Fractional reserve banking is a system where banks must hold an amount of cash based
on a percentage of its loans.
a. True
b. False
Which of the following statements about GDP is correct?
a. GDP measures two things at once: the total income of everyone in the economy and
the total expenditure on the economy’s output of goods and services.
b. Money continuously flows from households to firms and then back to households,
and GDP measures this flow of money.
c. GDP is generally regarded as the best single measure of a society’s economic
wellbeing.
d. All of the above are correct.
In the 1990s, U.S. prices rose at about the same rate as in the 1970s.
a. True
b. False
The indirectprovision of funds by savers to borrowers is accomplished by
a. banks and other financial markets.
b. banks and other financial intermediaries.
c. stock markets and other financial markets.
d. All of the above are correct.
In the open-economy macroeconomic model, the supply of loanable funds equals
a. national saving. The demand for loanable funds comes from domestic investment +
net capital outflow.
b. national saving. The demand for loanable funds comes only from domestic
investment.
c. private saving. The demand for loanable funds comes from domestic investment +
net capital outflow.
d. private saving. The demand for loanable funds comes only from domestic
investment.
Most economists believe that money neutrality
a. does not hold in the short run.
b. does not hold in the long run.
c. does not hold in either the short run or long run.
d. holds in the short run and the long run.
Figure 35-9. The left-hand graph shows a short-run aggregate-supply (SRAS) curve
and two aggregate-demand (AD) curves. On the right-hand diagram, “Inf Rate” means
“Inflation Rate.”
RefertoFigure35-9. A movement of the economy from point A to point B, and at the
same time a movement from point C to point D, would be described as
a. the outcome of a favorable supply shock.
b. falling inflation.
c. stagflation.
d. All of the above are correct.
When conducting an open-market sale, the Fed
a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.
Which of the following is notan argument in favoof requiring the government to
balance its budget?
a. Government debt imposes higher taxes or more borrowing on future generations.
b. A balanced budget will smooth the business cycle.
c. Deficits lower national saving.
d. Recent history shows that Congress will run deficits even when deficits are not
justified by war or recession.
Some people claim that stocks follow a random walk. What does this mean?
a. The price of stock one day is about what it was on the previous day.
b. Changes in stock prices cannot be predicted from available information.
c. Stock prices are not determined by market fundamentals such as supply and demand.
d. Prices of stocks of different firms in the same industry show no or little tendency to
move together.
In the basket of goods that is used to compute the consumer price index, which of the
following categories of consumer spending is the largest?
a. education & communication
b. food & beverages
c. medical care
d. recreation
In the open-economy macroeconomic model, if the supply of loanable funds shifts
right, then
a. the supply of dollars in the market for foreign-currency exchange shifts left.
b. the supply of dollars in the market for foreign-currency exchange shifts right.
c. the demand for dollars in the market for foreign-currency exchange shifts left.
d. the demand for dollars in the market for foreign-currency exchange shifts right.
More generous unemployment insurance would
a. raise structural unemployment.
b. raise frictional unemployment.
c. lower structural unemployment.
d. lower frictional unemployment.
Assume that there is no accelerator affect. The MPC = 3/4. The government increases
both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the
size of that created by government expenditures alone. The crowding out effect is 1/5 as
strong as the combined effect of government expenditures and taxes on aggregate
demand. How much does aggregate demand shift by?
a. $1480
b. $480
c. $160
d. None of the above is correct.
The circular-flow diagram
a. is an economic model.
b. incorporates two types of decision makers: households and firms.
c. represents the flows of inputs, outputs, and dollars.
d. All of the above are correct.
The consumer price index is
a. not very useful as a measure of the cost of living.
b. a perfect measure of the cost of living.
c. a useful measure, but not a perfect measure, of the cost of living.
d. not used as a measure of the cost of living.
Which of the following would both make the interest rate on a bond higher than
otherwise?
a. the interest it pays is taxed and it is long term
b. the interest it pays is taxed and it is short term
c. the interest it pays is tax exempt and it is long term
d. the interest it pays is tax exempt and it is short term
The slope of a steep upward-sloping line will be a
a. small positive number.
b. large positive number.
c. small negative number.
d. large negative number.
When a union raises the wage above the equilibrium level, it
a. reduces both the quantity of labor supplied and the quantity of labor demanded.
b. reduces the quantity of labor supplied and raises the quantity of labor demanded.
c. raises the quantity of labor supplied and reduces the quantity of labor demanded.
d. raises both the quantity of labor supplied and the quantity of labor demanded.
Your accountant tells you that if you can continue to earn the current interest rate on
your balance of $800 for the next two years you will have $898.88 in your account. If
your accountant is correct, then what is the current interest rate?
a. 6 percent
b. 7 percent
c. 8 percent
d. 9 percent
A person who is counted as “unemployed” by the Bureau of Labor Statistics
a. is also in the labor force.
b. must have recently looked for work or be on temporary layoff.
c. must be at least 16 years old.
d. All of the above are correct.
The price of a basket of goods and services in the U.S. is $600. In Canada the same
basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2
Canadian dollars per U.S. dollar, what would be the real exchange rate?
a. 700/600
b. 600/700
c. 700/720
d. None of the above is correct.
A person who is not employed and claims to be trying hard to find a job but really is not
trying hard to find a job is
a. counted as out of the labor force but should be counted as unemployed.
b. counted as unemployed but should be counted as out of the labor force.
c. correctly counted as out of the labor force.
d. correctly counted as unemployed.
Figure 4-16
RefertoFigure4-16. The shift from S to S” could be caused by an
a. increase in the price of the good.
b. improvement in production technology.
c. increase in income.
d. increase in input prices.
You love peanut butter. You hear on the news that 50 percent of the peanut crop in the
South has been wiped out by drought and that this will cause the price of peanuts to
double by the end of the year. As a result, your demand for peanut butter
a. will increase but not until the end of the year.
b. increases today.
c. decreases as you look for a substitute good.
d. shifts left today.
Like physical capital, human capital is a produced factor of production.
a. True
b. False
A scholarship gives you $1,000 today and promises to pay you $1,000 one year from
today. What is the present value of these payments?
a. $2,000/(1 + r)2.
b. $1,000 + $1,000/(1 + r)
c. $1,000/(1 + r) + $1,000/(1 + r)2
d. $1,000(1 + r) + $1,000(1 + r)2
Table 4-12
A country club usually only allows members to purchase tickets for its celebrity golf
tournament, but the club is considering allowing non-members to purchase tickets this
year. The demand and supply schedules are as follows:
RefertoTable4-12.If both members and non-members are allowed to purchase tickets
to this year’s celebrity golf tournament and the country club sets the ticket price at $20,
then there will be
a. a shortage of 300 tickets.
b. a surplus of 300 tickets.
c. 300 tickets sold.
d. 600 tickets unsold.
Some studies have found that saving is not very sensitive to the rate of return on saving.
a. True
b. False
Table 24-2
The table below pertains to Pieway, an economy in which the typical consumer’s basket
consists of 15 bushels of peaches and 10 bushels of pecans.
RefertoTable24-2. If 2012 is the base year, then the CPI for 2012 was
a. 95.7.
b. 100.0.
c. 90.0.
d. 110.0.
In the open-economy macroeconomic model, if there is a surplus in the market for
foreign-currency exchange, which of the following will move the market to
equilibrium?
a. the real exchange rate depreciates and net exports fall.
b. the real exchange rate depreciates and net exports rise.
c. the real exchange rate appreciates and net exports fall.
d. the real exchange rate appreciates and net exports rise.
In the United States, a cup of hot chocolate costs $5. In a foreign country, the same hot
chocolate costs 6.5 units of that country’s currency. If the exchange rate were 1.3 units
of foreign currency per U.S. dollar, what is the real exchange rate?
a. 1/2 cup of that country’s hot chocolate per cup of U.S. hot chocolate
b. 1 cup of that country’s hot chocolate per cup of U.S. hot chocolate
c. 2 cups of that country’s hot chocolate per cup of U.S. hot chocolate
d. None of the above is correct.
If efficiency wages became more common,
a. both the long-run Phillips curve and the long-run aggregate supply curve would shift
right.
b. both the long-run Phillips curve and the long-run aggregate supply curve would shift
left.
c. the long-run Phillips curve would shift right, and the long-run aggregate supply curve
would shift left.
d. the long-run Phillips curve would shift left, and the long-run aggregate supply curve
would shift right.
Unemployment insurance tends to
a. decrease structural unemployment.
b. decrease cyclical unemployment.
c. increase frictional unemployment.
d. increase the number of discouraged workers.