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In a self-regulating economy, inflationary and recessionary gaps
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are eliminated by forces internal to the economy, without government intervention.
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The structural unemployment rate is 3.1 percent, the frictional unemployment rate is 2.1 percent, and the current unemployment rate is 6.0 percent. The economy is in
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a recessionary gap producing less than Natural Real GDP.
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The unemployment rate is equal to the natural unemployment rate at
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every point on the institutional PPF.
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Refer to Exhibit 9-1. If the economy is self-regulating, the price level is
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lower in long-run equilibrium than in short-run equilibrium.
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According to classical economists, the relationship between the amount of funds households plan to save and the interest rate is
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direct.
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Suppose the economy is at a position below its institutional production possibilities frontier. To improve this situation, Keynesian economists might propose that government __________ taxes, which will cause the aggregate demand curve to shift to the __________ and Real GDP will __________.
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decrease; right; increase
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Fiscal policy refers to
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changes in the amount of government expenditures and taxes to achieve particular economic objectives.
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Keynesians believe
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b and c
(that equilibrium may exist at less than full employment.
in the use of fiscal policy to stabilize the economy.)
(that equilibrium may exist at less than full employment.
in the use of fiscal policy to stabilize the economy.)
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If an individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income, then that individual must have a(n) __________ tax rate of 30 percent.
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marginal
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There is zero crowding out and the federal budget is balanced at the time government purchases are increased. It follows that the __________ curve shifts to the __________, and in the short run both the price level and Real GDP __________.
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AD; right; rise
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The employment rate equals the number of
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employed persons divided by the civilian non-institutional population.
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The civilian non-institutional population can be broken down into two groups:
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persons not in the labor force and persons in the labor force.
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Refer to Exhibit 6-2. How many persons are unemployed in year 2?
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100 million
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Look at the following data: The frictional unemployment rate is 2 percent, the structural unemployment rate is 3.5 percent, and the actual unemployment rate is 9.5 percent. The natural unemployment rate is ____________ percent and the cyclical unemployment rate is __________ percent.
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5.5; 4
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Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is currently hiring). Smith lost a job in industry C, but his skills cannot be transferred to industry B or to any other industry. Jones is __________ unemployed and Smith is __________ unemployed.
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frictionally; structurally
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Suppose the economy is experiencing an inflationary gap. Based on available data, the Fed starts implementing contractionary monetary policy, but this moves the economy into a recessionary gap. The most probable explanation is that, because of the total lag in monetary policy, the government did not realize that the economy was already healing itself, i.e., that the
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SRAS curve was shifting leftward.
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As the interest rate __________, the quantity supplied of money __________ and the quantity demanded of money __________.
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rises; remains unchanged; falls
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The quantity demanded of money is
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inversely related to the interest rate.
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Under conditions of a liquidity trap and interest-insensitive investment, Keynesians would be most likely to propose __________ policy to eliminate a recessionary gap.
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expansionary fiscal
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Which of the following statements is true?
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The interest rate is the opportunity cost of holding money.
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The Phillips curve that Samuelson and Solow fitted to their data was
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downward sloping.
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Stagflation consists of
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high inflation and high unemployment.
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Refer to Exhibit 16-3. The economy is at point A. According to the Friedman natural rate theory, in the long run after a rise in the money supply, the economy will be at point
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C.
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Refer to Exhibit 16-1. According to new classical macroeconomists, if increases in aggregate demand are correctly anticipated, then the economy will move from point A to
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point C.
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According to the original Phillips curve, the cost of reducing the unemployment rate in the short run is a
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higher rate of wage inflation.
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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.
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depends on; may
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The answer is: 1/(1 - MPC). What is the question?
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What is the multiplier?
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Refer to Exhibit 10-2. Which of the following is correct about point M?
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TE is $3,000 billion and TP is only $1,500 billion.
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Refer to Exhibit 10-2. If autonomous investment decreases, the TE curve will shift ____________ and the new level of equilibrium Real GDP will be ___________ than $4,500.
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downward; less
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When the economy is in short-run equilibrium,
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total expenditures equal total production.
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Look at the following data: consumption = $915 billion; exports = $40 billion; imports = $33 billion; inventory investment = $123 billion; fixed investment = $500 billion; government purchases = $300 billion. GDP is equal to
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$1,845 billion.
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Country A has a higher GDP than country B. What does this mean?
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It means that the total market value of the final goods and services produced in country A is greater than the total market value of the final goods and services produced in country B.
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Net domestic product is the total value of
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all final goods and services produced within a country's borders in a year minus capital consumption allowance.
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In 1900, the country with the highest per capita GDP was
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New Zealand.
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"Economic growth" has occurred if
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Real GDP this year is greater than Real GDP last year.
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Refer to Exhibit 34-11. A tariff raises the price in the market from PW to PW + T. As a result, U.S. domestic sales rise from __________.
answer
Q1 to Q3
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A quota on imported avocadoes ______________ the price of avocadoes, _____________ consumers' surplus for avocado buyers, _______________ producers' surplus of avocado growers and __________________ tariff revenue. Because the loss to _____________ is more than the gain to ___________________, there is a net loss to society.
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raises; increases; decreases; does not generate;consumers; producers and importers
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A person tends to be ______________ likely to lose her temper with a boss than with a friend because the opportunity cost of losing her temper with her boss tends to be _____________ than the opportunity cost of losing her temper with her friend.
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less; higher
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A tariff is imposed on strawberries. The tariff will ___________ the price of strawberries in the domestic market, _____________ the quantity of strawberries imported in the domestic market, and ____________ consumers' surplus.
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raise; lower; lower
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Refer to Exhibit 34-7. The world price of good X is $15. If imports of good X are legally limited to 30 units, the price of X in the United States would be
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$25.
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Refer to Exhibit 8-2. Based on the given change, what word (rises or falls) should go in blank (9) and blank (10), respectively, to summarize the resulting impact on short run equilibrium?
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falls; falls
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Which of the following statements is false?
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A change in the quantity demanded of Real GDP is directly brought about by a change in interest rates.
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If foreign real national income rises, the U.S. ____________ curve shifts _____________. When labor productivity increases the _____________ curve shifts_______________. If both of these situations occur simultaneously, the combined result would be a(n) ______________ the price level and a(n) __________________ Real GDP in the United States.
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AD; rightward; SRAS; rightward; indeterminant impact on; increase in
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Suppose the real exchange rate of 105 Japanese yen to the dollar changes to 115 yen to the dollar. In this situation, the dollar has _________________, making Japanese goods __________ expensive for Americans.
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appreciated; less
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Refer to Exhibit 8-3. A movement from point B to point A on AD1 would have been the result of
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an increase in the price level.
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If Max's demand for hot dogs falls as his income rises, then for Max hot dogs are
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an inferior good.
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Which of the following statements is false?
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At equilibrium in a market, scarcity does not exist.
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Refer to Exhibit 3-4. At a price of $2 _______________ units will be exchanged.
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10
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When P = $5, the quantity demanded of a good is 30 units, and the quantity supplied of the good is 50 units. For every $1 decrease in the price of this good, quantity demanded rises by 5 units and quantity supplied falls by 5 units. The equilibrium price of this good is ___________and the equilibrium quantity of this good is _________ units.
answer
$3; 40
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The government imposes a $2.50 per-unit tax on the production of good X. As a result the
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supply curve for good X shifts leftward and the price of good X rises.
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