Econ Prelim Test Bank

The producer price index measures the cost of a basket of goods and services bought by firms rather than
consumers.
Select one:
True
False
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The correct answer is 'True'.
Question 2
Correct
1.00 points out of 1.00
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Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well
as an increase in taxes, then in the short run, real GDP will
a.
rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be unaffected.
b.
fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be unaffected.
c.
rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be lower.
d.
fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or
stay the same but real GDP will be lower.
Correct
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The correct answer is: fall and the price level might rise, fall, or stay the same. In the long run, the price
level might rise, fall, or stay the same but real GDP will be lower.
Question 3
Correct
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The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more
than expected, production is
a.
more profitable and employment and output rises.
Correct
b.
less profitable and employment and output rises.
c.
less profitable and employment and output falls.
d.
more profitable and employment and output falls.
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The correct answer is: more profitable and employment and output rises.
Question 4
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If real GDP doubles and the GDP deflator doubles, then nominal GDP
a.
quadruples.
Correct
b.
remains constant.
c.
triples.
d.
doubles.
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The correct answer is: quadruples.
Question 5
Incorrect
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When the market price is below the equilibrium price, suppliers are unable to sell all they want to sell.
Select one:
True
False
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The correct answer is 'False'.
Question 6
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National income differs from net national product because
a.
it excludes depreciation.
b.
of a statistical discrepancy.
Correct
c.
it includes transfer payments.
d.
it includes profits of corporations.
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The correct answer is: of a statistical discrepancy.
Question 7
Correct
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If a person expects the price of pumpkins to increase next month, then that person's current demand for
pumpkins will increase.
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True
False
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Question 8
Incorrect
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Figure 4-10
Refer to Figure 4-10. Which of the following movements would illustrate the effect of an improved
high-speed mixer that allows bakers to produce cakes in less time on the market for cakes?
a.
Point A to Point D
Incorrect
b.
Point A to Point B
c.
Point C to Point B
d.
Point C to Point D
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The correct answer is: Point C to Point D
Question 9
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Increased output and prices in the United States in the early 1940s were mostly the result of increased
government expenditures.
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True
False
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Question 10
Incorrect
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Table 23-2
The following table contains data for country Krugeveaux for the year 2019.
Household purchases of durable goods $1,574

Household purchases of nondurable goods $1,717
Household purchases of services $385
Household purchases of new housing $704
Purchases of capital equipment $310
Inventory changes $363
Purchases of new structures $611
Depreciation $117
Salaries of government workers $1,422
Government expenditures on public works $569
Transfer payments $777
Foreign purchases of domestically produced goods $88
Domestic purchases of foreign goods $140
Refer to Table 23-2. What was country Krugeveaux's investment in 2019?
a.
$7,603
b.
$3,676
Incorrect
c.
$1,988
d.
$1,991
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The correct answer is: $1,988
Question 11
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Individual supply curves are summed vertically to obtain the market supply curve.
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True
False
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Question 12
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The U.S. income tax system is completely indexed for inflation.
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True
False
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Question 13
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People are willing to pay more for a diamond than for a bottle of water because
a.
the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra
bottle of water.
b.
water prices are held artificially low by governments, since water is necessary for life.
c.
producers of diamonds have a much greater ability to manipulate diamond prices than producers of water
have to manipulate water prices.
d.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
Correct
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The correct answer is: the marginal benefit of an extra diamond far exceeds the marginal benefit of an
extra bottle of water.
Question 14
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Table 4-5
Quantity Supplied
Price
(Cases of water)
(Dollars per case)
Aqueduct Springs Basin Mountain Cascade Waters Drop Good
0.00 0 0 0 0
2.00 100 40 60 100
4.00 200 80 120 200
6.00 300 120 180 300
Refer to Table 4-5. If the four suppliers listed are the only suppliers in this market and the market
demand schedule is:
Price Quantity Demanded

(Dollars per case) (Cases of water)
0.00 350
2.00 300
4.00 250
6.00 200
The equilibrium price and quantity are
a.
$4.00 and 250 cases.
b.
Correct
c.
d.
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The correct answer is: $2.00 and 300 cases.
Question 15
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In the GDP accounts production equals
a.
income − imports.
b.
income − government expenditures.
c.
income.
Correct
d.
income + saving.
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The correct answer is: income.
Question 16
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When we move along a given supply curve,
a.
all determinants of quantity supplied are held constant.
b.
all nonprice determinants of supply are held constant.
Correct
c.
only price is held constant.
d.
technology and price are held constant.
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The correct answer is: all nonprice determinants of supply are held constant.
Question 17
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GDP includes the value of paper clips but does not also count the value of the metal used to make them.
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True
False
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Question 18
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Scenario 33-1
Suppose that political instability in other countries makes people fear for the value of their assets in these
countries so that they desire to purchase more U.S assets.
Refer to Scenario 33-1. What would the change in the exchange rate make happen to U.S. net exports
and U.S. aggregate demand?
a.
Net exports would fall which by itself would increase U.S. aggregate demand.
b.
Net exports would rise which by itself would decrease U.S. aggregate demand.
c.
Net exports would fall which by itself would decrease U.S. aggregate demand.
d.
Net exports would rise which by itself would increase U.S. aggregate demand.
Incorrect
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The correct answer is: Net exports would fall which by itself would decrease U.S. aggregate demand.
Question 19
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Figure 33-3
Refer to Figure 33-3. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2
a.
could be caused by an outbreak of war in the Middle East.
b.
causes the economy to experience stagflation.
c.
could be caused by a decrease in the expected price level.
d.
causes the economy to experience an increase in the unemployment rate.
Incorrect
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The correct answer is: could be caused by a decrease in the expected price level.
Question 20
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At the equilibrium price, buyers have bought all they want to buy, but sellers have not sold all they want
to sell.
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True
False
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Question 21
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Micheal, a U.S. citizen, travels to Jamaica and buys a newly manufactured motorcycle made there. His
purchase is included in
a.
Jamaica's GDP, but it is not included in U.S. GDP.
Correct
b.
neither Jamaica's GDP nor U.S. GDP.
c.
U.S. GDP, but it is not included in Jamaica's GDP.
d.
both Jamaica's GDP and U.S. GDP.
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The correct answer is: Jamaica's GDP, but it is not included in U.S. GDP.
Question 22
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Policymakers who influence aggregate demand can potentially mitigate the severity of economic
fluctuations.
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True
False
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Question 23
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All goods and services are sold in perfectly competitive markets.
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True
False
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Question 24
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Disposable personal income is the income that
a.
businesses have left after paying taxes and non-tax payments to the government.
b.
households have left after paying taxes and non-tax payments to the government.
Incorrect
c.
households and noncorporate businesses have left after paying taxes and non-tax payments to the
government.
d.
households and businesses have left after paying taxes and non-tax payments to the government.
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The correct answer is: households and noncorporate businesses have left after paying taxes and non-tax
payments to the government.
Question 25
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Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit
withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Abhijit’s
purchasing power has increased by 12 percent.
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True
False
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Question 26
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A shortage will occur at any price below equilibrium price and a surplus will occur at any price above
equilibrium price.
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True
False
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Question 27
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When the market price is above the equilibrium price, suppliers are unable to sell all they want to sell.
Select one:
True
False
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Question 28
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Figure 4-7
Refer to Figure 4-7. At what price would there be an excess supply of 400 units of the good?
a.
$35
b.
$25
Incorrect
c.
$30
d.
$40
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The correct answer is: $35
Question 29
Incorrect
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Economists use the term inflation to describe a situation in which the economy's overall production level
is rising.
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True
False
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Question 30
Incorrect
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Disposable personal income is the income that households and noncorporate businesses have left
after satisfying all their obligations to the government.
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True
False
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Question 31
Incorrect
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Who gets scarce resources in a market economy?
a.
Whoever the government decides gets them
b.
Whoever is willing and able to pay the price
c.
The government
Incorrect
d.
Whoever wants them
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The correct answer is: Whoever is willing and able to pay the price
Question 32
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GDP and GNP are identical when
a.
production by domestic producers in other countries is greater than production by foreign producers
domestically.
b.
exports and imports exactly balance.
c.
there are no taxes.
d.
all domestic production is by domestically owned producers and no foreign production is carried out by
domestic producers.
Correct
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The correct answer is: all domestic production is by domestically owned producers and no foreign
production is carried out by domestic producers.
Question 33
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Which of the following is an important cause of inflation in an economy?
a.
Lack of property rights in the economy
b.
Growth in the quantity of money in the economy
Correct
c.
The influence of positive externalities on the economy
d.
Increases in productivity in the economy
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The correct answer is: Growth in the quantity of money in the economy
Question 34
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One way that governments can improve market outcomes is to ensure that individuals are able to own and
exercise control over their scarce resources.
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True
False
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Question 35
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Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool
and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time
that the pool is open she can only choose one activity. This illustrates the basic principle that
a.
improvements in efficiency sometimes come at the expense of equality.
b.
people face tradeoffs.
Correct
c.
rational people think at the margin.
d.
people respond to incentives.
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The correct answer is: people face tradeoffs.
Question 36
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A worker in Thailand can earn $12 per day making cotton cloth on a hand loom. A worker in
the United States can earn $82 per day making cotton cloth with a mechanical loom. What is the likely
explanation for the difference in wages?
a.
Labor is more productive making cotton cloth with a mechanical loom than with a hand loom.
Correct
b.
Thailand has a low-wage policy to make its textile industry more competitive in world markets.
c.
United States textile workers belong to a union, whereas Thailand textile workers do not belong to a
union.
d.
There is little demand for cotton cloth in Thailand and great demand in the United States.
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The correct answer is: Labor is more productive making cotton cloth with a mechanical loom than with
a hand loom.
Question 37
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A farmer produces lemons and sells them to Fresh Juice, which makes lemon juice. The lemons produced
by the farmer are called
a.
final goods.
b.
inventory goods.
c.
transitory goods.
d.
intermediate goods.
Correct
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The correct answer is: intermediate goods.
Question 38
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The basic principles of economics suggest that
a.
government should never become involved in markets.
b.
government should become involved in markets when trade between countries is involved.
c.
markets are seldom, if ever, a good way to organize economic activity.
d.
government should become involved in markets when those markets fail to produce efficient or fair
outcomes.
Correct
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The correct answer is: government should become involved in markets when those markets fail to
produce efficient or fair outcomes.
Question 39
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When ranking movies by nominal box office receipts, what important fact is overlooked?
a.
Movies and DVD are complements.
b.
There are no good substitutes for movies currently.
c.
Prices, including those for movie tickets, have been rising over time.
Correct
d.
More people go to movies now than in the past.
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The correct answer is: Prices, including those for movie tickets, have been rising over time.
Question 40
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Table 24-3
The following table lists the per gallon prices of gas and milk for the months of September, October, and
November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month,
and that September is the base period.
Price of Gas Price of Milk

Month
(Dollars per gallon) (Dollars per gallon)
September 4.00 3.50
October 4.40 3.52
November 4.60 3.58
Refer to Table 24-3. What is the consumer price index for November?
a.
87.51
b.
95.79
c.
91.36
d.
114.27
Correct
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The correct answer is: 114.27
Question 41
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If the demand for a good falls when income falls, then the good is called an inferior good.
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True
False
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Question 42
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What basket of goods and services is used to construct the CPI?
a.
A random sample of all goods and services produced in the economy
b.
Only food, clothing, transportation, entertainment, and education
c.
The least expensive and the most expensive goods and services in each major category of consumer
expenditures
d.
The goods and services that are typically bought by consumers as determined by government surveys
Correct
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The correct answer is: The goods and services that are typically bought by consumers as determined by
government surveys
Question 43
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Scenario 24-1
Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he
earned $270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year.
Refer to Scenario 24-1. Mia's 1943 income in current year dollars is
a.
$424,200.
b.
$298,033.
Incorrect
c.
$39,900.
d.
$23,180.
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The correct answer is: $23,180.
Question 44
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The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
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True
False
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Question 45
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Figure 4-4
Refer to Figure 4-4.The movement from point A to point B on the graph is caused by
a.
a decrease in input prices.
b.
a decrease in the price of the good.
Incorrect
c.
an advance in production technology.
d.
an increase in the price of the good.
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The correct answer is: an increase in the price of the good.
Question 46
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The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost
of living; that problem is the problem of
a.
product-improvement bias.
b.
introduction of new goods.
Correct
c.
unmeasured quality change.
d.
substitution bias.
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The correct answer is: introduction of new goods.
Question 47
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As long as prices are rising over time, then
a.
the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of
your bank account is changing over time.
b.
the real interest rate exceeds the nominal interest rate.
c.
the real interest rate is positive.
d.
the nominal interest rate exceeds the real interest rate.
Correct
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The correct answer is: the nominal interest rate exceeds the real interest rate.
Question 48
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The basic tools of supply and demand are central to microeconomic analysis but are of little use to
macroeconomics.
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True
False
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Question 49
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When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP
deflator.
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True
False
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Question 50
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One of the widely acknowledged problems with using the consumer price index as a measure of the cost
of living is that the CPI
a.
fails to account for the fact that consumers spend larger percentages of their incomes on some goods and
smaller percentages of their incomes on other goods.
b.
fails to account for the introduction of new goods.
Correct
c.
accounts only for consumer spending on food, clothing, and energy.
d.
fails to account for consumer spending on housing.
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The correct answer is: fails to account for the introduction of new goods.
Question 51
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Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed
that Social Security recipients are harmed by years of low inflation because they do not receive as large
an increase in their payments as they do in years of high inflation. Which of the following statements is
correct?
a.
The newspaper editorial is incorrect under all circumstances.
b.
The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same
as the market basket used to compute the CPI.
c.
The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients
change at a different rate than the prices of the goods in the market basket used to compute the CPI
Correct
d.
The newspaper editorial is correct under all circumstances.
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The correct answer is: The newspaper editorial could be correct if the prices of the goods consumed by
Social Security recipients change at a different rate than the prices of the goods in the market basket used
to compute the CPI
Question 52
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A likely example of complementary goods for most people would be
a.
coffee and sugar.
Correct
b.
tennis balls and basketballs.
c.
butter and margarine.
d.
apple juice and orange juice.
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The correct answer is: coffee and sugar.
Question 53
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Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
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True
False
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Question 54
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Figure 4-1
Refer to Figure 4-1.The movement from point A to point B on the graph is caused by
a.
an increase in income.
b.
a decrease in price.
Correct
c.
an increase in price.
d.
a decrease in the price of a substitute good.
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The correct answer is: a decrease in price.
Question 55
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Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been
selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in
Year 3, the basket's cost was $55. The value of the CPI in Year 3 was
a.
105.0.
b.
90.9.
Incorrect
c.
110.0.
d.
104.0.
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The correct answer is: 110.0.
Question 56
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The only way to rationalize an upward slope for the short-run aggregate-supply curve is to argue that
wages are sticky in the short run.
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False
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Question 57
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When the consumer price index falls, the typical family has to spend fewer dollars to maintain the same
standard of living.
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True
False
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Question 58
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Fundamentally, economics deals with
a.
poverty.
b.
banking.
c.
scarcity.
Correct
d.
money.
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The correct answer is: scarcity.
Question 59
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A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908
price level, then multiplying by the 1908 dollar figure.
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True
False
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Question 60
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The law of supply states that, other things equal, when the price of a good
a.
rises, the supply of the good falls.
b.
falls, the quantity supplied of the good rises.
c.
falls, the supply of the good rises.
d.
rises, the quantity supplied of the good rises.
Correct
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The correct answer is: rises, the quantity supplied of the good rises.
Question 61
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Because resources are scarce, a society cannot give all individuals the standard of living to which each
aspires.
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True
False
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Question 62
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Government policies that improve equality usually increase efficiency at the same time.
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True
False
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Question 63
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The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms.
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False
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Question 64
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An increase in household saving causes consumption to
a.
fall and aggregate demand to increase.
Incorrect
b.
rise and aggregate demand to decrease.
c.
rise and aggregate demand to increase.
d.
fall and aggregate demand to decrease.
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The correct answer is: fall and aggregate demand to decrease.
Question 65
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When the market price is below the equilibrium price, the quantity of the good demanded exceeds the
quantity supplied.
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False
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Question 66
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An increase in the price of a product and an increase in the number of sellers in the market affect the
supply curve in the same general way.
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True
False
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Question 67
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Real GDP evaluates current production using prices that are fixed at past levels and therefore shows how
the economy's overall production of goods and services changes over time.
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False
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Question 68
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The term economists use to describe a situation in which the economy's overall price level is rising is
a.
inflation.
Correct
b.
growth.
c.
recession.
d.
expansion.
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The correct answer is: inflation.
Question 69
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Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most
likely will predict that
a.
the consumer price index will increase in the future.
b.
GDP will increase in 2019.
Incorrect
c.
interest rates will decrease in the future.
d.
the producer price index will increase by more than 1.5 percent in 2019.
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The correct answer is: the consumer price index will increase in the future.
Question 70
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Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops
programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
a.
is less equal and less efficient for society.
b.
is more efficient and more equal for society.
Incorrect
c.
is more equal but less efficient for society.
d.
is more efficient but less equal for society.
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The correct answer is: is more equal but less efficient for society.
Question 71
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Which of the following correctly orders U.S. income measures from largest to smallest?
a.
Disposable personal income, personal income, national income, net national product, gross national
product
b.
Personal income, net national product, national income, gross national product, disposable personal
income
c.
Gross national product, net national product, national income, personal income, disposable personal
income
Correct
d.
Disposable personal income, gross national product, national income, net national product, personal
income
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The correct answer is: Gross national product, net national product, national income, personal income,
disposable personal income
Question 72
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What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers
fell and the price of tea fell?
a.
Quantity would fall, and the effect on price would be ambiguous.
b.
Price would rise, and the effect on quantity would be ambiguous.
c.
Price would fall, and the effect on quantity would be ambiguous.
Correct
d.
Quantity would rise, and the effect on price would be ambiguous.
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The correct answer is: Price would fall, and the effect on quantity would be ambiguous.
Question 73
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The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the
basket used to compute the CPI.
Select one:
True
False
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Question 74
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The GDP deflator is the ratio of
a.
real GDP to the inflation rate multiplied by 100.
b.
real GDP to nominal GDP multiplied by 100.
c.
nominal GDP to the inflation rate multiplied by 100.
Incorrect
d.
nominal GDP to real GDP multiplied by 100.
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The correct answer is: nominal GDP to real GDP multiplied by 100.
Question 75
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Your professor loves her work, teaching math. She has been offered other positions in the corporate world
that would increase her income by 15 percent, but she has decided to continue working as a professor. Her
decision would not change unless the marginal
a.
benefit of teaching increased.
Incorrect
b.
cost of a corporate job increased.
c.
benefit of a corporate job decreased.
d.
cost of teaching increased.
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The correct answer is: cost of teaching increased.
Question 76
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An increase in the actual price level does not shift the short-run aggregate supply curve, but an expected
increase in the price level shifts the short-run aggregate supply curve to the left.
Select one:
True
False
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Question 77
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The effect of an increase in the price level on the aggregate-demand curve is represented by a
a.
shift to the left of the aggregate-demand curve.
b.
movement to the right along a given aggregate-demand curve.
c.
movement to the left along a given aggregate-demand curve.
Correct
d.
shift to the right of the aggregate-demand curve.
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The correct answer is: movement to the left along a given aggregate-demand curve.
Question 78
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When quantity supplied exceeds quantity demanded at the current market price, the market has a surplus,
and market price will likely rise in the future to eliminate the surplus.
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True
False
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Question 79
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Which of the following is most commonly used to monitor short-run changes in economic activity?
a.
Real GDP
b.
Value of the U.S. dollar in the foreign exchange market
c.
Interest rates
d.
The inflation rate
Incorrect
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The correct answer is: Real GDP
Question 80
Correct
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Supply and demand together determine the price and quantity of a good sold in a market.
Select one:
True
False
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Question 81
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Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to
compute the consumer price index for this economy for two or more consecutive years, we assume that
a.
neither the number of pretzels nor the number of cookies bought by the typical consumer changes from
year to year.
b.
neither the price of pretzels nor the price of cookies changes from year to year.
c.
the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the
typical consumer in each year.
Incorrect
d.
the percentage change in the price of pretzels is equal to the percentage change in the price of cookies
from year to year.
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The correct answer is: neither the number of pretzels nor the number of cookies bought by the typical
consumer changes from year to year.
Question 82
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Pizza is a normal good if the demand
a.
curve for pizza slopes upward.
b.
curve for pizza shifts to the right when the price of burritos rises, assuming pizza and burritos are
substitutes.
c.
for pizza rises when income rises.
d.
for pizza rises when the price of pizza falls.
Incorrect
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The correct answer is: for pizza rises when income rises.
Question 83
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The CPI is always 1 in the base year.
Select one:
True
False
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Question 84
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Expenditures on a nation's domestic production
a.
are equal to its domestic production.
b.
are less than its domestic production.
Incorrect
c.
could be less than, equal to, or greater than its domestic production.
d.
are greater than its domestic production.
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The correct answer is: are equal to its domestic production.
Question 85
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From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel
wealthier, then it would have shifted aggregate
a.
demand right.
Correct
b.
supply right.
c.
demand left.
d.
supply left.
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The correct answer is: demand right.
Question 86
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Table 23-2

Depreciation $117
Refer to Table 23-2. What was country Krugeveaux's consumption in 2019?
a.
$7,603
Incorrect
b.
$1,988
c.
$3,676
d.
$1,991
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Question 87
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An increase in the price of bread produced domestically will be reflected in
a.
neither the GDP deflator nor the consumer price index.
b.
the GDP deflator but not in the consumer price index.
Incorrect
c.
both the GDP deflator and the consumer price index.
d.
the consumer price index but not in the GDP deflator.
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The correct answer is: both the GDP deflator and the consumer price index.
Question 88
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If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals
a.
[(CPI in Year 2 − CPI in Year 1)/CPI in Year 2] × 100.
b.
c.
Incorrect
d.
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The correct answer is: [(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.
Question 89
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Changes in real GDP reflect
a.
neither changes in prices nor changes in the amounts being produced.
b.
only changes in prices.
c.
only changes in the amounts being produced.
d.
both changes in prices and changes in the amounts being produced.
Incorrect
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The correct answer is: only changes in the amounts being produced.
Question 90
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The consumer price index tries to gauge how much incomes must rise to maintain
a.
the highest standard of living possible.
b.
a decreasing standard of living.
c.
an increasing standard of living.
Incorrect
d.
a constant standard of living.
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The correct answer is: a constant standard of living.
Question 91
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A improvement in production technology will shift the
a.
supply curve to the right.
Correct
b.
demand curve to the left.
c.
demand curve to the right.
d.
supply curve to the left.
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The correct answer is: supply curve to the right.
Question 92
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Recessions come at
a.
regular intervals. During recessions consumption spending falls relatively more than investment spending.
b.
irregular intervals. During recessions investment spending falls relatively more than consumption
spending.
Correct
c.
irregular intervals. During recessions consumption spending falls relatively more than investment
spending.
d.
regular intervals. During recessions investment spending falls relatively more than consumption spending.
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The correct answer is: irregular intervals. During recessions investment spending falls relatively more
than consumption spending.
Question 93
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Figure 33-5
Refer to Figure 33-5. Suppose the economy starts at Point R. If there is a reduction in aggregate demand,
then in the long run the economy moves to
a.
Point S.
Correct
b.
Point P.
c.
Point O.
d.
Point Q.
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The correct answer is: Point S.
Question 94
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Table 23-2

Depreciation $117
Refer to Table 23-2. What were country Krugeveaux's imports in 2019?
a.
$52
Incorrect
b.
−$52
c.
$140
d.
$88
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The correct answer is: $140
Question 95
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In most societies, resources are allocated by
a.
a small number of central planners.
b.
those firms that use resources to provide goods and services.
c.
the combined actions of millions of households and firms.
Correct
d.
a single central planner.
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The correct answer is: the combined actions of millions of households and firms.
Question 96
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Table 23-5
A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these
goods for the last several years are shown in the following table. The base year is 2017.
Movies Popcorn
Year Price Quantity Price Quantity
(Dollars per movie) (Movies) (Dollars per bag) (Bags)
2016 10.00 500 5 1,000
2017 11.00 600 4 900
2018 12.00 650 5 950
2019 12.00 625 6 925
Refer to Table 23-5. What was this country's nominal GDP in 2016?
a.
$10,200
b.
$10,500
Incorrect
c.
$9,500
d.
$10,000
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Question 97
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Other things the same, as the price level decreases it induces greater spending on
a.
net exports but not investment.
b.
investment but not net exports.
c.
both net exports and investment.
Correct
d.
neither net exports nor investment.
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The correct answer is: both net exports and investment.
Question 98
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Price cannot fall so low that some sellers choose to supply a quantity of zero.
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True
False
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Question 99
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Suppose that in Peru total annual output is worth $750 million and people work 40 million hours. In
Oman, total annual output is worth 650 million and people work 20 million hours. Productivity is higher
a.
in Oman. Most variation in the standard of living across countries is due to differences in productivity.
b.
in Peru. Most variation in the standard of living across countries is due to differences in productivity.
Incorrect
c.
in Oman. Differences in productivity explain very little of the variation in the standard of living across
countries.
d.
in Peru. Differences in productivity explain very little of the variation in the standard of living across
countries.
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The correct answer is: in Oman. Most variation in the standard of living across countries is due to
differences in productivity.
Question 100
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The economic boom of the early 1940s resulted mostly from
a.
falling prices of oil and other natural resources.
b.
rapid developments in transportation, electronics, and communication.
Incorrect
c.
an increase in the growth rate of the money supply.
d.
increased government expenditures.
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The correct answer is: increased government expenditures.
Question 101
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The real interest rate tells you
a.
how fast the number of dollars in your bank account rises over time.
b.
the purchasing power of your bank account today.
c.
the number of dollars in your bank account today.
d.
how fast the purchasing power of your bank account rises over time.
Correct
Feedback
The correct answer is: how fast the purchasing power of your bank account rises over time.
Question 102
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A change in the supply of labor, all else remaining the same, will shift the short-run aggregate-supply
curve.
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False
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Question 103
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Table 24-4
Will's expenditures on food for three consecutive years, along with other values, are presented in the
following table.
Year
1 2 3
Expenditures on food $4,000 $4,800 $5,200
Consumer price index 175 182 x
Refer to Table 24-4. To the nearest dollar, Will's Year 1 food expenditures in Year 2 dollars amount to
a.
$182.
Incorrect
b.
$5,077.
c.
$4,615.
d.
$4,160.
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The correct answer is: $4,160.
Question 104
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When the market price is above the equilibrium price, the quantity of the good demanded exceeds the
quantity supplied.
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False
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Question 105
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Recessions occur at irregular intervals and are almost impossible to predict with much accuracy.
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False
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Question 106
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Scenario 33-1
Suppose that political instability in other countries makes people fear for the value of their assets in these
countries so that they desire to purchase more U.S assets.
Refer to Scenario 33-1.What would the change in the interest rate created by foreigners wanting to buy
more U.S. assets do to investment spending in the United States?
a.
Make it fall which by itself would increase U.S. aggregate demand.
b.
Make it rise which by itself would decrease U.S. aggregate demand.
c.
Make it rise which by itself would increase U.S. aggregate demand.
Incorrect
d.
Make it fall which by itself would decrease U.S. aggregate demand.
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The correct answer is: Make it fall which by itself would decrease U.S. aggregate demand.
Question 107
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The goal of President Obama's stimulus package and increased government spending following the deep
economic downturn in 2008 and 2009 was to reduce inflation.
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True
False
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Question 108
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An economy's income is the same as its expenditure because every transaction has a buyer and a seller.
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True
False
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Question 109
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Which of the following would shift the demand curve for gasoline to the right?
a.
A decrease in the price of gasoline
Incorrect
b.
An increase in consumer income, assuming gasoline is a normal good
c.
A decrease in the expected future price of gasoline
d.
An increase in the price of cars, a complement for gasoline
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The correct answer is: An increase in consumer income, assuming gasoline is a normal good
Question 110
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If net exports is a negative number for a particular year, then
a.
the value of firms' inventories declined over the course of the year.
b.
the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.
Correct
c.
consumption exceeded the sum of investment and government purchases during the year.
d.
the value of goods sold to foreigners exceeded the value of foreign goods purchased during the year.
Feedback
The correct answer is: the value of foreign goods purchased exceeded the value of goods sold to
foreigners during the year.
Question 111
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When the consumer price index falls, the typical family
a.
can offset the effects of rising prices by saving more.
Incorrect
b.
can spend fewer dollars to maintain the same standard of living.
c.
finds that its standard of living is not affected.
d.
has to spend more dollars to maintain the same standard of living.
Feedback
The correct answer is: can spend fewer dollars to maintain the same standard of living.
Question 112
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A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps
explain why the aggregate demand curve slopes downward.
Select one:
True
False
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Question 113
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If total spending rises from one year to the next, then the economy must be producing a larger output of
goods and services.
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True
False
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Question 114
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GDP can be measured in terms of expenditures but not income, since income is subject to taxation.
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True
False
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Question 115
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When an increase in the price of one good lowers the demand for another good, the two goods are called
complements.
Select one:
True
False
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◄ Quiz in Chap 11 Measuring Cost of Living
For a closed economy, GDP is $31 trillion, consumption is $7 trillion, taxes are $3.0 trillion and the
government runs a surplus of $4 trillion. What are private saving and national saving?
a.
$25.0 trillion and $21.0 trillion, respectively
b.
−$21.0 trillion and $25.0 trillion, respectively
c.
−$21.0 trillion and −$25.0 trillion, respectively
d.
$21.0 trillion and $25.0 trillion, respectively
Correct
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The correct answer is: $21.0 trillion and $25.0 trillion, respectively
Question 2
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If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share
is $2, then the price-earnings ratio is 10.
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True
False
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Question 3
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A bond buyer is a
a.
saver. Bond buyers must hold their bonds until maturity.
b.
saver. Bond buyers may sell their bonds prior to maturity.
c.
borrower. Bond buyers may sell their bonds prior to maturity.

d.
borrower. Bond buyers must hold their bonds until maturity.
Incorrect
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The correct answer is: saver. Bond buyers may sell their bonds prior to maturity.
Question 4
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In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both
of these changes?
a.
The demand for loanable funds shifted rightward.
Incorrect
b.
The supply of loanable funds shifted rightward.
c.
The supply of loanable funds shifted leftward.

d.
The demand for loanable funds shifted leftward.
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The correct answer is: The supply of loanable funds shifted rightward.
Question 5
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On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the
vertical axis.
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True
False
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Question 6
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The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice
concerning financial matters:
a.
"Intermediate."
b.
"Use a medium of exchange."
c.
"Buy low-risk bonds."
d.
"Diversify."
Correct
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The correct answer is: "Diversify."
Question 7
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Two countries with the same saving rates must have the same growth rate of real GDP per person.
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True
False
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Question 8
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Consider the expressions T− G and Y− T− C. Which of the following statements is correct?
a.
The first of these is private saving; the second one is public saving.
b.
Each one of these is equal to national saving.
c.
Each one of these is equal to public saving.
d.
The first of these is public saving; the second one is private saving.
Correct
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The correct answer is: The first of these is public saving; the second one is private saving.
Question 9
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Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to
these purchases as investment.
Select one:
True
False
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Question 10
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Suppose the government finds a major defect in one of a company's products and demands that the
product be taken off the market. We would expect that the
a.
demand for existing shares of the stock and the price will both fall.
Correct
b.
supply of existing shares of the stock and the price will both fall.
c.
demand for existing shares of the stock and the price will both rise.
d.
supply of existing shares of the stock and the price will both rise.
Feedback
The correct answer is: demand for existing shares of the stock and the price will both fall.
Question 11
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A budget deficit
a.
changes the supply of loanable funds.
b.
does not influence the supply of or the demand for loanable funds.
c.
changes the demand for loanable funds.
d.
changes both the supply of and demand for loanable funds.
Incorrect
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The correct answer is: changes the supply of loanable funds.
Question 12
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Suppose the government changed the tax laws, with the result that people were encouraged to
consume more and save less. Using the loanable funds model, a consequence would be
a.
higher interest rates and lower investment.

Correct
b.
lower interest rates and greater investment.
c.
lower interest rates and lower investment.
d.
higher interest rates and higher investment.
Feedback
The correct answer is: higher interest rates and lower investment.
Question 13
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Other things the same, as the maturity of a bond becomes longer, the bond will pay
a.
a higher interest rate because it has more risk.
Correct
b.
a lower interest rate because it has less risk.
c.
the same interest rate, because there is no relationship between term and risk.
d.
a lower interest rate because it has more risk.
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The correct answer is: a higher interest rate because it has more risk.
Question 14
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Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or
principal.
Select one:
True
False
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Question 15
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The majority of economists believe that policies that reduce the saving rate will reduce long-run living
standards.
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True
False
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Question 16
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When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does
so by selling shares of stock.
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True
False
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Question 17
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Institutions that help to match one person's saving with another person's investment are collectively
called the
a.
Federal Reserve system.
b.
monetary system.
c.
financial system.
Correct
d.
banking system.
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The correct answer is: financial system.
Question 18
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If the nominal interest rate is 8 percent and the inflation rate is 3 percent, then the real interest rate is
a.
3 percent.
b.
11 percent.
c.
5 percent.
Correct
d.
–5 percent.
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The correct answer is: 5 percent.
Question 19
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Suppose private saving in a closed economy is $21b and investment is $8b.
a.
Public saving must equal $13b.
b.
The government budget deficit must equal $13b.
Correct
c.
National saving must equal $21b.
d.
The government budget surplus must equal $13b.
Feedback
The correct answer is: The government budget deficit must equal $13b.
Question 20
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In a closed economy, if taxes fall and consumption rises, then private saving must fall.
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True
False
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Question 21
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Banks and mutual funds are examples of financial markets.
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True
False
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Question 22
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Which of the following statements is correct?
a.
A corporation is paid every time its shares of stock are traded organized stock exchanges.
b.
When a corporation sells stock as a means of raising funds it is engaging in debt finance.
c.
The expected future profitability of a corporation influences the demand for its stock.
Correct
d.
The owners of bonds sold by the Microsoft Corporation are part owners of that corporation.
Feedback
The correct answer
is: The expected future profitability of a corporation influences the demand for its stock.
Question 23
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Figure 26-3
The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
Refer to Figure 26-3. A shift of the supply curve from S 1 to S2 is called
a.
an increase in the supply of loanable funds.
b.
an increase in the quantity of loanable funds supplied.
c.
a decrease in the quantity of loanable funds supplied.
d.
a decrease in the supply of loanable funds.
Correct
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The correct answer is: a decrease in the supply of loanable funds.
Question 24
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Other things the same, the higher the rate of saving and investment in a country, the higher will be the
standard of living in the future.
Select one:
True
False
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Question 25
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Which of the following bonds has the highest interest rate?
a.
A long term and a low credit risk

b.
A high credit risk and a short term
c.
A low credit risk and a short term
d.
A long term and a high credit risk
Correct
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The correct answer is: A long term and a high credit risk
Question 26
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As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is
a.
lending indirectly.
b.
lending directly.
c.
borrowing indirectly.
d.
borrowing directly.
Correct
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The correct answer is: borrowing directly.
Question 27
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Question text
Given that Sarah's income exceeds her expenditures, Sarah is best described as a
a.
saver or as a supplier of funds.
Correct
b.
borrower or as a demander of funds.

c.
saver or as a demander of funds.
d.
borrower or as a supplier of funds.
Feedback
The correct answer is: saver or as a supplier of funds.
Question 28
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You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these
bonds
a.
is subject to federal income tax and so these bonds pay a higher interest rate than otherwise
comparable bonds issued by the U.S. government.
b.
is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable
bonds issued by the U.S. government.
c.
is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise
Correct
d.
is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise
Feedback
The correct answer is: is not subject to federal income tax and so these bonds pay a lower interest rate
than otherwise comparable bonds issued by the U.S. government.
Question 29
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Question text
The slope of the supply of loanable funds curve represents the
a.
positive relation between the interest rate and saving.
Correct
b.
negative relation between the interest rate and investment.

c.
negative relation between the interest rate and saving.
d.
positive relation between the interest rate and investment.
Feedback
The correct answer is: positive relation between the interest rate and saving.
Question 30
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Alex buys 1,000 shares of stock issued by Greg Brewing. In turn, Greg uses the funds to buy new
machinery for one of its breweries.
a.
Alex and Greg are both saving.
b.
Alex is saving; Greg is investing.
Correct
c.
Alex and Greg are both investing.
d.
Alex is investing; Greg is saving.
Feedback
The correct answer is: Alex is saving; Greg is investing.
Question 31
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Which of the following is a certificate of indebtedness?
a.
Bonds but not stocks
Correct
b.
Neither stocks nor bonds
c.
Stocks but not bonds

d.
Both stocks and bonds
Feedback
The correct answer is: Bonds but not stocks
Question 32
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A government may use deficit financing to smooth tax rates over time.
Select one:
True
False
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Question 33
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Question text
Northwest Wholesale Foods sells common stock. The company is using
a.
equity financing and the return shareholders earn depends on how profitable the company is.
Correct
b.
debt financing and the return shareholders earn is fixed.
c.
equity financing and the return shareholders earn is fixed.
d.
debt financing and the return shareholders earn depends on how profitable the company is.
Feedback
The correct answer is: equity financing and the return shareholders earn depends on how profitable
the company is.
Question 34
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Question text
National saving is
a.
always greater than investment for a closed economy.
b.
the total income in the economy that remains after paying for consumption.
c.
equal to private saving minus public saving.
d.
the total income in the economy that remains after paying for consumption and government purchases.
Correct
Feedback
The correct answer is: the total income in the economy that remains after paying for consumption and
government purchases.
Question 35
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The demand for loanable funds comes from saving and the supply of loanable funds comes from
investment.
Select one:
True
False
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Question 36
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Question text
If the government instituted an investment tax credit, then which of the following would be higher in
equilibrium?
a.
The interest rate but not saving
b.
Saving but not the interest rate
c.
Neither saving nor the interest rate
Incorrect
d.
Saving and the interest rate

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The correct answer is: Saving and the interest rate
Question 37
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Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect
the efficient allocation of scarce resources in the long-run.
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True
False
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Question 38
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Figure 26-3
The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
Refer to Figure 26-3. Which of the following movements would be consistent with the government
budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?
a.
A movement from Point A to Point C
b.
A movement from Point B to Point A
Incorrect
c.
A movement from Point F to Point B
d.
A movement from Point B to Point F
Feedback
The correct answer is: A movement from Point B to Point F
Question 39
Correct
Flag question
Question text
If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.
Select one:
True
False
Feedback
Question 40
Correct
Flag question
Question text
The financial system coordinates investment and saving, which are important determinants of long-run
real GDP.
Select one:
True
False
Feedback
Question 41
Correct

Flag question
Question text
Mutual funds are a type of financial intermediary.
Select one:
True
False
Feedback
Question 42
Correct
Flag question
Question text
We interpret the term loanable funds to mean the flow of resources available to fund private
investment.
Select one:
True
False
Feedback
Question 43
Correct
Flag question
Question text
In a closed economy, each unit of output is either consumed by households or invested.
Select one:
True
False
Feedback
Question 44
Correct
Flag question
Question text
At the broadest level, the financial system moves the economy's scarce resources from
a.
savers to borrowers.
Correct
b.
financial institutions to business firms and government.
c.
households to financial institutions.
d.
the rich to the poor.
Feedback
The correct answer is: savers to borrowers.
Question 45
Correct
Flag question
Question text
An increase in the government's budget surplus means public saving is
a.
negative and increasing.
b.
positive and decreasing.
c.
negative and decreasing.
d.
positive and increasing.
Correct
Feedback
The correct answer is: positive and increasing.
Question 46
Correct
Flag question
Question text
If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a
$2,000 deficit, then private saving must amount to $10,000.
Select one:
True
False
Feedback
Question 47
Incorrect

Flag question
Question text
If the supply for loanable funds shifts to the left, then the equilibrium interest rate
a.
falls and the quantity of loanable funds rises.
b.
and quantity of loanable funds rises.
Incorrect
c.
and quantity of loanable funds falls.
d.
rises and the quantity of loanable funds falls.
Feedback
The correct answer is: rises and the quantity of loanable funds falls.
Question 48
Correct

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Question text
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is
a.
lending indirectly.
b.
borrowing directly.
Correct
c.
lending directly.
d.
borrowing indirectly.
Feedback
The correct answer is: borrowing directly.
Question 49
Incorrect

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Question text
Other things being constant, when a firm sells new shares of stock, the
a.
supply of the stock decreases and the price increases.
Incorrect
b.
demand for the stock increases and the price increases.
c.
supply of the stock increases and the price decreases.
d.
demand for the stock decreases and the price decreases.
Feedback
The correct answer is: supply of the stock increases and the price decreases.
Question 50
Incorrect

Flag question
Question text
Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?
a.
"U.S. government bonds have the lowest default risk."
Incorrect
b.
"U.S. government bonds generally pay a higher rate of interest than corporate bonds."
c.
"If you purchase a municipal bond, you can sell it before it matures."
d.
"The interest received on corporate bonds is taxable."
Feedback
The correct answer is: "U.S. government bonds generally pay a higher rate of interest than corporate
bonds."
Question 51
Correct

Flag question
Question text
Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP $170,000
Taxes $23,000
Government Purchases $31,000
National Saving $17,000
Refer to Scenario 26-1. This economy's government is running a budget
a.
deficit of $8,000.
Correct
b.
surplus of $6,000.
c.
surplus of $8,000.
d.
deficit of $6,000.
Feedback
The correct answer is: deficit of $8,000.
Question 52
Correct
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Question text
As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,
a.
use equity finance.
b.
sell bonds.
Correct
c.
purchase bonds.
d.
invest in physical capital.
Feedback
The correct answer is: sell bonds.
Question 53
Correct
Flag question
Question text
Which of the following could explain a decrease in the equilibrium interest rate and an increase in the
equilibrium quantity of loanable funds?
a.
The supply of loanable funds shifted leftward.
b.
The demand for loanable funds shifted rightward.
c.
The supply of loanable funds shifted to the right.
Correct
d.
The demand for loanable funds shifted leftward.
Feedback
The correct answer is: The supply of loanable funds shifted to the right.
Question 54
Correct
Flag question
Question text
Most entrepreneurs finance their purchases of real capital using their past saving.
Select one:
True
False
Feedback
Question 55
Incorrect
Flag question
Question text
Which of the following statements is correct?
a.
Financial intermediaries are institutions through which savers can directly provide funds to borrowers.
b.
Unlike corporate bonds and stocks, checking accounts are a store of value.
c.
On average, index funds outperform managed funds.
d.
A large, well-known corporation such as Proctor and Gamble would generally use financial
intermediation to finance expansion of its factories.
Incorrect
Feedback
The correct answer is: On average, index funds outperform managed funds.
Of the following groups, who is eligible for unemployment insurance benefits?
a.
The unemployed who were fired for cause
b.
The unemployed who just entered the labor force
c.
The unemployed who were laid off because their previous employers no longer needed their skills
Correct
d.
The unemployed quit their jobs
Feedback
The correct answer is: The unemployed who were laid off because their previous employers no longer
needed their skills
Question 2
Incorrect
Flag question
Question text
Most spells of unemployment are long, and most unemployment observed at any given time is long-
term.
Select one:
True
False
Feedback
Question 3
Correct
Flag question
Question text
Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate sometimes is
close to zero.
Select one:
True
False
Feedback
Question 4
Correct
Flag question
Question text
If an unemployed person quits looking for work, then, eventually the unemployment rate
a.
is unaffected, and the labor-force participation rate decreases.
b.
decreases, and the labor-force participation rate is unaffected.
c.
and the labor-force participation rate are both unaffected.
d.
and the labor-force participation rate both decrease.
Correct
Feedback
The correct answer is: and the labor-force participation rate both decrease.
Question 5
Correct
Flag question
Question text
Cyclical unemployment refers to
a.
year-to-year fluctuations in unemployment around its natural rate.
Correct
b.
the difference between the structural and frictional unemployment rates.
c.
the relationship between the probability of unemployment and a worker's experience level.
d.
changes in unemployment due to changes in the natural rate of unemployment.

Feedback
The correct answer is: year-to-year fluctuations in unemployment around its natural rate.
Question 6
Correct
Flag question
Question text
Table 28-3
Civilian labor force 100 million
Persons unemployed 15 weeks or longer 1.6 million
Job losers and persons who have completed temporary jobs (excludes job leavers) 3.1 million
Total unemployed 6.2 million
Total unemployed plus discouraged workers 7.0 million
Total unemployed plus all marginally attached workers 8.1 million
Total unemployed plus all marginally attached workers plus total employed part-
9.2 million
time for economic reasons
Refer to Table 28-3. What is the U-4 measure of labor underutilization?
a.
6.9%
Correct
b.
7.0%
c.
17.9%
d.
6.5%
Feedback
The correct answer is: 6.9%
Question 7
Incorrect
Flag question
Question text
Teenagers have more frequent unemployment spells and spend more time searching for jobs. Other
thing the same, this means that teenagers have a
a.
lower unemployment rate. The portion of the adult population that is teenagers does not affect the
natural rate of unemployment.
b.
higher unemployment rate. The portion of the adult population that is teenagers does not affect the
natural rate of unemployment.
c.
higher unemployment rate. If a larger portion of the adult population were teenagers, the natural rate
of unemployment would be higher.
d.
lower unemployment rate. If a larger portion of the adult population were teenagers, the natural rate of
unemployment would be lower.
Incorrect
Feedback
The correct answer is: higher unemployment rate. If a larger portion of the adult population
were teenagers, the natural rate of unemployment would be higher.
Question 8
Correct
Flag question
Question text
The rate of unemployment in a country is unrelated to its level of GDP.
Select one:
True
False
Feedback
Question 9
Correct
Flag question
Question text
The Bureau of Labor Statistics divides the adult population into three categories: employed,
unemployed, and not in the labor force.
Select one:
True
False
Feedback
Question 10
Incorrect
Flag question
Question text
Most spells of unemployment are
a.
long, but most unemployment observed at any given time is short term.
b.
short, but most unemployment observed at any given time is long term.
c.
long, and most unemployment observed at any given time is long term.
Incorrect
d.
short, and most unemployment observed at any given time is short term.
Feedback
The correct answer is: short, but most unemployment observed at any given time is long term.
Question 11
Correct
Flag question
Question text
A union is a type of cartel.
Select one:
True
False
Feedback
Question 12
Correct
Flag question
Question text
Labor unions
a.
prefer to operate in states with right-to-work laws.
b.
are similar to cartels.
Correct
c.
create labor shortages in non-unionized industries.
d.
create labor surplus of highly-skilled workers.
Feedback
The correct answer is: are similar to cartels.
Question 13
Correct

Flag question
Question text
The Bureau of Labor Statistics divides the adult population into two categories: those who are employed
and those who are unemployed.
Select one:
True
False
Feedback
Question 14
Incorrect
Flag question
Question text
Evidence from research studies by economists
a.
is unclear regarding what increased unemployment benefits do to the job search efforts of the
unemployed.
b.
shows that increased unemployment benefits have virtually no effect on the job search efforts of the
unemployed.
c.
shows that increased unemployment benefits decrease the job search efforts of the unemployed.
d.
shows that increased unemployment benefits increase the job search efforts of the unemployed.
Incorrect
Feedback
The correct answer is: shows that increased unemployment benefits decrease the job search efforts of
the unemployed.
Question 15
Incorrect
Flag question
Question text
Table 28-2
Suppose people in the adult population in a small country are classified based on their age.
Age
Labor Force Status
Less than 55 55 and Older
Number employed 400,000 100,000
Number unemployed 25,000 7,000

Number in population 600,000 200,000
Refer to Table 28-2. In the proper order, which age group has the highest unemployment rate and
which has the highest labor-force participation rate?
a.
55 and older, 55 and older
b.
Under 55, under 55
Incorrect
c.
55 and older, under 55
d.
Under 55, 55 and older
Feedback
The correct answer is: 55 and older, under 55
Question 16
Incorrect

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Question text
Which of the following is correct?
a.
Individuals have more market power over their wages than a group of individuals in a union.
b.
Union membership in the United States peaked in the 1940s and 1950s.
c.
Because of the popularity of unions, most workers in the United States discuss their wages, benefits,
and working conditions with their employers as a group.
Incorrect
d.
Unions play a larger role in the United States than in European countries such as Belgium, France, and
Germany.
Feedback
The correct answer is: Union membership in the United States peaked in the 1940s and 1950s.
Question 17
Incorrect

Flag question
Question text
Efficiency wages
a.
decrease productivity but reduce unemployment.
b.
decrease productivity and increase unemployment.
c.
increase productivity and reduce unemployment.
Incorrect
d.
increase productivity but increase unemployment.
Feedback
The correct answer is: increase productivity but increase unemployment.
Question 18
Correct

Flag question
Question text
An economist claims that changes in information technology and unemployment insurance have
reduced unemployment. Which of these changes affect frictional unemployment?
a.
Only the changes in information technology
b.
Both the changes in information technology and unemployment insurance
Correct
c.
Neither the changes in information technology nor the changes in unemployment insurance
d.
Only the changes in unemployment insurance
Feedback
The correct answer is: Both the changes in information technology and unemployment insurance
Question 19
Correct

Flag question
Question text
Which of the following is not correct?
a.
In an ideal labor market, wages would adjust to ensure that all workers are always fully employed.
b.
There are always some workers without jobs, even when the overall economy is doing well.
c.
The unemployment rate occasionally falls to zero.
Correct
d.
Most people who become unemployed will soon find jobs.
Feedback
The correct answer is: The unemployment rate occasionally falls to zero.
Question 20
Incorrect

Flag question
Question text
The natural rate of unemployment
a.
varies as much as the cyclical rate of unemployment.
b.
varies substantially over time but little across countries.
c.
varies less than the measured unemployment rate.
d.
varies little over time but substantially across countries.
Incorrect
Feedback
The correct answer is: varies less than the measured unemployment rate.
Question 21
Correct

Flag question
Question text
Esmeralda is taking a three month leave from work to travel across Europe. The Bureau of Labor
Statistics counts Esmeralda as
a.
a marginally attached worker.
b.
a discouraged worker.
c.
unemployed and in the labor force.
d.
employed and in the labor force.
Correct
Feedback
The correct answer is: employed and in the labor force.
Question 22
Correct

Flag question
Question text
Marginally attached workers are people who are
a.
not working and are not looking for work, but would work if asked.
Correct
b.
only a few years from retirement.
c.
working part-time while they go to school or get training for a better job.
d.
looking for a better job than they currently have.
Feedback
The correct answer is: not working and are not looking for work, but would work if asked.
Question 23
Correct

Flag question
Question text
Which of the following includes everyone in the adult population that the Bureau of Labor Statistics
counts as "unemployed"?
a.
Anyone who is not employed, is available for work, has looked for work in the past four weeks, and
anyone who is waiting to be recalled from a job from which they have been laid off
Correct
b.
Anyone who is employed part time and has searched for full time employment in the past four weeks
c.
Anyone who chose not to for work for the past two weeks
d.
Anyone who is not currently employed
Feedback
The correct answer is: Anyone who is not employed, is available for work, has looked for work in the
past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off
Question 24
Incorrect

Flag question
Question text
Over the past several decades, the difference between the labor-force participation rates of men and
women in the U.S. has
a.
remained constant.
b.
gradually decreased.
c.
been eliminated.
d.
gradually increased.
Incorrect
Feedback
The correct answer is: gradually decreased.
Question 25
Correct

Flag question
Question text
Which of the following is an example of an efficiency wage?
a.
A wage below the minimum wage but supplemented by customer tips
b.
An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants
Correct
c.
A high wage paid to a college graduate for a high-skill job such as electrical engineering
d.
A high wage paid to compensate for dangerous work such as coal mining
Feedback
The correct answer is: An above-equilibrium wage offered by a firm to attract a more talented pool of
job applicants
Question 26
Incorrect

Flag question
Question text
Data on unemployment indicate that most people who become unemployed will soon find jobs.
Select one:
True
False
Feedback
Question 27
Incorrect
Flag question
Question text
Minimum wages are the predominant reason for unemployment in the U.S. economy.
Select one:
True
False
Feedback
Question 28
Correct
Flag question
Question text
Both full-time and part-time workers are included in the Bureau of Labor Statistics' "employed"
category.
Select one:
True
False
Feedback
Question 29
Correct
Flag question
Question text
Joshua is working from home for a start-up company developing mobile apps. The Bureau of Labor
Statistics counts Joshua as
a.
marginally attached worker.
b.
not in the labor force.
c.
employed.
Correct
d.
unemployed.
Feedback
The correct answer is: employed.
Question 30
Correct
Flag question
Question text
Frictional unemployment is thought to explain relatively
a.
short spells of unemployment, as is structural unemployment.
b.
short spells of unemployment, while structural unemployment is thought to explain relatively long spells
of unemployment.
Correct
c.
long spells of unemployment, while structural unemployment is thought to explain relatively short spells
of unemployment.
d.
long spells of unemployment, as is structural unemployment.
Feedback
The correct answer is: short spells of unemployment, while structural unemployment is thought to
explain relatively long spells of unemployment.
Question 31
Correct
Flag question
Question text
The unemployment rate equals the percentage of the adult population that is unemployed.
Select one:
True
False
Feedback
Question 32
Correct
Flag question
Question text
Sectoral shifts in demand for output
a.
increase unemployment due to job search.
Correct
b.
immediately reduce unemployment.
c.
create structural unemployment.
d.
do not affect demand for labor.
Feedback
The correct answer is: increase unemployment due to job search.
Question 33
Incorrect

Flag question
Question text
The natural rate of unemployment
a.
varies substantially over time but little across countries.
Incorrect
b.
varies less than the measured unemployment rate.
c.
varies as much as the cyclical rate of unemployment.
d.
varies little over time but substantially across countries.
Feedback
The correct answer is: varies less than the measured unemployment rate.
Question 34
Incorrect

Flag question
Question text
If the wage is kept above the equilibrium level for any reason, the result is unemployment.
Select one:
True
False
Feedback
Question 35
Correct
Flag question
Question text
Sectoral shifts contribute to frictional unemployment.
Select one:
True
False
Feedback
Question 36
Correct
Flag question
Question text
The BLS reports the U-6 measure of labor underutilization. Which of the following is how it computes U-
6?
a.
(Total unemployed + Marginally attached workers + Part-time employed for economic reasons)/Adult
population
b.
(Total unemployed + Marginally attached workers + Part-time employed for economic reasons)/(Labor
force + Marginally attached workers)
Correct
c.
(Total unemployed + Marginally attached workers)/Adult population
d.
(Total unemployed + Marginally attached workers)/(Labor force + Marginally attached workers)
Feedback
The correct answer is: (Total unemployed + Marginally attached workers + Part-time employed for
economic reasons)/(Labor force + Marginally attached workers)
Question 37
Correct
Flag question
Question text
The demand for workers often rises in one region of the U.S. and falls in another. This illustrates
a.
structural unemployment created by efficiency wages.
b.
frictional unemployment created by sectoral shifts.
Correct
c.
structural unemployment created by sectoral shifts.
d.
frictional unemployment created by efficiency wages.
Feedback
The correct answer is: frictional unemployment created by sectoral shifts.
Question 38
Incorrect

Flag question
Question text
Suppose that the Bureau of Labor Statistics reported that there were 62 million people over age 25
whose highest level of education was some college or an associate degree. Of these, 45.3 million were
employed and 3.6 million were unemployed. What were the labor-force participation rate and the
unemployment rate for this group?
a.
7.4% and 78.9%
b.
126.8% and 7.4%
c.
78.9% and 126.8%
Incorrect
d.
78.9% and 7.4%
Feedback
The correct answer is: 78.9% and 7.4%
Question 39
Correct

Flag question
Question text
Table 28-4
The following data is about the labor market in the city of Productionville.
Wage Quantity Demanded Quantity Supplied

(Dollars per hour) (Units) (Units)
8 6,000 16,000
7 9,000 14,000
6 12,000 12,000
5 15,000 10,000
4 18,000 8,000
Refer to Table 28-4. If the local government imposed a minimum wage of $7 in Productionville, how
many people would be unemployed?
a.
10,000
b.
c.
2,000
d.
5,000
Correct
Feedback
The correct answer is: 5,000
Question 40
Correct
Flag question
Question text
When a minimum-wage law forces the wage to remain above the level that balances supply and
demand, the result is a surplus of labor.
Select one:
True
False
Feedback
Question 41
Correct

Flag question
Question text
The theory of efficiency wages explains why
a.
the most efficient way to pay workers is to pay them according to their skills.
b.
it is efficient for firms to set wages at the equilibrium level.
c.
setting wages at the equilibrium level may increase unemployment.
d.
it may be in the best interest of firms to offer wages that are above the equilibrium level.
Correct
Feedback
The correct answer is: it may be in the best interest of firms to offer wages that are above the
equilibrium level.
Question 42
Correct

Flag question
Question text
Unemployment insurance increases frictional unemployment.
Select one:
True
False
Feedback
Question 43
Correct
Flag question
Question text
Octavia is a stay-at-home parent who has not searched for work in recent years. Michael
does not currently have a job, but has applied for several jobs in the previous week. Who does the
Bureau of Labor Statistics count as "not in the labor force"?
a.
Neither Michael nor Octavia
b.
Michael but not Octavia

c.
Octavia but not Michael
Correct
d.
Both Michael and Octavia
Feedback
The correct answer is: Octavia but not Michael
Question 44
Incorrect
Flag question
Question text
Consider two people who are currently out of work. Tim is not looking for work because there have
been many job cuts where he lives, and he doesn't think it likely that he will find work. Bev is not
currently looking for work, but she would like a job, and she has looked for work in the past. The Bureau
of Labor Statistics considers
a.
neither Tim nor Bev to be marginally attached workers.
b.
only Bev to be a marginally attached worker.

Incorrect
c.
only Tim to be a marginally attached worker.
d.
both Tim and Bev to be marginally attached workers.
Feedback
The correct answer is: both Tim and Bev to be marginally attached workers.
Question 45
Incorrect
Flag question
Question text
An increase in the minimum wage above the equilibrium wage
a.
increases frictional unemployment.
b.
increases structural unemployment.
c.
reduces structural unemployment.
Incorrect
d.
reduces frictional unemployment,
Feedback
The correct answer is: increases structural unemployment.
Question 46
Incorrect
Flag question
Question text
The labor-force participation rate equals the percentage of the total adult population that is in the labor
force.
Select one:
True
False
Feedback
Question 47
Correct

Flag question
Question text
Minimum-wage laws are least likely to affect the wages paid to
a.
inexperienced workers.
b.
low-skilled workers.
c.
teenagers.
d.
highly-educated workers.
Correct
Feedback
The correct answer is: highly-educated workers.
Question 48
Correct

Flag question
Question text
The Bureau of Labor Statistics' "employed" category includes those who worked as paid employees,
worked in their own business, or worked as unpaid workers in a family member's business.
Select one:
True
False
Feedback
Question 49
Incorrect
Flag question
Question text
Table 28-1
Sample Population
Person Status
Allen Unpaid stay-at-home dad. Has not looked for a job in several years
Ben College president
Allison Part-time welder. Actively looking for full-time work
Brittany Self-employed full-time wedding singer

Cathy Full-time physician's assistant
Calvin Retired finance professor. Last applied for work 10 weeks ago
Diane Laid-off fork-lift operator expecting to be recalled
David Works for a bicycle store. Age 70
Evelyn Manager of health food store
Eli Museum guard. Was not at work last week due to illness
Flora Has never been employed. Looked for a job last week
Frank Fired from job as an investment banker. Last looked for work three weeks ago
Refer to Table 28-1. How many in the sample are unemployed?
a.
b.
Incorrect
c.
d.
5
Feedback
The correct answer is: 3
Question 50
Correct
Flag question
Question text
Minimum-wage laws are least likely to affect the wages paid to
a.
teenagers.
b.
low-skilled workers.
c.
inexperienced workers.
d.
highly-educated workers.
Correct
Feedback
The correct answer is: highly-educated workers.
Question 51
Correct
Flag question
Question text
Collective bargaining refers to
a.
the process by which unions and firms agree on the terms of employment.
Correct
b.
the process by which the government sets exemptions from the minimum wage law.
c.
firms colluding to set the wages of employees below equilibrium.
d.
setting the same wage for all employees to prevent conflict among workers.
Feedback
The correct answer is: the process by which unions and firms agree on the terms of employment.
Question 52
Incorrect
Flag question
Question text
Sam has no job but keeps applying to get a job with a business that is unionized. He is qualified and he
finds the pay attractive, but the firm is not hiring. Sam is
a.
frictionally unemployed. Frictional unemployment does not exist in the long run.
b.
frictionally unemployed. Frictional unemployment exists even in the long run.
Incorrect
c.
structurally unemployed. Structural unemployment does not exist in the long run.
d.
structurally unemployed. Structural unemployment exists even in the long run.
Feedback
The correct answer is: structurally unemployed. Structural unemployment exists even in the long run.
Question 53
Incorrect

Flag question
Question text
The demand for labor by a certain firm is independent of the demand for that firm's product.
Select one:
True
False
Feedback
Question 54
Incorrect
Flag question
Question text
The Bureau of Labor Statistics' U-3 measure of joblessness is the official unemployment rate.
Select one:
True
False
Feedback
Question 55
Incorrect
Flag question
Question text
To be counted as "employed" in the U.S. labor force statistics, a person
a.
does not have to be working for pay if they are working for a family business but must be employed full
time.
b.
must be working for pay but does not have to be working full time.
Incorrect
c.
does not have to be working for pay if they are working for a family business and does not have to be
working full time.
d.
must be working for pay and be working full time.
Feedback
The correct answer is: does not have to be working for pay if they are working for a family business
and does not have to be working full time.

Econ Prelim Test Bank

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Econ Prelim Test Bank

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The producer price index measures the cost of a basket of goods and services bought by firms rather than

Household purchases of durable goods $1,574

Refer to Table 23-2. What was country Krugeveaux's investment in 2019?

Price Quantity Demanded

The equilibrium price and quantity are

Price of Gas Price of Milk

Refer to Scenario 24-1. Mia's 1943 income in current year dollars is

Household purchases of durable goods $1,574

Refer to Table 23-2. What was country Krugeveaux's consumption in 2019?

Household purchases of durable goods $1,574

Refer to Table 23-2. What were country Krugeveaux's imports in 2019?

$25.0 trillion and $21.0 trillion, respectively

−$21.0 trillion and $25.0 trillion, respectively

−$21.0 trillion and −$25.0 trillion, respectively

$21.0 trillion and $25.0 trillion, respectively

1.00 points out of 1.00

0.00 points out of 1.00

saver. Bond buyers must hold their bonds until maturity.

saver. Bond buyers may sell their bonds prior to maturity.

borrower. Bond buyers may sell their bonds prior to maturity.

borrower. Bond buyers must hold their bonds until maturity.

0.00 points out of 1.00

The demand for loanable funds shifted rightward.

The supply of loanable funds shifted rightward.

The supply of loanable funds shifted leftward.

The demand for loanable funds shifted leftward.

1.00 points out of 1.00

1.00 points out of 1.00

"Use a medium of exchange."

"Buy low-risk bonds."

1.00 points out of 1.00

1.00 points out of 1.00

Each one of these is equal to national saving.

Each one of these is equal to public saving.

1.00 points out of 1.00

1.00 points out of 1.00

0.00 points out of 1.00

changes the demand for loanable funds.

changes both the supply of and demand for loanable funds.

1.00 points out of 1.00

higher interest rates and lower investment.

lower interest rates and greater investment.

lower interest rates and lower investment.

higher interest rates and higher investment.

1.00 points out of 1.00

a higher interest rate because it has more risk.

a lower interest rate because it has less risk.

a lower interest rate because it has more risk.

1.00 points out of 1.00

0.00 points out of 1.00

1.00 points out of 1.00

Federal Reserve system.

1.00 points out of 1.00

Public saving must equal $13b.

The government budget deficit must equal $13b.

National saving must equal $21b.

The government budget surplus must equal $13b.

1.00 points out of 1.00

1.00 points out of 1.00

1.00 points out of 1.00

Refer to Figure 26-3. A shift of the supply curve from S 1 to S2 is called

an increase in the supply of loanable funds.

an increase in the quantity of loanable funds supplied.