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The business cycle is the long-run alternation between downturns and upturns.
A) True
B) False
When the unemployment rate is high, there is political demand to increase the benefit
period for unemployment compensation. In a standard analysis, this will lead to:
A) reductions in unemployment.
B) increases in the unemployment rate.
C) more job creation.
D) more job destruction.
If the interest rate is too low, it is possible that:
A) the quantity of money demanded is greater than the quantity of money supplied.
B) money supply is equal to money demand.
C) the money supply curve is downward sloping.
D) money demand is vertical.
A policy implication of monetarism is that:
A) full employment will always be maintained.
B) countercyclical policies have no effect on the economy.
C) the growth of the money supply is caused by economic fluctuations.
D) constant growth of the money supply is better than discretionary policies.
The trade balance is the difference between the value of:
A) the trade deficit and the budget deficit.
B) exports and the imports.
C) the exchange rates of two countries that are engaged in international trade.
D) the national debt and the foreign debt.
Conditional convergence suggests that:
A) poorer countries are still catching up to richer countries.
B) poorer countries' GDP may not catch up to those of richer countries without changes
in education and infrastructure.
C) poorer countries' growth rates depend on their ties to a richer country.
D) poorer countries' growth rates depend on their birth rates.
A banking crisis occurs:
A) whenever there is an asset bubble.
B) if shadow banks begin to accept deposits.
C) when banks engage in maturity transformation by accepting short-term deposits and
converting them into long-term loans or investments.
D) when a large part of the depository banking sector or the shadow banking sector fails
or threatens to fail.
How the actions of individuals and firms interact to produce a particular economy-wide
level of performance is the focus of:
A) macroeconomics.
B) fiscal policy.
C) monetary policy.
D) microeconomics.
Eli receives $200 in cash for his birthday and deposits the money in his checking
account at River Town Bank.
a. How does this deposit initially change the T-account of River Town Bank? How does
it affect the money supply?
b. If the bank maintains a reserve ratio of 15%, how will River Town respond to the
new deposit?
c. If every time River Town makes a loan, the loan results in a new checkable deposit in
a different bank equal to the amount of the loan, by how much could the money supply
in the economy expand in total?
Shadow banks are not subject to runs.
A) True
B) False
The present value of a future payment _____if the _____.
A) increases; wait period increases.
B) decreases; future payment increases.
C) increases; interest rate decreases.
D) decreases; stock market rises.
Figure: Money Market I
Look at the figure Money Market I. If the interest rate is at rLand the central bank
neither buys nor sells Treasury bills, then the interest rate will:
A) move toward point H.
B) move toward point L.
C) move toward point E.
D) not change.
The equilibrium interest rate in the loanable funds market is the same as the equilibrium
interest rate in the money market.
A) True
B) False
Which of the following is TRUE with respect to short-run and long-run aggregate
supply?
A) The economy can be on both curves simultaneously.
B) If the economy is on the short-run aggregate supply curve, it cannot also be on the
long-run aggregate supply curve.
C) If the economy is on the long-run aggregate supply curve, it cannot also be on the
short-run aggregate supply curve.
D) The economy can never rest on both curves simultaneously.
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. What is Mark's opportunity cost to produce one brownie?
A) 1 cookie
B) 1 brownie
C) 0.5 cookie
D) 0.5 brownie
Figure: AD"AS
Refer to the figure AD"AS. If our economy is at equilibrium with low-level inflation
and the Fed uses expansionary monetary policy, the initial effect is that _____ will shift
to _____ and the economy will move from _____.
A) AD1; AD2; E1 to E2
B) SRAS1; SRAS2; E2 to E3
C) SRAS2; SRAS1; E3 to E2
D) AD2; AD1; E2 to E1
Which of the following is FALSE? When there is an increase in:
A) the government budget deficit, the total amount of borrowing falls.
B) private savings, the interest rate decreases.
C) the government budget deficit, private investment is crowded out.
D) private savings, the total amount of borrowing increases.
Money is:
A) paper money and coins but not checks.
B) currency and stocks.
C) anything that can easily be used to buy goods and services.
D) None of the answers is correct.
Figure: The Money Supply and Aggregate Demand
Look at the figure The Money Supply and Aggregate Demand. If the Federal Reserve
intended to encourage investment and expand the economy, it would _____ Treasury
bills, _____ the money supply, and _____ interest rates. This is shown in panel _____.
A) buy; increase; lower; (a)
B) sell; increase; lower; (b)
C) buy; decrease; lower; (a)
D) buy; increase; raise; (a)
Look at the table Production of Good Z and Good X in Urbanville. If this table shows
the production possibility frontier and Urbanville is producing at combination F, what is
the opportunity cost of a move to combination E?
A) 5 of Z
B) 20 of Z
C) 25 of X
D) 0 of X
There may NOT have been business cycles in the United States before 1854 because:
A) the country was growing too rapidly to have a recession.
B) the banking system established by Alexander Hamilton prevented business cycles.
C) monetary policy conducted by the Fed was very successful.
D) the economy was agricultural.
If the Federal Reserve wants to lower interest rates, it can _____ the money supply by
_____ Treasury bills.
A) decrease; selling
B) decrease; buying
C) increase; selling
D) increase; buying
Figure: The Demand and Supply of Wheat
Look at the figure The Demand and Supply of Wheat. If a price of $8 temporarily exists
in this market, a _____ of _____ bushels will result.
A) shortage; 2,000
B) surplus; 4,000
C) shortage; 4,000
D) surplus; 6,000
Look at the table Production Possibilities for Machinery and Petroleum. The
opportunity cost in Mexico of producing 105 units of petroleum is _____ units of
machinery.
A) 35
B) 70
C) 90
D) 160
If policy makers want to decrease real GDP by $100 billion and the marginal propensity
to consume is 0.6, they should decrease government purchases of goods and services by
$40 billion.
A) True
B) False
Look at the table Production of Good Z and Good X in Urbanville. Suppose this table
shows the production possibility frontier and Urbanville is producing 15 of Z and 45 of
X. This combination is:
A) both allocatively and productively efficient.
B) productively efficient.
C) allocatively efficient.
D) neither productively nor allocatively efficient.
The term autarkyrefers to a country that:
A) trades goods and services based upon the principle of comparative advantage.
B) trades goods and services based upon the principle of absolute advantage.
C) trades goods and services based upon the principle of Ricardian advantage.
D) does not trade with other countries.
Long-run growth is the sustained upward trend in:
A) aggregate output per person over several decades.
B) the unemployment rate over time.
C) interest rates over time.
D) aggregate output per person over the business cycle.
Having achieved sustained rapid growth, Chile is an exception to the disappointing
slow economic growth among most other Latin American nations.
A) True
B) False
Figure: Four Markets for DVDs
Look at the figure Four Markets for DVDs. Which of the graphs shows what may
happen in the market for DVDs if D1 or S1 is the original curve and D2 or S2 is the new
curve and if the cost of producing DVD players increases?
A) A
B) B
C) C
D) D
The stability pact signed by many of the countries that adopted the euro limited each
member nation's deficit to 3% of GDP. This:
A) enhanced member countries' ability to conduct fiscal policy.
B) enhanced member countries' ability to conduct monetary policy.
C) limited member countries' ability to use fiscal policy.
D) did away with budget deficits altogether.
The result of the meeting of representatives of the Allied Nations at Bretton Woods,
New Hampshire, in 1944 was:
A) the North American Free Trade Agreement.
B) a system of floating exchange rates.
C) a system of fixed exchange rates.
D) the Treaty of Ghent.
Gross domestic product is the economy's total production of _____ for a given period.
A) goods and services
B) final goods and services
C) intermediate goods and services
D) consumer goods and services
