ECON 400 EXAM 2 QUESTIONS AND ANSWERS
Once decision-makers fully adjust to an increase in the general price level
a. the actual rate of unemployment will exceed the natural rate of unemployment.
b. the actual rate of unemployment will be less than the natural rate of unemployment.
c. the rate of output will exceed the economy's long-run capacity.
d. output will return to the full-employment level. - Answers - output will return to the full-
employment level
If resource prices are fixed and the product selling price rises then
a. profits will decrease.
b. profits will increase.
c. profits will remain constant.
d. both profits and output will decrease. - Answers - then profits will increase.
The market for labor services is included in the:
a. financial market.
b. loanable funds market.
c. resource market.
d. goods and services market. - Answers - resource market.
The inflationary premium is that portion of the interest rate that reflects:
a. the real return derived by lenders.
b. the rush to buy goods before prices rise.
c. the expected annual rate of decline in the purchasing power of money while a loan is
outstanding.
d. the price that one must pay for earlier availability of goods and services during a
period of price stability. - Answers - expected annual rate of decline in the purchasing
power of money while a loan is outstanding.
Which of the following would most likely cause the movement from point E1 to point e2
for the United States?
a. a decrease in the expected inflation rate
b. a severe drought in agricultural areas
c. a major technological improvement
d. business and consumer pessimism about the future direction of the economy -
Answers - a severe drought in agricultural areas
The international substitution effect exists because a:
, a. higher price level will reduce interest rates and stimulate foreign investment.
b. lower price level will encourage Americans to import more foreign goods.
c. higher price level will reduce the purchasing power of money.
d. lower price level will make domestically produced goods less expensive relative to
foreign goods. - Answers - lower price level will make domestically produced goods less
expensive relative to foreign goods.
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. To explain this:
a. it is only necessary that long-run aggregate supply shifts right over time.
b. it is only necessary that aggregate demand shifts right over time.
c. both aggregate demand and long-run aggregate supply must be shifting right and
aggregate demand must shift farther.
d. None of the above cases would produce rising prices and growing real GDP over
time. - Answers - both aggregate demand and long-run aggregate supply must be
shifting right and aggregate demand must shift farther.
The supply of resources, level of technology, and the quality of an economy's
institutional arrangements (such as property rights and the rule of law) provide the
constraint that determines the shape and position of the:
a. short-run aggregate supply curve.
b. long-run aggregate supply curve.
c. supply of loanable funds.
d. aggregate demand curve. - Answers - long-run aggregate supply curve.
Which of the following would be most likely to cause a reduction in current aggregate
demand in the United States?
a. A sharp increase in the value of stocks owned by Americans.
b. An increase in the inflation rate.
c. Increased fear of recession that leads households to save more.
d. An increase in the income of foreigners abroad, that leads them to purchase more
U.S. exports. - Answers - Increased fear of recession that leads households to save
more.
If there is an unanticipated increase in aggregate demand, which of the following is
most likely to occur?
a. a reduction in the price level
b. an increase in employment
c. an expansion in the federal budget deficit
d. an increase in the rate of unemployment - Answers - an increase in employment
The actions of borrowers and lenders are coordinated by:
Once decision-makers fully adjust to an increase in the general price level
a. the actual rate of unemployment will exceed the natural rate of unemployment.
b. the actual rate of unemployment will be less than the natural rate of unemployment.
c. the rate of output will exceed the economy's long-run capacity.
d. output will return to the full-employment level. - Answers - output will return to the full-
employment level
If resource prices are fixed and the product selling price rises then
a. profits will decrease.
b. profits will increase.
c. profits will remain constant.
d. both profits and output will decrease. - Answers - then profits will increase.
The market for labor services is included in the:
a. financial market.
b. loanable funds market.
c. resource market.
d. goods and services market. - Answers - resource market.
The inflationary premium is that portion of the interest rate that reflects:
a. the real return derived by lenders.
b. the rush to buy goods before prices rise.
c. the expected annual rate of decline in the purchasing power of money while a loan is
outstanding.
d. the price that one must pay for earlier availability of goods and services during a
period of price stability. - Answers - expected annual rate of decline in the purchasing
power of money while a loan is outstanding.
Which of the following would most likely cause the movement from point E1 to point e2
for the United States?
a. a decrease in the expected inflation rate
b. a severe drought in agricultural areas
c. a major technological improvement
d. business and consumer pessimism about the future direction of the economy -
Answers - a severe drought in agricultural areas
The international substitution effect exists because a:
, a. higher price level will reduce interest rates and stimulate foreign investment.
b. lower price level will encourage Americans to import more foreign goods.
c. higher price level will reduce the purchasing power of money.
d. lower price level will make domestically produced goods less expensive relative to
foreign goods. - Answers - lower price level will make domestically produced goods less
expensive relative to foreign goods.
Since the end of World War II, the U.S. has almost always had rising prices and an
upward trend in real GDP. To explain this:
a. it is only necessary that long-run aggregate supply shifts right over time.
b. it is only necessary that aggregate demand shifts right over time.
c. both aggregate demand and long-run aggregate supply must be shifting right and
aggregate demand must shift farther.
d. None of the above cases would produce rising prices and growing real GDP over
time. - Answers - both aggregate demand and long-run aggregate supply must be
shifting right and aggregate demand must shift farther.
The supply of resources, level of technology, and the quality of an economy's
institutional arrangements (such as property rights and the rule of law) provide the
constraint that determines the shape and position of the:
a. short-run aggregate supply curve.
b. long-run aggregate supply curve.
c. supply of loanable funds.
d. aggregate demand curve. - Answers - long-run aggregate supply curve.
Which of the following would be most likely to cause a reduction in current aggregate
demand in the United States?
a. A sharp increase in the value of stocks owned by Americans.
b. An increase in the inflation rate.
c. Increased fear of recession that leads households to save more.
d. An increase in the income of foreigners abroad, that leads them to purchase more
U.S. exports. - Answers - Increased fear of recession that leads households to save
more.
If there is an unanticipated increase in aggregate demand, which of the following is
most likely to occur?
a. a reduction in the price level
b. an increase in employment
c. an expansion in the federal budget deficit
d. an increase in the rate of unemployment - Answers - an increase in employment
The actions of borrowers and lenders are coordinated by:
