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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 because of the
crowding-out effect on investment spending is consistent with _____ macroeconomics.
A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus
Floating exchange rates lead to more stable conditions for international trade.
A) True
B) False
If Canada imposes a tariff of $5 per bottle on French wine, the most likely effect will be
to raise the price of wine in Canada by:
A) more than $5 per bottle.
B) $5 per bottle.
C) less than $5 per bottle and lower the price of wine in France by less than $5 per
bottle.
D) less than $5 per bottle without affecting the price of wine in France.
An expectation that perceived business opportunities will increase will generally cause
_____ for loanable funds.
A) a shift to the left in the demand curve
B) a movement along the demand curve
C) an increase in the demand
D) a decrease in the demand
The Bretton Woods agreement called for a flexible exchange rate system.
A) True
B) False
Interest rates were low in the United States in 2003 because of:
A) a decrease in the money supply.
B) capital outflows from the United States to China.
C) capital inflows and monetary policy.
D) increases in tax rates.
A laptop computer that is purchased by an accounting firm is considered to be:
A) consumption spending.
B) investment spending.
C) private saving.
D) a pretax dividend.
Classical economists believe that:
A) monetary policy is not useful in fighting recessions.
B) discretionary fiscal policies are useful for dampening business cycle fluctuations.
C) rational expectations are held by most of the public.
D) short-run goals are more important than long-run goals.
Look at the table Population Data for Estill County. What is the unemployment rate?
A) 64%
B) 48%
C) 17%
D) 6%
In February 2012, the Bureau of Labor Statistics calculated the unemployment rate to
be 8.3%. If frictional unemployment was 3.1% and structural unemployment was 3.2%,
then the natural rate of unemployment was:
A) 4.5%.
B) 2.0%.
C) 1%.
D) 5.5%.
If the population of the United States is 260 million, the labor force is 130 million, and
120 million workers are employed, the rate of unemployment is:
A) 7.7%.
B) 8.3%.
C) 50%.
D) 92%.
If monetary aggregates were ranked from most liquid to least liquid, the order would
be:
A) M1 and M2.
B) stocks and bonds, M2, and M1.
C) M2, private equity investments, and M1.
D) gold, M1, and M2.
Public debt is:
A) the total debt owed by the government to individuals and institutions outside of
government.
B) the total amount that the government owes during a given fiscal year.
C) likely to increase when the government uses contractionary fiscal policy.
D) the amount that the government owes itself.
The federal funds rate is determined by the demand and supply for bank reserves, both
of which are strongly influenced by the Federal Reserve.
A) True
B) False
The efficient markets hypothesis says that:
A) stock markets reflect irrational behavior, and therefore stock prices could be
overvalued or undervalued.
B) stock prices embody much public information and therefore are not overpriced or
underpriced.
C) the three stock market indexes will provide consistent information about the stock
market.
D) financial fluctuations in markets do not affect the macro economy in a noticeable
way.
Figure: The Production Possibilities for Two Countries
Look at the figure The Production Possibilities for Two Countries. Indonesia has an
absolute advantage in producing:
A) radios.
B) tires.
C) both radios and tires.
D) neither radios nor tires.
In a severe banking crisis:
A) very few banks in the system actually go into bankruptcy.
B) government intervention usually is not required, since the market outcome is always
preferable to one that results from government intervention.
C) the economy usually falls into a severe recession followed by a slow recovery.
D) economic growth usually resumes quickly after the crisis is resolved.
The Glass-Steagall Act of 1933:
A) established the Reconstruction Finance Corporation.
B) limited interest rates that savings and loans could charge on mortgages.
C) established the Federal Reserve.
D) separated banks to two categories, commercial and investment.
Which curve is easiest to shift?
A) the short-run aggregate supply curve
B) the long-run aggregate supply curve
C) the aggregate demand curve
D) All of the curves easily shift.
Which of the following is an action of central banks and governments to lessen the
severity of a banking crisis?
A) establishing shadow banks
B) guaranteeing bank deposits
C) encouraging asset bubbles
D) opening a liquidity trap
Figure: Change in the Demand for U.S. Dollars
Look at the figure Change in the Demand for U.S. Dollars. A flow of capital from
Europe to the United States would cause a movement in this foreign exchange market
that is best represented by the shift from:
A) D2 to D1.
B) E2 to E1.
C) D1 to D2.
D) E1 to E2.
If the actual interest rate is below the target rate, the Fed should decrease the money
supply.
A) True
B) False
All of the following are examples of financial assets and/or liabilities EXCEPT:
A) loans.
B) stocks and bonds.
C) real estate.
D) bank deposits.
The Panic of 1907 came to an end when the Federal Reserve began to regulate trusts.
A) True
B) False
If the pound sterling appreciates against the dollar:
A) British imports and exports have become more expensive.
B) U.S. imports and exports have become more expensive.
C) British imports and exports have become less expensive.
D) British exports have become more expensive but the price of U.S. exports to Britain
has fallen.
In A Monetary History of the United States, Friedman and Schwartz argued that:
A) the United States should never have engaged in free trade with China.
B) the Federal Reserve could have prevented the banking crisis and the Great
Depression.
C) the United States should return to the gold standard.
D) an electronic banking system is likely to contribute to the severity of financial crises.
Shocks to aggregate demand do NOT affect aggregate output in the long run.
A) True
B) False
Capital tends to:
A) flow toward countries with high political risk.
B) flow toward countries with low political risk.
C) ignore political risk and focus on returns.
D) ignore political risk in the current time frame.
Fiscal policy that increases aggregate demand is:
A) balanced.
B) supplemental.
C) contractionary.
D) expansionary.
The marginal propensity to consume plus the marginal propensity to save must:
A) equal each other.
B) equal 1.
C) be less than 1.
D) be greater than 1.
