to counteract business-cycle fluctuations.
question
Recognition lag, implementation lag, and impact lag are all examples of:
answer
time lags that accompany policy decisions.
question
According to the figure, which point(s) would see tax revenues increase if the tax rate increased?
answer
only A
question
The goal of contractionary fiscal policy is to shift the __________ curve to the __________.
answer
aggregate demand; left
question
Which of the following fiscal policy initiatives focuses on the supply side of the economy?
answer
lower marginal income tax rates
question
If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:
answer
increase by $10 billion.
question
When the economy is in a recession, expansionary fiscal policy can be used to stimulate and encourage economic growth. Which of the following scenarios represent expansionary fiscal policies from both a supply and demand perspective at the same time?
answer
The government lowers tax rates and issues a partial refund of taxes that have already been paid.
question
Supply-side fiscal policy involves the use of:
answer
government spending and taxes to affect the production side of the economy.
question
The main goal of supply-side fiscal policy is
answer
to shift LRAS.
question
Which of the following would be the theoretical outcome of expansionary fiscal policy in the following aggregate demand-aggregate supply model?
answer
The AD curve would shift from AD2 to AD1.
question
Policies that focus on education:
answer
increase effective labor resources and thus increase aggregate supply over time.
question
(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.
Refer to the above information. The recognition lag of fiscal policy is reflected in event(s):
Refer to the above information. The recognition lag of fiscal policy is reflected in event(s):
answer
1 and 2.
question
At ___________ tax rates, ___________ in those tax rates lead to ___________ in total tax revenue.
answer
high; decreases; increases
question
Which of the following function as an automatic stabilizer during business cycles?
answer
unemployment compensation
question
Which of the following is an expansionary fiscal policy?
answer
decrease in taxes only
question
Typical fiscal policy focuses squarely on:
answer
aggregate demand.
question
The use of the money supply to influence the economy is:
answer
called monetary policy.
question
Which of the following lags associated with fiscal policy is expected to be alleviated by automatic stabilizers such as unemployment benefits?
answer
recognition lags
question
According to the figure, which point(s) would see tax revenues increase if the tax rate decreased?
answer
only C
question
All else being equal, people generally prefer __________ in their financial affairs.
answer
smoothness and predictability
question
Congress and the president would conduct expansionary fiscal policy in order to:
answer
try to stimulate the economy toward expansion.
question
Lowering marginal income tax rates for individuals:
answer
creates incentives for individuals to work harder and produce more.
question
Research and development (R&D) tax credits:
answer
allow firms to spend resources to develop new technology, which in turn can lead to future production.
question
Which of the following is caused by supply-side fiscal policy, but not by demand-side fiscal policy?
answer
the level of full-employment output.
question
Expansionary fiscal policy occurs when:
answer
the government increases spending or decreases taxes to stimulate the economy toward expansion.
question
Refer to the above diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
answer
AD0.
question
If your marginal propensity to consume is 0.75 and you get an additional $400 in income, you would spend ___________ on consumption.
answer
$300.00
question
Time lags, crowding-out, and savings shifts are all:
answer
issues that arise in the application of activist fiscal policy.
question
According to the figure, which point(s) would see tax revenues decrease if the tax rate increased?
answer
B and C
question
Refer to the above diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
answer
AD3.
question
According to the figure, the amount of private savings after government borrowing is:
answer
$150 billion.
question
Refer to the above diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2:
answer
government should undertake neither an expansionary nor a contractionary fiscal policy.
question
The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:
answer
the crowding-out effect.
question
If current savings increases the same amount as the federal stimulus:
answer
the effects of the stimulus are negated.
question
Assume that the government is currently balancing the national budget so that outlays equal tax revenue. Then the economy starts into an expansion, and the government decides to decrease government spending by $50 billion. As a result:
answer
the federal budget will be in surplus by at least $50 billion.
question
According to the figure, which point(s) would see tax revenues decrease if the tax rate decreased?
answer
A and B
question
An impact lag happens because:
answer
it takes time for the complete effects of monetary and fiscal policy to materialize.
question
Marginal propensity to consume is:
answer
the portion of additional income that is spent on consumption.
question
Money does NOT function as:
answer
an item to barter.
question
One way to increase a bank's amount of required reserves is to:
answer
increase deposits.
question
Suppose the Federal Reserve engages in open-market operations. It sells $20 billion in U.S. securities. It also raises the reserve ratio. This causes excess reserves to _______, the money supply to ________, and the money multiplier to ________.
answer
decrease; decrease; decrease
question
Using the table, what is the value of M2?
answer
$1,495,500,000
question
If the Fed wants to increase the money supply, then which of the following policy tools can it employ?
answer
Lower the required reserve ratio.
question
What function of money is highlighted when I am depositing a portion of my paycheck into my savings account to pay for my child's future education?
answer
store of value
question
How is it that the banking system is able to lend by a multiple of its excess reserves?
answer
Banks only have to hold a fraction of their deposits as reserves and can lend the rest to borrowers.
question
Which of the following is not a characteristic of fiat money?
answer
It is always backed by something of high intrinsic value.
question
Suppose the reverse ratio was 8% and the level of checkable deposits in the United States in 2015 represents total reserves. How much money could the entire banking system create?
answer
$19,626.3 billion
question
Which of the following events could cause inflation in the United States—a country that uses fiat money?
answer
The government decides to print more money.
question
A $100 bill in your wallet is part of
answer
both M1 and M2.
question
What is a difference between fiat and commodity money?
answer
Fiat money allows an economy to easily expand the money supply, whereas it is more difficult to expand the supply of commodity money.
question
Which of the following statements is true?
answer
A commodity money comes into existence through private, not government, decisions.
question
Which of the following would be a consequence in an economy where there is no money?
answer
Exchanges would take longer.
question
Which of the following statements is true?
answer
Quantitative easing is the targeted use of open market operations in which the central bank buys securities specifically targeting certain market
question
The purchase of existing U.S. Treasury securities by the Federal Reserve:
answer
will increase the money supply.
question
Which of the following would NOT increase the supply of money in a fiat money economy?
answer
There is a discovery of gold.
question
Federal funds are
answer
deposits held by private banks on reserve at the Federal Reserve.
question
If the government were to print more money, which of the following would occur?
answer
Correct!
Both M1 and M2 would increase.
Both M1 and M2 would increase.
question
Using the table, what is the value of M1?
answer
$1,150,500,00
question
To the extent a bank holds excess reserves, which of the following is a consequence?
answer
The deposit multiplier is smaller.
question
Loans and deposits within a bank are:
answer
assets and liabilities, respectively, on a bank's balance sheet.
question
Which of the following are considered the same as money?
answer
Checking account deposits
question
The Federal Reserve uses __________ today to actively manage monetary policy. The Federal Reserve has not used __________ to actively manage monetary policy since 1992.
answer
open-market operations; reserve requirements
question
Using a required reserve ratio of 10% and assuming that banks keep no excess reserves, imagine that $300 is deposited into a checking account. By how much more does the money supply increase if the Fed lowers the required reserve ratio to 7%?
answer
$1,285.7
question
The financial panic and credit freeze in late 2008 pointed to the Fed's important role
answer
lender of last resort.
question
The University Bank currently has $800 million in deposits. If the required reserve ratio is 15%, then what is the maximum amount of loan that the bank can legally lend?
answer
$680 million
question
If the required reserve ratio is 20%, what is the simple deposit multiplier?
answer
2
question
Open market operations include _____________ while quantitative easing includes _____________ by the Fed.
answer
purchases of U.S. Treasury securities; purchase of mortgage-backed securities.
question
Using the table, what is the value of M1?
answer
$47,500,000
question
Since October 2008, the Federal Reserve has started paying interest on excess reserves held by banks. Under these circumstances, if the Fed buys a Treasury security worth $200 million from a bank, which of the following can be expected regarding the change in money supply? Assume that the required reserve ratio is 10%, and that all currency is deposited into the banking system.
answer
The money supply will increase by less than $2 billion.
question
When money is acting as a unit of account, it:
answer
allows you to measure the value of goods precisely.
question
As credit card balances increase, what will be the consequence for M1 and M2?
answer
There will be no effect on M1 or M2.
question
Which of the following would be a consequence in an economy where there is no money?
answer
Exchanges would take longer.
question
Out of fears that the money supply is too large, the Federal Reserve has decided to decrease the money supply. How could the Federal Reserve accomplish this?
answer
sell bonds to financial institutions
question
Consider the balance sheet for the Wahoo Bank as presented here. Use a required reserve ratio of 10% and assume that the bank keeps no excess reserves.
answer
Outstanding liabilities decrease by $200.
question
When an economy experiences inflation, the value of money:
answer
decreases.
question
Using the table, what is the value of M2?
answer
1,495,500,000
question
Using the table, what is the value of M2 that is not part of M1?
answer
$345,000,000
question
The short-run Phillips curve is ________________ and the long-run Phillips curve is ________________.
answer
downward sloping; vertical
question
With adaptive expectations, what is the inevitable consequence of an active, expansionary monetary policy in the short and long run?
answer
lower unemployment in the short run, higher inflation in the long run
question
Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?
answer
Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money.
question
According to the figure, if the economy started at full-employment output, expansionary monetary policy would cause real gross domestic product (GDP) to ______________ in the short run.
answer
increase from Y2 to Y3
question
If people anticipate the strategies of the central bank:
answer
the effects of monetary policy are extremely limited.
question
When supply shifts cause a downturn in the economy:
answer
monetary policy is much less likely to restore the economy to its pre-recession conditions.
question
Which of the following statements is true? (assuming expected inflation is built into contracts)
answer
suppliers of labor and other inputs are hurt when inflation is greater than expected
question
The more bonds the Fed sells, the __ the money supply grows, and the__ the inflation rate will be.
answer
slower; lower
question
Expectations:
answer
can dampen the effects of monetary policy.
question
The Phillips curve depicts the relation between
answer
unemployment rate and inflation rate.
question
Which of the following can change relatively quickly in the short run?
answer
the price of a latte in a coffee shop
question
Which of the following is likely to happen if the Fed buys Treasury securities from banks?
answer
interest rate falls; investment rises
question
By shifting aggregate demand, monetary policy can affect __________ and __________.
answer
real gross domestic product (GDP); unemployment
question
Which of the following explains expansionary monetary policy in the long run?
answer
Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred.
question
Which of the following best describes how contractionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?
answer
Contractionary monetary policy directly pulls money out of the loanable funds market. This raises the interest rate, which provides a lesser incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.
question
Stagflation is:
answer
the combination of high unemployment rates and high inflation.
question
Holding all else constant, in the short run, an increase in the money supply can cause:
answer
an increase in real GDP.
question
Expansionary monetary policy (e.g., buying Treasury bonds) makes the aggregate demand curve:
answer
shift to the right.
question
Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?
answer
Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right.
question
The short run effects of quantitative easing are a(n) ________ in the price level with a long run ________ in the real value of money.
answer
increase; decrease
question
According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point _________ to point _________ in the short run and then to point _________ in the long run.
answer
A; B; C
question
The Federal Reserve's response to the Great Recession was an attempt to:
answer
increase aggregate demand.
question
Contractionary monetary policy occurs when:
answer
a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.
question
Printing more paper money doesn't affect the economy's long-run productivity or its ability to produce; these outcomes are determined by:
answer
resources, technology, and institutions.
question
Injecting new money into the economy eventually causes:
answer
inflation.
question
Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to:
answer
be equal to the natural rate of unemployment.
question
The Federal Reserve actively worked to keep the federal funds rate at nearly _________ for several years following the Great Recession.
answer
0%
question
In which of the following cases are you likely to be adversely affected by unexpected inflation?
answer
You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.
question
Central banks can use monetary policy to:
answer
make it easier for people and businesses to borrow.
question
According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium ______ to equilibrium ______ in the short run.
answer
A; B
question
The two types of monetary policy are:
answer
expansionary and contractionary.
question
Which of the following is correct?
answer
Quantitative easing is a relatively new monetary policy tool.
question
When the Federal Reserve engages in quantitative easing, _________ monetary policy is used, with the desired effects being that real GDP ____ and unemployment ____
answer
expansionary; rises; falls
question
The Federal Reserve generally uses ___________________ to implement monetary policy.
answer
open market operations
question
Expansionary monetary policy:
answer
lowers interest rates, causing aggregate demand to shift to the right.
question
Which of the following limits the impact of monetary policy?
answer
people adjust their expectations of inflation.
question
Which of the following aggregate demand-aggregate supply models illustrates the short-run effects of expansionary monetary policy?
answer
...
question
Holding all else constant, in the short run, a decrease in the money supply can cause:
answer
a decrease in real gross domestic product (GDP).
question
The long-run Phillips curve is ____________ and equal to ____________.
answer
vertical; the natural rate of unemployment
question
The long-run Phillips curve is:
answer
vertical
question
Use the following scenario to answer the questions that follow:Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year.Jim's opportunity cost of producing one pound of cheese is ____________ house(s).
answer
1/500
question
A tax on imports is known as a(n):
answer
tariff.
question
Which of the major trading partners of the United States are members of NAFTA?
answer
Canada and Mexico
question
Trade balance is:
answer
the difference between a nation's total exports and total imports.
question
In the past decade, companies like Nike and Under Armour have set up manufacturing centers in Nicaragua in part due to the country's establishment of _____________, allowing these companies to avoid standard corporate tax rates.
answer
"free zones"
question
In 2011, with which country did the United States run the largest trade deficit?
answer
China
question
How are quotas and tariffs typically applied to restrict international trade?
answer
Tariffs are taxes on imported goods and services, and quotas limit the number of imported goods and services.
question
Which of the following trade agreements is a binding agreement to reduce trade barriers between 18 Asian nations?
answer
Asia Pacific Economic Cooperation
question
What is the price of cars if this is a nontrading (closed) economy?
answer
$14,000 per car
question
What is a benefit of international trade?
answer
all of these
question
Which of the following are reasons given for trade barriers? Select all that apply.
answer
Infant industriesNational defense
question
Which of the following groups of countries are members of NAFTA?
answer
United States, Canada, and Mexico
question
From which of the major trading partners did the United States import the most goods and services in 2011?
answer
China
question
A trade deficit should not necessarily be a cause for concern for an economy because it indicates:
answer
All of the above.
question
Suppose the United States experiences an increase in its trade deficit. Which of the following is a possible explanation for this growing trade deficit? There has been:
answer
an economic expansion in the United States.
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