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Page 1 1. The point at which the axes of a graph intersect is called the: A) slope. B) origin. C) graph. D) intercept. 2. The ______ of a curve shows the point at which the curve intersects an axis. […]

Page 1 1. You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year […]

The classical model of the price level is most likely to be a good approximation of reality during periods of: A) recession. B) high unemployment. C) low inflation. D) high inflation. The recommendation that the government should avoid deficit spending […]

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a(n) _____ in equilibrium interest rates. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease Figure: The Production Possibilities for […]

Figure: Slope Look at the figure Slope. In the graph, the slope of the line between points A and B is: A) +8. B) “8. C) “2. D) +2. Holding everything else constant, the government’s budget balance during an expansion […]

If the marginal propensity to consume is 0.8, then the multiplier is: A) 4. B) 5. C) 8. D) 10. In the circular-flow diagram, a person or a group of people who share income is a: A) government. B) factor. […]

A key insight into macroeconomics is that in the short run the combined effect of individual decisions: A) is always the same as what one individual intended. B) may be very different from what any one individual intended. C) is […]

Unexpectedly rising commodity prices lead to a _____ shock. A) positive supply B) positive demand C) negative supply D) negative demand A reduction in the value of a floating currency is called a devaluation. A) True B) False Answer: B […]

When hyperinflation forces Emily to visit her bank very frequently to keep her cash holdings to a minimum, economists say that Emily has a: A) shoe-leather cost. B) menu cost. C) unit-of-account cost. D) Fisher effect. Figure: Seasonally Adjusted Unemployment […]

If the rate of exchange is €1 = US$2, then US$1 = A) €0.50. B) €2. C) $0.50. D) $2.00. If a bank has $2,000 in excess reserves and a 10% reserve requirement, the maximum potential increase in the money […]

Discretionary fiscal policy: A) is not subject to lags and therefore is effective at controlling business cycles. B) refers to changes in the money supply used to smooth out the economy’s ups and downs. C) is favored by monetarists. D) […]

The business cycle is the long-run alternation between downturns and upturns. A) True B) False When the unemployment rate is high, there is political demand to increase the benefit period for unemployment compensation. In a standard analysis, this will lead […]

Most of a bank’s short-term liabilities are: A) loans from the Federal Reserve. B) loans from the U.S. Treasury. C) loans to its customers. D) customers’ deposits. The aggregate production function exhibits diminishing returns to labor but not to physical […]

An economy that has the lowest opportunity cost of producing a particular good is said to have: A) an absolute advantage in production of that good. B) a comparative advantage in production of that good. C) a production possibility frontier. […]

An example of investment spending is the purchase of a: A) bond by a banker. B) loaf of bread by a restaurant. C) new tractor by a farmer. D) ticket to a football game by a student. If the labor […]

An advantage to floating exchange rates is that they help: A) insulate countries from currency fluctuations. B) insulate countries from recessions starting in other countries. C) keep exports from replacing domestic jobs. D) keep export prices down. If Mega Corp. […]

Figure: Consumption and Real GDP Look at the figure Consumption and Real GDP. The slope of the consumption function is called the: A) marginal propensity to save. B) average propensity to consume. C) marginal propensity to consume. D) marginal consumption […]

Scenario: Money Supply Changes II Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. Look at the scenario Money Supply Changes […]

Which of the following is a point of the Great Moderation consensus? I. Monetary policy should be the main stabilization policy. II. The central bank should be independent of political influence. III. Discretionary fiscal policy should be used sparingly. A) […]

In movement along a production possibility frontier, the opportunity cost to society of getting more of one good: A) is always constant. B) is measured in dollar terms. C) is measured by the amount of the other good that must […]

The historical validation of Keynes’s theory came through the: A) expansion in aggregate demand resulting from drastic interest rate cuts in the early 1940s. B) successful application of his theories in the United States during the Great Depression in the […]

The marginal propensity to consume is consumption divided by disposable income. A) True B) False Economists use the term equilibrium to describe when: A) individuals are equal. B) no individual would be better off taking a different action. C) no […]

In the long run changes in the money supply will change prices, real GDP, and interest rates. A) True B) False Suppose a country has floated its currency and the central bank sets a contractionary monetary policy. Which of the […]

In 2009 Greece received emergency loans from other European countries and the International Monetary Fund. These loans required the Greek government to cut spending, which worsened the Greek recession. A) True B) False Figure: The Market for Thumb Drives Look […]

Scenario: Countries A and B Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear production possibility frontier in both goods. If country A spends all of its available resources to produce wheat, […]

The multiplier process: A) explains how spending continues indefinitely with continuous rounds of spending. B) ends after one round of spending and with total spending limited to the initial change in spending. C) occurs only when economies are in an […]

A cut in taxes will have the most effect on aggregate demand if it is given to: A) people with a low marginal propensity to consume. B) people with a high marginal propensity to consume. C) everyone in the economy. […]

A positive short-run aggregate supply shock increases aggregate output and the aggregate price level. A) True B) False If deflation occurs and your income is fixed, your real income: A) will fall. B) will go up. C) will still be […]

Owen had a typewriter shop, but he went out of business because no one buys typewriters anymore. This statement best represents this economic concept: A) Resources are scarce. B) People usually exploit opportunities to make themselves better off. C) Markets […]

Figure: A Money Market Look at the figure A Money Market. If the current interest rate is r1, the interest rate will _____ because there is a _____ of money in the market. A) fall; surplus B) fall; shortage C) […]

The long-run Phillips curve: A) depicts the negative relationship between the unemployment rate and the inflation rate. B) suggests that policies have little effect on the natural rate of unemployment in the long run. C) explains how expansionary policies can […]

Which of the following factors have contributed to the lack of economic growth in Latin America? I. low rates of savings and investment II. low value on education III. political instability A) I only B) II only C) III only […]

If the multiplier is 4, the marginal propensity to save is: A) 3. B) 0.80. C) 0.75. D) 0.25. Which of the following is considered to be investing in a physical asset? A) purchasing stock in IBM B) selling stock […]

The Fed prints money not only when it is conducting monetary policy but also when it is paying bills as the fiscal agent for the federal government. A) True B) False Capital inflow into a country is associated with: A) […]

Figure: Actual and Natural Rates of Unemployment Look at the figure Actual and Natural Rates of Unemployment. In 2014, the natural unemployment rate was approximately: A) zero. B) 3%. C) 5.5%. D) 9%. Scenario: Aggregate Consumption Function Suppose the aggregate […]

Page 1 1. Facebook’s primary type of investment spending is the purchase of: A) server farms, or arrays of linked computers. B) health care for its employees. C) stock in Yahoo and Google. D) U.S. Treasury securities. 2. Which of […]

Page 1 1. The changes in the economy of Ft. Myers, Florida, between 2003 and 2010 provide an example of: A) the risk associated with an agricultural economy. B) positive and negative multiplier effects. C) how public assistance programs can […]

Page 1 1. All of the following are sources of federal tax revenue EXCEPT: A) the personal income tax. B) sales taxes. C) social insurance taxes. D) the corporate profits tax. 2. The federal government’s largest source of revenue is: […]

Page 1 1. Money is anything that: A) serves as a medium of exchange for goods and services. B) can be converted to silver with relatively little loss in value. C) can be converted to gold with relatively little loss […]

Page 1 1. The Federal Reserve can influence financial crises because it: A) determines tax rates. B) determines government spending. C) conducts monetary policy. D) is responsive to the people who elected its members to office. 2. Janet Yellen is: […]

Page 1 1. What distinction did Zimbabwe achieve in June 2008? A) It was the first African nation to become a democracy. B) It ended apartheid. C) It had the world’s highest inflation rate. D) It had the world’s highest […]

Page 1 1. Lehman Brothers was established by Henry Lehman in 1844 as a(n): A) investment bank. B) commercial bank. C) dry goods store. D) saloon. 2. Investment banks differ from commercial banks because commercial banks _____, but investment banks […]

Page 1 1. Which of the following years is often described as the worst year of the Great Depression? A) 1913 B) 1933 C) 1953 D) 1973 2. Prior to the 1930s, the _____ model dominated thinking about how the […]

Page 1 1. When the dollar value of the Swiss franc was very high following the financial crisis in 2008: A) Swiss exports were more expensive in the United States. B) Swiss exports were less expensive in the United States. […]

Page 1 1. A simplified representation that is used to study a real situation is called a(n): A) model. B) production possibility frontier. C) assumption. D) trade-off. 2. The models that economists construct: A) usually make simplifying assumptions. B) often […]

Page 1 1. Goods and services purchased from abroad are _____, while goods and services sold abroad are _____. A) exports; imports B) imports; exports C) exports; quotas D) quotas; factors 2. Over the past 50 years in the United […]

Page 1 1. The topics studied in macroeconomics include: A) inflation. B) unemployment. C) economic growth. D) inflation, unemployment, and economic growth. 2. The topics studied in macroeconomics include: A) inflation. B) monopolies. C) spillovers, such as pollution. D) mergers. […]

Page 1 1. The national accounts keep track of everything EXCEPT: A) the spending of consumers and the government. B) the sales of producers. C) business investment. D) exchange rates. 2. The national income and product accounts keep track of: […]

Page 1 1. Employment is the total: A) labor force. B) population of working age. C) number of people actively working, either full-time or part-time. D) number of people not unemployed. 2. The labor force is the total: A) number […]

Page 1 1. A key input for measuring economic growth is: A) the size of the government’s budget. B) real GDP per capita. C) life expectancy. D) the Dow Jones stock market index. 2. Which of the following is the […]

The financial meltdown in 2008″2009 was partially the result of a faulty economic model that underestimated the risk of mortgage-backed securities. A) True B) False Scenario: Gizmovia The Republic of Gizmovia wants to maintain the exchange rate of its currency, […]

One factor that reduces the natural rate of unemployment is: A) a binding minimum wage. B) the recent proliferation of temporary employment agencies. C) a slowdown in productivity growth. D) government policies such as those that produced Eurosclerosis. When a […]

Fiscal and monetary policies: A) have no role in macroeconomic policies. B) have been used by the government for over 250 years. C) are most effective in microeconomic settings. D) are used to correct for short-term economic fluctuations. Which of […]

When a country utilizes more physical capital per worker over time, there will be: A) lower and eventually zero growth rate of productivity. B) higher growth rates of productivity. C) no change in the growth rate of productivity. D) lower […]

Do economists believe that the budget should be balanced each fiscal year? A) Yes, a budget should be balanced annually; otherwise persistent budget deficits can cause havoc in the economy. B) Yes, as the law states that both the federal […]

An increase in the demand for money with no change in supply will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate. A) no change; a rise B) no change; a fall C) […]

Assume that corn is an input in the production of beef but not in the production of pork. Further, beef and pork are substitutes in consumption. A decrease in the price of corn will _____ the supply of beef and […]

Which one of the following transactions is included in a current year’s GDP as investment spending? A) ABC company purchased 10,000 shares of IBM stock. B) Ronnie bought a new BMW. C) Anton purchased his friend’s condo. D) Maggie bought […]

Figure: AD”ASModel II Look at the figure AD”AS Model II. If the value of household wealth increases, the _____ curve will shift to the _____. A) SRAS; left B) SRAS; right C) AD; right D) AD; left The TED spread […]

A movement along the aggregate demand curve is caused by a(n): A) change in the aggregate price level. B) increase in consumer spending. C) fall in commodity prices. D) reduction in government spending. It is certain that the equilibrium quantity […]

According to Okun’s law, unemployment must decrease by 1% for output to increase by 1%. A) True B) False Scenario: Open Economy S= I In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and government […]

Which of the following is TRUE? A) Currency in circulation is not part of the monetary base. B) Bank reserves are part of the monetary base. C) Most of the monetary base consists of checkable deposits. D) The money multiplier […]

High interest rates in the 1970s: A) helped S&Ls because it increased their return on investment. B) helped S&Ls because higher interest rates on their mortgages increased their profitability. C) hurt S&Ls because they lost savings deposits to investments that […]

Because one person’s spending is another person’s income: A) if one group in the economy spends more, the incomes of other groups will decrease. B) if one group in the economy spends less, the incomes of other groups will increase. […]

When an economy has high inflation: A) wage and price stickiness lessens or disappears. B) the Keynesian model of the economy is most relevant. C) wages become more inflexible as workers wait for prices to stabilize. D) changes in the […]

The BEST example of making a choice at the margin is whether to: A) buy a new computer. B) quit your job. C) eat another slice of pizza. D) attend college. If the opportunity cost of manufacturing automobiles is lower […]

Taxes equal: A) government spending plus private savings. B) total spending minus consumption minus investment minus private savings. C) total income minus consumption minus private savings. D) consumption plus private savings plus total income. If the marginal propensity to consume […]

Most economists now agree that: A) the government should seek to balance its budget. B) fiscal policy can shift aggregate demand. C) fiscal policy can change the natural rate of unemployment. D) fiscal policy should be conducted by the Federal […]

Look at the table Comparative Advantage I. The opportunity cost of producing 1 box of cell phones for Finland is _____ box(es) of herring. A) 10 B) 0.5 C) 5 D) 0.1 Contractionary fiscal policy includes: A) decreasing taxes. B) […]

The Bretton Woods agreement called for: A) each currency’s value to be flexible relative to other currencies. B) maintaining fixed exchange rates by government intervention. C) most nations to adopt the euro as their official currency. D) what amounted to […]

The slope of the planned aggregate spending line is determined by: A) the marginal propensity to consume. B) the level of unplanned investment spending. C) the level of planned investment spending. D) the level of autonomous consumption. If an economy […]

Severe banking crises are usually followed by deep recessions and slow recoveries. A) True B) False Figure: Demand and Supply of Gasoline Look at the figure Demand and Supply of Gasoline. A factor that may have changed supply from S1 […]

Suppose the economy is in long-run equilibrium at full employment levels of real GDP. In the long run, if the money supply increases, we would expect _____ in the price level and _____ in real GDP. A) an increase; no […]

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government purchases of goods and services by $75 billion. A) True B) False Gains from trade arise because […]

A reduction in government transfers _____, therefore shifting the aggregate demand curve to the _____. A) increases labor costs to companies, increasing investment; left B) decreases government purchases of goods and services, decreasing consumption; right C) increases the marginal propensity […]

Structural unemployment: A) results when there are more job hunters than jobs. B) affects those entering the labor force for the first time. C) is zero when the economy is in full employment. D) is caused by short-run economic fluctuations. […]

A decrease in inventories is: A) a fall in investment spending that will lead to a drop in sales. B) an increase in investment spending that will lead to an increase in sales. C) thought to have no impact on […]

Workers are more productive than in the past because they: A) have more natural resources to use. B) work a four-day week. C) are better educated and so have more human capital. D) are physically larger than their parents. According […]

China has much higher rate of growth than the United States, but the average Chinese household is _____ a typical U.S. household. China’s real GDP per capita is _____ that of the United States. A) as well off as; catching […]

In a particular labor market, the demand for labor is given by W = 20 ” (1 / 100)L, and the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate, […]

Scenario: Fiscal Policy Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs. Look at the scenario […]

The aggregate demand curve is downward sloping because of: A) the inverse relationship between price and quantity demanded. B) changes in expectation of future prices. C) unexpected changes in commodity prices. D) the wealth effect of a change in aggregate […]

Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent the past few days browsing the help wanted ads but hasn’t found anything that matches her skills. Stephanie is best classified as: A) structurally […]

When the budget is in deficit, the government generally: A) raises taxes. B) increases the public debt. C) sells public assets like national parks. D) decreases military spending. An increase in the value of a floating currency is called an […]

The labor force is equal to the: A) sum of employment and unemployment. B) population minus the number of employed. C) sum of the employed and the underemployed. D) number of people working. Fertilizer, used to grow pumpkins, is a […]

Firms pay an efficiency wage because: A) it reduces the risk of losing the best workers. B) it is required by law. C) they don’t have to offer health insurance if they pay efficiency wages. D) it reduces the employee’s […]

Figure: Policy Alternatives Look at the figure Policy Alternatives. Suppose that the initial equilibrium is at real GDP level Y1 and price level P2 in panel (a). At real GDP level Y1 there is: A) an inflationary gap. B) a […]

Figure: Circular-Flow Model Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a […]

We are forced to make choices because of: A) exploitation. B) efficiency. C) scarcity. D) the margin. Under fixed exchange rates, a revaluation decreases aggregate demand by: A) increasing exports. B) reducing imports. C) causing a financial account deficit. D) […]

Figure: Aggregate Expenditures I Look at the figure Aggregate Expenditures I. When real GDP is $700 billion, there will be a _____ in unplanned inventory investment. A) $125 million increase B) $125 million decline C) $200 million decline D) $200 […]

Unemployment rates are usually higher in Europe than in the United States because: A) the minimum wage is higher in the United States than in Europe. B) U.S. economic policy is much more effective than European economic policy. C) there […]

When the aggregate price level falls, the purchasing power of assets rises, which leads to: A) an increase in the quantity of aggregate output demanded. B) a decrease in the quantity of aggregate output demanded. C) a shift in the […]

Greece’s financial difficulties following the crisis of 2008 were due primarily to a housing bubble. A) True B) False Table: Peanut Butter and Jelly Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars […]

In a single day, Sarah can produce 10 hamburgers, and Abe can produce 5 hamburgers. Therefore, _____ has a(n) _____ advantage in making hamburgers. A) Sarah; comparative B) Sarah; absolute C) Abe; comparative D) Abe; absolute If the exchange rate […]

In the circular-flow diagram, firms: A) supply goods and services. B) demand goods. C) supply resources. D) demand services. If the marginal propensity to consume increases, the multiplier will: A) increase. B) decrease. C) remain constant. D) fluctuate randomly. Answer: […]

If the marginal propensity to consume equals 0.75, then based on the simple model presented in this chapter, one would expect a $100 decrease in investment spending to lead to a total _____ in spending of _____. A) increase; $100. […]

To fight inflation, the Federal Reserve should conduct _____ monetary policy to _____ interest rates, which will shift the aggregate demand curve to the _____. A) contractionary; raise; left B) contractionary; raise; right C) expansionary; lower; right D) expansionary; raise; […]

If the United States exports $500 of goods and services and imports $700 of goods and services, net exports are $1,200. A) True B) False Figure: Demand and Supply Look at the figure Demand and Supply. The slope of the […]

Sometimes the government varies its spending, depending on the needs of the country. This statement best represents the economic concept that: A) resources should be used as efficiently as possible to achieve society’s goals. B) when markets don’t achieve efficiency, […]

Without banks, people would: A) hold more of their wealth as cash. B) hold less of their wealth as cash. C) invest most of their wealth in real estate. D) earn higher rates of return and enjoy more liquidity. Figure: […]

Since 1960 the price level in the United States has increased in most years. A) True B) False If Debbie gets a loan to remodel her kitchen, the loan is a liability for Debbie and an asset for the bank […]

Figure: Classical Versus Keynesian Macroeconomics Look at the figure Classical Versus Keynesian Macroeconomics. According to the Keynesian view, if this economy shifts from AD2 to AD1, perhaps because of a large increase in government spending, the price level will _____ […]

Figure: Inflationary and Recessionary Gaps Look at the figure Inflationary and Recessionary Gaps. If the economy is in short-run equilibrium at Y1 in panel (b), to return to potential output at YP policy makers should use: A) contractionary stabilization policy. […]

The net present value (NPV) of an activity or project is equal to the _____ value of all of the revenues minus the _____ value of all of the costs associated with it. A) future; present B) present; present C) […]

Figure: Classical Versus Keynesian Macroeconomics Look at the figure Classical Versus Keynesian Macroeconomics. According to the classical view, if this economy shifts from AD2 to AD1, perhaps because of a large increase in government spending, the price level will _____ […]

During the 1940s, 1950s, and 1960s: A) the role of the government in the economy increased. B) the role of the government in the economy decreased. C) Keynes’s ideas were constantly challenged by free-market policies. D) Keynes’s views were accepted […]

The aggregate supply curve shows the relationship between the aggregate price level and the aggregate: A) output supplied. B) money supply. C) unemployment rate. D) employment. The benefits of fixed exchange rates served as one of the motivations for the […]

Which of the following is consumption? A) a new computer purchased by Federal Express for one of its corporate executives B) a storage facility for a moving company C) a new car purchased for personal use D) a dump truck […]

The inflation rate is the: A) price level in the current year minus the price level in the previous year. B) price level in the current year plus the price level in the previous year. C) percentage change in the […]

Table: The Lemonade Market Look at the table The Lemonade Market. If the price of a cup of lemonade is $1, there will be _____ in the market. A) equilibrium B) a shortage of 150 cups C) a shortage of […]

Between 1990 and 2005 the price of oil was low relative to prices in the 1970s and 1980s, and consumers responded by buying large, fuel-inefficient vehicles. A) True B) False When the economy is in a recession, tax receipts _____ […]

“Many economists agree that income taxes should be increased for rich people” is a positive statement. A) True B) False A floating exchange rate: I. leaves monetary policy available for domestic stabilization. II. is less expensive to maintain than a […]

If a government wants to increase the value of its currency in foreign exchange markets, it can: A) use contractionary monetary policy. B) use expansionary monetary policy. C) decrease interest rates. D) sell its currency. Economists argue that money is […]

Look at the table Pizza Economy II. GDP in this economy is: A) $74,000. B) $45,000. C) $29,000. D) $16,000. In an attempt to reduce shooting deaths, some cities have offered money to people who turn in illegal guns. This […]

When a market begins to engage in international trade: A) producers in the exporting industry may be better off. B) consumers of the imported good may be worse off. C) consumers of the exported good may be better off. D) […]

Much of the housing boom in Ft. Myers was due to speculators who bought homes not to live in themselves but to resell quickly at much higher prices. A) True B) False Which of the following statements is TRUE? A) […]

Licensing systems that limit the right of individuals to buy foreign currency are: I. floating exchange rate regimes. II. foreign exchange controls. III. exchange market interventions. A) I only B) II only C) III only D) I, II, and III […]

Which of the following was a proponent of supply-side economics? A) Herbert Hoover B) Franklin Roosevelt C) Jimmy Carter D) Ronald Reagan Diversification in investment is achieved when: A) the government invests in several projects of different lengths to increase […]

When the United States gives foreign aid to developing nations in Africa, the _____ account is affected. A) current B) financial C) reserve D) foreign exchange In the liquidity preference model, the money supply is represented by: A) a vertical […]

If LeRoyce trades two cookies for one of Amir’s brownies, we say that they are engaging in: A) exploitation. B) benevolence. C) barter. D) a zero-sum game. Figure: Guns and Butter Look at the figure Guns and Butter. If the […]

A firm uses financial leverage when it: A) replaces labor with capital. B) borrows money from a bank to enlarge a factory. C) raises the price of a product when demand is inelastic. D) gets a volume discount from a […]

Improvements in information technology have: A) shifted the demand for cash to the right. B) decreased the demand for money. C) not affected the demand for money. D) increased the demand for money. Which of the following would NOT be […]

Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would expect to see: A) an increase in demand for Raclette cheese. B) an […]

The production possibility frontier is bowed out because: A) resources are not equally suited for the production of both goods. B) resources are scarce. C) economic growth leads to inefficiency. D) resources are inefficiently used. The worst inflation in the […]

If goods A and Z are complements, an increase in the price of good Z will: A) increase the demand for good A. B) decrease the demand for good A. C) decrease the demand for good Z. D) decrease the […]

Figure: AD”AS Look at the figure AD”AS. Suppose that initially the economy is at long-run equilibrium. If the government cuts taxes, _____ will shift to the _____. A) SRAS; right B) SRAS; left C) AD1; right to AD2 D) AD1; […]

If a bank has assets of $100 million, according to practice, its liabilities should NOT exceed: A) $7 million. B) $70 million. C) $93 million. D) $107 million. Look at the table The Production Possibilities for Tractors and Crude Oil. […]

Figure: The Market for Oranges in South Africa Look at the figure The Market for Oranges in South Africa. In autarky, the price of oranges in South Africa is P1. When the economy is opened to trade, the price falls […]

Figure: Inflationary and Recessionary Gaps Look at the figure Inflationary and Recessionary Gaps. At E3, the economy: A) is in equilibrium. B) has an inflationary gap. C) has a recessionary gap. D) is stagnating. Internet employment agencies have simplified the […]

Figure: Demand and Supply of Gasoline Look at the figure Demand and Supply of Gasoline. When the supply curve shifted from the initial equilibrium, the new intersection of supply and demand has a price of _____ and quantity of 400. […]

The real exchange rate between the U.S. dollar and the Canadian dollar will remain constant if an increase in the value of the U.S. dollar against the Canadian dollar is offset by: A) inflation in the United States. B) inflation […]

When the U.S. government issues Treasury bills, its sells them directly to the Federal Reserve. A) True B) False If the slope of the aggregate expenditures curve is 0.8, the multiplier is: A) 1. B) 4. C) 5. D) infinity. […]

Look at the table Peanut Butter and Jelly Economy. Between 2010 and 2011, nominal GDP: A) increased by 12.5%. B) decreased by 12.5%. C) increased by 16.67%. D) increased by 31.25%. A household’s wealth is always equal to its income […]

According to the Great Moderation consensus: I. monetary policy should be the main stabilization tool. II. the natural rate of unemployment doesn’t actually exist. A) I only B) II only C) I and II D) neither I nor II A […]

Figure: The Market for Loanable Funds II Look at the figure The Market for Loanable Funds II. Other things being equal, if there is an increase in the interest rate above 8%, _____ quantity of loanable funds will be demanded. […]

A fall in the market interest rate makes any investment project: A) less profitable if the funds were borrowed and more profitable if it came from retained earnings. B) less profitable whether the funds were borrowed or came from retained […]

A decrease in the level of business opportunity will generally _____ the loanable funds demand curve. A) not change B) left-shift C) cause a movement along D) right-shift Whenever planned aggregate spending exceeds real GDP, unplanned inventory investment is: A) […]

Because one person’s spending is another person’s income, if one group in the economy spends more, they increase their share of income and decrease the incomes of other groups. A) True B) False The notion that there is a trade-off […]

Figure: Inflationary and Recessionary Gaps Look at the figure Inflationary and Recessionary Gaps. At E1, the economy: A) is in equilibrium. B) has an inflationary gap. C) has a recessionary gap. D) has low unemployment. The groundbreaking book The General […]

Figure: Equilibrium in the Money Market Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____. A) demand for; rise B) […]

It is certain that the equilibrium price will rise when the supply curve shifts to the _____ and the demand curve shifts to the _____. A) right; right B) right; left C) left; left D) left; right A shift away […]

Scenario: A Small Economy Suppose there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year. Look at the scenario A Small Economy. There is a new government, […]

Economists define an efficient use of resources as a situation in which: A) one person can be made better off but only by making another person worse off. B) all persons can be made better off without making anyone worse […]

If a country has a working-age population of 200 million, 120 million people with jobs, and 30 million people unemployed and seeking employment, then its unemployment rate is: A) 5%. B) 7.5%. C) 15%. D) 20%. The terms decrease in […]

The producer price index is likely to respond more quickly to price changes than the other indexes, so it is regarded as a warning sign of inflation. A) True B) False Some economists have challenged the efficient markets hypothesis because […]

The Office of Management and Budget serves as the central bank of the United States. A) True B) False If the Federal Reserve wanted to increase the money supply, it could _____ the required reserve ratio, _____, and _____ bonds […]

In the long run, if the money supply rises by 10%, then the price level may rise by more than 10%. A) True B) False The first country to adopt the euro was Great Britain. A) True B) False Answer: […]

Figure: The Demand and Supply of Wheat Look at the figure The Demand and Supply of Wheat. What is the equilibrium price in this wheat market? A) $6 B) $4 C) $2 D) $8 Which of the following fiscal policies […]

Explain why each of the following transactions would or would not be counted in the GDP of the United States. a. Japanese auto producer Honda builds a factory in Indiana. b. You buy a new pair of pants produced at […]

When milk prices increased in 2008, one milk consumer stated that the reason he cut down on milk consumption was so that he could drive his car. This action represents a: A) movement along the demand curve for milk. B) […]

Which of the following is an advantage to the recipient of foreign investment? A) Foreigners are content to receive lower profits and interest rates than are domestic investors. B) Foreigners don’t expect to receive profits and interest as often as […]

Which of the following was an argument in favor of using discretionary fiscal policy in fighting the Great Recession? A) Monetary policy could not be effective, since interest rates were near zero. B) If taxes were increased, the budget could […]

Suppose that commodity prices across the economy begin to fall and consumers and firms begin to expect a lower rate of inflation. The SRAS curve will shift to the _____, and the short-run Phillips curve will shift _____. A) left; […]

If government purchases decrease so the budget may be balanced, some government transfers will automatically increase, reducing the multiplier effect. A) True B) False If a country runs a trade deficit, its investment spending is probably: A) above its level […]

A high TED spread means that banks expect they are taking on a high level of risk when they lend to each other. A) True B) False Figure: The Aggregate Consumption Function and Planned Aggregate Spending Look at the table […]

In the long run, an increase in AD will result in: A) no change in the aggregate price level. B) no change in the aggregate output level. C) increases in both the aggregate price level and the aggregate output level. […]

Included in M1 are: A) checkable bank deposits. B) savings deposits. C) U.S. Treasury bills. D) demand deposits, savings deposits, and U.S. Treasury bills. Nearly all economists agree that decreases in money supply can _____ aggregate _____. A) increase; supply […]

All of the following cause structural unemployment EXCEPT: A) a government-mandated floor on the price of labor set above the equilibrium wage. B) collective bargaining efforts that secure higher wages for unionized workers than for nonunionized workers. C) offering high […]

Adam believes that in the long run all prices are flexible and that any increase in the money supply will lead only to inflation, not to an increase in aggregate output. Because the economy would self-correct to long-run equilibrium output, […]

To maintain its target exchange rate for the yuan, China had to sell yuan and buy dollars and other currencies. A) True B) False If banks decide to hold some of their excess reserves instead of lending them all out: […]

An example of the frictionally unemployed is a(n): A) autoworker who is temporarily laid off because of a decline in sales. B) geologist who is permanently laid off from an oil company because of a technological advance. C) worker at […]

Positive unplanned inventory investment occurs when: A) actual depreciation is less than expected. B) actual sales are less than expected. C) actual depreciation is more than expected. D) actual sales are higher than expected. When an economy has debt deflation: […]

A decrease in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run. A) an increase; no change B) a decrease; no change C) a decrease; a decrease D) no change; an […]

Which of the following is an example of investment spending in macroeconomics? A) The owner of a Domino’s Pizza store has employed two students to deliver pizzas. B) The manager of a Domino’s Pizza store has deposited cash in the […]

When the government has a deficit, it will most likely finance the deficit by: A) cutting the salaries of the president and Congress. B) selling some military bases. C) borrowing the money. D) charging higher admission fees at national parks. […]

Suppose that immigration laws are relaxed and many workers from other nations enter the U.S. labor force. The _____ for labor will _____. A) demand; increase B) demand; decrease C) supply; decrease D) supply; increase Which of the following is […]

Which of the following was an argument AGAINST Britain’s adopting the euro? I. Using the same currency as many other European countries would discourage trade and decrease productivity. II. Using the euro would decrease the effectiveness of monetary policy. A) […]

If the opportunity costs of production are constant, then the production possibility frontier is: A) bowed out from the origin. B) bowed in toward the origin. C) a straight line. D) circular. Policies that expand output and decrease unemployment are […]

Table: The Production Possibilities for Cars and Leather Boots Look at the table The Production Possibilities for Cars and Leather Boots. Given the opportunity costs of production: A) there is no basis for trade. B) Mexico should specialize in boots. […]

As a result of a sharp decrease in aggregate demand between 1929 and 1933, the unemployment rate changed from _____ in 1929 to _____ in 1933. A) 0%; 3% B) 3%: 25% C) 40%; 5% D) 25%; 0% Figure: Shift […]

The slope of the demand curve for money is: A) vertical. B) horizontal. C) positive. D) negative. If real GDP exceeds aggregate expenditures, the economy will: A) contract, reducing employment. B) expand, causing inflation. C) expand, increasing employment. D) neither […]

International trade based on comparative advantage allows a country to produce outside its production possibility frontier. A) True B) False Figure: Shifts in Demand and Supply II Look at the figure Shifts in Demand and Supply II. The figure shows […]

Growth accounting estimates the: A) increase in the population rate over time. B) increase in the inflation rate over time. C) contribution of each major factor in the aggregate production function to economic growth. D) contribution of the technology factor […]

In 2000, financial experts announced that they: A) would no longer be willing to buy or sell mortgage-backed securities. B) were unable to predict expected income from mortgage-backed securities. C) had overestimated the risk of loss from mortgage-backed securities. D) […]

Policies that limit imports, usually to insulate domestic producers from foreign competition, are known as: A) import-competing clauses. B) import reduction acts. C) trade protection. D) competition protection. If wages grew at 5% last year and average prices grew at […]

Scenario: Gizmovia The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40. Look at the scenario Gizmovia. At the target rate of $0.50: […]

Keynes’s ideas were: A) quickly adopted in the 1930s to end the Great Depression. B) slowly but consistently used in 2008 to end the Great Recession. C) used somewhat to help reduce the Great Depression. D) ignored in the Great […]

GDP is the: A) total market value of all final goods and services produced in an economy in one year. B) total accumulated wealth of an economy. C) volume of all dollar transactions made in an economy in one year. […]

When a waiter deposits his cash tips in his savings account: A) M2 increases. B) M1 decreases. C) M2 decreases. D) M3 increases. A floating exchange rate: A) retains the ability of monetary policy to help stabilize the economy. B) […]

When the Fed decreases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply. A) less; decrease B) less; increase C) more; decrease D) more; increase As long as people have different […]

Wages are: A) the income households earn by selling their labor. B) the interest earned from bonds. C) rent earned from the use of land to firms. D) the indirect ownership of the physical capital used by firms. In one […]

If a firm pays for investment spending out of retained earnings: A) the interest rate is irrelevant. B) past profits are adjusted downward. C) current profits are adjusted downward. D) the firm forgoes interest it could have received. Figure: Guns […]

The largest monetary aggregate is: A) M1, because it contains all of the currency in circulation. B) M2, because it contains currency in circulation, all bank deposits, other deposits, and deposit-like assets. C) the reserves in the vaults of Federal […]

Investment spending is spending on: A) productive physical capital. B) bonds. C) shares of stock. D) productive physical capital, bonds, and shares of stock. The exchange rate is the _____ between countries. A) interest rate differential B) balance of trade […]

Foreign exchange reserves are: I. stocks of foreign currency. II. gold and silver. III. bonds of foreign governments. A) I only B) II only C) III only D) I, II, and III In the circular-flow diagram, the places where goods […]

Countries that engage in trade will tend to specialize in goods in which they have _____ and will _____ those goods. A) a comparative advantage; import B) an absolute advantage; export C) a comparative advantage; export D) an economic profit; […]

To _____ the money supply, the Federal Reserve could _____. A) increase; decrease the money multiplier B) decrease; lower the reserve requirements C) increase; conduct open-market purchases D) decrease; lower the discount rate It is certain that the equilibrium price […]

Suppose the marginal propensity to consume is 0.8 and the government cuts taxes by $40 billion. Real GDP will _____ by _____. A) increase; $200 billion B) decrease; $200 billion C) increase; $160 billion D) decrease; $160 billion The consumer […]

An illiquid asset can be quickly converted to cash with little or no loss of value. A) True B) False The _____ curve shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied when […]

On a graph representing two variables: A) a positive slope of a curve means the variables are negatively related. B) a negative slope of a curve means the two variables are positively related. C) a line that is horizontal has […]

Scenario: Real GDP Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell for $3.25 […]

Figure: Policy Alternatives Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a) and the government decreases taxes, the result will likely be: A) an increase in unemployment. B) a decrease in interest […]

A stimulus is an expansionary fiscal policy. A) True B) False The underlying motives behind capital flows reflect international differences in: A) savings. B) investment opportunities. C) technology. D) both savings and investment opportunities. Answer: D Which of the following […]

Bonds are less risky than stocks because a company legally must pay what it owes to lenders before it can distribute profits to stockholders. A) True B) False The United States dollar”Mexican peso exchange market is initially in equilibrium. Suppose […]

The need for a double coincidence of wants is necessary: A) to use money. B) for barter exchanges. C) anytime credit cards or debit cards are used. D) to increase the number of exchanges taking place. If the cost of […]

As a result of the long-term growth between 1900 and 2010, the output per person in the United States was about twice as large in 2010 as it was in 1900. A) True B) False The marginal propensity to consume […]

An example of physical capital is: A) a truck a company purchases for deliveries. B) a worker who physically learns to work on a truck his company buys. C) a truck a worker buys for personal use. D) a truck […]

Page 1 1. The market for corn in Kansas is considered to be competitive. This means there are _____ buyers and _____ sellers of corn in Kansas. A) many; few B) few; many C) many; many D) few; few 2. […]

Page 1 1. Stagflation is a combination of _____ unemployment and _____ inflation. A) increasing; increasing B) decreasing; decreasing C) increasing; decreasing D) decreasing; increasing 2. The economic slump in the 1970s looked different from the slump at the beginning […]