Figure: A Money Market
Look at the figure A Money Market. If the current interest rate is r1, the interest rate
will _____ because there is a _____ of money in the market.
A) fall; surplus
B) fall; shortage
C) rise; surplus
D) rise; shortage
All other things equal, a depreciation of the domestic currency will cause aggregate
demand to increase.
A) True
B) False
The financial meltdown of 2008″2009:
A) was accurately predicted by an economic model.
B) was due to excessive investment in Internet companies.
C) was the result of the breakup of the European Union.
D) resulted partially from a faulty economic model.
French fries and hamburgers are complements in consumption. Suppose the cost of the
ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then
the equilibrium relative price of french fries _____ and the equilibrium quantity _____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
Figure: AD”AS
Look at the figure AD”AS. Suppose the economy starts at E1 and moves to E2, where
AD2 intersects SRAS1. Finally the economy moves to E3. The classical model of price
level assumes that the economy moves from _____; thus, inflation _____ and real GDP
_____.
A) E1 to E3, ignoring E2; increases; remains the same
B) E2 to E3, ignoring E1; remains the same; increases
C) E2 to E3; decreases; remains the same
D) E1 to E2, ignoring E3; remains the same; remains the same
Which of the following is the BEST example of making a choice at the margin?
A) buying a new car
B) quitting your job
C) drinking another cup of coffee
D) attending college
An example of an automatic stabilizer is:
A) tax receipts rising when GDP rises.
B) a discretionary increase in taxes.
C) government purchases of goods and services rising when GDP rises.
D) government transfers rising when GDP rises.
A country’s balance of payments on financial account is the difference between the
country’s sales of assets to foreigners and its purchases of assets from foreigners during
a given period.
A) True
B) False
If private savings increase, the _____ loanable funds will _____, interest rates will
_____, and the amount of borrowing will _____.
A) demand for; increase; increase; increase
B) demand for; decrease; decrease; decrease
C) supply of; increase; decrease; increase
D) supply of; decrease; increase; decrease
Look at the table Individual and Aggregate Consumption Functions. Which of the
following represents Andy’s individual consumption function?
A) C= 0.15YD
B) C= 150 + 0.5YD
C) C= 150 + 0.8YD
D) C= 0.95YD
Figure: Production Possibilities and Circular-Flow Diagram
Look at the figure Production Possibilities and Circular-Flow Diagram. Assume the two
figures represent the same economy. Suppose that in the circular-flow diagram there is a
significant decrease in the amount of labor flowing to the firms that produce coconuts.
If all other variables remain unchanged, this adjustment in the economy would be best
represented in the production possibilities figure by a move from point A toward:
A) point A (no movement).
B) point B (a decrease in coconut production and an increase in fish production).
C) point C (a decrease in coconut production).
D) point D (an outward shift of the entire curve).
If tortilla chips are a normal good, when there is an increase in income, equilibrium
price _____ and equilibrium quantity _____.
A) decreases; increases.
B) decreases; decreases.
C) increases; increases.
D) increases; decreases.
Discouraged workers:
A) are getting paid too little.
B) do not like their job.
C) are working part-time but are looking for a full-time job.
D) have given up looking for a job.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at I1 in panel
(b), it is in:
A) a recessionary gap.
B) an inflationary gap.
C) simultaneous short-run and long-run equilibrium.
D) full employment.
Table: Pizza Economy III
Look at the table Pizza Economy III. Considering 2010 as the base year, nominal GDP
in 2011 was:
A) $47,000.
B) $69,000.
C) $72,000.
D) $114,000.
If the U.S. dollar were replaced with a “new dollar” at an exchange rate of 1 new dollar
for 8 old dollars, then a mortgage of $100,000 would become a debt of _____ new
dollars.
A) 12,500
B) 99,992
C) 100,000
D) 800,000
The Great Moderation consensus about macroeconomic policy is that monetary policy:
A) is effective.
B) can reduce the unemployment rate below the natural rate.
C) makes the economy unstable.
D) should follow a policy rule.
Which of the following schools of thought believe that expansionary monetary policy is
effective in fighting recessions?
I. classical macroeconomics
II. Great Moderation consensus
A) I only
B) II only
C) I and II
D) neither I nor II
Figure: The Loanable Funds Model in the U.S. Market
Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest
rate is less than 4% in the U.S. market, then the quantity supplied of loanable funds will
be _____ the quantity of loanable funds demanded.
A) greater than
B) less than
C) equal to
D) unrelated to
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 as
a percentage of productivity growth?
A) 20%
B) 47%
C) 53%
D) 91%
A resource is anything that:
A) can be used in production.
B) you pay for.
C) is in scarce supply.
D) can be consumed.
Look at the table Production of Good Z and Good X in Urbanville. Suppose this table
shows the production possibility frontier. Urbanville is producing at combination C and
moves to combination D. What is the opportunity cost of this move?
A) 15 of X
B) 5 of Z
C) 15 of Z
D) 45 of X
As people get used to inflation:
A) the short-run aggregate demand curve adjusts more rapidly.
B) wages adjust faster, and the short-run aggregate supply shifts quickly to the right.
C) wages adjust faster, and the short-run aggregate supply shifts quickly to the left.
D) the long-run aggregate demand adjusts more slowly.
Which of the following statements is CORRECT?
A) Resource scarcity is not a major concern in the rich countries of the world.
B) Some opportunity costs are zero.
C) An economic situation is in equilibrium when no individual would be better off
taking a different action.
D) Some very talented, skilled individuals who can do everything better than most
people should not specialize in doing any one thing.
The value of a stock depends primarily on investors’ assessments of its value in the past.
A) True
B) False
An economic policy maker would rank a _____ shock as the MOST preferred type.
A) positive demand
B) negative demand
C) positive supply
D) negative supply
Scenario: The Employment Rate
A group of 10 people includes 3 retirees, 2 part-time workers, 2 discouraged workers, 1
unemployed worker, and 2 full-time workers.
Look at the scenario The Employment Rate. The labor force participation rate is:
A) 30%.
B) 50%.
C) 70%.
D) 80%.
If a country’s price for wood furniture in the absence of trade is lower than the price
with trade, the country will likely:
A) import wooden furniture.
B) export wooden furniture.
C) have absolute advantage in wooden furniture production.
D) have a surplus of wooden furniture.
In lending to Vanessa, Alison expects the inflation rate to be 8% over the next year.
Vanessa agrees to pay Alison a 10% interest rate on the loan, but Vanessa expects
inflation to be 9%. If the actual inflation rate is 9%:
A) the real rate of interest is 1%.
B) the real rate of interest is 9%.
C) Vanessa ends up paying a lower real interest rate than she had expected.
D) Alison ends up receiving a higher real interest rate than she had expected.
Sri Lanka’s comparative advantage over the United States in textiles can be explained
by its:
A) labor abundance.
B) mild climate.
C) advanced technology.
D) increasing returns.
If disposable income increases by $5 billion and consumer spending increases by $4
billion, the marginal propensity to consume equals:
A) 20.
B) 0.8.
C) 1.25.
D) 9.
Reduction of interest rates was ineffective in fighting the Great Recession because:
A) Congress decreased government spending to balance the budget.
B) crowding-out occurred.
C) the economy was dangerously close to a liquidity trap.
D) businesses and consumers borrowed and spent so much that it caused an inflationary
gap.
If the marginal propensity to consume is 0.9, then the tax multiplier will be:
A) impossible to determine.
B) greater than 10.
C) less than 10.
D) zero, because there is no multiplier effect from taxes.
If a project costs $100,000 and is expected to return $105,000 in a year and if the
interest rate is 6%, then the company will want to take out a loan to undertake the
project.
A) True
B) False