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WorksheetsEcon Exam 3
Total questions: 90
Worksheet time: 46mins
Goods and services produced in one country that are then sold in other countries are called ____________.
exports
economic stimulants
surplus items
tradeable items
The term _____________ describes circumstances where a country's exports exceed its imports.
trade deficit
trade imbalance
trade surplus
trade balance
From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result?
merchandise trade surplus
influx of foreign capital
deep economic recession
lessening of foreign aid
In the U.S., all companies involved in international flows of capital must file reports, which are ultimately compiled by the
Bureau of Economic Analysis
Census Bureau
Department of Commerce
Department of the Treasury
From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following?
a productive economic asset
trade resulting from unilateral transfers
trade in the financial capital market
a stream of payments leaving the country
The final category of the current account balance is ____________________, which can be thought of as payments made by individuals in which money is sent abroad _________________________.
trade in services; by domestic financial firms are treated like imports
exports of goods; can cause a merchandise trade deficit
income payments; and the returns are received from abroad
unilateral transfers; without any direct good or service being received
Which of the following terms is sometimes used to describe the balance of trade?
balance of investment capital
balance of payments
balance of capital flows
balance of financial investment
Which of the following represents a financial inflow to the U.S. economy?
computer chip imports from Israel
foreign aid from the U.S. to Ethiopia
returns paid on U.S. financial investments in Switzerland
oil imports from Canada
From a macroeconomic perspective, a payment made by a foreign firm to a U.S. investor looks just like an
export of a service.
import of a service.
export of a good.
import of a good.
A recession tends to make a _____________________.
trade deficit larger
trade deficit smaller
both a and b above
trade surplus smaller
The term _______ is used to describe what those in one country buy from those in other countries.
Exports
trade
surplus
imports
The term _____________ describes circumstances where a country's imports exceed its exports.
trade balance
trade imbalance
trade deficit
trade surplus
Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________.
current account balance; goods, services, international income flows, and foreign aid.
current trade balance; foreign aid announced by the government.
current trade balance; finance, law, and software product design.
current account balance; telecommunications, computers, finance, law, and advertising.
An economics professor is discussing a measure of trade that involves a comparison of exports and imports of goods for the year just ended. What name is given to this measurement?
export trade balance
current account balance
import trade balance
merchandise trade balance
Which of the following would most likely be included in the negative side of the current account balance?
returns paid to U.S. investors in Southeast Asia
money earned by Canadian firms in the U.S.
money spent by Canadian tourists in the U.S.
European aid sent to the U.S. to fund the Iraq war
To a macroeconomist, a trade deficit is synonymous with which of the following?
outflow of financial capital
inflow of goods and services
outflow of goods and services
inflow of financial capital
Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In these circumstances,
the rise in domestic investment will mean a higher trade surplus.
the rise in domestic investment will mean a higher trade deficit.
government borrowing will increase sharply.
the trade deficit will decline sharply.
Which of the following involves a financial outflow from the U.S. economy?
Chinese investors buy real estate across the U.S.
South Korean investors buy firms in the U.S
returns paid on U.S. investments in France
U.S. firms buying logging rights to China's forests
The two main sources for the supply of capital in the U.S. economy are:
domestic savings from individuals and firms and government borrowing to make up a tax shortfall
private sector investment and government borrowing when spending is higher than tax revenues
domestic savings from individuals and firms and inflows of financial capital from foreign investors
domestic private sector borrowing and inflows of financial capital from foreign investors
A period of strong economic growth tends to make a __________________.
a trade surplus
both a and b above
trade deficit larger
trade surplus larger
_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the ___________.
Keynesian economists; short run
Neoclassical economists; short run
Neoclassical economists; long run
Keynesian economists; long run
The term” full employment GDP” is synonymous with which of the following?
Keynesian zone
aggregate GDP
potential GDP
macroeconomic equilibrium
_________________ results when an economy experiences high unemployment and high inflation at the same time.
Deflation
Recession
Stagflation
Reflation
Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:
short term
unknown
indefinite
long term
In an AD/AS model, the point where the economy has excess capacity is called the
Keynesian zone of the AS curve
neoclassical zone of the AS curve
crossing point of the potential GDP line
intermediate zone of the AS curve
Due to inflationary pressures, the national income of households has been spread across a higher overall price base for goods and services. How will this affect be shown in an AS-AD model?
a downward sloping AS curve
nearly horizontal AD curve at the far left
a downward sloping AD curve
nearly vertical AS slope at the far right
Why is productivity growth considered to be the most important factor in the AS-AD model?
it shifts the AS curve in the long-term
it shifts the AD curve in the short-term
it shifts the AD curve in the long-term
it shifts the AS curve in the short-term
As the aggregate price level in an economy rises, ____________________.
exports decrease
consumer demand increases
interest rates increase
investment increases
Whether the economy is in a recession is illustrated in the AS-AD model by how close the _____________________ is to the potential GDP line.
AD curve
AS and AD curve
AS curve
equilibrium
The ____________________ in an AS-AD diagram is most relevant to Say's Law.
steep portion of the AS curve
AS curve
flat portion of the AS curve
AD curve
The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions is called
potential GDP.
aggregate demand.
aggregate supply.
real GDP.
In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.
aggregate supply (AS)
potential GDP
aggregate demand (AD)
macroeconomic equilibrium
When the economy of a country is operating close to its full capacity,
unemployment is close to zero.
the unemployment rate is less than the natural rate of unemployment.
cyclical unemployment is close to zero.
the unemployment rate is greater than the natural rate of unemployment.
_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.
Stagflation
The foreign price effect
The interest rate effect
Full employment GDP
In an AS-AD model,
the potential GDP always slopes downwards.
real GDP is shown on the horizontal axis.
the Consumer Price Index always slopes upwards.
the GDP deflator is shown on the vertical axis
The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.
price effect
inflation rate effect
wealth effect
interest rate effect
Changes in the price level of the different components of aggregate demand are reflected in the AS-AD macroeconomic model by a ________________________.
flatter top portion of AD curve
downward sloping AD curve
longer distance to equilibrium point
shorter distance to equilibrium point
Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.
relatively flat; relatively steep
relatively steep; remain steep
relatively flat; remain flat
relatively steep; relatively flat
The __________________ in an AS-AD diagram is most relevant to Keynes's Law.
AD curve
steep portion of the AS curve
flat portion of the AS curve
AS curve
The _________________ means that a higher price level leads to lower real wealth.
wealth effect
foreign price effect
interest rate effect
employment effect
The federal government currently is spending more money than it receives in tax revenue. In an attempt to balance the budget, the President pushes a bill through Congress that reduces defense spending by 20%.
AS will increase: GDP and jobs increase, inflation will decrease
AD will increase: GDP, jobs and inflation increase
AD will decrease: GDP, jobs and inflation decrease
AS will decrease: GDP and jobs decrease, inflation will increase
Congress passes a bill which creates a federal program that provides jobs for 25% of those who are homeless.
AS will increase: GDP and jobs increase, inflation will decrease
AS will decrease: GDP and jobs decrease, inflation will increase
AD will decrease: GDP, jobs and inflation decrease
AD will increase: GDP, jobs and inflation increase
Bowing to pressure from environmental groups, Congress passes a law that greatly restricts the amount of pollution that companies may emit into the air or dump into the water.
AD will increase: GDP, jobs and inflation increase
AS will increase: GDP and jobs increase, inflation will decrease
AD will decrease: GDP, jobs and inflation decrease
AS will decrease: GDP and jobs decrease, inflation will increase
Congress passes a reduction in the corporate income tax by 30%.
AS will increase: GDP and jobs increase, inflation will decrease
AD will decrease: GDP, jobs and inflation decrease
AD will increase: GDP, jobs and inflation increase
AS will decrease: GDP and jobs decrease, inflation will increase
Congress passes an increase in the personal income tax by 10%
AD will decrease: GDP, jobs and inflation decrease
AS will decrease: GDP and jobs decrease, inflation will increase
AS will increase: GDP and jobs increase, inflation will decrease
AD will increase: GDP, jobs and inflation increase
Consumption, investment, government spending, exports, and imports are
all complementary elements of a market-orientated economy.
some of the building blocks of Keynesian analysis.
some of the opposing elements found in a market-orientated economy.
all components of aggregate demand.
Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.
set of menu costs
macro-economic model
policy prescription
pricing strategy
The equilibrium quantity of labor and the equilibrium wage increase when
labor supply shifts to the left, if wages are flexible.
labor demand shifts to the left, if wages are flexible.
labor supply shifts to the right, if wages are flexible.
labor demand shifts to the right, if wages are flexible.
The equilibrium quantity of labor decreases and the equilibrium wage increases when
labor demand shifts to the right, if wages are flexible.
labor supply shifts to the right, if wages are flexible,
labor supply shifts to the left, if wages are flexible.
labor demand shifts to the left, if wages are flexible.
According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.
decease; interest rates
a decrease; a major trading partner's export prices
an increase; domestic investment
a decrease; a major trading partner's economy
According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?
increased spending by the government on health care
an increase in taxes on business investments
a decrease in the tax rate on consumer income
an increase in military spending
According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.
increased spending by the government on health care
decreased military spending
increased consumer tax rate
increased taxes on business investments
According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.
Keynesian
coordination
sticky wage and price
sticky wage
The onset of a trade deficit is most likely supported by a country's:
strong economic growth
existing trade surplus
reduction in the balance of trade
increased consumption function
If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy
is producing at a point where output is more than potential GDP.
is producing at a point where output is less than potential GDP.
is producing at its equilibrium point.
is producing at its potential GDP.
If markets throughout the global economy all have flexible and continually adjusting prices, then
all changes in prices and wages will create additional employment.
each economy will always head for its natural rate of unemployment.
all market-oriented economies will implement coordinated wage reductions.
each economy must shift in aggregate demand and create additional employment.
Aggregate demand is more likely to _________________ than aggregate supply in the short run.
increase slightly
decrease substantially
shift substantially
remain unchanged
The equilibrium quantity of labor increases and the equilibrium wage decreases when
labor demand shifts to the right, if wages are flexible.
labor supply shifts to the right, if wages are flexible,
labor supply shifts to the left, if wages are flexible.
labor demand shifts to the left, if wages are flexible.
____________________ will not cause a shift of the AS curve in a Keynesian framework.
Changes in input prices
Prices of inputs
Changes in inputs
Changes in output prices
According to the Keynesian framework, ___________________________ may cause a recession, but not inflation.
a decrease in a major trading partners export prices
a decrease in interest rates
a major trading partner's economic slowdown
an increase in domestic investment
According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?
increase in spending by the government on health care
an increase in military spending
decrease in spending by government on health care
a decrease in military spending
The Keynesian economic framework is based on an assumption that:
in the long run, the economy is self-adjusting.
an increase in government spending will cause the aggregate demand curve to shift to the left.
people can afford a high level of government services.
prices and wages are sticky and do not adjust rapidly.
In macroeconomics, what name is given to the costs of changing prices that businesses must consider?
menu costs
opportunity costs
internal costs
customer costs
In macroeconomics, a _________________ is used to show the relationship between output and the input price level.
expenditure-output model
Keynesian framework
Phillips curve
microeconomic model
The sum of all the income received for contributing resources to GDP is called ___________________.
national revenue (Y)
marginal revenue (X)
marginal income (X)
national income (Y)
________________ economists place an emphasis on __________ run economic performance.
Says; short
Keynesian; long
Phillips; short
Neoclassical; long
Which of the following is a building block of neoclassical economics?
wages and prices will adjust in a flexible manner
the size of the economy is determined by real GDP
sticky wages and prices
aggregate demand model
From a neoclassical viewpoint, government should focus less on:
long-term growth.
controlling inflation.
cyclical unemployment.
aggregate supply.
In the neoclassical version of the AS/AD model, which of the following should you use to represent the AS curve?
the AS curve shifting as productivity increases
the AS curve shifting as potential GDP expands
a vertical line drawn at the level of potential GDP
an upward sloping curve with a vertical top
In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right.
vertical Phillips curve
vertical AS curve
vertical AD curve
45 degree AD curve
If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur?
more consumption and less saving
a rise in unemployment
adjustment back to potential GDP
increase in price inflation
Which of the following is a valid criticism of the rational expectations theory?
people form the most accurate possible expectations
adjustment of wages and prices might be quite rapid
prices do not wait on events
the assumption seems too strong
The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future.
Keynesian economics
rational expectations
Neoclassical economics
adaptive expectations
The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?
neoclassical
Keynesian
market forces
flexible wage and price
If aggregate supply is vertical, then which of the following statements must be true?
Inflation creates greater social benefits.
Aggregate demand does not cause inflationary changes in price level.
Inflation will accompany any rise in output.
Aggregate demand does not affect the quantity of output.
Assume that the federal government increases spending on a new jobs program. What would be the expected effect on aggregate demand, GDP and price levels?
AD increases, GDP increases, price levels increase
AD decreases, GDP decreases, price levels decrease
Assume that the federal government increases personal income taxes. What would be the expected effect on aggregate demand, GDP and price levels?
AD increases, GDP increases, price levels increase
AD decreases, GDP decreases, price levels decrease
Is it possible that macroeconomic equilibrium will occur below the level of full employment?
No, it is impossible for this to happen.
Yes, this may occur when AD is less than AS at the full employment level.
What might create a trade-off between unemployment and inflation?
Any change in AS will cause this trade-off
Any change in AD will cause this trade-off.
What might cause unemployment and inflation to decrease simultaneously?
An increase in AS, the AS curve shifts to the right
A decrease in AS, the AS curve shifts to the left
The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.
potential GDP; natural rate of unemployment
long term growth; cyclical unemployment
natural level of output; cyclical unemployment rate
real GDP; natural rate of unemployment
Which of the following represents a Keynesian point of view of macroeconomics?
creating increases in aggregate demand to reduce unemployment
focus on long-term growth in the economy
aggregate supply is the primary determinate of economic output
vertical aggregate supply
The Keynesian view of economics assumes that
the economy must focus is on long-term growth.
wages are sticky.
economic output is primarily determined by aggregate supply.
the Keynesian Phillips curve is vertical.
Which of the following is a distinguishing characteristic of the neoclassical view?
increasing price levels will increase the unemployment rate
wages are maintained at original equilibrium
flexibility of wages and prices over time
wages and real GDP are sticky over time
In the neoclassical model, the AS curve shifts to the right over time as _______________________ and potential GDP expands.
aggregate demand increases
productivity increases
the macroeconomy adjusts back to real GDP
the level of real output drops
Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will::
lower unemployment
cause government to lower taxes
cause government to increase spending
exports will drop
In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.
levels of wages and aggregate demand
potential GDP and aggregate supply
levels of output and aggregate supply
potential GDP and aggregate demand
The shape of the ______________ involves a trade-off between unemployment and inflation.
Keynesian demand curve
aggregate demand curve
Phillips curve
aggregate supply curve
Which of the following is most strongly supported by the Keynesian perspective of macroeconomics?
more emphasis on economic growth and how labor markets work
shifts in unemployment primary determine changes in the price level
inflation is a price that might have to be paid to achieve lower unemployment
inflation offers no offsetting gains in terms of higher unemployment
A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.
is vertical; slopes downward
is vertical; is vertical
slopes upward; is vertical
slopes upward; slopes downward
