Question 1

During recessions, the change in real GDP is:

Accepted Answer

A)   always positive.
B)   always negative.
C)   most often positive, but occasionally negative.
D)   most often negative, but occasionally positive.E) A) and C)
F) All of the above

Question 2

If the natural rate of unemployment equals 8 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

Accepted Answer

A)   10 percent.
B)   2 percent.
C)   -2 percent.
D)   -1 percent.E) B) and D)
F) A) and B)

Question 3

Wasted capital and labor resources are a problem associated with a(n)  _____ gap. Increased inflation is a problem associated with a(n)  _____ gap.

Accepted Answer

A)   recessionary; expansionary
B)   recessionary; recessionary
C)   expansionary; expansionary
D)   expansionary; recessionaryE) C) and D)
F) B) and C)

Question 4

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

Accepted Answer

A)   spending.
B)   autonomous expenditure.
C)   menu costs.
D)   cyclical unemployment.E) B) and D)
F) None of the above

Question 5

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

Accepted Answer

A)   decrease; decrease
B)   increase; increase
C)   increase; decrease
D)   decrease; increaseE) None of the above
F) All of the above

Question 6

In Econland autonomous consumption equals 200, the marginal propensity to consume equals 0.9, net taxes are fixed at 100, investment is fixed at 200, government purchases are fixed at 300, and net exports are fixed at 50. Short-run equilibrium output in this economy equals:

Accepted Answer

A)   850
B)   5000
C)   6600
D)   7500E) C) and D)
F) A) and B)

Question 7

In the Keynesian model a recessionary gap will develop if there is:

Accepted Answer

A)   an increase in average labor productivity.
B)   too little spending.
C)   stabilization policy.
D)   too much spending.E) None of the above
F) A) and C)

Question 8

In the Keynesian model, a $5 billion decrease in investment leads to ______ in short-run equilibrium output.

Accepted Answer

A)   a $5 billion increase
B)   a greater than $5 billion decrease
C)   no change.
D)   a $5 billion decreaseE) B) and C)
F) A) and D)

Question 9

The effect on short-run equilibrium output of a one-unit increase in expenditure is called:

Accepted Answer

A)   the marginal propensity to consume.
B)   average labor productivity.
C)   Say's law.
D)   the income-expenditure multiplier.E) None of the above
F) C) and D)

Question 10

A depression is:

Accepted Answer

A)   a particularly severe and protracted recession.
B)   the high point of economic activity prior to a downturn.
C)   the low point of economic activity prior to a recovery.
D)   a particularly strong and protracted expansion.E) All of the above
F) B) and C)

Question 11

According to the Congressional Budget Office, from the 1970s to the 2000s, the natural rate of unemployment in the United States:

Accepted Answer

A)   increased.
B)   remained relatively stable.
C)   fell.
D)   fell to zero, and has since become negative.E) B) and C)
F) A) and D)

Question 12

In the long run, total spending affects ______, and output is determined by _______.

Accepted Answer

A)   inputs and productivity; prices
B)   inputs and productivity; total spending
C)   prices; inputs and productivity
D)   prices; meeting demand at preset pricesE) A) and B)
F) C) and D)

Question 13

If short-run equilibrium output equals 50,000 and potential output (Y*)  equals 45,000, then this economy has a(n)  ______ gap that can be closed by _________.

Accepted Answer

A)   expansionary; decreasing taxes
B)   expansionary; increasing transfer payments
C)   expansionary; decreasing government purchases
D)   recessionary; increasing government purchasesE) None of the above
F) A) and B)

Question 14

The largest component of aggregate expenditure in the United States is:

Accepted Answer

A)   consumption.
B)   investment.
C)   government purchases.
D)   exports.E) C) and D)
F) A) and B)

Question 15

Menu costs are the costs of:

Accepted Answer

A)   running a restaurant.
B)   changing prices.
C)   increasing aggregate demand.
D)   changing production.E) B) and C)
F) A) and D)

Question 16

The natural unemployment rate is equivalent to all of the following EXCEPT the unemployment rate when:

Accepted Answer

A)   cyclical unemployment is zero.
B)   there is only frictional and structural unemployment.
C)   there is no output gap.
D)   the unemployment rate is zero.E) B) and C)
F) A) and D)

Question 17

In reference to short-term economic fluctuations, the "trough" refers to:

Accepted Answer

A)   a period in which the economy is growing at a rate significantly below normal.
B)   the low point of economic activity prior to a downturn.
C)   the low point of economic activity prior to a recovery.
D)   a particularly strong and protracted recession.E) B) and D)
F) C) and D)

Question 18

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

Accepted Answer

A)   lower than
B)   approximately equal to
C)   higher than
D)   more predictable thanE) C) and D)
F) B) and D)

Question 19

An informal definition of a recession is at least ______ consecutive quarters of declining real GDP.

Accepted Answer

A)   two
B)   four
C)   six
D)   eightE) A) and B)
F) A) and C)

Question 20

If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

Accepted Answer

A)   -2 percent.
B)   2 percent.
C)   -1 percent.
D)   10 percent.E) B) and C)
F) A) and D)

Exam 10: Short-Term Economic Fluctuations and Fiscal Policy

In the Keynesian model a recessionary gap will develop if there is:

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In reference to short-term economic fluctuations, the "trough" refers to:

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The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional:

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The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

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Wasted capital and labor resources are a problem associated with a(n) _____ gap. Increased inflation is a problem associated with a(n) _____ gap.

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An informal definition of a recession is at least ______ consecutive quarters of declining real GDP.

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During recessions, the change in real GDP is:

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The effect on short-run equilibrium output of a one-unit increase in expenditure is called:

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If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ______ gap that can be closed by _________.

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The natural unemployment rate is equivalent to all of the following EXCEPT the unemployment rate when:

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If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

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The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

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If the natural rate of unemployment equals 8 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

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In Econland autonomous consumption equals 200, the marginal propensity to consume equals 0.9, net taxes are fixed at 100, investment is fixed at 200, government purchases are fixed at 300, and net exports are fixed at 50. Short-run equilibrium output in this economy equals:

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In the long run, total spending affects ______, and output is determined by _______.

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The largest component of aggregate expenditure in the United States is:

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A depression is:

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Menu costs are the costs of:

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In the Keynesian model, a $5 billion decrease in investment leads to ______ in short-run equilibrium output.

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According to the Congressional Budget Office, from the 1970s to the 2000s, the natural rate of unemployment in the United States:

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Wasted capital and labor resources are a problem associated with a(n) _ gap. Increased inflation is a problem associated with a(n) _ gap.

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If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) gap that can be closed by ___.

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The aging of the labor force in the United States is likely to the natural rate of unemployment; an increase in the efficiency of the labor market is likely to the natural rate of unemployment.

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In the long run, total spending affects , and output is determined by _.

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