Chapter 1/Ten Principles of Economics ? 25

167. In the United States, incomes have historically grown

a. about 10 percent per year. b. about 5 percent per year. c. about 2 percent per year. d. about 0.5 percent per year. ANS: C DIF: 1 REF: 1-3 TOP: Income MSC: Definitional

168. Almost all variation in living standards is attributable to differences in countries'

a. population growth rates. b. productivity.

c. systems of public education. d. taxes. ANS: B DIF: 2 REF: 1-3 TOP: Standard of living MSC: Interpretive 169. Productivity is defined as the

a. amount of goods and services produced from each hour of a worker's time. b. number of workers required to produce a given amount of goods and services. c. amount of labor which can be saved by replacing workers with machines. d. actual amount of effort workers put into an hour of working time. ANS: A DIF: 2 REF: 1-3 TOP: Productivity MSC: Definitional 170. The amount of goods and services produced from each hour of a worker's time is called

a. total output. b. productivity. c. marginal product. d. efficiency. ANS: B DIF: 1 REF: 1-3 TOP: Productivity MSC: Definitional 171. A direct or positive relationship exists between a country's

a. productivity and its standard of living.

b. amount of government spending and its productivity. c. total population and its average citizen’s income.

d. rate of population growth and the extent of its trade with other countries. ANS: A DIF: 2 REF: 1-3 TOP: Productivity, Standard of living MSC: Interpretive 172. The historical rise in living standards of American workers is primarily a result of

a. the influence of labor unions in America.

b. tariff protection imposed by the American government. c. the enactment of minimum-wage laws in America. d. the rise in American productivity. ANS: D DIF: 2 REF: 1-3 TOP: Productivity, Standard of living MSC: Interpretive

173. The fact that different countries experience different standards of living is largely explained by differences in those

countries'

a. populations.

b. productivity levels. c. locations.

d. none of the above; economists are puzzled by differences in standards of living around the world. ANS: B DIF: 1 REF: 1-3 TOP: Standard of living, Productivity MSC: Interpretive

26 ? Chapter 1/Ten Principles of Economics

174. The slow growth of U.S. incomes during the 1970s and 1980s can best be explained by

a. unstable economic conditions in Eastern Europe. b. increased competition from abroad.

c. a decline in the rate of increase in U.S. productivity. d. a strong U.S. dollar abroad, hurting U.S. exports. ANS: C DIF: 3 REF: 1-3 TOP: Productivity, Income MSC: Applicative

175. Incomes of U.S. households in the 1970s and 1980s

a. grew rapidly, due to the widespread success of labor unions in pushing up wages during those decades. b. grew rapidly, due to several increases in the minimum wage during those decades.

c. grew rapidly, due to government policies that discouraged the importation of foreign products during those

decades.

d. grew slowly, due to slow growth of the output of goods and services per hour of U.S. workers' time during those

decades.

ANS: D DIF: 2 REF: 1-3 TOP: Productivity, Income MSC: Applicative 176. To improve living standards, policymakers should

a. impose restriction on foreign competition.

b. formulate policies designed to increase productivity. c. impose tougher immigration policies. d. provide tax breaks for the middle class. ANS: B DIF: 2 REF: 1-3 TOP: Productivity, Standard of living MSC: Applicative

177. Policies to enhance living standards should be designed to ensure that workers

a. have access to the best available methods of producing goods and services. b. have the appropriate equipment to produce goods and services. c. receive good educations. d. All of the above are correct. ANS: D DIF: 2 REF: 1-3 TOP: Productivity MSC: Interpretive 178. To increase living standards, public policy should

a. ensure that workers are well educated and have the necessary tools and technology. b. make unemployment benefits more generous. c. move workers into jobs directly from high school.

d. ensure a greater degree of equity, taking all income-earners into account. ANS: A DIF: 2 REF: 1-3 TOP: Productivity, Standard of living MSC: Applicative 179. To raise productivity, policymakers could

a. increase spending on education.

b. provide tax credits to firms for capital improvements. c. fund research and development. d. All of the above are correct. ANS: D DIF: 3 REF: 1-3

TOP: Productivity, Government MSC: Applicative

180. An increase in the overall level of prices in an economy is referred to as

a. economic growth. b. inflation.

c. the price effect. d. the demand effect. ANS: B DIF: 1 REF: 1-3 TOP: Inflation MSC: Definitional

Chapter 1/Ten Principles of Economics ? 27

181. Inflation is defined as

a. a period of rising productivity in the economy. b. a period of rising income in the economy.

c. an increase in the overall level of output in the economy. d. an increase in the overall level of prices in the economy. ANS: D DIF: 1 REF: 1-3 TOP: Inflation MSC: Definitional

182. In the early 1920s,

a. Germany experienced a very high rate of inflation. b. the quantity of German money was declining rapidly. c. the value of German money remained almost constant. d. All of the above are correct. ANS: A DIF: 2 REF: 1-3 TOP: Inflation, Money MSC: Interpretive

183. In Germany in the early 1920s, on average,

a. prices were rising 50 percent every month, while the quantity of money was rising 20 percent every month. b. prices were doubling every month, while the quantity of money fell 10 percent every month.

c. prices were tripling every month, while the quantity of money remained almost constant every month. d. prices and the quantity of money both tripled every month. ANS: D DIF: 2 REF: 1-3 TOP: Inflation, Money MSC: Interpretive 184. During the early 1920s in Germany, prices

a. doubled annually. b. doubled monthly. c. tripled monthly. d. tripled annually. ANS: C DIF: 2 REF: 1-3 TOP: Inflation MSC: Definitional

185. One of the 20th century’s worst episodes of inflation occurred in

a. the United States in the 1960s. b. Italy in the 1950s. c. Russia in the 1930s. d. Germany in the 1920s. ANS: D DIF: 1 REF: 1-3 TOP: Inflation MSC: Definitional

186. In the United States, the overall level of prices more than doubled during the

a. 1950s. b. 1960s. c. 1970s. d. 1980s. ANS: C DIF: 1 REF: 1-3 TOP: Inflation MSC: Definitional

187. Large or persistent inflation is almost always caused by

a. excessive government spending.

b. excessive growth in the quantity of money. c. foreign competition.

d. higher-than-normal levels of productivity. ANS: B DIF: 2 REF: 1-3 TOP: Inflation MSC: Interpretive

28 ? Chapter 1/Ten Principles of Economics

188. President Gerald Ford referred to inflation as

a. a blight on our nation's economy.

b. a necessary evil to combat high unemployment. c. public enemy number one. d. a fly in the ointment. ANS: C DIF: 2 REF: 1-3 TOP: Inflation MSC: Interpretive

189. The U.S. president who referred to inflation as “public enemy number one” was

a. Richard Nixon. b. Gerald Ford. c. Jimmy Carter. d. Ronald Reagan. ANS: B DIF: 1 REF: 1-3 TOP: Inflation MSC: Interpretive

190. In the 1990s, inflation in the United States was

a. very close to zero.

b. about 3 percent per year. c. about 6 percent per year.

d. commonly referred to as “public enemy number one.” ANS: B DIF: 2 REF: 1-3 TOP: Inflation MSC: Interpretive

191. Low rates of inflation are generally associated with

a. low rates of government spending.

b. small or nonexistent government budget deficits. c. low rates of productivity growth.

d. low rates of growth of the quantity of money. ANS: D DIF: 2 REF: 1-3 TOP: Inflation MSC: Interpretive

192. Which of the following is the most correct statement about the relationship between inflation and unemployment?

a. In the short run, falling inflation is associated with falling unemployment. b. In the short run, falling inflation is associated with rising unemployment. c. In the long run, falling inflation is associated with falling unemployment. d. In the long run, falling inflation is associated with rising unemployment. ANS: B DIF: 2 REF: 1-3 TOP: Inflation, Unemployment, Tradeoffs MSC: Applicative 193. The mainstream view among economists is that

a. society faces a tradeoff between unemployment and inflation, but only in the short run. b. society faces a tradeoff between unemployment and inflation, but only in the long run.

c. society faces a tradeoff between unemployment and inflation, both in the short run and in the long run. d. no tradeoff exists between unemployment and inflation, either in the short run or in the long run. ANS: A DIF: 2 REF: 1-3 TOP: Inflation, Unemployment, Tradeoffs MSC: Applicative 194. In the early 1980s, U.S. economic policy was directed toward reducing inflation. What would you have expected to

observe during this short period of time? a. Inflation fell and unemployment fell.

b. Inflation and unemployment were both unaffected. c. Inflation fell and unemployment increased.

d. Inflation fell and unemployment was unchanged. ANS: C DIF: 2 REF: 1-3 TOP: Inflation, Unemployment, Tradeoffs MSC: Applicative