Test 2 Practice. 7. (1) A tax is regressive if it takes a

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1 Test 2 Practice 1. (1) The optimal mix of output may not be produced by an economy because of the existence of Inequity. Internalities. Public goods. Production possibilities. 2. (1) Which of the following is possible when the market fails? The mix of goods and services is on the production possibilities curve. It is impossible for government intervention to improve the mix of goods and services. The mix of goods and services is at the correct point on the production possibilities curve. The mix of goods and services is the optimal mix. 3. (1) A "free rider" is an individual who reaps Indirect benefits from someone else's purchase of a public good. Indirect benefits from someone else's purchase of a private good. Direct benefits from someone else's purchase of a public good. Direct benefits from someone else's purchase of a private good. 4. (1) Monopolies Have great productive efficiency and are always beneficial to society. May be beneficial to society if they are allowed to act like monopolies without government interference. May be beneficial to society if they are natural monopolies and are regulated. Are never beneficial to society. 5. (1) A merit good is Income payments for which no goods or services are exchanged. A good society holds to a higher standard in tax regulations. A good or service that society believes everyone is entitled to a minimal quantity of. A product that serves as an incentive to produce more output. 6. (1) A proportional tax is one that Rises as income rises. Falls as income rises. Is collected voluntarily for specific expenditure purposes. Collects the same rate on every dollar of income. 7. (1) A tax is regressive if it takes a

2 Larger number of dollars as income falls. Smaller fraction of dollars as income falls. Larger number of dollars as income rises. Smaller fraction of dollars as income rises. 8. (1) States receive most of their tax revenues from Sales taxes. State income taxes. Property taxes. User charges. 9. (1) An In the News article titled "Persistent Doubts about Government Waste" implies that people think the public sector is not producing as many services as it could with the resources at its disposal. If this is true, this indicates a situation of Market failure. Government failure. Efficiency. Merit goods. 10. (1)Government failure may result from Operational inefficiency by the public sector only. Misallocation of resources only. Accurate valuations of benefits but inaccurate valuations of costs. Outright waste of resources by the public sector or misallocation of resources. 11. (1)DVD players can be added to bicycles to compute the GDP by Multiplying output by price and adding the resulting dollar values. Dividing output by price and adding the resulting dollar values. Multiplying dollar values of output by price and adding the result. Dividing dollar values of output by price and adding the result. 12. (1)A convenience store pays a farmer $1.25 per pineapple. If it costs the farmer $0.15 in seeds, $0.25 in fertilizer, and $0.25 in forgone output to grow each pineapple, the value added by the farmer to each pineapple is $0.40. $1.25. $0.85. $ (1)Suppose the total market value of all the final goods and services produced in the country of Rushya was $8 billion in 2008 (measured in 2008 prices) and $9 billion in 2009 (measured in 2009 prices). Which of the following statements is definitely correct? Production increased in Rushya between 2008 and 2009.

3 Real GDP increased in Rushya between 2008 and Average price levels increased in Rushya between 2008 and Whether real GDP increased cannot be determined with the information given. 14. (1)Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices) and $5 billion in 2009 (measured in 2009 prices). Which of the following statements is definitely correct? Production increased in Cannedada between 2008 and Average price levels increased in Cannedada between 2008 and Nominal GDP decreased in Cannedada between 2008 and The change in real GDP cannot be determined without more information. 15. (1)A nation's production possibilities curve should, ceteris paribus, shift Inward if gross investment exceeds depreciation. Inward if net investment is zero. Outward if net investment is positive. Outward if gross investment is positive. 16. (1)When calculating GDP, consumption makes up approximately One-fifth of total output. One-half of total output. Two-thirds of total output. One-third of total output. 17. (1)Social Security payments to retired persons are included in Both GDP and personal income. Personal income and disposable income. National income but not personal income. National income and subtracted to get personal income. 18. (1)Disposable income is The amount of available income households have to either spend or save. The amount the household sector earns in producing the GDP. The amount households have left to spend after savings are subtracted. Personal income plus income taxes. 19. (1)

4 20. (1) On the basis of Table 5.1, gross domestic product is $6,980 billion. $7,635 billion. $6,810 billion. $7,720 billion.

5 On the basis of Table 5.3, the value of the income aggregate that is defined as "the part of disposable income not spent on current consumption" (also known as savings) is -$500 billion. $500 billion. $370 billion. $8,570 billion. 21. (1)For the labor force to definitely increase, There must be an increase in total population. There must be an increase in immigration. People must turn from being discouraged workers into people actively seeking employment. None of the choices are correct. 22. (1)When the economy is below full employment, it is producing On the production possibilities curve. Beyond the production possibilities curve. Inside the production possibilities curve. None of the choices are correct. 23. (1)

6 Based on Table 6.2, what was the labor force participation rate in 2000? percent percent percent percent. 24. (1)Which of the following groups typically has the highest unemployment rate? White teenagers. Black adults. White adult females. Black teenagers. 25. (1)After a fruitless two-year search for a job, a former executive gives up and decides to live off the land in the Rocky Mountains. This former executive is considered A discouraged worker. Structurally unemployed. One of the phantom unemployed. Underemployed. 26. (1)Frictional unemployment could result from each of the following except The reallocation of employees to growing industries. The inability of people to find work during certain seasons of the year. The opportunity for people to leave jobs in which they are underemployed. None of the choices are correct. 27. (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. 28. (1)When there is a mismatch between the skills required for a job and the skills of job seekers, the unemployment that results is an example of Frictional unemployment.

7 Structural unemployment. Cyclical unemployment. Seasonal unemployment. 29. (1)Which of the following government policies or programs would be most appropriate to offset cyclical unemployment? Those that stimulate more demand. More job training. Additional job placement services. Additional health services to counter the effects of unemployment. 30. (1)One cartoon in the text shows a contented rich man saying, "I don't like six-percent unemployment either. But I can live with it." The point is that Not everyone experiences the effects of unemployment equally. Everyone agrees that unemployment should be the top priority for government action. No one can avoid unemployment or the effects of unemployment. It is good to be an independent analyst because those types of jobs are always in demand. 31. (1)When the price of a good decreases more slowly than an index of average prices decreases, the good's relative price Has risen while its actual price has fallen. And its actual price has risen. And its actual price has fallen. Has fallen while its actual price has risen. 32. (1)Generally speaking, which of the following groups would tend to gain real income from the wealth effects of inflation? People with fixed income. People who have savings accounts at fixed rates of interest. People who own assets that are appreciating faster than the inflation rate. People who hold all of their assets in the form of cash. 33. (1)The Consumer Price Index is A measure of changes in the average price of all goods and services. A measure of changes in the average price of consumer goods and services. Used to measure the impact of business speculation on consumers. The impact felt by consumers who move into a higher tax bracket because of inflation. 34. (1)Which of the following reflects changes in expenditure patterns as well as price changes? The CPI. The PPI. The GDP deflator. The COLA.

8 35. (1)If the CPI doesn't measure product quality improvements, the CPI tends to Understate the inflation rate. Overstate the inflation rate. Understate economic growth. Be artificially low. 36. (1)When inflation suddenly increases, ARMs Protect against rising real interest rates. Protect the purchasing power of workers' wages. Protect borrowers against the effects of inflation. Maintain a stable real interest rate. 37. (1)If the nominal interest rate is 10 percent and the real interest rate is 6 percent, The expected rate of inflation is 4 percent. The expected rate of inflation is 6 percent. Real GDP must exceed nominal GDP. Nominal GDP equals real GDP. 38. (1) Consider the economy represented in Figure 7.4. If actual inflation was greater than anticipated inflation, Borrowers would experience a decrease in real income. Lenders would experience a decrease in real income. Lenders would experience an increase in real income.

9 The Federal Reserve would be forced to step in to increase lending. 39. (1)If your nominal income rises faster than the price level, Your real income has fallen. Your real income has risen. You can buy fewer goods and services. There must be deflation. 40. (1)All of the following are detrimental macro consequences of inflation except Uncertainty. Speculation. Bracket creep. COLAs. EZ Test Online (9b031) is Copyright 2009 by The McGraw Hill Companies, Inc.. Support - Terms of Use - Privacy Notice Prepared by: Gosselin, Richard