Unexpectedly rising commodity prices lead to a _____ shock.
A) positive supply
B) positive demand
C) negative supply
D) negative demand
A reduction in the value of a floating currency is called a devaluation.
A) True
B) False
An economy is said to have a comparative advantage in the production of a good if it
can produce that good:
A) with more resources than another economy.
B) with a higher opportunity cost than another economy.
C) outside its production possibility frontier.
D) at a lower opportunity cost than another economy.
A drop in the inflation rate is called:
A) disinflation.
B) deflation.
C) stagflation.
D) hyperinflation.
Among the tools available to macroeconomic policy makers is:
A) fiscal policy, for use in manipulating government spending and taxation.
B) antitrust policy, to break up monopolies.
C) environmental policy, to clean up the economy.
D) improving standards for food and drugs.
If the cost of a market basket is $150 in year 1 and $200 in year 2, the price index for
year 1 using year 2 as the base is:
A) 75.
B) 100.
C) 133.
D) 150.
To avoid accelerating inflation over time, a government’s policy should _____ to trade
off lower unemployment for higher inflation rather than _____.
A) try; accept a lower unemployment rate so that the actual inflation rate is less than the
expected inflation rate
B) not try; accept a high enough unemployment rate so that the actual inflation rate
matches the expected inflation rate
C) try; accept a higher unemployment rate so that the actual inflation rate is higher than
the expected inflation rate
D) not try; try to control inflation only by using aggressive disinflationary polices
Although U.S. exports and imports have grown substantially in absolute terms since the
1960s, the share of exports and imports in total output has fallen significantly over the
past few decades.
A) True
B) False
Which of the following would shift the aggregate demand curve to the LEFT?
A) monetary policy that raises the interest rate
B) an increase in the aggregate price level
C) an increase in consumer wealth
D) stronger consumer optimism about income
The indirect ownership of physical capital refers to households owning:
A) cash.
B) stock.
C) savings accounts.
D) their house.
Since money from both domestic and foreign savers must eventually be repaid with
interest, capital inflow has the same effect on the national economy as national savings.
A) True
B) False
The efficient markets hypothesis states that:
A) stock prices fluctuate following the path of business cycles.
B) at any time stock prices are fairly valued, reflecting all available information.
C) stock prices move irrationally and rather unpredictably.
D) stock prices are easily manipulated by irrational exuberance.
Deflation:
A) can cause increases in output.
B) can cause budget surpluses.
C) can cause decreases in output.
D) will not affect output.
Spending promises made by the government that are effectively a debt, although they
are not included in the usual debt statistics, are known as:
A) burden of debt.
B) structural deficit.
C) implicit liabilities.
D) constructive debt.
If the United States is more productive than Mexico in all lines of production, then the
United States cannot benefit from trade with Mexico.
A) True
B) False
In an economy with no taxes or imports, if disposable income increases by $1,000 and
consumption increases by $600, the marginal propensity to consume is:
A) $600.
B) $400.
C) 1.67.
D) 0.60.
A revaluation can help reduce shortages of domestic currency.
A) True
B) False
Scenario: Money Creation
The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and
deposits the money in his checking account. The bank does NOT want to hold excess
reserves.
Look at the scenario Money Creation. What is the maximum possible expansion in the
money supply?
A) $1,000
B) $1,800
C) $4,000
D) $5,000
Figure: Fiscal Policy II
Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E2. If
there is a decrease in government transfers, _____ will shift to the _____, causing a(n)
_____ in the price level and a(n) _____ in real GDP.
A) AD2; left; increase; decrease
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; left; decrease; decrease
An ambiguous change in price and a decrease in quantity are most likely caused by:
A) no shift in supply and a shift to the left in demand.
B) a shift to the left in supply and a shift to the left in demand.
C) a shift to the right in supply and a shift to the left in demand.
D) a shift to the left in supply and a shift to the right in demand.
Shadow banks are prohibited from engaging in maturity transformation.
A) True
B) False
The basis of the circular-flow diagram is that the money flowing into each sector or
market is equal to the money that flows out.
A) True
B) False
The aggregate supply curve shows the relationship between the aggregate price level
and the quantity of aggregate output supplied.
A) True
B) False
If the balance of payments on financial account is $25, the balance of payments on
goods and services is “$20, and the statistical discrepancy in the financial account is $2,
then the sum of net international transfer payments and net international factor income
is:
A) “$7.
B) “$5.
C) $7.
D) $47.
Interest rates were high during the middle years of the period from 2002 to 2014 and
then decreased primarily because:
A) the supply of loanable funds steadily increased.
B) the supply of loanable funds steadily decreased.
C) the demand for loanable funds decreased and then increased because of conditions in
the housing market.
D) the demand for loanable funds increased and then decreased because of conditions in
the housing market.
Scarcity in economics means that:
A) we do not have sufficient resources to produce all of the goods and services we
want.
B) the wants of people are limited.
C) there must be poor people in rich countries.
D) economists are clearly not doing their job.
Scenario: Exchange Rate between the United States and India
Suppose that initially the nominal exchange rate was 40 rupees per dollar but it is now
50 rupees per dollar.
Consider the scenario Exchange Rate between the United States and India. The real
exchange rate will change by the greatest amount when the U.S. inflation rate is
_____and the Indian inflation rate is _____.
A) zero; zero
B) 5%; 2%
C) 2%; 12%
D) 5%; 5%
A major problem with bank runs is that they:
A) spread to other banks.
B) cause inflation because the money moves so fast.
C) drive down interest rates.
D) drive down both inflation and interest rates.
If asset owners in Japan and the United States consider Japanese and U.S. assets as
good substitutes for each other and if the U.S. interest rate is 5% while the Japanese
interest rate is 2%:
A) financial inflows will reduce the U.S. interest rate.
B) financial outflows will reduce the Japanese interest rate.
C) the interest rate gap between the United States and Japan will grow.
D) financial inflows will increase the U.S. interest rate.
If the demand for money is $100 billion and the supply of money is $200 billion, then
the interest rate will:
A) fall.
B) rise.
C) remain unchanged.
D) be in equilibrium.
The General Theory of Employment, Interest, and Money was written by:
A) Adam Smith.
B) Paul Samuelson.
C) Joseph Schumpeter.
D) John Maynard Keynes.