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Unit IV Practice Test (1) If people start spending less, then what is likely to happen to GDP and the unemployment rate? A B C D GDP will increase, but the unemployment rate will decrease. GDP will decrease, but the unemployment rate will increase. GDP and the unemployment rate will both decrease. GDP and the unemployment rate will both increase. (2) If people start spending more, then what is likely to happen to the rate of inflation? A B C D The inflation rate will increase. The inflation rate will decrease. Prices are not influenced by consumer spending. The inflation rate is impossible to predict. (3) This measure of the prices of 90,000 consumer goods is used to measure inflation. A B C D GDP PPI CPI Reserve Requirement (4) Which of the following are included in calculating GDP? A B C D consumer spending, taxes, interest charges, exports consumer spending, purchases of capital goods, government spending, and net exports consumer spending, secondhand sales, the underground economy consumer spending, inflation, the unemployment rate (5) Which of the following would most likely lead to an increase in GDP and a decrease in the unemployment rate? A B C D an increase in interest rates an increase in CPI an increase in inflation an increase in aggregate supply (6) If CPI was at $120 in 2004 and is at $125 now, then what would be the rate of inflation since 2004? A B C D 3.4% 4.2% 5.0% 25% (7) Bobby loses his job because the economy is bad. What type of unemployment does this example represent? A B C D cyclical frictional seasonal structural (8) What is the key difference between a recession and a depression? A B C D Recessions last longer. Recessions have higher levels of unemployment. Depressions are more severe and last longer. Depressions are more common. (9) What is the phase of the business cycle where GDP is growing and the unemployment rate is declining? A B C D depression expansion recession trough (10) Which of the following will lead to a higher national debt? A B C D lower net exports higher net exports a decrease in government deficits an increase in government deficits (11) The Federal Reserve (The Fed) is owned and run by whom? A B C D owned and controlled by the people owned by member banks and publically controlled controlled by member banks and owned by shareholders controlled and owned by the government (12) The Feds ability to control the amount of money in circulation in order to manage the economy is known as A B C D fiscal policy monetary policy taxing spending (13) What is the Federal Reserve likely to do if the inflation rate begins to grow too quickly? A B C D cut the reserve requirement and the discount rate, while buying government securities increase taxes and decrease government spending increase the reserve requirement and the discount rate, while selling government securities the Fed will use easy money policy to decrease the money supply (14) Which of the following would the Fed likely do to reduce the unemployment rate? A B C D reduce the rate of inflation increase the reserve requirement increase the discount rate reduce the discount rate (15) What do we call the government’s ability to manipulate the economy using taxing and spending? A B C D fiscal policy monetary policy open market operations GDP (16) What could the government do to promote a higher GDP and a lower unemployment rate? A B C D increase spending and taxes decrease spending and taxes increase spending and decrease taxes decrease spending and increase taxes (17) What could the government do to stabilize prices during a time of high inflation? A B C D increase spending and taxes decrease spending and taxes increase spending and decrease taxes decrease spending and increase taxes (18) The unemployment rate is computed by A B C D dividing the number of employed people by the number of unemployed people subtracting the number of unemployed workers from the population dividing the civilian labor force by the nations total population dividing the number of unemployed workers by the civilian labor force Unit IV Practice Test (1) Answer: B – Topic: Consumer Spending’s Impact on GDP, Inflation, and Unemployment (2) Answer: A – Topic: Consumer Spending’s Impact on GDP, Inflation, and Unemployment (3) Answer: C – Topic: Consumer Price Index (4) Answer: B – Topic: Calculating GDP (5) Answer: D – Topic: Aggregate Supply and Aggregate Demand (6) Answer: B – Topic: Calculating Inflation (7) Answer: A – Topic: Types of Unemployment (8) Answer: C – Topic: Recessions and Depressions (9) Answer: B – Topic: Phases of the Business Cycle (10) Answer: D – Topic: National Debt and Government Deficits (11) Answer: B – Topic: The Structure of the Federal Reserve (12) Answer: B – Topic: Monetary Policy (13) Answer: C – Topic: Monetary Policy (14) Answer: D – Topic: Tools of the Fed (15) Answer: A – Topic: Fiscal Policy (16) Answer: C – Topic: Fiscal Policy (17) Answer: D – Topic: Fiscal Policy (18) Answer: D – Topic: Calculating the Unemployment Rate