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An economy that has the lowest opportunity cost of producing a particular good is said
to have:
A) an absolute advantage in production of that good.
B) a comparative advantage in production of that good.
C) a production possibility frontier.
D) an increasing opportunity cost in production of that good.
Savings and loans' difficulties began in the 1970s, when inflation _____ and interest
rates _____.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) decreased; decreased
If the government increases its borrowing, then at every interest rate there is a(n):
A) additional supply of funds.
B) additional demand for funds.
C) decrease in the supply of funds.
D) increase in the supply of funds.
Automatic stabilizers act like:
A) automatic expansionary fiscal policy when the economy is in inflation.
B) automatic expansionary fiscal policy when the economy is in a recession.
C) an additional multiplier effect.
D) automatic contractionary policy when the economy is in a recession.
A decrease in supply is caused by:
A) an increase in the price of goods that are used in production.
B) suppliers' expectations of lower prices in the future.
C) an advancement in the technology for producing the good.
D) an increase in the number of producers.
Subprime lending takes place at below-prime interest rates.
A) True
B) False
If an economy has a real GDP per capita growth rate of 2%, it will take 14 years for
GDP per capita to double.
A) True
B) False
For measuring GDP as spending on domestically produced final goods and services,
spending on inputs like steel for manufacturing a car is counted in GDP, but spending
on a new factory in which the cars are produced is NOT counted in GDP.
A) True
B) False
Which of the following is an example of individual choice?
A) The government announces plans to ban smoking in all Florida restaurants.
B) Lauren spends her allowance on pillows for her bed.
C) France decides to withhold funding to rebuild Iraq.
D) Africa decides to accept U.S. aid for humanitarian efforts.
When the Fed decreases the discount rate, the spread between the discount rate and the
fed funds rate _____ and the cost of being short of reserves _____.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
An upward shift in the aggregate consumption function can be caused by:
A) expectations of higher incomes.
B) expectations of less income.
C) a stock market crash.
D) a reduction in the wealth of households.
Suppose that the economy enters a recession and real GDP falls. All else equal, we
would expect:
A) the money demand curve to shift inward.
B) the money demand curve to shift outward.
C) a downward movement along a fixed money demand curve.
D) an upward movement along a fixed money demand curve.
Figure: A Money Market
Look at the figure A Money Market. If the interest rate is r3, the interest rate will _____
because there is a _____ of money in the market.
A) fall; surplus
B) fall; shortage
C) rise; surplus
D) rise; shortage
Figure: A Money Market
Look at the figure A Money Market. The equilibrium interest rate is:
A) r1.
B) r2.
C) r3.
D) M0.
Frictional unemployment is considered to be:
A) bad, because people are not getting a paycheck.
B) good, because people learn how other folks live.
C) good, since that means people may be seeking jobs that match their job skills.
D) bad, because people are out of work.
If an economy is operating at an aggregate output level above its potential output level,
the Federal Reserve may:
A) conduct an open market sale.
B) conduct an open market purchase.
C) lower the federal funds rate target.
D) decrease government spending.
Assume that the consumer price index for 2009 was 72.6 and for 2010 was 82.4. What
was the inflation rate between the two years?
A) 0.88%
B) 9.8%
C) 11.9%
D) 13.5%
Suppose the Federal Reserve sells Treasury bills. We can expect this transaction to
_____ the money supply, _____ Treasury bill prices, and _____ interest rates.
A) reduce; increase; lower
B) increase; lower; lower
C) increase; raise; lower
D) reduce; reduce; raise
Figure: The Demand and Supply of Wheat
Look at the figure The Demand and Supply of Wheat. If there is an increase in demand
of 2,000 bushels at each price, the equilibrium price and quantity will be _____ and
_____ bushels, respectively.
A) $5; 5,000
B) $6; 7,000
C) $7; 7,000
D) $8; 8,000
If the opportunity cost of manufacturing automobiles is higher in the United States than
in Britain and the opportunity cost of manufacturing airplanes is lower in the United
States than in Britain, then the United States will:
A) export both airplanes and automobiles to Britain.
B) import both airplanes and automobiles from Britain.
C) export airplanes to Britain and import automobiles from Britain.
D) import airplanes from Britain and export automobiles to Britain.
A binding minimum wage in a labor market is set _____ the equilibrium wage and
causes a _____ of labor.
A) below; surplus
B) below; shortage
C) above; surplus
D) above; shortage
Changing the level of government spending is an example of _____ policy.
A) fiscal
B) interest rate
C) monetary
D) exchange rate
In the long run the overall price level is mainly determined by:
A) the business cycle.
B) the price of crude oil.
C) changes in the money supply.
D) the government's budgetary policies.
Monetary policy that lowers the interest rate is called _____ because it _____.
A) contractionary; aims to head off inflation
B) expansionary; increases short-run aggregate supply
C) contractionary; reduces saving and increases consumption
D) expansionary; increases aggregate demand
The net present value of a project is the difference between:
A) current benefits and the present value of future costs.
B) the present value of current benefits and the current value of future costs.
C) the present value of future benefits and the present value of future costs.
D) the present value of current and future benefits and the present value of current and
future costs.
Debt deflation is the _____ in aggregate _____ caused by deflation.
A) increase; supply
B) reduction; supply
C) increase; demand
D) reduction; demand
The interest rate effect of the price level is reflected in:
A) the increase in interest rates to savers.
B) the upward slope in aggregate supply.
C) the upward slope in aggregate demand.
D) the downward slope in aggregate demand.
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their
income. There are no taxes and no foreign trade. Its currency is the arc. Potential output
is 600 billion arcs.
Look at the scenario Fiscal Policy. The government spending multiplier is:
A) 5.
B) 0.75.
C) 4.
D) 3.
Scenario: Holding Cash
Suppose that the public holds 50% of the money supply in currency and the reserve
requirement is 20%. Banks hold no excess reserves. A customer deposits $6,000 in her
checkable deposit.
Look at the scenario Holding Cash. Assume that after receiving the deposit, the bank
lends out its excess reserves. When the loan is spent, _____ of the loan will be a
checkable deposit and _____ will be held by the public as cash.
A) $6,000; $0
B) $4,800; $1,200
C) $2,400; $2,400
D) $3,000; $3,000
Between the Civil War and the Great Depression, the United States' banking system was
more stable than it has been since the Great Depression.
A) True
B) False
Figure: Slope
Look at the figure Slope. The slope of the line in the graph can be calculated by:
A) dividing the horizontal change by the vertical change.
B) dividing the vertical change by the horizontal change.
C) subtracting the sum of the Y values from the sum of the X values.
D) adding the sum of the X values to the sum of the Y values.
An appreciated dollar will cause aggregate demand to:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
The current account responds to changes in both real and nominal exchange rates.
A) True
B) False
