Econ 200: Final Test Study Guide

8. In Exhibit 1, if all the economy’s resources are used efficiently to produce good B, then the economy is at point

1. g

2. b

3. h

4. i

5. e

2. corporate income taxes

3. sales taxes

4. borrowing on financial markets

5. revenue from the sale of government goods and services

11. Because people’s wants are unlimited but resources are scarce,

    1. only the rich get everything they want

    2. choices must be made

    3. there will be more services produced than goods

    4. people search for spiritual fulfillment rather than material fulfillment

    5. poor people never get anything they want

12. Economics is best defined as the study of how

    1. individuals decide to use scarce resources in an attempt to satisfy their unlimited wants

    2. to make money

    3. the government should deal with unemployment and inflation

    4. to eliminate the problem of scarce resources

    5. to run a business

15. The

1. services may be free, but goods are never free

2. even if it has a price of zero, a good or service has a cost

3. charitable organizations should not serve free lunches to the poor

4. poor people are really the ones who pay for their allegedly free lunches

5. someone has to pay the market price for a good or service

16.The labor market is an example of a

1. government market

2. classified market

3. communication market

4. resource market

5. product market

17. Rational economic decision makers will make a change only if

    1. the change is free of risk

    2. there are no costs involved

    3. their expectations are correct

    4. there is no uncertainty about the results of the change

    5. the expected marginal benefit exceeds expected marginal cost

18. All economic models must involve simplifications because

    1. economists would be unable to command high salaries if their models were so simple that anyone could understand them

    2. human behavior is very erratic and unpredictable

    3. reality is too complex to understand in its entirety, so we must reduce it to a level that we can understand

    4. they always try to duplicate all possible information and cover all possible variables that might influence decision making

    5. we must rely on value judgments and ignore reality

19. An example of a positive economic statement is, “An increase in the price of a product causes consumers to purchase more of that product.”

    1. True

    2. False

1. a farmer’s purchase of a pound of hamburger

2. a medical clinic’s purchase of flu vaccine

3. a factory’s purchase of a spot welding machine

4. the purchase of a cup of coffee at a restaurant

5. a college student’s purchase of a textbook for a medieval history class

25. Which of the following would be included in GDP?

    1. payment of the monthly telephone bill by Mr. Laconic

    2. the purchase of corporate stock by Steven Jones

    3. the purchase of a used limousine by Harold Abel

    4. the value of a pair of mittens your mother knitted for you

    5. the $300 George saved because he painted his own garage

26. Consumption in the expenditures approach to calculating GDP includes

    1. spending by businesses on plant and equipment

    2. spending by government on office buildings

    3. spending by households on new single-family houses

    4. changes in business inventories

    5. purchases of medical services at the local clinic

27. Which of the following is not considered a component of government purchases in calculating GDP?

    1. the cost of a new federal prison

    2. the cost of building a new road

    3. unemployment compensation payments

    4. payments made to plow public roads after a snowstorm

    5. the cost of police protection

28. Net exports is the value of

    1. exports minus the value of imports

    2. imports minus the value of exports

    3. imports minus tariffs

    4. exports minus tariffs

    5. exports plus the value of imports minus depreciation

30. An example of structural unemployment caused by a change in tastes and preferences is

1. newspaper journalists

2. administrative assistants

3. lifeguards

4. steelworkers during recessions

5. None of the answers is correct

b. False

32. Inflation rates differ across regions mostly because of differences in housing prices.

    a. True

    b. False

33. Unemployment rates __________ during contractions and __________ during expansions.

    1. rise, fall

    2. fall, fall

    3. rise, stay the same

    4. stay the same, fall

    5. fall, rise

2. its total wealth

3. the number of persons in the household

4. its net wealth

5. the ratio of wage to nonwage income the household earns

42. Historically, consumption spending in the United States has

    1. increased as a percentage of income

    2. remained approximately constant as a percentage of income

    3. decreased as a percentage of income

    4. remained constant over time

    5. increased more than income

43. As disposable income increases, consumption spending

    1. increases by the same amount

    2. decreases by the same amount

    3. increases by less than the increase in disposable income

    4. decreases by less than the increase in disposable income

    5. does not change at all

44. Disposable income is equal to consumption

    1. plus investment

    2. plus taxes

    3. plus saving

    4. minus taxes

    5. minus saving

45. Which must be true when consumption exceeds income?

    1. the consumption function shifts upward

    2. the consumption function shifts downward

    3. aggregate expenditures equal real GDP

    4. saving must be negative

    5. aggregate expenditures will fall

46. Sarah moves from Upperland, which has no taxes or transfer payments, to Lowerland, where she is hit

    with taxes of $2,000 and receives transfer payments of $3,000. She earns the same wage in both countries, but in Lowerland her disposable income is

    1. $1,000 higher

    2. $1,000 lower

    3. $5,000 higher

    4. $2,000 lower

    5. $3,000 higher

51. The

1. real GDP on the horizontal axis and aggregate expenditure on the vertical axis

2. aggregate expenditure on the horizontal axis and real GDP on the vertical axis

3. consumption on the horizontal axis and aggregate expenditure on the vertical axis

4. aggregate expenditure on the horizontal axis and consumption on the vertical axis

5. investment on the horizontal axis and aggregate expenditure on the vertical axis

52.That fraction of a change in disposable income that is consumed is called

1. autonomous consumption

2. induced consumption

3. the multiplier

4. the marginal propensity to consume

5. the marginal propensity to save

53. If the mps is 0.25, the simple multiplier is a. 25

    b. 75
    c. 5
    d. 3/4
    e. 4 (1/.25)=4

54. If investment increases by $100 and, as a result, GDP ultimately increases by $200, the multiplier equals

    1. 1

    2. 2 (think about)

    3. 3

    4. 4

    5. 5

55. A nominal wage is

    1. not above the legal minimum

    2. always above the legal minimum

    3. measured in terms of goods and services it can buy

    4. measured in current dollars rather than in constant dollars

    5. measured in constant dollars rather than in current dollars

56. The

1. it is the equilibrium price level in the short run

2. it determines the actual price level in the short run

3. it determines the actual price level in the long run

4. firms and resource owners make long-term agreements based on the expected price level

5. the difference between the expected and actual price levels is equal to the actual inflation

   rate

58.If the price level rises by 5 percent and the nominal wage rises 3 percent, the real wage

1. falls by 2 percent

2. falls by 8 percent

3. rises by 2 percent

4. rises by 8 percent

5. remains constant

59. Real wages are nominal wages adjusted for price changes. a. True

    b. False

60. If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year,

    real wages will

    1. increase by 3 percent per year

    2. increase by 5 percent per year

    3. increase by 2 percent per year

    4. decrease by 5 percent per year

    5. decrease by 3 percent per year

61. An increase in government purchases must always be accompanied by an increase in autonomous net taxes.

    a. True

    b. False

62. Discretionary fiscal policy works by shifting the aggregate demand curve.

    a. True

    b. False

63. Fiscal policy is concerned with

    1. government spending and taxation only

    2. government spending and money only

    3. money and taxation only

    4. government spending, taxation, and money

    5. money only

64. Which of the following are used in fiscal policy?

    1. transfer payments only

    2. taxes and government purchases

    3. government purchases only

    4. government purchases, transfer payments, and taxes

    5. taxes and transfer payments

68. Transfer payments are included in the government budget deficit but not included in the government purchases component of GDP.

1. True

2. False

70. The

    1. is less than a calendar year in length

    2. runs from October 1 to September 30

    3. runs from January 1 to December 31

    4. is actually 15 months in length

    5. none of the above

71. Approximately what percentage of the U.S. federal budget was used for interest payments (on the national debt) in 2010?

    1. 7 percent

    2. 10 percent

    3. 14 percent

    4. 25 percent

    5. 40 percent

    Employment Act of 1946

    1. created the Council of Economic Advisers

    2. established the Office of Management and Budget

    3. centralized budgetary authority by establishing budget committees in the House and

       Senate

    4. established the goal of a balanced budget

    5. weakened the role of Congress in the budgetary process

73. A continuing resolution provides authorization for continuing agency operation even after its budget has expired.

1. True

2. False

2. barter

3. commodity money

4. fiduciary money

5. fiat money

75. Under the Federal Reserve System,

1. there is one Federal Reserve Bank, located in Washington, DC

2. there is one Federal Reserve Bank, whose location changes every 14 years

3. there is a Federal Reserve bank in each Congressional district

4. there is a Federal Reserve bank in each state

5. there are 12 Federal Reserve banks