If inflation in Mexico is lower than it is in the United States,
A) the purchasing power of the peso in buying Mexican goods will fall relative to the
dollar.
B) the value of the dollar will rise in the long run.
C) the value of the peso will rise in the long run.
D) the purchasing power of the dollar in buying American goods will rise relative to the
peso.
To decrease the money supply, the Federal Reserve could
A) lower the discount rate.
B) raise income taxes.
C) raise the required reserve ratio.
D) conduct an open market purchase of Treasury securities.
If workers and firms raise their inflation expectations,
A) unemployment will fall.
B) actual inflation will fall to match expected inflation.
C) the short-run Phillips curve will be vertical.
D) the short-run Phillips curve will shift upward.
A stock market crash which causes stock prices to fall should cause
A) a decrease in consumption spending.
B) an increase in consumption spending.
C) an increase in wealth.
D) no change in consumption spending.
Buying a house during a recession may be a good idea if your job is secure because the
Federal Reserve often
A) raises interest rates during recessions.
B) lowers interest rates during recessions.
C) lowers income taxes during recessions.
D) sells Treasury bills to help the housing market.
Monetary policy can
A) shift the short-run trade-off between inflation and unemployment if it affects
expected inflation.
B) shift the long-run trade-off between inflation and unemployment through changes in
cyclical unemployment.
C) shift neither the short-run nor long-run Phillips curve trade-offs between inflation
and unemployment.
D) shift both the short-run and long-run trade-offs between inflation and unemployment
if changes in policy are credible.
If, at the current exchange rate between the dollar and the Norwegian kroner of 5.78
kroner per dollar, the dollar is “overvalued,” how do you expect demand and supply in
the foreign exchange markets to respond?
A) The demand for the dollar will rise, while the supply of the kroner will fall.
B) The demand for the dollar will fall, while the supply of the kroner will rise.
C) The supply of the dollar will rise, while the demand for the kroner will fall.
D) The supply of the dollar will rise, while the demand for the kroner will rise.
The “interest rate effect” can be described as an increase in the price level that raises the
interest rate and chokes off
A) government spending.
B) government spending and unplanned investment.
C) investment and consumption spending.
D) net exports.
The multiplier effect is the series of ________ increases in ________ expenditures that
result from an initial increase in ________ expenditures.
A) induced; investment; autonomous
B) induced; consumption; autonomous
C) autonomous; consumption; induced
D) autonomous; investment; induced
Autonomous expenditure times the multiplier equals
A) autonomous saving.
B) autonomous consumption.
C) equilibrium GDP.
D) planned autonomous investment.
A guild is
A) a group of independent producers competing with each other.
B) an organization of producers that limits the amount of a good produced.
C) a group of nations who agree not to compete with each other.
D) a nation that is a free market benchmark.
Persistent current account deficits in the United States
A) can be seen as a vote of confidence in the strength of the U.S. economy.
B) cause persistent declines in investment in the United States.
C) cause U.S. investors to accumulate more foreign assets than foreign investors
accumulate U.S. assets.
D) will eventually cause the value of the dollar to rise.
Statistics on real GDP during World War II may give a misleading indication of whether
World War II was a period of prosperity because
A) inflation may have been considerably higher than estimated.
B) most of the increased production was for military goods, not consumption goods.
C) government agents purposely inflated the production numbers to maintain American
support for the war.
D) government agencies were shorthanded and did a particularly poor job of collecting
data.
An unplanned decrease in inventories results in
A) a decrease in planned investment.
B) an increase in planned investment.
C) actual investment that is greater than planned investment.
D) actual investment that is less than planned investment.
Monetarism is a school of thought put forth by ________, who argued that the economy
would most likely be at potential GDP.
A) Karl Marx
B) Milton Friedman
C) Finn Kydland and Edward Prescott
D) Robert Lucas and Thomas Sargent