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Toaz - Info Masterlistmarcoeconomics PR
Toaz - Info Masterlistmarcoeconomics PR
Multiple Choice: Please select the best answer and click "submit." That is incorrect; the correct
answer is: A shift in the supply
curve to the left.
What would happen on the supply curve for automobiles if the price of
steel increased? Click Next to Continue
Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."
What would happen with the supply curve for televisions if a new company started making them?
What would happen on the supply curve for computers if a new business model allowed a supplier to ship
computers more cheaply?
What would happen on the supply curve for blue plastic boots if there were a sudden fad causing a lot of
people to wear blue plastic boots?
C. An increase in wages
D. A technological breakthrough
Feedback
That is incorrect; the correct answer is: A loss of interest in a novelty product.
Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."
Which of these situations would lead to inelastic supply of bike couriers in New York City?
A. Bike couriers can easily move and get jobs in other cities.
B. There are very few people who have the skills to be bike couriers.
C. There are a lot of people who have the skills to be bike couriers.
A. There are few innovations that could improve the efficiency of exercise machine production.
Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."
Feedback
That is incorrect; the correct answer is: The equilibrium price increases.
B. Quantity increases
C. Price increases
D. Quantity decreases
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Correct! When both supply and demand increase, quantity increases, while price may increase, decrease, or stay the
same.
B. It decreases.
C. It increases.
D. There's no change.
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Correct! When both supply and demand decrease, the price may increase, decrease, or stay the same.
What happens to quantity when there's a large supply decrease and a small demand increase at the same
time?
A. It's indeterminate.
B. There's no change.
C. It increases.
D. It decreases.
Feedback
That is incorrect; the correct answer is: It decreases.
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That is incorrect; the correct answer is: A price ceiling below the equilibrium price.
Feedback
That is incorrect; the correct answer is: A price floor above the equilibrium price.
B. It creates a shortage.
C. There is no change.
D. It creates a surplus.
Feedback
That is incorrect; the correct answer is: It creates a surplus.
Answer: 3000
Feedback
That is incorrect; the correct answer is: 3000.
Imagine the market for coffee. Suppose the price of tea increases at the same time that a new method of
growing coffee, which produces twice as much coffee for the same cost, is developed. What will happen to
the equilibrium price and quantity for coffee?
A. Equilibrium quantity will increase, but we can't tell if equilibrium price goes up or down.
B. Equilibrium price will decrease, but we can't tell if equilibrium quantity goes up or down.
D. Equilibrium quantity will decrease, but we can't tell if equilibrium price goes up or down.
E. Equilibrium price will increase, but we can't tell if equilibrium quantity goes up or down.
Feedback
Yes. Both demand and supply for coffee increased, so the equilibrium quantity must increase too. But since the
increased demand works towards raising the equilibrium price, and increased supply works toward lowering the
equilibrium price, we can't be sure what the final result will be. We don't know which would outweigh which, so we
don't know which way the price will change.
According to the graph, firms are willing to supply 40 units if the price is at least:
A. 25
B. 10
C. 5
D. 15
E. 20
Feedback
The correct answer is: 20. Firms are willing to supply 40 units if the price is 20. Just find 40 on the horizontal axis, then
go straight up to the supply curve and over to the vertical axis to find the price.
True or False: A change in the price of a good results in movement along the demand curve for that good,
and a change in anything else that affects consumers (including the price of substitutes and compliments for
that good, income, tastes, and future expectations) results in a movement of the entire curve.
A. True
B. False
Feedback
Yes! Changes in price cause movement along the demand curve, changing the quantity demanded. The negative
relationship between price and quantity demanded indicates that as price increases, the quantity demanded will
decrease. Changes in all the other factors that affect consumers shift the entire demand curve, altering the quantity
demanded at any price. Think of the two terms change in quantity demanded and change in demand. A change in
quantity demanded is just that, a change in the quantity that consumers demand. But a change in demand is much
bigger; it's a change of the entire demand curve.
Imagine a graph of the market for chocolate bars. Suppose a drought in the region where most cocoa beans
are grown severely damages the crop. Ceteris paribus, what will be the resulting change in equilibrium of
the chocolate bar market?
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Correct! In this situation, the equilibrium price will increase, and the equilibrium quantity will decrease. The drought
that damaged the cocoa bean crop caused the supply of cocoa beans to decrease, driving up the price of the inputs in the
production of chocolate bars. This causes the supply of chocolate bars to decrease (a shift to the left of the supply
curve), which results in a higher equilibrium price and a lower equilibrium quantity.
True or False: On the graph below, beginning with an equilibrium at point A, if the demand curve shifts
from D1 to D2, equilibrium shifts from point A to point B.
A. True
B. False
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Yes! An outward shift in the demand curve from D1 to D2(holding supply constant) would result in equilibrium
shifting from point A to point C. It would take an outward shift in supply (fromS1 to S2), holding demand constant, for
equilibrium to shift from point A to point B.
A. True
B. False
Feedback
The correct answer is: A shift of a demand curve is caused by something other than a change in price. A chance in price
will only cause movement along the original demand curve.
Question 8 of 10
True-False: Please select true or false and click "submit."
True or False: In the case of two complementary goods, an increase in the price of one good causes an
increase in the demand for the other good, shifting the demand curve as shown in the graph below.
A. True
B. False
Feedback
The correct answer is: In the case of two complementary goods, an increase in the price of one good causes a decrease
in the demand for the other good, not an increase. If good A and good Bare complements, and the price of good A goes
up, you'd buy less of good A. And since good B is a complement of A (meaning you use them together), you'd have less
use for good B. Therefore, your demand for good B would decrease.
If a hurricane in Florida destroys half the orange crop, driving the price of oranges up, how will it affect the
supply of orange juice?
C. No effect on supply.
D. Movement downward along the supply curve.
Feedback
The correct answer is: a decrease in supply, or a leftward shift of the supply curve. An increase in the costs of
production (caused by the hurricane) causes producers to decrease production, shifting the supply curve to the left and
decreasing supply.
A. True
B. False
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The correct answer is: The minimum wage is an example of a price floor3a minimum price. Employers aren't allowed
to pay less than the minimum wage. Price floors can cause a surplus, where quantity supplied exceeds quantity
demanded.
A. is a four-step process.
C. is used in economics.
D. All of these. It's a four-step process; it requires certain assumptions and simplifications; and it's used in
economics.
E. None of these.
Feedback
Correct!
Feedback
The correct answer is: of increasing opportunity costs.
Assuming compact discs and cassettes are substitute goods, a decrease in the price of cassettes will cause
the demand curve for compact discs to:
B. shift to the left as producers increase cassette production and reduce disc production.
C. shift to the left as consumers switch from buying discs to cassettes.
D. remain unchanged since discs and cassettes are sold in separate markets.
E. shift to the right as producers decrease cassette production and increase disc production.
Feedback
The correct answer is: shift to the left as consumers switch from buying discs to cassettes.
Feedback
The correct answer is: upward movement to the left along the demand curve.
C. perhaps selfish, but perhaps not, depending on their values and point of view.
E. may pledge donations to charities, but will never follow through with the donations.
Feedback
The correct answer is: perhaps selfish, but perhaps not, depending on their values and point of view.
B. based on the opportunity cost of taking the certification course and is correct.
C. incorrect because the cost of the course may have been greater than the benefit of the job.
Feedback
Correct!
A. both an increase in the production of one good cannot occur without a decrease in the production of
another good, and the economy is producing on its PPF.
D. an increase in the production of one good cannot occur without a decrease in the production of another
good.
Feedback
The correct answer is: both an increase in the production of one good cannot occur without a decrease in the production
of another good, and the economy is producing on its PPF.
If you were a government official who wanted to raise the equilibrium price of milk, which of the following
actions could you take and expect to achieve your goal?
Feedback
The correct answer is: Encourage farmers to produce less milk.
One of the assumptions underlying the production possibilities curve (or production possibilities frontier)
for any given economy is that:
Feedback
The correct answer is: there is full employment of resources when the economy is on the curve.
Click Next to Continue
Question 10 of 30
Multiple Choice: Please select the best answer and click "submit."
Jan can either pick 10 bushels of apples or press 20 gallons of cider in a day. Kim can either pick 15
bushels or press 15 gallons in a day. Which of the following statements is true?
A. Kim has the absolute advantage in picking apples, but Jan has the comparative advantage in picking
apples.
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The correct answer is: Jan has absolute and comparative advantages in pressing cider.
Question 11 of 30
Multiple Choice: Please select the best answer and click "submit."
A technological breakthrough lowers the cost of manufacturing VCRs. As a result, the market changes to a
new equilibrium because of a (an):
B. shortage of VCRs.
Feedback
The correct answer is: rightward shift in the supply curve for VCRs.
Suppose prices for new homes have risen, and sales of new homes have also risen. We can conclude that:
Feedback
The correct answer is: the demand for new homes has risen.
E. both hold all variables constant and ignore all other factors.
Feedback
The correct answer is: hold all variables constant.
If the equilibrium wage in the labor market is $8.00, but the government imposes a minimum wage of
$10.00, there will be:
A. less unemployment because, with the higher wage, more people will want to work.
B. less unemployment because employers will want to hire more people.
C. more unemployment because, with the higher wage, fewer people will need to work.
Feedback
The correct answer is: more unemployment because employers will want to hire fewer people.
Suppose a price ceiling is set by the government in a market. Which of the following will result?
A. The demand curve will shift to the left.
Feedback
The correct answer is: The quantity demanded will exceed the quantity supplied.
Money acts as a rationing device for goods and services in a market economy. This means:
A. consumers who are willing and able to pay for a good are usually able to get the good.
B. consumers who place the highest value on a good always get the good.
C. the price of a good increases as the resources available to make the good increase.
D. an increase in the price of a good always means consumers value the good more.
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The correct answer is: consumers who are willing and able to pay for a good are usually able to get the good.
B. technology advances.
C. both most of the resources in the nation are used to produce capital goods, and technology advances.
D. most of the resources in the nation are used to produce consumer resources.
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Correct!
A. $400/week.
B. $440/week.
C. $840/week.
Question 20 of 30
Multiple Choice: Please select the best answer and click "submit."
The government of Labouria is considering increasing the tax on cheese from $3/pound to $4/pound. What
will this do to the revenues from this tax?
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The correct answer is: It will definitely decrease tax revenue if demand for cheese is elastic.
An economic system characterized by choices based on the decisions of central planners is:
A. a market economy.
C. a traditional economy.
D. a command economy.
E. a definitional economy.
Feedback
The correct answer is: a command economy.
All other things being equal, the effect of a decrease in the price of soda pop would cause which of the
following?
Feedback
Correct!
Ceteris paribus, which of the following would cause a decrease in the demand for film?
E. Increase in supply
Feedback
The correct answer is: Increase in the price of cameras.
B. Enforce laws
C. Set prices
D. Establish laws
Feedback
The correct answer is: Set prices.
E. at least one party to the trade will be better off, even if the other is
worse off.
Question 27 of 30 Feedback
Multiple Choice: Please select the best The correct
answer and click "submit." answer is: price
If demand and supply both increase: may either rise
or fall,
A.
depending on
supply curve shifts rightward and the demand curve shifts leftward.
which shift is
larger.
B. the quantity exchanged may either rise or fall. Click Next to
Continue
Question 28 of 30
Multiple Choice: Please select the best answer and click "submit."
When trade barriers between two nations, such as quotas and tariffs, are removed:
Feedback
The correct answer is: economic wealth will increase for both nations.
Question 30 of 30
Multiple Choice: Please select the best answer and click "submit."
A. If you see a nation producing at a point on its PPF, its economy is using its resources efficiently.
B. If you see a nation producing at a point outside the PPF, its economy is using its resources inefficiently.
C. If you see a nation producing at a point on its PPF, its production of one good may be increased without
decreasing the production of the other good.
D. If you see a nation producing at a point within its PPF, the production of one good may be increased only
by decreasing the production of another good.
A. Financial intermediaries
B. Households
C. Firms
D. Government
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Correct! The factors of production are land, labor, and capital, all of which are owned by households.
A. Financial intermediaries
B. Government
C. Firms
D. Households
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Correct! Firms rent factors of production from households.
A. Government
B. Households
C. Firms
D. Financial intermediaries
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Correct! Money is lent by households to financial intermediaries in the form of savings.
A. Households
B. Firms
C. Government
D. Financial intermediaries
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Correct! Financial intermediaries bring together households that lend money and firms that borrow money.
C. Land is rented.
B. Capital is invested.
C. Interest is paid.
Answer: 100
Question 9 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use this diagram to solve questions 8 through 10.
Answer: 100
Feedback
The correct answer is: 100.
Answer: 400
Feedback
The correct answer is: 400.
A. Savings
B. Imports
C. Taxes
D. Investments
Feedback
That is incorrect; the correct answer is: Investments.
A. Consumption
B. Savings
C. Exports
D. Investment
Feedback
That is incorrect; the correct answer is: Savings.
A country's firms import $20 million worth of raw materials and export $25 million worth of goods. What
impact does this have on GDP?
A. It's indeterminate.
B. It doesn't change.
C. It increases.
D. It decreases.
Feedback
That is incorrect; the correct answer is: It increases.
What is the GDP for a country when C = $25 million, S = $1 million, T = $3 million, M = $3 million, and
X = $2 million?
Write your answer in millions of dollars. For example, 5 million dollars would be written "5".
Answer: 28
Feedback
That is incorrect; the correct answer is: 28 million.
In 2000, a country had consumption of $50 million, savings of $2 million, taxation of $3 million, and
imports of $7 million.
If the GDP for that country was $51 million, what was the value of its exports?
Write your answer in millions of dollars. For example, 5 million dollars would be written "5".
Answer: 3
Feedback
That is incorrect; the correct answer is: 3 million.
Use the information below and the data in the table to answer questions 6 through 10.
Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.
Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
Based on the data in this table, which one of the following decreased from 2005 to 2006?
A. Nominal NDP
B. Real NDP
C. NGDP
D. RGDP
Feedback
That is incorrect; the correct answer is: RGDP.
Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.
Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
How much did RGDP increase from 2006 to 2007, using 2004 as the base-price year?
Answer: 500
Feedback
That is incorrect; the correct answer is: 500.
Click Next to Continue
Question 8 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the information below and the data in the table to answer questions 6 through 10.
Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.
Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
If the price of gamza and borjin rose by 10% from 2004 to 2005, but the price of sladke remained the same,
what was the difference between NGDP and RGDP in 2005?
Answer: 349
Feedback
That is incorrect; the correct answer is: 349.
Use the information below and the data in the table to answer questions 6 through 10.
Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.
Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
Nominal GDP would have increased from 2005 to 2006 if which of the following had happened?
A. The price of imported goods had decreased by 10% per year from 2004 through 2006.
B. The machines used to produce sladke had not depreciated from 2004 through 2006.
C. The price of all three goods rose by 10% per year from 2004 through 2006.
D. The rate of inflation in Vidinstan was below 1% per year from 2004 through 2006.
Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the information below and the data in the table to answer questions 6 through 10.
Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.
Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
The machines used to produce sladke depreciated by $200 from 2006 to 2007, and the price for sladke was
$12 per ton in 2007. The prices for gamza and borjin were $3 per liter and $0.75 per unit, respectively.
What is the nominal NDP for 2007?
Answer: 6724
Feedback
That is incorrect; the correct answer is: 6724.
Feedback
The correct answer is: short-run and long-run growth. When deciding how to use income, households have a choice:
spend it or save it. If they spend it, it becomes income for someone else, causing growth now. If they save it, it becomes
available funds for investment, increasing future productivity and causing growth in the future.
Two sources of economic growth are related to investment. One of them is technological advancement.
What is the other?
A. Increased capital.
B. Increased land.
C. Increased labor.
D. Increased prices.
E. Increased output.
Feedback
The correct answer is: increased capital. Investment is purchase of capital goods, and more capital results in an increase
in the PPFfor an economy.
A. The value by which a firm's stock decreases over the course of a year.
B. n approximate measure for the difference between GNP and GDP.
C. he approximation of a value for wear and tear that capital goods sustain over the course of a year.
Feedback
The correct answer is: the approximation of a value for wear and tear that capital goods sustain over the course of a
year. As capital goods get older they're worth less and less. This is taken into account in calculating economic statistics
by including a value for depreciation.
B. Real GDP takes depreciation into account, nominal GDP does not.
C. Nominal GDP takes depreciation into account, real GDP does not.
D. Nominal GDP is calculated in constant prices, real GDP is calculated with changing prices.
E. Real GDP is calculated in constant prices, nominal GDP is calculated with changing prices.
Feedback
The correct answer is: real GDP is calculated in constant prices, nominal GDP is calculated with changing prices. If
prices increase but production remains constant, real GDP would decrease and nominal GDP would increase. Real
GDP numbers allow for comparisons across time as prices change.
A. Inventory.
B. Technology.
D. Human capital.
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The correct answer is: research and development. Research and development (R & D) refers to the money businesses
spend to create new products, new production processes, and new ideas. Successful R & D can pay off really well. But
that usually takes time, money, and lots of luck.
If the United States sells $100 worth of grain to the rest of the world and buys $80 worth of watches from
the rest of the world, net exports for the United States are:
A. $100..
B. $80.
C. $20.
D. $8,000.
E. -$20.
Feedback
The correct answer is: $20. Net exports are the value of goods and services exported from the United States ($100)
minus the value of goods and services imported into the United States ($80).
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The correct answer is: owners of factors of production. Income is earned by those who own factors of production. This
includes workers, who own their labor, landowners, landlords, shareholders in a company, and owners of natural
resources.
Which of the following are part of the circular flow and considered injections?
Consider consumption (C), government expenditures on goods and services (G), investment (I), imports
(M), household savings (S), tax payments (T), and exports (X). Keeping in mind the two methods of
calculating GDP, which of the following is an accurate equation?
A. I+G+X=S+M
B. I+G+X=S+T+M
C. I+S=G+T
D. C+I+G+X=S+T+M
E. I+G+X=C+S+T+M
Feedback
The correct answer is: I + G + X =S + T + M. This equation sets injections (I + G + X) equal to leakages (S + T + M).
This equation comes about after setting total expenditure equal to total income and canceling the consumption
component on both sides.
The savings of all sectors of the economy will always be equal to:
A. Consumption.
B. Total expenditure.
C. Investment.
Feedback
The correct answer is: investment. By rearranging the equation that illustrates that leakages are equal to injections
(I+ G + X = S + T + M) we find that investment (I) is equal to the sum of household savings (S), government savings
(T - G), and rest of world savings (M - X). So, I= S + (T - G) + (M - X).
Question 2 of 15
Multiple Choice: Please select the best answer and click "submit."
A ski instructor out of work during the summer months is an example of which type of unemployment?
A. Cyclical unemployment.
B. Frictional unemployment.
C. Structural unemployment.
D. Voluntary unemployment.
E. Seasonal unemployment.
Feedback
The correct answer is: seasonal unemployment. Seasonal unemployment occurs when the employment is temporary.
(An example is construction. Construction work is often restricted to the better weather of summer, or the amount of
work available decreases in the winter.)
If a sizable number of workers were switched from full-time to half-time employment, the official
unemployment rate would:
A. Rise a little.
B. Fall.
C. Remain unchanged.
D. React unpredictably.
E. Double.
Feedback
The correct answer is: remain unchanged. Full-time and part-time workers are viewed the same for unemployment
purposes. Underemployment isn't accounted for. Therefore, the rate would remain unchanged with this change.
B. Increase in the number of unemployed persons relative to the size of the labor force.
C. Increase in the size of a nation's population with no change in the number of persons classified as
unemployed.
D. Reduction in the size of the labor force and the number of unemployed decreases.
Feedback
Correct. An increase in the number of unemployed persons relative to the size of the labor force would increase the
unemployment rate. The unemployment rate is the ratio of the number of people unemployed to the number of people
in the labor force. This is the percentage of the workforce currently not working but also actively looking for a job. A
relatively larger increase in the number of unemployed people compared to an increase in the size of the labor force
makes this ratio larger.
B. High wages.
C. Unemployment compensation.
D. High inflation.
E. Improved allocation of labor when workers who experience unemployment change to a different job.
Feedback
The correct answer is: improved allocation of labor whenever workers who experience unemployment change to a
different job. A possible reason for unemployment is that some workers may not be needed in specific industries. These
unemployed workers can shift from that industry to another one where they can use their skills. Whenever workers who
experience unemployment change to a different job, there's an improvement in allocation of labor.
A. Cyclical.
B. Frictional.
C. Voluntary.
D. Structural.
E. Permanent.
Feedback
The correct answer is: structural. This is an example of structural unemployment, since it's caused by changes in the
structure of the economy. The structure of an economy influences many things, including what types of goods are
produced. Since Julia has lost her job due to a budget cut, this would be considered structural unemployment.
Click Next to Continue
Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."
B. They move in exactly the same way and with the same magnitude.
Feedback
The correct answer is: they move in opposite directions. Real GDP and the unemployment rate tend to move in
opposite directions. That's because labor is an input to production, and the unemployment rate measures the amount of
labor an economy is utilizing. The unemployment rate tends to increase when real GDP decreases and decrease when
real GDP increases. Therefore, recessions are generally times of high unemployment, and expansions are generally
times of low unemployment.
Which of the following statements would come from someone classified as unemployed?
B. I'm not working. I had three interviews this week, and I'm trying to find a job.
C. I'm a full-time student at the University of Illinois and don't have time to work.
E. I haven't had a job in a year, and I stopped looking for a job nine months ago.
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The correct answer is: I'm not working. I had three interviews this week, and I'm trying to find a job. This person would
be considered unemployed since he or she is actively seeking a job. An unemployed person is a member of the labor
force who is actively seeking employment, but is unable to find work.
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The correct answer is: present in any dynamic economy. Frictional unemployment is present in any dynamic economy.
People will always move, change careers, or just look for better opportunities. Therefore, due to frictional
unemployment, some level of unemployment will always be present in any dynamic economy.
B. There is a rough balance between the number of jobs available and the number of qualified job applicants.
Feedback
The correct answer is: there is a rough balance between the number of jobs available and the number of qualified job
applicants. When the economy is operating at full employment, there's a rough balance between the number of jobs
available and the number of qualified job applicants. Full employment is the level of employment (or unemployment)
at which the economy is said to be fully employed. In an economy, some level of unemployment will always result
from structural and frictional unemployment, but cyclical unemployment rate will be zero at the full-employment level.
This means there will be a rough balance between the number of jobs available and the number of qualified job
applicants.
Question 12 of 15
Multiple Choice: Please select the best answer and click "submit."
Sally lost her job when her company went out of business because of a recession. This is an example of:
A. Cyclical unemployment.
B. Structural unemployment.
C. Frictional unemployment.
D. Seasonal unemployment.
E. Technological unemployment.
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Yes! Cyclical unemployment occurs when the economy slows, production decreases, and less labor is required.
B. The leading economic indicators are unchanged for two consecutive quarters.
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The correct answer is: the rate of cyclical unemployment is zero. In an economy, some level of unemployment will
always result from the structure of the economy?structural unemployment. In addition, some level of unemployment
will always result from people changing jobs?frictional unemployment. The economy is said to be at full employment
when the cyclical unemployment rate is zero. Unemployment, however, isn't zero, since there's still structural and
frictional unemployment.
According to most economists, the United States is at full employment when the unemployment rate is
about:
A. 0 percent.
B. 1 percent.
C. 7 percent.
D. 3 percent.
E. 5 percent.
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The correct answer is: 5 percent. Frictional and structural unemployment rates are fairly steady and add up to about 5%
of the workforce. Most of the time, data on seasonal unemployment is smoothed out of the unemployment rate, so we
don't see huge seasonal fluctuations in unemployment.
If top government officials claim that more people are working now than ever before, which of the
following must be true?
A. The number of people employed is higher now than ever before.
D. The number of people in the labor force is higher now than ever before.
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Correct. The number of people employed is higher now than ever before. As more people start working the number of
people employed increases.
Question 1 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
What is the total cost of this basket of goods in 2006?
Answer: 200
Feedback
That is incorrect; the correct answer is: $200.
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
What is the cost of the basket of goods in 2007?
Answer: 211.25
Feedback
That is incorrect; the correct answer is: $211.25.
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If you use 2006 as the base year, what is the price level in 2007 (rounded to the nearest tenth)?
Answer: 105.6
Feedback
That is incorrect; the correct answer is: 105.6.
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
What was the inflation rate from 2006 to 2007 (rounded to the nearest tenth)?
Answer: 5.6
Feedback
That is incorrect; the correct answer is 5.6%.
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the basket had been adjusted in 2007 to reduce gasoline consumption to 28 gallons, what would be the
inflation rate from 2006 to 2007 (rounded to the nearest tenth)?
Answer: 1.8
Feedback
That is incorrect; the correct answer is: 1.8%
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
The basket was adjusted in 2007 to reduce gasoline consumption to 28 gallons. What is the price level for
2008 with this quantity (rounded to the nearest tenth)?
Answer: 94.8
Feedback
That is incorrect; the correct answer is: 94.8.
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the basket were adjusted again in 2008 to reflect the drop in gasoline prices and the subsequent rise in
consumption of that good — returning the quantity to its 2006 level of 30 gallons — what would the price
level be (rounded to the nearest tenth)?
Answer: 98.1
Feedback
That is incorrect; the correct answer is: 98.1.
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the market basket contained 30 gallons of gasoline in 2006 and 2008 but only 28 gallons of gasoline in
2007, what was the inflation rate from 2007 to 2008 (rounded to the nearest tenth)?
Answer: -3.6
Feedback
That is incorrect; the correct answer is: -3.6%.
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the basket contains 30 gallons of gasoline for all three years, what was the inflation rate from 2006 to
2007 (rounded to the nearest tenth)?
Answer: 5.6
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That is incorrect; the correct answer is: 5.6%.
Click Next to Continue
Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:
Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If you use the same basket quantities for all three years, what was the total inflation rate for the two-year
period from 2006 to 2008 (rounded to the nearest tenth)?
Answer: -1.9
Feedback
That is incorrect; the correct answer is: -1.9%.
Which of these is a component of the relatively low interest rate on a three-month U.S. government bond?
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That is incorrect; the correct answer is: Expected inflation rate.
Click Next to Continue
Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."
Which of these is a component of the interest rate on a 10-year inflation-indexed U.S. government bond?
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That is incorrect; the correct answer is: Positive rate of time preference.
Which of these is not a component of the interest rate on a 30-year U.S. government bond?
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Correct! Government bonds can be purchased by anyone with the money to do so, so there are no screening and
monitoring costs.
A. There is a greater supply of credit cards and a greater demand for government bonds.
B. All five of the interest rate components apply to credit card debt.
D. Credit cards are issued in a market different from the market for government bonds.
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That is incorrect; the correct answer is: All five of the interest rate components apply to credit card debt.
Which of these happens when there's decreasing uncertainty among firms about the future?
A. Interest rates increase.
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That is incorrect; the correct answer is: The quantity of borrowing increases.
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That is incorrect; the correct answer is: Interest rates decrease.
Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."
What happens when households expect the inflation rate to increase in the future?
Why do bonds with a B or C rating have a higher interest rate than bonds with a AAA rating?
D. They are mostly for investors with a low rate of time preference.
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That is incorrect; the correct answer is: They carry a greater risk of default.
Answer: 98
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Question 4 of 10 Feedback
Answer: 40000Question 5
of 10
Fill in the blank: Type your answer in the box and then click "submit."
What was Kylie's real wage (rounded to the nearest dollar) in 2004?
Answer: 30769
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That is incorrect; the correct answer is: $30,769.
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Question 6 of 10 Feedback
Answer: 2564
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Question 7 of 10
Fill in the blank: Type your answer in the box and then click "submit."
What would Kylie need to earn in 2006 for her real wage to remain at its 2005 level?
Answer: 46666
Feedback
That is incorrect; the correct answer is: 46,666.
Use the information in the table below to answer questions 8 through 10.
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That is incorrect; the correct answer is: $2.26.
Use the information in the table below to answer questions 8 through 10.
Answer: 0.25
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That is incorrect; the correct answer is: $0.25.
Use the information in the table below to answer questions 8 through 10.
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That is incorrect; the correct answer is: from 2004 to 2005.
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The correct answer is: all of the above. Even correctly anticipated inflation can be costly if it's huge. In an economy
that's experiencing inflation rates over 100% per year, prices are more than doubling each year. This is called
hyperinflation. People's behavior changes a lot as they try to avoid holding money, since money is losing its purchasing
power so quickly. Wages are paid daily, and workers rush to turn their wages into purchases. Loans aren't made, so
borrowing doesn't occur.
Click Next to Continue
Question 2 of 15
Multiple Choice: Please select the best answer and click "submit."
Inflation measures:
D. Consumer confidence.
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The correct answer is: the percentage change in the CPI from one year to another. Inflation is the percentage change in
the price index from one year to another. If we know the CPI for two years, we can calculate the inflation that occurred
between them.
A. Interest rate.
B. Real GDP.
C. CPI.
D. GDP.
A. Increases.
B. Doubles.
D. Decreases.
E. Eliminates.
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The correct answer is: decrease. Inflation decreases the purchasing power of money. If the general price of everything
goes up (inflation), a dollar will buy less (purchasing power will decrease).
Click Next to
E. All of the above. Continue
Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."
A. Inflation.
B. Nominal GDP.
C. Real GDP.
D. The price level.
E. CPI.
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The correct answer is: real GDP. Chaining is a process that calculates average growth rates between successive years.
The growth rates between years are then added together, like links in a chain, to find real GDP for any year.
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The correct answer is: the business sector. Most investment spending is done by firms. The government does invest in
capital, but businesses invest far more.
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The correct answer is: lower; the borrower. Lower inflation means that the dollars used to repay a loan have more
purchasing power, so the borrower is worse off.
If there has been inflation since the base year, then the CPI is now:
A. More than 100.
C. 100.
D. Unknown.
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Yes! With inflation, the general price level has increased since the base year, indicating that the CPI is now more than
100.
A. U.S. Bank..
C. Bank of America.
D. Seafirst.
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The correct answer is: none of the above. The U.S. Treasury is the bank for the federal government. Paychecks for
federal employees come from the U.S. Treasury. The Treasury also holds deposits, makes payments, and issues loans
for the federal government.
B. Raise prices.
D. Lose money.
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The correct answer is: invest in fewer capital goods. Interest is an additional payment by the firm for borrowing funds.
Therefore, the higher the interest rate, the more expensive it is to buy capital goods. So, to decide whether a capital
investment is worthwhile, a firm considers the interest rate. The higher the cost, the less likely the firm is to make those
capital investments.
Click Next to Continue
Question 13 of 15
Multiple Choice: Please select the best answer and click "submit."
A mutual fund:
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The correct answer is: spreads risk among many people. All mutual funds share the same basic idea. The fund takes the
savings of a number of people and groups them all together. Then, the money is used in different ways, with the goal of
earning a profit on it. By grouping their savings together, investors in the mutual fund are able to spread their risk
because they can buy a wider diversity of stocks, bonds, or other things.
Even if inflation is correctly anticipated, costs due to inflation are still incurred. One such cost is called a:
A. Average cost.
B. Fixed cost.
C. Marginal cost.
D. Menu cost.
E. Opportunity cost.
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The correct answer is: menu cost. Costs due to inflation, even when it is correctly anticipated, are called menu costs.
Menu costs are money that businesses spend to update their pricing information when there's a price increase. For
example, a restaurant might print new menus, or a company might print a new catalogue. If prices are posted, the
business might need to make new signs or update its Web pages.
A. 1966.
B. 1900.
C. 1982.
D. 2012.
E. 2000.
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The correct answer is: 1982. Once the market basket is set, it remains the same for several years. The current base year
for the CPI is 1992. We don't change the items in the market basket from year to year because we want to track changes
in prices. And to track changes in prices, we need to look at the same goods and services each year.
In a capitalist economy the lenders are usually _____ and the borrowers are usually ______.
A. households, firms
E. firms, households
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Correct!
Looking at the flows of income and expenditure into and out of households, we get the equation:
A. Y = C + I + T + (X - M)
B. Y = C + I + G + NX
C. Y=C+S+T
D. Y=C+S-T
E. I = S + (T - G) + (M - X)
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The correct answer is: Y = C + S+ T.
B. the quantity of all final goods and services produced in an economy in one year.
C. the quantity of all goods and services produced in an economy in one year.
E. the value of all goods and services produced in an economy in one year.
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Correct!
A. Real GDP
B. Nominal GDP
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The correct answer is: Real per capita GDP.
Question 6 of 30
Multiple Choice: Please select the best answer and click "submit."
If all prices double but the quantity of final goods and services in a country remains the same:
E. both RGDP and NGDP will increase by about 50%, so the overall effect will be a doubling.
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The correct answer is: NGDP will double, but RGDP will remain unchanged.
If the basket of goods used to calculate the CPI is changed to reflect substitution to lower priced goods by
consumers, it would result in:
B. either higher or lower calculated inflation rates, depending on how different prices change relative
to each other.
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The correct answer is: a lower calculated inflation rate.
One way that the problem of double counting when calculating GDP is solved is to:
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Correct!
Assume that the population is 500 million, the labor force is 200 million, and 180 million people are
employed. Then the unemployment rate is:
A. 5%
B. 4.5%
C. 8%
D. 10%
E. 9%
Feedback
The correct answer is: 10%.
A. Y=C+I+G+X-M
B. Y=C+S+T
C. T+S+X=G+I+M
D. T+I+M=C+G+I+X
E. T+S+M=G+I+X
Feedback
The correct answer is: T + S + M= G + I + X.
Real GDP per capita is an imperfect measure of the standard of living in a country because:
A. it fails to include the value of entertainment expenditures.
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The correct answer is: it fails to include the value of unreported economic activities.
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The correct answer is: money flows from households to firms for goods and services.
A. $23,680
B. $21,632
C. $10,483
D. $31,250
E. $32,000
Feedback
The correct answer is: $32,000.
A. cyclically unemployed.
C. structurally unemployed.
D. frictionally unemployed.
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The correct answer is: frictionally unemployed.
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The correct answer is: a large trade deficit leads to greater savings by foreigners.
A. The number of people in the labor force is higher now than ever before.
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The correct answer is: The number of people employed is higher now than ever before.
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The correct answer is: U.S. GNP and Bulgarian GDP.
A. I = S + (T - G) + (X - M)
B. Y=C+S+T
C. Y = C + I + G + NX
D. Y = C + I + G + NX,
Y = C + S + T,
and I = S + (T - G) + (X - M)
E. Both Y = C + I + G + NX and Y = C + S + T
Feedback
The correct answer is: Y = C + I +G + NX.
In 1996, the price level was 148, and Bob's nominal income was $29,600. In 1997, the price level was 152.
If Bob's real income didn't change, his nominal income in 1997 would have to be:
A. $19,474
B. $20,000
C. $32,895
D. $30,400
E. $31,650
Feedback
The correct answer is: $30,400.
If the consumer price index (CPI) in one year was 200 and in the next year it was 215, the rate of inflation
was:
A. 115%.
B. 215%.
C. 15%.
D. 7.5%.
E. about 8%.
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The correct answer is: 7.5%.
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Question 21 of 30
Multiple Choice: Please select the best answer and click "submit."
Which of the following is not a weakness of the unemployment rate as an economic measurement?
A. Highly skilled people working in unskilled positions are counted the same as highly skilled people in
highly skilled positions.
C. People with part-time jobs are counted the same as those who have full-time jobs.
Feedback
The correct answer is: People in the military are not included in the labor force.
A. Workers.
B. Employers.
C. Lenders.
D. Borrowers.
E. Retirees.
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The correct answer is: Borrowers.
A. firms.
B. financial intermediaries.
C. households.
D. the government.
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The correct answer is: households.
A. demand-pull inflation.
B. zero unemployment.
C. cost-push inflation.
Question 25 of 30
Multiple Choice: Please select the best answer and click "submit."
If a sizable number of workers were switched from full-time to part-time employment, the official
unemployment rate would:
A. rise.
B. react unpredictably.
C. remain unchanged.
D. fall.
C. The price of a new pair of pants that a local tailor makes for you
Feedback
The correct answer is: The price of a new truck bought by a local delivery service business.
A. high levels of frictional unemployment, and normal levels of cyclical and structural unemployment.
B. low levels of frictional unemployment, and normal levels of structural and cyclical unemployment.
C. low levels of structural and frictional unemployment, and normal levels of cyclical unemployment.
D. normal levels of cyclical, structural, and frictional unemployment.
E. low levels of cyclical and frictional unemployment, and normal levels of structural unemployment.
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The correct answer is: low levels of cyclical and frictional unemployment, and normal levels of structural
unemployment.
Which of the following is not one of the four sectors of the economy?
B. Firms
C. Households
D. Financial intermediaries
E. The government
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The correct answer is: Financial intermediaries.
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Correct!
Question 30 of 30
Multiple Choice: Please select the best answer and click "submit."
The annual interest rate of a loan generally increases as the loan period gets longer because:
A. the inflation rate will get higher every year.
B. there's greater uncertainty about future dates that are further away.
D. the opportunity cost of going without the money for a day is greater every day.
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The correct answer is: there's greater uncertainty about future dates that are further away.
Feedback
That is incorrect; the correct answer is: The price level increases.
Why does an increase in the price level lead to the real-balances effect?
A. Increasing price levels decrease the nominal supply of loanable funds.
C. Increasing price levels cut down on foreign demand for exported goods.
D. Increasing price levels reduce real wealth and cut down consumer spending.
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That is incorrect; the correct answer is: Increasing price levels reduce real wealth and cut down consumer spending.
B. Consumption
C. Investment
D. Net exports
Feedback
That is incorrect; the correct answer is: Consumption.
B. Investment
C. Net exports
D. Consumption
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That is incorrect; the correct answer is: Investment.
Which of these will increase when positive economic forecasts presented to business owners lead to
increases in productive capacity?
A. C
B. I
C. NX
D. G
Feedback
That is incorrect; the correct answer is: I.
Which of these will take place when the price level rises from 110 to 130?
A. Investment decreases, but RGDP increases.
Feedback
That is incorrect; the correct answer is: Consumption and RDGP both decrease.
Which of these will take place when the government cuts the budget?
A. Aggregate demand decreases.
C. Investment decreases.
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Correct! Government spending is one of the four components of aggregate demand.
Which of these situations would not lead to a shift in the AD curve, but would lead to a decrease in RGDP?
A. Price levels rise, causing households to cut back on spending.
C. The U.S. government dramatically reduces its spending in an attempt to reduce the national debt.
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Correct! When households spend less, that's a change in quantity demanded, not a shift in overall demand itself.
Why does a fall in stock prices shift the AD curve to the left?
A. Lower stock prices reduce household wealth, which results in lower consumption.
B. Lower stock prices lead to lower government revenues, which results in less government spending.
C. Lower stock prices decrease the exchange rate, which increases foreign demand for goods and
services.
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Correct! Lower stock prices reduce the value of savings held in the stock market.
Which of these would occur following new developments that would increase productivity in industries
using robots?
A. Production costs go down, decreasing aggregate demand.
Feedback
That is incorrect; the correct answer is: Investment goes up, increasing aggregate demand.
Which of these would lead to an increase in the full-capacity level of GDP in a future year?
A. A decrease in wage levels relative to price levels
Feedback
That is incorrect; the correct answer is: An increase in investment relative to consumption.
A. D
B. C
C. A
D. B
Feedback
That is incorrect; the correct answer is: B.
A. D
B. B
C. A
D. C
Feedback
Correct! At point D, it takes a large change in price level to increase output just a little.
Which statement describes the relationship between point A and point B on the AS
curve above?
Feedback
That is incorrect; the correct answer is: Workers' real income decreases.
Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."
A new environmental regulation prohibits extraction of a large oil reserve. What effect does this have?
Which of these would shift the AS curve to the left but not decrease the full-capacity level of the economy?
Which of these would shift the AS curve to the left and also reduce the full-capacity level of the economy?
B. A decrease in consumption
A. Point A
B. Point B
C. Point C
It would be impossible for point Bor point C to be full capacity. If the economy is producing at point B, it could
produce more, and the economy can't produce at point C.
Which of the following is not one of the pieces of the AS curve of an economy?
Feedback
The correct answer is: a downward-sloping section connecting the flat and steep sections. The AS curve slopes upward
(as any supply curve should). Therefore, there is no downward-sloping section to the curve.
Let's assume that recent oil prices are higher than normal. What effect will this have on AS?
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The correct answer is: theAS curve will shift to the left. Oil is used in many production processes. It's used to heat
office buildings, run machinery, fuel transportation, and so on. If the price of oil increases, the cost of producing many
goods increases as well?everything from corn on the cob to dental floss to wood furniture. An increase in the price of
oil will cause many firms to decrease production. The aggregate supply for the economy will decrease, and
the AS curveshifts to the left. When theAS curve shifts left, it means firms will be willing to produce fewer goods and
services at every price level than they would have before the shift.
A. Leave AD unchanged
B. A decrease in AD
C. An increase in AD
E. An unknown change in AD
Feedback
The correct answer is: an unknown change in AD. Decreases in C and I, coupled with an increase in G, could either
increase or decrease AD, depending on which effect is larger. Economists often call this uncertain result
"indeterminate."
There are three reasons the AD curve is downward sloping. When a higher price level decreases the
purchasing power of money saved, this is an example of the:
A. Real-balances effect.
Feedback
Yes! The higher price level decreases the purchasing power of money saved, so consumption falls and aggregate
quantity demanded falls.
How could production costs change to shift the AS curve from AS1 to AS2 in this graph?
E. Any change in production costs will cause a shift from AS1 to AS2.
Feedback
The correct answer is: production costs decrease. A decrease in production costs results in an increase in aggregate
supply. This increase is illustrated by a rightward shift in the AS curve. At every price level, producers are willing and
able to supply more goods and services.
A. The government decides to cut spending in order to decrease the national debt.
C. The Canadian government finds a large gold mine in Canada, and as a result, the government
eliminates taxes on Canadian citizens.
E. A decrease in the purchasing power of the United States dollar causes an increase in the price level.
Feedback
Yes! A decrease in G will cause the AD curve to decrease (shift to the left). AD is composed of the following
expenditures: householdconsumption (C), businessinvestment (I), government spending on goods andservices (G), and
netexports (NX). Changing any of these will change AD.
If the net change is positive, ADwill increase and the AD curve will shift right. If the net change is negative, AD will
decrease and the AD curve will shift left.
Changes in all the following except one will shift aggregate demand. Which one will not cause a shift in
aggregate demand?
A. Imports
B. Consumption
C. Investment
D. Exports
E. Prices
Feedback
The correct answer is: prices. A change in the price level will cause movement along an aggregate demand curve. A
shift of the AD curve (also called a change in aggregate demand) is caused by changes in the level of consumption,
investment, government expenditures, exports, or imports that aren't caused by a change in the price level.
If an economy is producing on the steep portion of the AS curve, large price increases have what effect on
output?
A. A large decrease.
B. A small increase.
C. No change.
D. A small decrease.
E. A large increase.
Feedback
The correct answer is: a small increase. When the economy is operating on the steep portion of the AS curve, it's
approaching full capacity. Full capacity is the maximum production possible as measured in terms of value of
production. So, as an economy gets closer and closer to producing the maximum value possible at fixed prices,
increases in the price level have less and less effect on output.
Feedback
The correct answer is: movement upward along the AS curve.Changes in the price level cause movement along
the AS curve.Increases in the price level cause movement upward along theAS curve, increasing the aggregate quantity
supplied.
Feedback
The correct answer is: it is producing the output with the highest value possible. Full capacity is the level of real GDP
that corresponds to the maximum value of production possible in an economy. When an economy is at full capacity, it's
using all its resources, and producing at the highest level of RGDP possible. It can't shift its resource use around to
produce at a higher level of RGDP.
A. A horizontal line.
B. An upward-sloping line.
C. A downward-sloping line.
D. A vertical line.
E. Full capacity cannot be drawn on a graph of aggregate supply.
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The correct answer is: a vertical line. At full capacity, output (or RGDP) is independent of the price level. That is,
output at full capacity is the same no matter what the price level is. Why is that? Because full capacity is the maximum
value of production possible in an economy. This is measured using fixed prices. So if the price level increases, it won't
change the value of production at full capacity. And no matter how high the price level increases, production can't
reach a level of RGDP past full capacity.
Let's say that consumer confidence hits its highest level in thirty years. This means consumers expect good
economic times in the future. What effect will this have on aggregate demand?
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The correct answer is: a rightward shift in the AD curve. Shifting theAD curve represents a change in aggregate
demand. An increase in aggregate demand is a shift to the right; a decrease in aggregate demand is a shift to the left.
Increasing consumer confidence will increase consumption and therefore increase aggregate demand.
Which of the following sectors of the economy is (are) not included in aggregate demand:
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The correct answer is: all of the above are included in aggregate demand. AD includes the spending of households,
businesses, the government, and the rest of the world. Algebraically, it's AD = C + I + G+ NX.
Feedback
The correct answer is: theAS curve to shift to the right. Technological improvements causes production costs to
decrease, shifting the AS curve to the right and increasing output. Technological improvements are a main source of
growth in an economy.
A. The AD curve illustrates the relationship between the price level and the combined value of products
and services desired by the different sectors of the economy.
B. The price level is on the horizontal axis of the graph for aggregate demand.
D. RGDP lies along the vertical axis of the graph for aggregate demand.
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Yes! Aggregate demand shows the relationship between the price level and the value of goods and services people in
an economy are willing and able to buy, measured in constant dollars. It's represented on a graph with the price level on
the vertical axis and the level of real GDP on the horizontal axis. The AD curve is downward sloping.
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The correct answer is: a rightward shift in the AD curve. Shifting theAD curve represents a change in aggregate
demand. An increase in aggregate demand is a shift to the right; a decrease in aggregate demand is a shift to the left.
A. Small changes in the price level have little or no effect on the amount of production in the
economy.
Which of these happens when the price level is below the equilibrium price?
Why does a higher-than-equilibrium price tend to return to the equilibrium price level?
D. There is growth in demand in one or more of the four sectors of the economy.
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Correct! When there is a higher-than-equilibrium price, supply is higher than demand, leading to lower prices.
What would be the effect if the U.S. dollar drops in value relative to other major foreign currencies?
What would be the effect if the federal government purchased a large number of planes, trains, and
automobiles?
A. Interest rates
B. Productive output
C. Price level
D. Investment by firms
Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."
During the Great Depression, the U.S. economy was functioning far below full capacity. At that time, what
would have been the effect of a large increase in government spending?
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That is incorrect; the correct answer is: A small increase in price levels and a large increase in RGDP.
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Correct! Business tax increases reduce aggregate supply, which brings down RGDP.
When an economy is functioning at close to full capacity, what is the effect of a small increase in nominal
wages?
A. A small increase in RGDP
Feedback
That is incorrect; the correct answer is: A large increase in the price level.
If both aggregate supply and aggregate demand increase, what else will definitely increase?
A. Nominal wages
B. Real output
C. Input costs
D. Price level
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That is incorrect; the correct answer is: Real output.
What happens when there's a small decrease in aggregate demand at the same time that there's a large
increase in aggregate supply?
A. Prices go down and output goes down.
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That is incorrect; the correct answer is: Prices go down and output goes up.
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Yes! Stagflation describes a situation of increasing price levels and decreasing real GDP. A famous period of
stagflation occurred in the U.S. during the 1970s.
A. point C.
B. point B.
C. point A.
E. Remains at point A.
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The correct answer is: shifts upward from point A to point D.Shifts in the AD curve result in movement along
the AS curve to a new equilibrium. The newAD curve intersects the originalAS curve at the new
equilibriumpoint D, resulting in a higher price level and greater output.
In equilibrium:
D. Aggregate supply is larger than aggregate demand, creating excess inventories for suppliers.
E. Aggregate demand is larger than aggregate supply, depleting inventories and minimizing storage
costs for producers.
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Yes! If an economy is in equilibrium, there is no pressure on prices to change. Unless some outside influence occurs,
prices will remain as they are indefinitely.
D. Shifts to point C.
E. Shifts to point D.
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The correct answer is: is at a greater level of output. Either of these shifts results in greater output. Taken together, they
add up to an even larger increase in output.
Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."
In the graph, the economy begins on AD1 and AS1 (in equilibrium at point A). If the country simultaneously
experiences an oil embargo and suddenly goes to war, then equilibrium in this economy will:
A. Shift to point D.
B. Shift to point B.
C. Remain at point A.
D. Shift to point C.
Suppose a nation begins in equilibrium at point A, but then goes to war. This results in greater government
spending, moving the economy to point C. At the same time, the government undertakes a campaign to get
many more people in the workforce. If the campaign succeeds, what point does the economy move to?
A. Shifts to point B
B. Stays at point C
C. Returns to point A
D. Shifts to point D
In the graph below, the nation's economy begins on AD1 and AS1 (in equilibrium at point A). If there's an oil
embargo (a foreign oil supplier reduces or cuts off its flow of oil to the nation), then equilibrium in this
economy:
A. Remains at point A.
B. Shift to point B.
C. Shift to point C.
D. Shift to point D.
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Yes! Stagflation describes a situation in which the price level rises and real GDP falls. If there are increases
in AS and AD, real GDP will certainly rise. If the increase in AS is large and the increase in AD is small, this will cause
the price level to fall. The combination of rising real GDP and falling price level is the opposite of stagflation.
Feedback
The correct answer is: aggregate supply increases. When production costs decrease, aggregate supply increases. This
means that the AS curve shifts to the right, leading to increased real GDP and lower price levels.
What is the primary difference between a graph of AD/AS equilibrium in the short run and in the long run?
A. Long-run AS is vertical.
B. Long-run AD is upward sloping.
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Yes! The long-run aggregate supply curve is a vertical line, which is very different from the upward-sloping AS curve
of theshort-run AD/AS model.
B. Have the largest effect on the quantity of output when the economy is well below full capacity.
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The correct answer is: all of these are correct. A negative demand shock shifts the AD curve to the left, decreasing
output and the price level. The economy adjusts along the AS to a new equilibrium. The change in equilibrium output is
larger when the AS curve is flatter.
Question 14 of 15
Multiple Choice: Please select the best answer and click "submit."
In the Great Depression of the 1930s, price levels fell and real GDP fell. This must have been:
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The correct answer is: the result of a demand shock. If price levels and real GDP both move in the same direction, this
implies that a demand shock has affected the economy. In this case, aggregate demand declined.
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Continue
Economic news leads U.S. households to expect a recession. What happens to the AD/AS model in the
short term as a result of this news?
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That is incorrect; the correct answer is: A decrease in aggregate demand.
Economic news leads U.S. households to expect a recession. What is the short-run effect of this news?
D. An increase in RGDP
Feedback
That is incorrect; the correct answer is: A decrease in the price level.
Economic news leads U.S. households to expect a recession. What is one of the effects of the decrease in
aggregate demand that results from news of a recession?
Feedback
That is incorrect; the correct answer is: A reduction in nominal wages.
Consider a long-run situation in which a legal change reduces the bargaining power of labor unions, but
price level and RGDP then have time to return to the same level as before the change. Why do both the
price level and RGDP return to the same level in the long run?
A. When the price level falls after a rise in AS, government spending increases, moving the AD curve to
the right.
B. When RGDP rises after a rise in AS, exports increase, moving the AD curve to the right.
C. When RGDP rises after a rise in AS, unemployment falls, bringing up wages and decreasing AS again.
D. When the price level falls after a rise in AS, the long-run aggregate supply curve shifts to the right.
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That is incorrect; the correct answer is: When RGDP rises after a rise in AS, unemployment falls, bringing up wages
and decreasing AS again.
The U.S. government passes a law that reduces the length of the work week to 30 hours but requires that
each worker is still paid what he or she previously made per week. What would be the long-term impact of
the shortened work week?
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Correct! The LRAS curve shifts to the left in the long run, making the long-run effect the same as the short-run effect.
One of the primary limitations of the long-run AD/AS model of equilibrium is:
E. changes in aggregate demand do not allow identification of the long-runequilibrium level of output.
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The correct answer is: it is a static model, so it shows moments in time. As a static model, it is unable to explain how
the economy changes over time. For example, it shows the price level rather than the inflation rate, and the level of real
GDP at full employment rather than the natural rate of GDP growth.
A. Short-run equilibrium
D. Long-run equilibrium
An economy starts out in short-run and long-run equilibrium. If both short-run and long-run aggregate
supply increase, so that the economy remains in equilibrium:
B. The real level of output will rise, and the nominal level will fall.
C. The real level of output will fall, and the price level will rise.
D. The real level of output will rise, and the price level will rise.
E. The real level of output will rise, and the price level will fall.
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The correct answer is: the real level of output will rise, and the price level will fall. If both short-run and long-run
aggregate supply increase (meaning that the curves shift to the right) and the economy remains in equilibrium, it must
be that the price level is lower, and the real level of output will increase.
If an economy starts out in long-run equilibrium and people become more optimistic about the future of the
economy, this will lead to:
A. A decrease in real output, an increase in the price level, increasing wages, and an increase in real
output to return to long-run equilibrium.
B. A decrease in real output, a decrease in the price level, decreasing wages, and an increase in real
output to return to long-run equilibrium.
C. An increase in real output, a decrease in the price level, decreasing wages, and a decrease in real
output to return to long-run equilibrium.
D. An increase in real output, a increase in the price level, increasing wages, and a decrease in real
output to return to long-run equilibrium.
E. A decrease in real output, an increase in the price level, decreasing wages, and an increase in real
output to return to long-run equilibrium.
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The correct answer is: an increase in real output, a increase in the price level, increasing wages, and a decrease in real
output to return to long-run equilibrium. If people become more optimistic, this will increaseAD, which will lead to
increased real output and a higher price level. This will cause wages to increase (due to lower unemployment), which
will reduceAS and eventually reduce real output in the long run, returning the economy to long-run equilibrium.
A. structural unemployment.
B. frictional unemployment.
C. voluntary unemployment.
D. seasonal unemployment.
E. cyclical unemployment.
Question 6 of 15
Multiple Choice: Please select the best answer and click "submit."
If an economy begins in long-run equilibrium like that illustrated below, what effect will an increase in
government expenditures have on long-run equilibrium?
B. No effect
E. Increase in output
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Yes! An increase in government spending, G, will increase aggregate demand. This will cause an increase in the price
level, but not an increase in output in the long run. An output increase is possible in the short run, but in the long run
it's not. In the long run, the economy returns to the full-employment level of output.
Graphically, this is a shift of theAD curve to the right. In the long run, the economy adjusts to thefull-employment level
of RGDP, where the new AD curveintersects the LRAS curve at a higher price level.
When a typist is released from her job because the office workers where she works now use word
processors, it is an example of what type of unemployment?
A. Seasonal
B. Cyclical
C. Frictional
D. Structural
Let's say an economy begins in long-run equilibrium, as in this graph, and institutes an open-border
immigration policy, which increases the labor supply. Also assume that the increase in consumption caused
by the immigrants is offset by an identical increase in imports. Select a graph that shows how AD/AS would
be affected.
A.
B.
C.
D.
E.
None of the above.
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The correct answer is:
Increasing the supply of labor causes a rightward shift in long-run aggregate supply (an increase inLRAS). This will
shift equilibrium to a new point on the aggregate demand curve, one with a higher RGDP and lower price level.
A. horizontal.
B. vertical.
D. downward sloping.
E. upward sloping.
Feedback
The correct answer is: vertical. In the long-run, aggregate supply is determined by the capacity constraints and labor
supply of the economy, not by the price level. That means that in the long run, the AS curve is a straight, vertical line
rising up from the horizontal axis at the full-employment level of output.
If an economy begins in long-run equilibrium, like the one graphed here, where does it end up if there is a
sudden decline in consumer confidence? From the following graphs select the graph that illustrates this.
A.
B.
C.
D.
E.
The economy would remain at point E1.
Feedback
Yes! A decline in consumer confidence causes a decrease in consumption (one of the components of aggregate
demand) and, so, a decrease inAD. A decline in aggregate demand shifts the economy to a new equilibrium point on
theLRAS curve.
An economy starts out in short-run and long-run equilibrium. If both short-run and long-run aggregate
supply decrease, so that the economy remains in equilibrium:
A. The real level of output will rise, and the price level will fall.
C. The real level of output will rise, and the price level will rise.
D. The real level of output will rise, and the nominal level will fall.
E. The real level of output will fall, and the price level will rise.
Feedback
The correct answer is: the price level will increase, and the nominal level of output may either increase or decrease. If
aggregate supply decreases, this will lead to a decrease in the real level of output and an increase in the price level. This
may either cause nominal output to increase or decrease.
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The correct answer is: a zero percent cyclical unemployment rate. If the economy is at full employment, the cyclical
unemployment rate is zero. It doesn't mean that the unemployment rate is zero. Full employment is the highest level of
real GDP an economy can maintain without an increase in prices. At full employment, cyclical unemployment is zero,
but structural and frictional unemployment still exist.
B. Increase
C. Decrease
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Correct!
Question 2 of 30
Multiple Choice: Please select the best answer and click "submit."
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The correct answer is: An increase in aggregate supply.
A. to replenish the value of your real wealth, you would save less and consume more.
B. the interest rate falls, and people want to borrow more money.
D. the French, Canadians, Japanese, and citizens of other nations find our exports more attractive.
Feedback
The correct answer is: Americans tend to demand more foreign goods and services.
The total quantity of goods and services demanded by households, firms, foreigners, and government at
varying price levels is:
A. total demand.
B. aggregate demand.
C. aggregate expenditure.
D. total expenditure.
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The correct answer is: aggregate demand.
B. rises, United States products become more expensive, and foreigners buy fewer U.S. goods.
Feedback
The correct answer is: rises, interest rates rise, and people buy less.
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Question 6 of 30
Multiple Choice: Please select the best answer and click "submit."
E. A reduction in wages
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The correct answer is: A cut in income tax rates.
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Question 7 of 30
Multiple Choice: Please select the best answer and click "submit."
When the economy is in a severe recession, an increase in aggregate demand will lead to:
A. a big increase in the price level and a smaller increase in real GDP.
B. a big increase in real GDP and a smaller increase in the price level.
E. Both an increase in the long-run equilibrium level of output and a big increase in real GDP and a
smaller increase in the price level.
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The correct answer is: a big increase in real GDP and a smaller increase in the price level.
If the government cuts income taxes and the result is a big increase in output and a small increase in the
price level, then at both the original and new economic equilibrium points the:
D. aggregate supply curve must be steeper than the aggregate demand curve.
C. short-run aggregate supply curve is vertical at the full-capacity level of real GDP.
D. short-run aggregate supply curve is vertical at the full-employment level of real GDP.
E. aggregate demand curve gets steeper as real GDP increases.
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The correct answer is: short-run aggregate supply curve is vertical at the full-capacity level of real GDP.
If Canada is the most important trading partner of the United States, what effect will stagflation in Canada
have on aggregate demand in the U.S.?
C. It will increase aggregate demand in the U.S. if the decrease in Canadian output is large enough.
D. It will decrease aggregate demand in the U.S.
E. It will increase aggregate demand in the U.S. if the decrease in Canadian unemployment is very large.
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The correct answer is: The effect will be indeterminate.
B. Both the AS curve becomes very steep, but not quite vertical and decreases in wages are more likely
to cause a significant increase inAS.
C. decreases in wages are more likely to cause a significant decrease inAS.
Feedback
The correct answer is: the AScurve becomes very steep, but not quite vertical.
A. wage rates or interest rates decrease and the economy's price level remains unchanged.
E. the emigration rate is increased, and therefore there are fewer workers.
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Correct!
The aggregate supply curve has a significantly different curve or arc to it than the aggregate demand curve.
What is one of the key reasons for the different shape of the aggregate supply curve?
A. As an economy gets closer to full production capacity, even small increases in production become
very expensive, so prices have to rise much higher for each increase in production.
B. RGDP has different effects on the price level at different levels of production.
C. The price level has different effects on RGDP at different levels of production.
D. As an economy approaches full production capacity, it becomes much easier to produce more goods
without price increases.
E. None of these
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Correct!
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The correct answer is: the unemployment rate is high and the inflation rate is high.
Feedback
The correct answer is: Wages will rise as the economy moves toward long-run equilibrium.
A. a higher price level and more output in the short run, but only higher output in the long run.
B. a higher price level and more output in the short run, but only a higher price level in the long run.
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The correct answer is: a higher price level and more output in the short run, but only a higher price level in the long
run.
B. increasing price levels because producers must pay for the new equipment.
D. decreasing price levels because they reduce the amount of goods households can buy.
E. increasing output because they increase the amount that can be sold to other countries.
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Correct!
A shock that decreases input prices but doesn't increase the full-employment level of output will result in:
A. a lower price level in the short run and higher output in the long run.
C. greater output in the short run and no change in the price level in the long run.
D. greater output in the short run and a higher price level in the long run.
E. greater output in the short run and a lower price level in the long run.
Feedback
The correct answer is: greater output in the short run and no change in the price level in the long run.
B. A decrease in wages
Feedback
The correct answer is: Legislation limiting the workweek to 38 hours.
An economy that isn't at full employment will move toward long-run equilibrium as long as:
A. wages are free to rise or fall.
E. Both Output will increase as a result, and This will result from an increase in aggregate supply.
Feedback
The correct answer is: Output will decrease as a result.
B. shows the level of real GDP purchased in the economy at different possible price levels during a
period of time.
C. shows the level of real GDP produced in the economy at different possible price levels during a
period of time.
D. slopes upward.
E. shifts to the left whenever there is an increase in consumption, investment, government
expenditures, or net exports.
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The correct answer is: shows the level of real GDP purchased in the economy at different possible price levels during a
period of time.
A. interest rates rise because the real amount of money available for loans falls.
B. interest rates fall because the real amount of money demanded for loans falls.
C. interest rates rise because the real amount of money people want to borrow rises.
D. interest rates rise because the nominal amount of money available for loans falls.
E. interest rates fall because the nominal amount of money available for loans rises.
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The correct answer is: interest rates rise because the real amount of money people want to borrow rises.
When the U.S. government increased its spending during the Great Depression, there was no resulting
inflation because:
E. All of these
Feedback
The correct answer is: All of these.
If oil firms find a new method for obtaining oil from dry and depleted oil fields, we will see:
Feedback
The correct answer is: the AScurve shift to the right.
B. the economy may operate below full employment in the long run.
D. the automatic adjustment process by which changes in wages move theAS curve, shifting the
economy into long-run equilibrium, can't occur.
E. All of these.
Feedback
The correct answer is: All of these.
A. The increase in RGDP will be greater, but so will the increase in the price level.
B. The increase in RGDP will be greater, and the increase in the price level will be smaller.
C. The increase in RGDP will be smaller, but the increase in the price level will be larger.
D. The effects of the two projects will be identical as long as the amount spent is the same.
E. The increase in RGDP will be smaller and so will the increase in the price level.
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The correct answer is: The increase in RGDP will be greater, and the increase in the price level will be smaller.
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Question 30 of 30
Multiple Choice: Please select the best answer and click "submit."
Some say environmental regulations on businesses make production more costly. Others argue that these
regulations, though costly, also make producers look for opportunities to reduce waste in production
processes and might result in a cleaner environment and better production processes. If this second point of
view is correct, how do new regulations affect the economy?
A. Regulations will lead to increased output without increasing the price level.
Which model of the economy most accurately reflects what happened during the Great Depression?
A. Moderate
B. Classical
C. Keynesian
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That is incorrect; the correct answer is: Keynesian.
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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."
A. It shifts downward.
B. It gets flatter.
C. It gets steeper.
D. It shifts upward.
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Correct! A decrease in autonomous consumption decreases overall consumption. That shifts the function downward.
A. It shifts downward.
B. It shifts upward.
C. It gets steeper.
D. It gets flatter.
Question 4 of 10 Feedback
B. It shifts upward.
C. It gets steeper.
D. It shifts downward.
Question 5 of 10 Feedback
Answer: 70000
Bottom of Form
Question 6 of 10 Feedback
Answer: -1000
Bottom of Form
Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."
Which curve shows that investment demand is very sensitive to the interest rate?
A.
B.
C.
D.
Feedback
Correct! This graph shows that investment changes a lot while the interest rate changes only a little.
B. It will decrease.
C. It will increase.
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That is incorrect; the correct answer is: It will decrease.
What will happen to investment if future expectations improve and interest rates rise at the same time?
A. The answer is indeterminate.
C. It will increase.
D. It will decrease.
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Correct! When future expectations improve, investment goes up, but when interest rates rise, investment goes down, so
it's impossible to tell what the overall effect will be, given the movement in both directions.
If the quantity of capital going unused by firms decreases, what will happen to the amount of new
investment that firms will undertake?
A. There will be no change.
B. It will decrease.
C. It will increase.
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That is incorrect; the correct answer is: It will increase.
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That is incorrect; the correct answer is: 5.
Answer: 9
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That is incorrect; the correct answer is: 9.
a I G NX T
200 20 100 0 50
If aggregate expenditure (AE) is 600 when income is 610, what is the marginal propensity to consume?
Answer: 0.5
Feedback
That is incorrect; the correct answer is: 0.5.
a I G NX T
200 20 100 0 50
Answer: 725
Feedback
That is incorrect; the correct answer is: 725.
a b I G NX T
200 0.9 200 200 200 200
Answer: 10
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That is incorrect; the correct answer is: 10.
a b I G NX T
200 0.9 200 200 200 200
What is the equilibrium income in this situation?
Answer: 6200
Question 7 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the data in the table below to answer questions 5 through 7.
a b I G NX T
200 0.9 200 200 200 200
What would be the change in equilibrium income if autonomous consumption increased to 500?
Answer: 3000
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That is incorrect; the correct answer is: 3000.
Question 8 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the data in the table below to answer questions 8 through 10.
a b I G NX T
1000 0.75 200 300 100 200
Answer: 4
Feedback
That is incorrect; the correct answer is: 4.
Use the data in the table below to answer questions 8 through 10.
a b I G NX T
1000 0.75 200 300 100 200
Answer: 5800
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That is incorrect; the correct answer is: 5800.
Use the data in the table below to answer questions 8 through 10.
a b I G NX T
1000 0.75 200 300 100 200
What would be the change in equilibrium income if taxes were raised to balance the budget (so that G =
T)?
Answer: -300
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That is incorrect; the correct answer is: -300.