Some college students work only during the summer months because they feel they cannot work and attend school simultaneously. According to the U.S. labor department, during the school year these students are

A. part of frictional unemployed.
B. not included in the labor force.
C. part of excessive unemployment
D. part of the civilian labor force, but they are just not working.

If an increase in a household's disposable income from $35,000 to $40,000 leads to an increase in consumption from $35,000 to $39,000, the
A. marginal propensity to save is .5.

B. average propensity to consume is .8.
C. marginal propensity to consume is .8.
D. marginal propensity to consume is .7

When technology advances and, thus, investment increases,

A. consumption immediately decreases and saving increases to offset the increase in investment.

B. the equilibrium level of income/output (GDP) increases.

C. a recessionary gap can no longer exist.

D. full employment automatically occurs.

E. an inflationary gap is always created.

According to Keynes, the level of investment is quite volatile (unstable) in the economy

because

A. interest rates change frequently and investment depends only (solely) on the rate of interest.

B. the level of savings changes frequently and investment depends only (solely) on the level of savings.

C. the nation's level of income changes frequently and investment depends primarily on the

current level of income.

D. the level of profit expectations changes frequently and investment depends primarily on

the level of profit expectations.

Assume that the current equilibrium level of GDP (income and output) is $240 billion and the no inflation, full employment (potential/ ideal) level of GDP is $270 billion. If the MPC = 2/3, what change in aggregate spending is needed to reach full employment without inflation?

A. a decrease of $10 billion.

B. an increase of $10 billion.

C. a decrease of $30 billion.

D. an increase of $30 billion.

If an inflationary gap exists

A. equilibrium GDP is less than full employment (potential) GDP.

B. equilibrium GDP is greater than full employment (potential) GDP.

C. equilibrium GDP is equals full employment (potential) GDP, but prices are falling

D. equilibrium GDP is equals full employment (potential) GDP, but unemployment is increasing.

Suppose the nominal rate of interest is 7 percent and the real rate is 5 percent. If the expected rate of return on an investment is 6 percent, the firm should

A. not undertake the investment because the expected rate of return of 6 percent is less than the

nominal interest rate.
B. undertake the investment because the expected rate of return of 6 percent is greater than the

real rate of interest.

C. not undertake the investment because the expected rate of return of 6 percent is greater than the nominal plus the real interest rate.

D. undertake the investment because the expected rate of return of 6 percent is greater than thedifference between the nominal and real interest rates.

An inflationary gap measures the amount by which

A. the aggregate price level increases.

B. tax and wage increases cause businessmen to increase prices.

C. aggregate expenditures/demand exceed aggregate supply at any level of employment.

D. aggregate expenditures/demand exceed aggregate supply at noninflationary full employment.

E. None of the above.

Stock prices have been increasing for the past year. As a result, consumers feel

A. wealthier, and as a result will decrease consumption which will decrease the level of aggregate expenditures and the level of GDP.

B. wealthier, and as a result will increase consumption which will increase the level of aggregate expenditures and the level of GDP.

C. less wealthy, and as a result will decrease consumption which will decrease the level of aggregate expenditures and the level of GDP.

D. less wealthy, and as a result will increase consumption which will increase the level of aggregate expenditures and the level of GDP.

E. None of the above - a change in stock prices does not alter personal consumption spending.

Consumers can actually increase the level of unemployment in the economy (intensify a recessionary gap) by

A. increasing their saving during such a period.

B. increasing their consumption during such a period.

C. decreasing their saving during such a period.

D. Both A and B.

E. Both B and C.

Which of the following would be a reason why investment is unstable and variable in the economy?
A. Purchases of capital goods are usually autonomous.
B. Innovations in the economy occur on a fairly regular basis.
C. Business confidence and profit expectations can easily change.
D. Current profits provide the necessary funds for future investment.

The multiplier effect means that

A. consumption is typically several times larger than saving.

B. a small increase in consumption will cause a large decrease in investment.

C. a small decrease in investment spending will cause a large increase in the equilibrium

level of income/output (GDP).

D. a small change in investment spending will cause the equilibrium level of income/output (GDP)

to change by a larger amount.

One of the economic costs of unemployment can be measured by

A. the excess of real GDP over nominal GDP.
B. the excess of nominal GDP over real GDP.

C. the amount by which actual GDP exceeds potential GDP.
D. the amount by which potential GDP exceeds actual GDP.

You are given the following information about aggregate demand for an economy: (1)

consumption = $700 billion; (2) investment = $60 billion; (3) government purchases = $100

billion; and (4) net export = $20 billion. If the MPC is 3/4 and the no inflation, full-employment

(ideal) level of GDP for this economy is $800 billion, then what change in aggregate demand

(spending) is needed to reach full employment without inflation?

A. increase aggregate spending by $80 billion

B. decrease aggregate spending by $80 billion

C. decrease aggregate spending by $20 billion

D. increase aggregate spending by $20 billion

Suppose the economy is currently producing $650 billion GDP and the no inflation, full

employment level of production is $610 billion and the MPC = 3/4. If businesses decrease

investment spending by $5 billion this will

A. eliminate the recessionary gap that exists and bring the economy to the no inflation, full

employment level of output.

B. lessen the size of the recessionary gap that exists, but there will still be a recessionary gap.

C. lessen the size of the inflationary gap that exists, but there will still be an inflationary gap.

D. eliminate the inflationary gap that exists and bring the economy to the no inflation, full

employment level of output.

If an increase in aggregate demand results in no increase in real output (production) or employment, we can surmise that

A. the economy is in a deep recession.

B. the MPC equals 1.

C. the price level has fallen.

D. the economy is already operating at full employment.

Which of the following is a key feature of Keynesian economics?

A. Supply creates its own demand.

B. The level of saving depends primarily on interest rates.

C. The level of investment depends solely on interest rates.

D. Macroeconomic equilibrium can occur at less than full employment.

If wages increase by 10% while worker productivity increases by 7%,

A. business profits can not increase.
B. cost-push inflation will most likely to occur.
C. demand-pull inflation will most likely to occur.
D. the aggregate level of saving must have increased

If the inventories of business firms rise above the desired levels, the business sector can be expected to do which of the following in the near future?

A. increase production.

B. decrease production.

C. continue producing the same amount of output.

D. hire additional workers.

At the equilibrium level of GDP

A. actual investment is zero.

B. unplanned changes in inventories are zero.

C. saving is greater than planned investment.

D. saving is less than planned investment.

The household sector would tend to decrease their consumption (i.e., decrease the amount of current income used for consumption) if there was

A. an increase in stock prices

B. a reduction in interest rates

C. the expectation that employment will decrease in the future.

D. the expectation that consumer prices will increase more rapidly in the future

From a macroeconomic standpoint it would be most desirable to have a decrease in personal consumption expenditures/spending (aggregate spending by the household sector)

A. when a recessionary gap exists.

B. when an inflationary gap exists.

C. during a period of no inflation, full employment.

D. when cost-push inflation is present in the economy.

E. never; it is never desirable to have a decrease in personal consumption spending

Say's Law states that

A. supply creates its own demand.

B. demand creates its own supply.

C. aggregate supply and aggregate demand are always equal in the short run.

D. excessive unemployment will always exist in the economy.

E. excessive unemployment and inflation will always exist in the economy.

Demand-pull inflation is caused by

A. an increase in the aggregate price level.
B. wage increases that exceed productivity increases.
C. an increase in aggregate expenditures/demand at full employment.
D. an increase in aggregate expenditures/demand at any employment level.

E. A, B, and C all cause demand-pull inflation.