The expenditure approach measures GDP by adding
compensation of employees, rental income, corporate profits, net interest, and proprietors’ income
compensation of employees, rental income, corporate profits, net interest,proprietors’ income, subsidies paid by the government, indirect taxes paid, and depreciation
compensation of employees, rental income, corporate profits, net interest,proprietors’ income, indirect taxes paid, and depreciation and subtracting subsidies paid by the government
consumption expenditure, gross private domestic investment, net exports of goods and services, and government expenditure on goods and services
Gross investment equals net investment plus
capital
capital gains
depreciation
dividends paid to the owners of the company
The functions of money are
medium of exchange and the ability to buy goods and services
medium of exchange, unit of account, and means of payment
pricing, contracts, and means of payment
medium of exchange, unit of account, and store of value
Which of the following is money?
checking deposits
checks in the checkbook
credit cards
All of the above are money
The exchange rate is the
opportunity cost of pursuing a nation’s comparative advantage
price of one country’s currency expressed in terms of another country’s currency
ratio between imports and exports
interest rate that is charged on risk-free international capital flow
We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. In the long run
technology is fixed but not in the short run
the price level is constant but in the short run it fluctuates
the aggregate supply curve is horizontal while in the short run it is upward sloping
real GDP equals potential GDP
Which of the following occurs while moving along a short-run aggregate supply curve?
The money wage rate and the price level change by the same percentage
The money wage rate changes and the price level is constant
The price level changes and the money wage rate is constant
Neither the price level nor the money wage rate changes
A technological advance ________ the long-run aggregate supply curve and ________ the short-run aggregate supply curve.
shifts; shifts
shifts; does not shift
does not shift; shifts
does not shift; does not shift
Which of the following changes while moving along the aggregate demand curve?
future incomes of households
the price level
the amount of money in the economy
future profits from investment projects
If the marginal propensity to consume is 0.8, every $10 increase in disposable income increases
consumption expenditure by $0.80
consumption expenditure by $18.00
saving by $0.20
consumption expenditure by $8.00
In the above figure, at the equilibrium, induced expenditure is
$100 billion
$200 billion
$300 billion
some amount not given in the above answers
In the above figure, autonomous expenditure is
$100 billion
$200 billion
$300 billion
some amount not given in the above answers
In the above figure, if real GDP is below $300 billion, inventories will be
below target levels, so firms increase production
below target levels, so firms decrease production
above target levels, so firms increase production
above target levels, so firms decrease production
If investment increases by $300 and, in response, equilibrium aggregate expenditure increases by $600, the multiplier is
0.2
0.5
2
5
Which of the following could lead to demand-pull inflation?
an increase in the money wage rate
an increase in the quantity of money
a decrease in exports
an increase in oil prices
In the above figure, the economy is initially at point A. If workers and firms correctly anticipate the increase in aggregate demand and the resulting inflation rate, the economy will move to point
A, that is, the price level and level of real GDP will not change
B
C
D
Assuming that GDP currently equals potential GDP, a cost-push inflation could result from which of the following?
a decrease in tax rates
an increase in the labor force
a large crop failure that boosts the prices of raw food materials
an increase in the nation’s capital stock
Suppose real GDP exceeds potential real GDP. If the government decreases its expenditures on goods and services, then real GDP ________ and the price level ________ .
decreases; rises
increases; falls
decreases; falls
increases; rises
An advantage of automatic stabilizers over discretionary fiscal policy is that
automatic stabilizers are not subject to all the same time lags that discretionary fiscal policy is
automatic stabilizers can be easily fine-tuned to move the economy to full employment
only the President is involved in implementing automatic stabilizers instead of both the President and Congress
automatic stabilizers require only a simple majority of Congress to pass whereas discretionary fiscal policy requires a two-thirds majority to pass
The structural deficit is that deficit that would exist
with the taxes and outlays that would occur if the economy was at the equilibrium level of real GDP
with the taxes and outlays that would occur if the economy was at the full employment level of real GDP
if tax rates were set to maximize tax revenues
if there were no discretionary fiscal interventions into the economy
The principal goal of monetary policy is to
reverse the productivity growth slowdown
keep the budget deficit small and/or the budget surplus large
lower taxes
maintain low inflation
Monetary policy affects real GDP by
changing aggregate supply
creating budget surpluses
changing aggregate demand
creating budget deficits
If the demand for reserves is unchanged, an increase in the quantity of reserves will
increase the federal funds rate
lower the federal funds rate
not affect the federal funds rate
None of the above answers is correct
In the above figure, suppose the economy is at point D. If the Fed eases to fight the recession, the economy will move to
point A
point B
point C
point D
In the above figure, suppose the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?
a decrease in the real interest rate
an increase in exports
an increase in investment
All of the above occur
If the demand curve for bikes shifts leftward and the supply curve for bikes shifts rightward, the equilibrium
price of bikes definitely increases
price of bikes definitely decreases
quantity of bikes definitely increases
quantity of bikes definitely decreases
Which of the following is NOT a barrier to entry for a monopoly?
economies of scale for the relevant range of output
a patent on the product being sold
the ability to charge a price that is above marginal cost
receiving a government authorized monopoly
Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe attending his morning class for one hour is
an hour of tennis given up
an hour of sleep given up
both the tennis given up and the sleep given up
nothing because he is paying for his class
In the short run, a monopolistically competitive firm chooses
both its price and its quantity
its price but not its quantity
its quantity but not its price
neither its price nor its quantity
A deadweight loss is created
only if the last unit produced has a marginal social benefit greater than its marginal social cost
only if the last unit produced has a marginal social cost greater than its marginal social benefit
only if the last unit produced has a marginal social benefit equal to its marginal social cost
if for the last unit produced, marginal social cost is greater than its marginal social benefit or if its marginal social benefit is greater than its marginal social cost
A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity demanded from 18,800 to 21,200 bushels. The price elasticity of demand is
0.80
1.20
1.25
8.00
Based on the above, which figure shows the impact of a worldwide reduction in labor?
Figure A
Figure B
Figure C
Figure D
Which graph shows the impact of scientists developing a more powerful fertilizer?
Figure A
Figure B
Figure C
Figure D
In the long-run equilibrium for a perfectly competitive industry
the firms’ economic profits are zero
there is no entry or exit
average total costs of production are minimized
All of the above are correct
If a firm’s marginal product of labor is less than its average product of labor, then an increase in the quantity of labor it employs definitely will
decrease its total product
decrease its average product of labor
increase it marginal product of labor
not change its average product of labor
Suppose that the price elasticity of supply for oil is 0.1. Then, if the price of oil rises by 20 percent, the quantity of oil supplied will increase
by 200 percent
by 20 percent
by 2 percent
by 0.2 percent
The distinguishing features of oligopoly are ________ and a ________ in the industry
barriers to entry; large number of firms
no barriers to entry; few firms
barriers to entry; few firms
no barriers to entry; large number of firms
A rent ceiling that is effective results in ________ .
a surplus of housing
helping the poor
a shortage of housing
no change in the quantity of housing supplied but a decrease in the quantity of housing demanded
Pizza and hamburgers are substitutes for consumers. A fall in the price of a pizza ________ the price of a hamburger and ________ the quantity of hamburgers
raises; increases
raises; decreases
lowers; increases
lowers; decreases
In the long run, the average cost curve ________ .
is the same as the short-run average variable cost curves because in the long run all costs are variable costs
is made up of the average total cost curves for which that quantity of capital has the lowest average total cost
is vertical
touches all the short-run average total cost curves at their minimum points
Moving down along the demand curve for hot dogs, the
maximum price that people are willing to pay for hot dogs increases.
value of hot dogs decreases
marginal cost of hot dogs increases
consumer surplus of the last hot dog consumed increases
Which of the following statements is correct?
A change in the quantity demanded means a shift in the demand curve
A change in demand means a movement along the demand curve
A change in demand and change in quantity demanded means the same thing
A change in demand means a shift in the demand curve while change in the quantity demanded means a movement along the demand curve
The amount of a tax paid by the sellers will be smaller the more ________ the demand and the more ________ the supply
elastic; inelastic
inelastic; elastic
inelastic; inelastic
elastic; elastic
Monopolistically competitive firms constantly develop new products in an effort to
make the demand for their product more elastic
increase the demand for their product
increase the marginal cost of their product
None of the above are correct
The demand for food is most elastic in countries
with low income levels
with intermediate income levels
with high income levels
that are highly urbanized
Rent seeking ________
increases consumer surplus
occurs only when the firm practices perfect price discrimination
increases deadweight loss
results in a larger output than a competitive industry would produce
Positive and normative statements differ in that
positive statements can be tested, whereas normative statements cannot
normative statements can be tested, whereas positive statements cannot
normative statements depict “what is” and positive statement depict “what ought to be.”
normative statement never use the word “should.”
In perfect competition, a firm maximizes its economic profit if it produces the output at which ________
total revenue equals total cost
price equals marginal cost
price equals average cost
economic profit equals zero in the short run
Which of the following models is the best to explain price wars?
A repeated duopoly game
A game of chicken
Dominant firm oligopoly
A sequential entry game in contestable market
If technological advances lower the cost of computer chips, in the market for computers the equilibrium price will _________ and the equilibrium quantity will ________.
fall; increase
fall; decrease
rise; increase
rise; decrease
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