In movement along a production possibility frontier, the opportunity cost to society of
getting more of one good:
A) is always constant.
B) is measured in dollar terms.
C) is measured by the amount of the other good that must be given up.
D) usually decreases.
If the marginal propensity to consume is 0.75, then the marginal propensity to save is:
A) 1.75.
B) 0.25.
C) “0.25.
D) 1.25.
When the unemployment rate decreases, the budget:
A) will always be balanced.
B) surplus gets smaller or the deficit gets larger.
C) surplus gets larger or the deficit gets smaller.
D) is unaffected.
Alison is offered two jobs. One pays $45,000 per year and offers three weeks of
vacation, while the other offer provides two weeks of vacation and a salary of $54,000.
What is the opportunity cost for Alison if she chooses the job offer of $54,000?
A) $45,000 plus the three weeks of vacation
B) $45,000 per year
C) one week of vacation
D) two weeks of vacation
A firm is an organization that buys goods and/or services and produces resources.
A) True
B) False
When, in The Wealth of Nations, Adam Smith wrote of “a sort of waggon-way through
the air,” he was referring to:
A) the invisible hand.
B) the forces of competition.
C) mass transit systems of the future.
D) paper money.
The market for lemonade is in equilibrium and the price of lemons rises. In the
lemonade market _____ will _____, _____ the price and _____ the quantity.
A) demand; decrease; decreasing; decreasing
B) demand; decrease; increasing; decreasing
C) supply; increase; decreasing; increasing
D) supply; decrease; increasing; decreasing
Figure: International Capital Flows
Look at the figure International Capital Flows. Assume that each country’s equilibrium
interest rate is 4%. To reconcile the apparent disequilibrium in both markets, assuming
that assets and liabilities are viewed as homogeneous, capital _____ will _____ interest
rates.
A) outflow from the United States; lower U.S.
B) outflow from Britain; lower British
C) outflow from Britain; raise British
D) inflow to the United States; raise U.S.
Assuming a positive interest rate, the dollar amount of a future payment is:
A) exactly the same as its present value.
B) approximately the same as its present value.
C) less than its present value.
D) more than its present value.
The short-run aggregate supply curve will shift to the left if:
A) the aggregate price level falls.
B) commodity prices rise.
C) tax revenues fall.
D) productivity increases.
Look at the table Production Possibilities for Machinery and Petroleum. In the United
States the opportunity cost of producing 40 units of machinery is _____ units of
petroleum.
A) 80
B) 60
C) 40
D) 20
In the long run, when the actual inflation rate gets embedded in people’s expectation:
A) the trade-off between inflation and unemployment becomes even stronger.
B) it is possible to achieve lower unemployment in the long run by accepting higher
inflation.
C) there is no longer a trade-off between inflation and unemployment.
D) actual inflation at any unemployment rate is always higher than expected inflation.
Figure: Short-Run Equilibrium
Look at the figure Short-Run Equilibrium. Appropriate fiscal policy action is:
A) a decrease in transfer payments.
B) an increase in government purchases.
C) a decrease in tax rates.
D) an increase in transfer payments.
Figure: Consumption Functions
Look at the figure Consumption Functions. An economy’s consumption function would
shift from curve Cto curve Cwhen there is a(n):
A) decrease in wealth.
B) decrease in the price level.
C) increase in expected disposable income.
D) increase in wealth.
A contraction in the business cycle is:
A) the long run.
B) a recession.
C) accompanied by an increase in employment.
D) viewed as a rarity.
The slope of the consumption function equals:
A) 1 ” MPS.
B) 1 / (1 ” MPS).
C) 1 ” MPC.
D) MPC / MPS.
When the price of gas goes down, the demand for tires goes up. A likely possibility is
that tires and gas are:
A) substitutes.
B) complements.
C) both inferior goods.
D) both inexpensive.
Expectations of a higher inflation rate shift the short-run aggregate supply curve to the
_____, changing the trade-off between inflation and unemployment. As a result, the
short-run Phillips curve shifts _____.
A) left; down
B) right; up
C) left; up
D) right; down
If a government fixes the exchange rate so as to generate a surplus of the domestic
currency, the exchange rate (U.S. dollars per unit of the other currency) will tend to
_____. To maintain the fixed exchange rate, the government must _____ the domestic
currency.
A) fall; increase the international demand for
B) rise; increase the international demand for
C) fall; decrease the international demand for
D) fall; increase the domestic supply of
Table: Per Capita GDP
Look at the table Per Capita GDP. The growth rate of per capita nominal GDP was:
A) 10%.
B) 20%.
C) 25%.
D) 33%.
A market basket used to measure the aggregate price level is a group of stocks that the
wealthiest investors own.
A) True
B) False
To find the approximate number of years it takes the economy to double:
A) divide its growth rate by 70.
B) divide 70 by its growth rate.
C) divide its growth rate by 100.
D) multiply its growth rate by 20.
The Great Moderation consensus regarding the use of monetary policy to fight
recessions is that expansionary monetary policy:
A) is ineffective because the public expects it.
B) is harmful because it only increases the aggregate price level.
C) has little impact on aggregate demand because of liquidity traps.
D) can be used to increase aggregate demand but at the cost of higher aggregate prices.
Figure: International Capital Flows
Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of
loanable funds demanded by U.S. borrowers is _____ the quantity of loanable funds
supplied by U.S. lenders.
A) greater than
B) less than
C) equal to
D) not related to
Which of the following statements is broadly agreed upon by modern
macroeconomists?
A) Monetary and fiscal policy can both be effective at decreasing unemployment in the
short run but not in the long run.
B) Discretionary fiscal policy is typically an effective remedy for a recessionary gap
except in special circumstances.
C) The central bank should set a specific target rate of inflation.
D) A monetary rule should be set by the central bank.
The market for milk is initially in equilibrium. Milk producers successfully advertise to
encourage milk drinking. At the same time, more milk producers enter the market.
Standard demand and supply analysis tells us that:
A) the equilibrium price and quantity of milk will rise.
B) the equilibrium price and quantity of milk will fall.
C) the equilibrium quantity of milk will rise, but we can’t determine how the
equilibrium price will be affected.
D) the equilibrium price of milk will rise, but we can’t determine how the equilibrium
quantity will be affected.
Which of the following was used as money by European settlers in the American
colonies before the Revolutionary War ?
I. dixies
II. tobacco
III. paper money issued by the newly established Federal Reserve
A) I only
B) II only
C) III only
D) I, II, and III
To close an inflationary gap using monetary policy, the Federal Reserve should _____
the money supply to _____ investment and consumer spending and shift the aggregate
demand curve to the _____.
A) increase; increase; left
B) decrease; decrease; left
C) increase; increase; right
D) decrease; decrease; right
Which of the following is a positive economic statement?
A) Government has grown too large and should be reduced.
B) There has been an increase in the rate of inflation.
C) Government should be subject to the same rules as all other institutions.
D) Women should be paid as much as men for the same work.
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. When
the economy is opened to trade, the price rises to PW.Sri Lanka will _____ tea and the
volume of trade will equal _____.
A) import; QT“CT
B) export; QT” CT
C) import; QT” Q1
D) export; Q1” CT
Figure: Demand and Supply of Shirts
Look at the figure Demand and Supply of Shirts. In the graph, if the line labeled D
shows how many shirts per week will be demanded at various prices, then it is clear that
as the price of shirts falls:
A) fewer shirts will be demanded.
B) more shirts will be demanded.
C) the same quantity of shirts will be demanded.
D) it is unclear what will happen to the demand for shirts.
A Japanese banker buys some newly issued U.S. Treasury bonds. In the U.S. balance of
payments account, this transaction is entered as a payment _____ foreigners in the
_____ account.
A) from; current
B) to; current
C) to; financial
D) from; financial
In a banking crisis, banks usually:
A) see an increase in the value of their assets.
B) lend out all of their excess reserves.
C) hold more excess reserves than usual.
D) offer discounts to customers to give them the incentive to borrow money.