Which of the following statements about the classical model of the economy is FALSE? A) Individuals pursue the public interest, not their own self-interest. B) The economy will always move toward, or be at, full employment. C) Savings and investment will always be equal. D) Wages and prices are flexible. ANSWER A
If you feel you are better off because you receive a 10 percent raise even when the price level also increases by 10 percent, then you are a victim of the A) real purchasing power effect. B) money income effect. C) real income effect. D) money illusion. ANSWER D
We draw the long-run aggregate supply curve as a vertical line to reflect the fact that A) changes in the price level do not alter the level of long-run real GDP after full adjustment has occurred. B) an accurate depiction of the production possibilities curve is vertical after full adjustment has occurred. C) technology and […]
Suppose a country experiences an increase in output per worker. Such a development represents which of the following? A) an increase in labor productivity B) an increase in population growth C) a reduction in the saving rate D) a decrease in economic growth ANSWER A
The level of real GDP identified by the long-run aggregate supply curve is A) the level of GDP at which each industry is experiencing growth in sales. B) the level of GDP at which each business firm is experiencing growth in sales. C) the level of GDP at which no one is below the poverty […]
Which of the following will cause an increase in economic growth? A) a reduction in the unemployment rate B) a reduction in labor force participation C) an increase in human capital D) a reduction in the stock of physical capital ANSWER C
An individual who is suffering from money illusion is more concerned with A) real prices than with nominal prices. B) nominal prices than with relative prices. C) relative prices than with nominal prices. D) relative prices than with real prices. ANSWER B
What is measured on the vertical axis when we draw a graph of long-run aggregate supply? A) output of consumer goods B) real GDP C) production of capital goods D) the price level ANSWER D
Refer to the above figures. Which panel(s) represent economic growth? A) Panels A and C only B) Panel D only C) Panel A only D) Panels B and D only ANSWER A
Labor productivity is computed as A) real GDP divided by population. B) real GDP divided by the number of workers. C) per capita real GDP divided by the number of workers. D) per capita real GDP divided by population. ANSWER B