1. The largest component of spending in the circular flow model is:

a. Investment

b. Consumption

c. Net exports

d. Government spending

2. We deliberately choose to omit some factors from GDP such as:

a. Government purchases

b. Purely financial transactions

c. Final goods

d. All of the above.

3. Which of the following unemployed workers would be an example of frictional unemployment?

a. John loses his job and can't find a new one as new technology is adopted in his industry.

b. Mary gives up looking for a job because of the lousy economy.

c. Mark decides to reenter the labor force after going back to school to study economics.

d. Alice loses her construction job because of winter weather.

4. The discouraged worker effect

a. is when people decide they would rather not work.

b. is when people voluntary leave one job to look for a better one.

c. is when people give up looking for a job because there is little likelihood of finding one.

d. is when people involuntarily have hours cut or have to accept a job under their skill level.

5. The number of unemployed is calculated by:

a. a large monthly survey of households conducted for the Bureau of Labor Statistics.

b. counting the people currently collecting unemployment benefits.

c. A large quarterly survey of businesses conducted for the Labor Department.

d. counting the people either currently or recently collecting unemployment benefits.

6. Stagflation is when the economy has:

a. high unemployment coupled with low inflation at the same time.

b. low unemployment and inflation at the same time.

c. low unemployment coupled with high inflation at the same time.

d. high unemployment and inflation at the same time.

7. A "core" inflation rate:

a. does not include food and energy prices.

b. tracks prices on the wholesale level..

c. is the rate of inflation at the natural rate of output.

d. tracks the inflation of labor costs.

8. Menu costs are:

A. the costs of materials.

B. the cost of changing prices.

C. particularly low when inflation is high.

D. a reason that the inflation rate typically underestimates true price level changes.

9. A market basket costs $150 to buy in the base year and $60 to buy in year X.

A. the price index for year X is 250.

B. Year X probably occurred after the base year.

C. Year X is the base year.

D. the price index for year X is .4.

10. A traditional expansionary gap is created when the aggregate demand curve moves to the:

A. right of the natural rate of output; inflation rises and unemployment falls.

B. left of the natural rate of output; inflation falls and unemployment rises.

C. right of the natural rate of output; inflation falls and unemployment rises.

D. left of the natural rate of output; inflation rises and unemployment falls.

11. Consumers change their purchases and move ALONG the same consumption function when:

a. Their income changes

b. Their tastes change

c. The price level changes

d. All of the above.

12. If MPC is .75 then if consumer income rises by $10,000 we would predict that consumption will:

A. rise by $7500 while savings fall by $2500.

B. fall by $2500 while savings rise by $7500.

C. rise by $7500 while savings rise by $2500.

D. fall by $2500 while savings fall by $7500.

13. Autonomous consumption is

A. that part of consumption that rises or falls with changes in disposable income.
B. the minimum that people will spend even if disposable income is zero.
C. the amount people will spend when the C line crosses the 45-degree line.
D. the amount people will spend when income is equal to consumption.

14. A low rate of investment could be explained by a

A. low rate of saving and low interest rates.
B. low rate of saving and high interest rates.
C. high rate of saving and low interest rates.
D. high rate of saving and high interest rates.

15. Mr. A makes $40,000 a year; Ms. B makes $20,000 a year. Mr. A pays $6,000 in taxes while Ms. B pays $4,000 in taxes. Which of the following is true?

A. Taxes are progressive because Mr. A pays a higher dollar amount in taxes than Ms. B

B. Taxes are neutral because Mr. A makes more money before and after taxes than Ms. B.

C. Taxes are regressive because Mr. A pays a lower tax rate than Ms. B.

D. Taxes are progressive because Ms. B pays a lower dollar amount in tax.

16. The 45 degree line in the full AE model represents

A. all points where C = Y.

B. all points where AE = Y

C. all points where C + I = G + Xn

D. all points where C = I + G + Xn

17. International trade:

A. Allows countries to specialize in the goods at which they are best at producing.

B. can increase the goods and services both trading partners have.

C. can be unbalanced where on partner exports more to the other than the other way around.

D. all of the above.

18. If AD rises in the short run:

A. it pushes up the price level.

B. it decreases national output.

C. it increases full employment.

D. all of the above.

19. We cut down trees and sell the timber for $8000. The timber is sawn up into lumber that sells for $18,000. The lumber is used to build furniture that sells to consumers for $30,000.

A. $30,000 goes into GDP.

B. $4000 goes into GDP.

C. $56,000 goes into GDP.

D. $22,000 goes into GDP.

20. The long run annual growth rate of the U.S. economy tends to be about:

A. 1% or less.

B. 2%

C. 5%

D. 10% or more.