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Question 1 of 10 Feedback

Multiple Choice: Please select the best answer and click "submit." That is incorrect; the correct
answer is: A shift in the supply
curve to the left.
What would happen on the supply curve for automobiles if the price of
steel increased? Click Next to Continue

A. A downward movement along the supply curve

B. A shift in the supply curve to the right

C. A shift in the supply curve to the left

D. An upward movement along the supply curve


Question 2 of 10 Feedback
Multiple Choice: Please select the best Correct! Supply
answer and click "submit." decreases when
What would happen on the supply curve production costs
for sneakers if the wages of workers in go up.
sneaker factories increased? Click Next to
Continue
A. A shift in the supply curve to the right

B. A shift in the supply curve to the left

C. An upward movement along the supply curve

D. A downward movement along the supply curve

Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

What would happen with the supply curve for televisions if a new company started making them?

A. A downward movement along the supply curve

B. An upward movement along the supply curve

C. A shift in the supply curve to the left

D. A shift in the supply curve to the right


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That is incorrect; the correct answer is: A shift in the supply curve to the right.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

What would happen on the supply curve for computers if a new business model allowed a supplier to ship
computers more cheaply?

A. A downward movement along the supply curve

B. A shift in the supply curve to the right

C. A shift in the supply curve to the left

D. An upward movement along the supply curve


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Correct! Supply increases when production costs go down.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

What would happen on the supply curve for blue plastic boots if there were a sudden fad causing a lot of
people to wear blue plastic boots?

A. A shift in the supply curve to the left

B. A shift in the supply curve to the right

C. A downward movement along the supply curve

D. An upward movement along the supply curve


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That is incorrect; the correct answer is: An upward movement along the supply curve.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these circumstances would lead to a decrease in quantity supplied?

A. A loss of interest in a novelty product

B. A new company entering the market

C. An increase in wages

D. A technological breakthrough
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That is incorrect; the correct answer is: A loss of interest in a novelty product.

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Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

What condition indicates inelastic supply?

A. When a large change in production costs results in a small change in supply

B. When a large price change results in a small change in quantity supplied

C. When a small price change results in a large change in quantity supplied

D. When a small change in production costs results in a large change in supply


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That is incorrect; the correct answer is: When a large price change results in a small change in quantity supplied.

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Question 8 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." Correct! When a change in
price leads to a larger
percentage change in quantity,
Which set of changes indicates elastic supply?
supply is elastic.

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A. A decrease of 20% in the price of hamburgers results in an increase
of 5% in quantity supplied.

B. A decrease of 5% in the price of hamburgers results in a decrease of


20% in quantity supplied.

C. An increase of 5% in the price of hamburgers results in a decrease of


10% in quantity supplied.

D. An increase of 10% in the price of hamburgers results in an increase


of 10% in quantity supplied.

Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these situations would lead to inelastic supply of bike couriers in New York City?

A. Bike couriers can easily move and get jobs in other cities.

B. There are very few people who have the skills to be bike couriers.

C. There are a lot of people who have the skills to be bike couriers.

D. Bike couriers could use their bikes to race professionally.


Feedback
Correct! There is inelastic supply when it's difficult for producers to get into the market.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

Which set of conditions indicates elastic supply for exercise machines?

A. There are few innovations that could improve the efficiency of exercise machine production.

B. Building exercise machines requires specialized equipment.

C. Many companies can produce exercise machines.

D. Exercise machine makers can produce a wide range of products.


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Correct! Supply is elastic when it's easy for producers to get into the market.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens when there's excess demand?

A. Producers raise prices.

B. Consumers buy more at lower prices.

C. Producers lower prices.

D. Consumers buy more at higher prices.


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Correct! Excess demand occurs when the price is too low, so producers raise prices.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens when there's excess supply?

A. Consumer demand decreases.

B. Producers raise prices.

C. Producers lower prices.

D. Consumer demand increases.


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That is incorrect; the correct answer is: Producers lower prices.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens when there is an increase in demand?


A. The equilibrium price decreases.

B. There is no change in equilibrium price.

C. You cannot determine the change in equilibrium price.

D. The equilibrium price increases.

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That is incorrect; the correct answer is: The equilibrium price increases.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens when supply and demand both increase?


A. Price decreases

B. Quantity increases

C. Price increases

D. Quantity decreases

Feedback
Correct! When both supply and demand increase, quantity increases, while price may increase, decrease, or stay the
same.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens to price when supply and demand both decrease?


A. It's indeterminate.

B. It decreases.

C. It increases.

D. There's no change.

Feedback
Correct! When both supply and demand decrease, the price may increase, decrease, or stay the same.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens to quantity when there's a large supply decrease and a small demand increase at the same
time?
A. It's indeterminate.

B. There's no change.

C. It increases.

D. It decreases.

Feedback
That is incorrect; the correct answer is: It decreases.

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Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these produces a shortage?


A. A price floor above the equilibrium price

B. A price ceiling above the equilibrium price

C. A price floor below the equilibrium price

D. A price ceiling below the equilibrium price

Feedback
That is incorrect; the correct answer is: A price ceiling below the equilibrium price.

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Question 8 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these produces a surplus?


A. A price ceiling below the equilibrium price

B. A price floor above the equilibrium price

C. A price floor below the equilibrium price

D. A price ceiling above the equilibrium price

Feedback
That is incorrect; the correct answer is: A price floor above the equilibrium price.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."
The troubled country of Turnovo, whose main food is the kotka, has established a price floor of
$0.60/kotka. What is the effect of this price floor?

A. The effect cannot be determined.

B. It creates a shortage.

C. There is no change.

D. It creates a surplus.
Feedback
That is incorrect; the correct answer is: It creates a surplus.

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Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."
How big is the effect of this price floor, measured in kotkas?

Answer: 3000
Feedback
That is incorrect; the correct answer is: 3000.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Imagine the market for coffee. Suppose the price of tea increases at the same time that a new method of
growing coffee, which produces twice as much coffee for the same cost, is developed. What will happen to
the equilibrium price and quantity for coffee?

A. Equilibrium quantity will increase, but we can't tell if equilibrium price goes up or down.

B. Equilibrium price will decrease, but we can't tell if equilibrium quantity goes up or down.

C. We can't tell if either equilibrium price or equilibrium quantity will go up or down.

D. Equilibrium quantity will decrease, but we can't tell if equilibrium price goes up or down.
E. Equilibrium price will increase, but we can't tell if equilibrium quantity goes up or down.

Feedback
Yes. Both demand and supply for coffee increased, so the equilibrium quantity must increase too. But since the
increased demand works towards raising the equilibrium price, and increased supply works toward lowering the
equilibrium price, we can't be sure what the final result will be. We don't know which would outweigh which, so we
don't know which way the price will change.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

According to the graph, firms are willing to supply 40 units if the price is at least:
A. 25

B. 10

C. 5

D. 15

E. 20
Feedback
The correct answer is: 20. Firms are willing to supply 40 units if the price is 20. Just find 40 on the horizontal axis, then
go straight up to the supply curve and over to the vertical axis to find the price.

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Question 3 of 10
True-False: Please select true or false and click "submit."

True or False: A change in the price of a good results in movement along the demand curve for that good,
and a change in anything else that affects consumers (including the price of substitutes and compliments for
that good, income, tastes, and future expectations) results in a movement of the entire curve.

A. True

B. False
Feedback
Yes! Changes in price cause movement along the demand curve, changing the quantity demanded. The negative
relationship between price and quantity demanded indicates that as price increases, the quantity demanded will
decrease. Changes in all the other factors that affect consumers shift the entire demand curve, altering the quantity
demanded at any price. Think of the two terms change in quantity demanded and change in demand. A change in
quantity demanded is just that, a change in the quantity that consumers demand. But a change in demand is much
bigger; it's a change of the entire demand curve.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

Imagine a graph of the market for chocolate bars. Suppose a drought in the region where most cocoa beans
are grown severely damages the crop. Ceteris paribus, what will be the resulting change in equilibrium of
the chocolate bar market?

A. Equilibrium price will decrease, and equilibrium quantity will increase.

B. Equilibrium price will increase, and equilibrium quantity will increase.


C. Equilibrium price will increase, and equilibrium quantity will decrease.

D. Equilibrium price will decrease, and equilibrium quantity will decrease.

E. We can't say what will happen to equilibrium price and quantity.

Feedback
Correct! In this situation, the equilibrium price will increase, and the equilibrium quantity will decrease. The drought
that damaged the cocoa bean crop caused the supply of cocoa beans to decrease, driving up the price of the inputs in the
production of chocolate bars. This causes the supply of chocolate bars to decrease (a shift to the left of the supply
curve), which results in a higher equilibrium price and a lower equilibrium quantity.

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Question 5 of 10
True-False: Please select true or false and click "submit."

True or False: On the graph below, beginning with an equilibrium at point A, if the demand curve shifts
from D1 to D2, equilibrium shifts from point A to point B.
A. True

B. False

Feedback
Yes! An outward shift in the demand curve from D1 to D2(holding supply constant) would result in equilibrium
shifting from point A to point C. It would take an outward shift in supply (fromS1 to S2), holding demand constant, for
equilibrium to shift from point A to point B.

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Question 6 of 10
True-False: Please select true or false and click "submit."

True or False: If a demand curve shifts, it's because of a change in price.

A. True

B. False

Feedback
The correct answer is: A shift of a demand curve is caused by something other than a change in price. A chance in price
will only cause movement along the original demand curve.

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Question 7 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." Yes! In this case, the
equilibrium quantity will
decrease, but we can't tell
Imagine the market for chocolate bars. Suppose the following things
what happens to equilibrium
occur simultaneously: A report is released claiming chocolate causes the
price. We have a decrease in
flu, and stricter worker-safety regulations are implemented in the
demand (due to tastes and
production of chocolate. What will happen to the equilibrium price and
preferences changing) and a
quantity?
decrease in supply (due to
changes in government
regulations that make the
A. Equilibrium price will increase, but we can't tell what happens to production process more
equilibrium quantity. expensive). When we have a
decrease in both supply and
B. Equilibrium quantity will decrease, but we can't tell what happens to demand, but we can't tell what
equilibrium price. happens to the equilibrium
price, but the new equilibrium
quantity will definitely
C. Equilibrium quantity will increase, but we can't tell what happens to
decrease.
equilibrium price.
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D. Equilibrium price will decrease, but we can't tell what happens to
equilibrium quantity.

E. We can't say what will happen to equilibrium price and quantity.

Question 8 of 10
True-False: Please select true or false and click "submit."

True or False: In the case of two complementary goods, an increase in the price of one good causes an
increase in the demand for the other good, shifting the demand curve as shown in the graph below.
A. True

B. False
Feedback
The correct answer is: In the case of two complementary goods, an increase in the price of one good causes a decrease
in the demand for the other good, not an increase. If good A and good Bare complements, and the price of good A goes
up, you'd buy less of good A. And since good B is a complement of A (meaning you use them together), you'd have less
use for good B. Therefore, your demand for good B would decrease.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

If a hurricane in Florida destroys half the orange crop, driving the price of oranges up, how will it affect the
supply of orange juice?

A. Movement upward along the supply curve.

B. An increase in supply, or a rightward shift of the supply curve.

C. No effect on supply.
D. Movement downward along the supply curve.

E. A decrease in supply, or a leftward shift of the supply curve.

Feedback
The correct answer is: a decrease in supply, or a leftward shift of the supply curve. An increase in the costs of
production (caused by the hurricane) causes producers to decrease production, shifting the supply curve to the left and
decreasing supply.

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Question 10 of 10
True-False: Please select true or false and click "submit."

True or False: The minimum wage is an example of a price ceiling.

A. True

B. False
Feedback
The correct answer is: The minimum wage is an example of a price floor3a minimum price. Employers aren't allowed
to pay less than the minimum wage. Price floors can cause a surplus, where quantity supplied exceeds quantity
demanded.

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Question 1 of 30
Multiple Choice: Please select the best answer and click "submit."

The scientific method:

A. is a four-step process.

B. requires certain assumptions and simplifications.

C. is used in economics.

D. All of these. It's a four-step process; it requires certain assumptions and simplifications; and it's used in
economics.
E. None of these.

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Correct!

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Question 2 of 30
Multiple Choice: Please select the best answer and click "submit."

Society's production possibilities curve bows out because:

A. resources are perfectly adaptable to alternative uses.

B. we attempt to maximize our output given our limited resources.

C. we are not faced with scarcity.


D. a point on the curve represents unemployment.

E. of increasing opportunity costs.

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The correct answer is: of increasing opportunity costs.

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Question 3 of 30
Multiple Choice: Please select the best answer and click "submit."

Assuming compact discs and cassettes are substitute goods, a decrease in the price of cassettes will cause
the demand curve for compact discs to:

A. shift to the right as consumers switch from buying discs to cassettes.

B. shift to the left as producers increase cassette production and reduce disc production.
C. shift to the left as consumers switch from buying discs to cassettes.

D. remain unchanged since discs and cassettes are sold in separate markets.

E. shift to the right as producers decrease cassette production and increase disc production.

Feedback
The correct answer is: shift to the left as consumers switch from buying discs to cassettes.

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Question 4 of 30
Multiple Choice: Please select the best answer and click "submit."

A decrease in quantity demanded is given by a (an):

A. downward shift of the demand curve.


B. upward shift of the demand curve.

C. downward shift of both demand and supply curves.

D. downward movement to the right along the demand curve.

E. upward movement to the left along the demand curve.

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The correct answer is: upward movement to the left along the demand curve.

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Question 5 of 30
Multiple Choice: Please select the best answer and click "submit."

People pursuing their own self-interest are:


A. selfish.

B. unable to consider the affects of their actions on others.

C. perhaps selfish, but perhaps not, depending on their values and point of view.

D. definitely concerned only with themselves and no one else.

E. may pledge donations to charities, but will never follow through with the donations.

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The correct answer is: perhaps selfish, but perhaps not, depending on their values and point of view.

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Question 6 of 30
Multiple Choice: Please select the best answer and click "submit."
One of the reasons Chris chose life guarding is that he had already completed the certification course
necessary for the job. "Since I have the training," he said, "I really should use it." This reasoning is:

A. incorrect because the cost of taking the course is a sunk cost.

B. based on the opportunity cost of taking the certification course and is correct.

C. incorrect because the cost of the course may have been greater than the benefit of the job.

D. either correct or incorrect, depending on the wage he makes as a lifeguard.

E. called marginal analysis and is rational and correct.

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Correct!

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Question 7 of 30
Multiple Choice: Please select the best answer and click "submit."
Productive efficiency means:

A. both an increase in the production of one good cannot occur without a decrease in the production of
another good, and the economy is producing on its PPF.

B. the economy is producing above its PPF.

C. the economy is producing inside its PPF.

D. an increase in the production of one good cannot occur without a decrease in the production of another
good.

E. the economy is producing on its PPF.

Feedback
The correct answer is: both an increase in the production of one good cannot occur without a decrease in the production
of another good, and the economy is producing on its PPF.

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Question 8 of 30
Multiple Choice: Please select the best answer and click "submit."

If you were a government official who wanted to raise the equilibrium price of milk, which of the following
actions could you take and expect to achieve your goal?

A. Encourage farmers to produce more milk.

B. Take milk from government storage and sell it.

C. Prohibit milk sales to foreign countries.

D. Encourage farmers to produce less milk.

E. Subsidize purchases of dairy equipment for farmers.

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The correct answer is: Encourage farmers to produce less milk.

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Question 9 of 30
Multiple Choice: Please select the best answer and click "submit."

One of the assumptions underlying the production possibilities curve (or production possibilities frontier)
for any given economy is that:

A. goods can be produced outside the curve.

B. there is an unlimited supply of resources.

C. there is full employment of resources when the economy is on the curve.

D. all societies will choose to operate at a point inside the curve.

E. the state of technology changes.

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The correct answer is: there is full employment of resources when the economy is on the curve.
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Question 10 of 30
Multiple Choice: Please select the best answer and click "submit."

Jan can either pick 10 bushels of apples or press 20 gallons of cider in a day. Kim can either pick 15
bushels or press 15 gallons in a day. Which of the following statements is true?

A. Kim has the absolute advantage in picking apples, but Jan has the comparative advantage in picking
apples.

B. Kim should specialize in pressing cider.

C. Jan has absolute and comparative advantages in pressing cider.

D. Jan has the absolute advantage in picking apples.

E. Kim has the comparative advantage in pressing cider.

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The correct answer is: Jan has absolute and comparative advantages in pressing cider.

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Question 11 of 30
Multiple Choice: Please select the best answer and click "submit."

The negative slope of the demand curve reflects the:

A. inverse relationship between price and quantity.

B. proportional relationship between price and quantity.

C. positive relationship between price and quantity.

D. inverse relationship between income and price.

E. positive relationship between income and quantity.


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The correct answer is: inverse relationship between price and quantity.

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Question 12 of 30
Multiple Choice: Please select the best answer and click "submit."

A technological breakthrough lowers the cost of manufacturing VCRs. As a result, the market changes to a
new equilibrium because of a (an):

A. upward movement along the demand curve for VCRs.

B. shortage of VCRs.

C. rightward shift in the supply curve for VCRs.

D. rightward shift in the demand curve for VCRs.


E. excess demand for VCRs.

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The correct answer is: rightward shift in the supply curve for VCRs.

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Question 13 of 30
Multiple Choice: Please select the best answer and click "submit."

Suppose prices for new homes have risen, and sales of new homes have also risen. We can conclude that:

A. construction firms must be facing higher costs.

B. the law of demand doesn't apply to a necessity such as housing.

C. new firms have entered the construction industry.


D. the demand for new homes has risen.

E. the law of demand has been violated.

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The correct answer is: the demand for new homes has risen.

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Question 14 of 30
Multiple Choice: Please select the best answer and click "submit."

Ceteris paribus is a key phrase in economics. It means:

A. ignore all other factors.

B. hold all variables constant.


C. given a fixed price.

D. both ignore all other factors and given a fixed price.

E. both hold all variables constant and ignore all other factors.

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The correct answer is: hold all variables constant.

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Question 15 of 30
Multiple Choice: Please select the best answer and click "submit."

If the equilibrium wage in the labor market is $8.00, but the government imposes a minimum wage of
$10.00, there will be:

A. less unemployment because, with the higher wage, more people will want to work.
B. less unemployment because employers will want to hire more people.

C. more unemployment because, with the higher wage, fewer people will need to work.

D. more unemployment because employers will want to hire fewer people.

E. None of the above.

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The correct answer is: more unemployment because employers will want to hire fewer people.

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Question 16 of 30
Multiple Choice: Please select the best answer and click "submit."

Suppose a price ceiling is set by the government in a market. Which of the following will result?
A. The demand curve will shift to the left.

B. The quantity demanded will exceed the quantity supplied.

C. The quantity supplied will exceed the quantity demanded.

D. There will be a surplus.

E. None of the above.

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The correct answer is: The quantity demanded will exceed the quantity supplied.

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Question 17 of 30
Multiple Choice: Please select the best answer and click "submit."

Money acts as a rationing device for goods and services in a market economy. This means:
A. consumers who are willing and able to pay for a good are usually able to get the good.

B. consumers who place the highest value on a good always get the good.

C. the price of a good increases as the resources available to make the good increase.

D. an increase in the price of a good always means consumers value the good more.

E. consumers with the most money always get the good.

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The correct answer is: consumers who are willing and able to pay for a good are usually able to get the good.

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Question 18 of 30
Multiple Choice: Please select the best answer and click "submit."

A nation's PPF will shift out by the largest amount if:


A. most of the resources in the nation are used to produce capital goods.

B. technology advances.

C. both most of the resources in the nation are used to produce capital goods, and technology advances.

D. most of the resources in the nation are used to produce consumer resources.

E. the nation prevents immigration from other countries.

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Correct!

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Question 19 of 30 Feedback
Multiple Choice: Please select the best answer and click "submit." The correct answer is:
$440/week.
Chris is spending the summer volunteering as a lifeguard. The other job Click Next to Continue
he could have had was to paint houses for $440/week. His opportunity
cost of life guarding this summer is:

A. $400/week.

B. $440/week.

C. $840/week.

D. Either $400 or $440/week.

E. None of the above.

Question 20 of 30
Multiple Choice: Please select the best answer and click "submit."

Restricting imports of foreign oil will lead to everything except:

A. greater production by domestic oil wells.

B. greater conservation of oil.

C. more purchases of oil by domestic consumers.

D. increased demand for domestic oil.

E. higher prices for products made from oil.


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The correct answer is: more purchases of oil by domestic consumers.

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Question 21 of 30
Multiple Choice: Please select the best answer and click "submit."

The government of Labouria is considering increasing the tax on cheese from $3/pound to $4/pound. What
will this do to the revenues from this tax?

A. It may decrease tax revenue if demand for cheese is inelastic.

B. It will definitely decrease tax revenue if demand for cheese is elastic.

C. It will definitely increase tax revenues.

D. It will definitely decrease tax revenues.


E. It may decrease tax revenue if demand for cheese is elastic.

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The correct answer is: It will definitely decrease tax revenue if demand for cheese is elastic.

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Question 22 of 30
Multiple Choice: Please select the best answer and click "submit."

An economic system characterized by choices based on the decisions of central planners is:

A. a market economy.

B. a pure capitalist economy.

C. a traditional economy.
D. a command economy.

E. a definitional economy.

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The correct answer is: a command economy.

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Question 23 of 30
Multiple Choice: Please select the best answer and click "submit."

All other things being equal, the effect of a decrease in the price of soda pop would cause which of the
following?

A. A downward movement along the demand curve for soda pop

B. A rightward shift in the demand curve for soda pop


C. An upward movement along the demand curve for soda pop

D. A leftward shift in the demand curve for soda pop

E. An increase in the demand for bottled juice, a substitute

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Correct!

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Question 24 of 30
Multiple Choice: Please select the best answer and click "submit."

Ceteris paribus, which of the following would cause a decrease in the demand for film?

A. Increase in income among young urban professionals


B. Increase in the price of film

C. Decline in the price of film processing

D. Increase in the price of cameras

E. Increase in supply

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The correct answer is: Increase in the price of cameras.

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Question 25 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following would a government operating in a laissez-faire economynot do?


A. Print money

B. Enforce laws

C. Set prices

D. Establish laws

E. Restrict some activities

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The correct answer is: Set prices.

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Question 26 of 30 Feedback
Multiple Choice: Please select the best answer and click "submit." The correct answer is: people
expect to be better off by the
trading.
People trade because:
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A. voluntary trade always makes people better off.

B. people are selfish.

C. trading is a natural instinct.

D. people expect to be better off by the trading.

E. at least one party to the trade will be better off, even if the other is
worse off.
Question 27 of 30 Feedback
Multiple Choice: Please select the best The correct
answer and click "submit." answer is: price
If demand and supply both increase: may either rise
or fall,
A.
depending on
supply curve shifts rightward and the demand curve shifts leftward.
which shift is
larger.
B. the quantity exchanged may either rise or fall. Click Next to
Continue

C. price may either rise or fall, depending on which shift is larger.

D. supply curve shifts leftward and demand curve shifts rightward.

E. demand will become less elastic for any particular seller.

Question 28 of 30
Multiple Choice: Please select the best answer and click "submit."

When trade barriers between two nations, such as quotas and tariffs, are removed:

A. economic wealth will increase for only one nation.


B. both consumers and producers are better off.

C. economic wealth will increase for both nations.

D. everyone is neither worse nor better off.

E. the prices of all goods remain unchanged.

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The correct answer is: economic wealth will increase for both nations.

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Question 29 of 30 Feedback
Multiple Choice: Please select the best answer and click "submit." Correct!

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In the market for credit, the interest rate is the price people pay to borrow
money for a given time. The only thing that wouldn't increase interest
rates in the market for credit is:

A. allowing foreign banks to compete in the domestic credit market.

B. an increase in the number of people seeking credit.

C. an increase in the opportunity cost of lending.

D. a decrease in the number of lenders in the market.

E. All of these things would increase interest rates.

Question 30 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following statements is correct?

A. If you see a nation producing at a point on its PPF, its economy is using its resources efficiently.

B. If you see a nation producing at a point outside the PPF, its economy is using its resources inefficiently.

C. If you see a nation producing at a point on its PPF, its production of one good may be increased without
decreasing the production of the other good.

D. If you see a nation producing at a point within its PPF, the production of one good may be increased only
by decreasing the production of another good.

E. None of the above.


Feedback
The correct answer is: If you see a nation producing at a point on its PPF, its economy is using its resources efficiently.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which sector of the economy owns the factors of production?

A. Financial intermediaries

B. Households

C. Firms

D. Government
Feedback
Correct! The factors of production are land, labor, and capital, all of which are owned by households.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Which sector of the economy rents factors of production?

A. Financial intermediaries

B. Government

C. Firms

D. Households
Feedback
Correct! Firms rent factors of production from households.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

Which sector of the economy lends money?

A. Government

B. Households

C. Firms

D. Financial intermediaries
Feedback
Correct! Money is lent by households to financial intermediaries in the form of savings.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

Which sector of the economy brings together lenders and borrowers?

A. Households

B. Firms

C. Government

D. Financial intermediaries
Feedback
Correct! Financial intermediaries bring together households that lend money and firms that borrow money.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

Which activity takes place in the factor market?

A. Money is loaned and borrowed.

B. Goods and services are traded.

C. Land is rented.

D. Taxes are paid.


Feedback
The correct answer is: Land is rented.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

Which activity takes place in the product market?

A. Money is loaned and borrowed.

B. Capital is invested.

C. Interest is paid.

D. Finished goods and services are traded.


Feedback
The correct answer is: Finished goods and services are traded.

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Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

Which activity takes place in the financial market?

A. Taxes are collected.

B. Wages are paid.

C. Finished goods are purchased.

D. Money is loaned and borrowed.


Feedback
The correct answer is: Money is loaned and borrowed.

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Question 8 of 10 Feedback
Fill in the blank: Type your answer in the box and then click "submit." The correct answer is: 100.

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Use this diagram to solve questions 8 through 10.

What is I when S = 200, T = 600, and G = 700?


I = _____

Answer: 100

Question 9 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use this diagram to solve questions 8 through 10.

What is G when C = 500, S = 200, T = 200, I = 300, and Y = 900?


G = _____

Answer: 100
Feedback
The correct answer is: 100.

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Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use this diagram to solve questions 8 through 10.

What is C when Y = 1000, G = 400, S = 300, I = 200, and T = 300?


C = _____

Answer: 400
Feedback
The correct answer is: 400.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these is an injection?

A. Savings

B. Imports

C. Taxes

D. Investments
Feedback
That is incorrect; the correct answer is: Investments.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these is a leakage?

A. Consumption

B. Savings

C. Exports

D. Investment
Feedback
That is incorrect; the correct answer is: Savings.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

A country's firms import $20 million worth of raw materials and export $25 million worth of goods. What
impact does this have on GDP?

A. It's indeterminate.

B. It doesn't change.

C. It increases.

D. It decreases.
Feedback
That is incorrect; the correct answer is: It increases.

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Question 4 of 10
Fill in the blank: Type your answer in the box and then click "submit."

What is the GDP for a country when C = $25 million, S = $1 million, T = $3 million, M = $3 million, and
X = $2 million?

Write your answer in millions of dollars. For example, 5 million dollars would be written "5".

Answer: 28
Feedback
That is incorrect; the correct answer is: 28 million.

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Question 5 of 10
Fill in the blank: Type your answer in the box and then click "submit."

In 2000, a country had consumption of $50 million, savings of $2 million, taxation of $3 million, and
imports of $7 million.

If the GDP for that country was $51 million, what was the value of its exports?

Write your answer in millions of dollars. For example, 5 million dollars would be written "5".

Answer: 3
Feedback
That is incorrect; the correct answer is: 3 million.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

Use the information below and the data in the table to answer questions 6 through 10.

Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.

Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
Based on the data in this table, which one of the following decreased from 2005 to 2006?

A. Nominal NDP

B. Real NDP

C. NGDP

D. RGDP

Feedback
That is incorrect; the correct answer is: RGDP.

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Question 7 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the information below and the data in the table to answer questions 6 through 10.

Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.

Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000

How much did RGDP increase from 2006 to 2007, using 2004 as the base-price year?

Answer: 500

Feedback
That is incorrect; the correct answer is: 500.
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Question 8 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the information below and the data in the table to answer questions 6 through 10.

Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.

Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000

If the price of gamza and borjin rose by 10% from 2004 to 2005, but the price of sladke remained the same,
what was the difference between NGDP and RGDP in 2005?

Answer: 349
Feedback
That is incorrect; the correct answer is: 349.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

Use the information below and the data in the table to answer questions 6 through 10.

Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.

Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000
Nominal GDP would have increased from 2005 to 2006 if which of the following had happened?

A. The price of imported goods had decreased by 10% per year from 2004 through 2006.

B. The machines used to produce sladke had not depreciated from 2004 through 2006.

C. The price of all three goods rose by 10% per year from 2004 through 2006.

D. The rate of inflation in Vidinstan was below 1% per year from 2004 through 2006.
Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the information below and the data in the table to answer questions 6 through 10.

Beginning in 2004, people in Vidinstan began producing a third good, borjin, in addition to sladke and
gamza. Borjin is sold in individual units. The table below shows the number of tons of sladke, liters of
gamza, and units of borjin sold each year from 2004 to 2007. In 2004, sladke cost $10 per ton, gamza cost
$2 per liter, and borjin cost $0.50 per unit.

Year Sladke (in tons) Gamza (in liters) Borjin (in units)
2004 95 600 4,000
2005 100 620 4,500
2006 97 600 4,300
2007 102 650 5,000

The machines used to produce sladke depreciated by $200 from 2006 to 2007, and the price for sladke was
$12 per ton in 2007. The prices for gamza and borjin were $3 per liter and $0.75 per unit, respectively.
What is the nominal NDP for 2007?

Answer: 6724
Feedback
That is incorrect; the correct answer is: 6724.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Investment illustrates the trade-off between:

A. Spending and saving.

B. The rich and the poor.

C. Short-run and long-run growth.

D. Domestic consumption and foreign consumption.


E. None of the above.

Feedback
The correct answer is: short-run and long-run growth. When deciding how to use income, households have a choice:
spend it or save it. If they spend it, it becomes income for someone else, causing growth now. If they save it, it becomes
available funds for investment, increasing future productivity and causing growth in the future.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Two sources of economic growth are related to investment. One of them is technological advancement.
What is the other?

A. Increased capital.

B. Increased land.
C. Increased labor.

D. Increased prices.

E. Increased output.

Feedback
The correct answer is: increased capital. Investment is purchase of capital goods, and more capital results in an increase
in the PPFfor an economy.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

Depreciation is defined as:

A. The value by which a firm's stock decreases over the course of a year.
B. n approximate measure for the difference between GNP and GDP.

C. he approximation of a value for wear and tear that capital goods sustain over the course of a year.

D. A decrease in a business's inventories over the course of a year.

E. None of the above.

Feedback
The correct answer is: the approximation of a value for wear and tear that capital goods sustain over the course of a
year. As capital goods get older they're worth less and less. This is taken into account in calculating economic statistics
by including a value for depreciation.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

The difference between real GDP and nominal GDP is:


A. Real GDP only counts domestic production, nominal GDP counts overseas production of domestic
companies and excludes foreign production within the country's borders.

B. Real GDP takes depreciation into account, nominal GDP does not.

C. Nominal GDP takes depreciation into account, real GDP does not.

D. Nominal GDP is calculated in constant prices, real GDP is calculated with changing prices.

E. Real GDP is calculated in constant prices, nominal GDP is calculated with changing prices.

Feedback
The correct answer is: real GDP is calculated in constant prices, nominal GDP is calculated with changing prices. If
prices increase but production remains constant, real GDP would decrease and nominal GDP would increase. Real
GDP numbers allow for comparisons across time as prices change.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."
Firms invest in capital goods and in new ideas. The investment in new ideas is called:

A. Inventory.

B. Technology.

C. Research and development.

D. Human capital.

E. None of the above.

Feedback
The correct answer is: research and development. Research and development (R & D) refers to the money businesses
spend to create new products, new production processes, and new ideas. Successful R & D can pay off really well. But
that usually takes time, money, and lots of luck.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

If the United States sells $100 worth of grain to the rest of the world and buys $80 worth of watches from
the rest of the world, net exports for the United States are:

A. $100..

B. $80.

C. $20.

D. $8,000.

E. -$20.

Feedback
The correct answer is: $20. Net exports are the value of goods and services exported from the United States ($100)
minus the value of goods and services imported into the United States ($80).

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Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

Who earns income?

A. A person collecting unemployment benefits.

B. Owners of the factors of production.

C. Only people who make more than minimum wage.

D. Only people who work.

E. Only people who are sixteen and older.

Feedback
The correct answer is: owners of factors of production. Income is earned by those who own factors of production. This
includes workers, who own their labor, landowners, landlords, shareholders in a company, and owners of natural
resources.

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Question 8 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of the following are part of the circular flow and considered injections?

A. Net investment, government savings, and net exports.

B. Household purchases of goods and services, savings, and tax payments.

C. Consumption, investment, government expenditures on goods and services, and exports

D. Investment, government expenditure, and exports.

E. Household savings, tax payments, and purchases of imports.


Feedback
The correct answer is: investment, government expenditure, and exports. Injections include investment (I), government
purchases of goods and services (G), and foreign sales or exports (X). These are the purchases of goods produced by the
business sector, but not purchased by households.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

Consider consumption (C), government expenditures on goods and services (G), investment (I), imports
(M), household savings (S), tax payments (T), and exports (X). Keeping in mind the two methods of
calculating GDP, which of the following is an accurate equation?

A. I+G+X=S+M

B. I+G+X=S+T+M

C. I+S=G+T

D. C+I+G+X=S+T+M

E. I+G+X=C+S+T+M
Feedback
The correct answer is: I + G + X =S + T + M. This equation sets injections (I + G + X) equal to leakages (S + T + M).
This equation comes about after setting total expenditure equal to total income and canceling the consumption
component on both sides.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

The savings of all sectors of the economy will always be equal to:

A. Consumption.

B. Total expenditure.

C. Investment.

D. Taxes minus government spending plus net exports.


E. Total income.

Feedback
The correct answer is: investment. By rearranging the equation that illustrates that leakages are equal to injections
(I+ G + X = S + T + M) we find that investment (I) is equal to the sum of household savings (S), government savings
(T - G), and rest of world savings (M - X). So, I= S + (T - G) + (M - X).

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Question 1 of 15 Feedback
True-False: Please select true or false and click "submit." Correct. A positive relationship
means the variables move
together, and that's not usually
True or False: The relationship between RGDP and the unemployment
the case with RGDP and the
rate is most likely to be positive.
unemployment rate. If the
relationship between these two
were positive, the
A. True. unemployment rate would
increase when RGDP does.
B. Instead, the unemployment
False. rate decreases when RGDP
increases. Why? Because to
increase production, suppliers
have to use more resources,
and labor is one of those
resources.

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Question 2 of 15
Multiple Choice: Please select the best answer and click "submit."

A ski instructor out of work during the summer months is an example of which type of unemployment?

A. Cyclical unemployment.

B. Frictional unemployment.

C. Structural unemployment.

D. Voluntary unemployment.

E. Seasonal unemployment.
Feedback
The correct answer is: seasonal unemployment. Seasonal unemployment occurs when the employment is temporary.
(An example is construction. Construction work is often restricted to the better weather of summer, or the amount of
work available decreases in the winter.)

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Question 3 of 15
Multiple Choice: Please select the best answer and click "submit."

If a sizable number of workers were switched from full-time to half-time employment, the official
unemployment rate would:

A. Rise a little.

B. Fall.

C. Remain unchanged.
D. React unpredictably.

E. Double.

Feedback
The correct answer is: remain unchanged. Full-time and part-time workers are viewed the same for unemployment
purposes. Underemployment isn't accounted for. Therefore, the rate would remain unchanged with this change.

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Question 4 of 15
Multiple Choice: Please select the best answer and click "submit."

The unemployment rate will increase whenever there is a(n):

A. Reduction in the size of the labor force.

B. Increase in the number of unemployed persons relative to the size of the labor force.
C. Increase in the size of a nation's population with no change in the number of persons classified as
unemployed.

D. Reduction in the size of the labor force and the number of unemployed decreases.

E. Increase in the number of persons classified as unemployed.

Feedback
Correct. An increase in the number of unemployed persons relative to the size of the labor force would increase the
unemployment rate. The unemployment rate is the ratio of the number of people unemployed to the number of people
in the labor force. This is the percentage of the workforce currently not working but also actively looking for a job. A
relatively larger increase in the number of unemployed people compared to an increase in the size of the labor force
makes this ratio larger.

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Question 5 of 15
Multiple Choice: Please select the best answer and click "submit."

One social benefit of unemployment is:


A. Improvement in the economic condition of workers.

B. High wages.

C. Unemployment compensation.

D. High inflation.

E. Improved allocation of labor when workers who experience unemployment change to a different job.

Feedback
The correct answer is: improved allocation of labor whenever workers who experience unemployment change to a
different job. A possible reason for unemployment is that some workers may not be needed in specific industries. These
unemployed workers can shift from that industry to another one where they can use their skills. Whenever workers who
experience unemployment change to a different job, there's an improvement in allocation of labor.

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Question 6 of 15
Multiple Choice: Please select the best answer and click "submit."
Julia earned a B.S. in engineering and went to work for a large defense contractor in a small town in
California. When the government cut spending, Julia and 99 others were laid off. The only other business
in the town is growing grapes to be made into raisins, but the growers refuse to hire laid-off engineers,
knowing they'll leave at the first opportunity. The unemployment Julia is experiencing is:

A. Cyclical.

B. Frictional.

C. Voluntary.

D. Structural.

E. Permanent.

Feedback
The correct answer is: structural. This is an example of structural unemployment, since it's caused by changes in the
structure of the economy. The structure of an economy influences many things, including what types of goods are
produced. Since Julia has lost her job due to a budget cut, this would be considered structural unemployment.
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Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."

How are the unemployment rate and real GDP related?

A. They move in opposite directions.

B. They move in exactly the same way and with the same magnitude.

C. They move in the same direction.

D. They aren't related.

E. None of the above.

Feedback
The correct answer is: they move in opposite directions. Real GDP and the unemployment rate tend to move in
opposite directions. That's because labor is an input to production, and the unemployment rate measures the amount of
labor an economy is utilizing. The unemployment rate tends to increase when real GDP decreases and decrease when
real GDP increases. Therefore, recessions are generally times of high unemployment, and expansions are generally
times of low unemployment.

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Question 8 of 15
Multiple Choice: Please select the best answer and click "submit."

Which of the following statements would come from someone classified as unemployed?

A. I can't stand my current job as a telemarketer. I used to be a nuclear engineer.

B. I'm not working. I had three interviews this week, and I'm trying to find a job.

C. I'm a full-time student at the University of Illinois and don't have time to work.

D. I'm not working because I'm going to Jamaica with my buddy.

E. I haven't had a job in a year, and I stopped looking for a job nine months ago.
Feedback
The correct answer is: I'm not working. I had three interviews this week, and I'm trying to find a job. This person would
be considered unemployed since he or she is actively seeking a job. An unemployed person is a member of the labor
force who is actively seeking employment, but is unable to find work.

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Question 9 of 15
Multiple Choice: Please select the best answer and click "submit."

Which of the following is correct? Frictional unemployment is:

A. The same as structural unemployment.

B. Associated with general downturns in the economy.

C. Present in any dynamic economy.

D. Associated with the long-term decline of specific industries.


E. Long-term unemployment.

Feedback
The correct answer is: present in any dynamic economy. Frictional unemployment is present in any dynamic economy.
People will always move, change careers, or just look for better opportunities. Therefore, due to frictional
unemployment, some level of unemployment will always be present in any dynamic economy.

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Question 10 of 15
Multiple Choice: Please select the best answer and click "submit."

When the economy is operating at the full-employment level of output:

A. All experienced workers are employed.

B. There is a rough balance between the number of jobs available and the number of qualified job applicants.

C. The costs and benefits of job searching are equalized.


D. There are no discouraged workers.

E. There is no frictional unemployment.

Feedback
The correct answer is: there is a rough balance between the number of jobs available and the number of qualified job
applicants. When the economy is operating at full employment, there's a rough balance between the number of jobs
available and the number of qualified job applicants. Full employment is the level of employment (or unemployment)
at which the economy is said to be fully employed. In an economy, some level of unemployment will always result
from structural and frictional unemployment, but cyclical unemployment rate will be zero at the full-employment level.
This means there will be a rough balance between the number of jobs available and the number of qualified job
applicants.

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Question 11 of 15 Feedback
Multiple Choice: Please select the best answer and click "submit." Yes! Discouraged workers,
those who have given up
looking for a job, are excluded
The number of people officially unemployed is not the same as the
from unemployment statistics.
number of people who can't find a job because:
They can't find a job, but aren't
officially unemployed. They'd
need to be actively seeking
A. Discouraged workers aren't counted. employment to be part of the
labor force.
B. The armed forces is included. Click Next to Continue

C. People who have jobs continue to look for better ones.

D. Retirees are included.

E. All of the above.

Question 12 of 15
Multiple Choice: Please select the best answer and click "submit."

Sally lost her job when her company went out of business because of a recession. This is an example of:

A. Cyclical unemployment.

B. Structural unemployment.

C. Frictional unemployment.

D. Seasonal unemployment.

E. Technological unemployment.
Feedback
Yes! Cyclical unemployment occurs when the economy slows, production decreases, and less labor is required.

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Question 13 of 15
Multiple Choice: Please select the best answer and click "submit."

The economy is considered to be at full employment when:

A. Frictional plus structural unemployment is less than the cyclical rate.

B. The leading economic indicators are unchanged for two consecutive quarters.

C. Structural unemployment is zero.

D. The rate of cyclical unemployment is zero.


E. There is no unemployment.

Feedback
The correct answer is: the rate of cyclical unemployment is zero. In an economy, some level of unemployment will
always result from the structure of the economy?structural unemployment. In addition, some level of unemployment
will always result from people changing jobs?frictional unemployment. The economy is said to be at full employment
when the cyclical unemployment rate is zero. Unemployment, however, isn't zero, since there's still structural and
frictional unemployment.

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Question 14 of 15
Multiple Choice: Please select the best answer and click "submit."

According to most economists, the United States is at full employment when the unemployment rate is
about:

A. 0 percent.

B. 1 percent.
C. 7 percent.

D. 3 percent.

E. 5 percent.

Feedback
The correct answer is: 5 percent. Frictional and structural unemployment rates are fairly steady and add up to about 5%
of the workforce. Most of the time, data on seasonal unemployment is smoothed out of the unemployment rate, so we
don't see huge seasonal fluctuations in unemployment.

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Question 15 of 15
Multiple Choice: Please select the best answer and click "submit."

If top government officials claim that more people are working now than ever before, which of the
following must be true?
A. The number of people employed is higher now than ever before.

B. The unemployment rate is lower now than ever before.

C. The number of people unemployed is lower now than ever before.

D. The number of people in the labor force is higher now than ever before.

E. The employment rate is higher now than ever before.

Feedback
Correct. The number of people employed is higher now than ever before. As more people start working the number of
people employed increases.

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Question 1 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
What is the total cost of this basket of goods in 2006?

Answer: 200

Feedback
That is incorrect; the correct answer is: $200.

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Question 2 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
What is the cost of the basket of goods in 2007?

Answer: 211.25

Feedback
That is incorrect; the correct answer is: $211.25.

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Question 3 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If you use 2006 as the base year, what is the price level in 2007 (rounded to the nearest tenth)?

Answer: 105.6

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That is incorrect; the correct answer is: 105.6.

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Question 4 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
What was the inflation rate from 2006 to 2007 (rounded to the nearest tenth)?

Answer: 5.6

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That is incorrect; the correct answer is 5.6%.

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Question 5 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the basket had been adjusted in 2007 to reduce gasoline consumption to 28 gallons, what would be the
inflation rate from 2006 to 2007 (rounded to the nearest tenth)?

Answer: 1.8

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That is incorrect; the correct answer is: 1.8%

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Question 6 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
The basket was adjusted in 2007 to reduce gasoline consumption to 28 gallons. What is the price level for
2008 with this quantity (rounded to the nearest tenth)?

Answer: 94.8

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That is incorrect; the correct answer is: 94.8.

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Question 7 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the basket were adjusted again in 2008 to reflect the drop in gasoline prices and the subsequent rise in
consumption of that good — returning the quantity to its 2006 level of 30 gallons — what would the price
level be (rounded to the nearest tenth)?

Answer: 98.1

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That is incorrect; the correct answer is: 98.1.

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Question 8 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the market basket contained 30 gallons of gasoline in 2006 and 2008 but only 28 gallons of gasoline in
2007, what was the inflation rate from 2007 to 2008 (rounded to the nearest tenth)?

Answer: -3.6

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That is incorrect; the correct answer is: -3.6%.

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Question 9 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If the basket contains 30 gallons of gasoline for all three years, what was the inflation rate from 2006 to
2007 (rounded to the nearest tenth)?

Answer: 5.6

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That is incorrect; the correct answer is: 5.6%.
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Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the following basket of goods for years 2006, 2007, and 2008 to answer questions 1 through 10:

Good and unit Quantity Price in 2006 Price in 2007 Price in 2008
Coffee, pounds 3 $10.25 $10.30 $11.25
Gasoline, gallons 30 $3.50 $3.85 $3.30
Cereal, boxes 5 $4.25 $4.25 $4.50
Electricity, kwh 200 $0.11 $0.11 $0.10
Milk, quarts 12 $1.75 $1.80 $1.75
If you use the same basket quantities for all three years, what was the total inflation rate for the two-year
period from 2006 to 2008 (rounded to the nearest tenth)?

Answer: -1.9

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That is incorrect; the correct answer is: -1.9%.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these is a component of the relatively low interest rate on a three-month U.S. government bond?

A. Transaction costs of screening and monitoring borrowers

B. High risk that the borrower will default

C. Expected inflation rate

D. General uncertainty about the future

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That is incorrect; the correct answer is: Expected inflation rate.
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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these is a component of the interest rate on a 10-year inflation-indexed U.S. government bond?

A. Expected inflation rate

B. Positive rate of time preference

C. General uncertainty about the future

D. Risk that the borrower will default

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That is incorrect; the correct answer is: Positive rate of time preference.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these is not a component of the interest rate on a 30-year U.S. government bond?

A. Transaction costs of screening and monitoring borrowers

B. General uncertainty about the future

C. Expected inflation rate

D. Positive rate of time preference

Feedback
Correct! Government bonds can be purchased by anyone with the money to do so, so there are no screening and
monitoring costs.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."
Why is the interest rate on a credit card generally much higher than government bond interest rates?

A. There is a greater supply of credit cards and a greater demand for government bonds.

B. All five of the interest rate components apply to credit card debt.

C. Credit cards are debt while government bonds are assets.

D. Credit cards are issued in a market different from the market for government bonds.

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That is incorrect; the correct answer is: All five of the interest rate components apply to credit card debt.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these happens when there's decreasing uncertainty among firms about the future?
A. Interest rates increase.

B. The supply curve shifts to the left.

C. The quantity of borrowing increases.

D. The demand curve shifts to the left.

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That is incorrect; the correct answer is: The quantity of borrowing increases.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these happens when there's a decrease in the risk of default?


A. The supply of credit decreases.

B. The demand for credit decreases.

C. The quantity of borrowing decreases.

D. Interest rates decrease.

Feedback
That is incorrect; the correct answer is: Interest rates decrease.

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Question 7 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." Correct! When people want
more consumption now than in
the future, the demand for
What happens when the rate of time preference for consumers rises?
credit increases.

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A. The demand curve shifts to the right.

B. The supply curve shifts to the right.

C. Interest rates decrease.

D. The quantity of borrowing decreases.


Question 8 of 10 Feedback
Multiple Choice: Please select the best That is incorrect;
answer and click "submit." the correct
What happens when firms are more answer is:
optimistic about future prospects? Interest rates
increase.
A. Interest rates increase. Click Next to
Continue

B. The demand curve shifts to the left.

C. The quantity of borrowing goes down.

D. The supply curve shifts to the right.

Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens when households expect the inflation rate to increase in the future?

A. The supply curve shifts to the right.

B. The demand curve shifts to the right.

C. The quantity of borrowing decreases.

D. Interest rates decrease.


Feedback
That is incorrect; the correct answer is: The demand curve shifts to the right.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

Why do bonds with a B or C rating have a higher interest rate than bonds with a AAA rating?

A. They are based on higher expected inflation.

B. They involve greater transaction costs.

C. They carry a greater risk of default.

D. They are mostly for investors with a low rate of time preference.
Feedback
That is incorrect; the correct answer is: They carry a greater risk of default.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these would result in cost-push inflation? (This is a review question.)

A. A cut in personal income taxes

B. An influx of wealthy immigrants

C. An increase in oil prices

D. An increase in the standard of living


Feedback
That is incorrect; the correct answer is: An increase in oil prices.

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Question 2 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." That is incorrect; the correct
answer is: With more money to
spend because of lower taxes,
Why might tax cuts result in demand-pull inflation? (This is a review
consumer demand will
question.)
increase.

Click Next to Continue


A. With less government spending because of lower revenues,
demand drops.

B. With more money to spend because of lower taxes, consumer


demand will increase.

C. With more money to invest because of lower taxes, supply will


increase.

D. With less government spending because of lower taxes, supply


will drop.
Question 3 of 10 Feedback

Fill in the blank: Type your answer in the That is incorrect;


box and then click "submit." the correct
answer is: 98%.
Top of Form
Click Next to
A lender makes a one-year loan of $100 Continue
with a nominal rate of 7%. If there's a 9%
inflation rate, what is the real value of
repayment?

Answer: 98

Bottom of Form
Question 4 of 10 Feedback

Fill in the blank: Type your answer in the That is incorrect;


box and then click "submit." the correct
answer is:
Top of Form $40,000.
In a year when the price level is 125, Click Next to
Charlie earns a nominal wage of $50,000. Continue
What is his real wage?

Answer: 40000Question 5
of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the information in the table below to answer questions 5 through 7.

Year Price level Kylie's nominal wage


2004 130 $40,000
2005 135 $45,000
2006 140 ?

What was Kylie's real wage (rounded to the nearest dollar) in 2004?

Answer: 30769
Feedback
That is incorrect; the correct answer is: $30,769.

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Bottom of Form
Question 6 of 10 Feedback

Fill in the blank: Type your answer in the That is incorrect;


box and then click "submit." the correct
answer is:
Top of Form $2,564.
Use the information in the table below to Click Next to
answer questions 5 through 7. Continue
Year Price level Kylie's nominal wage
2004 130 $40,000
2005 135 $45,000
2006 140 ?

How much did Kylie's real wage increase


when she got her $5,000 raise in 2005?

Answer: 2564

Bottom of Form

Question 7 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the information in the table below to answer questions 5 through 7.

Year Price level Kylie's nominal wage


2004 130 $40,000
2005 135 $45,000
2006 140 ?

What would Kylie need to earn in 2006 for her real wage to remain at its 2005 level?

Answer: 46666
Feedback
That is incorrect; the correct answer is: 46,666.

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Question 8 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the information in the table below to answer questions 8 through 10.

Year Nominal price of gasoline Price level


2004 $2.69 149.9
2005 $3.19 152.4
2006 $3.39 155.5
2007 $3.89 160.1
2008 $3.69 163.5

What was the real price of gasoline in 2008?


Answer: 2.26

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That is incorrect; the correct answer is: $2.26.

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Question 9 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the information in the table below to answer questions 8 through 10.

Year Nominal price of gasoline Price level


2004 $2.69 149.9
2005 $3.19 152.4
2006 $3.39 155.5
2007 $3.89 160.1
2008 $3.69 163.5
What was the real price increase from 2006 to 2007?

Answer: 0.25

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That is incorrect; the correct answer is: $0.25.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

Use the information in the table below to answer questions 8 through 10.

Year Nominal price of gasoline Price level


2004 $2.69 149.9
2005 $3.19 152.4
2006 $3.39 155.5
2007 $3.89 160.1
2008 $3.69 163.5

When was the largest real price increase?

A. From 2006 to 2007

B. From 2007 to 2008

C. From 2005 to 2006

D. From 2004 to 2005

Feedback
That is incorrect; the correct answer is: from 2004 to 2005.

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Question 1 of 15
Multiple Choice: Please select the best answer and click "submit."

A problem with hyperinflation (inflation of 100% per year or more) is:

A. Workers rush to turn wages into purchases.

B. Wages are paid daily.

C. Loans aren't made.

D. Money loses its purchasing power.

E. All of the above.

Feedback
The correct answer is: all of the above. Even correctly anticipated inflation can be costly if it's huge. In an economy
that's experiencing inflation rates over 100% per year, prices are more than doubling each year. This is called
hyperinflation. People's behavior changes a lot as they try to avoid holding money, since money is losing its purchasing
power so quickly. Wages are paid daily, and workers rush to turn their wages into purchases. Loans aren't made, so
borrowing doesn't occur.
Click Next to Continue
Question 2 of 15
Multiple Choice: Please select the best answer and click "submit."

Inflation measures:

A. Changes in the unemployment rate from one year to another.

B. The percentage change in GDP from one year to another.

C. The percentage change in the CPI from one year to another.

D. Consumer confidence.

E. None of the above.

Feedback
The correct answer is: the percentage change in the CPI from one year to another. Inflation is the percentage change in
the price index from one year to another. If we know the CPI for two years, we can calculate the inflation that occurred
between them.

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Question 3 of 15
Multiple Choice: Please select the best answer and click "submit."

We use the _________ to determine the purchasing power of income.

A. Interest rate.

B. Real GDP.

C. CPI.

D. GDP.

E. None of the above.


Feedback
The correct answer is: CPI. By adjusting income to account for changes in prices, the purchasing power of that income
is found. We use the CPI to account for those price changes.

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Question 4 of 15
Multiple Choice: Please select the best answer and click "submit."

Inflation _____________ the purchasing power of money.

A. Increases.

B. Doubles.

C. Does not affect.

D. Decreases.

E. Eliminates.
Feedback
The correct answer is: decrease. Inflation decreases the purchasing power of money. If the general price of everything
goes up (inflation), a dollar will buy less (purchasing power will decrease).

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Question 5 of 15 Feedback
Multiple Choice: Please select the best answer and click "submit." The correct answer is: people
with income adjustments
based on the CPI would lose
One reason the government doesn't attempt to correct the apparent
money. Many individuals who
problems with measuring the CPI is:
rely on government payments
that have income adjustments
based on the CPI (for example
A. Correcting the problem would increase the government's Social Security) would lose
payments. money if the CPI were
corrected. Further, anyone
B. The corrections do not matter. working under a wage contract
with cost-of-living adjustments
would lose.
C. No one cares.
Click Next to Continue
D. People with income adjustments based on the CPI would lose
money.

E. There are no problems with measuring the CPI.


Question 6 of 15 Feedback

Multiple Choice: Please select the best The correct


answer and click "submit." answer is: all of
the above. Each
Some of the problems with using the CPI of these
to measure inflation include: represent
problems with
A. The market basket for 1999 includes some items not in the using the CPI to
market basket for 1982. measure
inflation. The
market baskets
aren't the same.
B. The market basket for 1982 includes some items not in the For example, the
market basket for 1999.
basket for 1982
includes 8-track
tapes and the
basket for 1999
C. The CPI doesn't account for quality changes in the goods that it
includes. includes
compact discs.
Substitute goods
aren't accounted
D. Substitution bias.
for, and quality
changes aren't
included.

Click Next to
E. All of the above. Continue
Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."

Chaining is used to determine:

A. Inflation.

B. Nominal GDP.

C. Real GDP.
D. The price level.

E. CPI.

Feedback
The correct answer is: real GDP. Chaining is a process that calculates average growth rates between successive years.
The growth rates between years are then added together, like links in a chain, to find real GDP for any year.

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Question 8 of 15
Multiple Choice: Please select the best answer and click "submit."

Most investment in capital goods is done by:

A. All sectors invest the same amount.

B. The business sector.


C. The household sector.

D. The government sector.

E. The rest of the world sector.

Feedback
The correct answer is: the business sector. Most investment spending is done by firms. The government does invest in
capital, but businesses invest far more.

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Question 9 of 15
Multiple Choice: Please select the best answer and click "submit."

If inflation is __________ than expected, __________ is worse off.

A. higher; the lender and borrower


B. lower; the lender

C. higher; the borrower

D. lower; the borrower

E. None of the above

Feedback
The correct answer is: lower; the borrower. Lower inflation means that the dollars used to repay a loan have more
purchasing power, so the borrower is worse off.

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Question 10 of 15
Multiple Choice: Please select the best answer and click "submit."

If there has been inflation since the base year, then the CPI is now:
A. More than 100.

B. Less than 100.

C. 100.

D. Unknown.

E. None of the above.

Feedback
Yes! With inflation, the general price level has increased since the base year, indicating that the CPI is now more than
100.

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Question 11 of 15
Multiple Choice: Please select the best answer and click "submit."
The bank for the United States government is:

A. U.S. Bank..

B. First National Bank.

C. Bank of America.

D. Seafirst.

E. None of the above.

Feedback
The correct answer is: none of the above. The U.S. Treasury is the bank for the federal government. Paychecks for
federal employees come from the U.S. Treasury. The Treasury also holds deposits, makes payments, and issues loans
for the federal government.

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Question 12 of 15
Multiple Choice: Please select the best answer and click "submit."

Higher interest rates cause firms to:

A. Invest in more capital goods.

B. Raise prices.

C. Invest in fewer capital goods.

D. Lose money.

E. Be unaffected by interest rates.

Feedback
The correct answer is: invest in fewer capital goods. Interest is an additional payment by the firm for borrowing funds.
Therefore, the higher the interest rate, the more expensive it is to buy capital goods. So, to decide whether a capital
investment is worthwhile, a firm considers the interest rate. The higher the cost, the less likely the firm is to make those
capital investments.
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Question 13 of 15
Multiple Choice: Please select the best answer and click "submit."

A mutual fund:

A. Only has bonds in it.

B. Is riskier than other stock market investments.

C. Invests in a single stock.

D. Spreads risk among many people.

E. All of the above.

Feedback
The correct answer is: spreads risk among many people. All mutual funds share the same basic idea. The fund takes the
savings of a number of people and groups them all together. Then, the money is used in different ways, with the goal of
earning a profit on it. By grouping their savings together, investors in the mutual fund are able to spread their risk
because they can buy a wider diversity of stocks, bonds, or other things.

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Question 14 of 15
Multiple Choice: Please select the best answer and click "submit."

Even if inflation is correctly anticipated, costs due to inflation are still incurred. One such cost is called a:

A. Average cost.

B. Fixed cost.

C. Marginal cost.

D. Menu cost.

E. Opportunity cost.
Feedback
The correct answer is: menu cost. Costs due to inflation, even when it is correctly anticipated, are called menu costs.
Menu costs are money that businesses spend to update their pricing information when there's a price increase. For
example, a restaurant might print new menus, or a company might print a new catalogue. If prices are posted, the
business might need to make new signs or update its Web pages.

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Question 15 of 15
Multiple Choice: Please select the best answer and click "submit."

The current base year for the CPI is:

A. 1966.

B. 1900.

C. 1982.
D. 2012.

E. 2000.

Feedback
The correct answer is: 1982. Once the market basket is set, it remains the same for several years. The current base year
for the CPI is 1992. We don't change the items in the market basket from year to year because we want to track changes
in prices. And to track changes in prices, we need to look at the same goods and services each year.

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Question 1 of 30
Multiple Choice: Please select the best answer and click "submit."

In a capitalist economy the lenders are usually _____ and the borrowers are usually ______.

A. households, firms

B. financial intermediaries, firms


C. financial intermediaries, households

D. households, the rest of the world

E. firms, households

Feedback
Correct!

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Question 2 of 30
Multiple Choice: Please select the best answer and click "submit."

Looking at the flows of income and expenditure into and out of households, we get the equation:

A. Y = C + I + T + (X - M)
B. Y = C + I + G + NX

C. Y=C+S+T

D. Y=C+S-T

E. I = S + (T - G) + (M - X)

Feedback
The correct answer is: Y = C + S+ T.

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Question 3 of 30
Multiple Choice: Please select the best answer and click "submit."

GDP is defined as:


A. the value of all final goods and services produced in an economy in one year.

B. the quantity of all final goods and services produced in an economy in one year.

C. the quantity of all goods and services produced in an economy in one year.

D. the value of all goods produced in an economy in one year.

E. the value of all goods and services produced in an economy in one year.

Feedback
Correct!

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Question 4 of 30
Multiple Choice: Please select the best answer and click "submit."
Consider the price index in a small country one year after the base year is established. Which of the
following is likely to be the smallest?

A. Real GDP

B. Nominal GDP

C. Real per capita GDP

D. Nominal per capita GDP

E. Average income per worker

Feedback
The correct answer is: Real per capita GDP.

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Question 5 of 30 Feedback
Multiple Choice: Please select the best answer and click "submit." The correct answer is: a lower
unemployment rate and a
higher growth rate.
When an economy is in the expansion portion of the business cycle, we
would expect to see:
Click Next to Continue

A. a higher unemployment rate and a higher growth rate.

B. either a lower unemployment rate and a lower growth rate, or a


lower unemployment rate and a higher growth rate.

C. a lower unemployment rate and a higher growth rate.

D. a lower unemployment rate and a lower growth rate.

E. a higher unemployment rate and a lower growth rate.

Question 6 of 30
Multiple Choice: Please select the best answer and click "submit."

If all prices double but the quantity of final goods and services in a country remains the same:

A. RGDP will double, but NGDP will remain unchanged.

B. both RGDP and NGDP will double.

C. neither NGDP nor RGDP will change.

D. NGDP will double, but RGDP will remain unchanged.

E. both RGDP and NGDP will increase by about 50%, so the overall effect will be a doubling.
Feedback
The correct answer is: NGDP will double, but RGDP will remain unchanged.

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Question 7 of 30
Multiple Choice: Please select the best answer and click "submit."

If the basket of goods used to calculate the CPI is changed to reflect substitution to lower priced goods by
consumers, it would result in:

A. higher growth rates for NGDP.

B. either higher or lower calculated inflation rates, depending on how different prices change relative
to each other.

C. a lower calculated inflation rate.

D. higher payments for people with benefits indexed to the CPI.


E. a higher price level in the base year.

Feedback
The correct answer is: a lower calculated inflation rate.

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Question 8 of 30
Multiple Choice: Please select the best answer and click "submit."

One way that the problem of double counting when calculating GDP is solved is to:

A. count only the value added by each firm.

B. use the capital consumption allowance.

C. add the total sales receipts of all firms.


D. subtract imports from exports.

E. count only goods, not services.

Feedback
Correct!

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Question 9 of 30
Multiple Choice: Please select the best answer and click "submit."

Assume that the population is 500 million, the labor force is 200 million, and 180 million people are
employed. Then the unemployment rate is:

A. 5%

B. 4.5%
C. 8%

D. 10%

E. 9%

Feedback
The correct answer is: 10%.

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Question 10 of 30
Multiple Choice: Please select the best answer and click "submit."

Saying that leakages equal injections gives us the equation:

A. Y=C+I+G+X-M
B. Y=C+S+T

C. T+S+X=G+I+M

D. T+I+M=C+G+I+X

E. T+S+M=G+I+X

Feedback
The correct answer is: T + S + M= G + I + X.

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Question 11 of 30
Multiple Choice: Please select the best answer and click "submit."

Real GDP per capita is an imperfect measure of the standard of living in a country because:
A. it fails to include the value of entertainment expenditures.

B. it can be distorted by inflation or disinflation.

C. it fails to include the value of unreported economic activities.

D. it includes income earned from the trade of illegal goods.

E. it fails to consider how many people output must be divided among.

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The correct answer is: it fails to include the value of unreported economic activities.

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Question 12 of 30
Multiple Choice: Please select the best answer and click "submit."

In the circular flow model:


A. money flows from firms to the rest of the world for exports.

B. money flows from the government to households for taxes.

C. money flows from households to firms for goods and services.

D. money flows from firms to the government for taxes.

E. money flows from financial markets to households for investment.

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The correct answer is: money flows from households to firms for goods and services.

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Question 13 of 30
Multiple Choice: Please select the best answer and click "submit."
The CPI for 1951 (using a 1982 base year) is 26.0. Suppose a household's annual take-home pay in 1951
was $8,320 in 1951 dollars. What would be an equivalent take-home pay in 1982 in base-year dollars?

A. $23,680

B. $21,632

C. $10,483

D. $31,250

E. $32,000

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The correct answer is: $32,000.

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Question 14 of 30
Multiple Choice: Please select the best answer and click "submit."
Suppose a person quit a job in an auto factory two months ago, and has lined up a job in retail, to begin
next month. This person is:

A. cyclically unemployed.

B. counted as being employed in retail.

C. structurally unemployed.

D. frictionally unemployed.

E. counted as still being employed in the auto factory.

Feedback
The correct answer is: frictionally unemployed.

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Question 15 of 30
Multiple Choice: Please select the best answer and click "submit."
If you look at the equation I = S + (T - G) + (M - X) as the flows into and out of financial markets, you
arrive at the conclusion that:

A. households have no net savings and don't contribute to investment.

B. T - G is the amount of borrowing the government needs to do.

C. a large trade surplus helps to increase investment.

D. a large trade deficit leads to greater savings by foreigners.

E. a large government budget deficit helps to increase inflation.

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The correct answer is: a large trade deficit leads to greater savings by foreigners.

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Question 16 of 30
Multiple Choice: Please select the best answer and click "submit."
If the only information that we have is that more people are working now than ever before and the
population has increased, which of the following must be true?

A. The number of people in the labor force is higher now than ever before.

B. The number of people unemployed is lower now than ever before.

C. The employment rate is higher now than ever before.

D. The number of people employed is higher now than ever before.

E. The unemployment rate is lower now than ever before.

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The correct answer is: The number of people employed is higher now than ever before.

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Question 17 of 30
Multiple Choice: Please select the best answer and click "submit."
The output of a winery in Bulgaria owned by a company that's owned by U.S. citizens would be included
in:

A. U.S. GDP and Bulgarian GNP.

B. U.S. GNP and Bulgarian GDP.

C. U.S. GDP and Bulgarian GDP.

D. U.S. GNP and Bulgarian GNP.

E. U.S. GNP and U.S. GDP.

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The correct answer is: U.S. GNP and Bulgarian GDP.

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Question 18 of 30
Multiple Choice: Please select the best answer and click "submit."
Saying that total expenditures in the economy are equal to income gives us the equation:

A. I = S + (T - G) + (X - M)

B. Y=C+S+T

C. Y = C + I + G + NX

D. Y = C + I + G + NX,
Y = C + S + T,
and I = S + (T - G) + (X - M)

E. Both Y = C + I + G + NX and Y = C + S + T

Feedback
The correct answer is: Y = C + I +G + NX.

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Question 19 of 30
Multiple Choice: Please select the best answer and click "submit."

In 1996, the price level was 148, and Bob's nominal income was $29,600. In 1997, the price level was 152.
If Bob's real income didn't change, his nominal income in 1997 would have to be:

A. $19,474

B. $20,000

C. $32,895

D. $30,400

E. $31,650

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The correct answer is: $30,400.

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Question 20 of 30
Multiple Choice: Please select the best answer and click "submit."

If the consumer price index (CPI) in one year was 200 and in the next year it was 215, the rate of inflation
was:

A. 115%.

B. 215%.

C. 15%.

D. 7.5%.

E. about 8%.

Feedback
The correct answer is: 7.5%.
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Question 21 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following is not a weakness of the unemployment rate as an economic measurement?

A. Highly skilled people working in unskilled positions are counted the same as highly skilled people in
highly skilled positions.

B. Discouraged workers are excluded from the labor force.

C. People with part-time jobs are counted the same as those who have full-time jobs.

D. People earning unreported income are not counted as employed.

E. People in the military are not included in the labor force.

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The correct answer is: People in the military are not included in the labor force.

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Question 22 of 30
Multiple Choice: Please select the best answer and click "submit."

Who benefits the most when inflation is greater than expected?

A. Workers.

B. Employers.

C. Lenders.

D. Borrowers.

E. Retirees.

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The correct answer is: Borrowers.

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Question 23 of 30
Multiple Choice: Please select the best answer and click "submit."

In the circular flow model, all income, (Y) goes to:

A. firms.

B. financial intermediaries.

C. households.

D. the government.

E. the rest of the world.

Feedback
The correct answer is: households.

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Question 24 of 30 Feedback
Multiple Choice: Please select the best answer and click "submit." The correct answer is: cost-
push inflation.
An economy producing at a level of production between full employment
and full capacity is likely to experience:
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A. demand-pull inflation.

B. zero unemployment.

C. cost-push inflation.

D. a high level of seasonal unemployment.

E. a high level of cyclical unemployment.

Question 25 of 30
Multiple Choice: Please select the best answer and click "submit."

If a sizable number of workers were switched from full-time to part-time employment, the official
unemployment rate would:

A. rise.

B. react unpredictably.

C. remain unchanged.

D. fall.

E. rise at first, then fall sharply.


Feedback
The correct answer is: remain unchanged.

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Question 26 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following would not be included in GDP?

A. The price of the new convertible I bought this year

B. The price of a foot massage you get at a local spa

C. The price of a new pair of pants that a local tailor makes for you

D. The price of a new truck bought by a local delivery service business


E. The price of your monthly Internet service

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The correct answer is: The price of a new truck bought by a local delivery service business.

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Question 27 of 30
Multiple Choice: Please select the best answer and click "submit."

When an economy is in a rapid expansion, you would expect to see:

A. high levels of frictional unemployment, and normal levels of cyclical and structural unemployment.

B. low levels of frictional unemployment, and normal levels of structural and cyclical unemployment.

C. low levels of structural and frictional unemployment, and normal levels of cyclical unemployment.
D. normal levels of cyclical, structural, and frictional unemployment.

E. low levels of cyclical and frictional unemployment, and normal levels of structural unemployment.

Feedback
The correct answer is: low levels of cyclical and frictional unemployment, and normal levels of structural
unemployment.

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Question 28 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following is not one of the four sectors of the economy?

A. The rest of the world

B. Firms
C. Households

D. Financial intermediaries

E. The government

Feedback
The correct answer is: Financial intermediaries.

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Question 29 of 30
Multiple Choice: Please select the best answer and click "submit."

When net exports are negative:

A. imports are greater than exports.


B. depreciation is greater than net investment.

C. exports are greater than investment.

D. imports are greater than investment.

E. exports are greater than imports.

Feedback
Correct!

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Question 30 of 30
Multiple Choice: Please select the best answer and click "submit."

The annual interest rate of a loan generally increases as the loan period gets longer because:
A. the inflation rate will get higher every year.

B. there's greater uncertainty about future dates that are further away.

C. a longer-term loan requires more investigation of the borrower.

D. the opportunity cost of going without the money for a day is greater every day.

E. All of the above

Feedback
The correct answer is: there's greater uncertainty about future dates that are further away.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these changes is part of the interest-rate effect?


A. The real value of savings accounts deposits decreases.

B. The currency exchange rate changes.

C. The price level increases.

D. The nominal price of imported goods goes up.

Feedback
That is incorrect; the correct answer is: The price level increases.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Why does an increase in the price level lead to the real-balances effect?
A. Increasing price levels decrease the nominal supply of loanable funds.

B. Increasing price levels increase the nominal rate of taxation.

C. Increasing price levels cut down on foreign demand for exported goods.

D. Increasing price levels reduce real wealth and cut down consumer spending.

Feedback
That is incorrect; the correct answer is: Increasing price levels reduce real wealth and cut down consumer spending.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

On which type of spending does the real-balances effect primarily work?


A. Government spending

B. Consumption

C. Investment

D. Net exports

Feedback
That is incorrect; the correct answer is: Consumption.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

On which type of spending does the interest-rate effect primarily work?


A. Government spending

B. Investment

C. Net exports

D. Consumption

Feedback
That is incorrect; the correct answer is: Investment.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these will increase when positive economic forecasts presented to business owners lead to
increases in productive capacity?
A. C

B. I

C. NX

D. G

Feedback
That is incorrect; the correct answer is: I.

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Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these will take place when the price level rises from 110 to 130?
A. Investment decreases, but RGDP increases.

B. Consumption and RDGP both decrease.

C. Aggregate demand increases.

D. Net exports and RDGP both increase.

Feedback
That is incorrect; the correct answer is: Consumption and RDGP both decrease.

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Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these will take place when the government cuts the budget?
A. Aggregate demand decreases.

B. Net exports increase.

C. Investment decreases.

D. The price level increases.

Feedback
Correct! Government spending is one of the four components of aggregate demand.

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uestion 8 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these situations would not lead to a shift in the AD curve, but would lead to a decrease in RGDP?
A. Price levels rise, causing households to cut back on spending.

B. The government cuts income tax levels for most households.

C. The U.S. government dramatically reduces its spending in an attempt to reduce the national debt.

D. A recession in Europe results in a drastic rise of price levels abroad.

Feedback
Correct! When households spend less, that's a change in quantity demanded, not a shift in overall demand itself.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

Why does a fall in stock prices shift the AD curve to the left?
A. Lower stock prices reduce household wealth, which results in lower consumption.

B. Lower stock prices lead to lower government revenues, which results in less government spending.

C. Lower stock prices decrease the exchange rate, which increases foreign demand for goods and
services.

D. Lower stock prices create an uncertain future, which reduces investment.

Feedback
Correct! Lower stock prices reduce the value of savings held in the stock market.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these would occur following new developments that would increase productivity in industries
using robots?
A. Production costs go down, decreasing aggregate demand.

B. Investment goes up, increasing aggregate demand.

C. Prices go down, decreasing aggregate demand.

D. Consumption goes up, increasing aggregate demand.

Feedback
That is incorrect; the correct answer is: Investment goes up, increasing aggregate demand.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these would lead to an increase in the full-capacity level of GDP in a future year?
A. A decrease in wage levels relative to price levels

B. An increase in wage levels relative to price levels

C. An increase in investment relative to consumption

D. A decrease in investment relative to consumption

Feedback
That is incorrect; the correct answer is: An increase in investment relative to consumption.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."
Use this graph to answer the question below.

Which point represents an unattainable level of production?

A. D

B. C

C. A

D. B
Feedback
That is incorrect; the correct answer is: B.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

Use this graph to answer the question below.


At which point on the AS curve above is output least sensitive to changes in price
level?

A. D

B. B

C. A

D. C

Feedback
Correct! At point D, it takes a large change in price level to increase output just a little.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."
Use this graph to answer the question below.

Which statement describes the relationship between point A and point B on the AS
curve above?

A. Prices are higher at B than at A.

B. Production costs are higher at B than at A.

C. The full-capacity level is higher at B than at A.

D. Real income levels are higher at B than at A.


Feedback
Correct! The AS curve shows the relationship between price level and output.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

Use this graph to answer the question below.


Which of these happens when moving from A to D on the AS curve above?

A. Nominal GDP remains the same.

B. Workers' real income decreases.

C. Workers' nominal income increases.

D. Prices remain the same.

Feedback
That is incorrect; the correct answer is: Workers' real income decreases.

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Question 6 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." That is incorrect; the correct
answer is: It shifts the AS
curve to the left.
Increasing rates of unionization among workers lead to higher wages in a
country. What effect does this have?
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A. It decreases the full-capacity level of GDP.

B. It shifts the AS curve to the right.

C. It shifts the AS curve to the left.

D. It increases the full-capacity level of GDP.

Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

A new environmental regulation prohibits extraction of a large oil reserve. What effect does this have?

A. It increases aggregate supply.

B. It decreases aggregate demand.

C. It decreases the full-capacity level of GDP.

D. It increases the overall price level.


Feedback
That is incorrect; the correct answer is: It decreases the full-capacity level of GDP.

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Question 8 of 10
Multiple Choice: Please select the best answer and click "submit."

What is the effect of an advance in energy efficiency by a nation's businesses?

A. It increases aggregate demand.

B. It decreases the overall price level.

C. It increases the full-capacity level of GDP.

D. It decreases aggregate supply.


Feedback
That is incorrect; the correct answer is: It increases the full-capacity level of GDP.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these would shift the AS curve to the left but not decrease the full-capacity level of the economy?

A. A major technological breakthrough

B. A period of steady inflation

C. An increase in wage levels

D. A decrease in available natural resources


Feedback
That is incorrect; the correct answer is: An increase in wage levels

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these would shift the AS curve to the left and also reduce the full-capacity level of the economy?

A. A decrease in real wages

B. A decrease in consumption

C. A decrease in available natural resources

D. A decrease in government spending


Feedback
That is incorrect; the correct answer is: A decrease in available natural resources.

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Question 1 of 20
Multiple Choice: Please select the best answer and click "submit."
In the above PPF, which point (A, B, or C) might mark full capacity?

A. Point A

B. Point B

C. Point C

D. All the points could represent full capacity.

E. None of the points could represent full capacity.


Feedback
Yes! All the points (including pointA) that are on the PPF represent maximum possible production. Of course, they
represent different possible combinations of production. One of these points represents the production combination
with the highest possible value of production as measured by real GDP (that's full capacity). We don't have enough
information to know which one, but full capacity is definitely one of the points on the curve.

It would be impossible for point Bor point C to be full capacity. If the economy is producing at point B, it could
produce more, and the economy can't produce at point C.

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Question 2 of 20
Multiple Choice: Please select the best answer and click "submit."

Which of the following is not one of the pieces of the AS curve of an economy?

A. A relatively steep portion.

B. An upward-sloping section connecting the flat and steep sections.


C. A relatively flat portion.

D. A downward-sloping section connecting the flat and steep sections.

E. All of the above are sections of the AS curve.

Feedback
The correct answer is: a downward-sloping section connecting the flat and steep sections. The AS curve slopes upward
(as any supply curve should). Therefore, there is no downward-sloping section to the curve.

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Question 3 of 20
Multiple Choice: Please select the best answer and click "submit."

Let's assume that recent oil prices are higher than normal. What effect will this have on AS?

A. The economy will move upward along the AS curve.


B. The AS curve will shift to the left.

C. The AS curve will shift to the right.

D. The economy will move downward along the AS curve.

E. Oil prices have no effect on AS.

Feedback
The correct answer is: theAS curve will shift to the left. Oil is used in many production processes. It's used to heat
office buildings, run machinery, fuel transportation, and so on. If the price of oil increases, the cost of producing many
goods increases as well?everything from corn on the cob to dental floss to wood furniture. An increase in the price of
oil will cause many firms to decrease production. The aggregate supply for the economy will decrease, and
the AS curveshifts to the left. When theAS curve shifts left, it means firms will be willing to produce fewer goods and
services at every price level than they would have before the shift.

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Question 4 of 20
Multiple Choice: Please select the best answer and click "submit."
Several years ago, the United States went to war with Iraq. This led to an increase in government
expenditures and a decrease in private consumption and investment. What is the total effect of these
circumstances on aggregate demand?

A. Leave AD unchanged

B. A decrease in AD

C. An increase in AD

D. It will not affect AD.

E. An unknown change in AD

Feedback
The correct answer is: an unknown change in AD. Decreases in C and I, coupled with an increase in G, could either
increase or decrease AD, depending on which effect is larger. Economists often call this uncertain result
"indeterminate."

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Question 5 of 20
Multiple Choice: Please select the best answer and click "submit."

There are three reasons the AD curve is downward sloping. When a higher price level decreases the
purchasing power of money saved, this is an example of the:

A. Real-balances effect.

B. All the options are correct.

C. None of the options are correct.

D. Interest rate effect.

E. Net exports effect.

Feedback
Yes! The higher price level decreases the purchasing power of money saved, so consumption falls and aggregate
quantity demanded falls.

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Question 6 of 20
Multiple Choice: Please select the best answer and click "submit."

How could production costs change to shift the AS curve from AS1 to AS2 in this graph?

A. Production costs remain the same.

B. Production costs cannot cause a shift of the AS curve.

C. Production costs increase.

D. Production costs decrease.

E. Any change in production costs will cause a shift from AS1 to AS2.
Feedback
The correct answer is: production costs decrease. A decrease in production costs results in an increase in aggregate
supply. This increase is illustrated by a rightward shift in the AS curve. At every price level, producers are willing and
able to supply more goods and services.

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Question 7 of 20
Multiple Choice: Please select the best answer and click "submit."
Which of the following events would cause the aggregate demand curve to shift from AD1 to AD2, as
illustrated in the graph below?

A. The government decides to cut spending in order to decrease the national debt.

B. Consumers increase their expenditures during the Christmas season.

C. The Canadian government finds a large gold mine in Canada, and as a result, the government
eliminates taxes on Canadian citizens.

D. Businesses invest in larger inventories in preparation for potential nationwide computer-related


problems.

E. A decrease in the purchasing power of the United States dollar causes an increase in the price level.
Feedback
Yes! A decrease in G will cause the AD curve to decrease (shift to the left). AD is composed of the following
expenditures: householdconsumption (C), businessinvestment (I), government spending on goods andservices (G), and
netexports (NX). Changing any of these will change AD.

If the net change is positive, ADwill increase and the AD curve will shift right. If the net change is negative, AD will
decrease and the AD curve will shift left.

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Question 8 of 20
Multiple Choice: Please select the best answer and click "submit."

Changes in all the following except one will shift aggregate demand. Which one will not cause a shift in
aggregate demand?

A. Imports

B. Consumption
C. Investment

D. Exports

E. Prices

Feedback
The correct answer is: prices. A change in the price level will cause movement along an aggregate demand curve. A
shift of the AD curve (also called a change in aggregate demand) is caused by changes in the level of consumption,
investment, government expenditures, exports, or imports that aren't caused by a change in the price level.

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Question 9 of 20
Multiple Choice: Please select the best answer and click "submit."

If an economy is producing on the steep portion of the AS curve, large price increases have what effect on
output?
A. A large decrease.

B. A small increase.

C. No change.

D. A small decrease.

E. A large increase.

Feedback
The correct answer is: a small increase. When the economy is operating on the steep portion of the AS curve, it's
approaching full capacity. Full capacity is the maximum production possible as measured in terms of value of
production. So, as an economy gets closer and closer to producing the maximum value possible at fixed prices,
increases in the price level have less and less effect on output.

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Question 10 of 20
Multiple Choice: Please select the best answer and click "submit."
An increase in the price level of an economy causes:

A. Movement downward along the AS curve.

B. The AS curve to shift to the left.

C. Movement upward along the AS curve.

D. Neither a shift in the AS curve nor movement along the AS curve.

E. The AS curve to shift to the right.

Feedback
The correct answer is: movement upward along the AS curve.Changes in the price level cause movement along
the AS curve.Increases in the price level cause movement upward along theAS curve, increasing the aggregate quantity
supplied.

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Question 11 of 20
Multiple Choice: Please select the best answer and click "submit."

Moving from A to B on the graph represents:

A. No change in the aggregate quantity demanded.

B. An increase in the aggregate demand curve.

C. A decrease in aggregate demand.

D. A decrease in the aggregate quantity demanded.

E. An increase in the aggregate quantity demanded.


Feedback
The correct answer is: a decrease in the aggregate quantity demanded. Movement along an aggregate demand curve
represents a change in the aggregate quantity demanded. In this case, the movement is in response to a price increase
and represents a decrease in the aggregate quantity demanded.

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Question 12 of 20
Multiple Choice: Please select the best answer and click "submit."

When an economy is operating at full capacity:

A. There is no extra aggregate demand.

B. It is only using some of its resources.

C. It could produce more if it were more efficient.

D. It is producing the output with the highest value possible.


E. All of the above.

Feedback
The correct answer is: it is producing the output with the highest value possible. Full capacity is the level of real GDP
that corresponds to the maximum value of production possible in an economy. When an economy is at full capacity, it's
using all its resources, and producing at the highest level of RGDP possible. It can't shift its resource use around to
produce at a higher level of RGDP.

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Question 13 of 20
Multiple Choice: Please select the best answer and click "submit."
In the graph, movement from AD1 to AD2 indicates:

A. A decrease in the aggregate quantity demanded.

B. A decrease in aggregate demand.

C. An increase in the aggregate quantity demanded.

D. An increase in aggregate demand.

E. The price level increased.


Feedback
The correct answer is: an increase in aggregate demand. A shift in the demand curve indicates that the aggregate
quantity demanded at every price level has changed. In this case, aggregate demand increased.

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Question 14 of 20
Multiple Choice: Please select the best answer and click "submit."

On an AS curve, output at full capacity is represented by:

A. A horizontal line.

B. An upward-sloping line.

C. A downward-sloping line.

D. A vertical line.
E. Full capacity cannot be drawn on a graph of aggregate supply.

Feedback
The correct answer is: a vertical line. At full capacity, output (or RGDP) is independent of the price level. That is,
output at full capacity is the same no matter what the price level is. Why is that? Because full capacity is the maximum
value of production possible in an economy. This is measured using fixed prices. So if the price level increases, it won't
change the value of production at full capacity. And no matter how high the price level increases, production can't
reach a level of RGDP past full capacity.

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Question 15 of 20
Multiple Choice: Please select the best answer and click "submit."

Let's say that consumer confidence hits its highest level in thirty years. This means consumers expect good
economic times in the future. What effect will this have on aggregate demand?

A. A rightward movement along the AD curve.

B. A leftward shift in the AD curve.


C. A rightward shift in the AD curve.

D. A leftward movement along the AD curve.

E. It will have no effect on aggregate demand.

Feedback
The correct answer is: a rightward shift in the AD curve. Shifting theAD curve represents a change in aggregate
demand. An increase in aggregate demand is a shift to the right; a decrease in aggregate demand is a shift to the left.
Increasing consumer confidence will increase consumption and therefore increase aggregate demand.

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Question 16 of 20
Multiple Choice: Please select the best answer and click "submit."

Which of the following sectors of the economy is (are) not included in aggregate demand:

A. The rest of the world (ROW) sector.


B. The household sector.

C. The government sector.

D. The business sector.

E. All of the above are included in aggregate demand.

Feedback
The correct answer is: all of the above are included in aggregate demand. AD includes the spending of households,
businesses, the government, and the rest of the world. Algebraically, it's AD = C + I + G+ NX.

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Question 17 of 20
Multiple Choice: Please select the best answer and click "submit."

Technological improvement causes:


A. Decreases in production.

B. The AS curve to shift to the right.

C. The AS curve to shift to the left.

D. Production costs to increase.

E. The AS curve to remain unchanged.

Feedback
The correct answer is: theAS curve to shift to the right. Technological improvements causes production costs to
decrease, shifting the AS curve to the right and increasing output. Technological improvements are a main source of
growth in an economy.

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Question 18 of 20
Multiple Choice: Please select the best answer and click "submit."
Which of the following is (are) true of the aggregate demand curve?

A. The AD curve illustrates the relationship between the price level and the combined value of products
and services desired by the different sectors of the economy.

B. The price level is on the horizontal axis of the graph for aggregate demand.

C. The AD curve slopes upward.

D. RGDP lies along the vertical axis of the graph for aggregate demand.

E. All of the above

Feedback
Yes! Aggregate demand shows the relationship between the price level and the value of goods and services people in
an economy are willing and able to buy, measured in constant dollars. It's represented on a graph with the price level on
the vertical axis and the level of real GDP on the horizontal axis. The AD curve is downward sloping.

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Question 19 of 20
Multiple Choice: Please select the best answer and click "submit."

An increase in aggregate demand is:

A. A leftward movement along the AD curve.

B. Caused by price changes.

C. A rightward movement along the AD curve.

D. A rightward shift in the AD curve.

E. A leftward shift in the AD curve.

Feedback
The correct answer is: a rightward shift in the AD curve. Shifting theAD curve represents a change in aggregate
demand. An increase in aggregate demand is a shift to the right; a decrease in aggregate demand is a shift to the left.

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Question 20 of 20
Multiple Choice: Please select the best answer and click "submit."

When an economy is on the flat portion of its AS curve:

A. Small changes in the price level have little or no effect on the amount of production in the
economy.

B. The economy is near full capacity.

C. There is no relatively flat portion of the AS curve.

D. The economy is well below full capacity.

E. Attempts to increase the output of the economy will result in inflation.


Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which of these happens when the price level is below the equilibrium price?

A. Business inventories decrease.

B. Government spending goes up.

C. The AS curve shifts to the right.

D. Firms lower their prices.


Feedback
Correct! At a price level below the equilibrium price, aggregate supply is greater than aggregate demand, leading to
more consumption than production, which decreases inventories.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Why does a higher-than-equilibrium price tend to return to the equilibrium price level?

A. Businesses lower prices to help sell the increasing excess in inventory.

B. Aggregate demand is maintained by an increase in government spending.

C. The AS curve shifts to the left to create a new equilibrium.

D. There is growth in demand in one or more of the four sectors of the economy.
Feedback
Correct! When there is a higher-than-equilibrium price, supply is higher than demand, leading to lower prices.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

What would be the effect if the U.S. dollar drops in value relative to other major foreign currencies?

A. An increase in aggregate supply

B. An increase in the price level

C. An increase in real wage levels

D. An increase in output by firms


Feedback
That is incorrect; the correct answer is: An increase in the price level.

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Question 4 of 10
Multiple Choice: Please select the best answer and click "submit."

What would be the effect if the federal government purchased a large number of planes, trains, and
automobiles?

A. An increase in aggregate supply

B. A decrease in aggregate demand

C. An increase in aggregate demand

D. A decrease in aggregate supply


Feedback
That is incorrect; the correct answer is: An increase in aggregate demand.

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Question 5 of 10
Multiple Choice: Please select the best answer and click "submit."

An increase in which of these would lead to a decrease in RGDP?

A. Interest rates

B. Productive output

C. Price level

D. Investment by firms
Question 6 of 10
Multiple Choice: Please select the best answer and click "submit."

During the Great Depression, the U.S. economy was functioning far below full capacity. At that time, what
would have been the effect of a large increase in government spending?

A. A small decrease in aggregate supply and a large decrease in price levels

B. A small increase in wages and a large increase in price levels

C. A small increase in price levels and a large increase in RGDP

D. A small decrease in aggregate demand and a large decrease in RGDP

Feedback
That is incorrect; the correct answer is: A small increase in price levels and a large increase in RGDP.

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Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."
Which of these would lead to a decrease in RGDP?

A. Passage of an increase in business taxes

B. Creation of a new government social program

C. Development of a new computerized record-keeping system

D. Discovery of a new supply of oil

Feedback
Correct! Business tax increases reduce aggregate supply, which brings down RGDP.

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Question 8 of 10
Multiple Choice: Please select the best answer and click "submit."

When an economy is functioning at close to full capacity, what is the effect of a small increase in nominal
wages?
A. A small increase in RGDP

B. A large decrease in aggregate supply

C. A large increase in the price level

D. A small decrease in aggregate demand

Feedback
That is incorrect; the correct answer is: A large increase in the price level.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

If both aggregate supply and aggregate demand increase, what else will definitely increase?
A. Nominal wages

B. Real output

C. Input costs

D. Price level

Feedback
That is incorrect; the correct answer is: Real output.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens when there's a small decrease in aggregate demand at the same time that there's a large
increase in aggregate supply?
A. Prices go down and output goes down.

B. Prices go down and output goes up.

C. Prices go up and output goes up.

D. Prices go up and output goes down.

Feedback
That is incorrect; the correct answer is: Prices go down and output goes up.

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Question 1 of 15
Multiple Choice: Please select the best answer and click "submit."

Stagflation happens when:


A. Price levels increase, and real GDP decreases.

B. Price levels and real GDP increase.

C. Price levels decrease, and real GDP increases.

D. Price levels and real GDP decrease.

E. Aggregate demand decreases.

Feedback
Yes! Stagflation describes a situation of increasing price levels and decreasing real GDP. A famous period of
stagflation occurred in the U.S. during the 1970s.

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Question 2 of 15
Multiple Choice: Please select the best answer and click "submit."
On the graph, equilibrium occurs at:

A. point C.

B. point B.

C. point A.

D. any point where AD and AS meet.

E. None of the above


Feedback
The correct answer is: any point where AD and AS meet. Equilibrium occurs where theAD curve and
the AS curveintersect. At this point, the economy is at a price level where the value of aggregated quantity demanded
exactly equals the value of aggregate quantity supplied. This is the equilibrium price level and equilibrium level of
RGDP.

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Question 3 of 15
Multiple Choice: Please select the best answer and click "submit."
In the graph, suppose an economy begins in equilibrium on AD1. If spending increases,
driving AD from AD1 to AD2, then equilibrium:

A. Shifts from point A to point B.

B. Shifts from point A to point C.

C. Shifts upward from point A to point D.

D. Shifts to lower prices and output.

E. Remains at point A.
Feedback
The correct answer is: shifts upward from point A to point D.Shifts in the AD curve result in movement along
the AS curve to a new equilibrium. The newAD curve intersects the originalAS curve at the new
equilibriumpoint D, resulting in a higher price level and greater output.

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Question 4 of 15
Multiple Choice: Please select the best answer and click "submit."

In equilibrium:

A. Prices remain the same.

B. Wage and price pressure pushes prices upward.

C. Price pressure pushes prices downward.

D. Aggregate supply is larger than aggregate demand, creating excess inventories for suppliers.
E. Aggregate demand is larger than aggregate supply, depleting inventories and minimizing storage
costs for producers.

Feedback
Yes! If an economy is in equilibrium, there is no pressure on prices to change. Unless some outside influence occurs,
prices will remain as they are indefinitely.

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Question 5 of 15
Multiple Choice: Please select the best answer and click "submit."
If an economy begins in equilibrium at point A, and AD and AS both increase, the new equilibrium most
likely:

A. Has a higher price level.

B. Is at a greater level of output.

C. Has the same price level.

D. Shifts to point C.

E. Shifts to point D.
Feedback
The correct answer is: is at a greater level of output. Either of these shifts results in greater output. Taken together, they
add up to an even larger increase in output.

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Question 6 of 15 Feedback
Multiple Choice: Please select the best answer and click "submit." Yes! An increase in aggregate
demand and a decrease in
aggregate supply will cause
If aggregate demand increases and aggregate supply decreases, this will
the price level to increase, but
cause:
the effect on real GDP will be
indeterminate.
A. A decrease in real GDP and an increase in the price level. Click Next to Continue

B. An increase in real GDP and a decrease in the price level.

C. Indeterminate changes in both real GDP and the price level.

D. An increase in the price level and an indeterminate change in


real GDP.

E. An increase in real GDP and an indeterminate change in the price


level.

Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."

In the graph, the economy begins on AD1 and AS1 (in equilibrium at point A). If the country simultaneously
experiences an oil embargo and suddenly goes to war, then equilibrium in this economy will:
A. Shift to point D.

B. Shift to point B.

C. Remain at point A.

D. Shift to point C.

E. None of the above.


Feedback
The correct answer is: shift topoint C. An oil embargo would shift AS to the left (moving equilibrium from A to B). War
would shift AD to the right (moving equilibrium from B to C). Note that the order of these events doesn't matter,
meaning ifAD shifted first, equilibrium would shift from A to D to C, and the final result is the same.

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Question 8 of 15
Multiple Choice: Please select the best answer and click "submit."

Suppose a nation begins in equilibrium at point A, but then goes to war. This results in greater government
spending, moving the economy to point C. At the same time, the government undertakes a campaign to get
many more people in the workforce. If the campaign succeeds, what point does the economy move to?

A. Shifts to point B

B. Stays at point C

C. Returns to point A

D. Shifts to point D

E. None of the above


Feedback
The correct answer is: shifts topoint D. Equilibrium would move to point D. The increase in workers increases
aggregate supply from AS1 to AS2. This moves the equilibrium, the intersection of aggregate demand and aggregate
supply, to AD2 andAS2.

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Question 9 of 15
Multiple Choice: Please select the best answer and click "submit."

In the graph below, the nation's economy begins on AD1 and AS1 (in equilibrium at point A). If there's an oil
embargo (a foreign oil supplier reduces or cuts off its flow of oil to the nation), then equilibrium in this
economy:

A. Remains at point A.

B. Shift to point B.

C. Shift to point C.

D. Shift to point D.

E. None of the above.


Feedback
The correct answer is: none of the above. An increase in oil prices should increase the price of factor inputs, shifting
the AS curve to the left as suppliers reduce their own output due to the increased price of the important factor oil.
However, the graph shows only increases in aggregate demand and aggregate supply. It doesn't show a decrease in
aggregate supply, which would be a leftward shift of the AS curve.

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Question 10 of 15
Multiple Choice: Please select the best answer and click "submit."

If there's a big increase in AS and a small increase in AD:

A. Both the price level and real GDP will fall.

B. We'll probably see the opposite of stagflation.

C. Both the price level and real GDP will rise.


D. Real GDP will fall, but the effect on the price level will be indeterminate.

E. Stagflation will be the likely result.

Feedback
Yes! Stagflation describes a situation in which the price level rises and real GDP falls. If there are increases
in AS and AD, real GDP will certainly rise. If the increase in AS is large and the increase in AD is small, this will cause
the price level to fall. The combination of rising real GDP and falling price level is the opposite of stagflation.

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Question 11 of 15
Multiple Choice: Please select the best answer and click "submit."

When production costs decrease:

A. Aggregate supply increases.

B. Aggregate demand increases.


C. Stagflation typically occurs.

D. Price levels rise.

E. Output decreases if there's a lot of excess capacity.

Feedback
The correct answer is: aggregate supply increases. When production costs decrease, aggregate supply increases. This
means that the AS curve shifts to the right, leading to increased real GDP and lower price levels.

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Question 12 of 15
Multiple Choice: Please select the best answer and click "submit."

What is the primary difference between a graph of AD/AS equilibrium in the short run and in the long run?

A. Long-run AS is vertical.
B. Long-run AD is upward sloping.

C. Short-run AS is downward sloping.

D. There is no difference between long-run and short-run equilibrium.

E. Short-run AS is steeper than long-run AS.

Feedback
Yes! The long-run aggregate supply curve is a vertical line, which is very different from the upward-sloping AS curve
of theshort-run AD/AS model.

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Question 13 of 15
Multiple Choice: Please select the best answer and click "submit."

A demand shock that decreases output will:


A. Decrease the price level also.

B. Have the largest effect on the quantity of output when the economy is well below full capacity.

C. Cause a movement along the aggregate supply curve.

D. Cause aggregate demand to decrease.

E. All of these are correct.

Feedback
The correct answer is: all of these are correct. A negative demand shock shifts the AD curve to the left, decreasing
output and the price level. The economy adjusts along the AS to a new equilibrium. The change in equilibrium output is
larger when the AS curve is flatter.

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Question 14 of 15
Multiple Choice: Please select the best answer and click "submit."

In the Great Depression of the 1930s, price levels fell and real GDP fell. This must have been:

A. An increase in aggregate demand.

B. An early example of stagflation.

C. A decrease in aggregate supply.

D. The result of a demand shock.

E. The result of a supply shock.

Feedback
The correct answer is: the result of a demand shock. If price levels and real GDP both move in the same direction, this
implies that a demand shock has affected the economy. In this case, aggregate demand declined.

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Question 15 of 15 Feedback
Multiple Choice: Please select the best answer and click "submit." Yes! When an economy is
near full capacity, it's near
its maximum possible
If an economy is operating near full capacity, like the economy shown in the
output with the resources
graph, a further increase in AD (from AD1 to AD2) results in:
available. Increasing AD in
this situation leads to large
increases in the price level
for increasingly small
increases in output. Near
full capacity, increases
in AD yield inflation as
wages and prices are
pushed upward.

Click Next to
Continue

A. Much higher prices and minimal increases in output.

B. Much higher output and minimal price increases.

C. Minimal increases in prices and output.

D. Aggregate demand cannot increase beyond equilibrium levels.

E. Large increases in output and prices.


Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Economic news leads U.S. households to expect a recession. What happens to the AD/AS model in the
short term as a result of this news?

A. An increase in aggregate demand

B. A decrease in aggregate supply

C. A decrease in aggregate demand

D. An increase in aggregate supply

Feedback
That is incorrect; the correct answer is: A decrease in aggregate demand.

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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

Economic news leads U.S. households to expect a recession. What is the short-run effect of this news?

A. A decrease in nominal wages

B. A decrease in the price level

C. An increase in the full-employment level

D. An increase in RGDP

Feedback
That is incorrect; the correct answer is: A decrease in the price level.

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Question 3 of 10
Multiple Choice: Please select the best answer and click "submit."

Economic news leads U.S. households to expect a recession. What is one of the effects of the decrease in
aggregate demand that results from news of a recession?

A. A decrease in short-run aggregate supply

B. A decrease in the full-employment level

C. A reduction in nominal wages

D. An increase in long-run aggregate supply

Feedback
That is incorrect; the correct answer is: A reduction in nominal wages.

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Question 4 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." That is incorrect; the correct
answer is: Wages are reduced.
Legal changes that weaken the bargaining power of labor unions are
made in the United States. What is the short-term effect of these legal
Click Next to Continue
changes?

A. Aggregate supply decreases.

B. Wages are reduced.

C. Aggregate demand increases.

D. Productive capacity declines.


Question 5 of 10 Feedback

Multiple Choice: Please select the best Correct!


answer and click "submit." Diminishing
input costs
Legal changes that weaken the increase
bargaining power of labor unions are aggregate
made in the United States. What happens supply.
to the AD/AS model in the short term
when these legal changes are made? Click Next to
Continue
A. The AS curve shifts to the right.

B. The AD curve shifts to the left.

C. The AD curve shifts to the right.

D. The AS curve shifts to the left.


Question 6 of 10 Feedback

Multiple Choice: Please select the best That is incorrect;


answer and click "submit." the correct
answer is: The
Legal changes that weaken the price level falls
bargaining power of labor unions are and RGDP rises.
made in the United States. Which of
these takes place when wages are Click Next to
reduced as a result of a legal reduction Continue
in the bargaining power of labor unions?

A. Both the price level and RGDP fall.

B. The price level falls and RGDP rises.

C. Both the price level and RGDP rise.

D. The price level rises and RGDP falls.


Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

Consider a long-run situation in which a legal change reduces the bargaining power of labor unions, but
price level and RGDP then have time to return to the same level as before the change. Why do both the
price level and RGDP return to the same level in the long run?

A. When the price level falls after a rise in AS, government spending increases, moving the AD curve to
the right.

B. When RGDP rises after a rise in AS, exports increase, moving the AD curve to the right.

C. When RGDP rises after a rise in AS, unemployment falls, bringing up wages and decreasing AS again.
D. When the price level falls after a rise in AS, the long-run aggregate supply curve shifts to the right.

Feedback
That is incorrect; the correct answer is: When RGDP rises after a rise in AS, unemployment falls, bringing up wages
and decreasing AS again.

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Question 8 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." Correct! Reducing the length of
the work week would reduce
the productive capacity of the
The U.S. government passes a law that reduces the length of the work
nation.
week to 30 hours but requires that each worker is still paid what he or she
previously made per week. How would this new law affect the economy in
the short run?
Click Next to Continue

A. Productive output would decrease.

B. Aggregate demand would increase.

C. Aggregate demand would decrease.

D. Productive output would increase.


Question 9 of 10 Feedback

Multiple Choice: Please select the best That is incorrect;


answer and click "submit." the correct
answer is: The
The U.S. government passes a law that price level would
reduces the length of the work week to increase.
30 hours but requires that each worker is
still paid what he or she previously made Click Next to
per week. Which of these would occur in Continue
the short-term as a result of the
shortened work week?

A. The wage level would decrease.

B. The price level would increase.

C. RGDP would increase.

D. The full-employment level would increase.


Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

The U.S. government passes a law that reduces the length of the work week to 30 hours but requires that
each worker is still paid what he or she previously made per week. What would be the long-term impact of
the shortened work week?

A. An increase in the price level and a decrease in RGDP

B. An increase in the price level but no change in RGDP


C. No change in the price level or RGDP

D. A decrease in the price level but an increase in RGDP

Feedback
Correct! The LRAS curve shifts to the left in the long run, making the long-run effect the same as the short-run effect.

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Question 1 of 15
Multiple Choice: Please select the best answer and click "submit."

One of the primary limitations of the long-run AD/AS model of equilibrium is:

A. it is a dynamic model, so it shows changes over time.

B. full employment is unknown.


C. full capacity is unknown.

D. it is a static model, so it shows moments in time.

E. changes in aggregate demand do not allow identification of the long-runequilibrium level of output.

Feedback
The correct answer is: it is a static model, so it shows moments in time. As a static model, it is unable to explain how
the economy changes over time. For example, it shows the price level rather than the inflation rate, and the level of real
GDP at full employment rather than the natural rate of GDP growth.

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Question 2 of 15
Multiple Choice: Please select the best answer and click "submit."
What does the point A in the graph represent?

A. Short-run equilibrium

B. An excess in quantity supplied

C. An excess in aggregate quantity demanded

D. Long-run equilibrium

E. None of the above


Feedback
The correct answer is: Long-runequilibrium. A vertical aggregate supply curve indicates that it's along-run aggregate
supply curve. The intersection of the long-run aggregate supply and aggregate demand curves determine thelong-
run equilibrium.

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Question 3 of 15
Multiple Choice: Please select the best answer and click "submit."

An economy starts out in short-run and long-run equilibrium. If both short-run and long-run aggregate
supply increase, so that the economy remains in equilibrium:

A. The aggregate demand curve will have to shift.

B. The real level of output will rise, and the nominal level will fall.

C. The real level of output will fall, and the price level will rise.
D. The real level of output will rise, and the price level will rise.

E. The real level of output will rise, and the price level will fall.

Feedback
The correct answer is: the real level of output will rise, and the price level will fall. If both short-run and long-run
aggregate supply increase (meaning that the curves shift to the right) and the economy remains in equilibrium, it must
be that the price level is lower, and the real level of output will increase.

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Question 4 of 15
Multiple Choice: Please select the best answer and click "submit."

If an economy starts out in long-run equilibrium and people become more optimistic about the future of the
economy, this will lead to:

A. A decrease in real output, an increase in the price level, increasing wages, and an increase in real
output to return to long-run equilibrium.
B. A decrease in real output, a decrease in the price level, decreasing wages, and an increase in real
output to return to long-run equilibrium.

C. An increase in real output, a decrease in the price level, decreasing wages, and a decrease in real
output to return to long-run equilibrium.

D. An increase in real output, a increase in the price level, increasing wages, and a decrease in real
output to return to long-run equilibrium.

E. A decrease in real output, an increase in the price level, decreasing wages, and an increase in real
output to return to long-run equilibrium.

Feedback
The correct answer is: an increase in real output, a increase in the price level, increasing wages, and a decrease in real
output to return to long-run equilibrium. If people become more optimistic, this will increaseAD, which will lead to
increased real output and a higher price level. This will cause wages to increase (due to lower unemployment), which
will reduceAS and eventually reduce real output in the long run, returning the economy to long-run equilibrium.

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Question 5 of 15
Multiple Choice: Please select the best answer and click "submit."
Say a person loses his or her job because the economy dips into a recession. This is an example of:

A. structural unemployment.

B. frictional unemployment.

C. voluntary unemployment.

D. seasonal unemployment.

E. cyclical unemployment.
Question 6 of 15
Multiple Choice: Please select the best answer and click "submit."

If an economy begins in long-run equilibrium like that illustrated below, what effect will an increase in
government expenditures have on long-run equilibrium?

A. Increase in the price level

B. No effect

C. Decrease in the price level

D. Decrease in aggregate output

E. Increase in output
Feedback
Yes! An increase in government spending, G, will increase aggregate demand. This will cause an increase in the price
level, but not an increase in output in the long run. An output increase is possible in the short run, but in the long run
it's not. In the long run, the economy returns to the full-employment level of output.

Graphically, this is a shift of theAD curve to the right. In the long run, the economy adjusts to thefull-employment level
of RGDP, where the new AD curveintersects the LRAS curve at a higher price level.

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Question 7 of 15
Multiple Choice: Please select the best answer and click "submit."

When a typist is released from her job because the office workers where she works now use word
processors, it is an example of what type of unemployment?

A. Seasonal

B. Cyclical
C. Frictional

D. Structural

E. The former typist is not considered to be unemployed.


Question 8 of 15
Multiple Choice: Please select the best answer and click "submit."

Let's say an economy begins in long-run equilibrium, as in this graph, and institutes an open-border
immigration policy, which increases the labor supply. Also assume that the increase in consumption caused
by the immigrants is offset by an identical increase in imports. Select a graph that shows how AD/AS would
be affected.

A.
B.

C.
D.

E.
None of the above.
Feedback
The correct answer is:
Increasing the supply of labor causes a rightward shift in long-run aggregate supply (an increase inLRAS). This will
shift equilibrium to a new point on the aggregate demand curve, one with a higher RGDP and lower price level.

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Question 9 of 15
Multiple Choice: Please select the best answer and click "submit."

A long-run aggregate supply curve is:

A. horizontal.

B. vertical.

C. equal to the full-capacity level of production.

D. downward sloping.

E. upward sloping.
Feedback
The correct answer is: vertical. In the long-run, aggregate supply is determined by the capacity constraints and labor
supply of the economy, not by the price level. That means that in the long run, the AS curve is a straight, vertical line
rising up from the horizontal axis at the full-employment level of output.

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Question 10 of 15
Multiple Choice: Please select the best answer and click "submit."

A decrease in workers' wages:

A. Will decrease AS but increase long-run AS.

B. Will increase long-run AS but not AS.

C. Will increase AS and long-run AS.

D. Will increase AS but decrease long-run AS.

E. Will increase AS, but not long-run AS.


Question 11 of 15
Multiple Choice: Please select the best answer and click "submit."

A large influx of new workers into an economy:

A. Will increase AS, but decrease long-run AS.

B. Will increase AS, but not long-run AS.

C. Will increase long-run AS, but not AS.

D. Will decrease AS, but increase long-run AS.

E. Will increase AS and long-run AS.


Feedback
The correct answer is: will increase AS and long-run AS. An influx of workers will increase ASin the short run and will
also increase the long-run full-employment level of output, shifting the long-run AS curve to the right.

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Question 12 of 15
Multiple Choice: Please select the best answer and click "submit."

If an economy begins in long-run equilibrium, like the one graphed here, where does it end up if there is a
sudden decline in consumer confidence? From the following graphs select the graph that illustrates this.
A.

B.
C.

D.
E.
The economy would remain at point E1.
Feedback
Yes! A decline in consumer confidence causes a decrease in consumption (one of the components of aggregate
demand) and, so, a decrease inAD. A decline in aggregate demand shifts the economy to a new equilibrium point on
theLRAS curve.

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Question 13 of 15
Multiple Choice: Please select the best answer and click "submit."

One of the defining characteristics of long-run AD/AS equilibrium is:

A. the economy operates at full capacity.

B. a zero percent structural unemployment rate.

C. the economy operates at full employment.

D. a horizontal aggregate supply curve.

E. a zero percent unemployment rate.


Feedback
The correct answer is: the economy operates at full employment. Full employment is the highest level of real GDP an
economy can maintain without inflationary price increases. Full employment is the level of output at which cyclical
unemployment does not exist?structural,frictional, and seasonal unemployment may still exist at full employment,
however.

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Question 14 of 15
Multiple Choice: Please select the best answer and click "submit."

An economy starts out in short-run and long-run equilibrium. If both short-run and long-run aggregate
supply decrease, so that the economy remains in equilibrium:

A. The real level of output will rise, and the price level will fall.

B. The aggregate demand curve will have to shift.

C. The real level of output will rise, and the price level will rise.
D. The real level of output will rise, and the nominal level will fall.

E. The real level of output will fall, and the price level will rise.

Feedback
The correct answer is: the price level will increase, and the nominal level of output may either increase or decrease. If
aggregate supply decreases, this will lead to a decrease in the real level of output and an increase in the price level. This
may either cause nominal output to increase or decrease.

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Question 15 of 15
Multiple Choice: Please select the best answer and click "submit."

Full employment indicates:

A. a zero percent structural unemployment rate.

B. a zero percent frictional unemployment rate.


C. a zero percent cyclical unemployment rate.

D. a zero percent aggregate unemployment rate.

E. a zero percent seasonal unemployment rate.

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The correct answer is: a zero percent cyclical unemployment rate. If the economy is at full employment, the cyclical
unemployment rate is zero. It doesn't mean that the unemployment rate is zero. Full employment is the highest level of
real GDP an economy can maintain without an increase in prices. At full employment, cyclical unemployment is zero,
but structural and frictional unemployment still exist.

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Question 1 of 30
Multiple Choice: Please select the best answer and click "submit."

How will a decrease in AS affect nominal GDP?


A. Either an increase or a decrease

B. Increase

C. Decrease

D. A decrease if the AD curve is steep enough

E. An increase if the AD curve is flat enough

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Correct!

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Question 2 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following is not an effect of an increasing price level (inflation)?

A. A decrease in the real value of household cash holdings

B. An increase in interest rates

C. A decrease in the aggregate quantity of goods and services demanded

D. Increasing demand for the products of foreign countries

E. An increase in aggregate supply

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The correct answer is: An increase in aggregate supply.

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Question 3 of 30
Multiple Choice: Please select the best answer and click "submit."

When price level (inflation) in the United States rises:

A. to replenish the value of your real wealth, you would save less and consume more.

B. the interest rate falls, and people want to borrow more money.

C. producers demand more new machinery, contributing to an increase in aggregate demand.

D. the French, Canadians, Japanese, and citizens of other nations find our exports more attractive.

E. Americans tend to demand more foreign goods and services.

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The correct answer is: Americans tend to demand more foreign goods and services.

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uestion 4 of 30
Multiple Choice: Please select the best answer and click "submit."

The total quantity of goods and services demanded by households, firms, foreigners, and government at
varying price levels is:

A. total demand.

B. aggregate demand.

C. aggregate expenditure.

D. total expenditure.

E. gross domestic product.

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The correct answer is: aggregate demand.

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Question 5 of 30
Multiple Choice: Please select the best answer and click "submit."

According to the interest rate effect, as the price level:

A. rises, interest rates fall, and people buy less.

B. rises, United States products become more expensive, and foreigners buy fewer U.S. goods.

C. rises, people feel poorer and buy less.

D. falls, interest rates fall, and people buy less.

E. rises, interest rates rise, and people buy less.

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The correct answer is: rises, interest rates rise, and people buy less.
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Question 6 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following will shift the AD curve to the right?

A. A decrease in government spending

B. An increase in interest rates

C. A cut in income tax rates

D. A recession in another country

E. A reduction in wages

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The correct answer is: A cut in income tax rates.
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Question 7 of 30
Multiple Choice: Please select the best answer and click "submit."

When the economy is in a severe recession, an increase in aggregate demand will lead to:

A. a big increase in the price level and a smaller increase in real GDP.

B. a big increase in real GDP and a smaller increase in the price level.

C. an increase in the long-run equilibrium level of output.

D. a decrease in the long-run equilibrium level of output.

E. Both an increase in the long-run equilibrium level of output and a big increase in real GDP and a
smaller increase in the price level.

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The correct answer is: a big increase in real GDP and a smaller increase in the price level.

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Question 8 of 30
Multiple Choice: Please select the best answer and click "submit."

If the government cuts income taxes and the result is a big increase in output and a small increase in the
price level, then at both the original and new economic equilibrium points the:

A. aggregate demand curve must be relatively flat.

B. aggregate demand curve must be relatively steep.

C. aggregate supply curve must be relatively steep.

D. aggregate supply curve must be steeper than the aggregate demand curve.

E. aggregate supply curve must be relatively flat.


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The correct answer is: aggregate supply curve must be relatively flat.

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Question 9 of 30
Multiple Choice: Please select the best answer and click "submit."

Stagflation is caused by:

A. a decrease in aggregate supply.

B. an increase in productivity capacity.

C. an increase in aggregate supply.

D. an increase in aggregate demand.

E. a decrease in aggregate demand.


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Correct!

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Question 10 of 30
Multiple Choice: Please select the best answer and click "submit."

In the AD/AS model, the:

A. vertical axis measures price.

B. aggregate demand curve gets steeper as real GDP decreases.

C. short-run aggregate supply curve is vertical at the full-capacity level of real GDP.

D. short-run aggregate supply curve is vertical at the full-employment level of real GDP.
E. aggregate demand curve gets steeper as real GDP increases.

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The correct answer is: short-run aggregate supply curve is vertical at the full-capacity level of real GDP.

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Question 11 of 30
Multiple Choice: Please select the best answer and click "submit."

If Canada is the most important trading partner of the United States, what effect will stagflation in Canada
have on aggregate demand in the U.S.?

A. It will increase aggregate demand in the U.S.

B. The effect will be indeterminate.

C. It will increase aggregate demand in the U.S. if the decrease in Canadian output is large enough.
D. It will decrease aggregate demand in the U.S.

E. It will increase aggregate demand in the U.S. if the decrease in Canadian unemployment is very large.

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The correct answer is: The effect will be indeterminate.

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Question 12 of 30
Multiple Choice: Please select the best answer and click "submit."

As an economy approaches the full-employment level of RGDP:

A. decreases in wages are more likely to cause a significant increase inAS.

B. Both the AS curve becomes very steep, but not quite vertical and decreases in wages are more likely
to cause a significant increase inAS.
C. decreases in wages are more likely to cause a significant decrease inAS.

D. the AS curve becomes vertical.

E. the AS curve becomes very steep, but not quite vertical.

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The correct answer is: the AScurve becomes very steep, but not quite vertical.

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Question 13 of 30
Multiple Choice: Please select the best answer and click "submit."

An increase in oil prices will shift the aggregate:

A. supply curve rightward.


B. demand curve rightward.

C. supply curve leftward.

D. Both demand curve leftward and supply curve leftward.

E. demand curve leftward.


Question 14 of 30
Multiple Choice: Please select the best answer and click "submit."

Aggregate supply increases when:

A. wage rates or interest rates decrease and the economy's price level remains unchanged.

B. there is less capital and the price level remains unchanged.

C. there are increased inflationary expectations of labor.

D. resource availability is reduced.

E. the emigration rate is increased, and therefore there are fewer workers.
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Correct!

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Question 15 of 30
Multiple Choice: Please select the best answer and click "submit."

The aggregate supply curve has a significantly different curve or arc to it than the aggregate demand curve.
What is one of the key reasons for the different shape of the aggregate supply curve?

A. As an economy gets closer to full production capacity, even small increases in production become
very expensive, so prices have to rise much higher for each increase in production.

B. RGDP has different effects on the price level at different levels of production.

C. The price level has different effects on RGDP at different levels of production.

D. As an economy approaches full production capacity, it becomes much easier to produce more goods
without price increases.
E. None of these

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Correct!

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Question 16 of 30
Multiple Choice: Please select the best answer and click "submit."

Stagflation describes a situation in which:

A. the unemployment rate is high and the inflation rate is low.

B. the unemployment rate is low and the inflation rate is high.

C. the economy is growing quickly and there is a high inflation rate.


D. the unemployment rate is high and the inflation rate is high.

E. the economy is growing quickly and there is no inflation.

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The correct answer is: the unemployment rate is high and the inflation rate is high.

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Question 17 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following statements is true about "demand-pull" inflation?

A. The capacity of the economy will decrease as a result.

B. It will result from a decrease in aggregate demand.


C. Aggregate supply will increase as a result.

D. Wages will rise as the economy moves toward long-run equilibrium.

E. It will result in a decrease in output.

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The correct answer is: Wages will rise as the economy moves toward long-run equilibrium.

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Question 18 of 30
Multiple Choice: Please select the best answer and click "submit."

If an economy is at full employment, an income tax cut will result in:

A. a higher price level and more output in the short run, but only higher output in the long run.
B. a higher price level and more output in the short run, but only a higher price level in the long run.

C. an increase in AD and increased output in the long run.

D. an increase in LRAS and economic growth.

E. a decrease in AD and an increase in capacity.

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The correct answer is: a higher price level and more output in the short run, but only a higher price level in the long
run.

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Question 19 of 30
Multiple Choice: Please select the best answer and click "submit."

Innovations in fields such as industrial machinery have the effect of:


A. increasing output because they reduce the costs of production.

B. increasing price levels because producers must pay for the new equipment.

C. decreasing output because they cause technological unemployment.

D. decreasing price levels because they reduce the amount of goods households can buy.

E. increasing output because they increase the amount that can be sold to other countries.

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Correct!

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Question 20 of 30
Multiple Choice: Please select the best answer and click "submit."

A shock that decreases input prices but doesn't increase the full-employment level of output will result in:
A. a lower price level in the short run and higher output in the long run.

B. an increase in aggregate demand.

C. greater output in the short run and no change in the price level in the long run.

D. greater output in the short run and a higher price level in the long run.

E. greater output in the short run and a lower price level in the long run.

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The correct answer is: greater output in the short run and no change in the price level in the long run.

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Question 21 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following will cause a decrease in aggregate supply?


A. Diminished household expectations about future income

B. A decrease in wages

C. A decrease in interest rates

D. Legislation limiting the workweek to 38 hours

E. All of these will decrease aggregate supply.

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The correct answer is: Legislation limiting the workweek to 38 hours.

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Question 22 of 30
Multiple Choice: Please select the best answer and click "submit."

An economy that isn't at full employment will move toward long-run equilibrium as long as:
A. wages are free to rise or fall.

B. prices are kept under control.

C. stock markets are stabilized.

D. the government restricts imports.

E. aggregate demand expands steadily.


Question 23 of 30
Multiple Choice: Please select the best answer and click "submit."

Which of the following statements is true about "cost-push" inflation?

A. This will result from an increase in aggregate supply.

B. Output will decrease as a result.

C. This could result from either an increase or a decrease in aggregate supply.

D. Output will increase as a result.

E. Both Output will increase as a result, and This will result from an increase in aggregate supply.
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The correct answer is: Output will decrease as a result.

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Question 24 of 30
Multiple Choice: Please select the best answer and click "submit."

The aggregate demand curve:

A. is steeper at higher levels of output.

B. shows the level of real GDP purchased in the economy at different possible price levels during a
period of time.

C. shows the level of real GDP produced in the economy at different possible price levels during a
period of time.

D. slopes upward.
E. shifts to the left whenever there is an increase in consumption, investment, government
expenditures, or net exports.

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The correct answer is: shows the level of real GDP purchased in the economy at different possible price levels during a
period of time.

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Question 25 of 30
Multiple Choice: Please select the best answer and click "submit."

In the AD/AS model, when the price level (inflation) increases:

A. interest rates rise because the real amount of money available for loans falls.

B. interest rates fall because the real amount of money demanded for loans falls.

C. interest rates rise because the real amount of money people want to borrow rises.
D. interest rates rise because the nominal amount of money available for loans falls.

E. interest rates fall because the nominal amount of money available for loans rises.

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The correct answer is: interest rates rise because the real amount of money people want to borrow rises.

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Question 26 of 30
Multiple Choice: Please select the best answer and click "submit."

When the U.S. government increased its spending during the Great Depression, there was no resulting
inflation because:

A. unemployment was very high.

B. the economy had lots of excess capacity.


C. at that level of output, the AS curve was basically flat.

D. GDP was far below the full-employment level.

E. All of these

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The correct answer is: All of these.

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Question 27 of 30
Multiple Choice: Please select the best answer and click "submit."

If oil firms find a new method for obtaining oil from dry and depleted oil fields, we will see:

A. the AD curve shift to the left.


B. the AS curve shift to the left.

C. a movement to the left along the existing AS curve.

D. the AD curve shift to the right.

E. the AS curve shift to the right.

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The correct answer is: the AScurve shift to the right.

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Question 28 of 30
Multiple Choice: Please select the best answer and click "submit."

If there are price controls on wages and input prices:


A. the economy may operate above full employment in the long run.

B. the economy may operate below full employment in the long run.

C. the economy may operate at full employment in the long run.

D. the automatic adjustment process by which changes in wages move theAS curve, shifting the
economy into long-run equilibrium, can't occur.

E. All of these.

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The correct answer is: All of these.

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Question 29 of 30
Multiple Choice: Please select the best answer and click "submit."
The U.S. federal government can spend money in a variety of ways. For example, the government could
build a major new naval training facility in the landlocked state of West Virginia, or improve the nation's
transportation and communication systems. Suppose RGDP is below the full-employment level. If the
government spends the same amount of money on either project, how will the results differ if the
government chooses to improve the country's transportation and communication systems rather than build a
naval base in West Virginia?

A. The increase in RGDP will be greater, but so will the increase in the price level.

B. The increase in RGDP will be greater, and the increase in the price level will be smaller.

C. The increase in RGDP will be smaller, but the increase in the price level will be larger.

D. The effects of the two projects will be identical as long as the amount spent is the same.

E. The increase in RGDP will be smaller and so will the increase in the price level.

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The correct answer is: The increase in RGDP will be greater, and the increase in the price level will be smaller.
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Question 30 of 30
Multiple Choice: Please select the best answer and click "submit."

Some say environmental regulations on businesses make production more costly. Others argue that these
regulations, though costly, also make producers look for opportunities to reduce waste in production
processes and might result in a cleaner environment and better production processes. If this second point of
view is correct, how do new regulations affect the economy?

A. Regulations will lead to increased output without increasing the price level.

B. Regulations will increase aggregate supply.

C. Regulations will have an indeterminate effect on output and price levels.

D. Regulations will lead to lower price levels without reducing output.

E. Regulations will increase aggregate demand.


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The correct answer is: Regulations will have an indeterminate effect on output and price levels.

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Question 1 of 10
Multiple Choice: Please select the best answer and click "submit."

Which model of the economy most accurately reflects what happened during the Great Depression?

A. Moderate

B. Classical

C. Keynesian

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That is incorrect; the correct answer is: Keynesian.
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Question 2 of 10
Multiple Choice: Please select the best answer and click "submit."

What happens to the consumption function when autonomous consumption decreases?

A. It shifts downward.

B. It gets flatter.

C. It gets steeper.

D. It shifts upward.

Feedback
Correct! A decrease in autonomous consumption decreases overall consumption. That shifts the function downward.

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Question 3 of 10 Feedback
Multiple Choice: Please select the best answer and click "submit." That is incorrect; the correct
answer is: It gets steeper.
What happens to the consumption function when marginal propensity to
consume (MPC) increases?
Click Next to Continue

A. It shifts downward.

B. It shifts upward.

C. It gets steeper.

D. It gets flatter.
Question 4 of 10 Feedback

Multiple Choice: Please select the best That is incorrect;


answer and click "submit." the correct
answer is: It
What happens to the consumption shifts upward.
function when taxes decrease?
Click Next to
A.
Continue
It gets flatter.

B. It shifts upward.

C. It gets steeper.

D. It shifts downward.
Question 5 of 10 Feedback

Fill in the blank: Type your answer in the That is incorrect;


box and then click "submit." the correct
answer is:
Top of Form $70,000.
A household pays $5,000 in taxes and Click Next to
has an autonomous consumption of Continue
$10,000 and a marginal propensity to
consume of 0.8.

How much will that household consume


if its income is $80,000?

Answer: 70000

Bottom of Form
Question 6 of 10 Feedback

Fill in the blank: Type your answer in the That is incorrect;


box and then click "submit." the correct
answer is: -1,000
Top of Form
Click Next to
A household pays $5,000 in taxes and Continue
has an autonomous consumption of
$10,000 and a marginal propensity to
consume of 0.8.

How much will that household save if its


income is $50,000?

Answer: -1000

Bottom of Form

Question 7 of 10
Multiple Choice: Please select the best answer and click "submit."

Which curve shows that investment demand is very sensitive to the interest rate?

A.

B.
C.

D.

Feedback
Correct! This graph shows that investment changes a lot while the interest rate changes only a little.

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Question 8 of 10
Multiple Choice: Please select the best answer and click "submit."
What will happen to investment if future expectations worsen and interest rates rise at the same time?

A. The answer is indeterminate.

B. It will decrease.

C. It will increase.

D. There will be no change.

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That is incorrect; the correct answer is: It will decrease.

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Question 9 of 10
Multiple Choice: Please select the best answer and click "submit."

What will happen to investment if future expectations improve and interest rates rise at the same time?
A. The answer is indeterminate.

B. There will be no change.

C. It will increase.

D. It will decrease.

Feedback
Correct! When future expectations improve, investment goes up, but when interest rates rise, investment goes down, so
it's impossible to tell what the overall effect will be, given the movement in both directions.

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Question 10 of 10
Multiple Choice: Please select the best answer and click "submit."

If the quantity of capital going unused by firms decreases, what will happen to the amount of new
investment that firms will undertake?
A. There will be no change.

B. It will decrease.

C. It will increase.

D. The answer is indeterminate.

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That is incorrect; the correct answer is: It will increase.

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Question 1 of 10
Fill in the blank: Type your answer in the box and then click "submit."

What is the spending multiplier when MPC is 0.8?


Answer: 5

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That is incorrect; the correct answer is: 5.

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Question 2 of 10
Fill in the blank: Type your answer in the box and then click "submit."

What is the tax multiplier when MPC is 0.9?

Answer: 9
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That is incorrect; the correct answer is: 9.

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Question 3 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the table below to answer questions 3 and 4.

a I G NX T
200 20 100 0 50

If aggregate expenditure (AE) is 600 when income is 610, what is the marginal propensity to consume?

Answer: 0.5
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That is incorrect; the correct answer is: 0.5.

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Question 4 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the table below to answer questions 3 and 4.

a I G NX T
200 20 100 0 50

If the marginal propensity to consume is 0.6, what is the equilibrium income?

Answer: 725
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That is incorrect; the correct answer is: 725.

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Question 5 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the data in the table below to answer questions 5 through 7.

a b I G NX T
200 0.9 200 200 200 200

What is the spending multiplier in this situation?

Answer: 10
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That is incorrect; the correct answer is: 10.

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Question 6 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the data in the table below to answer questions 5 through 7.

a b I G NX T
200 0.9 200 200 200 200
What is the equilibrium income in this situation?

Answer: 6200

Question 7 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the data in the table below to answer questions 5 through 7.

a b I G NX T
200 0.9 200 200 200 200

What would be the change in equilibrium income if autonomous consumption increased to 500?

Answer: 3000

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That is incorrect; the correct answer is: 3000.

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Question 8 of 10
Fill in the blank: Type your answer in the box and then click "submit."
Use the data in the table below to answer questions 8 through 10.

a b I G NX T
1000 0.75 200 300 100 200

What is the spending multiplier in this situation?

Answer: 4

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That is incorrect; the correct answer is: 4.

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Question 9 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the data in the table below to answer questions 8 through 10.
a b I G NX T
1000 0.75 200 300 100 200

What is the equilibrium income?

Answer: 5800

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That is incorrect; the correct answer is: 5800.

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Question 10 of 10
Fill in the blank: Type your answer in the box and then click "submit."

Use the data in the table below to answer questions 8 through 10.

a b I G NX T
1000 0.75 200 300 100 200

What would be the change in equilibrium income if taxes were raised to balance the budget (so that G =
T)?

Answer: -300

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That is incorrect; the correct answer is: -300.

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