Question 1

Which of the following cannot be true when it is observed that government spending is causing crowding out?

Accepted Answer

A)   The government spending is decreasing.
B)   The consumption spending is decreasing.
C)   The net exports spending is decreasing.
D)   The investment spending is decreasing.E) All of the above
F) C) and D)

Question 2

According to the International Monetary Fund statistics, the U.S.:

Accepted Answer

A)   invests a lower fraction of its GDP than China or France.
B)   consumes a lower fraction of its GDP than China or Germany.
C)   invests a higher fraction of its GDP than Germany.
D)   government consumes a higher fraction of its GDP than Germany.E) All of the above
F) None of the above

Question 3

Suppose that the economy is currently at full employment. When the country ends its war in Afghanistan and reduces the military spending needed to support it, crowding in will take the form of:

Accepted Answer

A)   an increase in investment spending.
B)   an increase in consumption spending.
C)   A and B are both correct.
D)   neither A nor B is correct.E) C) and D)
F) None of the above

Question 4

A tax on labor results in a shift in the labor

Accepted Answer

A)   demand curve to the left.
B)   demand curve to the right.
C)   supply curve to the left
D)   supply curve to the right.E) A) and D)
F) None of the above

Question 5

Demonstrate graphically what happens to the production function if the capital stock decreases.

Accepted Answer

If the capital stock declines,...

Question 6

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to
answer the following questions:
-According to the application, the effective tax on labor for the U.S. is about:

Accepted Answer

A)   54 percent.
B)   65 percent.
C)   40 percent.
D)   15 percent.E) B) and C)
F) C) and D)

Question 7

What happens to the equilibrium wage rate in the US and Canada when more US and Canadian workers migrate to the Europe?

Accepted Answer

A)   The real wage in Canada and the US will increase.
B)   The real wage in Canada will increase while the real wage in the US will decrease.
C)   The real wage in Canada and the US will decrease.
D)   The real wage in Canada will decrease while the real wage in the US will increase.E) A) and D)
F) All of the above

Question 8

What is meant by full- employment output?

Accepted Answer

Full- employment output is the...

Question 9

The production function describes the relationship between the quantities of which two variables?

Accepted Answer

A)   inputs and output
B)   output and profit
C)   output and revenue
D)   inputs and costE) B) and C)
F) A) and C)

Question 10

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to
answer the following questions:
-From the application, we can infer that one way to encourage Americans to further increase their hours worked per year would be to:

Accepted Answer

A)   decrease living standards.
B)   decrease the effective tax rates experienced by workers.
C)   increase the effective tax rates experienced by workers.
D)   move to France.E) B) and C)
F) A) and D)

Question 11

Empirical evidence suggests that the labor supply curve for the economy is almost vertical. What does this imply about the effect of an increase in taxes on labor on employment, output, and real wages?

Accepted Answer

An increase in taxes on labor leads to a...

Question 12

What happens to the equilibrium wage rate in the US and Canada when more American workers migrate to the Canada?

Accepted Answer

A)   The real wage in Canada will increase while the real wage in the US will decrease.
B)   The real wage in Canada and the US will increase.
C)   The real wage in Canada will decrease while the real wage in the US will increase.
D)   The real wage in Canada and the US will decrease.E) All of the above
F) B) and C)

Question 13

An increase in the capital stock:

Accepted Answer

A)   can increase output, but only if it is accompanied by an increase in the labor force.
B)   cannot increase output, even if it is accompanied by an increase in the labor force.
C)   provides valuable services directly, but not indirectly.
D)   can increase output, even if it is not accompanied by an increase in the labor force.E) B) and C)
F) B) and D)

Question 14

Which key principle in economics best explains crowding out?

Accepted Answer

A)   the principle of diminishing returns
B)   the principle of opportunity cost
C)   the principle of voluntary exchange
D)   the marginal principleE) B) and D)
F) B) and C)

Question 15

If the price of airline tickets rises during holidays, what will happen to the demand for flight attendants?

Accepted Answer

A)   It will increase and the equilibrium wages paid to flight attendants will fall.
B)   It will decrease and the equilibrium wages paid to flight attendants will fall.
C)   It will increase and the equilibrium wages paid to flight attendants will rise.
D)   It will decrease and the equilibrium wages paid to flight attendants will rise.E) A) and B)
F) All of the above

Question 16

If each additional worker hired contributes less to total output, then:

Accepted Answer

A)   economies of scale are present.
B)   total output will fall if an extra worker is hired.
C)   diminishing returns are occurring.
D)   none of the aboveE) B) and C)
F) None of the above

Question 17

The crowding in effect explains how a decrease in government expenditures can increase consumption.

Accepted Answer

A) True 
 B)False

Question 18

List two things that can lead to an increase in full- employment output.

Accepted Answer

(1) An increase in t...

Question 19

Labor supply curves are always upward- sloping.

Accepted Answer

A) True 
 B)False

Question 20

According to the real business cycle theory, technological advances:

Accepted Answer

A)   increase the productivity of labor, which causes real wages and output to decline.
B)   increase the productivity of labor, which causes real wages and output to increase.
C)   increase the productivity of labor, which causes real wages to increase and output to decline.
D)   decrease the productivity of labor, which causes real wages and output to increase.E) B) and C)
F) B) and D)

Exam 7: The Economy at Full Employment

Which of the following cannot be true when it is observed that government spending is causing crowding out?

Correct AnswerverifiedShow Answer

Which key principle in economics best explains crowding out?

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Suppose that the economy is currently at full employment. When the country ends its war in Afghanistan and reduces the military spending needed to support it, crowding in will take the form of:

Correct AnswerverifiedShow Answer

Labor supply curves are always upward- sloping.

Correct AnswerverifiedShow Answer

Demonstrate graphically what happens to the production function if the capital stock decreases.

Correct AnswerverifiedIf the capital stock declines,...View AnswerShow Answer

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -From the application, we can infer that one way to encourage Americans to further increase their hours worked per year would be to:

Correct AnswerverifiedShow Answer

According to the International Monetary Fund statistics, the U.S.:

Correct AnswerverifiedShow Answer

What happens to the equilibrium wage rate in the US and Canada when more US and Canadian workers migrate to the Europe?

Correct AnswerverifiedShow Answer

What happens to the equilibrium wage rate in the US and Canada when more American workers migrate to the Canada?

Correct AnswerverifiedShow Answer

According to the real business cycle theory, technological advances:

Correct AnswerverifiedShow Answer

An increase in the capital stock:

Correct AnswerverifiedShow Answer

If each additional worker hired contributes less to total output, then:

Correct AnswerverifiedShow Answer

List two things that can lead to an increase in full- employment output.

Correct Answerverified(1) An increase in t...View AnswerShow Answer

If the price of airline tickets rises during holidays, what will happen to the demand for flight attendants?

Correct AnswerverifiedShow Answer

Empirical evidence suggests that the labor supply curve for the economy is almost vertical. What does this imply about the effect of an increase in taxes on labor on employment, output, and real wages?

Correct AnswerverifiedAn increase in taxes on labor leads to a...View AnswerShow Answer

The crowding in effect explains how a decrease in government expenditures can increase consumption.

Correct AnswerverifiedShow Answer

The production function describes the relationship between the quantities of which two variables?

Correct AnswerverifiedShow Answer

A tax on labor results in a shift in the labor

Correct AnswerverifiedShow Answer

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -According to the application, the effective tax on labor for the U.S. is about:

Correct AnswerverifiedShow Answer

What is meant by full- employment output?

Correct AnswerverifiedFull- employment output is the...View AnswerShow Answer

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If the capital stock declines,...
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(1) An increase in t...
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An increase in taxes on labor leads to a...
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Full- employment output is the...
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