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15) Evidence from the United States and other foreign countries indicates that
A) there is a strong positive association between inflation and growth rate of money over long
periods of time.
B) there is little support for the assertion that "inflation is always and everywhere a monetary
phenomenon."
C) countries with low monetary growth rates tend to experience higher rates of inflation, all else
being constant.
D) money growth is clearly unrelated to inflation.
16) Countries that experience very high rates of inflation may also have
A) balanced budgets.
B) rapidly growing money supplies.
C) falling money supplies.
D) constant money supplies.
17) Between 1950 and 1980 in the U.S., interest rates trended upward. During this same time
period
A) the rate of money growth declined.
B) the rate of money growth increased.
C) the government budget deficit (expressed as a percentage of GNP) trended downward.
D) the aggregate price level declined quite dramatically.
18) The management of money and interest rates is called ________ policy and is conducted by
a nation's ________ bank.
A) monetary; superior
B) fiscal; superior
C) fiscal; central
D) monetary; central
19) The organization responsible for the conduct of monetary policy in the United States is the
A) Comptroller of the Currency.
B) U.S. Treasury.
C) Federal Reserve System.
D) Bureau of Monetary Affairs.
20) ________ policy involves decisions about government spending and taxation.
A) Monetary
B) Fiscal
C) Financial
D) Systemic
21) When tax revenues are greater than government expenditures, the government has a budget
A) crisis.
B) deficit.
C) surplus.
D) revision.
22) A budget ________ occurs when government expenditures exceed tax revenues for a
particular time period.
A) deficit
B) surplus
C) surge
D) surfeit
23) Budgets deficits can be a concern because they might
A) ultimately lead to higher inflation.
B) lead to lower interest rates.
C) lead to a slower rate of money growth.
D) lead to higher bond prices.
24) Budget deficits are important because deficits
A) cause bank failures.
B) always cause interest rates to fall.
C) can result in higher rates of monetary growth.
D) always cause prices to fall.
25) When a budget deficit occurs in the United States, the U.S. Treasury finances this deficit by
A) borrowing.
B) imposing a moratorium of new government spending.
C) increasing the tax rate.
D) printing more dollars.
26) What happens to economic growth and unemployment during a business cycle recession?
What is the relationship between the money growth rate and a business cycle recession?
1) American companies can borrow funds
A) only in U.S. financial markets.
B) only in foreign financial markets.
C) in both U.S. and foreign financial markets.
D) only from the U.S. government.
2) The price of one country's currency in terms of another country's currency is called the
A) exchange rate.
B) interest rate.
C) Dow Jones industrial average.
D) prime rate.
3) The market where one currency is converted into another currency is called the ________
market.
A) stock
B) bond
C) derivatives
D) foreign exchange
4) Everything else constant, a stronger dollar will mean that
A) vacationing in England becomes more expensive.
B) vacationing in England becomes less expensive.
C) French cheese becomes more expensive.
D) Japanese cars become more expensive.
5) Which of the following is most likely to result from a stronger dollar?
A) U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy
more of them.
B) U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy
more of them.
C) U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy
fewer of them.
D) Americans will purchase fewer foreign goods.
6) Everything else held constant, a weaker dollar will likely hurt
A) textile exporters in South Carolina.
B) wheat farmers in Montana that sell domestically.
C) automobile manufacturers in Michigan that use domestically produced inputs.
D) furniture importers in California.
7) Everything else held constant, a stronger dollar benefits ________ and hurts ________.
A) American businesses; American consumers
B) American businesses; foreign businesses
C) American consumers; American businesses
D) foreign businesses; American consumers
8) From 1980 to early 1985 the dollar ________ in value, thereby benefiting American
________.
A) appreciated; consumers
B) appreciated; businesses
C) depreciated; consumers
D) depreciated; businesses
9) From 1980 to 1985 the dollar appreciated relative to the British pound. Holding everything
else constant, one would expect that, when compared to 1980
A) fewer Britons traveled to the United States in 1985.
B) Britons imported more wine from California in 1985.
C) Americans exported more wheat to England in 1985.
D) more Britons traveled to the United States in 1985.
10) When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost 100
British pounds would have cost $130. With a weaker dollar, the same Shetland sweater would
have cost
A) less than $130.
B) more than $130.
C) $130, since the exchange rate does not affect the prices that American consumers pay for
foreign goods.
D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in price
due to the stronger dollar.
11) Everything else held constant, a decrease in the value of the dollar relative to all foreign
currencies means that the price of foreign goods purchased by Americans
A) increases
B) decreases.
C) remains unchanged.
D) either increases, decreases, or remains unchanged.
12) American farmers who sell beef to Europe benefit most from
A) a decrease in the dollar price of euros.
B) an increase in the dollar price of euros.
C) a constant dollar price for euros.
D) a European ban on imports of American beef.
13) If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything
else held constant
A) a European vacation becomes less expensive.
B) a European vacation becomes more expensive.
C) the cost of a European vacation is not affected.
D) foreign travel becomes impossible.
14) Everything else held constant, Americans who love French wine benefit most from
A) a decrease in the dollar price of euros.
B) an increase in the dollar price of euros.
C) a constant dollar price for euros.
D) a ban on imports from Europe.
15) From 2002 to 2011, the dollar depreciated substantially against other currencies. This drop in
value most likely benefitted
A) European citizens traveling in the U.S.
B) U.S. citizens traveling in Europe.
C) U.S. manufacturers importing parts from abroad.
D) U.S. citizens purchasing foreign-made automobiles.
16) From 1980-1985, the dollar strengthened in value against other currencies. Who was helped
and who was hurt by this strong dollar?
1) Students studying money, banking, and financial markets will learn
A) critical thinking skills that will be useful in all careers.
B) how to time the market.
C) stock market tips.
D) nothing of practical value.
1) The basic concepts used in the analytic framework of this text include all of the following
EXCEPT
A) the not-for-profit nature of most financial institutions.
B) a basic supply and demand analysis to explain the behavior of financial markets.
C) an approach to financial structure based on transaction costs and asymmetric information.
D) the concept of equilibrium.
2) Using a unified analytic framework to present the information in the text keeps the knowledge
A) focused on theories that have little to do with actual behavior.
B) theoretical and uninteresting.
C) abstract and not applicable to real life.
D) from becoming obsolete.
20
Copyright © 2019 Pearson Education, Inc.
1.7 Appendix: Defining Aggregate Output, Income, the Price Level, and the Inflation Rate
1) The most comprehensive measure of aggregate output is
A) gross domestic product.
B) net national product.
C) the stock value of the industrial 500.
D) national income.
2) The gross domestic product is the
A) the value of all wealth in an economy.
B) the value of all goods and services sold to other nations in a year.
C) the market value of all final goods and services produced in an economy in a year.
D) the market value of all intermediate goods and services produced in an economy in a year.
3) Which of the following items are NOT counted in U.S. GDP?
A) your purchase of a new Ford Mustang
B) your purchase of new tires for your old car
C) GM's purchase of tires for new cars
D) a foreign consumer's purchase of a new Ford Mustang
4) If an economy has aggregate output of $20 trillion, then aggregate income is
A) $10 trillion.
B) $20 trillion.
C) $30 trillion.
D) $40 trillion.
5) When the total value of final goods and services is calculated using current prices, the
resulting measure is referred to as
A) real GDP.
B) the GDP deflator.
C) nominal GDP.
D) the index of leading indicators.
6) Nominal GDP is output measured in ________ prices while real GDP is output measured in
________ prices.
A) current; current
B) current; fixed
C) fixed; fixed
D) fixed; current
7) GDP measured with constant prices is referred to as
A) real GDP.
B) nominal GDP.
C) the GDP deflator.
D) industrial production.
8) If your nominal income in 2014 was $50,000, and prices doubled between 2014 and 2017, to
have the same real income, your nominal income in 2017 must be
A) $50,000.
B) $75,000.
C) $90,000.
D) $100,000.
9) If your nominal income in 2014 is $50,000, and prices increase by 50% between 2014 and
2017, then to have the same real income, your nominal income in 2017 must be
A) $50,000.
B) $75,000.
C) $100,000.
D) $150,000.
10) To convert a nominal GDP to a real GDP, you would use
A) the PCE deflator.
B) the CPI measure.
C) the GDP deflator.
D) the PPI measure.
11) If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the
GDP deflator price index is
A) 7.
B) 100.
C) 150.
D) 200.
12) When prices are measured in terms of fixed (base-year) prices they are called ________
prices.
A) nominal
B) real
C) inflated
D) aggregate
13) The measure of the aggregate price level that is most frequently reported in the media is the
A) GDP deflator.
B) producer price index.
C) consumer price index.
D) household price index.
14) The measure of the aggregate price level that is frequently the focus of Federal Reserve
officials is the
A) consumer price index.
B) producer price index.
C) GDP deflator.
D) PCE deflator.
15) To calculate the growth rate of a variable, you will
A) calculate the percentage change from one time period to the next.
B) calculate the difference between the two variables.
C) add the ending value to the beginning value.
D) divide the increase by the number of time periods.
16) If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for real
GDP is
A) 5%.
B) 10%.
C) 50%.
D) 0.5%.
17) If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP
growth from 2002 to 2003 is
A) 0.5%.
B) 5%.
C) 0%.
D) -5%.
18) If the aggregate price level at time t is denoted by Pt, the inflation rate from time t - 1 to t is
defined as
A) πt = (Pt - Pt - 1)/Pt - 1.
B) πt = (Pt + 1 - Pt - 1)/Pt - 1.
C) πt = (Pt + 1 - Pt )/Pt.
D) πt = (Pt - Pt - 1)/Pt.
19) If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from year
1 to year 2 is
A) 20%.
B) 10%.
C) 11%.
D) 120%.
20) If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have
increased by
A) 180%.
B) 80%.
C) 60%.
D) 50%.
21) If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to 2005
is
A) 20%.
B) 10%.
C) 0%.
D) -10%.
