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If the federal government announces a tax cut, which of the following is most likely in
the short run?
a. A decrease in output, an increase in money demand, and an increase in the interest
rate
b. An increase in output, a decrease in money demand, and a decrease in the interest
rate
c. A decrease in output, a decrease in money demand, and a decrease in the interest rate
d. An increase in output, an increase in money demand, and a decrease in the interest
rate
e. An increase in output, an increase in money demand, and an increase in the interest
rate.
Refer to Figure 11-1. The graph shows
a. a negative and relatively stable relationship between real consumption and real
disposable income
b. a negative, but unstable, relationship between real consumption and real disposable
income
c. a positive, but unstable, relationship between real consumption and real disposable
income
d. a positive and relatively stable relationship between real consumption and real
disposable income
e. no discernible relationship between real consumption and real disposable income
The inflation rate
a. explains how prices are reacting to economic policies
b. indicates the level of prices charged by all firms in the economy
c. measures the annual percent increase in the average level of prices
d. measures how fast wages and incomes are rising
e. determines the prices that firms will offer to customers
Molly needs 30 minutes to wash the car and 45 minutes to mow the lawn. Renee needs
1 hour to wash the car and 2 hours to mow the lawn. Which of the following statements
is correct?
a. Molly should specialize in both tasks.
b. Renee should specialize in both tasks.
c. Each woman should specialize in the task in which she has the absolute advantage.
d. Absolute advantage is not an appropriate guide for determining specialization.
e. Neither woman should specialize.
In the United States, individuals are forced to make choices
a. because time is scarce, though spending power is not
b. because spending power is scarce, though time is not
c. though neither time nor spending power are scarce
d. because both time and spending power are scarce
e. because living standards are low
The formula for the demand deposit multiplier is
a. 1 divided by excess reserves
b. 1 divided by the required reserve ratio
c. 1 minus the required reserve ratio
d. the required reserve ratio minus 1
e. the required reserve ratio times the level of demand deposits
]Which of the following describes what would happen after a positive supply shock
such as a decrease in world oil prices?
a. An upward shift of the aggregate supply curve as unit costs increase, followed by a
gradual decrease in the wage as employment decreases, leading to a downward shift of
the aggregate supply curve.
b. A downward shift of the aggregate supply curve as unit costs decrease, followed by a
gradual increase in the wage as employment increases, leading to an upward shift of the
aggregate supply curve.
c. An upward shift of the aggregate supply curve as unit costs increase, followed by a
gradual decrease in the wage as employment decreases, leading to an upward shift of
the aggregate supply curve.
d. A downward shift of the aggregate supply curve as unit costs decrease, followed by a
gradual decrease in the wage as employment decreases, leading to a downward shift of
the aggregate supply curve.
e. An upward shift of the aggregate demand curve.
Whether an excise tax is imposed on a demander or supplier is irrelevant because
a. in either case the price that the demander has to pay will decrease; while the price the
supplier receives will increase
b. in either case the price that the demander has to pay will increase; while the price the
supplier receives will decrease
c. either situation will create excess demand
d. either situation will create excess supply
e. none of these are correct
Because price and quantity demanded are inversely related,
a. the demand curve is usually upward-sloping
b. buyers purchase more of the good as the price rises
c. the supply curve must be rising
d. price and quantity supplied must be positively related
e. the demand curve is usually downward-sloping
Assuming the economy was in equilibrium, use the following information to determine
the government's budget deficit.
The government's deficit (surplus) was
a. -$0.3 trillion deficit ($0.3 trillion surplus)
b. -$0.2 trillion deficit
c. $0.2 trillion deficit
d. $0.3 trillion deficit
e. $0.5 trillion deficit
If the U.S. interest rate falls while the British interest rate remains constant, which of
the following will happen in the market for pounds?
a. A rightward shift of the demand curve, a leftward shift of the supply curve, and an
appreciation of the pound
b. A leftward shift of the demand curve, a rightward shift of the supply curve, and an
appreciation of the pound
c. A leftward shift of the demand curve, a leftward shift of the supply curve, and a
depreciation of the pound
d. A rightward shift of the demand curve, a rightward shift of the supply curve, and an
appreciation of the pound
e. A leftward shift of the demand curve, a rightward shift of the supply curve, and a
depreciation of the pound.
Given the following information, calculate M1 and M2.
Small time deposits $800 billion
Checking deposits $400 billion
Savings-type accounts $900 billion
Money market mutual funds $700 billion
Travelers' checks $50 billion
Large time deposits $750 billion
Cash on hand $150 billion
a. M1: $600 billion; M2: $3,150 billion
b. M1: $2,100 billion; M2: $1,650
c. M1: $2,800 billion; M2: $950 billion
d. M1: $1,900 billion; M2: $1,850 billion
e. M1: $600 billion; M2: $3,750 billion
If actual output is greater than the full-employment level of output, we should expect
wages to increase over time.
In the language of economics, which of the following would be defined as investment?
a. The purchase of a U.S. savings bond
b. The purchase of 100 shares of Ford Motor Company stock
c. The deposit of $1,000 into a savings account
d. The purchase of $500 worth of gold
e. The accumulation of inventories by a firm
Gary buys a house for $200,000 using $10,000 of his own money and gets a mortgage
for the remaining $190,000. If the value of the house increases 7%, what will be the
percentage increase in Gary's investment?
a. 25%
b. 7%
c. 14%
d. 70%
e. 140%
