When hyperinflation forces Emily to visit her bank very frequently to keep her cash
holdings to a minimum, economists say that Emily has a:
A) shoe-leather cost.
B) menu cost.
C) unit-of-account cost.
D) Fisher effect.
Figure: Seasonally Adjusted Unemployment Rate
Look at the figure Seasonally Adjusted Unemployment Rate. The distance between
each labeled point on the horizontal axis is one year. Unemployment was ______
between 1/2001 and 1/2002 and ______ between 1/1999 and 1/2000.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; increasing
D) decreasing; decreasing
A decrease in demand with no change in supply will lead to _____ in equilibrium
quantity and _____ in equilibrium price.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Given a supply curve that is positively sloped and a demand curve for a normal good
that is negatively sloped, an increase in income will most likely result in:
A) an increase in equilibrium price and quantity.
B) a decrease in equilibrium price and an increase in equilibrium quantity.
C) a decrease in both equilibrium price and quantity.
D) an increase in equilibrium price and a decrease in equilibrium quantity.
In the long run, the aggregate price level falls. This could result from:
A) a leftward shift in AD.
B) a rightward shift in AD.
C) a rightward shift in short-run AS.
D) more spending by consumers.
Which of the following would be included in the U.S. financial account?
A) a computer made in the United States and exported to Britain
B) a computer made in Britain and imported into the United States
C) interest on a U.S. bond sold to someone living overseas
D) the value of a bond from a U.S. company sold to someone living in Britain
Figure: AD”ASModel I
Look at the figure AD”AS Model I. If the economy is at point X, the appropriate
monetary policy is to:
A) increase taxes and decrease government spending.
B) decrease taxes and increase government spending.
C) increase the money supply and decrease interest rates.
D) decrease the money supply and increase interest rates.
In an open economy, savings can come from all of the following EXCEPT:
A) domestic sources.
B) foreign sources.
C) government sources.
D) consumption.
A Brazilian bank buys shares of stock in Intel, a U.S. high-tech company. In the U.S.
balance of payments, this transaction causes the balance on the _____ account to _____.
A) current; decrease
B) current; increase
C) financial; decrease
D) financial; increase
Which of the following would NOT be included in the U.S. financial account?
A) a Japanese factory purchased by a U.S. company
B) U.S. stock sold to someone in Japan
C) a Japanese bond sold to someone in the United States
D) a Chinese video game imported into the United States
Most economists believe that the government should balance the budget on average,
allowing deficit years when the economy is in recession to be offset by surpluses during
years of expansion.
A) True
B) False
Which of the following most accurately describes how to calculate the unemployment
rate?
A) (Unemployed / population) 100
B) (Unemployed / employed) 100
C) (Unemployed / labor force) 100
D) [(Unemployed ” employed) / labor force] 100
In periods of inflation, lenders benefit because the money that they are repaid has more
purchasing power than the money they loaned initially.
A) True
B) False
Figure: The Labor Market
Look at the figure
The Labor Market. The equilibrium wage rate is:
A) $16.
B) $15.
C) $14.
D) $17.
Monetary policy may be ineffective in a banking crisis because interest rates are so low
that consumers and businesses borrow and spend too much.
A) True
B) False
A budget surplus exists when:
A) taxes are greater than government spending.
B) taxes are less than government spending.
C) taxes are less than government spending plus investment.
D) investment is less than government spending less taxes.
Which of the following is designed to prevent bank runs?
A) debt overhang
B) deposit insurance
C) credit crunch
D) shadow banks
Look at the table Peanut Butter and Jelly Economy. From 2010 to 2011 real GDP ____
by _____.
A) increased; 12.5%
B) decreased; 50%
C) increased; 43.75%
D) decreased; 12.5%
Borrowers who cannot be served by the stock and bond markets:
A) can use banks for their financing needs.
B) can use the government for their financing needs.
C) are crowded out of the market.
D) must hold all of their assets in liquid form.
The inflation tax is the effect on the public of:
A) the increase in the real value of money caused by inflation.
B) the decrease in the real value of money caused by inflation.
C) the result of indexing wages to inflation.
D) cost of living adjustments.
A policy of fiscal stimulus involves _____ taxes and _____ government spending.
A) increasing; decreasing
B) increasing; increasing
C) decreasing; decreasing
D) decreasing; increasing
Increases in resources or improvements in technology will tend to cause a society’s
production possibility frontier to:
A) shift inward.
B) shift outward.
C) remain unchanged.
D) become vertical.
The predominant economic thinking up to the 1930s was:
A) monetarism.
B) classical economics.
C) Keynesian economics.
D) rational expectations theory.
A shadow bank may be subject to a bank run if:
A) its depositors withdraw their funds because they fear that it is financially unsound.
B) depositors decide that the FDIC insurance of $250,000 per account is insufficient to
cover their potential losses.
C) they purchase too many government securities.
D) the shadow bank’s lenders decide it is unsafe and stop lending it money.
Table: Lemonade and Cookies
Look at the table Lemonade and Cookies. Assume that an economy produces only
lemonade and cookies. The growth of nominal GDP from 2013 to 2014 was due to
approximately a _____ increase in prices and approximately a _____ increase in
aggregate output.
A) 11.25%; 0%
B) 0%; 45%
C) 5%; 11.25%
D) 6.25%; 5%
A simplified version of reality that is used to clarify economic situations is called a(n):
A) economic fact.
B) current event.
C) model.
D) scarce resource.
Two politicians are debating the best ways to spur long-term growth in the nation’s real
GDP per capita. Candidate X says we should lower income taxes so that households
have more money to spend on goods and services. Candidate Y says we should lower
taxes on interest income so that households have more incentive to save. Which
candidate has the right idea?
If government decides to print money to finance a deficit:
A) people who hold money will be penalized as inflation increases.
B) borrowers will be penalized because they will owe more as inflation increases.
C) real GDP will decrease in the long run.
D) the Fed must sell bonds in the open market.
The price index in the current year is the cost of the market basket in the current year
divided by the cost of the market basket in the base year.
A) True
B) False
“Steel tariffs will prevent job losses in the steel industry” is a positive statement.
A) True
B) False
Table: Price and Output Data
Look at the table Price and Output Data.
Between years 2 and 3, nominal GDP increased by:
A) 33%.
B) 25%.
C) 67%.
D) 8%.
Disinflation means a decrease in:
A) prices.
B) the rate of inflation.
C) aggregate supply.
D) the money supply.
The principle of comparative advantage suggests that if New York and Florida
exchange taxi parts for oranges, each state will be made worse off.
A) True
B) False
Which of the following is NOT one of the three principal factors upon which planned
investment spending depends?
A) the interest rate
B) the expected level of real GDP
C) the current level of production capacity
D) the current level of aggregate wealth