1)Ben Bernanke is the current chair of the Board of Governors.
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2)Marginal analysis means that decision-makers compare the extra benefits with the extra costs of a specific choice.
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3)The intense competition of free trade prevents the investment that generates economic growth.
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4)Within the circular flow model, the level of total resource income and total spending on output will be approximately equal.
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5)A price floor in a competitive market will result in persistent shortages of a product.
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6)A government tax per unit of output reduces supply.
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7)The programs enacted to bailout the financial system from crisis in 2007 and 2008 helped alleviate the moral hazard problem in the financial industry.
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8)A demand curve for a public good is determined by summing horizontally the individual demand curves for the public good.
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9)The crowding-out effect refers to the possibility that deficit spending may motivate people to increase their saving in anticipation of higher future taxes.
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10)If market demand increases and market supply decreases, the change in equilibrium price is unpredictable without first knowing the exact magnitudes of the demand and supply changes.
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11)Import quotas are taxes or duties on imported products.
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12)If economic theories are solidly based on relevant facts, then appropriate economic policy becomes obvious and uncontroversial.
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13)Other things equal, an excise tax on a product will:
A.increase its supply.
B.increase its price.
C.increase the quantity sold.
D.increase its demand.
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14)We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because:
A.soft drinks are normal goods.
B.the income effect always exceeds the substitution effect.
C.there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.
D.there are more good substitutes for soft drinks as a whole than for Pepsi specifically.
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15)
Refer to the above diagram. The sizes of the multipliers associated with changes in investment and government spending in this economy are:
A.2.5 and 1.5 respectively.
B.3 and 2 respectively.
C.both 2.5.
D.2 and 3 respectively.
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16)At the equilibrium level of GDP:
A.MV = nominal GDP.
B.MV = real GDP.
C.M = nominal GDP.
D.V = 1/MPS.
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17)If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy?
A.recall Federal Reserve Notes from circulation
B.raise the legal reserve requirement
C.buy bonds in the open market
D.raise the discount rate
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18)Which of the following do national income accountants consider to be investment?
A.the purchase of an automobile for private, non-business use
B.the purchase of a new house
C.the purchase of corporate bonds
D.the purchase of gold coins
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19)Which of the following transactions would be included in GDP?
A.Mary buys a used book for $5 at a garage sale.
B.Nick buys $5000 worth of stock in Microsoft.
C.Olivia receives a tax refund of $500.
D.Peter buys a newly constructed house.
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20)
Refer to the above diagram. Point b would be explained by:
A.an actual rate of inflation that exceeds the expected rate.
B.an actual rate of inflation that is less than the expected rate.
C.cost-push inflation.
D.an increase in long-run aggregate supply.
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21)If the Fed were to reduce the legal reserve ratio, we would expect:
A.lower interest rates, an expanded GDP, and a higher rate of inflation.
B.lower interest rates, an expanded GDP, and a lower rate of inflation.
C.higher interest rates, a contracted GDP, and a higher rate of inflation.
D.higher interest rates, a contracted GDP, and a lower rate of inflation.
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22)Which of the following is a fundamental characteristic of the market system?
A.property rights.
B.central planning by government.
C.unselfish behavior.
D.government-set wages and prices.
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23)A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:
A.government spending is more employment-intensive than is either consumption or investment spending.
B.government spending increases the money supply and a tax reduction does not.
C.a portion of a tax cut will be saved.
D.taxes vary directly with income.
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24)To say that “the U.S. public debt is mostly held internally” is to say that:
A.only interest payments on the public debt are an economic burden.
B.official figures understate the size of the public debt.
C.the bulk of the public debt is owned by U.S. citizens and institutions.
D.the public debt is equal to the land and buildings assets owned by the Federal government.
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25)The political business cycle refers to the possibility that:
A.incumbent politicians will be reelected regardless of the state of the economy.
B.politicians will manipulate the economy to enhance their chances of being reelected.
C.there is more inflation during Democratic administrations than during Republican administrations.
D.recessions coincide with election years.
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26)In a market economy a significant change in consumers’ desire for product X will:
A.alter the profits or losses received by suppliers of product X.
B.cause a reallocation of scarce resources.
C.cause some industries to expand and others to contract.
D.do all of these.
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27)Macroeconomics is mostly focused on:
A.the individual markets within an economy.
B.only the largest industries in the economy.
C.the economy as a whole.
D.why specific businesses fail.
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28)The scarcity problem:
A.persists only because countries have failed to achieve continuous full employment.
B.persists because economic wants exceed available productive resources.
C.has been solved in all industrialized nations.
D.has been eliminated in affluent societies such as the United States and Canada.
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29)Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is:
A.not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.
B.directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.
C.directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.
D.directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
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30)Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company profits, $1 for each share he owns.
Refer to the information above. If Indy holds his shares for 5 years, he:
A.will have received $500 in dividends.
B.will earn a capital gain of $500.
C.will receive $500 in interest.
D.should sell the stock to maximize the return on his investment.
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31)The market system:
A.produces considerable inefficiency in the use of scarce resources.
B.effectively harnesses the incentives of workers and entrepreneurs.
C.is not consistent with freedom of choice in the long run.
D.has slowly lost ground to emerging command systems.
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32)The General Agreement on Tariffs and Trade (GATT) is based on the principle of:
A.establishing a single international currency.
B.tariff reductions through multilateral negotiations.
C.converting tariffs to import quotas.
D.establishing common environmental and labor standards for all member nations.
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33)Which of the following allegedly contributed to the stagflation in the mid-1970s?
A.appreciation of the dollar
B.a sharp drop in the prices of farm products
C.a dramatic increase in oil prices
D.rising productivity in manufacturing
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34)
Refer to the above figure and assume the economy initially is in equilibrium at point a. In the new classical theory, a fully anticipated decrease in aggregate demand from AD2 to AD3 would move the economy:
A.directly from a to h.
B.from a to g to h.
C.directly from a to d.
D.from a to c to h.
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35)
51.Refer to the above graph. An increase in an economy’s labor productivity would:
A.move the economy away from point A and toward point B.
B.move the economy away from point B and toward point A.
C.shift curve AB to CD
D.shift curve CD to AB.
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36)The equilibrium rate of interest in the market for money is determined by the intersection of the:
A.supply of money curve and the asset demand for money curve.
B.supply of money curve and the transactions demand for money curve.
C.supply of money curve and the total demand for money curve.
D.investment demand curve and total demand for money curve.
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37)An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:
A.marginal cost exceeds marginal benefit.
B.maximum willingness to pay exceeds minimum acceptable price.
C.consumer surplus exceeds producer surplus.
D.producer surplus exceeds consumer surplus.
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38)In a two-nation model, the equilibrium world price will occur where:
A.one nation’s export supply curve intersects the other nation’s import demand curve.
B.exports are exactly twice the level of imports.
C.both nations’ export supply curves are horizontal.
D.both nations’ import demand curves are vertical.
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39)If two goods are complements:
A.they are consumed independently.
B.an increase in the price of one will increase the demand for the other.
C.a decrease in the price of one will increase the demand for the other.
D.they are necessarily inferior goods.
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40)Most modern banking systems are based on:
A.money of intrinsic value.
B.commodity money.
C.100 percent reserves.
D.fractional reserves.
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41)In a nation’s balance of payments, which one of the following items is always recorded as a positive entry?
A.goods imports
B.changes in foreign currency reserves
C.U.S. purchases of assets abroad
D.exports of services
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42)Which of the following is an intermediate good?
A.the purchase of gasoline for a ski trip to Colorado.
B.the purchase of baseball uniforms by a professional baseball team.
C.the purchase of a pizza by a college student.
D.the purchase of jogging shoes by a professor
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43)The business-to-business (B2B) retrieval of prices of foreign resources via the Internet best illustrates a(n):
A.trade flow.
B.capital and labor flow.
C.financial flow.
D.information flow.
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44)
29.Refer to the above data. The United States’ balance of capital and financial account is a:
A.surplus of $5.
B.deficit of $10.
C.surplus of $25.
D.deficit of $5.
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45)According to the marginal-cost-marginal-benefit rule:
A.only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits.
B.the optimal project size is the one for which MB = MC.
C.the optimal project size is the one for which MB exceeds MC by the greatest amount.
D.project managers should attempt to minimize both MB and MC.
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46)An increase in the price of a product will reduce the amount of it purchased because:
A.supply curves are upsloping.
B.the higher price means that real incomes have risen.
C.consumers will substitute other products for the one whose price has risen.
D.consumers substitute relatively high-priced for relatively low-priced products.
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47)
Refer to the above diagrams. In which case would the coefficient of cross elasticity of demand be positive?
A.A
B.B
C.C
D.D
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48)Use the following diagrams for the U.S. economy to answer the following questions.
Which of the above diagrams best portrays the effects of an increase in resource productivity?
A.A
B.B
C.C
D.D
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49)(Advanced analysis) Answer the question on the basis of the following information. The demand for commodity X is represented by the equation P = 100 
2Q and supply by the equation P = 10 + 4Q.
Refer to the above information. The equilibrium quantity is:
A.10.
B.20.
C.15.
D.30.
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50)Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?
A.Merrill Lynch
B.Lehman Brothers
C.Goldman Sachs
D.AIG
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51)
Refer to the above diagram. At income level F the volume of saving is:
A.BD
B.AB
C.CF-BF
D.CD
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52)Answer the question on the basis of the following sequence of events involving fiscal policy:
(1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; (2) Economists reach agreement that the economy is moving into a recession; (3) A tax cut is proposed in Congress; (4) The tax cut is passed by Congress and signed by the President; (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover.
Refer to the above information. The operational lag of fiscal policy is reflected in event(s):
A.1 and 2.
B.2 and 3.
C.3 and 4.
D.5.
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53)(Last Word) Before trading costs and management fees are taken into account, passively managed funds outperform actively managed funds by about ______ percent per year.
A.5
B.1
C.zero
D.3
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54)
Refer to the above data. Equilibrium price will be:
A.$4.
B.$3.
C.$2.
D.$1.
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