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Expansionary policies are policies designed to
A) increase the level of real GDP.
B) reduce the level of real GDP.
C) decrease government spending.
D) reduce the federal deficit.
In order to prevent a wage-price spiral from emerging when the economy is producing
above full employment, the monetary authority could:
A) contract the money supply.
B) expand the money supply.
C) lower taxes.
D) increase government spending.
Which of the following statements is true?
A) Investment in private capital is a source of economic growth, but investment in
public capital is not.
B) Investment in public capital is a source of economic growth, but investment in
private capital is not.
C) Investment in both private and public capital is conducive to economic growth and
higher productivity.
D) Neither investment in private nor public capital has any effect on economic growth
and productivity.
Figure 4.4
Figure 4.4 illustrates the demand for guitars. If people expect the price of guitars to
decrease in the near future, this would most likely bring about a movement from:
A) point B to point C.
B) point B to point A.
C) D1 to D0.
D) D1 to D2.
In an aggregate supply and aggregate demand diagram, the long-run aggregate supply
curve is represented by
A) a downward sloping line relating prices and output.
B) an upward sloping line relating prices and output.
C) a horizontal line at the current level of price.
D) a vertical line at full employment.
Suppose that consumers expect the price of a product to decrease in the future. The
result is that
A) the current demand for the product increases.
B) the current demand for the product decreases.
C) the current supply of the product increases.
D) the current supply of the product decreases.
Unanticipated inflation is the difference between:
A) the expected inflation rate and the actual observed inflation rate.
B) the actual observed inflation rate this year and the inflation rate last year.
C) the inflation rate last year and the inflation rate that we want the economy to have
last year.
D) the inflation rate this year and the inflation rate that we want the economy to have
this year.
Final goods and services include:
A) raw materials.
B) intermediate goods.
C) goods and services produced for final use by households and firms.
D) those produced by one firm for use in further processing by another firm.
The idea that investment in comprehensive education in developing countries leads to
permanent increases in the rate of technological progress is an example of
A) increasing economic inequality.
B) capital deepening.
C) new growth theory.
D) a trade-off between human capital and technology.
Suppose there are only 2 nations A and B, and only two goods, x and y. If nation A
produces only x, it can make 16x per day. If nation A produces only y, it can make 4y
per day. If nation B produces only x, it can make 20x per day. If nation B produces only
y, it can make 4y per day. After trade begins, nation ________ will specialize in the
production of x and nation ________ will specialize in the production of y.
A) A; A
B) A; B
C) B; B
D) B; A
Recall the Application about growth in China and India to answer the following
question(s). From 1978 to 2004, China grew at a rate of 9.3 percent per year and India
grew at a rate of 5.4 percent per year.
According to this Application, China's growth rate was faster than India's during this 26
year period because
A) China received more contributions from human capital than India received.
B) China invested more in physical capital than India invested.
C) China's growth was based more on human capital and India's growth was based
more on physical capital.
D) China's growth was based more on human capital and India's growth was based
more on technological progress.
If the price of monthly satellite TV service increases from $40 to $50, the percentage
change is
A) 5 percent.
B) 20 percent.
C) 25 percent.
D) 45 percent.
Recall the Application about the links between presidential elections and
macroeconomic performance to answer the following question(s). Early theories on the
links between presidential elections and macroeconomic performance focused on
incumbent presidents trying to manipulate the economy in their favor to gain reelection.
Subsequent research began to incorporate other factors. The first innovation was
recognizing that political parties can have different goals or preferences on how to
manipulate the economy. In the United States, Republicans historically have been more
concerned about fighting inflation, whereas Democrats have concentrated on reducing
unemployment. The second major innovation was recognizing that the public would
anticipate that politicians will try to manipulate the economy before an election.
This Application addresses the idea that politicians use monetary or fiscal policy to
stimulate the economy before an election to improve their reelection prospects. This
concept is known as a(n)
A) circular flow model.
B) political business cycle.
C) liquidity trap.
D) automatic stabilization policy.
The largest component of national income is:
A) corporate profits.
B) rental income.
C) compensation of employees.
D) proprietor's income.
