Use the aggregate expenditures model and assume the marginal propensity to consume
(MPC) is 0.90. A decrease in government spending of $1 billion would result in a
decrease in GDP of:
a. $0.
b. $0.9 billion.
c. $1.0 billion.
d. $9.0 billion.
e. $10.0 billion.
Which of the following is a desirable property of money?
a. Scarcity.
b. Portability.
c. Divisibility.
d. All of these.
To combat a recession, Keynesian fiscal policy recommends:
a. an increase in taxes.
b. an increase in government spending.
c. an increase in taxes and a decrease in government purchases to balance the budget.
d. a reduction in both taxes and government spending.
The Laffer curve shows the relationship between tax:
a. revenue and tax rates.
b. revenue and take-home pay.
c. revenue and government spending.
d. rates and take-home pay.
e. rates and government spending.
A general rule is that economy is experiencing a recession when:
a. real GDP declines for at least three months.
b. real GDP declines for at least nine months.
c. nominal GDP declines for at least nine months.
d. real GDP declines for at least six months.
e. nominal GDP declines for at least six months.
The assumption that the velocity of money and the quantity being produced is constant
is held by the:
a. Keynesian school.
b. supply-side school.
c. neo-Keynesian school.
d. rational expectations school.
e. classical school.
Which of the following will most likely increase aggregate demand?
a. A decrease in stock market prices.
b. An increase in business investment spending.
c. A decrease in the expected inflation rate.
d. A decrease in real GDP.
Exhibit 2-19 Production possibilities curves
In Exhibit 2-19, the production
possibilities curves for a country are shown for the years Year X and Year Y. Suppose
this country was located at point A in Year X and point B in Year Y. This economy:
a. has lower unemployment in Year Y than in Year X.
b. was more efficient in Year X than in Year Y.
c. achieved full employment in Year X and in Year Y.
d. showed no growth between Year X and Year Y.
e. is worse off in Year Y than in Year X.
Exhibit 15-6 Balance sheet of Tucker National Bank Assets Liabilities
Required reserves $ 20,000 Checkable deposits $200,000
Excess reserves 0
Loans 180,000
Total Total The required reserve ratio in Exhibit 15-6 is:
a. 10 percent.
b. 20 percent.
c. 80 percent.
d. 100 percent.
Much of the nation’s coal is extracted by strip mining. This process leaves a huge barren
hole in the ground when complete, and the cost of replanting the trees is approximately
$10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows
how much damage the air pollution causes, but we know that for another $10 per ton
the power plant can be outfitted with a pollution control device. What is one measure of
the true social cost of coal fired electricity, in dollars per ton?
a. Private marginal cost plus the $10 replanting charge.
b. Private marginal cost plus the $10 emission control charge.
c. Only the $20 of replanting and emission control charges, because the other costs are
private, not social.
d. Private marginal cost plus the $20 of replanting and emission control charges.
e. In order to answer this question we need to know the dollar value of the pollution.
Assuming steak and potatoes are complements, other things being equal, an increase in
the price of steak, will:
a. increase the demand for potatoes.
b. decrease the demand for potatoes.
c. increase the demand for steak.
d. decrease the demand for steak.
A nation’s current location on its production possibilities curve can determine the future
location of that nation’s production possibilities curve.
The slope of a line is calculated as the ratio of the “rise” over the “run”.
What is meant by generally accepted accounting principles?
Automatic stabilizers combine changes in discretionary fiscal policy with changes in
government spending and taxes influenced by the business cycle in order to stabilize the
economy.
What are some criticisms of the CPI as a measure of inflation?
The federal income tax is progressive because the tax rates increase at higher income
levels.
Most real world economies are mixed economies.