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The multiplier process:
A) explains how spending continues indefinitely with continuous rounds of spending.
B) ends after one round of spending and with total spending limited to the initial change
in spending.
C) occurs only when economies are in an expansion phase.
D) is limited, with the total change in real GDP dependent upon the size of the marginal
propensity to consume.
During periods of high inflation, the short-run aggregate supply curve is:
A) vertical.
B) horizontal.
C) upward sloping.
D) downward sloping.
Figure: Income"Expenditure Equilibrium
Look at the table Income"Expenditure Equilibrium. If investment spending decreases in
this economy, then the:
A) aggregate expenditurescurve will shift up, increasing the income"expenditure
equilibrium.
B) aggregate expenditures curvewill shift down, decreasing the income"expenditure
equilibrium.
C) economy will move upward along the aggregate expenditures curve, increasing the
income"expenditure equilibrium.
D) economy will move downward along the aggregate expenditures curve, decreasing
the income"expenditure equilibrium.
To finance your education, you borrow $10,000 from your aunt at an annual interest
rate of 5%. If your cousin offers to lend you the same amount but suggests a lower
interest rate and you take the offer, you will end up repaying your cousin _____ you
would have to your aunt.
A) more than.
B) less than
C) the same amount as
D) more now but less later than
Latin American growth since the 1920s has been relatively slow because of all of the
following EXCEPT:
A) a lack of savings to finance investment.
B) a lack of a solid education system.
C) a lack of political stability.
D) U.S. intervention.
Which one of the following statements is TRUE?
A) Keynes treated short-run macroeconomics as a minor issue.
B) Keynes emphasized the short-run effects of shifts in aggregate demand on aggregate
output, employment, and prices, whereas the classical economists focused on the
long-run determination of the aggregate price level.
C) The classical economists believed that the short-run aggregate supply curve was
upward sloping.
D) The classical economists emphasized the short-run effects of shifts in aggregate
demand on aggregate output, whereas Keynes focused on the long-run determination of
the aggregate price level.
Suppose that the United States and European Union are the only trading partners in the
world. If the European Union imposes some import tariffs on U.S. goods, we would
expect:
A) the supply of the euro to decrease, depreciating the euro.
B) the demand for the dollar to decrease, depreciating the dollar.
C) the demand for the dollar to increase, appreciating the dollar.
D) the supply of the dollar to decrease, depreciating the dollar.
Figure: Consumer and Capital Goods
Look at the figure Consumer and Capital Goods. If the economy is operating at point Y
and its relevant production possibility frontier is curve 1:
A) the economy is at full employment and is efficient.
B) the economy is less than fully employed.
C) the economy is not efficient.
D) economic growth is not possible in the future.
Which of the following is NOT a financial intermediary?
A) pension funds
B) mutual funds
C) life insurance company
D) credit card company
For Keynes, changes in aggregate demand had their greatest impact:
A) on the aggregate price level.
B) in the long run.
C) on the aggregate output level.
D) equally on the aggregate output level and the aggregate price level.
A survey reveals that on a small island 40 people have jobs, 10 people are not working
but looking for jobs, and 30 people are neither working nor looking for work. The
unemployment rate on the island is:
A) 12.5%.
B) 20%.
C) 25%.
D) 50%.
Suppose investment spending increases by $50 billion and as a result the equilibrium
income increases by $200 billion. The value of the marginal propensity to consume is:
A) 0.8.
B) 0.4.
C) 0.75.
D) 4.
The inflation rate is measured as the percentage change per year in a price index.
A) True
B) False
Households demand resources in the factor markets.
A) True
B) False
The existence of banks:
A) increases the severity of the trade-off between rate of return and liquidity.
B) decreases the severity of the trade-off between rate of return and liquidity.
C) has no effect on the trade-off between rate of return and liquidity.
D) decreases both the rate of return and the liquidity of its customers' assets.
In the long run, an increase in aggregate demand from a position of full employment
leads to:
A) higher prices and higher output.
B) higher prices and the same output.
C) higher output and lower prices.
D) higher output and higher unemployment.
If the Federal Reserve conducts a $10 million open-market sale and the reserve
requirement is 20%, the monetary base will:
A) increase by $10 million.
B) increase by $8 million.
C) decrease by $10 million.
D) decrease by $50 million.
Countries that follow floating exchange rate regimes:
A) tend to insulate themselves from economic fluctuations in other countries.
B) give up the ability to use monetary policy as a stabilization tool.
C) find that they are susceptible to economic fluctuations in other countries.
D) give up the ability to use fiscal policy as a stabilization tool.
Look at the table The Production Possibilities for Tractors and Crude Oil. In the United
States the opportunity cost of producing 30,000 barrels of crude oil is _____ tractors.
A) 60
B) 80
C) 100
D) 120
Which of the following is NOT one of the four principles of individual choice?
A) Resources are scarce.
B) Unpaid volunteer work is irrational, since economic rationality dictates that
individuals should only engage in work they are paid for.
C) The real cost of something is its opportunity cost.
D) People usually take advantage of opportunities to make themselves better off.
Table: Investment Projects
Look at the table Investment Projects. If the market interest rate declines from 15% to
13%, then the amount of investment demanded will increase by:
A) $200.
B) $1,000.
C) $2,000.
D) $2,200.
In an economy with no taxes and no imports, disposable income increases from $2,000
to $3,000. If consumption increases from $1,500 to $2,100, the marginal propensity to
save is:
A) $600.
B) $400.
C) 0.80.
D) 0.40.
Figure: The Production Possibilities for Two Countries
Look at the figure The Production Possibilities for Two Countries. Both nations will
gain from trade when 1 tire trades for:
A) 0.33 radio.
B) 0.5 radio.
C) 1.5 radios.
D) 2 radios.
Commercial banks _____, while investment banks _____.
A) accept deposits from customers; trade financial assets but don't accept deposits
B) are not allowed to make profits; are allowed to profit from buying and selling
financial assets
C) cannot own financial assets; can own a wide variety of financial assets
D) are a type of shadow bank; are not shadow banks
In the circular-flow diagram, the value of household incomethe sum of wages,
dividends, interest, rental income, and transfer paymentsequals the sum of:
A) household tax payments.
B) consumer spending, private saving, and household tax payments.
C) the money supply.
D) transfer payments and household tax payments.
In the long run, the economy is:
A) self-correcting, as commodity prices rise during recessionary gaps and fall during
inflationary gaps to move the economy to long-run equilibrium.
B) self-correcting, as prices of goods that are sticky in the short run become very
flexible in the long run and thus move the economy to full employment.
C) fluctuating, as nominal wages rise and fall during short-run economic fluctuations.
D) self-correcting, as nominal wages rise during recessionary gaps and fall during
inflationary gaps to move the economy to long-run equilibrium.
In an economy without government purchases, government transfers, or taxes,
aggregate autonomous consumer spending is $250 billion, planned investment spending
is $100 billion, and the marginal propensity to consume is 0.6. What is the expression
for planned aggregate spending?
A) AEPlanned= $100 + 0.6 YD
B) AEPlanned= $250 + 0.4 YD
C) AEPlanned= $350 + 0.6 YD
D) AEPlanned= $150 + 0.4 YD
If there is an inflationary gap in the economy, discretionary fiscal policy will likely
include action to:
A) shift aggregate demand to the right.
B) prevent the aggregate demand curve from shifting.
C) shift aggregate demand to the left.
D) shift both aggregate demand and short-run aggregate supply to the left.
Real GDP will increase if aggregate output increases.
A) True
B) False
Rising inventories usually indicate an:
A) economy that grows unexpectedly.
B) economy that slows unexpectedly.
C) unexpected spurt in sales.
D) inflationary cycle.
