QUESTION 17

1. Josey earned a promotion and is getting an 8% raise. However, the Bureau of Labor Statistics just reported an inflation rate of 10%.
2. Josey is ahead by 8%.
3. Josey's purchasing power is rising by 10%.
4. Inflation has no impact on purchasing power.
5. Josey is losing purchasing power by 2%.

QUESTION 18

1. In April 1977 the price of a pound of coffee was $3.00. Between 1977 and 2017 the Consumer Price Index (CPI) rose from 60.6 to 245.1. In April 2017 the price of a pound of coffee was $1.20. What is the price of a pound of coffee in April 1977 in 2017 dollars (ie. adjusted for inflation in 2017)?
2. $7.28
3. $4.85
4. $12.13
5. $0.74

QUESTION 19

1. What type of CPI bias occurs when consumers switch from buying groceries at their local supermarket to buying them at a discount warehouse like Costco?
2. new product
3. new outlet
4. substitution
5. quality

QUESTION 20

1. The official unemployment statistics reported by the BLS probably understate true unemployment due to:
2. over employed workers being forced to work overtime.
3. the fact that under-employed and "discouraged" workers are not considered unemployed.
4. unemployment insurance creating an incentive for people to lie about their job search efforts.
5. the fact that only people who work at least 30 hours per week are considered "employed."

QUESTION 21

2. Given the statistics above for the U.S. in a particular year, the official unemployment rate is _____ and the labor force participation rate is ______.
3. 6.8%; 8%
4. 5.9%; 85%
5. 7.5%; 80%
6. 4%; 85%

QUESTION 22

1. Suppose an economist breaks the unemployment rate into the following components: frictional (3%), structural (2%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is:
2. 4%.
3. 7%.
4. 5%.
5. 6%.

QUESTION 23

1. Websites can now be quickly and easily created using online software.As a result, many website creators have lost their jobs.This is an example of ____ unemployment.
2. statistical
3. frictional
4. structural
5. cyclical

QUESTION 24

1. Which of the following is a trend in the U.S. labor force participation rate over the last 50 years?
2. The overall labor force participation rate has decreased.
3. The labor force participation rate for women has fallen.
4. The gender makeup of the labor force participation rate has stayed roughly the same.
5. The labor force participation rate for men has fallen.

QUESTION 25

1. Consider the market for loanable funds. If the government offers firms investment tax credits for building new factories, the rate of return on investments rises. This causes the loanable funds __________ curve to shift ______, leading to __________ interest rates.
2. demand; rightward; higher
3. supply; rightward; lower
4. supply; leftward; higher
5. demand; leftward; lower

QUESTION 26

1. According to our production function, which of the following will lead to long run economic growth?
2. keeping interest rates high to encourage saving.
3. increasing government oversight of business decisions.
4. increasing the availability of technology, capital, and labor.
5. redistributing income from the wealthy to the poor.

QUESTION 27

1. A legal system that enforces property rights is important to economic growth because:
2. bankruptcy laws encourage lending.
3. strong laws demonstrate commitment by legislators to economic growth.
4. legal protection of ideas and technologies gives people who innovate the ability to protect their work.
5. the legal system can help the government with tax collection.

QUESTION 28

1. If the growth rate in an economy is 3.5%, then its GDP will double in about:
2. 3.5 years.
3. 245 years.
4. 70 years.
5. 20 years.

QUESTION 29

1. Which economic theory assumes that a liquidity trap means that monetary policy might be ineffective in a recession?
2. Classical Economic Theory
3. Monetarist Theory
4. Supply-Side Economic Theory
5. Keynesian Theory

QUESTION 30

1. A marginal propensity to consume (MPC) of 0.80 means:
2. people spend $0.20 of every new $1 they receive.
3. people spend $0.80 of every new $1 they receive.
4. people save $0.80 of every new $1 they receive.
5. people spend $1 of every new $0.80 they receive.

QUESTION 31

1. If someone suddenly developed a new technology that caused energy prices to drop significantly, it would most likely cause a ______.
2. period of high unemployment
3. negative supply shock
4. period of high inflation
5. positive supply shock

QUESTION 32

1. Economic growth is shown as a:
2. shift to the right in the long-run aggregate supply curve.
3. movement up along the short-run aggregate supply curve.
4. shift to the left in the long-run aggregate supply curve.
5. shift to the left in the short-run aggregate supply curve.

QUESTION 33

1. Consider the short run AS-AD model. What would happen to the equilibrium price level and output level (real GDP) if consumers significantly decrease spending due to falling equity in their homes, ceteris paribus?
2. the price level will rise; real GDP will rise
3. the price level will fall; real GDP will rise
4. the price level will rise; real GDP will fall

QUESTION 34

1. Consider the short run AS-AD model. What would happen to the equilibrium price level and output level (real GDP) if production costs increase significantly for producers due to an extensive drought.
2. the price level will fall; real GDP will fall
3. the price level will rise; real GDP will rise
4. the price level will fall; real GDP will rise
5. the price level will rise; real GDP will fall

QUESTION 35

1. The idea of the spending multiplier is that:
2. one person's spending becomes another person's income, which stimulates more spending.
3. when a person saves money in a bank, the bank lends it out to another person to be spent.
4. people tend to spend a greater amount (a multiple) in stores than they originally intend.
5. people spend money on some items, such as food and toiletries, multiple times.

QUESTION 36

1. Ron and Jen are discussing the best way to get our economy out of the recession. Ron wants to see government cut taxes by $150 billion. Jenn prefers to see government spending increase by $150 billion. Whose prescription would have the larger total impact on aggregate demand?
2. Ron's, because firms and households are better spenders than the government, whose spending decisions are bogged down in political debating
3. Jen's, because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved (and not spent)
4. Ron's, because households and firms have a higher marginal propensity to consume than the government
5. Jen's, because the government has more information available to it than do households and firms

QUESTION 37

1. Supply-side fiscal policies include all of the following EXCEPT:
2. projects that include the encouragement of new technologies.
3. investment in human capital.
4. increasing transfer payments.

policies that encourage investment in research and development.

QUESTION 38

1. Papa Smurf, the president of Smurfsville, hires you as an economic consultant. Papa Smurf is worried that the output level of Smurfsville is too high and that this will lead to inflation. He feels that it is necessary to reduce economic activity by $50 billion. Through your analysis, you learn that the MPC of Smurfsville is 0.80. What advice would you give to Papa Smurf?
2. reduce government spending by $50 billion.
3. increase taxes by $12.5 billion.
4. increase taxes by $10 billion.
5. reduce government spending by $15 billion.

QUESTION 39

1. Using demand-side fiscal policy to stimulate aggregate demand when the economy is at full employment will primarily result in:
2. unemployment.
3. inflation.
4. a large economic expansion.
5. underemployment.

QUESTION 40

1. Automatic stabilizers are designed so that as income falls:
2. government spending falls so that budget is always balanced.
3. the rate of spending decrease accelerates.
4. spending does not fall as much as income.
5. spending rises to a degree that the recession automatically ends.

QUESTION 41

1. Which of the following is an example of an automatic stabilizer?
2. The Works Progress Administration
3. The cash for clunkers program
4. A progressive income tax
5. The 2018 tax cut for American households

QUESTION 42

1. The national debt:
2. represents the total amount the federal government owes holders of U.S. Securities (bonds)
3. equals the amount by which total federal tax revenues fall short of total federal spending in a given year
4. will be paid off when the budget is finally balanced.
5. is paid off each fiscal year when the debt is refinanced.

QUESTION 43

1. If total federal spending for 2013 equals $2,800 billion and total federal tax revenues equal $2,200 billion in 2013, then
2. the budget surplus will equal $600 billion
3. the budget deficit will equal $600 billion
4. the national debt will equal $600 billion
5. the budget is balanced.

QUESTION 44

1. Congress just received a report that the economy began a downturn five months ago. They vote to implement an expansionary policy to address it, but they are already five months too late to completely stop the damage. This is an example of ______.
2. an impact lad
3. a crowding-out lag
4. an implementation lag
5. a recognition lag

QUESTION 45

1. "Crowding out" occurs when government borrowing leads to a _________, causing a reduction in ________.
2. Lower price level; the money supply.
3. Higher interest rate; private investment by businesses and households
4. Higher money supply; net exports as the economy increases the amount it imports
5. Lower interest rate; the money supply

QUESTION 46

1. Which scenario best demonstrates how money acts as a store of value?
2. Gabe borrows money from his mother to fix his car and gives her money every month until he has repaid her.
3. Anya buys a certificate of deposit, which she plans to cash in several years after she retires.
4. Natalie buys a new leather purse and a button-down blouse from her favorite boutique for $150.
5. Tran knows a bottle of water is $1 and a birthday card is $2, so a birthday card has the same value as two bottles of water.

QUESTION 47

1. Today, the value of U.S. currency is backed by ______.
2. insurance provided by the Federal Deposit Insurance Corporation
3. the silver standard due to its role in the international market
4. the gold standard, with some account for digital currencies
5. people's faith in its ability to be converted into services and goods

QUESTION 48

1. Why does the Fed rarely change the reserve requirement?
2. To change the reserve requirement, the Fed must obtain permission from the Senate.
3. It has historically had a negative impact on the financial state of the country.
4. A small adjustment in the ratio can result in major changes that could disrupt the economy.

It requires input from bank managers and select other financial figures.

QUESTION 49

1. How is the Federal Reserve insulated from political pressure in its conduct of monetary policy?
2. The Board of Governors is appointed to 14-year terms.The Fed's actions are closely directed by the President who bears the political responsibility.The Chairmanship of the Federal Reserve is an elected position.The Chairman of the Federal Reserve has a 4-year term limit.

QUESTION 50

1. Assume the reserve requirement is 5% and no excess reserves are held. If an initial cash deposit of $10,000 is made, the money supply has the potential to increase by:
2. $15,000.
3. $50,000.
4. $200,000.
5. $10,500.

QUESTION 51

1. According to monetarists, changes in the money supply impact ________ in the short run, while in the long run, a change in the money supply impacts _____________.
2. output only; the price level only
3. output and the price level; the price level only
4. the price level only; output only
5. output and the price level; output only

QUESTION 52

1. If the Federal Reserve increases the money supply, which of the following events occurs?
2. Interest rates increase, aggregate demand decreases and GDP increases.
3. Interest rates increase, aggregate demand increases, and GDP increases.
4. Interest rates decrease, aggregate demand decreases and GDP decreases.
5. Interest rates decrease, aggregate demand increases and GDP increases.

QUESTION 53

1. Assume that the economy is currently experiencing significant inflation. In order to decrease aggregate demand, the Fed could __________ the required reserve ratio, _______ the Discount Rate, and/or _________ government securities (T-bonds, T-bills) to/from commercial banks.
2. increase; increase; sell
3. increase; decrease; sell
4. decrease; decrease; buy
5. increase; increase; buy

QUESTION 54

1. Which new practice by banks helped cause the housing bubble in 2008?
2. Lenders began to require borrowers to provide proof of income.
3. incorrect
4. Banks developed fixed-rate mortgage loans.
5. Banks began to rigorously check borrowers' credit quality.
6. Banks began to originate subprime loans they did not intend to keep.

QUESTION 55

1. Economists who believe there is a short-run trade-off between inflation and unemployment attribute it to the ______.
2. complete flexibility of prices
3. complete flexibility of wages
4. fast adjustment of input prices
5. slow adjustment of input prices