At the long-run equilibrium output level, a monopolistically competitive firm’s average
total cost curve
When all resources used in production are not perfectly substitutable,
Which of the following is the Fed’s best strategy for dealing with demand shocks?
a. Maintain a money supply target
b. Decrease the money supply
c. Maintain a passive monetary policy
d. Neutralize the impact with an increase in the money supply
e. Increase the interest rate
If the actual inflation rate is equal to the expected rate, which of the following will
happen?
a. inflationary expectations will increase and the Phillips curve will shift downward in
the short run.
b. inflationary expectations will not change and the Phillips curve will remain in its
current position in the short run.
c. inflationary expectations will decrease and the Phillips curve will shift downward in
the short run.
d. inflationary expectations will stay constant and the Phillips curve will shift
downward in the short run.
e. inflationary expectations will not change and the Phillips curve will become
horizontal in the short run.
Which of the following formulas is not correct?
Which of the following is not included when using the expenditure approach to
compute GDP?
a. Consumer spending on goods and services
b. Net exports
c. Government purchases
d. Private investment
e. Transfer payments
A formalwear shop will earn a net income of $1,500 per year on a tuxedo. A tuxedo is
good for two years, after which it will be worn out and worthless. If the interest rate is
10 percent (0.10) per year, what is the present value of a new tuxedo to the shop?
(Assume that each year’s income is received at the end of the year.)
A concave production possibilities frontier exhibits
How would budget deficit reduction through reduced government spending affect
economic growth?
a. It would not affect economic growth because the budget deficit and economic growth
are unrelated.
b. It would stimulate economic growth.
c. It would hinder economic growth.
d. It would not affect economic growth because the positive and negative effects of
deficit reduction would cancel each other out.
e. It depends on which government programs are cut to achieve deficit reduction.
Stagflation
a. is caused by a negative demand shock
b. is theoretically impossible
c. is a long-run phenomenon
d. was rampant during the Great Depression
e. is the combination of rising price levels and negative GDP growth
A household’s quantity of money demandedis defined as
a. the amount of income that the household chooses to hold in the form of money, at
each possible interest rate
b. the amount of wealth that the household chooses to hold as money, rather than as
other assets
c. the household’s desire to have greater financial wealth
d. the percentage of each dollar of income that the household wishes to spend
e. the total amount the household decides to hold in cash, bonds, and other assets, at
each possible interest rate
In which of the following situations would a person be best off in real terms?
a. Receiving a 10 percent increase in a nominal wage, with an 8 percent rate of inflation
in the economy
b. Receiving a 3 percent increase in a nominal wage, with a 0 percent rate of inflation in
the economy
c. Receiving a 4 percent increase in a nominal wage, with a 5 percent rate of inflation in
the economy
d. Receiving no increase in a nominal wage, with a 5 percent rate of deflation in the
economy
e. Receiving a 2 percent decrease in a nominal wage, with a 6 percent rate of deflation
in the economy
In the long run,
a. continuing budget surpluses cause interest rates to fall, thereby stimulating
investment spending
b. any deviation from a balanced budget will plunge the economy into recession
c. there can be no economic growth unless the government’s budget is in surplus
d. there can be no economic growth unless the government’s budget is balanced
e. government spending must increase as a fraction of GDP
In the short run, a negative demand shock will
a. decrease the price level but leave real GDP unchanged
b. increase the price level but leave real GDP unchanged
c. decrease both the price level and real GDP
d. increase the price level and decrease real GDP
e. decrease the wage rate
In a perfectly competitive labor market, the supply of labor curve facing a firm will be
The supply of loanable funds curve
a. is upward sloping
b. is downward sloping
c. is horizontal
d. begins sloping upward, then levels off
e. may slope either upward or downward, depending upon the interest rate
Brett is equally qualified for two different jobs – video store clerk and coffee shop
cashier. Brett is initially indifferent between the two jobs but when he finds out that
they pay the same wage he prefers the job at the video store. This must mean that