40.The purpose of indexing Social Security payments to the CPI is to 41. The best currently available measure of the standard of living in a country is ______. (Points: 3)
the nominal GDP per capita
the real GDP per capita
the unemployment rate
the growth rate of productivity
42. The rule of 70 states that ______. (Points: 3)
the average score on standardized tests is normally distributed with a mean of 70 and a standard deviation of 10
everyone should retire by age 70
the number of years for a variable to double equals 70 divided by its annual growth rate
Social Security benefits should increase when people reach 70
43. The aggregate production function is expressed as Y/L = F(K/L, H/L, T). Which of the following is represented by K/L? (Points: 3)
output per worker
capital per worker
technology
real GDP per worker
44. Technological progress allows workers to produce more ______. (Points: 3)
because it increases the amount of physical capital available
because it increases the amount of human capital available
even when the amount of physical capital and human capital do not change
only if the amount of physical capital grows at the same rate
45. If technology advances, then ______. (Points: 3)
more output can be obtained from the same inputs
more inputs are needed to produce the same output
less output can be obtained from the same inputs
less can be obtained even with more inputs
46. An example of human capital would be ______. (Points: 3)
the money a person has
the job skills a person has
the capital goods or machines a person owns
all of the above
47. Governments can engage in saving when ______. (Points: 3)
taxes are less than expenditures
taxes are greater than expenditures
the government borrows to finance its expenditures
the president insists that Congress balance the budget
48. The budget balance is equal to ______. (Points: 3)
taxes minus government transfers minus government spending
taxes minus government spending
government spending minus taxes
taxes plus government spending minus government transfers
49. A difference between a closed and an open economy is that ______. (Points: 3)
in the latter, foreign savings complement domestic savings in financing investment spending
in the latter, the government is more open to the idea of financing investment spending than in the former
in the former, foreign savings complement domestic savings in financing investment spending
in the former, foreign savings finance more investment spending than in the latter
50. Capital inflows represent _______. (Points: 3)
the net inflow of funds into a country
the net outflow of funds from a country
the amount that domestic savings exceeds foreign savings
the excess of domestic physical capital exported minus the amount of physical capital imported
51. The main role of financial systems is to ______. (Points: 3)
make the capitalist class richer
provide credit cards to as many people as possible
channel goods and services to the people willing to pay for them
channel funds from savers into investments
52. A financial asset is ______. (Points: 3)
a tangible asset like a car
a claim that entitles the owner to future income from the seller
the value of accumulated savings
all of the above
53. Transactions costs are ______. (Points: 3)
the return to the entrepreneur
the return to moving a product to market
the expenses of producing a product
the expenses of negotiating and executing a deal
54. In financial markets ______. (Points: 3)
households sell liabilities
wealth is transformed into savings
households purchase financial assets
physical assets exchange hands
55. A rise in labor productivity is most likely to result in ______. (Points: 3)
an increase in aggregate demand
a decrease in aggregate demand
a decrease in aggregate supply
an increase in aggregate supply
56. Which of the following would cause a change in the short-run aggregate supply curve? (Points: 3)
the quantity of real output supplied
the price level
a determinant of the short-run aggregate supply curve
changes in aggregate demand
57. In the long run, nominal wages are ______. (Points: 3)
sticky downward but flexible in an upward direction
sticky upward but flexible in a downward direction
sticky in both an upward and downward direction
flexible because contracts and informal agreements are renegotiated in the long run
58. In the long run, changes in the aggregate price level will be accompanied by ______. (Points: 3)
less than proportional changes in input prices
more than proportional changes in input prices
equal proportional changes in input prices
changes in input prices that will move in the opposite direction
59. The long-run aggregate supply curve is ______. (Points: 3)
upward sloping
downward sloping
horizontal
vertical
60. The marginal propensity to consume is ______. (Points: 3)
increasing if the marginal propensity to save is increasing
the proportion of total disposable income that the average family consumes
the change in consumer spending divided by the change in aggregate disposable income
the change in consumer spending less the change in aggregate disposable income
61. The marginal propensity to save is ______. (Points: 3)
savings divided by aggregate income
the fraction of an additional dollar of disposable income that is saved
1 + MPC
all of the above
62. Which curve is easier to shift? (Points: 3)
short run aggregate supply
long run aggregate supply
aggregate demand
all of the above are correct
63. The federal government's largest source of tax revenue is ______. (Points: 3)
property taxes
personal and corporate income taxes
sales taxes
social insurance taxes
64. Which of the following is a government transfer? (Points: 3)
wages paid to U.S. senators
purchases of tanks for the army
Social Security payments to retired postal workers
payments to contractors for repairs on interstate highways
65. Expansionary fiscal policy ______. (Points: 3)
increases long-run aggregate supply
decreases long-run aggregate supply
increases aggregate demand
decreases aggregate demand
66. A government might want to increase aggregate demand to ______. (Points: 3)
close an inflationary gap
close a recessionary gap
lower prices in the economy
lower employment in the economy
67. All of the following are examples of fiscal policy EXCEPT ______. (Points: 3)
increasing the reimbursement amounts under Medicaid
reducing the money supply in order to raise the interest rate
increasing the personal income tax deductions for home ownership
reducing federal subsidies to state universities
68. Time lags suggest that ______. (Points: 3)
increases in spending to fight a recessionary gap can be timed correctly
increases in spending to fight a recessionary may occur too early
increases in spending to fight a recessionary gap may occur too late
none of the above is correct
69. Expansionary fiscal policies ______. (Points: 3)
make the budget surplus smaller
make the budget deficit smaller
affect only taxes
affect only government spending
70. Which of the following would NOT fit the economist's definition of money? (Points: 3)
currency
checkable bank deposits
coins
bonds
71. Money is ______. (Points: 3)
any asset the government says is money
any asset that can easily be used to purchase goods and services
any asset that has a positive value
all of the above
72. Probably the most important feature of deposit insurance is it ______. (Points: 3)
is paid for by the federal government
costs so little to buy the policies to keep your money safe
protects the economy against bank runs
insures that banks will always make a profit
73. If it looks like a bank won't meet the Federal Reserve Bank's reserve requirement, normally it will first turn to the _______. (Points: 3)
other member banks and borrow at the federal funds rate
Fed and borrow at the discount rate
open market and borrow money there
Congress to borrow funds
74. The three main monetary policy tools are ______. (Points: 3)
interest rates, taxes, government purchases, and transfers
currency, near-moneys, and reserve ratio
deposit insurance, discount rate, and money multiplier
reserve requirements, the discount rate, and open-market purchases
75. Open-market operations occur when the Fed _______. (Points: 3)
buys U.S. Treasury bills from the federal government
buys or sells U.S. Treasury bills
buys or sells existing U.S. Treasury bills
does all of the above
76. If the Fed conducts an open-market purchase _______. (Points: 3)
bank reserves decrease and the money supply decreases
bank reserves increase and the money supply increases
bank reserves decrease and the money supply increases
bank reserves increase and the money supply decreases
77. The opportunity cost of holding money is ______. (Points: 3)
zero
the interest rate on using one's credit card
the difference between interest rates on monetary assets and on non-monetary assets
the discount rate
78. The liquidity preference model ______. (Points: 3)
determines the demand for money
uses the demand and supply of money to determine the price level
uses the demand and supply of money to determine the interest rate
uses the demand and supply of money to determine nominal output
79. The Fed affects interest rates by _______. (Points: 3)
setting them with regulations
open market operations that shift the money demand curve
open market operations that shift the money supply curve
doing all of the above
80. An increase in interest rates will lead to a(n) ______. (Points: 3)
decrease in aggregate demand
increase in aggregate demand
increase in aggregate supply
increase in the money supply
81. According to the loanable funds model, contractionary monetary policy _______. (Points: 3)
shifts the demand curve for loanable funds to the right
shifts the supply curve for loanable funds to the right
shifts the demand curve for loanable funds to the left
shifts the supply curve for loanable funds to the left
82. Economists argue that money is neutral _______. (Points: 3)
in both the short and long run
in the short run only
in the long run but does have an impact on the price level
in the long run but has no impact on the price level
83. In the long run, monetary policy _______. (Points: 3)
only affects the aggregate price level
does not affect aggregate output
is neutral
is all of the above
84. The velocity of money ______. (Points: 3)
is another term for the money multiplier
is the number of times money turns over within a given time frame
refers to how quickly banks make loans
is controlled by the FOMC
85. The Humphrey-Hawkins Act of 1978 defined full employment of ____ unemployment. (Points: 3)
0%
4%
5%
10%
86. Unemployment that is due to the time workers spend in job search is considered ______. (Points: 3)
frictional unemployment
structural unemployment
cyclical unemployment
natural unemployment
87. The labor supply curve is positively sloped because ______. (Points: 3)
more people are willing to work at lower wages than at higher wages
more people are willing to work at higher wages than at lower wages
employers are willing to hire more people at lower wages
employers are willing to hire more people at higher wages
88. Structural unemployment means there are ______. (Points: 3)
more people seeking work than there are jobs in a particular industry
more jobs than workers in a particular industry
wages that are too low in a particular industry
All of the above are correct
89. Which of the following is likely to be true if actual output is equal to potential output? (Points: 3)
The actual unemployment rate is equal to the natural rate of unemployment.
The actual unemployment rate is above the natural rate of unemployment.
There will be zero percent unemployment.
The natural rate of unemployment will be above the actual unemployment rate.
90. Which of the following is likely to lead to a large number of discouraged workers? (Points: 3)
when the economy is expanding
when the availability of jobs falls
when the economy is experiencing inflation
when the economy is experiencing deflation
91. Which of the following is NOT one of the explanations for why the labor market does not move quickly to equilibrium? (Points: 3)
Wages fall quickly in the faces of surpluses.
Wages are sticky.
Workers are slow to realize that the equilibrium wage has changed.
Wages in the labor market behave differently from the prices of many goods and services.
92. As a consequence of the existence of a non-accelerating-inflation rate of unemployment, or NAIRU, ______. (Points: 3)
cyclical unemployment can never be zero
there is no short-run tradeoff between unemployment and inflation
money is neutral
there is no long-run tradeoff between unemployment and inflation
93. Inflation doesn't reduce purchasing power if ______. (Points: 3)
price of essential products, such as food and gasoline, don't increase too much
it causes an increase in nominal wages
it remains under 10% per year
the Federal Reserve increases the money supply enough to offset it
94. The inflation tax is ______. (Points: 3)
the increase in the real value of money held by the public caused by inflation
the decrease in the real value of money held by the public caused by inflation
the result of the indexing wages to inflation
cost of living adjustments, or COLAS
95. The real inflation tax is equal to _______. (Points: 3)
inflation multiplied by the real money supply
inflation multiplied by the nominal money supply
the money supply divided by the price level
the nominal money supply divided by inflation
96. Seignorage is _______. (Points: 3)
the government's cost of printing and coining money
the revenue generated by the government's right to print money
the money financial institutions make selling government bonds to the Fed when the Fed creates money
the revenue the government generates in tax receipts
97. Politicians have an incentive to push the unemployment rate below the natural rate of unemployment right before their re-election because ______. (Points: 3)
the expansionary monetary policy is used to finance the political campaigns
the political benefits are immediate and the economic costs are delayed
the Phillips curve is horizontal in the long run
the opportunistic seignorage gains are very large
98. Disinflation means a decrease in _______. (Points: 3)
prices
the rate of inflation
aggregate supply
the money supply
99. Deflation _______. (Points: 3)
can cause increases in output
can cause budget surpluses
can cause decreases in output
will not affect output
100. The liquidity trap occurs when ______. (Points: 3)
there is a large reduction in the demand for loanable funds
the nominal interest rate falls to zero
monetary policy becomes ineffective
All of the above are correct.
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To answer each of the questions, here is an explanation of how to arrive at the correct answer:
41. The purpose of indexing Social Security payments to the CPI is to increase the payments in line with the rate of inflation. The CPI measures changes in the cost of living over time, so indexing the payments ensures that Social Security recipients can maintain their standard of living as prices rise.
42. The rule of 70 states that the number of years for a variable to double equals 70 divided by its annual growth rate. This is a simple formula used to estimate the time it takes for a quantity to double based on its growth rate.
43. In the aggregate production function, the term K/L represents capital per worker. It measures the amount of physical capital available per worker and is an important determinant of productivity and output per worker.
44. Technological progress allows workers to produce more even when the amount of physical capital and human capital do not change. This is because technology improves the efficiency and effectiveness of production processes, enabling workers to produce more output with the same inputs.
45. If technology advances, more output can be obtained from the same inputs. Technological advancements improve the productivity of inputs, allowing for greater output without the need for additional inputs.
46. An example of human capital would be the job skills a person has. Human capital refers to the knowledge, skills, and abilities that individuals possess, which contribute to their productivity and earning potential.
47. Governments can engage in saving when taxes are greater than expenditures. By running budget surpluses, the government can generate savings that can be used to repay debt or invest in infrastructure and other productive assets.
48. The budget balance is equal to taxes minus government spending. It represents the financial position of the government, showing whether it is running a surplus or a deficit.
49. A difference between a closed and an open economy is that in the latter, foreign savings complement domestic savings in financing investment spending. In an open economy, capital can flow across borders, allowing for the use of foreign savings to finance domestic investment.
50. Capital inflows represent the net inflow of funds into a country. This includes foreign investments, loans, and other forms of financial inflows that increase the amount of capital available in the country.
51. The main role of financial systems is to channel funds from savers into investments. Financial systems facilitate the transfer of funds from households and businesses with excess savings to those who need capital for investments.
52. A financial asset is a claim that entitles the owner to future income from the seller. It represents a contractual agreement between the buyer and the seller, where the buyer has a right to receive a future payment or a share of profits.
53. Transactions costs are the expenses of negotiating and executing a deal. They include fees, taxes, legal expenses, and other costs associated with buying or selling goods, services, or financial assets.
54.