Figure: Consumption and Real GDP
Look at the figure Consumption and Real GDP. The slope of the consumption function
is called the:
A) marginal propensity to save.
B) average propensity to consume.
C) marginal propensity to consume.
D) marginal consumption increment.
Figure: Bicycles and Radishes I
Look at The figure Bicycles and Radishes I. It shows the production possibility frontiers
for two countries that produce only radishes and bicycles. The axes of the two graphs
are measured in equivalent units. Country A is operating at point M, and country B is
operating at point N. The opportunity cost of producing an additional ton of radishes
would be greater in:
A) country A.
B) country B.
C) neither; the opportunity cost would be the same in both countries.
D) There is not enough information to answer the question.
According to the efficient markets hypothesis:
A) stocks are often overpriced.
B) stocks are often underpriced.
C) stocks are neither overpriced or underpriced.
D) the random fluctuations in the value of stocks is unexplainable.
Planned investment spending will decrease if:
A) the interest rate rises.
B) firms expect the growth of real GDP to increase.
C) firms are producing near full capacity.
D) consumer expectations about wealth grow more optimistic.
Autonomous spending occurs in the second round of spending increases caused by the
multiplier.
A) True
B) False
If the labor force becomes younger, the natural rate of unemployment will fall.
A) True
B) False
Look at the table Labor Force Data. If the labor force participation rate is 70%, the
unemployment rate is:
A) 7.6%.
B) 5%.
C) 4%.
D) 3%.
Physical capital is purchased through investment spending, which in turn is mostly
financed out of:
A) taxes.
B) savings.
C) import tariffs.
D) consumption expenditure.
Countries with government budget surpluses are likely to have capital inflows, all other
things equal.
A) True
B) False
Stagflation is usually caused by a _____ shock.
A) negative demand
B) positive supply
C) negative supply
D) positive demand
Figure: The Aggregate Consumption Function and Planned Aggregate Spending
Look at the table The Aggregate Consumption Function and Planned Aggregate
Spending. If aggregate wealth increases, the:
A) aggregate expenditures curvewill shift up.
B) aggregate expenditures curvewill shift down.
C) economy will move upward along the aggregate expenditures curve.
D) economy will move downward along the aggregate expenditures curve.
In 1999 many European countries signed a stability pact in which they agreed to limit
their actual budget deficits to less than 3% of their country’s GDP.
A) True
B) False
The budget deficit usually decreases when the unemployment rate increases.
A) True
B) False
The negative relationship between the aggregate price level and aggregate output
demanded gives the aggregate demand curve a _____ slope.
A) upward
B) vertical
C) horizontal
D) downward
Monetary policy attempts to affect the overall level of spending through:
A) changes in the inflation rate.
B) changes in the quantity of money and the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.
In the long run, there is a negative relationship between the inflation rate and the
unemployment rate.
A) True
B) False
The Great Moderation consensus is that discretionary fiscal policy can be destabilizing
because of lags in adjusting policy.
A) True
B) False
The main consequence of Keynesian economics is:
A) the development of economic policy rules.
B) the rationale for macroeconomic policy activism.
C) a consensus that fiscal policy is ineffective.
D) a consensus that monetary policy is always effective.
Which of the following statements is TRUE of the state of modern macroeconomics?
A) There is much more consensus than disagreement among economists.
B) Inflation targeting and asset price management are incompatible duties for a central
bank.
C) Congress indirectly controls the Fed and monetary policy through its annual budget
allocations.
D) The Great Recession heightened the areas of disagreement among macroeconomists
over key policy questions.
Suppose the Federal Reserve is conducting an expansionary monetary policy. It will
_____ Treasury bills on the open market, so that the money supply will _____, interest
rates will _____, planned investment spending will _____, and the ADcurve will shift to
the _____.
A) buy; decrease; fall; fall; left
B) sell; decrease; rise; fall; left
C) buy; increase; fall; rise; right
D) sell; increase; rise; rise; left
In an economy with no international trade, no government expenditure, no transfers,
and no taxes, planned aggregate spending equals _____ plus planned investment
spending.
A) GDP minus disposable income
B) consumption
C) disposable income
D) GDP minus consumption
A bond is considered:
A) an asset for the owner of the bond that is not part of the money supply.
B) M1.
C) M2.
D) a liability for the owner of the bond that is part of the money supply.
Figure: Shifts in Demand and Supply IV
Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and
demand might shift in response to specific events. Suppose oil becomes more
expensive. Which panel BEST describes how this will affect the market for gasoline,
which is made from oil?
A) panel A
B) panel B
C) panel C
D) panel D
As a consequence of the existence of a nonaccelerating inflation rate of unemployment:
A) cyclical unemployment can never be zero.
B) there is no short-run trade-off between unemployment and inflation.
C) money is neutral.
D) there is no long-run trade-off between unemployment and inflation.
For which of the following decisions would marginal analysis be MOST relevant?
A) Should George accept a job with Delta Airlines or with Greenpeace?
B) Should Mary go to graduate school after graduating from college?
C) Should Vevik emigrate to the United States or stay in India?
D) Should Hong work an additional hour or take a short nap?
Commodity money is:
A) whatever the government has decreed is money.
B) a good used as a medium of exchange that has other uses.
C) money used for commodity futures trading.
D) whatever people accept as money.
Christina believes that shifts in aggregate demand cause a change in both real output
and the price level. She believes that an economic recession will not necessarily
self-correct in the long run, and therefore she believes that active fiscal and monetary
policy is justified to smooth out the business cycle. Christina is best described as a:
A) classical economist.
B) Keynesian.
C) supply-sider.
D) monetarist.
Carbon taxes and cap and trade systems are market-based incentives that are likely to
be effective in limiting greenhouse gas emissions.
A) True
B) False
Suppose the Federal Reserve has set a target for the federal funds rate. If initially the
equilibrium interest rate happens to be higher than the target interest rate, then the
Federal Reserve should _____ Treasury bills in the open market, _____ the money
supply, shift the supply of money curve to the _____, and _____ the interest rate to the
target rate.
A) sell; decrease; left; raise
B) purchase; decrease; left; lower
C) purchase; increase; right; lower
D) sell; increase; left; raise
The circular-flow diagram illustrates the growth of income inequality in the United
States.
A) True
B) False
Assets that offer a _____ rate of return also offer _____ liquidity.
A) higher; higher
B) lower; lower
C) higher; lower
D) There is no trade-off between rate of return and liquidity.
Markets that are characterized by many buyers and many sellers are:
A) inefficient.
B) competitive.
C) foreign.
D) monopolies.
Discretionary fiscal policy may fail to stabilize the economy or may even make the
economy less stable because of:
A) its ineffectiveness.
B) government waste.
C) lags in deciding on and implementing a policy change.
D) the business cycle.