Name: ______Date: ______

1. / The consumer price index reflects
A) / the changes in the prices of goods and services typically purchased by consumers.
B) / the average level of prices for intermediate goods and services purchased by business.
C) / the median price of a typical single family home.
D) / prices of all goods and services computed from the ratio of nominal GDP to real GDP.
2. / The sequence of a business cycle phases is
A) / peak, trough, expansion, recession.
B) / peak, expansion, trough, recession.
C) / peak, recession, trough, expansion.
D) / peak, expansion, recession, trough.
3. / An increase in real GDP from 2002 to 2006 necessarily indicates that
A) / people are better off in 2002 than they were in 2006.
B) / people are happier in 2006 than they were in 2002.
C) / prices increased between 2002 and 2006.
D) / quantities of goods and services produced increased between 2002 and 2006.
4. / All of the following are included in gross domestic income except
A) / wages.
B) / welfare payments.
C) / net interest.
D) / rental income.

Use the following to answer question 5:

5. / Refer to Figure 5-1. The peak of the business cycle occurs
A) / between t1 and t3.
B) / at t3.
C) / between t2 and t3.
D) / at t2.
6. / Suppose that in Croy, residents never supply factors of production to foreign firms, while producers in Croy regularly employ factors owned by residents of other countries. Which of the following statements is true for Croy?
A) / GDP is greater than GNP.
B) / GDP is less than GNP.
C) / GDP and GNP are about the same.
D) / GDP exceeds GNP by an amount equal to depreciation plus indirect business taxes.
7. / In the U.S., since the 1950s, the share of employee benefits as a percentage of total employee compensation
A) / has been increasing.
B) / has been decreasing.
C) / has been relatively stable.
D) / has been subject to higher taxes.
8. / If your ticket wins the lottery, the earnings you receive
A) / causes gross domestic income to increase but does not affect gross domestic product.
B) / causes gross domestic income and gross domestic product to increase.
C) / causes gross domestic income to increase and gross domestic product to decrease.
D) / does not affect gross domestic income or gross domestic product.
9. / Which of the following reduces the duration of frictional unemployment?
A) / retraining unemployed workers to equip them with new skills
B) / subsidizing firms that are willing to train new entrants in the labor market
C) / establishing employment agencies which give out information about job vacancies
D) / establishing labor unions which will protect workers from being laid off.
10. / The income earned by those who supply entrepreneurial talent is called
A) / wages and salaries.
B) / profits.
C) / value of stock options.
D) / net interest.

Use the following to answer question 11:

Figure 6-2

11. / Refer to Figure 6-2. Your father buys a new set of golf clubs from a U.S. firm. This transaction is part of
A) / personal consumption expenditures and the flow is represented by 1.
B) / personal consumption expenditures and the flow is represented by 5.
C) / private investment expenditure and the flow is represented by 1.
D) / private investment expenditure and the flow is represented by 5.
12. / Which of the following would tend to increase the natural rate of unemployment?
A) / an increase in the education level of the labor force
B) / more college graduates entering the labor force
C) / a higher rate of inflation
D) / lower unemployment benefit payments
13. / What does the phrase “jobless recovery” refer to?
A) / It refers to a recovery from a recession which does not produce strong growth in employment.
B) / It refers to a situation in which rising productivity has made it possible for firms to reduce their workforce and increase output at the same time.
C) / It refers to the phenomenon where U.S. firms move their production abroad, thereby destroying jobs in the domestic market and creating new jobs in foreign markets.
D) / It refers to a situation in which a worker's real wage falls despite increases in productivity.

Use the following to answer question 14:

Table 5-5

Year / Consumer Price Index
2001 / 0.80
2002 / 1.00
2003 / 0.95
2004 / 1.25
2005 / 1.50

Table 5-5 shows some data on the consumer price Index for Kalimpong. The base year is 2002.

14. / Refer to Table 5-5. Which of the following statements is true?
I. / Kalimpong experienced deflation in 2001.
II. / Kalimpong experienced deflation in 2003.
III. / The inflation rate fell between 2004 and 2005.
A) / I only
B) / I and II
C) / II only
D) / II and III
15. / The economy is booming. GDP is growing at a rate of 6% per year, well above the average growth rate. Under these circumstances, which of the following types of unemployment is likely to have a rate less than or equal to zero?
I.. / Frictional unemployment
II. / Cyclical unemployment
III. / Structural unemployment
A) / I only
B) / II only
C) / III only
D) / I, II, and II
16. / The value of a unit of money, such as the dollar, always varies
A) / directly with the price of gold.
B) / inversely with the price of gold.
C) / inversely with the average price of gold and silver.
D) / inversely with the average level of prices.
17. / GDP can be measured
A) / either in terms of the total value of output produced or as the total value of consumer expenditures on goods and services.
B) / either in terms of the total value of output produced or as the total value of income generated in producing that output.
C) / either in terms of the total value of income generated in producing a nation's output or as the total sales of a nation's output.
D) / either in terms of the total value of inputs used to produce a nation's output or as the cost of producing of that output excluding profit.
18. / Cyclical unemployment
A) / occurs even when an economy is producing at a point on its production possibilities frontier.
B) / occurs only during a recession.
C) / tend to occur when an economy experiences inflation.
D) / is a part of an economy's natural rate of unemployment.

Use the following to answer question 19:

Table 6-2

billions of dollars
Personal consumption expenditures / 500
Gross private domestic investment / 400
Social Security payments to households / 60
Federal government purchases of goods and services / 100
State and local government purchases of goods / 200
Imports / 180
Net exports / –50
19. / Refer to Table 6-2. What is the value of exports?
A) / $130 billion
B) / –$130 billion
C) / $230 billion
D) / –$230 billion
20. / Which of the following is not a consequence of deflation?
A) / Deflation causes uncertainty about the future.
B) / The threat of deflation can make people reluctant to borrow for long periods.
C) / Deflation causes the real value of money to fall.
D) / Firms may be reluctant to undertake investments for fear that the prices at which they can sell their output will drop.
21. / In the generation of GDP, pollution often occurs. As a result,
A) / the value of nominal GDP will always be greater than the value of real GDP.
B) / the value of real GDP will always be greater than the value of nominal GDP.
C) / GDP is not always a good measure of economic or social welfare.
D) / the value of GDP is underestimated.
22. / The purchases of U.S. products by citizens of Mexico are
A) / counted as U.S. exports.
B) / counted as U.S. imports.
C) / considered Mexico's exports.
D) / considered as an income transfer from the U.S. to Mexico.
23. / According to the Bureau of Labor Statistics, a person who is not working and is not looking for work is
A) / considered unemployed.
B) / considered underemployed.
C) / counted as a “not currently working” member of the labor force.
D) / not a member of the labor force.
24. / Potential output is
A) / the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment.
B) / the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded.
C) / the level of real GDP that exists when the actual rate of unemployment is zero.
D) / the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.
25. / The aggregate demand curve slopes downward
I. / for the same reasons that an ordinary demand curve does.
II. / in part because when the price level falls, the real wealth of the public falls, and this induces people to change their consumption.
III. / because as the price level falls, the net export component of aggregate demand increases.
A) / I, II, and III
B) / II and III
C) / II only
D) / III only
26. / Suppose an economy's exports increase and its imports decrease. All other things unchanged, this results in
A) / a decrease in net exports which will shift the aggregate demand curve to the right.
B) / an increase in net exports which will shift the aggregate demand curve to the right.
C) / a decrease in net exports which will shift the aggregate supply curve to the left.
D) / an increase in net exports which will shift the aggregate supply curve to the right.
27. / Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level. What is the value of the multiplier?
A) / 2.5
B) / 3.5
C) / 0.285
D) / $250 million
28. / The long-run aggregate supply curve is vertical at
A) / potential output.
B) / the actual level of real output.
C) / the actual level of nominal output.
D) / 100% employment of the labor force.
29. / An economy adjust on its own to close a recessionary gap because there is
A) / pressure on nominal wages to fall and this shifts the SRAS curve rightward.
B) / pressure on nominal wages to rise and this shifts the SRAS curve rightward.
C) / pressure on nominal wages to fall and this shifts the SRAS curve leftward.
D) / pressure on nominal wages to rise and this shifts the SRAS curve leftward.
30. / In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of
A) / the aggregate demand, the short-run aggregate supply and the long-run aggregate supply curves.
B) / the short-run aggregate supply and the long-run aggregate supply curves.
C) / the aggregate demand and the short-run aggregate supply curves.
D) / the aggregate demand and the long-run aggregate supply curves.
31. / What do economists mean by the term “sticky wage”?
A) / It refers to the reluctance by employers to increase nominal wages during an inflationary period.
B) / It refers to a wage that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus in the labor market.
C) / It refers to a breakdown in wage negotiations between employers and employee unions.
D) / It refers to a union negotiated wage.
32. / How will a recession in the economies of our foreign trading partners affect U.S. aggregate demand?
A) / It will have no effect on our aggregate demand.
B) / U.S. aggregate demand will increase.
C) / U.S. aggregate demand will decrease.
D) / It depends on whether the U.S. offers financial aid to these countries.

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