EC 202 Study Guide - Midterm Guide: Real Business-Cycle Theory, Production Function
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Question 1
The law of demand states that there is a direct relationship between supply and demand.
True
False
4 points
Question 2
Equilibrium is a state of balance between supply and demand.
True
False
4 points
Question 3
Goods are scarce for both rich and poor.
True
False
4 points
Question 4
"The big corporations in this country, like ExxonMobil and GM, have deep pockets and need to be hiring more people." This is a positive statement about economic policy.
True
False
4 points
Question 5
The law of supply states that there is a direct relationship between price and quantity demanded.
True
False
4 points
Question 6
In the circular flow model, firms own economic resources, and householdsbuy the manufactured products and services.
True
False
4 points
Question 7
Households play a dual role of providing the factors of production whilepurchasing the goods and services of firms.
True
False
4 points
Question 8
Opportunity cost is the lowest valued benefit that must be sacrificed asthe result of choosing an alternative.
True
False
4 points
Question 9
Scarcity denotes that our desire for a good exceeds the amount that isfreely available from nature.
True
False
4 points
Question 10
Economics is a social science concerned with satisfying man's unlimitedwants with limited resources.
True
False
4 points
Question 11
Joint output of individuals or nations will be maximized when goods areexchanged between parties in accordance with the law of"comparative advantage".
True
False
4 points
Question 12
The production possibilities frontier assumes that the level of technologyvaries when applying the model.
True
False
4 points
Question 13
Excess demand in the market will cause the price of a product to decline.
True
False
4 points
Question 14
Demand is measured on the vertical axis and supply on the horizontalaxis.
True
False
4 points
Question 15
A change in quantity demanded is a movement along the same demandcurve.
True
False
4 points
Question 16
As globalization and world trade proliferates, individual markets withincountries' economies become more competitive.
True
False
4 points
Question 17
Which growth theory compares a subsistence real wage rate to the actual real wage rate?
Classical growth theory | ||
Inflation growth theory | ||
Neoclassical growth theory | ||
New growth theory |
4 points
Question 18
Suppose the working age population in Tiny Town is 100 people. If 25 of these people are NOT in the labor force, the ________ equals ________.
unemployment rate; 25/100 Ã 100 | ||
employment rate; 25/75 Ã 100 | ||
labor force; 75 | ||
labor force; 25/100 Ã 100 |
4 points
Question 19
Suppose there is a rise in the real wage rate. As a result, the quantity of labor demanded:
increases. | ||
decreases. | ||
does not change because there is no change in the money wage rate. | ||
increases only if the price level also decreases. |
4 points
Question 20
GDP can be computed as the sum of:
all sales that have taken place in an economy over a period of time. | ||
the total expenditures of consumers and business over a period of time. | ||
the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time. | ||
the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time. |
4 points
Question 21
The real wage rate equals:
(100 x (money wage rate/price level) | ||
(100 x (price level/money wage rate) | ||
(money wage rate x (price level) | ||
(money wage + (number of hours worked/(price level) |
4 points
Question 22
If the CPI was 121.5 at the end of 2007 and 138.3 at the end of 2008, the inflation rate over these two years was:
10.2 percent. | ||
13.8 percent. | ||
12.2 percent. | ||
16.8 percent. |
4 points
Question 23
A movement along the production function is the result of a change in:
the quantity of labor. | ||
technology. | ||
capital. | ||
interest rates. |
4 points
Question 24
All of the following are part of fiscal policy EXCEPT:
setting tax rates. | ||
setting government spending. | ||
choosing the size of the government deficit. | ||
controlling the money supply. |
4 points
Question 25
Along a production possibilities frontier for real GDP and the quantity of leisure time, as leisure time increases, real GDP:
decreases. | ||
increases. | ||
stays the same. | ||
could increase, decrease or stay the same. |
1.Ceteris paribus, if the U.S. federal government reduces its budget deficit which of the following will be observed?
Answer
a. | The aggregate demand curve will shift to the right. | |
b. | The economy will always approach potential GDP. | |
c. | The marginal propensity to consume will increase. | |
d. | The average price level will increase. | |
e. | The aggregate demand curve will shift to the left. |
2. If the government wants to close a GDP gap, it can:
Answer
a. | lower government spending on social security. | |
b. | adopt contractionary fiscal policies to control inflation. | |
c. | increase its budget deficit. | |
d. | repay its borrowings. | |
e. | raise both direct and indirect tax rates. |
3. Suppose the short-run equilibrium level of income exceeds the full employment level of income and there is high inflation. Hence, the government decides to implement a fiscal policy that will act to reduce national output and price level. This can be accomplished by:
Answer
a. | lowering average tax rates such that aggregate supply is increased. | |
b. | increasing government spending such that aggregate expenditures are increased. | |
c. | increasing transfer payments such that aggregate expenditures decline. | |
d. | raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased. | |
e. | decreasing government spending such that aggregate demand is reduced. |
4. A drop in investment spending caused by increased government budget deficits is referred to as:
Answer
a. | the multiplier effect. | |
b. | crowding out. | |
c. | an expansionary gap. | |
d. | the paradox of thrift. | |
e. | the Ricardian equivalence. |
5. Discretionary fiscal policy is best defined as:
Answer
a. | the deliberate manipulation of the money supply to expand the economy. | |
b. | the deliberate change in tax laws and government spending to change equilibrium income. | |
c. | the policy action taken by the Congress to reduce the federal budget deficit. | |
d. | the arbitrary fluctuation in tax laws and budget requirements. | |
e. | the automatic change in certain fiscal instruments when real GDP changes. |
6. Which of the following can be considered as an automatic stabilizer in the economy?
Answer
a. | Money supply | |
b. | Disposable income | |
c. | Real exchange rate | |
d. | Real interest rate | |
e. | Unemployment insurance |
7. Which of the following is true about automatic stabilizers?
Answer
a. | When income rises, automatic stabilizers increase/boost spending. | |
b. | Automatic stabilizers are a part of discretionary fiscal policy. | |
c. | An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. | |
d. | Any kind of trade policy adopted by the government will be considered as an automatic stabilizer. | |
e. | The interest rate is an example of an automatic stabilizer. |
8. Increased budget deficits
Answer
a. | can cause interest rates to increase and hence decrease net exports | |
b. | have no effect on net exports | |
c. | can cause interest rates to decrease and hence increase net exports | |
d. | never impose additional interest costs on the government |
9. The Ricadian Equivalence implies that when financing additional government expenditures
Answer
a. | there is no difference between increasing current taxes or borrowing now and increasing taxes in the future because consumption will decrease either way. | |
b. | there is no difference between increasing current taxes or borrowing now and increasing taxes in the future because consumption will increase either way. | |
c. | increasing borrowing is the best option | |
d. | increasing current taxes is the best option |
10. Assuming no effects on aggregate supply, if the government increases government spending and decreases taxes in an attempt to prevent a possible recession, aggregate demand will shift to the ____, the price level will either remain constant or ____, and the level of real GDP will ____.
Answer
a. | right; decrease; increase | |
b. | right; decrease; decrease | |
c. | left; decrease; decrease | |
d. | left; increase; increase | |
e. | right; increase; increase |
11. For a hypothetical economy, the MPS is 0.08 and the MPI is 0.17. If government spending increases by $35 and taxes increase by $35, what will be the net effect on equilibrium income?
Answer
a. | A decrease of $35 | |
b. | An increase of $105 | |
c. | An increase of $35 | |
d. | A decrease of $105 | |
e. | A decrease of $15 |
1.
12.12. The term fiscal policy refers to
Answer
a. | the adjustment of the GDP for inflation. | |
b. | the purchase and sale of U.S. government securities to regulate the money supply. | |
c. | the use of government spending and taxation to influence the level of economic growth and inflation. | |
d. | the use of fines to penalize unfair business practices. | |
e. | a policy action by Congress to overrule unpopular budget cuts by the president. |
13. If aggregate demand intersects aggregate supply in the vertical range of the aggregate supply curve, then, other things equal, an increase in government spending will
Answer
a. | raise the price level and leave real GDP unchanged. | |
b. | raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged. | |
c. | raise both real GDP and the price level by a multiple of the initial spending increase. | |
d. | have no effect on real GDP or on the price level, because all private investment will be crowded out. | |
e. | lower real GDP by an amount equal to the spending increase and reduce inflation. |
14. Which of the following is not a means to finance government spending?
Answer
a. | Government subsidies | |
b. | Government debt | |
c. | Capital gains taxes | |
d. | Personal income taxes | |
e. | Money creation |
15. An automatic stabilizer is
Answer
a. | a change in government spending aimed at achieving a policy goal. | |
b. | an element of fiscal policy that automatically changes in value as real GDP changes. | |
c. | an element of monetary policy that automatically changes in value as real GDP changes. | |
d. | a decrease in tax rates as the economy moves into a recession. | |
e. | a deliberate change in taxation aimed at increasing real GDP. |
16. Budget deficits tend to grow during recessions because
Answer
a. | real GDP growth is zero, which causes neither tax receipts nor government expenditures to grow. | |
b. | real GDP growth is positive, which reduces both tax receipts and transfer payments. | |
c. | real GDP growth is negative, which reduces transfer payments in relation to tax receipts. | |
d. | real GDP growth is negative, which reduces tax receipts in relation to government expenditures. | |
e. | real GDP growth is positive, which increases tax receipts in relation to government expenditures. |