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If the marginal propensity to consume is 0.8, then the multiplier is:
A) 4.
B) 5.
C) 8.
D) 10.
In the circular-flow diagram, a person or a group of people who share income is a:
A) government.
B) factor.
C) household.
D) firm.
If technology advances:
A) more output can be obtained from the same inputs.
B) more inputs are needed to produce the same output.
C) less output can be obtained from the same inputs.
D) less output can be produced even with more inputs.
Unit-of-account costs refer to the:
A) increase in prices during inflation.
B) decrease in the value of money during inflation.
C) loss of the reliability of money as a relative unit of measurement.
D) increased costs of servicing bank accounts during inflation.
Lower interest rates will lead to less investment spending.
A) True
B) False
The major difference between the producer price index and the consumer price index is
that the produce price index _____ and the consumer price index _____.
A) is based on retail prices; is based on wholesale prices
B) measures the cost of living of self-employed workers; measures the cost of living of
salaried workers
C) generally registers a higher rate of inflation; generally registers a lower rate of
inflation
D) is based on the cost of a basket typically purchased by producers; is based on the
cost of a basket typically purchased by consumers
Which of the following is a question of marginal analysis?
A) What additional output does a family business produce when it hires one more
worker?
B) How do tax cuts change the growth rate of median income?
C) When a large corporation lays off workers, how do profits change if sales remain
constant?
D) Should a commuter take the bus to work rather than driving.
Table: Individual Consumption for Bob
Disposable Income Bob
$ 0 $ 9,000
10,000 13,000
Look at the table Individual Consumption Function for Bob. The marginal propensity to
consume and autonomous consumption are _____ and _____, respectively, for Bob.
A) 0.6; $10,000
B) 0.4; $13,000
C) 0.6; $9,000
D) 0.4; $9,000
When potential output is less than actual aggregate output:
A) the economy faces an inflationary gap.
B) the SRAS curve intersects the AD curve to the left of the LRAS curve.
C) the government should follow an expansionary policy to correct the problem.
D) a decrease in taxes would solve the problem.
Fixed exchange rates lead to more stable conditions for international trade.
A) True
B) False
In the popular press we see many pictures of affluent people in Indian cities. Yet the
average person in India today is poorer than the average person in the United States was
in:
A) 2000.
B) 1970.
C) 1950.
D) 1900.
After a devaluation, all other things equal, a country's balance of payments on the
current account will likely:
A) increase.
B) decrease.
C) remain the same.
D) fluctuate randomly.
The base period for the consumer price index is 1982"1984.
A) True
B) False
Jim has a part-time job and would prefer to have a full-time job but has been unable to
find one. Jim is classified as:
A) a discouraged worker.
B) underemployed.
C) unemployed.
D) out of the labor force.
A decrease in energy prices will:
A) increase short-run aggregate supply.
B) decrease the quantity of aggregate output supplied in the short run.
C) decrease aggregate demand.
D) increase the quantity of aggregate output demanded.
Look at the table Investment Spending, Private Spending, and Capital Inflows. What is
the budget balance as a percentage of GDP in Northlandia?
A) "10%
B) 0%
C) 10%
D) 20%
If the Federal Reserve wants to lower the interest rate, it will:
A) decrease the money supply.
B) increase the money supply.
C) keep the money supply unchanged.
D) mandate a lower interest rate.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. If the economy is in short-run
equilibrium at Y1 in panel (a), the economy is in:
A) a recessionary gap.
B) an inflationary gap.
C) simultaneous short-run and long-run equilibrium.
D) full employment.
Figure: Strawberries and Submarines
Look at the figure Strawberries and Submarines. Suppose the economy is operating at
point G. This implies that:
A) the economy can move to a point such as C only if it improves its technology.
B) the economy has unemployment and/or inefficiently allocates resources.
C) the economy lacks the resources to achieve a combination such as C.
D) people in this economy don't really like strawberries or submarines.
When you are looking at a car's price to decide whether you can afford it, you are using
money primarily as a:
A) unit of account.
B) store of value.
C) medium of exchange.
D) medium of exchange and a unit of account.
What is the difference between a shortage and scarcity?
A) Scarcity will almost always exist, but a shortage will exist only if the price is kept
below the equilibrium level.
B) Scarcity is a result of two or more alternative uses, and quantities of supply and
demand adjusting to flexible prices will create shortages.
C) A shortage will exist when a good is scarce.
D) There is no distinction between the two. They are the same thing.
Table: Real and Nominal Output
Look at the table Real and Nominal Output. The change in nominal output between
years 3 and 4 is an increase of:
A) 64%.
B) 100%.
C) 180%.
D) 280%.
Expansionary monetary policy decreases interest rates and increases aggregate demand.
A) True
B) False
Which of the following is a government policy to promote economic growth?
A) building infrastructure and providing public goods
B) implementing a monetary policy that increases inflation
C) implementing a fiscal policy that increases inflation
D) increasing the interest rate charged on student loans
In the short run, a positive demand shock _____ aggregate output and _____ the
aggregate price level.
A) reduces; increases
B) increases; reduces
C) reduces; reduces
D) increases; increases
Which of the following statements is TRUE?
A) The financial account balance is the negative of the current account balance.
B) A country's balance on current account will be less than its balance on financial
account if exchange rates are allowed to float freely.
C) If the market for a nation's currency is in equilibrium, a financial account surplus
necessarily means a current account surplus.
D) Exchange rates don't affect either financial accounts or current accounts.
In the market for canned pinto beans, _____ will increase if income increases and if
pinto beans are a(n) _____ good.
A) demand; inferior
B) demand; normal
C) supply; inferior
D) supply; normal
The typical supply curve illustrates that:
A) other things equal, the quantity supplied for a good is inversely related to the price
of a good.
B) other things equal, the supply of the good creates its own demand for the good.
C) other things equal, the quantity supplied for a good is positively related to the price
of a good.
D) price and quantity supplied are unrelated.
Suppose that there are no excess reserves in the banking system and the current amount
of demand deposits is $100,000. If the monetary authorities lower the required reserve
ratio from 10% to 5%:
A) the amount of excess reserves in the banking system will fall.
B) the amount of excess reserves in the banking system will remain the same.
C) the money-creating potential of the banking system will decline.
D) the money-creating potential of the banking system will rise.
Figure: The Market for Loanable Funds III
Look at the figure The Market for Loanable Funds III. If the government in a closed
economy finances deficits by selling bonds and it decides to decrease defense spending
by $200 billion, the decrease in government spending will encourage _____ in
additional private investment spending.
A) $400 billion
B) $200 billion
C) $100 billion
D) $10 billion
