Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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A
person is unemployed if he a. | is a member of the civilian labor force, out of work, and
actively seeking work. | b. | is 15 years old and seeking his first
job. | c. | is out of work,
available for work, but not actively seeking work. | d. | all of the
above | | |
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2.
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Is it
possible for the economy to be at full employment and still have some people who are
unemployed? a. | No, full
employment means that no one is unemployed. | b. | Yes, since full
employment exists if the economy is operating at the natural unemployment rate and there is always
some natural unemployment. | c. | Yes, since full employment exists if the economy is operating
at the frictional unemployment rate and there is always some frictional
unemployment. | d. | Yes, since full employment equals the sum of the cyclical
unemployment rate and the natural unemployment rate, and there is always some cyclical
unemployment. | e. | none of the above | | |
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3.
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The
expenditure approach to measuring GDP sums a. | consumption, gross private domestic investment, government
purchases, and net exports. | b. | sales, revenues, income, and wages. | c. | profits,
compensation of employees, consumption, and investment. | d. | net exports,
consumption, wages, and salaries. | | |
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4.
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Which
of the following would not be included in the calculation of this year's GDP? a. | a headlight bulb
purchased at Joe's Auto Supply by Susan to replace a burnt out bulb in her
car | b. | a headlight bulb
purchased by Ford Motor Co. from a supplier | c. | a headlight bulb
produced but not sold this year and thus ending up as inventory | d. | none of the
above, i.e., all would be included | | |
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5.
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Why
do economists prefer to compare Real GDP figures for various years instead of GDP
figures? a. | Because when GDP
in one year is higher than in another year, there is no way to tell why it is higher. Is it because
output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher
in one year than in another year, it is because output is higher. | b. | Because when GDP
in one year is higher than in another year, there is no way of knowing if the quality of goods
produced is higher in one year than the other. This is not the case with Real GDP. If Real GDP is
higher in one year than in another year, it is because the quality of the goods produced is
higher. | c. | Actually the question is incorrect. Economists prefer to
compare GDP figures instead of Real GDP figures. | d. | Because Real GDP
is easier to compute than GDP. | e. | Because when GDP in one year is higher than in another year,
there is no way to tell if the quality of life is higher in one year than the other. This is not the
case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality
of life is higher. | | |
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Exhibit 6-1
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6.
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Refer
to Exhibit 6-1. Which of the following summations represents GDP using the expenditure
approach? a. | $1750 + $412 +
$200 + $299 | b. | $1750 + $412 + $200 - $331 + $299 | c. | $1750 + $412 +
$200 + $331 + $299 | d. | $1750 + $412 + $200 + $331 + $299 -
$355 | e. | $1750 + $412 +
$200 + $331 + $299 - $355 + $188 | | |
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7.
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What
is the proper sequence of the phases of a business cycle? a. | peak,
contraction, trough, expansion, recovery | b. | peak, contraction, recovery, trough,
expansion | c. | peak, contraction, trough, recovery,
expansion | d. | contraction, peak, trough, recovery,
expansion | e. | recovery, trough, peak, expansion,
contraction | | |
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8.
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The
change in the purchasing power of dollar-denominated assets (such as cash holdings) is
the a. | money
effect. | b. | dollar effect. | c. | asset
effect. | d. | real balance effect. | e. | none of the
above | | |
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9.
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Part
of the story of the interest rate effect is that a lower price level causes __________ in the demand
to borrow money, which then causes the interest rate to __________. a. | a decrease;
fall | b. | a decrease;
rise | c. | an increase;
fall | d. | an increase;
rise | | |
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10.
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Suppose a drop in stock prices makes people feel less wealthy. This would cause
__________ the economy's AD curve. a. | movement down along | b. | movement up
along | c. | a rightward shift of | d. | a leftward shift
of | | |
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11.
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An
increase in the Ml money supply may __________ total expenditures, leading to a __________ shift of
the AD curve. a. | increase;
rightward | b. | increase; leftward | c. | decrease;
rightward | d. | decrease; leftward | | |
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12.
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The
short-run aggregate supply curve is upward-sloping because of a. | sticky
wages. | b. | sticky prices. | c. | producer
misperceptions. | d. | a and b | e. | a, b, and
c | | |
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13.
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__________ identifies the level of Real GDP the economy produces when wages and prices
have adjusted to their (final) equilibrium levels and there are no misperceptions on the part of
either producers or workers. a. | Short-run equilibrium | b. | Disequilibrium | c. | Long-run equilibrium | d. | Equilibrium | e. | none of the above | | |
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14.
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A
rise in wage rates a. | causes the AD curve to shift
leftward. | b. | causes the short-run aggregate supply (SRAS) curve to shift
rightward. | c. | does not affect the present position of the SRAS
curve. | d. | causes the AD curve to shift
rightward. | e. | causes the SRAS curve to shift
leftward. | | |
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Exhibit 8-1
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15.
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Refer
to Exhibit 8-1. The economy is currently producing Q1. At this level of Real GDP, the
economy is in a(n) a. | inflationary gap. | b. | recessionary
gap. | c. | unemployment
gap. | d. | high Real GDP
gap. | e. | none of the
above | | |
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16.
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Refer
to Exhibit 8-1. The economy is currently producing Q1. If an economist believes the
economy (itself) can move to QN, then he believes that the a. | LRAS curve will
shift leftward until it intersects the SRAS and AD curves at Q1. | b. | AD curve will
shift rightward and intersect the SRAS curve at point B. | c. | SRAS curve will
shift rightward and intersect the AD curve at point A. | d. | economy will
likely stay "stuck" in short-run equilibrium. | | |
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Exhibit 8-2
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17.
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Refer
to Exhibit 8-2. An economist believes the economy removes recessionary and inflationary gaps by
itself. Which of the following describes what she thinks will happen in terms of Exhibit 9-2? (The
economy is currently producing Q1.) a. | As old wage bargains expire, wages fall, and the SRAS curve
shifts rightward. | b. | As old wage bargains expire, wages fall, and the SRAS curve
shifts leftward. | c. | As old wage bargains expire, wages rise, and the SRAS curve
shifts leftward. | d. | As old wage bargains expire, wages fall, and the SRAS curve
shifts rightward. | e. | none of the above | | |
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18.
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According to Say's law, a. | the demand curve is negatively
sloped. | b. | the supply curve is positively
sloped. | c. | supply creates its own demand. | d. | economic units
should produce those goods for which they are low-opportunity-cost
producers. | | |
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19.
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In
the classical view of the credit market, a rise in saving produces a rise in investment via
a a. | rising interest
rate. | b. | falling interest rate. | c. | rising price
level. | d. | falling price level. | | |
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20.
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Keynes believed that saving is a. | more responsive to changes in income than to changes in
interest rates. | b. | less responsive to changes in income than to changes in
interest rates. | c. | equally responsive to changes in income and to changes in
interest rates. | d. | dependent only on changes in interest
rates. | | |
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21.
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Keynes most likely believed that investment is a. | largely
insensitive to changes in interest rates. | b. | largely sensitive to changes in interest
rates. | c. | unrelated to business expectations. | d. | related to
business expectations only during recessionary periods. | | |
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22.
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Which
of the following statements is true? a. | Keynes believed wages are inflexible downward but prices (of
goods and services) are flexible. | b. | Keynes believed an economy could get stuck in a recessionary
gap. | c. | Keynes
originated the idea of efficiency wages. | d. | Keynes believed the economy is
self-regulating. | e. | b and c | | |
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23.
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Suppose aggregate demand is too low to bring about the Natural Real GDP level. A
Keynesian policy prescription would call for a. | bursting people's money illusion. | b. | deficit spending
on the part of the federal government. | c. | improving businessmen's animal
spirits. | d. | adding money to the money market. | | |
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24.
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Keynesian economics was developed during the a. | Panic of
1907. | b. | Great Depression. | c. | the
1960's. | d. | the 1980's. | | |
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25.
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The
ratio of the change in consumption to the change in income is called the a. | marginal utility
of consumption. | b. | average utility of consumption. | c. | marginal
propensity to consume. | d. | average propensity to consume. | | |
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26.
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If
income rises from $500 to $600 and consumption rises from $300 to $360, the marginal propensity to
consume is __________ percent.
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Exhibit 9-3
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27.
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Refer
to Exhibit 9-3. The marginal propensity to save (MPS) is a. | 0. | b. | 0.10. | c. | 0.20. | d. | 0.25. | e. | none of the
above | | |
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Exhibit 9-4
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28.
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Refer
to Exhibit 9-4. If the present level of disposable income is Yd1, autonomous consumption
is equal to a. | C0. | b. | C1. | c. | C2. | d. | C1 - C0. | e. | C2 -
C1. | | |
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29.
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If
autonomous spending rises by $40 and, as a result, Real GDP rises by $200, then the multiplier
is a. | 4. | b. | 5. | c. | 6. | d. | 7. | e. | none of the above | | |
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30.
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If
the marginal propensity to consume was .9 and if autonomous consumption rose by $60, then, as a
result, Real GDP would rise by a. | $6. | b. | $60. | c. | $300. | d. | $600. | | |
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