If two goods both had negative cross elasticities and negative income elasticities,
a. they are both normal and substitutes for one another.
b. they are both normal and complements for one another.
c. they are both inferior and substitutes for one another.
d. they are both inferior and complements for one another.
Question 2Which of the following is a definition of velocity?
a. Velocity = value of final goods and services produced/money supply
b. Velocity = real GDP/M
c. Velocity = nominal GDP/real GDP
d. Velocity = (P Q)/(M V)
Question 3Increases in the prices of services due to improvement in its quality indicate a(n) _____.
a. decline in productivity.
b. decline in real GDP.
c. increase in output.
d. decline in manufacturing output.
e. increase in technological progress.
Question 4Say that a consumer's income elasticity of demand over the relevant range is equal to 2 . When she has a monthly income of 2,000, she spends 600 on food. If her monthly income rose to 4,000, how much would she spend on food?
a. 900.
b. 1200.
c. 1800.
d. 2400.
Question 5In the equation of exchange, PQ represents:
a. the dollar value of all final goods and services sold in a country in a given year.
b. the price index times nominal GDP.
c. real GDP.
d. the price level times the velocity of money
Question 6Productivity in the services industry may be underestimated because ____ may not be taken into account.
a. the labor costs of providing a service
b. the quantity of the service produced
c. the capital costs of providing a service
d. the prices charged by service industries
e. the quality of the service provided
Question 7If the price elasticity of demand was 4.0 (in absolute terms), a 10 off sale would lead to:
a. a 40 increase in purchases by customers.
b. a 40 decrease in purchases by customers.
c. a 2.5 increase in purchases by customers.
d. a 2.5 decrease in purchases by customers.
Question 8The equation of exchange states that:
a. government spending = taxes plus the federal budget deficit.
b. the reciprocal of the reserve requirement = the deposit expansion multiplier.
c. the money supply times the velocity of money = the price level times the quantity of goods and services produced.
d. the price level times the velocity of money = the money supply times the quantity of goods and services produced.
Question 9As the service sector in the U.S. economy grows, traditional productivity measures will become:
a. biased downward, because the qualitative aspects of a service tend to be understated.
b. biased upward, because quantitative improvements in the service sector tend to be overstated.
c. biased upward, because prices in the service sector always rise faster than prices in manufacturing.
d. biased downward, because service output leads to a long-run decline in the inflation rate.
e. completely inappropriate for measuring even manufacturing output.
Question 10If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?
a. 3 percent.
b. 4 percent.
c. 8 percent.
d. 12 percent.
Question 11When Fed policy is being used to offset an inflationary gap, which of the following variables increases as a result?
a. Aggregate demand.
b. Investment.
c. Net Exports.
d. Interest rates.
Question 12If natural gas is replaced by solar power as a more efficient form of energy, we should expect _____.
a. a leftward shift of the aggregate supply curve
b. higher production prices at every output level
c. a decline in the growth of total output
d. a decrease in the stock of energy-efficient capital goods
e. an increase in total factor productivity
Question 13If a good has a perfectly inelastic short-run supply curve, an increase in demand will:
a. increase the price and quantity exchanged in the short run.
b. increase the price and but leave the quantity exchanged the same in the short run.
c. increase the quantity exchanged but leave the price the same in the short run.
d. leave both price and quantity exchanged the same in the short run.
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