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Which of the following is a point of the Great Moderation consensus?
I. Monetary policy should be the main stabilization policy.
II. The central bank should be independent of political influence.
III. Discretionary fiscal policy should be used sparingly.
A) I only
B) II only
C) III only
D) I, II, and III
Figure: Aggregate Expenditures Curve I
Look at the figure Aggregate Expenditures Curve I. Suppose that the consumption
function in this economy rises by $100. The result will be a _____ increase in the
equilibrium level of real GDP.
A) $100.
B) $200.
C) $800.
D) $1,600.
The market price of airline flights increased recently. Some economists suggest that the
price increased because several airlines went out of business. They believe that in the
market for flights:
A) supply increased.
B) supply decreased.
C) demand increased.
D) demand decreased.
If aggregate expenditures are lower than real GDP:
A) there will be unplanned increases in inventories.
B) employment increases.
C) aggregate output increases.
D) actual real output is less than equilibrium real output.
Which of the following may lead to lower productivity because of a lack of incentives?
A) a stable political system
B) protection of property rights
C) government subsidies
D) public education
Figure: AD"ASModel I
Look at the figure AD"AS Model I. If the economy is at point X, there is a(n) _____ gap
with _____ unemployment.
A) inflationary; low
B) inflationary; high
C) recessionary; low
D) recessionary; high
You notice that the price of Blu-ray players falls and the quantity of Blu-ray players
sold increases. You suspect that _____ Blu-ray players shifts to the _____.
A) demand for; right.
B) demand for; left.
C) supply of; right.
D) supply of; left.
Use of fiscal policy involves changes in:
A) interest rates.
B) government spending.
C) the quantity of money.
D) the quantity of money and interest rates.
"All other relevant factors remain unchanged" is another way of saying:
A) all other things equal.
B) allow several variables to change to understand how those variables affect one
variable held constant.
C) allow all variables to change and attempt to understand how the variables interact
with each other.
D) no variables change.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. If the economy is in short-run
equilibrium at Y1 in panel (b), the economy is in:
A) a recessionary gap.
B) an inflationary gap.
C) simultaneous short-run and long-run equilibrium.
D) a high level of unemployment.
If coffee and tea are viewed as substitutes in consumption, then an increase in the price
of coffee will increase the demand for tea.
A) True
B) False
A financial intermediary that sets up a diversified portfolio of stocks and then resells
that portfolio to individual investors is known as a:
A) life insurance company.
B) mutual fund.
C) brokerage company.
D) credit card company
Look at the table market Basket of School Supplies. It shows the prices of three
common school supplies in 2010 and 2011 and the quantities of each school supply that
consumers bought in 2010, the base year. A school supply index to measure the rate at
which average school supply prices have changed would show an inflation rate of:
A) 22%.
B) 122%.
C) 82%.
D) 18%.
Figure: The Market for Tea in Sri Lanka
Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P1,
consumer surplus equals _____, and producer surplus equals _____.
A) F+ G+ H+ I;J+ K
B) F;G+ H+ I+ J+ K
C) F+ I;J+ K
D) F+ G+ H;J+ K
Most of the rapidly growing Asian nations, though poor, have increased their
productivity by providing a very good basic education for their citizens.
A) True
B) False
The Panic of 1907, the savings and loan crisis, and the financial crisis of 2008 were
similar in that they all:
A) were caused by restrictive monetary policy.
B) involved financial institutions that were not as strictly regulated as deposit-taking
banks.
C) were caused by large budget deficits.
D) were caused by excessive regulation by the Federal Reserve.
All other things equal, an expansionary monetary policy in Britain will decrease British
interest rates and increase the demand for and decrease the supply of the pound sterling.
A) True
B) False
Which of the following is sold in the factor market?
A) hot dogs
B) bulldozers
C) nail polish
D) appendectomies
Figure: Good Xand Good Y
Look at the figure Good X and Good Y. If we move from point B to point C in the
figure, the x-variable has ______ units and the y-variable has ______ units.
A) decreased by 2; increased by 15
B) increased by 2; decreased by 15
C) decreased by 15; increased by 2
D) increased by 15; decreased by 2
Scenario: Gizmovia II
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75.
Look at the scenario Gizmovia II. At the target rate of $0.50:
A) the quantity demanded of gizmos equals the quantity supplied.
B) there is a surplus of gizmos.
C) there is a shortage of gizmos.
D) the quantity demanded of gizmos is greater than the quantity supplied.
In an open economy government spending was $30 billion, consumption was $70
billion, taxes were $20 billion, GDP was $100 billion, and investment spending was
$10 billion. As a result, there was:
A) a net capital inflow of $10 billion.
B) capital inflows of $10 billion and capital outflows of $20 billion.
C) a trade surplus of $20 billion and a financial deficit of $20 billion.
D) a net capital outflow of $10 billion.
An increase in government spending for goods and services is an autonomous increase
in aggregate demand.
A) True
B) False
Figure: Fiscal Policy I
Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If
there is an increase in government transfers_____ will shift to the _____, causing a(n)
_____ in the price level and a(n) _____ in real GDP.
A) AD2; right; increase; increase
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; right; decrease; increase
All else equal, a nation that has a high rate of _____ will have a high rate of _____ and
therefore a high growth rate of _____ capital.
A) investment; savings; human
B) savings; investment; natural
C) savings; investment; physical
D) savings; consumption; physical
A production possibility frontier illustrates the _____ facing an economy that _____
only two goods.
A) prices; sells
B) trade-offs; produces
C) trade-offs; sells
D) shortages; produces
A decrease in U.S. interest rates causes the dollar to _____ and aggregate demand to
_____.
A) depreciate; increase
B) depreciate; decrease
C) appreciate; increase
D) appreciate; decrease
Shoe-leather costs are the:
A) effect of inflation on the prices of food, clothes, and other necessities.
B) increased cost of transactions due to inflation.
C) high price of leather goods.
D) effect of inflation on transportation costs.
If the consumption function is plotted on the vertical axis of a graph with disposable
income on the horizontal axis:
A) the slope of the line will be negative and determined by the marginal propensity to
save.
B) the horizontal axis intercept will be determined by the level of autonomous
consumption.
C) the slope of the line will be positive and determined by the marginal propensity to
consume.
D) the vertical axis intercept will be determined by the marginal propensity to save.
When people purchase downloaded music, they are using money primarily as a:
A) medium of exchange.
B) store of value.
C) unit of account.
D) store of account.
During the 2008 and 2011 financial crises in Spain and Italy, the spread between the
interest rates on 10-year bonds issued by the governments of Italy and Spain and the
interest rates on 10-year bonds issued by _____ was a measure of risk.
A) Great Britain
B) Germany
C) Ireland
D) France
The convergence hypothesis says that international differences in GDP per capita tend
to _____ over time.
A) narrow
B) expand
C) remain steady
D) narrow and then expand
Capital inflow is:
A) the net inflow of funds into a country.
B) the net outflow of funds from a country.
C) the amount by which domestic savings exceeds foreign savings.
D) physical capital exported minus physical capital imported.
