Test (1) Most of the direct spending at the state government level is on Defense. Public safety. Transportation. Education.

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1 Test 2 1. (1) If production in the economy is efficient, then changes in market prices Move us along the perimeter of the production possibilities curve. Move us to a point above the production possibilities curve. Move us from a point below the production possibilities curve to a point on the production possibilities curve. Have no effect on our position on the production possibilities curve. 2. (1) The term market mechanism refers to The use of market prices and sales to signal desired output. Resource allocation based on a production possibilities curve. Resource allocation based on consumer needs. Government laws and regulations concerning how the market should operate. 3. (1) Market failure implies that the market mechanism Leads the economy to a point outside the production possibilities curve. Leads the economy to the wrong mix of output. Causes shortages or surpluses in the market. Causes government failure. 4. (1) Government intervention may be appropriate to correct market outcomes because of Externalities. Private goods. Production possibilities. None of the choices are correct. 5. (1) In economics, a public good Is any good produced by the government. Has social costs of production lower than private costs of production. Is provided in an optimal amount by the market. Cannot be denied to consumers who have not paid. 6. (1) Most of the direct spending at the state government level is on Defense. Public safety. Transportation. Education. 7. (1) A proportional tax is one that

2 Rises as income rises. Falls as income rises. Is collected voluntarily for specific expenditure purposes. Collects the same rate on every dollar of income. 8. (1) In real terms, the cost of government spending is measured by Combining the private sector output with the public sector output sacrificed when the government employs scarce resources. Subtracting private sector output from the public sector output sacrificed when the government employs scarce resources. Only the private sector output sacrificed when the government employs scarce resources. Only the public sector output sacrificed when the government employs scarce resources. 9. (1) Government intervention in the market Always involves an opportunity cost. Never involves an opportunity cost because only market activities result in other goods and services being given up. Does not involve an opportunity cost if market outcomes are improved. Results in the free-rider dilemma. 10. (1)Which of the following statements is inaccurate? There is substantial agreement about how and when markets fail. There is substantial agreement about whether government improves market outcomes. Voters are quick to blame government meddling for many economic woes. Ideally, the market mechanism will lead an economy to the optimal mix of output. 11. (1)GDP per capita Is equal to a nation's GDP divided by its population. Does not permit comparisons of the economic welfare of different nations. Is real GDP corrected for price level changes. Indicates the most efficient use of resources. 12. (1)To avoid counting the same output more than once, the calculation of GDP includes Intermediate goods plus final goods. Only the value of final goods. The value added at each stage of production plus intermediate goods. Only the output produced by U.S. factors of production. 13. (1)Value added is the Addition to GDP because nonmarket activities are captured. Increase in market value of a product that takes place at each stage of the production process. Difference between nominal GDP and real GDP.

3 Impact on third parties caused by market activities. 14. (1)Real GDP is more accurate than nominal GDP in making comparisons of output over time because Nominal GDP can increase simply because of price increases over time. Real GDP is not affected by output changes. Nominal GDP is the hypothetical output that would be produced at full employment. Real GDP is not affected by changes in productivity or the size of the labor force. 15. (1)If nominal GDP was $11,500 billion in 2003 and the price level in 2003 was 111.6, then real GDP would have been approximately $9,795 billion. $10,305 billion. $10,485 billion. $9,750 billion. 16. (1) In Figure 5.1, during the period between the early 1970s and 1980, real GDP grew at a faster rate than nominal GDP. This is an indication that Average price levels decreased. Production increased at a faster rate than average price increased. Production increased at a slower rate than average price increased. Average price levels increased. 17. (1)Depreciation represents The consumption of capital in the production process. A loss of productive capability as a result of the inefficient use of resources. Wasted capital.

4 Gross investment plus net investment. 18. (1)In national income accounting, the two choices for disposable income are Saving and consumption. Saving and investment. Consumption and investment. Personal income and personal taxes. 19. (1) On the basis of Table 5.1, net domestic product is $6,340 billion. $6,170 billion. $6,995 billion. $7,080 billion. 20. (1)If the price level is increasing at 4% and output is increasing at 5%, then Real GDP is increasing faster than nominal GDP. Nominal GDP is increasing faster than real GDP. Nominal GDP is increasing at 20%. None of the choices are correct. 21. (1)From 1950 until 2000, the labor force participation rate has Increased for men and increased for women. Decreased for men and decreased for women.

5 Increased for men and decreased for women. Decreased for men and increased for women. 22. (1)The macro consequence of unemployment is Lost output for the economy. Lost income for the individual worker. A leftward shift in the production possibilities curve. A 1 percent decrease in GDP for every 1 percent decrease in unemployment. 23. (1) Based on Table 6.2, what was the unemployment rate in 1999? 8.42 percent percent percent percent. 24. (1)Which of the following groups generally has the lowest unemployment rate? High school dropouts. High school graduates with no further education. College dropouts. College graduates. 25. (1)After being fired from a job, some people find that it may take several months to find a new job in the same type of work, even when the economy is not in a recession. This is an example of which of the following types of unemployment? Structural unemployment. Frictional unemployment. Cyclical unemployment. Seasonal unemployment. 26. (1)Automobile workers in Detroit who are unemployed because of foreign imports at the same time that job vacancies exist for coal miners in West Virginia would most likely be classified as Structurally unemployed. Cyclically unemployed. Frictionally unemployed. Seasonally unemployed.

6 27. (1)Which of the following unemployment categories is most clearly related to the rate of growth in real GDP? Structural. Seasonal. Frictional. Cyclical. 28. (1)Unemployment was fairly low during all of the following periods except World War II. The Korean War. The late 1990s. The Great Depression. 29. (1)According to an In the News article "Carpentry Work Crashing Down," Labor demand for carpenters remains low as the economy climbs out of the recent recession due to Cyclical unemployment from lack of housing demand. Frictional unemployment due to a lumber shortage. Structural unemployment due to a mismatch between workforce skills and employer needs. None of the choices are correct. 30. (1)An underemployed worker who is looking for a full-time job is A discouraged worker. Phantom unemployed. Structurally unemployed. None of the choices are correct. 31. (1)The term "nominal income" refers to Money income adjusted for any change in the price level. Real purchasing power. Real purchasing power deflated for rising prices. Money income measured in current dollars. 32. (1)The base period used in computing a price index is The year in which prices were at their lowest level. The year in which prices were at their average level. A fixed reference year from which meaningful comparisons can be made. The earliest year for which data are available. 33. (1)The percentage of total expenditure spent on a specific product is called Core inflation. A market basket. A budget. The item weight.

7 34. (1)The Producer Price Index (PPI) is the best index to measure average price changes faced by Consumers. Producers. Importers. Labor unions negotiating COLAs. 35. (1)Which of the following is not true for the GDP deflator? It is based on a fixed basket of goods and services. It refers to all goods and services produced in GDP. It typically reveals a lower inflation rate than the CPI. It reflects both price changes and market responses. 36. (1)The best price index to use in calculating real GDP is Any of the indexes because they all reflect price level changes. The CPI. The PPI. The GDP deflator. 37. (1)If nominal GDP is $9,600 billion and the GDP deflator is 118.5, real GDP is $6,586.7 billion. $10,852.7 billion. $3,657.0 billion. $8,101.3 billion. 38. (1) Based on Table 7.1, the real GDP for 2003 was $4,832.0 billion. $6,811.7 billion. $6,584.2 billion. $6,984.1 billion. 39. (1)

8 Based on Table 7.2, the rate of inflation between 2001 and 2002 using the CPI was 2.65 percent percent percent percent. 40. (1)The real interest rate is The difference between the prime rate and the rate charged by the government (the Federal Reserve) on loans. The nominal interest rate minus the anticipated rate of inflation. The inflation rate minus the percentage increase in average wages. The sum of inflation rates and unemployment rates. EZ Test Online (9b031) is Copyright 2009 by The McGraw Hill Companies, Inc.. Support - Terms of Use - Privacy Notice Prepared by: Gosselin, Richard

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