chapter 7/8

• assume that the marginal propensity to consume is 0.90. as a result of an increase in the tax rates, the government collects an additional $20 million. what will be the impact on gross domestic product (GDP)?

  
  

  GDP will decrease by a maximum of $180 million
• according to the business cycle represented in the diagram below, the actual rate of unemployment equals the natural rate of unemployment when the economy is

  A: in expansion

  B: in contraction

  C: at the peak

  D: at the trough

  E: on the potential line

  E

  
• number of workers structurally unemployed: 3 million

  number of workers cyclically unemployed: 4 million

  number of workers frictionally unemployed: 2 million

  number of workers officially classified as employed: 91 million

  working-age population: 150 million

  what is the nation's unemployment rate?

  A: 4%

  B: 5%

  C: 6%

  D: 9%

  E: 66.7%

  D
• alice, who has left her job in new york, is moving to atlanta and looking for a job. in terms of employment status, alice can most accurately be described as

  A: involuntarily unemployed

  B: cyclically unemployed

  C: seasonally unemployed

  D: frictionally unemployed

  E: not in the labor force

  D
• which of the following groups of people would benefit from unanticipated inflation?

  I. savers

  II. borrowers

  III. lenders

  A: I only

  B: II only

  C: III only

  D: I and II only

  E: I and III only

  B
• assume that jane's marginal propensity to consume equals 0.8, and that in 2004 jane spent $36,000 from her disposable income of $40,000. if her disposable income in 2005 increased to $50,000, her consumption spending increased by

  A: $4,000

  B: $8,000

  C: $9,000

  D: $10,000

  E: $14,000

  B
• assume the nominal interest rate on a 15-year fixed-rate mortgage loan is 5 percent. if the expected inflation rate is 2 percent, the expected real interest rate is

  A: 2%

  B: 3%

  C: 5%

  D: 7%

  E: 10%

  B
• real disposable income consumption

  $18,000 $19,000

  $22,000 $22,000

  $26,000 $25,000

  A: 1.33

  B: 0.90

  C: 0.80

  D: 0.75

  E: decreasing as real disposable income increases

  D
• if a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has

  A: approximately decreased by 10%

  B: approximately decreased by 20%

  C: approximately increased by 10%

  D: approximately increased by 20%

  E: not changed

  C
• which of the following types of unemployment is caused by a recession?

  A: hidden

  B: frictional

  C: seasonal

  D: structural

  E: cyclical

  E
• which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?

  A: inflation had been underpredicted

  B: the real interest rate had exceeded the nominal interest rate

  C: the real interest rate had been negative

  D: people who borrowed funds at the nominal interest rate during this time period would lose

  E: the economy would expand because of the increased investment and spending

  D
• if a nation's actual real GDP is less than potential real GDP, which of the following must be true?

  A: the economy is in expansion

  B: the economy is in recession

  C: there is no cyclical unemployment

  D: there is no frictional unemployment

  E: the actual rate of unemployment exceeds the natural rate of unemployment

  E
• changes in which of the following factors would affect the growth of an economy?

  I. quantity and quality of human and natural resources

  II. amount of capital goods available

  III. technology

  A: I only

  B: I and II only

  C: I and III only

  D: II and III only

  E: I, II, and III

  E
• which of the following best describes an economy at full employment?

  A: the rate of unemployment is zero

  B: there is only structural and cyclical unemployment

  C: there is only cyclical unemployment

  D: there is cyclical, but not structural, unemployment

  E: there is frictional, but not cyclical, unemployment

  E
• in a closed economy with lump sum taxes, if the marginal propensity to consume increased from 0.5 to 0.75, the simple spending multiplier and the marginal propensity to save (MPS) would change in which of the following ways?

  A: MULTIPLIER increase, MPS increase

  B: MULTIPLIER increase, MPS decrease

  C: MULTIPLIER no change, MPS decrease

  D: MULTIPLIER decrease, MPS increase

  E: MULTIPLIER decrease, MPS decrease

  B