A key insight into macroeconomics is that in the short run the combined effect of
individual decisions:
A) is always the same as what one individual intended.
B) may be very different from what any one individual intended.
C) is always beneficial to the economy as a whole.
D) is always detrimental to the economy as a whole.
The relationship between the aggregate price level and the quantity of aggregate output
demanded by households, businesses, the government, and the rest of the world is
called _____ demand.
A) market
B) surplus
C) aggregate
D) simple
The Fed monetizes the debt when it:
A) prints money and buys government debt from the public.
B) sells bonds.
C) decreases the money supply.
D) targets interest rates.
Most human capital is provided by:
I. governments through public education
II. investment spending by private sector firms
A) I only
B) II only
C) both I and II
D) neither I nor II
A sudden and widespread disruption of financial markets that occurs when people lose
faith in the liquidity of financial institutions and markets is a(n):
A) asset bubble.
B) maturity transformation.
C) financial panic.
D) debt overhang.
Aggregate output is the total quantity of final goods and services produced.
A) True
B) False
Discretionary government spending is an automatic stabilizer.
A) True
B) False
The use of online banking would _____ the _____ cost of a high inflation rate.
A) increase; menu
B) decrease; shoe-leather
C) increase; unit-of-account
D) decrease; unit-of-account
When the actual unemployment rate is equal to the natural rate of unemployment:
A) the unemployment rate is zero.
B) potential output exceeds actual output.
C) the output gap is zero.
D) actual output exceeds potential output.
An increase in the price of sugar (an ingredient for soft drinks) and an increased
concern about tooth decay caused by the consumption of soft drinks will result in which
of the following in the soft drink market?
A) There will be an increase in both the equilibrium price and quantity.
B) Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or
stay the same.
C) There will be a decrease in both equilibrium price and quantity.
D) Equilibrium quantity will increase, but equilibrium price may decrease, increase, or
stay the same.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 5 old dollars, then a loan of $10,000 would become a debt of _____ new dollars.
A) 50,000
B) 10,000
C) 9,995
D) 2,000
Figure: Loanable Funds
Look at the figure Loanable Funds. Which of the following might produce a new
equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of
$150 billion?
A) Consumption as a fraction of disposable income increases.
B) Businesses become more optimistic about the return on investment spending.
C) The federal government has a budget surplus rather than a budget deficit.
D) There is an increase in capital inflows from other nations.
Economists call the revenue generated by the government’s right to print money:
A) seignorage.
B) monetary policy.
C) fiscal policy.
D) reserve policy.
If the marginal propensity to save increases, the multiplier will:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
Figure: Economic Adjustments
Look at the figure Economic Adjustments. Assume that the economy is at point b. The
effect of a decrease in the money supply is represented by a shift of the _____ curve to
_____.
A) SRAS1; SRAS2
B) SRAS2; SRAS1
C) AD1; AD2
D) AD2; AD1
Scenario: Productivity
The economy has grown by 4% per year over the past 30 years. During the same period
the labor force has grown by 1% per year and the quantity of physical capital has grown
by 5% per year. Each 1% increase in physical capital per worker is estimated to
increase productivity by 0.4%. Assume that human capital has not changed during the
past 30 years.
Look at the scenario Productivity. How much has growing physical capital per worker
contributed as a percentage of total productivity growth?
A) 80%
B) 53%
C) 30%
D) 9%
The long-run Phillips curve shows that:
A) there is a trade-off between unemployment and inflation.
B) an expansionary policy could lead to lower unemployment temporarily.
C) the natural rate of unemployment occurs when the actual inflation rate equals the
expected inflation rate.
D) lower unemployment can be sustained indefinitely with continuous expansionary
policies.
When the unemployment rate increased, the annual growth rate of real GDP has
usually:
A) increased.
B) decreased.
C) not changed.
D) shown no relationship with changes in the unemployment rate.
Figure: Shifts in Demand and Supply II
Look at the figure Shifts in Demand and Supply II. The figure shows how supply and
demand might shift in response to specific events. Suppose the technology for
producing ethanol fuel improves. Which panel BEST describes how this will affect the
market for ethanol?
A) panel A
B) panel B
C) panel C
D) panel D
Unless deflation occurs, the nominal interest rate will always be greater than or equal to
the real interest rate.
A) True
B) False
In a banking crisis, banks are likely to hold more excess reserves than usual.
A) True
B) False
The federal government’s largest source of revenue is:
A) property taxes.
B) personal income and corporate profit taxes.
C) sales taxes.
D) social insurance taxes.
The cyclically adjusted budget deficit:
A) is no different from the actual budget deficit.
B) fluctuates less than the actual budget deficit.
C) fluctuates more than the actual budget deficit.
D) remains unchanged throughout the business cycles.
If the interest rate is below the equilibrium rate, the:
A) supply of nonmonetary financial assets is greater than the demand for them.
B) demand for nonmonetary financial assets is greater than the supply.
C) demand and supply of money can still be in balance.
D) supply of money is greater than the demand.
Alexander has a straight-line, or linear, production possibility frontier when he produces
soybeans and corn. If he uses all of his resources to grow soybeans, he can produce 200
bushels of soybeans; if he uses all of his resources for corn production, he can produce
400 bushels of corn. Alexander CANNOT produce _____ bushels of soybeans and
_____ bushels of corn.
A) 200; 0
B) 200; 600
C) 0; 400
D) 100; 200
Figure: Shifts in Demand and Supply II
Look at the figure Shifts in Demand and Supply II. The graph shows how supply and
demand might shift in response to specific events. Suppose a drought destroys one-third
of the nation’s peanut crop. Which panel BEST describes how this will affect the market
for peanuts?
A) panel A
B) panel B
C) panel C
D) panel D
The GDP deflator is another name for the consumer price index.
A) True
B) False
Time lags make:
A) fiscal policy more effective than monetary policy.
B) monetary policy more effective than fiscal policy.
C) correct use of both fiscal and monetary policy challenging.
D) both fiscal and monetary policy more effective.
The monetary policy tools used by the Federal Reserve to adjust the money supply are
reserve requirements, the discount rate, and open-market operations.
A) True
B) False
Table: Real and Nominal Output
Look at the table Real and Nominal Output. The year in which the increase in nominal
GDP is exclusively due to the increase in the price level rather than physical output is
year:
A) 2.
B) 3.
C) 4.
D) 6.
In general, the higher the rate of return on an asset, the lower its liquidity.
A) True
B) False
Suppose that productivity increases as workers’ health improves. This increase in
productivity will:
A) cause a movement up the short-run aggregate supply curve from left to right.
B) cause a movement down the short-run aggregate supply curve from right to left.
C) shift the short-run aggregate supply curve to the right.
D) shift the short-run aggregate supply curve to the left.
The principle that people will exploit opportunities to do what is best for others is the
basis of all predictions by economists about individual behavior.
A) True
B) False