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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 Two Countries
Look at the figure The Production Possibilities for Two Countries. The opportunity cost
of producing 1 radio in Indonesia is:
A) 0.5 tire.
B) 1 tire.
C) 2 tires.
D) 6 tires.
When a nation's economy grows:
A) its production possibility frontier shifts outward.
B) its production possibility frontier shifts inward.
C) it has been able to reach full employment.
D) it has moved to a more consumer-oriented position on its production possibility
frontier.
In the basic equation of national income accounting, GDP = C + I + G + X " IM, the
government directly controls _____ and influences _____ through fiscal policy.
A) G; C and I
B) T; G and C
C) C; X and M
D) I; G and T
Households indirectly own the physical capital used by firms through:
A) stocks.
B) bonds.
C) transfer payments.
D) private debt.
Which of the following statements regarding exchange rate intervention is FALSE?
A) A devaluation can be used to increase exports and reduce imports.
B) A devaluation can be used to eliminate a recessionary gap.
C) A revaluation can be used to eliminate a recessionary gap.
D) Devaluations and revaluations can be used to eliminate shortages or surpluses in the
foreign exchange market.
As a result of contractionary monetary policy, higher U.S. interest rates will result in
a(n) _____ in the demand for dollars and a(n) _____ in the supply of dollars.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
The GDP deflator for a given year is equal to 100 times nominal GDP for that year
minus real GDP for that year.
A) True
B) False
Under rational expectations, government policy can be effective:
A) if it is rationally thought out before implementation.
B) if it is anticipated, so people can make realistic preparations.
C) if it surprises people.
D) whenever the economy reacts rationally to the decision.
In an open economy, total investment equals:
A) national savings plus capital inflow.
B) private savings plus national savings plus capital inflow.
C) private savings plus capital inflow.
D) national savings minus private savings minus capital inflow.
The production possibility frontier will shift outward because of:
A) a decrease in the labor force.
B) an upgrade of capital to the best available technology.
C) better technology that improves worker productivity.
D) a decrease in the unemployment rate.
The Fed moved away from a monetary growth rule because _____ was (were) unstable.
A) the economy
B) the money supply
C) the velocity of money
D) interest rates
Suppose investment spending increases by $50 billion and as a result the equilibrium
income increases by $200 billion. The investment multiplier is:
A) 8.
B) 10.
C) 4.
D) 0.25.
The Great Moderation consensus agreement that a decrease in the interest rate was the
best policy for fighting a recession was ineffective in the Great Recession because:
A) the Fed bought government securities, but interest rates did not fall.
B) interest rates were already close to zero.
C) financial institutions were engaging in maturity transformation.
D) Congress increased taxes.
France and England both produce wine and cloth with constant opportunity costs.
France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it
produces no wine. England can produce 50 barrels of wine if it produces no cloth or
150 bolts of cloth if it produces no wine. When international trade takes place, each
country specializes completely in the production of the good in which it has a
comparative advantage1 barrel of wine exchanges for 1 bolt of clothand France exports
50 units of wine. We can conclude that France produces _____ units of wine and _____
units of cloth and that France consumes _____ units of wine and _____ units of cloth.
A) 150; 100; 100; 100
B) 150; 0; 100; 50
C) 150; 0; 50; 50
D) 0; 100; 50; 50
The Federal Reserve Bank of the United States is:
A) a purely private central bank.
B) a purely public central bank.
C) part of the U.S. government.
D) not exactly part of the U.S. government but not really a private institution either.
Figure: Monetary Policy and the AD"SRASModel
Look at the figure Monetary Policy and the AD"SRASModel. The economy could move
from point gto point fas a result of:
A) an increase in the money supply.
B) a reduction in the discount rate.
C) a decrease in the money supply.
D) purchases of government securities in the open market.
According to the Congressional Budget Office, the natural rate of unemployment:
A) has continually declined since 1950.
B) was at its lowest by the end of the 1970s.
C) has continually risen since 1950.
D) rose until the end of the 1970s and has declined since then.
Mark and Julie are going to sell brownies and cookies for their third annual fundraiser
bake sale. In one day, Mark can make 40 brownies or 20 cookies, and Julie can make 15
brownies or 15 cookies. Based on this information, _____ has the comparative
advantage in making brownies and _____ has the comparative advantage in making
cookies.
A) Mark; Julie
B) Mark; Mark
C) Julie; Mark
D) Julie; Julie
Figure: Unemployment Rate over Time
Look at the figure Unemployment Rate over Time. In the time-series graph, as we move
from 1993 to 1995, we see that the unemployment rate has _____ from approximately
_____ to approximately _____.
A) decreased; 5%; 4%
B) increased; 5.3%; 7.3%
C) decreased; 7%; 5.5%
D) increased; 4%; 6.3%
Keynesian economics emphasizes _____ shifts in aggregate _____.
A) long-run; demand
B) long-run; supply
C) short-run; demand
D) short-run; supply
Spending on housing is the largest portion of the consumer price index.
A) True
B) False
According to the Great Moderation consensus, expansionary fiscal policy will shift the
aggregate demand curve to the _____ and lead to a _____ level of output and a _____
level of employment in the short run.
A) right; higher; higher
B) left; lower; lower
C) right; higher; lower
D) left; lower; higher
Overcounting in the GDP can be avoided by including both final and intermediate
production.
A) True
B) False
If banks were required to keep 100% of deposits in reserves, they could:
A) make more loans.
B) make no loans.
C) make more deposits.
D) use excess reserves for loans.
Federal funds are:
A) government tax receipts.
B) loans between banks.
C) government expenditures.
D) bank deposits at the Federal Reserve.
Greenhouse gas emissions are an example of a negative externality.
A) True
B) False
The supply of loanable funds is _____ sloping because _____ respond to lower interest
rates by _____ their quantity supplied of loanable funds.
A) upward; savers; increasing
B) upward; investors; decreasing
C) upward; savers; decreasing
D) downward; investors; increasing
If consumer tastes for electric cars increase over the next 10 years, we will see an
increase in the demand for electric cars, higher electric car prices, and an increase in the
equilibrium quantity of electric cars.
A) True
B) False
Flows into financial markets are equal to the sum of:
A) all foreign lending.
B) foreign lending and purchases of stock plus private saving.
C) borrowing and stock issues plus foreign borrowing and sales of stock.
D) private saving.
The main problem with the European stability pacts of 1999 and 2011 was that they
forced countries to follow contractionary fiscal policies during a recession to keep the
budget deficit to the required level.
A) True
B) False
Those who believe in the classical model suggest that expansionary policies would
result in:
A) increases in output and the aggregate price level.
B) increases in output with no change in the aggregate price level.
C) increases in the aggregate price level with no change in output.
D) increases in unemployment and the output level.
If there is an excess supply of a good, the problem of scarcity does not apply to that
good.
A) True
B) False
Fundamentals are the underlying determinants of a company's future profits.
A) True
B) False
If a country's currency appreciates, all other things equal, its exports and imports will
increase.
A) True
B) False
