An example of investment spending is the purchase of a:
A) bond by a banker.
B) loaf of bread by a restaurant.
C) new tractor by a farmer.
D) ticket to a football game by a student.
If the labor force becomes healthier and productivity increases, short-run aggregate
supply is likely to increase.
A) True
B) False
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. The opportunity cost of producing 1 box of
oranges for Westland is _____ box(es) of peaches.
A) 1
B) 0.25
C) 4
D) 10
If the stock market crashes:
A) the aggregate consumption function will shift up.
B) the aggregate consumption function will shift down.
C) unplanned inventory investment will be negative.
D) GDP will increase.
When a country exchanges goods with another country, in the short run:
A) producers in the exporting industry may be better off.
B) consumers of the imported good may be worse off.
C) consumers of the exported good may be better off.
D) producers in the importing industry are better off.
Suppose the equilibrium interest rate in the U.S. market for loanable funds is 3% prior
to any international capital flows in the United States. The equilibrium interest rate in
the Japanese market for loanable funds is 7%. If lenders in both nations believe that
loans to foreigners are just as good as loans to their own citizens, capital will flow from
_____, making interest rates _____ in Japan and _____ in the United States.
A) the United States to Japan; rise; fall
B) Japan to the United States; fall; rise
C) Japan to the United States; rise; fall
D) the United States to Japan; fall; rise
Implicit liabilities of a government are:
A) bonds held by foreigners.
B) spending promises, like Social Security benefits, that are effectively debt although
no bond is associated with the promise.
C) debt of a country adjusted for the price ratio.
D) the ratio of a country’s debt to its GDP.
An increase in the money supply that will decrease interest rates causes a shift of the:
A) aggregate demand curve to the left.
B) aggregate demand curve to the right.
C) short-run aggregate supply curve to the left.
D) short-run aggregate supply curve to the right.
Figure: Shift of the Aggregate Demand Curve
Look at the figure Shift of the Aggregate Demand Curve. A movement from point A on
AD1 to point C on AD2 could have resulted from a(n):
A) lower price level.
B) higher price level.
C) increase in the total quantity of consumer goods and services demanded.
D) significant decrease in the consumers’ income.
Most of a bank’s assets are:
A) loans from the Federal Reserve.
B) loans to the Federal Reserve.
C) loans to its customers.
D) customers’ deposits.
Planned investment spending depends on all of the following EXCEPT:
A) the rate of interest.
B) the expected level of real GDP.
C) the productive capacity of the economy.
D) real GDP.
Graphically, a recessionary gap is measured as the:
A) difference between the actual price level and the equilibrium price level.
B) difference between actual GDP and potential output.
C) vertical distance between aggregate demand and aggregate supply at actual real
GDP.
D) vertical distance between aggregate demand and aggregate supply at potential
output.
A floating rate system eliminates uncertainty about the future value of a currency.
A) True
B) False
The purpose of indexing Social Security payments to the consumer price index is to:
A) increase corporate profits.
B) justify continued government funding of the Bureau of Labor Statistics.
C) avoid the privatization of Social Security.
D) maintain the purchasing power of retirees.
An increase in the money supply will decrease interest rates in the short run but will not
affect interest rates in the long run because an increase in the money supply will
eventually _____ prices and _____ money demand.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
At interest rates below equilibrium, people will want to:
A) shift their wealth into Treasury bills.
B) shift their wealth into money.
C) decrease the amount of money that they hold.
D) make no changes to their assets.
Table: Lemonade and Cookies
Look at the table Lemonade and Cookies. Assume that an economy produces only
lemonade and cookies. Assuming 2013 was the base year, the growth rate of real GDP
from 2013 to 2014 was:
A) 5%.
B) 10%.
C) 11.25%.
D) 20%.
Which of the following price indexes measures the cost of living?
A) producer price index
B) wholesale price index
C) consumer price index
D) GDP deflator
Bangladesh produces much of the clothing we wear because it can produce more
clothes than the United States.
A) True
B) False
Money is any asset that:
A) the government says is money.
B) can easily be used to purchase goods and services.
C) has a positive value.
D) the government says is money and that has a positive value.
Banks are illiquid because:
A) their deposits are less liquid than their loans.
B) their loans are less liquid than their deposits.
C) their assets are greater than their liabilities.
D) their liabilities are greater than their assets.
Which of the following represents the government budget balance most accurately?
A) T + G + TR
B) T + G ” TR
C) T ” G ” TR
D) T + TR ” G
At the income”expenditure equilibrium, _____ is zero.
A) investment net of depreciation
B) planned investment
C) unplanned inventory investment
D) inventory investment
Figure: The Demand and Supply of Wheat
Look at the figure The Demand and Supply of Wheat. If a price of $10 temporarily
exists in this market, a _____ of _____ bushels will result.
A) shortage; 10,000
B) shortage; 8,000
C) surplus; 8,000
D) surplus; 4,000
Britain must give up the production of 75 hats to produce 25 additional sweaters. The
opportunity cost of producing 3 hats is _____ sweater(s).
A) 1
B) 3
C) 22
D) 28
When real output growth is above potential output growth, the output gap is positive
and the unemployment rate is below the natural rate.
A) True
B) False
Manny is attending college and majoring in economics. By doing so, Manny is
improving his:
A) land.
B) labor.
C) capital.
D) human capital.
If in an open economy a country imports more than it exports and the government
budget deficit increases, interest rates will _____ and the amount of borrowing will
_____.
A) increase; increase
B) decrease; increase
C) increase; change unpredictably
D) change unpredictably; increase
An expansionary fiscal policy either _____ government spending or _____ taxes.
A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases
Which of the following will shift the aggregate consumption function UPWARD?
A) Disposable income rises.
B) Consumer expectations turn more pessimistic.
C) The stock market is strong and wealth is rising.
D) Disposable income falls.