Question 1

According to a demand curve, the prices of goods and services are determined given quantities. The following are determinants of consumer demand except:

Accepted Answer

Market speculation is not a determinant of consumer demand.
Key Takeaway: Consumer demand curves are used to illustrate how much of goods and services will be demanded by consumers at any given price. Among the determinants of consumer demand are tastes, the availability of substitute goods, and distribution of income. All of these factors determine movements along and shifts in the demand curve.

Question 2

When calculating unemployment figures in a given population, economists count those:

Accepted Answer

Unemployment figures count those people who are looking for paid work.
Key Takeaway: In a given society, unemployment figures are only indirectly related to the number of people who are without work. In other words, those figures only count people who are actively seeking paid work. Unemployment figures do not count early retirees seeking extra income, those discouraged after long searches, and prison inmates. The figures also do not count people in the military and people who are self-employed or wish to be self-employed.

Question 3

In a small county, the total number of people in the labor force is 15,000. There are currently 12,850 people who are working in paid jobs in both private and public enterprises. What is the unemployment rate in this county?

Accepted Answer

The unemployment rate for this county is 14.3%.
Key Takeaway: To calculate unemployment figures, the number of people in the labor force is taken into account according to the following equation:
Unemployment rate = Number of unemployed/Labor x 100%
In this example, Unemployment rate = (15,000 ? 12,850)/15,000 x 100% = 14.3%

Question 4

The following are types of unemployment except:

Accepted Answer

Dynamic is not an example of unemployment.
Key Takeaway: Unemployment types include seasonal, structural, and frictional unemployment. Seasonal unemployment is usually due to short-term factors such as tourist patterns, weather issues, and college students breaking during summer periods. Frictional unemployment is also of a short-term nature and is experienced by those who reenter the ballot market, finish their education, or are in-between jobs. Structural unemployment is of a more long-term nature and arises out of a mismatch between employers and workers.

Question 5

Structural rate of unemployment is also referred to as the natural rate of unemployment and it is consistent with aggregate production. The two economists who developed this concept in the 1960s are:

Accepted Answer

Friedman & Phelps are two economists who developed the concept of the natural state of unemployment.
Key Takeaway: The natural rate of unemployment (structural unemployment) is a concept developed by Milton Friedman and Edmund Phelps in the 1960s. According to them, the natural rate of unemployment is consistent with a country's aggregate production over the long term.

Question 6

A small Latin American country has been running a trade deficit for the past few years. A trade deficit occurs when:

Accepted Answer

A trade deficit occurs when a government imports more than it exports.
Key Takeaway: Trade among countries often leads to greater competition, responds to differences in demands, and decreases costs. Trade deficits occur when governments import more goods (raw and manufactured) and services than they export. In the face of trade deficits, governments become indebted to foreign countries.

Question 7

Economists postulate that there is a relationship between inflation and unemployment within societies. They state that when the real GDP of a country is high, the actual unemployment rate falls below its natural level. What effect does this have on inflation?

Accepted Answer

High real GDP causes actual unemployment rates to fall and inflation to accelerate.
Key Takeaway: When the real GDP of a country is high (an indication of high economic activity), the actual unemployment rate falls below its natural level. This often leads to an acceleration of inflation due to a number of factors such as an artificial hike in wages.

Question 8

Changes in economic activities that are expressed in price fluctuations are attributed to inflation. All of the following are types of inflation except:

Accepted Answer

Opportunity-pull is not a type of inflation.
Key Takeaway: According to the Triangle Model, there are three types of inflation: built-in, demand-pull, and cost-push. Increased individual and government spending leads to demand-pull inflation, while an overall reduction in materials and goods supplies leads to cost-push inflation. Built-in inflation is caused by workers increasing their wages with prices that are passed on to the consumers by producers.

Question 9

The United States is facing a large budget deficit that is only expected to increase as new social programs and unemployment benefits are offered to citizens. This budget deficit is more likely to produce a demand-pull inflation when:

Accepted Answer

This budget deficit is more likely to produce a demand-pull inflation when the GDP is higher and unemployment is lower.
Key Takeaway: Demand-pull inflation occurs when high demands lead to a higher GDP and lower unemployment. With too few supplies being chased by too much demand, such an inflation occurs.

Question 10

An aggregate demand curve is the sum of demand curves from different segments of the economy. Such a curve (Yd) takes into account four different economic indicators, as seen below. What does the "C" stand for in Yd = C + I + G + (X?M)?
A)Consumption
B)Cost
C)Competition
D)Cycle

Accepted Answer

The "C" stands for consumption.
Key Takeaway: Personal consumption expenditures are one of the components of the aggregate demand curve equation. This consumption by households and unattached individuals is a function of disposable income.

Question 11

The slope of the aggregate demand (AD) curve is determined and influenced by all of the following except:
A)The interest rate effect
B)The international effect
C)The multiplier effect
D)The local inflation effect

Accepted Answer

The local inflation effect is not a determinant of the aggregate demand curve.
Key Takeaway: The aggregate demand curve slopes downward, influenced by a number of factors that include the interest rate effect and the international effect. Additionally, the multiplier effect (an amplification of initial changes in spending) causes a shift in the curve.

Question 12

With the introduction of government-funded health programs for the elderly and the poor, private health insurers have lost a substantial portion of their insured clients to these programs. The introduction of government-sponsored spending that curbs private investment is referred to as:

Accepted Answer

The introduction of government-sponsored spending that curbs private investment is referred to as crowding-out.
Key Takeaway: Crowding-out occurs when government-sponsored investment in programs leads to a curb or a reduction in private investment. This is shown in health programs, for example, for the elderly and the poor. Private insurance companies essentially find themselves losing clients to the government programs.

Question 13

The aggregate quantity of raw and manufactured goods demanded by consumers increases when the:

Accepted Answer

The aggregate quantity of goods demanded by consumers increases when personal consumption increases.
Key Takeaway: The aggregate demand curve is influenced by a number of factors that include personal consumption, government spending, investment, and trade. As personal consumption increases, the aggregate quantity of raw and manufactured goods demanded by consumers also increases.

Question 14

In a short run aggregate supply (SRAS) curve, an upward turn results in the following shift:

Accepted Answer

In an SRAS curve, an upward turn results in an increase in output, but no increase in price.
Key Takeaway: In a short run aggregate supply (SRAS), the economy experiences a period when resources are underused and staff can be hired without capital investment. An upward turn in an SRAS curve means that there is an increase in product output, but no matching increases in price levels, which means that the curve becomes horizontal.

Question 15

Germany's manufacturing base has seen an increase in productivity and exports over the past decade. A rightward shift in the aggregate supply curve in this country is most likely due to:

Accepted Answer

A rightward shift in the aggregate supply curve in this country is most likely due to a change in price levels.
Key Takeaway: A change in the aggregate supply (AS of all goods is affected by both price levels and quantities of goods produced. A rightward shift in the AS curve is most likely due to a change in price levels.

Question 16

The short run aggregate supply (SRAS) curve is graphed:

Accepted Answer

The short run aggregate supply (SRAS) curve is graphed as a horizontal line.
Key Takeaway: In a short run aggregate supply (SRAS), an upward turn in the curve means that raw and manufactured product quantities increase, but price levels remain constant. This means that the curve becomes increasingly horizontal.

Question 17

In the long run aggregate supply (LRAS), the curve is affected by the following except:

Accepted Answer

Trade deficits do not affect the long run aggregate supply.
Key Takeaway: In a long run aggregate supply (LRAS), a period of optimal use of resources is assumed. This means that the curve becomes increasingly vertical with aggregate demand producing only temporary changes in economic output. LRAS is affected by labor, capital availability, and technological capability.

Question 18

The medium run aggregate supply (MRAS) is affected by labor, capital availability, technological capability, and wage rate.

Accepted Answer

The answer is true.
Key Takeaway: The medium run aggregate supply (MRAS) is an intermediary between the long run and short run aggregate supplies. The MRAS curve slopes upwards and is vulnerable to changes in labor, capital, technological capability, and wage rate.

Question 19

In the circular flow of money through an economy, the following is considered a leakage:

Accepted Answer

Consumer savings are considered a leakage in the circular flow of money.
Key Takeaway: The circular flow of money within an economy is an economic model that explains how money moves between consumers and producers. Within this flow, for example, a worker is paid a wage and he or she uses a large fraction of that wage on living expenses such as rent and utilities. Goods and services are also purchased from those wages. If the worker decides to save, that amount is considered a leakage from the circular flow as it does not move back to the producers.

Question 20

The Federal Reserve is a private institution that was authorized by the United States government in the early 20th century to regulate the quantity of money in the economy. The following are the functions of the Federal Reserve except:

Accepted Answer

The Federal Reserve does not impose trade tariffs.
Key Takeaway: The Federal Reserve serves a number of functions in monetary policies, such as providing loans to other banks. The Reserve also makes sure that other banks are following federal laws and banking practices. Finally, it controls the supply of money.

Quiz 30: (AP) Macroeconomics: Part A