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1) Macroeconomics covers all of the following EXCEPT a. prices on average. b. unemployment. c. inflation. d. why an orange is more expensive (or less expensive) than an apple
2) A graph a. can be used to show either a positive or negative relationship between two variables. b. can illustrate both microeconomic demand and aggregate demand. c. is used because it is impossible to describe any economic relationship verbally. d. all of the above. e. both a) and b) are correct.
3) In macroeconomics, economists are often concerned about whether there is enough spending. If there is not sufficient spending, there will be _________, a result of too little _____________. a. unemployment — aggregate supply b. unemployment — aggregate demand c. inflation — aggregate supply d. inflation – aggregate demand
4) In the business cycle diagram, an expansion would be shown as a. the bottom (trough) b. the top (peak) c. the falling portion of GDP growth d. the increasing portion of GDP growth
5) Which of the following best describes the general cause of business cycles? a. too little production. b. instability of aggregate demand over time. c. instability of aggregate supply over time. d. not only the excessive issuing of credit cards in the 1980s, but also the savings and loan bailout, and the overbuilding of office, hotel, and retail space
6) If nominal GDP is increasing at the same rate as real GDP, then it is definitely true that there is inflation. a. true b. false
7) Which of the following is NOT an accurate description of what can cause inflation? a. too many dollars chasing too few goods. b. an increase in labor costs when productivity is not increasing. c. an increase in the price of fruits and vegetables even when meat prices are declining. d. the level of spending exceeds the level of production at full employment.
8) Cost-push inflation can be called a. an inflation caused by the consumer side of the supply and demand equation. b. an inflation caused by the seller side of the supply and demand equation. c. the inflation that generally occurs because too many dollars are chasing too few goods. d. both a) and c) are correct.
9) Which of the following people is structurally unemployed? a. Brendan left his job as a soda jerk in New Jersey to become a soda jerk in Madrid, NM. He was unemployed for 6 weeks during the transition. b. Mildred quit her job after giving birth to a child. c. Clem, a skilled corset maker, lost his job when his factory shut down due to a permanent reduction in the demand for corsets. d. Dwanella lost her job when the electronics assembly plant was shut down temporarily due to low sales of the product.
10) If one produces more because of longer hours at work, then one can infer an increase in productivity. a. true b. false
11) If there is a problem with savings and its effect on the economy, it occurs at the ________ level. a. macroeconomic b. microeconomic c. household d. firm
12) Consider John Maynard Keynes’ quote “The ideas of economists and political philosophers…from some academic scribbler of a few years back.” (See first page lecture and reading outline.) Which of the following best describes what he is saying? a. Economists are strictly for university settings and have no influence outside of the university. b. Almost all politicians quote economists since most politicians have read most of the classic works of economics especially Smith’s Wealth of Nations and Keynes’ The General Theory. c. Economists are generally ignored, even though economists are usually correct. d. The ideas of economists influence the thinking of many everyday people, including politicians, even if these people have never had an economics course.
13) Which of the following, while they may be a “good thing” at the microeconomic (individual) level, may not be such a good thing when the need to maintain a high level of aggregate demand for full employment is considered? a. increasing savings and falling wages b. increasing spending and increasing wages c. real and nominal interest rates d. supply and demand
14) Sandy discovers that by entering the Woolly Wild West Fun Center via a side road she can avoid the long lines at the main entrance. Everyone at the park reaches the same collusion and acts upon it. This can best be described as an example of a. correct macroeconomic reasoning. b. the fallacy of composition. c. a normative way of thinking. d. both a) and c) are correct.
15) The level of real GDP and the price level are determined a. by the intersection of the microeconomic supply and demand curves. b. by the intersection of the macroeconomic supply and demand curves. c. by the macroeconomic supply curve. d. by the macroeconomic demand curve.
16) An increase in the price level means a. all prices are increasing. b. all prices that are increasing are increasing at the same rate. c. the average level of prices is increasing. d. both b) and c) are correct.
17) Which one of the following can be determined by all income that the factors of production receive during a particular period? a. national income b. gross domestic product c. disposable income d. personal income e. both a) and d) are correct as long as transfer payments are also included in national income.
18) Which one of the following items is NOT a factor cost? a. proprietor’s income b. employees’ compensation c. business transfer payments d. dividends e. rental income of persons
19) If prices on average have remained constant between 1970 and 1990 and the price of a McDonald’s hamburger increased from $1.00 to $4.00 then, a. there has been both a nominal and a real price change. b. there has been only a nominal price change. c. there has been only a real price change. d. there has been neither a real nor a nominal price change.
20) The Keynesian range of the aggregate __________ curve shows an economy in which aggregate demand is relatively ________. a. supply – stable b. supply – low c. demand –constant d. demand — high e. both a) and c) are correct.
21) Bottleneck inflation occurs a. in an economy with substantial amounts of unemployment. b. at full employment. c. before full employment. d. when resources are perfectly interchangeable. e. both c) and d) are correct.
22) Which is the best description of the effects of inflation? a. Inflation redistributes income. Since some benefit, inflation is not really a problem. b. Inflation decreases everyone’s nominal and real income. c. Inflation decreases everyone’s nominal income but not anyone’s real income. d. Inflation redistributes income arbitrarily. Therefore some win and some lose from inflation.
23) Which of the following transactions should not be included in the calculation of GDP? a. Jim purchases a new automobile.
b. Joe pays a plumber $100 to fix a broken pipe.
c. Sandy receives $100 in food stamps.
d. Kurt purchases an airline ticket for $500 just before a big reduction in fares.
24) If the consumer price index (CPI) was 80 in 2004, 100 in 2005, and 110 in 2006, then the base year must be a. 2004.
d. The base year cannot be determined from the given information.
25) Which of the following is a type of unemployment that is due to business cycles? This type of unemployment rises during economic recessions and falls during economic expansions. a. cyclical unemployment.
b. frictional unemployment.
c. natural rate of unemployment.
d. structural unemployment.
For the following questions go to: http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual- percent-changes-from-1913-to-2008/
26) What were the two listed inflation rates for year 2009? a. 207.342 and 214.537 b. 4.1 percent and 2.8 percent c. 2.7 percent and -0.4 percent d. 3 percent and 3.1 percent
27) For this question, note that when computing percentage changes, the denominator should be the initial number. How would you compute the inflation rate from December 2008 to December 2009? a. 215.949 – 210.228 divided by 215.949 b. 215.949 – 210.228 divided by 210.228 c. 215.303 – 214.537 divided by 215.303 d. 214.537 – 215.303 divided by 214.537
The next 4 questions are from Pugh and Garrett, Introducing Keynesian Economics.
28) According to Pugh and Garratt what really got the U.S. out of the Great Depression was a. Franklin Roosevelt’s “New Deal” b. more reliance on laissez-faire to solve the unemployment problem. c. balancing the budget so that tax revenues were always sufficient to cover government spending. d. spending on World War II.
29) The Pugh and Garrett reading discussed the work of the “Committee on National Expenditure” in 1931. The Committee according to Pugh and Garrett a. agreed with Keynes’ solution to the Depression. b. wanted greater deficits. c. wanted to increase taxes and decrease government spending. d. both b) and c) are correct.
30) Pugh and Garratt on page 75 talk about the “trade cycle.” This a. is also called the business cycle. b. is represented by a curve with waves. c. was not recognized by either Keynes or Marx d. both a) and b) are correct.
31) Those who are shown in the cartoon dancing a. are most likely Keynesian rather than classical economists. b. are celebrating the end of WWI. c. are taking a laissez-faire attitude towards the unemployment problem. d. studied economics at the Karl Marx Institute
Questions 32-37 are from Robert Heilbroner’s WORLDLY PHILOSOPHERS. Chapter 2, evolution of the market system & Chapter 3, Adam Smith
32) Heilbroner in his chapter on the evolution of the market economy tells about the trial of Robert Keayne, who was accused of “seeking riches for riches sakes.” What is the moral of the story? a. The law of upward sloping supply is a universal trait of human behavior. b. The market system is a relatively new way of life historically speaking. c. Both a) and b) are correct. d. Crime pays.
33) According to Heilbroner a possible way(s) of solving the economic problem is a. tradition. b. command. c. the market system. d. all of the above.
34) Economic freedom is best associated with a. Adam Smith. b. the guilds in France. c. any system other than a market system.
35) According to Smith competition forces producers to a. produce goods that people want. b. charge the minimum price possible in line with the costs of production. c. both of theses Consider the following quote from chapter 3 for the next two questions:
It is a curious paradox which thus ensues: the market, which is the acme of individual freedom, is the strictest taskmaster of all. One may appeal the ruling of a planning board or win the dispensation of a minister; but there is no appeal, no dispensation, from the anonymous pressures of the market mechanism. Economic freedom is thus more illusory than at first appears. One can do as one pleases in the market, but if one pleases to do what the market disapproves, the price of individual freedom is economic ruination.
36) This quote suggests there is a role for government regulation in the market place. a. true b. false
37) What if no one wants to buy the widgets you want to sell in the marketplace. To whom do you complain? a. the government b. the news media. c. both of these. d. There is no one to complain to.
The next 3 questions are from Keynes “An Open Letter to President Roosevelt.”
38) The purpose of Keynes’ letter to President Roosevelt is a. to congratulate him on his election as President. b. to urge deficit spending, an idea in The General Theory. c. to urge deficit spending, an idea contrary to the spirit of The General Theory. d. to urge balancing the budget so the federal would not run out of money during the Depression.
39) Keynes is against the idea of raising prices by destroying crops. Therefore he wants a. to keep crop prices steady b. raise prices by increasing supply c. raise prices by increasing demand d. both b) and c)are correct.
40) The following passage is in the letter. Take the statement and reword it in your own words. (Make it as easy to understand as possible.) The statement should be no more than 20 words.
“When more purchasing power is spent, one expects rising output at rising prices.”
41) You are in the classical range of the aggregate supply curve. Advise the President on good economic policy. The terms “aggregate demand”, “output”, “employment” and “inflation” should be part of your answer. Answer in no more than 75 words.
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