Figure: Actual and Natural Rates of Unemployment
Look at the figure Actual and Natural Rates of Unemployment. In 2014, the natural
unemployment rate was approximately:
A) zero.
B) 3%.
C) 5.5%.
D) 9%.
Scenario: Aggregate Consumption Function
Suppose the aggregate consumption function is given by C= 1,000 + 0.75YD, where Cis
consumption and YDis disposable income.
Look at the scenario Aggregate Consumption Function. If disposable income increases
by $100, aggregate consumption will increase by _____ and autonomous consumption
_____.
A) $75; remains at $1,000
B) $1000; remains at $75
C) $100; increases by $100
D) $175; increases by $100
A town hires more police officers and then has an increase in arrests. One can conclude
that the larger police force caused more crime.
A) True
B) False
The multiplier effect of an increase in transfer payments is smaller than that of an equal
increase in government purchases of goods and services because some of the transfer
payment is likely to be saved.
A) True
B) False
An upward shift in the consumption function can be caused by:
A) an increase in consumer wealth.
B) a drop in consumer wealth.
C) pessimistic expectations.
D) an increase in disposable personal income.
Most of the Fed’s income comes from:
A) interest on its loans to commercial banks.
B) payments from the U.S. government in return for the Fed serving as its fiscal agent.
C) interest on the U.S. Treasury bills that it owns.
D) fees that it charges commercial banks for clearing checks and electronic funds
transfers.
Discretionary fiscal policy refers to changes in:
A) interest rates.
B) the money supply.
C) government spending or taxes to close a recessionary or inflationary gap.
D) taxes to account for externalities and control pollution.
The General Theory of Employment, Interest, and Money is:
A) the first economics textbook of the 1980s.
B) a defense of fiscal policy written by Milton Friedman.
C) an analysis of the Great Depression.
D) an explanation of globalization.
Figure: Fiscal Policy II
Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If
there is an increase in taxes, _____ will shift to the _____, causing a(n) _____ in the
price level and a(n) _____ in real GDP.
A) AD1; left; increase; decrease
B) AD1; left; decrease; decrease
C) AD2; right; increase; increase
D) AD2; right; decrease; increase
Table: Price Levels
2011 221.3
2012 227.7
2013 232.2
2014 234.8
Look at the table Price Levels. What is the rate of inflation from 2011 to 2012?
A) 0%
B) 2.9%
C) 4.5%
D) 6.4%
If the economy is at potential output and the Fed increases the money supply, in the
SHORT run the price level will likely:
A) fluctuate randomly.
B) remain the same.
C) decrease.
D) increase.
To be officially unemployed, a person must:
A) not have a job and must have looked for work in the past four weeks.
B) under 55 years old.
C) working less than 30 hours per week.
D) working less than 20 hours per week.
A newspaper story recently reported that the price of new cars, a normal good, has
decreased and the quantity of new cars sold has dropped. The new price and quantity
could have been caused by:
A) a decrease in buyers’ incomes.
B) an increase in buyers’ incomes.
C) an increase in production costs.
D) a decrease in production costs.
The money spent on domestically produced final goods and services:
A) is equal to GDP.
B) is equal to exports minus imports.
C) is subtracted in the circular-flow model.
D) is equal to GDP, is equal to exports minus imports, and is subtracted in the
circular-flow model.
During periods of high inflation, stores that publish catalogs find it necessary to revise
prices and publish new catalogs more frequently than before. This is an example of
_____ costs.
A) unit-of-account
B) menu
C) shoe-leather
D) redistributive
Which of the following is a payment from the United States to foreigners?
A) the dollar value of tea the United States imports from India
B) the dollar value of services provided to Canada
C) the dollar value of tourism by visitors from the European Union
D) the fees for financial services provided by the United States to China
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. A decrease in savings by the
private sector will shift the supply of loanable funds to the _____ and _____ the interest
rate.
A) left; increase
B) right; decrease
C) right; increase
D) left; decrease
Suppose Oklahoma decides to produce only two goods, oil and football helmets. If
Oklahoma is producing on its production possibility frontier, as oil production
increases, the production of football helmets will:
A) increase.
B) not change.
C) decrease at a decreasing rate.
D) decrease.
In the United States:
A) GNP is about twice GDP.
B) GDP is about twice GNP.
C) GDP exceeds GNP by depreciation plus indirect business taxes.
D) GNP and GDP are about equal.
An advantage of stabilizing macroeconomic policy over economic self-correction is
that:
A) stabilization policies achieve potential output with a lower aggregate price level.
B) economic self-correction can take a decade or more.
C) economic self-correction affects the aggregate price level but not the aggregate
output level.
D) stabilization policies are particularly effective to address supply shocks.
A negative short-run supply shock _____ aggregate output and _____ the aggregate
price level.
A) reduces; increases
B) increases; reduces
C) reduces; reduces
D) increases; increases
The economy is in short-run macroeconomic equilibrium when the quantity of
aggregate output supplied is equal to the quantity of aggregate output demanded.
A) True
B) False
Suppose there is an excess demand for water in Florida. This means that we can expect
the price of water to increase in Florida over time.
A) True
B) False
Suppose the market for gasoline is in equilibrium. You have heard that the price of
crude oil is falling because of new oil discoveries. You are also aware that the number
of car and truck drivers is steadily rising. Knowing this, you predict that the price of
gasoline will _____ and the quantity of gasoline bought and sold will _____.
A) rise; rise
B) rise; fall
C) rise or fall; rise
D) rise or fall; fall
Short-term interest rates:
A) fluctuate widely depending on their terms.
B) tend to move together.
C) move in the same direction as long-term interest rates.
D) are always less than long-term interest rates.
A depression occurs when:
A) both output and employment increase.
B) the economic downturn becomes extremely deep and prolonged.
C) both price level and unemployment increase.
D) output rises but employment remains unchanged.
China’s exchange rate policy:
A) led to current account deficits in the early 2000s.
B) led to the supply of yuan exceeding the demand for yuan.
C) is floating rate policy.
D) is a fixed rate policy.
A negative externality is a cost that individuals or firms impose on others without
having to offer compensation.
A) True
B) False
During the mid-1980s, Israel had a high rate of inflation, and prices often rose by more
than 10% per month.
A) True
B) False
When unemployment is high, in the short run, nominal wages will:
A) be flexible.
B) be inflexible.
C) not be affected.
D) be contracted at the minimum wage.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(b) and the government does not intervene, the result will likely be a shift of:
A) AD1 to AD2.
B) SRASto the left.
C) LRAS to the left.
D) SRAS to the right.
If nominal GDP of 2012 was higher than nominal GDP of 2011:
A) production in 2012 was higher than production in 2011, while prices remained
unchanged.
B) production or prices or both were higher in 2012 than in 2011.
C) prices in 2012 were higher than prices in 2011, while production remained
unchanged.
D) production in 2012 went down and prices increased.
A mortgage-backed security is an asset that:
A) only homeowners are allowed to purchase.
B) provides earnings to its owner based on payments made by people on their home
loans.
C) the Federal Reserve uses to implement monetary policy.
D) is an important part of the circular-flow diagram.
Which of the following policies is MOST likely to reduce traffic congestion in a large
metropolitan area because people usually exploit opportunities to make themselves
better off?
A) a limited number of free early-bird parking passes given only to those who arrive
prior to 6 A.M.
B) a toll road that requires each car to pay a fee to enter the city center
C) an increase in the price of subway and bus fare to and from the city
D) asking citizens to carpool