In the long run changes in the money supply will change prices, real GDP, and interest
rates.
A) True
B) False
Suppose a country has floated its currency and the central bank sets a contractionary
monetary policy. Which of the following is LIKELY to occur?
A) The country’s currency will depreciate.
B) Interest rates will rise, the currency will appreciate, and any inflationary gap will
shrink.
C) Interest rates will fall, which will reduce aggregate demand.
D) Net exports will be larger.
In countries with rapidly growing economies, like China and India, the demand for
loanable funds is _____ and interest rates are _____ than in countries with slowly
growing economies.
A) larger; higher
B) larger; lower
C) smaller; higher
D) smaller; lower
Changing interest rates is an example of _____ policy.
A) fiscal
B) tax
C) monetary
D) exchange rate
The measurement of business cycles was pioneered by:
A) Ragnar Frisch.
B) John Maynard Keynes.
C) Wesley Mitchell.
D) Andrew Mellon.
The aggregate production function exhibits _____ returns to physical capital.
A) diminishing
B) constant
C) increasing
D) negative
If a country has a positive capital inflow, it:
A) borrows more than it lends to foreigners.
B) has an inflow amount equal to its X + IM.
C) lends more than it borrows from foreigners.
D) has an outflow amount equal to X + IM.
Look at the table Aggregate Spending. Suppose the economy has no government
spending and no foreign trade. With no taxes or transfers, real GDP equals disposable
income (YD). At what level of real GDP will the economy find its income”expenditure
equilibrium?
A) $2,000
B) $2,500
C) $3,500
D) $4,500
The guarantee by the FDIC to reimburse bank customers up to $250,000 per deposit in
the event of bank problems is called:
A) fractional reserve banking.
B) reserve requirements.
C) discount rate.
D) deposit insurance.
Figure: The Market for Oranges in South Africa
Look at the figure The Market for Oranges in South Africa. In autarky, the price of
oranges in South Africa is P1. When the economy is opened to trade, the price falls to
PWand producer surplus will _____ to area _____.
A) fall; N+ Q
B) fall; Q
C) rise; M+ N+ O+ P
D) rise; M+ N+ O+ P+ Q
Which of the following methods of encouraging recycling is likely to be MOST
effective because people usually exploit opportunities to make themselves better off?
A) appealing to consumers to be a good citizen
B) publicizing the advantages of recycling
C) imposing a tax per unit of garbage generated
D) All three methods are equally effective.
Scenario: Consumption Spending
Suppose that the consumption function is C= $500 + 0.8 YD,where YD is disposable
income.
Look at the scenario Consumption Spending. Autonomous consumption is:
A) $500.
B) 0.
C) four-fifths of disposable income.
D) $1,300 if disposable income is $1,000.
Inflation:
A) raises the cost of making purchases.
B) can result in a decrease in barter transactions.
C) encourages people to hold cash.
D) is caused by changes in interest rates.
To avoid falling into a liquidity trap, most central banks:
A) seek a positive but small inflation rate rather than zero inflation.
B) target inflation rather than the money supply.
C) conduct open-market operations to change the money supply instead of changing the
discount rate.
D) aim at a target of zero inflation so that inflation expectations are zero too.
The value of the multiplier will be smaller:
A) the larger the value of the marginal propensity to save.
B) the larger the value of the marginal propensity to consume.
C) if the marginal propensity to consume equals the marginal propensity to save.
D) if the marginal propensity to consume plus the marginal propensity to save equals 1.
To _____ the money supply, the Federal Reserve could _____.
A) decrease; lower the reserve requirements
B) increase; lower the discount rate
C) increase; conduct open-market sales
D) decrease; lower the federal funds rate
Changes in the money supply have no long-run effects on the interest rate because when
the price level changes, the demand for money changes to offset the short-run changes
in the money supply.
A) True
B) False
A deficit in the current account means there will be:
A) a surplus in the financial account.
B) a deficit in the financial account.
C) a balanced financial account.
D) either a surplus or a deficit in the financial account.
Look at the table Production Possibilities for Machinery and Petroleum. The
opportunity cost in the United States of producing 30 units of petroleum is _____ units
of machinery.
A) 60
B) 80
C) 100
D) 120
If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to
reach the target rate, the government should raise interest rates.
A) True
B) False
The most painful effect of a recession is:
A) inflation.
B) unemployment.
C) money neutrality.
D) liquidity trap.
Changing the quantity of money, hence the interest rate, hence overall spending in the
economy, is use of _____ policy.
A) monetary
B) fiscal
C) free-market
D) trickle-down
An increase in efficiency means that an economy has:
A) reduced its opportunity costs.
B) increased the equity of its distribution of goods and services.
C) made more people better off without making others worse off.
D) increased the incentives for its citizens to follow their own self-interest.
The only government policy that has a DIRECT effect on the aggregate demand curve
is:
A) changing the quantity of money.
B) raising or lowering the tax rate.
C) changing the level of government purchases of final goods and services.
D) changing the level of government transfers.
Figure: Short- and Long-Run Equilibrium
Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium
at E1, it is in a(n):
A) recessionary gap.
B) inflationary gap.
C) high level of unemployment.
D) liquidity trap.
An increase in the value of a currency that is set under a fixed exchange rate regime is
a(n):
A) depreciation.
B) devaluation.
C) appreciation.
D) revaluation.
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. Eastland has an absolute advantage in
producing:
A) oranges only.
B) peaches only.
C) both oranges and peaches.
D) neither oranges nor peaches.
When policy makers make a deliberate fiscal policy decision:
A) it is called discretionary fiscal policy.
B) it is an example of an automatic stabilizer.
C) no lag effects will result.
D) the value of the multiplier will be reduced.
A liquid asset:
A) can be easily converted to a loan.
B) can be easily converted to cash with little or no loss of value.
C) are the only assets which financial markets work with.
D) carries no financial risk.
A cap and trade system:
A) reduces climate change by requiring individuals and firms to buy licenses to emit
greenhouse gases.
B) encourages fair trade by limiting the amount of many vegetables that can be
imported from Mexico.
C) was used in nineteenth-century England to limit coal consumption.
D) exempts Chinese imports from Food and Drug Administration regulations.
If a bank has excess reserves of $3,000 and the reserve requirement is 20%, the
maximum amount of potential increase in the money supply is $600.
A) True
B) False
Which of the following statements is TRUE?
A) The producer price index is just another term for the GDP deflator.
B) Changes in the producer price index generally follow changes in the consumer price
index.
C) The producer price index measures the cost of a basket of goods typically purchased
by producers.
D) The producer price index shows how the cost of all purchases by urban families
changes.