Question 1

When interest rates decrease, the substitution effect suggests that individuals will

Accepted Answer

A)  consume more today. 
B)  save more today. 
C)  consume more in the future. 
D)  save more and consume less today. 
A)  consume more today. 
B)  save more today. 
C)  consume more in the future. 
D)  save more and consume less today.

Question 2

Which of the following is not one of the "slippages" between changes in output and changes in the unemployment rate?

Accepted Answer

A)  As the size of the labor force increases, the interest rate increases, and therefore output falls. 
B)  The percentage increase in the number of jobs is less than the percentage increase in output. 
C)  The labor force increases when output increases. 
D)  The change in the number of jobs and the change in the number of people employed are not equal. 
A)  As the size of the labor force increases, the interest rate increases, and therefore output falls. 
B)  The percentage increase in the number of jobs is less than the percentage increase in output. 
C)  The labor force increases when output increases. 
D)  The change in the number of jobs and the change in the number of people employed are not equal.

Question 3

An unexpected increase in inventories has

Accepted Answer

A)  no effect on future production. 
B)  a positive effect on future production. 
C)  a negative effect on current production. 
D)  a negative effect on future production. 
A)  no effect on future production. 
B)  a positive effect on future production. 
C)  a negative effect on current production. 
D)  a negative effect on future production.

Question 4

Which of the following is not a transfer payment?

Accepted Answer

A)  Social Security payments 
B)  welfare benefits 
C)  unemployment compensation 
D)  dividends 
A)  Social Security payments 
B)  welfare benefits 
C)  unemployment compensation 
D)  dividends

Question 5

Empirical evidence with respect to the labor supply decision suggests that the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds ________ in the wage rate.

Accepted Answer

A)  negatively to a decrease 
B)  negatively to an increase 
C)  positively to a decrease 
D)  independently from an increase or a decrease 
A)  negatively to a decrease 
B)  negatively to an increase 
C)  positively to a decrease 
D)  independently from an increase or a decrease

Question 6

Which of the following statements is true?

Accepted Answer

A)  The long-run potential of the economy declines as output per worker falls during a recession. 
B)  The long-run potential of the economy increases as output per worker rises during an expansion. 
C)  The long-run potential of the economy increases as output per worker rises during an expansion, but the long-run potential of the economy doesn't change as output per worker falls during a recession. 
D)  Changes in output per worker over the business cycle have nothing to do with the long-run potential of the economy. 
A)  The long-run potential of the economy declines as output per worker falls during a recession. 
B)  The long-run potential of the economy increases as output per worker rises during an expansion. 
C)  The long-run potential of the economy increases as output per worker rises during an expansion, but the long-run potential of the economy doesn't change as output per worker falls during a recession. 
D)  Changes in output per worker over the business cycle have nothing to do with the long-run potential of the economy.

Question 7

Consumption will generally increase when the income tax rate ________ or transfer payments ________.

Accepted Answer

A)  increases; increase 
B)  increases; decrease 
C)  decreases; increase 
D)  decreases; decrease 
A)  increases; increase 
B)  increases; decrease 
C)  decreases; increase 
D)  decreases; decrease

Question 8

The relationship between output growth and unemployment depends on the state of the economy.

Accepted Answer

A) True 
 B)False

Question 9

Discouraged workers are counted as part of the labor force.

Accepted Answer

A) True 
 B)False

Question 10

The path of consumption over a lifetime is likely to be much more stable than the path of income.

Accepted Answer

A) True 
 B)False

Question 11

The average level of one's expected future income stream is

Accepted Answer

A)  disposable income. 
B)  permanent income. 
C)  gross income. 
D)  taxable income. 
A)  disposable income. 
B)  permanent income. 
C)  gross income. 
D)  taxable income.

Question 12

If the wage rate falls, consumption

Accepted Answer

A)  rises because the income and substitution effects are working in opposite directions to change consumption. 
B)  falls because the income and substitution effects are both working in the same direction to decrease consumption. 
C)  rises because the income and substitution effects are both working in the same direction to increase consumption. 
D)  falls because the income and substitution effects are working in opposite directions to change consumption. 
A)  rises because the income and substitution effects are working in opposite directions to change consumption. 
B)  falls because the income and substitution effects are both working in the same direction to decrease consumption. 
C)  rises because the income and substitution effects are both working in the same direction to increase consumption. 
D)  falls because the income and substitution effects are working in opposite directions to change consumption.

Question 13

The multiplier becomes smaller as the economy moves farther away from full employment.

Accepted Answer

A) True 
 B)False

Question 14

If the number of people employed is 190 million and the number of people in the labor force is 200 million, then the unemployment rate is

Accepted Answer

A)  5%. 
B)  10%. 
C)  90%. 
D)  95%. 
A)  5%. 
B)  10%. 
C)  90%. 
D)  95%.

Question 15

According to the life-cycle theory of consumption, people tend to consume ________ they earn during their main working years.

Accepted Answer

A)  more than 
B)  less than 
C)  the same as 
D)  an amount unrelated to what 
A)  more than 
B)  less than 
C)  the same as 
D)  an amount unrelated to what

Question 16

According to Okun's Law, if GDP increased by 6%, the unemployment rate would decrease by

Accepted Answer

A)  1 percentage point. 
B)  2 percentage points. 
C)  3 percentage points. 
D)  6 percentage points. 
A)  1 percentage point. 
B)  2 percentage points. 
C)  3 percentage points. 
D)  6 percentage points.

Question 17

The ________ of inventories is the level at which the extra cost of adding to inventory is equal to the extra gain from such addition.

Accepted Answer

A)  cost-maximizing level 
B)  minimum level 
C)  desired level 
D)  maximum level 
A)  cost-maximizing level 
B)  minimum level 
C)  desired level 
D)  maximum level

Question 18

Which of the following causes a decrease in labor supply?

Accepted Answer

A)  when wages and the price level decrease proportionately 
B)  an increase in income tax rates 
C)  an increase in the general price level 
D)  an increase in transfer payments 
A)  when wages and the price level decrease proportionately 
B)  an increase in income tax rates 
C)  an increase in the general price level 
D)  an increase in transfer payments

Question 19

If the income effect is less than the substitution effect and the wage rate decreases, individuals

Accepted Answer

A)  will supply more work. 
B)  will supply less work. 
C)  will consume less leisure. 
D)  cannot be determined from the given information. 
A)  will supply more work. 
B)  will supply less work. 
C)  will consume less leisure. 
D)  cannot be determined from the given information.

Question 20

The costs that a firm incurs when it changes its production level are ________ costs.

Accepted Answer

A)  adjustment 
B)  accelerated 
C)  sunk 
D)  depreciation 
A)  adjustment 
B)  accelerated 
C)  sunk 
D)  depreciation

Exam 30: Household and Firm Behavior in the Macroeconomy: a Further Look

When interest rates decrease, the substitution effect suggests that individuals will

Which of the following is not one of the "slippages" between changes in output and changes in the unemployment rate?

An unexpected increase in inventories has

Which of the following is not a transfer payment?

Empirical evidence with respect to the labor supply decision suggests that the substitution effect seems to dominate for most people, which means that the aggregate labor supply responds ________ in the wage rate.

Which of the following statements is true?

Consumption will generally increase when the income tax rate ________ or transfer payments ________.

The relationship between output growth and unemployment depends on the state of the economy.

Discouraged workers are counted as part of the labor force.

The path of consumption over a lifetime is likely to be much more stable than the path of income.

The average level of one's expected future income stream is

If the wage rate falls, consumption

The multiplier becomes smaller as the economy moves farther away from full employment.

If the number of people employed is 190 million and the number of people in the labor force is 200 million, then the unemployment rate is

According to the life-cycle theory of consumption, people tend to consume ________ they earn during their main working years.

According to Okun's Law, if GDP increased by 6%, the unemployment rate would decrease by

The ________ of inventories is the level at which the extra cost of adding to inventory is equal to the extra gain from such addition.

Which of the following causes a decrease in labor supply?

If the income effect is less than the substitution effect and the wage rate decreases, individuals

The costs that a firm incurs when it changes its production level are ________ costs.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: The Labor and Land Markets

Input Demand: The Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

Introduction to Macroeconomics

Measuring National Output and National Income

Unemployment, Inflation, and Long-Run Growth

Aggregate Expenditure and Equilibrium Output

The Government and Fiscal Policy

Money, the Federal Reserve, and the Interest Rate

The Determination of Aggregate Output, the Price Level, and the Interest Rate

Policy Effects and Cost Shocks in the Asad Model

The Labor Market in the Macroeconomy

Financial Crises, Stabilization, and Deficits

Long-Run Growth

Alternative Views in Macroeconomics

International Trade, Comparative Advantage, and Protectionism

Open-Economy Macroeconomics: the Balance of Payments and Exchange Rates

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Consumption will generally increase when the income tax rate or transfer payments .