Submission to Test 2 Practice

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1 Submission to Test 2 Practice Student: Gosselin, Richard (33969) Score: 9 4 (23%) Date: /9/25 9:2 Workstation: The optimal mix of output may not be produced by an economy because of the existence of Inequity. Internalities. Public goods. Production possibilities. Public goods are a type of market failure that may prevent the market from achieving the optimal mix of output. 2. 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. Market failure implies that market forces have not led us to the best point on the production possibilities curve. 3. 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. A free rider is an individual who reaps direct benefits from someone else's purchase of a

2 public good. 4. 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. A natural monopoly can achieve economies of scale over the entire range of market output and therefore may be economically desirable. The government may have to regulate the behavior of a natural monopoly, however, to ensure that consumers realize the benefits of that greater efficiency. 5. 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. A merit good is a good or service that society deems everyone is entitled to some minimal quantity of, such as food. 6. 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. A proportional tax is a tax that levies the same rate on every dollar of income.

3 7. A tax is regressive if it takes a 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. A regressive tax is a tax system in which tax rates fall as incomes rise. 8. States receive most of their tax revenues from Sales taxes. State income taxes. Property taxes. User charges. States receive most of their tax revenues from sales taxes. 9. 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. Government failure means that government intervention fails to move us closer to our optimal outcomes, which includes moving the market away from efficiency.

4 . 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. Governments failure may result from outright waste (operational inefficiency) or from a misallocation of resources.. 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. The total market value of all production of all goods and services is represented by GDP. GDP = (QDVD x PDVD) + (QBIKE x PBIKE). 2. A convenience store pays a farmer $.25 per pineapple. If it costs the farmer $.5 in seeds, $.25 in fertilizer, and $.25 in forgone output to grow each pineapple, the value added by the farmer to each pineapple is $.4. $.25. $.85. $.6. Value added is equal to the sale price less any explicit intermediate input prices required to produce the good.

5 3. Suppose the total market value of all the final goods and services produced in the country of Rushya was $8 billion in 28 (measured in 28 prices) and $9 billion in 29 (measured in 29 prices). Which of the following statements is definitely correct? Production increased in Rushya between 28 and 29. Real GDP increased in Rushya between 28 and 29. Average price levels increased in Rushya between 28 and 29. Whether real GDP increased cannot be determined with the information given. Real GDP in year t can be calculated by dividing nominal GDP in year t by the price index. Nominal GDP can increase if either real GDP or the price level increases, but it is impossible to know with certainty whether one or both of these increased from 28 to 29 as price index is unknown. More information is needed. 4. Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 28 (measured in 28 prices) and $5 billion in 29 (measured in 29 prices). Which of the following statements is definitely correct? Production increased in Cannedada between 28 and 29. Average price levels increased in Cannedada between 28 and 29. Nominal GDP decreased in Cannedada between 28 and 29. The change in real GDP cannot be determined without more information. Increases in nominal GDP are due to a rise in the price level, a rise in output, or both; this example does not allow us to conclude with certainty whether production or prices rose because more information is needed. 5. A nation's production possibilities curve should, ceteris paribus, shift Inward if gross investment exceeds depreciation. Inward if net investment is zero.

6 Outward if net investment is positive. Outward if gross investment is positive. As long as our gross investment is more than enough to replace worn-out capital and build new capital (net investment), our production possibilities will increase. 6. 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. Consumption is very important to the U.S. economy. 7. 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. Transfer payments count toward personal income but do not represent income from productive activities. 8. 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. Disposable income is after-tax income of households. Personal income is not fully available

7 to households because taxes must be subtracted before the household can spend or save. 9. On the basis of Table 5., gross domestic product is $6,98 billion. $7,635 billion. $6,8 billion. $7,72 billion. GDP can be obtained by adding C + I + G + (X - M). $4,565 + $865 + $,465 + ($74 - $825). 2.

8 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 -$5 billion. $5 billion. $37 billion. $8,57 billion. The part of disposable income received but not spent by households is savings. 2. 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. Usually an increase in population or immigration brings about an increase in the labor force. However, if this population or immigration increase is from people under 6 years old, then the labor force has not increased. The labor force definitely increases if discouraged workers

9 who are the labor force enter the labor force as active job seekers. 22. 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. When an economy is below full employment, it is not utilizing its resources to the full extent. Thus, unemployed resources are above the natural rate of unemployment resulting in society producing at a point below the production possibilities curve. 23. Based on Table 6.2, what was the labor force participation rate in 2? percent percent..8 percent. 8.5 percent. The labor force participation rate is equal to the labor force divided by the population: {(72 + 3)/} *. 24. Which of the following groups typically has the highest unemployment rate? White teenagers.

10 Black adults. White adult females. Black teenagers. Blacks and teenagers are usually the groups that have higher unemployment rates. 25. 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. Discouraged workers are not actively seeking employment. 26. 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. Frictional unemployment describes brief period of unemployment experienced by people moving between jobs or into the labor market. The inability to find work during certain seasons of the year is known as seasonal unemployment. 27. 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.

11 Cyclical unemployment. Seasonal unemployment. Frictional unemployment is normal in the economy and does not tend to last long because the worker has skills that are in demand. 28. 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. Structural unemployment. Cyclical unemployment. Seasonal unemployment. Structural unemployment is a serious matter because the worker does not have skills that employers are looking for. 29. 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. A government stimulus that creates more demand will blunt the effect of diminished private sector demand. 3. 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.

12 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. The costs of unemployment are borne by those who actually lose their jobs. 3. 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. If the price of a good rises more quickly than the average price level or falls more slowly than the average price level, its relative price has increased. 32. 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. Some assets, like stocks, tend to appreciate faster than the price level, while money market accounts typically appreciate at a slower rate than the price level. 33. 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.

13 The impact felt by consumers who move into a higher tax bracket because of inflation. The CPI takes into account the weight and importance of items purchased by consumers and uses these data as a measure of inflation. 34. Which of the following reflects changes in expenditure patterns as well as price changes? The CPI. The PPI. The GDP deflator. The COLA. Since the GDP deflator tracks changes in the prices of all final goods and services, it is up to date on what is actually being purchased. 35. 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. If the CPI registers a price increase that is due to quality improvements, unfortunately that is mistaken for inflation; but in fact consumers are paying more to get more. 36. 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. The real interest rate can be held constant if the nominal interest rate adjusts with changes in

14 the inflation rate. 37. If the nominal interest rate is 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. The expected rate of inflation is equal to the nominal real rate of interest minus the real rate of interest. 38. 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.

15 The Federal Reserve would be forced to step in to increase lending. Lenders would be worse off because borrowers would repay their loans with dollars worth less than what they borrowed. 39. 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. Real income can rise when nominal income is rising faster than the price level, or real income can fall if nominal income is rising slower than the price level. 4. All of the following are detrimental macro consequences of inflation except Uncertainty. Speculation. Bracket creep. COLAs. COLAs are designed to protect workers and retirees against rising prices that would erode their purchasing power. EZ Test Online (9b3) is Copyright 29 by The McGraw Hill Companies, Inc.. Support - Terms of Use - Privacy Notice Prepared by: Gosselin, Richard