The historical validation of Keynes’s theory came through the:
A) expansion in aggregate demand resulting from drastic interest rate cuts in the early
1940s.
B) successful application of his theories in the United States during the Great
Depression in the early 1930s.
C) expansion in aggregate demand resulting from massive military spending in the
early 1940s.
D) successful application of his theories in the United Kingdom during the mid 1930s.
Which of the following is TRUE of an open economy?
A) GDP = C + I + G + X ” IM
B) GDP = C + I + G
C) GDP = T ” TR ” G
D) GDP = SPrivate + SGovernment
If the market for buffalo meat is in equilibrium, the price of buffalo meat will probably
_____ in the near future.
A) increase
B) not change
C) decrease
D) increase considerably
Scenario: Productivity
The economy has grown by 4% per year over the past 30 years. During the same period
the labor force has grown by 1% per year and the quantity of physical capital has grown
by 5% per year. Each 1% increase in physical capital per worker is estimated to
increase productivity by 0.4%. Assume that human capital has not changed during the
past 30 years.
Look at the scenario Productivity. How much has technological progress contributed to
productivity growth?
A) 1.4%
B) 1.6%
C) 2%
D) 3%
An increase in the expected disposable income of households _____ the planned
aggregate spending line.
A) shifts down
B) increases the slope of
C) decreases the slope of
D) shifts up
Figure: A Money Market
Look at the figure A Money Market. Holding the money supply constant, which of the
following might cause the equilibrium interest rate to decrease to r1?
A) The inflation rate rises to historically high levels.
B) Higher payroll taxes cause employers to pay workers cash under the table.
C) A recession decreases real GDP.
D) There is a significant increase in the stock market.
If other things are equal, expectations of lower disposable income would _____ and
shift the consumption function _____.
A) increase autonomous consumption; up
B) decrease the marginal propensity to consume; down
C) decrease autonomous consumption; down
D) increase the marginal propensity to consume; up
If the United States increases tariffs on imports of lumber from Canada (which raises
the price of lumber in the United States), the equilibrium price of new homes in the
United States will _____ and the equilibrium quantity of new homes in the United
States will _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Monetarists believe that:
A) short-run problems are not likely.
B) GDP fluctuations will be less pronounced if the Federal Reserve uses discretionary
monetary policy.
C) price fluctuations are likely in the short or long run.
D) GDP will grow steadily if the money supply grows steadily.
Politicians may accept moderate inflation in an election year, since the _____ in
aggregate _____ serves to _____.
A) increase; supply; decrease employment
B) decrease; supply; increase employment
C) decrease; demand; increase output
D) increase; demand; increase employment
When the aggregate price level increases, the purchasing power of many assets falls,
causing a decrease in consumer spending. This, the _____ effect, is a reason the _____
curve slopes _____.
A) interest rate; aggregate demand; downward
B) wealth; aggregate demand; downward
C) interest rate; investment demand; downward
D) wealth; short-run aggregate supply; upward
The government of a small town has decided to ban smoking in all restaurants, stores,
and government offices. This is an example of the principle that:
A) one person’s spending is another person’s income.
B) when markets fail to achieve efficiency, government intervention can improve
society’s welfare.
C) there are gains from trade.
D) resources should be used as efficiently as possible to achieve society’s goals.
If there is a recessionary gap, discretionary fiscal policy would likely include action to:
A) shift aggregate demand to the right.
B) shift aggregate demand to the left.
C) leave aggregate demand alone and shift short-run aggregate supply to the left.
D) shift aggregate demand to the right and shift short-run aggregate supply to the left.
The public ratio of debt to GDP for the United States in 2013 was:
A) more or less the same as that of other wealthy countries.
B) the largest ratio in the world.
C) less than 5%.
D) over 200%.
In the early 2000s, Chinese exports led to a large surplus on its current account.
A) True
B) False
An initial change in the desired level of spending by firms, households, or government
at a given level of real GDP is a(n):
A) autonomous change in aggregate spending.
B) multiplier-induced change in spending.
C) endogenous spending.
D) budget surplus.
According to the text, the public debt of the U.S. federal government at the end of fiscal
year 2013 equaled about:
A) $30 trillion.
B) $12 trillion.
C) $7.4 trillion.
D) $4.8 trillion
If a nation exports a good when the economy is opened to trade, relative to the autarky
price, the domestic price of the good will _____ and domestic consumption will _____.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Economic models are:
A) set up and used to duplicate reality.
B) useless if they are simple.
C) made generally of wood, plastic, and/or metal.
D) often useful in forming economic policy.
If interest rates rise, there will be a(n):
A) decrease in aggregate demand.
B) increase in aggregate demand.
C) increase in aggregate supply.
D) increase in the money supply.
The unemployment rate is the ratio of all of the people:
A) out of work to the total population.
B) out of work to those over age 16.
C) unemployed to those looking for work.
D) unemployed to those in the labor force.
Figure: Monetary Policy III
Look at the figure Monetary Policy III. The central bank should adopt policies to move
the economy to:
A) Y1.
B) Y2.
C) Y3.
D) Y4.
People forgo interest and hold money:
A) because they are required to.
B) to reduce their transaction costs.
C) because there are no substitutes for money.
D) because banks are too risky.
Market failure may occur because:
A) individual actions have side effects that are not properly taken into account by the
market.
B) one party to a trade benefits more than another.
C) all goods are suited for efficient management by markets.
D) of regulated self-interest.
Figure: The Market for Computers
Look at the figure The Market for Computers. Assume that PAis the autarky price and
PWis the world price. Producer surplus without international trade would be area:
A) X+ Y+ Z.
B) W+ X+ Y.
C) X+ Y.
D) Y.
Social insurance programs are:
A) government programs intended to protect families against economic hardships.
B) private insurance policies to protect families from hardships caused by government
actions.
C) private insurance policies that cover gaps in government-provided health care.
D) programs to help unemployed people have a social life.
Structural unemployment can be caused by all of the following EXCEPT:
A) minimum wages.
B) labor unions.
C) efficiency wages.
D) fluctuations in the business cycle.
The purchasing power parity between two currencies is the exchange rate at which a
given basket of goods and services would cost the same amount in each country.
A) True
B) False
Scenario: First National Bank
First National Bank has $80 million in checkable deposits, $15 million in deposits with
the Federal Reserve, $5 million cash in the bank vault, and $5 million in government
bonds.
Look at the scenario First National Bank. The bank has liabilities of:
A) $105 million.
B) $95 million.
C) $80 million.
D) $100 million.
Scenario: Aggregate Consumption Equation
Suppose that the aggregate consumption function is given by the equation C= 200 +
0.8YD, where Crepresents consumption and YDrepresents disposable income.
Look at the scenario Aggregate Consumption Equation. If all employers announce in
September that they guarantee to give all employees a large bonus in December, which
of the following equations could represent the new aggregate consumption function?
A) C= 100 + 0.8YD
B) C = 250 + 0.8YD
C) C= 200 + 0.9YD
D) C= 200 + 0.7YD
Inflation is a(n):
A) rising aggregate price level.
B) expansion of output.
C) rise in wages.
D) rise in the unemployment rate.
Supply-side economics is the belief that tax cuts can be used to stimulate long-run
economic growth.
A) True
B) False
Rising total output accompanied by increasing employment is generally known as:
A) stagflation.
B) recession.
C) inflation.
D) expansion.
The claim that reducing deficits in an economy with high rates of unemployment will
help even in the short run by improving confidence is called:
A) quantitative easing.
B) fiscal stimulus.
C) expansionary austerity.
D) a credit crunch.
If the Fed conducts an open-market sale, bank reserves _____ and the money supply is
likely to _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease