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Review Chapter 10
Review Chapter 10
1) Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds. 1) _______
A) demanders; suppliers
B) suppliers; suppliers
C) suppliers; demanders
D) demanders; demanders
2) If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita?
2) _______
A) 4.7% B) 10.5%
C) 15% D) 21%
3) Liquidity refers to
3) _______
A) the number of shares of stock a corporation issues.
B) the number of times a dollar changes hands in the creation of GDP in an economy.
C) the ease with which a financial security can be traded for cash.
D) the ease with a stock can be traded for a bond.
4) During the expansion phase of the business cycle, which of the following eventually increases? 4) _______
A) employment B) income
C) production D) all of the above
5) The effect of a recession on a company like Boeing Aircraft is such that
5) _______
A) there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable
goods.
B) sales decline more sharply for Boeing as compared to firms that do not produce durable goods.
C) the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D) profits fall less sharply as compared to firms that do not produce durable goods.
6) A good measure of the standard of living is 6) _______
A) real GDP per capita. B) total nominal GDP.
C) nominal GDP per capita.
D) total real GDP.
7) The response of investment spending to an increase in the government budget deficit is called 7) _______
A) private dissaving.
B) crowding out.
C) expansionary investment.
D) income minus net taxes.
8) Actual real GDP will be above potential GDP if
8) _______
A) firms are producing at capacity.
B) firms are producing below capacity.
C) inflation is rising.
D) firms are producing above capacity.
9) If labor productivity growth slows down in a country, this will
A) slow down the increase in real GDP per capita.
B) slow down the increase in nominal GDP.
C) accelerate the increase in nominal GDP.
D) accelerate the increase in real GDP per capita.
9) _______
10) The period between a business cycle peak and a business cycle trough is called
A) recession.
B) diffusion.
C) recalculation.
D) expansion.
10) ______
11) According to the "Rule of 70", how many years will it take for real GDP per capita to double when the growth rate of
real GDP per capita is 5%?
11) ______
B) 5 years
C) 14 years
D) 35 years
12) The period of expansion ends with a ________ and the period of recession ends with a ________.
A) business cycle peak; business cycle peak
B) business cycle peak; business cycle trough
C) business cycle trough; business cycle trough
D) business cycle trough; business cycle peak
12) ______
13) Since 1900, real GDP per capita has ________ and this measure ________ the actual growth in standards of living in the
United States over this time.
13) ______
A) increased; overstates B) decreased; overstates
C) decreased; understates
D) increased; understates
14) As the economy nears the end of a recession, which of the following do we typically see?
A) increased spending on capital goods by firms
B) further decreases in consumer spending
C) increasing interest rates
D) all of the above
14) ______
16) ______
17) Which of the following would you expect to increase the equilibrium interest rate?
A) a change from an income tax to a consumption tax
B) an increase in the budget deficit
C) a decrease in the profitability of investment projects firms are considering
D) an increase in the percentage of income after net taxes that households save
17) ______
18) In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G =
Government purchases, T = Taxes, and TR = Transfers) 18) ______
A) Y - T + TR
B) Y - C - G
C) Y - C - T
D) C + G -T
19) Under which of the following circumstances would the government be running a deficit?
A) G = $7 trillion
T = $7 trillion
TR = $0 B) G = $5 trillion
T = $5 trillion
TR = $1 trillion C) G = $7 trillion
T = $10 trillion
TR = $3 trillion D) G = $5 trillion
T = $7 trillion
TR = $1 trillion
19) ______
20) If government purchases are $400 million, taxes are $700 million, and transfers are $200 million, which of the
following is true?
20) ______
A) Public saving is $100 million. B) The budget deficit is $500 million.
C) Public saving is $500 million. D) The budget deficit is $100 million.
Figure 10-2
21) Refer to Figure 10-2. Which of the following is consistent with the graph depicted above?
A) An expected expansion increases the profitability of new investment.
B) There is a shift from an income tax to a consumption tax.
C) New government regulations decrease the profitability of new investment.
D) The government runs a budget surplus.
21) ______
22) Increasing the amount of consumption spending and reducing the amount of savings ________ investment
expenditures, and ________ long-run economic growth in the economy. 22) ______
A) increases; increases B) decreases; increases
C) decreases; decreases D) increases; decreases
23) If real GDP per capita measured in 2000 dollars was $6,000 in 1950 and $48,000 in 2010, we would say that in the year
2010, the average American could buy ________ times as many goods and services as the average American in 1950.
23) ______
A) 1/8 B) 4
C) 8
D) 12
24) If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth
rate of real GDP between 2010 and 2011 24) ______
A) is 3.0%.
B) is 3.6%.
C) is 3.75%.
D) cannot be determined from the information given.
25) How will an increase in the government budget surplus as a result of lower government spending (with no change in
net taxes) affect private saving in the economy? 25) ______
A) Private saving will increase by the amount of increase in the budget surplus.
B) Private saving will decrease by less than the amount of increase in the budget surplus.
C) Private saving will decrease by the amount of increase in the budget surplus.
D) Private saving will be unaffected by the increase in the budget surplus.
26) Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase
of the business cycle.
26) ______
A) decrease; decrease further
C) increase; increase further
B) increase; decrease
D) decrease; increase
Scenario 10-1
Consider the following data for a closed economy:
Y = $12 trillion
C = $8 trillion
I= $2 trillion
G = $2 trillion
TR = $2 trillion
T = $3 trillion
27) Refer to Scenario 10-1. Based on the information above, what is the level of private saving in the economy?
______
A) $3 trillion
B) $4 trillion
C) $5 trillion
27)
D) $8 trillion
28) When the government runs a budget deficit, we would expect to see that
A) public saving is positive.
B) investment will fall.
C) private saving will fall.
D) G + TR < T.
28) ______
30) ______
31) If you invest $10,000 in a bond that earns 8% interest per year, how many years will it take to double your money?
31) ______
A) 1 year and 3 months B) 2 years and 6 months
C) 8 years
D) 8 years and 9 months
32) Purchases of which of the following goods would be dramatically reduced during a recession?
A) tomatoes
B) ink pens
C) refrigerators D) gasoline
32) ______
33) ______
34) Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy?
34) ______
A) growth in capital per hour accompanied by technological change
B) a shift of workers in the economy from the agricultural sector to the nonagricultural sector
C) increases in labor force participation rates as workers who are out of the labor force pursue rising wages
D) an influx of immigrant labor into an economy without any accompanying technological change
35) If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP
will decrease from
35) ______
A) 23.3 years to 20.6 years.
C) 11.2 years to 10.8 years.
36) Under which of the following circumstances would private saving be positive in a closed economy?
A) Y = $6 trillion
C = $2 trillion
TR = $8 trillion
G = $3 trillion
public saving = $1 trillion
B) Y = $8 trillion
C = $2 trillion
TR = $4 trillion
G = $2 trillion
public saving = $4 trillion
C) Y = $10 trillion
C = $5 trillion
TR = $2 trillion
G = $2 trillion
public saving = $1 trillion
D) Y = $9 trillion
C = $5 trillion
TR = $1 trillion
G = $1 trillion
public saving = $3 trillion
36) ______
37) If, in an economy experiencing inflation, the government decided to tax real interest income rather than nominal
interest income, this change would cause the real interest rate to ________ and the equilibrium quantity of loanable funds
to ________.
37) ______
A) fall; rise
B) rise; rise
C) fall; fall
D) rise; fall
38) ______
D) TR < T.
40) ______
41) In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G =
Government purchases, T = Taxes, and TR = Transfers) 41) ______
A) Y - C - T
B) Y + TR - C - T
C) Y - G - T
D) Y - G - T + TR
45) ______
46) Refer to Figure 10-4. Which of the following is consistent with the graph depicted?
A) an increase in transfer payments to households
B) an increase in household income
C) an increase in the proportion of income after net taxes used for consumption
D) an increase in tax revenues collected by the government
46) ______
47) If consumers decide to be more frugal and save more out of their income, then this will cause 47) ______
A) a movement to the right along the supply curve for loanable funds.
B) a movement to the left along the supply curve for loanable funds.
C) a shift in the supply curve for loanable funds to the right.
D) a shift in the supply curve for loanable funds to the left.
48) In a closed economy, which of the following components of GDP is not included?
A) consumptionB) net exports
C) investment D) government spending
48) ______
49) Which of the following explains the cause of the change in the unemployment rate at the end of a recession?
______
49)
A) Firms rapidly hire new workers at the first sign of on an increase in demand for their goods.
B) Firms are hesitant to rehire laid off workers as they continue to operate below capacity.
C) Discouraged workers return to the labor force and this makes the unemployment rate fall.
D) Discouraged workers leave the labor force and this makes the unemployment rate rise.
50) During a recession, spending on ________ tends to fall more dramatically than spending on ________. 50) ______
A) food; cars
B) necessities; luxuries
C) durable goods; nondurable goods
D) nondurable goods; durable goods
1) A
2) A
3) C
4)
5) B
6) A
7) B
8) D
9) A
10) A
11)
12) B
13) D
14) A
15) C
16) A
17) B
18) B
19) B
20) A
21)
22) C
23) C
24) C
25) B
26) B
27) A
28) B
29) C
30) A
31) D
32) C
33) A
34) A
35) B
36) C
37) A
38)
39) A
40) C
41) B
42) C
43) D
44) A
45) D
46) C
47)
48) B
49) B
50) C