Which of the following factors have contributed to the lack of economic growth in
Latin America?
I. low rates of savings and investment
II. low value on education
III. political instability
A) I only
B) II only
C) III only
D) I, II, and III
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. If disposable income is $1,000, savings is:
A) “$500.
B) $1,300.
C) “$300.
D) $300.
An example of a government transfer is a(n):
A) expenditure on an interstate highway.
B) bequest from a deceased relative.
C) Social Security payment.
D) salary for a member of the armed forces.
A popular train station has free parking for commuters who take the train. This often
results in many people being unable to find a parking spot and missing their train. To
solve this problem, all commuters should be:
A) given a parking pass along with their ticket.
B) required to pay for parking.
C) able to purchase an annual pass which allows them to park at the train station.
D) exempt from parking lot fees.
Generally, the more liquid an asset is, the:
A) lower its purchasing power.
B) lower its rate of return.
C) higher its capacity to store value over time.
D) higher its rate of return.
At the end of each business day, the Federal Reserve requires banks to hold reserves
equal to 10% of their checkable deposits.
A) True
B) False
If the equilibrium interest rate in the money market is 5%, at an interest rate of 2% the
quantity of nonmonetary interest-bearing financial assets demanded is _____ the
quantity supplied.
A) less than
B) greater than
C) equal to
D) irrelevant to
Which of the following is the most widely accepted measure of economic growth over
time?
A) inflation
B) increases in real per capita GDP
C) decline in real interest rates
D) increases in the available labor supply
The crowding-out effect is the negative effect of government budget deficits on private
investment spending.
A) True
B) False
Shares in the pools of securitized mortgages proved to be very safe investments, since
large numbers of defaults on mortgages did not occur at the same time.
A) True
B) False
Figure: The Market for Thumb Drives
Look at the figure The Market for Thumb Drives. Assume that PAis the autarky price,
PWis the world price, and Dand Srepresent domestic demand and supply, respectively.
Consumer surplus in free trade equals the area:
A) A.
B) A + B + C.
C) A + B + C + D.
D) A + B.
In 2008 the Federal Reserve worried about:
A) the threat of stagflation, and it had a difficult time stabilizing the economy, as
stabilization policies are not very effective in managing negative supply shocks.
B) hyperinflation, and it used strong disinflationary policies to bring the rise in prices
under control.
C) a healthy, booming economy, and it used fine-tuning methods to keep the growing
economy on track.
D) a deep recession with falling prices, and it used stabilization policies to take the
economy out of the slump.
After a devaluation, all other things equal, exports will likely _____ and imports will
likely _____ .
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Excess supply occurs when:
A) the price is above the equilibrium price.
B) the quantity demanded exceeds the quantity supplied.
C) the price is below the equilibrium price.
D) the quantity demanded exceeds the quantity supplied and the price is below the
equilibrium price.
A sudden and widespread disruption of financial institutions and markets is known as:
A) a liquidity trap.
B) the fallacy of composition.
C) a financial panic.
D) stagflation.
Economists who agree with the Great Moderation consensus believe that monetary
policy can keep unemployment below the natural rate.
A) True
B) False
The short-run Phillips curve:
A) depicts the positive relationship between the unemployment rate and the inflation
rate.
B) broke down in the 1970s because of a supply shock.
C) illustrates that expected inflation has little effect on the natural rate of
unemployment.
D) shows that policies may not be able to change the natural rate of unemployment.
A bank loan is a(n) _____ to the borrower and a(n) _____ to the bank.
A) asset; liability
B) asset; asset
C) liability; liability
D) liability; asset
If government increases income tax rates, the aggregate demand curve is likely to:
A) shift to the right.
B) shift to the left.
C) remain constant.
D) become positively sloped.
Economists today generally believe that monetary policy can stabilize the economy but
not reduce unemployment below its natural rate.
A) True
B) False
New classical economics:
A) focuses on short-run economic fluctuations.
B) returns to the view that shifts in aggregate demand affect only the price level.
C) argues that the business cycle is caused by “animal spirits.”
D) focuses on the trade-off between unemployment and inflation.
If the consumer price index for 2009 was 148.3 and for 2010 was 152.5, what was the
inflation rate between the two years?
A) 0.97%
B) 2.83%
C) 4.20%
D) 9.72%
Because the revenue from personal income taxes increases as disposable income
increases:
A) the multiplier effect decreases.
B) the marginal propensity to consume decreases as income increases.
C) the multiplier effect increases.
D) the marginal propensity to save increases as income decreases.
When the Fed pursues a policy of quantitative easing, it:
A) is trying to increase interest rates.
B) is trying to decrease inflation.
C) purchases short-term government securities.
D) purchases long-term debt whose interest rates are significantly above zero.
Suppose a bank does NOT hold excess reserves and the reserve ratio is 20%. If Molly
deposits $1,000 of cash in her checking account and the bank lends $600 to Freda, the
bank can lend an additional:
A) $400.
B) $200.
C) $1,000.
D) $5,000.
If real GDP doubles in 12 years, its average annual growth rate is approximately:
A) 6%.
B) 5%.
C) 4%.
D) 3%.
Too little spending in an economy often leads to:
A) a recession.
B) inflation.
C) equilibrium.
D) efficiency.
If policy makers want to increase real GDP by $100 billion and the marginal propensity
to consume is 0.75, they should _____ government purchases of goods and services by
_____ .
A) increase; $25 billion
B) increase; $33 billion
C) increase; $100 billion
D) decrease; $100 billion
According to the liquidity preference model, if the interest rate rises above its
equilibrium value, the quantity demanded of nonmonetary interest-bearing financial
assets _____, and this leads to a _____ in the interest rate.
A) decreases; rise
B) increases; fall
C) decreases; fall
D) increases; rise
If planned aggregate spending rises by $10 billion and the marginal propensity to
consumeis 0.8, then the income”expenditure equilibrium increases by 50 billion.
A) True
B) False
Which of the following ALWAYS results in an increase in price and quantity?
A) an increase in supply and a decrease in demand
B) an increase in demand with no change in supply
C) an increase in supply with no change in demand
D) a decrease in demand and supply
The slump that followed the 2008 financial crisis is called the Great Modernization.
A) True
B) False
Suppose the equilibrium price of good Y is $5 and the equilibrium quantity is 150 units.
If the price of good Y is $12:
A) the quantity demanded will be greater than 150 units.
B) the quantity supplied will be less than 150 units.
C) there will be an excess demand for good Y.
D) there will be an excess supply of good Y.
An argument against Britain’s adopting the euro was that using the euro would make
monetary policy less effective.
A) True
B) False
When someone says resources are scarce, this suggests that:
A) lower-income individuals must be especially careful about the choices they make.
B) choices must be made to utilize resources in the best manner possible.
C) additional resources could be found if there were additional funds allocated to the
effort.
D) we have enough resources to meet all of our needs and wants.