The long-run Phillips curve:
A) depicts the negative relationship between the unemployment rate and the inflation
rate.
B) suggests that policies have little effect on the natural rate of unemployment in the
long run.
C) explains how expansionary policies can affect an economy, while contractionary
policies have little effect.
D) shows the positive relationship between the unemployment rate and the inflation
rate.
Comparative advantage in international trade:
A) is used only by large countries.
B) is used to determine whether trade will be beneficial to both countries involved.
C) provides benefits to developed countries only.
D) does not determine what goods countries should produce.
A direct restriction on the quantity of an import is called a(n):
A) import quota.
B) tariff.
C) import subsidy.
D) import restriction.
Which of the following statements is TRUE?
A) Long-run growth started during the Renaissance.
B) Long-run growth started in the early 1700s.
C) Peasants in eighteenth-century Europe had a standard of living more than 50 times
that of the Egyptian peasants in the age of the pharaohs.
D) Long-run growth is a relatively modern phenomenon.
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. The multiplier is:
A) 0.8.
B) 0.2.
C) 5.
D) 1.25.
Figure: AD”ASModel II
Look at the figure AD”AS Model II. If there is a significant increase in government
spending, in the short run the _____ curve will shift to the _____.
A) SRAS; left
B) SRAS; right
C) AD; left
D) AD; right
The convergence hypothesis says that international differences in real GDP per capita
tend to increase over time.
A) True
B) False
An increase in capital stock would:
A) shift the production function upward.
B) shift the production function inward.
C) shift the production function downward.
D) cause a movement to the right along a stationary production function.
In the foreign exchange market for dollars and pounds, the demand for dollars is also
the supply of pounds.
A) True
B) False
There is a negative relationship between the quantity of investment spending and the
interest rate.
A) True
B) False
Figure: Changes in the Money Supply
Look at the figure Changes in the Money Supply. Federal Reserve policy to increase the
supply of money, hence to lower the interest rate from 6% to 4%, is accomplished by
action that _____ the _____ Treasury bills.
A) lowers; price of
B) increases; interest rate on
C) increases; demand for
D) increases; supply of
An inflation tax is the effect on the public of a reduction in the value of money caused
by inflation.
A) True
B) False
When the government decides to increase taxes to fight an inflationary gap, it is:
A) most likely to increase the budget deficit.
B) an example of discretionary fiscal policy.
C) an example of an automatic stabilizer.
D) likely to dampen the effects of inflation but not to lead to a correction.
The formula for the rule of 70, where n is number of years and r is growth rate, is
expressed as:
A) n 70 = r.
B) n / r = 70.
C) r / n = 70.
D) n r = 70.
The belief that fluctuations in the rate of growth of factor productivity cause the
business cycle is:
A) new classicalism.
B) monetarism.
C) Keynesianism.
D) the real business cycle theory.
The Federal Reserve regional banks and the Board of Governors supervise, examine,
and regulate commercial banks.
A) True
B) False
Suppose the required reserve ratio is 25% and a customer deposits $300 in her
checkable deposit. The money supply will _____ if the banking system does NOT hold
any excess reserves.
A) increase by $1,200
B) increase by $900
C) increase by $300
D) be unchanged
Before the 2008 financial crisis, Spain had _____ debt and a budget _____.
A) low; surplus
B) low; deficit
C) high; surplus
D) high; deficit
Between 1973 and the early 1990s consumers responded to:
A) low oil prices by buying large cars, trucks, and SUVs that were not fuel-efficient.
B) low oil prices by using other types of energy.
C) high oil prices by buying small, fuel-efficient cars.
D) high oil prices by agreeing to cap-and-trade policies to limit the use of oil.
Figure: Income”Expenditure Equilibrium
Look at the table Income”Expenditure Equilibrium. If planned investment spending
increases autonomously by $100, real GDP will:
A) increase by $250.
B) increase by $100.
C) increase by $125.
D) not change.
The demand curve for loanable funds slopes:
A) upward, since it takes a higher rate of return to get more funds.
B) downward, because more potential projects yield 10% than yield 5%.
C) upward, because higher rates of return are necessary to cover higher costs.
D) downward, because demand is lower when the price to borrow money is higher.
An increase in the money supply causes _____ in output in the short run and _____ in
output in the long run.
A) an increase; no change
B) an increase; an increase
C) no change; an increase
D) no change; no change
To decrease interest rates, the Fed should increase the money supply.
A) True
B) False
If the Federal Open Market Committee engages in an open market purchase, it will shift
the money _____ curve to the_____,
A) supply; right
B) supply; left
C) demand; left
D) demand; right
Economists generally believe that during an expansion, an economy should:
A) balance its budget.
B) run a budget deficit.
C) run a budget surplus.
D) be able to pay off all of its debt.
If the demand for pounds sterling in the United States rises, then:
A) the U.S. dollar appreciates.
B) the pound sterling price of the U.S. dollar increases.
C) the U.S. dollar price of the pound sterling increases.
D) the pound depreciates.
Which statement is NOT true about the World Trade Organization (WTO)?
A) The WTO provides the framework for complex negotiations involved in major
international trade agreements.
B) The WTO resolves disputes between member countries.
C) The WTO is an international organization.
D) The WTO is a direct enforcer of trade agreements.
Between 1929 and 1933, real GDP increased by a large amount.
A) True
B) False
Table: Price and Output Data
Look at the table Price and Output Data.
The value of year 4’s output in real dollars is:
A) $5.20.
B) $6.
C) $30.
D) $36.
If planned investment spending is $2 trillion and inventories decrease by $0.5 trillion,
actual investment spending is:
A) $2.5 trillion.
B) $1.5 trillion.
C) $2 trillion.
D) $1 trillion.
A negative output gap is associated with a(n) _____ unemployment rate.
A) unusually low
B) natural
C) unusually high
D) unchanged
Suppose people expect the price of MP3 players to rise next year. As a result of this
expectation, people will most likely:
A) purchase fewer MP3 players this year.
B) observe higher prices for MP3 players this year.
C) purchase the same amount of MP3 players, since this expectation will have no effect
on consumers this year.
D) decide to wait and purchase the MP3 players next year.
Nearly all economists agree that expansionary fiscal policy can _____ aggregate _____.
A) increase; supply
B) decrease; supply
C) increase; demand
D) decrease; demand
If real GDP per capita grows at 5% per year consistently over time, how many years
will it take for it to double?
A) 5
B) 10
C) 14
D) 70
A fiscal year for the federal government runs from January 1 to December 31.
A) True
B) False