MGT285 – The Consumer Price Index

MGT285Q1. The Consumer Price Index a. measures price changes in all goods, not just a market basket of select items. b. allows for the change in purchasing patterns that result from changes in relative prices. c. is a fixed quantity price index. d. measures the rate of anticipated inflation.Q2. Unanticipated inflation benefits a. people or businesses who owe money. b. people who live on fixed nominal incomes. c. people or businesses who lend money. d. people with savings.Q3. Unemployment implies that society is a. on the wrong point on its production possibilities curve. b. outside its production possibilities curve. c. on an endpoint of the production possibilities curve. d. inside its production possibilities curve.Q4. Is it possible for the unemployment rate to rise at the same time that the number of people working increases? a. no b. yes, if labor force growth outpaces growth in the number of people working c. yes, if the new workers are employed less than full time d. yes, if established workers keep their jobs but no longer have the option of working overtimeQ5. Mrs. Smith lost her job at a textile mill due to competition from cheaper imported goods. She would be classified as a. frictionally unemployed. b. structurally unemployed. c. not in the labor force. d. cyclically unemployed.Q6. The real rate of interest is the nominal interest rate plus the expected rate of inflation. a. true b. falseQ7. Despite repeated business fluctuations, the long-term trend in U.S. economic activity shows continued economic growth. a. true b. falseQ8. A lifeguard who is out of work in the winter is a. frictionally unemployed. b. seasonally unemployed. c. cyclically unemployed. d. structurally unemployed.Q9. What is the definition of a discouraged worker? a. a member of the labor force who is working but is discouraged about the performance of his company within the industry b. a member of the labor force who is working but is discouraged about his prospects for advancement within the company c. a person who has dropped out of the labor force because he is discouraged about his prospects for employment d. an unemployed member of the labor force who is uncertain about his/her job prospectsQ10. During the Great Depression, a. the U.S. unemployment rate reached its historical maximum. b. most people who couldn’t find work left the labor force, so the official unemployment rate remained low. c. unemployment statistics were not collected. d. the unemployment rate was not unusually high, but wage levels were low.Q11. When the economy is experiencing a contraction, there is an increase in a. frictional unemployment. b. seasonal unemployment. c. cyclical unemployment. d. structural unemployment.Q12. Table 10.3CommodityMarket Basket Quantity2000 Price per UnitCost of Market Basket in 20002003 Price per UnitCost of Market Basket in 2003Milk10 gallon2.0020.002.5025.00Eggs10 dozen2.0020.003.0030.00Bread10 loaves2.0020.003.0030.00In Table 10.3 the total cost of the market basket in 2003 was a. $8.50. b. $60.00. c. $6.00. d. $85.00.Q13. Real GDP can increase as a result of a. a decrease in aggregate supply. b. inflation. c. a decrease in aggregate demand. d. an increase in aggregate demand.Q14. An increase in the exchange value of the dollar will a. decrease aggregate demand, thereby increasing the price level. b. increase aggregate demand, thereby decreasing the price level. c. decrease aggregate demand, thereby decreasing the price level. d. increase aggregate demand, thereby increasing the price level.Q15. The intersection of aggregate supply and aggregate demand indicates a. the equilibrium level of real output. b. the equilibrium level of nominal output. c. the level of full employment. d. the optimal rate of investment.Q16. The upward slope of the supply curve is explained by a. the open economy effect. b. the profit motive of firms. c. the real balance effect. d. the bargaining strength of labor unions.Q17. What determines the total value of annual U.S. GDP? a. the Federal Reserve Board b. the Congressional Budget Office c. the spending decisions of consumers, firms, and governments d. Wall StreetQ18. Aggregate supply is the total of all planned production for an economy over a specific time period. a. true b. falseQ19. Aggregate demand shows the relationship between a. the rate of inflation and the level of imports. b. the level of real cash balances and wages. c. the interest rate and the level of exports. d. the price level and the level of real output.Q20. If the amount of goods supplied by firms exceed planned spending then a. inventories accumulate and firms reduce prices. b. inventories accumulate and firms raise prices. c. inventories are depleted and firms raise prices. d. inventories are depleted and firms reduce prices.Q21. Aggregate supply is a. the summation of all product supply curves. b. the horizontal summation of all supply curves for services. c. the sum of all planned production in the economy. d. the stock of all goods in the economy.Q22. A decrease in the exchange value of the dollar will a. lower the nominal price of imported goods. b. not affect the business sector. c. not affect the household sector. d. raise the nominal price of imported goods.Q23. Aggregate demand is a. the horizontal summation of all demand curves for state, local, and federal governments and business firms. b. the total quantity of all goods sold in an economy in a year. c. the sum of all planned expenditures for the economy. d. the horizontal summation of all demand curves for a product.Q24. Because individual demand curves slope down, the aggregate demand curve slopes up. a. true b. falseQ25. The intersection of aggregate supply and aggregate demand determines the equilibrium price level and equilibrium real output. a. true b. falseQ26. Contractionary fiscal policy is used when the economy is overheated. a. true b. falseQ27. Changes in investment spending a. do not affect the equilibrium level of real output. b. have a multiplier effect. c. do not affect aggregate demand. d. affect aggregate supply, but not aggregate demand.Q28. The flat portion of the aggregate supply curve represents a. the psychological factors influencing spending. b. the existence of excess capacity in the economy. c. the crowding out effect. d. the effect of automatic stabilizers.Q29. When business inventories accumulate beyond what firms had planned, the economy returns to equilibrium as the price level falls. a. true b. falseQ30. Net public debt is equal to gross public debt plus government interagency borrowing. a. true b. falseQ31. If the marginal propensity to consume is .9 and there is a $3 billion increase in planned investment, national income will increase by a. $3.0 billion. b. $30.0 billion. c. $6.0 billion. d. $2.7 billion.Q32. If a tax cut stimulates investment spending and the result is that output increases without an increase in the price level, we can conclude that a. the economy originally was in a situation of operating with excess capacity. b. Keynesian economics is ineffective at short-run stabilization. c. there was no change in the distribution of income when output increased. d. there was no change in the employment rate when output increased.Q33. Which one of the following is TRUE? a. Automatic stabilizers are used to stimulate aggregate demand, whereas discretionary fiscal policy is used to stimulate aggregate supply. b. To the extent that Congress relies on discretionary fiscal policy as a tool of stabilization, it must be willing to run budget deficits in some years. c. To the extent that Congress relies on discretionary fiscal policy as a tool of stabilization, it will be able to offset fluctuations in business activity without any time lags. d. Automatic stabilizers are used to stimulate aggregate supply, whereas discretionary fiscal policy is used to stimulate aggregate demand.Q34. If your income goes up by $1,000 per week, and your consumption goes up by $800 per week, you have a marginal propensity to save of a. 0.8. b. 1.0. c. 1.2. d. 0.2.Q35. Discretionary fiscal policy involves changes in government spending and taxation in order to offset fluctuations in the level of business activity. a. true b. falseQ36. If the marginal propensity to consume is 0.9, the multiplier is a. 0.90. b. 1.20. c. 9. d. 10.Q37. The intent of discretionary fiscal policy is to smooth out fluctuations in business activity by shifting the aggregate supply curve. a. true b. falseQ38. If investment spending increases by $1 billion when the marginal propensity to consume is .75, national income will increase by a. $1 billion. b. $4 billion. c. $3 billion. d. $2 billion.Q39. Which of the following assets are counted in M2? a. real estate b. credit card accounts c. mutual market mutual funds d. goldQ40. Which of the following is TRUE? a. M1 includes those assets that are near moneys. b. M1 includes those assets held for the purpose of engaging in marketplace transactions. c. M2 is equal to the value of GDP. d. M1 is always larger than M2.Q41. The assets included in M1 are a. the money that has been created outside the banking system. b. readily used to conduct marketplace transactions. c. assets of value that do not serve as a medium of exchange. d. not liquid.Q42. The Federal Reserve System a. regulates the U.S. fiscal policy. b. serves as the U.S. central bank. c. consists of 8 Federal Reserve districts. d. does not have any control over the money supply.Q43. Which one the following is TRUE? a. The Federal Reserve regulates the money supply by changing the level of reserves in the banking system. b. The money supply is independent of Federal Reserve actions. c. The money multiplier is determined by the current interest rate. d. The Federal Reserve regulates the money supply by determining the number of banks that will be allowed to issue loans in any one year.Q44. For something to serve as money, it must be a. backed by the authority of the government. b. light, durable, and common. c. convertible to gold. d. generally accepted by buyers and sellers.Q45. Traveler’s checks are a. included in M2 but not in M1. b. included in M1 but not in M2. c. included both in M1 and M2. d. included neither in M1 nor M2.Q46. The existence of money in an economy promotes efficiency by a. facilitating trade, thereby allowing for greater specialization. b. creating an equal distribution of income. c. allowing for the formation of corporations as legal entities. d. creating incentives to be self-sufficient.Q47. Credit card balances are included in M1. a. true b. falseQ48. When defining money as M1, you are looking at those assets that a. earn interest. b. can be used in transactions. c. serve as a medium of exchange but are not liquid. d. are liquid but do not serve as a medium of exchange.Q49. Which governing body determines the future growth of the U.S. money supply? a. the Federal Open Market Committee b. the U.S. Congress c. the U.S. Treasury d. the Economic Policy Committee, a body composed of the President, Treasury Secretary, and Commerce SecretaryQ50. Which of the following asset is the most liquid in the United States? a. U.S. currency b. corporate bonds c. U.S. Treasury Bonds d. an antique car