Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Technological advances generally result in
1)
A)
increased life expectancy.
B)
decreased incomes.
C)
increased infant mortality rates.
D)
increased average number of hours worked per day.
2)
Purchases of which of the following goods would be dramatically reduced during a recession?
2)
A)
refrigerators
B)
tomatoes
C)
gasoline
D)
ink pens
3)
Which of the following would you expect to increase the equilibrium interest rate?
3)
A)
a decrease in the profitability of investment projects firms are considering
B)
an increase in the percentage of income after net taxes that households save
C)
a change from an income tax to a consumption tax
D)
an increase in the budget deficit
4)
Which of the following would contribute to a sustained high rate of economic growth in the long
run in an economy?
4)
A)
growth in capital per hour accompanied by technological change
B)
an influx of immigrant labor into an economy without any accompanying technological
change
C)
increases in labor force participation rates as workers who are out of the labor force pursue
rising wages
D)
a shift of workers in the economy from the agricultural sector to the nonagricultural sector
5)
The total amount of physical capital available in a country is know as the country’s
5)
A)
capital stock.
B)
investment.
C)
savings.
D)
labor productivity.
6)
If Ebenezer Scrooge spends rather than saves his vast wealth he will
6)
A)
promote economic growth because he is increasing the amount of funds available for
investment.
B)
promote economic growth because he is decreasing the amount of funds available for
investment.
C)
slow economic growth because he is reducing the amount of funds available for investment.
D)
slow economic growth because he is increasing the amount of funds available for investment.
7)
The response of investment spending to an increase in the government budget deficit is called
7)
A)
expansionary investment
B)
crowding out
C)
private dissaving
D)
income minus net taxes
8)
If net taxes fall by $80 billion, we would expect
8)
A)
household savings to rise by $80 billion.
B)
household savings to fall by more than $80 billion.
C)
the government deficit to fall by $80 billion.
D)
household savings to rise by less than $80 billion.
9)
Which of the following is not a key service the financial system provides to borrowers and savers?
9)
A)
liquidity
B)
information
C)
risk sharing
D)
risk exposure
10)
In a closed economy public saving plus private saving is equal to
10)
A)
investment.
B)
the budget surplus.
C)
the budget deficit.
D)
taxes minus transfers.
11)
Actual real GDP will be above potential GDP if
11)
A)
firms are producing at capacity.
B)
inflation is rising.
C)
firms are producing above capacity.
D)
firms are producing below capacity.
12)
If consumers decide to be more frugal and save more out of their income, then this will cause
12)
A)
a shift in the supply for loanable funds to the right.
B)
a movement along the supply for loanable funds curve to the left.
C)
a movement along the supply for loanable funds curve to the right.
D)
a shift in the supply for loanable funds to the left.
13)
If the government decided to tax real interest income rather than nominal interest income, this
change would cause the real interest rate to ________ and the equilibrium quantity of loanable
funds to ________.
13)
A)
rise; rise
B)
fall; fall
C)
rise; fall
D)
fall; rise
14)
How will an increase in the government budget surplus as a result of lower government spending
(with no change in net taxes) affect private saving in the economy?
14)
A)
Private saving will be unaffected by the increase in the budget surplus.
B)
Private saving will increase by the amount of increase in the budget surplus.
C)
Private saving will decrease by less than the amount of increase in the budget surplus.
D)
Private saving will decrease by the amount of increase in the budget surplus.
Explanation:
15)
When the government runs a budget deficit, we would expect to see that
15)
A)
public saving is positive.
B)
G + TR < T.
C)
investment will fall.
D)
private saving will fall.
16)
Increasing the amount of consumption spending and reducing the amount of savings ________
investment expenditures, and ________ economic growth in the economy.
16)
A)
decreases; increases
B)
decreases; decreases
C)
increases; increases
D)
increases; decreases
17)
Inflation tends to ________ during the expansion phase of the business cycle and ________ during
the recession phase of the business cycle.
17)
A)
decrease; decrease further
B)
decrease; increase
C)
increase; increase further
D)
increase; decrease
18)
Human capital refers to which of the following?
18)
A)
the accumulated knowledge and skills workers acquire from education and training or from
their life experiences
B)
manufactured goods that are used to produce other goods and services
C)
the quantity of goods and services that can be produced by one worker or by one hour of
work
D)
physical equipment that is made by human laborers, not machines
19)
Under which of the following circumstances would private saving be positive in a closed economy?
19)
A)
Y = $6 trillion
C = $2 trillion
TR = $8 trillion
G = $3 trillion
public saving = $1 trillion
B)
Y = $10 trillion
C = $5 trillion
TR = $2 trillion
G = $2 trillion
public saving = $1 trillion
C)
Y = $8 trillion
C = $2 trillion
TR = $4 trillion
G = $2 trillion
public saving = $4 trillion
D)
Y = $9 trillion
C = $5 trillion
TR = $1 trillion
G = $1 trillion
public saving = $3 trillion
20)
Which of the following is most liquid?
20)
A)
a government bond
B)
a corporate bond
C)
a dollar bill
D)
a mutual fund share
C
21)
The demand for loanable funds is downward sloping because the ________ the interest rate, the
________ the number of profitable investment projects a firm can undertake, and the ________ the
quantity demanded of loanable funds.
21)
A)
greater; greater; greater
B)
greater; smaller; greater
C)
lower; greater; greater
D)
lower; smaller; greater
C
22)
In a closed economy, public saving is equal to which of the following? (Y = GDP, C =
Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
22)
A)
Y – C – T + TR
B)
T – G – TR
C)
Y – C – T
D)
Y – G – T
B
B
23)
Financial securities that represent promises to repay a fixed amount of funds are known as
23)
A)
bonds.
B)
pension funds.
C)
insurance premiums.
D)
stocks.
24)
In a closed economy, which of the following components of GDP is not included?
24)
A)
net exports
B)
consumption
C)
investment
D)
government spending
25)
Which of the following is a correct statement?
25)
A)
The PPI measures inflation as experienced by producers.
B)
The CPI is a widely used measure of the inflation rate.
C)
Inflation is measured as the percent change in the CPI.
D)
Real GDP is our best measure of economic growth.
26)
The period of expansion ends with a ________ and the period of recession ends with a ________.
26)
A)
business cycle trough; business cycle trough
B)
business cycle peak; business cycle peak
C)
business cycle trough; business cycle peak
D)
business cycle peak; business cycle trough
27)
Which of the following explains why fluctuations in real GDP have become less volatile in the
United States since 1950?
27)
A)
Services have become a smaller fraction of GDP since the 1950s.
B)
Unemployment insurance and other government transfer programs are more prevalent since
the 1950s.
C)
The government has become more reluctant to intervene when real GDP declines and
unemployment rises since the 1950s.
D)
Both B and C
28)
One difference between stocks and bonds is that
28)
A)
stocks represent ownership in companies, while bonds represent ownership in banks.
B)
stocks are usually issued in electronic form, while bonds are usually issued in paper form.
C)
stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a
promise to repay the purchase price of the bond.
D)
stocks are financial securities, while bonds are labor market securities.
29)
Which of the following would benefit China’s airline industry in terms of profitability?
29)
A)
restricting the government sector from building airports
B)
deregulating airline ticket prices
C)
preventing foreign companies from supplying jet fuel
D)
mandating that airlines only buy domestically produced aircraft
30)
If you invest $10,000 in a bond that earns 8% interest, how many years will it take to double your
money?
30)
A)
8 years
B)
1 year and 3 months
C)
2 years and 6 months
D)
8 years and 9 months
31)
When a mutual fund company issues mutual fund shares that it will buy back at a price that
reflects the underlying value of the financial securities owned by the fund, this kind of mutual fund
is called a(n) ________ mutual fund.
31)
A)
closed–end
B)
open–end
C)
liquid
D)
stock and bond
Scenario 13–1
Consider the following data for a closed economy:
Y = $12 trillion
C = $8 trillion
I= $4 trillion
TR = $2 trillion
T = $3 trillion
32)
Refer to Scenario 13–1. Based on the information above, what is the level of private saving in the
economy?
32)
A)
$4 trillion
B)
$3 trillion
C)
$5 trillion
D)
$8 trillion
33)
The quantity of goods and services that can be produced by one worker or by one hour of work is
referred to as
33)
A)
labor productivity.
B)
human capital.
C)
technology.
D)
real GDP.
Figure 13–5
34)
Refer to Figure 13–5. “Crowding out” of firm investment as a result of a budget deficit is illustrated
by the movement from ________ in the graph above.
34)
A)
C to A
B)
A to B
C)
B to C
D)
B to A
35)
Which of the following statements describes the experiences of the Boeing Corporation since it was
established in 1916?
35)
A)
little or no growth in the long run, and unaffected by the business cycle
B)
strong growth interrupted by periods of business cycle recession
C)
little or no growth in the long run, but very vulnerable to the business cycle
D)
strong uninterrupted growth in demand
Figure 13–1
36)
Refer to Figure 13–1. Which of the following is consistent with the graph depicted above?
36)
A)
An expected recession decreases the profitability of new investment.
B)
Households become spendthrifts and begin to save less.
C)
The government runs a budget surplus.
D)
Technological change increases the profitability of new investment.
37)
Since 1990, real GDP per capita has ________ and this measure ________ the actual growth in
standards of living in the U.S. over this time.
37)
A)
decreased; understates
B)
decreased; overstates
C)
increased; understates
D)
increased; overstates
38)
Which of the following increases labor productivity?
38)
A)
inventions of new machinery, equipment, or software
B)
decreases in the availability of computers and factory buildings
C)
an increase in the aggregate hours of work
D)
a decline in the health of the population
Explanation:
39)
As an economy begins to emerge from a recessionary phase of the business cycle,
39)
A)
investment begins to fall.
B)
unemployment continues to rise.
C)
inflation begins to fall.
D)
unemployment falls immediately.
40)
According to An Inside Look, China’s airline industry
40)
A)
has a very small aviation market as compared to the rest of the world.
B)
has underinvested in aircraft in the last 5 years.
C)
has enjoyed strong profitability in the last 5 years.
D)
has grown dramatically in the last 5 years.
D
41)
A government budget surplus from reduced government spending (no change in net taxes) will
________ the level of investment in the economy and ________ the level of saving (private plus
public) in the economy.
41)
A)
decrease; decrease
B)
increase; decrease
C)
increase; increase
D)
decrease; increase
C
42)
The effect of a recession on a company like Boeing Aircraft is such that
42)
A)
profits fall less sharply as compared to other firms.
B)
the decline in sales is more short lived as compared to other firms.
C)
there is no difference in the impact of the recession on its profits as compared to other firms.
D)
sales decline more sharply for Boeing as compared to other firms.
D
43)
If real GDP per capita measured in 2000 dollars was $6,000 in 1950 and $48,000 in 2010, we would
say that in the year 2010, the average American could buy ________ times as many goods and
services as the average American in 1950.
43)
A)
8
B)
1/8
C)
4
D)
12
A
B
44)
Since the 1950s,
44)
A)
U.S. business cycle fluctuations have becomes more volatile.
B)
U.S. business cycle fluctuations have not changed.
C)
the U.S. has not experienced a business cycle.
D)
U.S. business cycle fluctuations have become milder.
45)
If the growth rate of real GDP rises from 3% to 4%, the number of years required to double real
GDP will decrease from
45)
A)
23.3 years to 20.6 years.
B)
11.2 years to 10.8 years.
C)
28.0 years to 21.0 years.
D)
23.3 years to 17.5 years.
46)
From 1991 until 2001 the United States was in a period of
46)
A)
business cycle troughs.
B)
business cycle peaks.
C)
expansion.
D)
recession.
47)
If government saving is negative, then
47)
A)
G > T.
B)
T – TR < G.
C)
Y + TR < C – T.
D)
T > TR.
48)
Which of the following does not describe governmental policy actions that are helpful in supporting
growth in an economy? Governmental policies that
48)
A)
facilitate the development of an efficient financial system.
B)
provide secure rights to private property.
C)
establish an independent court system that enforces contracts.
D)
avoid playing any role in developing communication systems.
Explanation:
49)
Since 1950, expansions in the United States have become ________, while recessions have become
________.
49)
A)
shorter; longer
B)
shorter; shorter
C)
longer; shorter
D)
longer; longer
Table 13–1
Year
Real GDP
(Billion of 2000
dollars)
2002 $8,700
2003 8,875
2004 9,000
2005 9,280
50)
Refer to Table 13–1. Calculate the growth rate of real GDP from 2004 to 2005.
50)
A)
2%
B)
1%
C)
4%
D)
3%
51)
Which of the following would encourage economic growth through increases in the capital stock?
51)
A)
a change from an income tax to a consumption tax
B)
a decrease in the government deficit
C)
an increase in household savings
D)
all of the above
52)
Potential GDP refers to
52)
A)
the difference between the highest level of real GDP per quarter and the lowest level of real
GDP per quarter within any given year.
B)
the level of GDP attained when all firms are producing at capacity.
C)
the extent to which real GDP is above or below nominal GDP.
D)
the level of GDP attained by the country with the highest growth in real GDP in a given year.
53)
Which of the following will increase investment spending in the economy, holding everything else
constant?
53)
A)
an increase in the budget deficit
B)
an increase in the federal government surplus
C)
an increase in consumer dissavings
D)
an increase in transfer payments
54)
When the economy enters a recessionary phase of the business cycle, unemployment tends to
54)
A)
decrease.
B)
be unchanged.
C)
increase.
D)
change in the same direction as the rate of inflation.
55)
Since 1900, real GDP in the U.S. has grown
55)
A)
more rapidly than the population.
B)
more slowly than the population.
C)
in a random unpredictable manner relative to the population.
D)
as rapidly as the population.
56)
Economist Robert Fogel has estimated that by the year 2040, individuals in the United States will be
spending
56)
A)
more time in the workforce and less time in leisure activities than they do today.
B)
less time in the workforce and more time in leisure activities than they do today.
C)
less time in the workforce and less time in leisure activities than they do today.
D)
more time in the workforce and more time in leisure activities than they do today.
57)
What is the name of the organization that defines business cycle peaks and troughs in the United
States?
57)
A)
National Bureau of Economic Research
B)
Bureau of Labor Statistics
C)
Federal Reserve
D)
National Peak and Trough Committee
Scenario 13–1
Consider the following data for a closed economy:
Y = $12 trillion
C = $8 trillion
I= $4 trillion
TR = $2 trillion
T = $3 trillion
58)
Refer to Scenario 13–1. Based on the information above, what is the level of public saving?
58)
A)
$2 trillion
B)
$0
C)
$1 trillion
D)
negative $1 trillion (a deficit of $1 trillion)
59)
A firm can fund an expansion of its operations by
59)
A)
paying dividends.
B)
issuing bonds.
C)
buying stock.
D)
loaning money.
60)
As the economy nears the end of a recession, which of the following do we typically see?
60)
A)
increasing interest rates
B)
further decreases in consumer spending
C)
increased spending on capital goods by firms
D)
all of the above