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Practice Questions for review. Open Book 1. The rule of 70 states that a variable's approximate doubling time equals: A) 70 times the growth rate. B) the growth rate divided by 70. C) 70 divided by the doubling time. D) 70 divided by the growth rate. 2. Long-run economic growth depends almost entirely on: A) labor productivity growth. B) population growth. C) agricultural production growth. D) the number of hours worked 3. The ______________in an economy whose aggregate real output is growing faster than the total population. A) real GDP per capita is rising B) standard of living is declining C) national income is falling D) nominal GDP per capita is rising 4. If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5 million, then its GDP per capita is: A) $500. B) $5,000. C) $50,000. D) $5 million. 5. A key statistic to measure economic growth is: A) the size of the government's budget. B) real GDP per capita. C) life expectancy. D) the Dow Jones stock market index. 6. High rates of inflation often result in people spending inordinate amounts of time trying to make transactions and finding ways to keep the real value of their money from decreasing. This is an example of _______ costs. A) shoe-leather B) menu C) efficiency wage D) unit-of-account 7. The nominal interest rate equals the: A) real interest rate times the rate of inflation. B) real interest rate minus the rate of inflation. C) real interest rate plus the rate of inflation. D) real interest rate when inflation is correctly anticipated. 8. Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is equal to: A) 3%. B) 4%. C) 10%. D) 7%. 9. Unanticipated inflation: A) reduces the value of money. B) increases the value of future obligations. C) increases certainty about the future. D) helps lenders. 10. Menu costs of inflation are the: A) costs associated with money being a less reliable unit of measurement. B) costs of transactions associated with avoiding the inflation tax. C) costs associated with businesses changing prices. D) revenue the government gets from printing money. 11. The invention of ATMs reduced the: A) menu costs of inflation. B) shoe-leather costs of inflation. C) unit-of-account costs of inflation. D) none of the above 12. If deflation occurs and your income is fixed, your real income: A) will fall. B) will go up. C) will still be equal to your nominal income. D) is constant. 13. The natural rate of unemployment would: A) increase if a larger percentage of the labor force were over 25 years old. B) increase if union membership fell. C) increase if unemployment benefits were increased. D) always remain fixed. 14. Suppose that immigration laws are relaxed and many workers from other nations enter the U.S. labor force. How will this affect the U.S. labor market? A) The demand for labor will increase. B) The demand for labor will decrease. C) The supply of labor will decrease. D) The supply of labor will increase. 15. Generous unemployment benefits are likely to have which of the following consequences? A) an increase in the employment level B) a reduction in job search time C) a decrease in the unemployment rate D) an increase in the unemployment rate 16. The rate of unemployment that exists when the economy is at full employment is: A) zero. B) the natural rate of unemployment. C) the structural rate of unemployment. D) less than full employment rate of unemployment. 17. Efficiency wages are: A) above equilibrium to encourage better performance. B) below equilibrium to encourage better performance to get a raise. C) responsible for all structural unemployment. D) above equilibrium to encourage better performance and are responsible for all structural unemployment 18. Anna recently moved to Boston in order for her husband Joe to begin a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is: A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) counted as employed, since she is likely to receive a job offer soon. 19. Scenario: Good A and Good B) Using 2009 as the base year, one would find that the real GDP in 2009: A) is equal to the real GDP in 2010. B) is equal to the nominal GDP in 2009. C) is greater than the real GDP in 2010. D) cannot be calculated. 20. (Scenario: Good A and Good B) In 2010, nominal GDP is: A) greater than the nominal GDP in 2011. B) greater than the nominal GDP in 2009. C) equal to the nominal GDP in 2011. D) equal to the nominal GDP in 2009. 21. Suppose only two countries existed in the world. Country A imported $200 million worth of goods and services from country B. Country B imported $100 million worth of goods and services from country A. Net exports for: A) country A equal $200 million. B) country B equal $200 million. C) country A equal -$100 million. D) country B equal -$100 million. 22. Transfer payments: A) are a means by which government raises funds. B) are a redistribution of funds from one individual to another individual in the economy. C) are counted in GDP . D) is another term for government taxation. 23. Within the circular-flow diagram, the value of household income, the sum of wages, dividends, interest, and rent plus transfer payments equals the sum of: A) the value of household tax payments. B) consumer spending, private saving, and the value of household tax payments. C) the money supply. D) transfer payments and household tax payments 24. Private saving by households is: A) the portion of disposable income not spent on goods and services. B) the portion of income coming from transfer payments. C) often larger than consumption spending. D) not related to consumption spending. 25. If the CPI is 180 in year 1 and 190 in year 2, the inflation rate between year 1 and year 2 is about: A) 5.26%. B) 5.56%. C) 6.5%. D) 10%. 26.If the CPI changes from 120 to 125 between December 2009 and December 2010, the: A) inflation rate for 2010 is 4.2%. B) inflation rate for 2010 is 5%. C) deflation rate for 2010 is 5%. D) deflation rate for 2010 is 4.2% 27.The aggregate price level is: A) the average price of shares on the stock market. B) the average price of commodities. C) the overall level of prices in the economy. D) the average rate of inflation. 28.Assume that the real GDP of the United States is approximately $12 trillion and the population of the United States is approximately 300 million. What is per capita real GDP? A) $4,000 B) $36,000 C) $40,000 D) Real per capita GDP can't be determined without more information. 29. A country's living standard is best measured by the: A) per capita nominal GDP . B) real GDP . C) nominal GDP . D) per capita real GDP . 30. If nominal GDP decreases from one year to the next: A) prices must have fallen from one year to the next. B) real GDP must have fallen from one year to the next. C) prices and real GDP must have fallen from one year to the next. D) either output or prices or both must have fallen from one year to the next. 31.Suppose that Mr. Green Jeans sells $5,000 of wheat to Big Ben Bakery. Big Ben uses the wheat to make flour and then hamburger buns, which it sells to Hamburger Heaven for $11,000. Hamburger Heaven also buys $20,000 of beef from a rancher. Hamburger Heaven uses the beef and buns to make 10,000 hamburgers, which are sold for $5 each. How much do these transactions add to GDP? A) $86,000 B) $36,000 C) $31,000 D) $50,000 32. If your professor wins the lottery: A) GDP goes up. B) GDP goes down. C) GDP is not affected. D) the economy will clearly be better off. 33. The total volume of business sales in the economy is much larger than GDP because: A) GDP understates the value of total output. B) the output approach to measuring GDP excludes intermediate transactions. C) GDP includes transfer payments. D) GDP excludes exports. 34. During a recession, one will often observe: A) rising aggregate output. B) rising unemployment rates and falling aggregate output. C) rising employment rates. D) zero unemployment rates. 35. If wages grew at a 5% rate last year and average prices grew at a 3% rate, then the average worker is: A) better off. B) worse off. C) no better or worse off. D) unaffected. 36. In the paradox of thrift: A) firms that are pessimistic about the future lay off the most saving-conscientious workers. B) when families and business are feeling pessimistic about the future, they spend more today. C) increased saving by individuals increases their chances of becoming unemployed. D) profligate behavior during economic tough times has large negative consequences for society. 37. In which of the following cases would the way this person is counted in the standard way of measuring unemployment lead to an overstatement of the unemployment rate? A. Natalie works 60 hours per week as an emergency room nurse B. Mackenzie works 20 hours per week as a secretary, but is looking for a job as a magazine editor C. Steven collects unemployment benefits but is not looking for a job D. Jacob has turned down several job offers that he is overqualified for so he can hold out for a higher salary. E. Bill gave up searching for a job offer after 6 months after getting no job offers. 38. Okun’s Law states: A. that if unemployment drops one percentage point, output (GDP) drops two percent B. that for every one percentage point increase in GDP you have 2 percent decrease in unemployment C. that for every one percentage point increase in the unemployment rate above the natural rate, output (GDP) falls by 2 percent.