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Economics Chapter 9 A—An Introduction to Basic Macroeconomic Markets
MULTIPLE CHOICE
1. Which of the following is a correct statement?
a.
Fiscal policy is the use of tax and spending policies by Congress and the president.
b.
Fiscal policy involves the control of the money supply by the Federal Reserve Bank.
c.
Monetary policy involves the control of the money supply by Congress and the president.
d.
Monetary policy is the use of tax and spending policies by the Federal Reserve Bank.
2. The four key markets that coordinate the circular flow of income are
a.
goods and services, resources, loanable funds, and foreign exchange.
b.
consumption, investment, stock, and government.
c.
government, household goods, bond, and business.
d.
financial, corporate, stock, and loanable funds.
3. If the price level in the current period is higher than what buyers and sellers anticipated,
a.
profit margins will be unattractive and firms will expand output.
b.
profit margins will be unattractive and firms will reduce output.
c.
profit margins will be attractive and firms will expand output.
d.
profit margins will be attractive and firms will reduce output.
4. As the general price level in an economy rises, the aggregate quantity demanded of goods and services
falls because
a.
the prices of domestic goods have risen relative to foreign goods, causing exports to fall
and imports to rise.
b.
higher interest rates caused by an increase in the demand for money balances causes a
reduction in current investment and consumption.
c.
the value of money will fall, reducing the real wealth and, thus, the consumption of
persons holding money balances.
d.
all of the above are correct.
5. Other things constant, if the cost of labor goes down, the profits of firms will
a.
increase, and short-run aggregate supply will shift to the right.
b.
fall, and short-run aggregate supply will shift to the left.
c.
increase, and long-run aggregate supply will shift to the right.
d.
fall, and long-run aggregate supply will shift to the left.
6. Long-run equilibrium in the goods and services market requires that
a.
aggregate supply equals aggregate demand and that decision makers correctly anticipate
the level of prices.
b.
the unemployment rate is zero.
c.
prices are neither increasing nor decreasing.
d.
aggregate supply be larger than aggregate demand.
7. The resource market is important from a macroeconomic perspective because
a.
it coordinates the allocation of productive resources and determines the costs of
production.
b.
it determines the interest rates faced by borrowers and lenders.
c.
inflation rates are set in the resource market by the government.
d.
resource prices determine the position of the long-run aggregate supply curve.
8. If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has
a.
appreciated, and Americans will find English goods cheaper.
b.
appreciated, and Americans will find English goods more expensive.
c.
depreciated, and Americans will find English goods cheaper.
d.
depreciated, and Americans will find English goods more expensive.
9. If the real interest rate in the domestic loanable funds market increases,
a.
firms will have an added incentive to undertake investment projects.
b.
households will save less.
c.
the net inflow of foreign capital will tend to increase.
d.
it will be cheaper to purchase goods and services now rather than in the future.
10. When equilibrium is present in the foreign exchange market, which of the following will tend to be in
balance?
a.
the value of goods exported and the value of goods imported
b.
real and nominal interest rates
c.
imports plus capital outflow and exports plus capital inflow
d.
tax revenues and government expenditures
11. The use of government taxation and expenditures to achieve macroeconomic goals is called
a.
cyclical policy.
b.
monetary policy.
c.
fiscal policy.
d.
industrial policy.
12. Which of the following provides the most accurate description of monetary policy?
a.
the deliberate control of the money supply to achieve macroeconomic goals
b.
the use of the government's regulatory powers to improve economic efficiency
c.
the government provision of goods to improve economic efficiency
d.
the use of government taxation and expenditures to achieve macroeconomic goals
13. Controlling the money supply to achieve desired macroeconomic goals is called
a.
monetary policy.
b.
cyclical policy.
c.
fiscal policy.
d.
industrial policy.
14. Which of the following best characterizes the circular flow of income?
a.
Households buy goods and services from businesses, and businesses sell goods and
services to households.
b.
The government purchases resources from businesses and households and then sells goods
and services to businesses and households.
c.
Businesses buy resources from the government, and households buy goods and services
from businesses.
d.
Businesses buy resources from households, and households use their income to buy goods
and services from businesses.
15. The market that coordinates the exchange of productive inputs between the household and business
sectors is the
a.
stock market.
b.
goods and services market.
c.
resource market.
d.
loanable funds market.
16. The market for labor services is included in the
a.
loanable funds market.
b.
goods and services market.
c.
resource market.
d.
financial market.
17. A positive level of net exports contributes directly to
a.
demand in the resources market.
b.
supply in the loanable funds market.
c.
demand in the loanable funds market.
d.
demand in the goods and services market.
18. The actions of borrowers and lenders are coordinated by
a.
the interest rate in the loanable funds market.
b.
the government in the resources market.
c.
businesses in the resources market.
d.
the interest rate in the goods and services market.
19. Saving is
a.
the sum of the funds people hold in their checking accounts.
b.
after-tax income that is not spent on consumption.
c.
always equal to consumption.
d.
equal to disposable income plus consumption.
20. The portion of after-tax income a consumer does not spend on consumption is called
a.
investment.
b.
saving.
c.
supply.
d.
temporary income.
21. As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.?
a.
consumption and net exports would decline
b.
consumption and net exports would increase
c.
consumption would increase and net exports would decrease
d.
consumption would decrease and net exports would increase
e.
consumption and net exports would remain constant
22. Which of the following properly describes the interest-rate effect of aggregate demand?
a.
A higher price level leads to higher money demand, higher money demand leads to higher
interest rates, a higher interest rate increases the quantity of goods and services demanded.
b.
A higher price level leads to higher money demand, higher money demand leads to lower
interest rates, a higher interest rate reduces the quantity of goods and services demanded.
c.
A lower price level leads to lower money demand, lower money demand leads to lower
interest rates, a lower interest rate reduces the quantity of goods and services demanded.
d.
A lower price level leads to lower money demand, lower money demand leads to lower
interest rates, a lower interest rate increases the quantity of goods and services demanded.
23. Which of the following helps explain why the aggregate demand curve slopes downward?
a.
If the price level increases, the purchasing power of the fixed quantity of money decreases,
causing people to buy less.
b.
If the price level increases, the purchasing power of the fixed quantity of money increases,
causing people to buy more.
c.
If domestic prices increase, we substitute domestic goods for imported goods.
d.
If domestic prices decrease, we substitute imported goods for domestic goods.
24. The aggregate demand curve is downward sloping because
a.
an increase in the price level will cause an increase in spending on goods and services.
b.
at lower price levels, real wealth decreases, causing a decrease in the quantity demanded
of goods and services.
c.
at lower price levels, interest rates increase, causing a decrease in the quantity demanded
of goods and services.
d.
at lower price levels, net exports increase, causing an increase in quantity demanded of
goods and services.
25. Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the
goods and services market represents
a.
nominal output or nominal GDP.
b.
the interest rate.
c.
real output or real GDP.
d.
the consumer price index.
26. The aggregate demand curve indicates the relationship between
a.
the real wage rate and the quality of resources demanded by producers of goods and
services.
b.
the interest rate and the amount of loanable funds demanded by borrowers.
c.
the natural rate of unemployment and the demand for goods and services when the
economy is in long-run equilibrium.
d.
the general price level and the aggregate quantity of goods and services demanded.
27. For an economy, aggregate demand equals
a.
consumption plus investment plus government purchases plus exports.
b.
consumption plus investment plus government purchases plus (exports minus imports).
c.
consumption plus investment plus (taxes minus transfers) plus (exports minus imports).
d.
consumption plus investment plus government purchases plus (imports minus exports).
28. In the AD/AS model, the aggregate demand for goods and services is composed of the purchases made
by
a.
households and foreigners (net exports).
b.
businesses, bondholders, and foreigners (net exports).
c.
businesses and governments.
d.
consumers, investors, governments, and foreigners (net exports).
29. The aggregate demand curve slopes downward indicating that
a.
an increase in the general price level will reduce the aggregate quantity of goods and
services demanded.
b.
an increase in the general price level will increase the aggregate quantity of goods and
services demanded.
c.
a change in the interest rate will alter the aggregate quantity of goods and services
demanded.
d.
consumers substitute between domestic-made and foreign-made goods as their relative
prices change.
30. Other things the same, a decrease in the price level makes the dollars people hold worth
a.
more, so they are willing to spend more.
b.
more, so they are willing to spend less.
c.
less, so they are willing to spend more.
d.
less, so they are willing to spend less.
31. Other things the same, an increase in the price level makes the dollars people hold worth
a.
more, so they are willing to spend more.
b.
more, so they are willing to spend less.
c.
less, so they are willing to spend more.
d.
less, so they are willing to spend less.
32. People will spend more if the price level
a.
rises because rising prices increase the real value of the fixed quantity of money.
b.
rises because rising prices decrease the real value of a dollar.
c.
falls because falling prices increase the real value of a dollar.
d.
falls because falling prices decrease the real value of a dollar.
33. The change in the quantity of goods and services demanded in the U.S. is based on the logic that as the
price level rises,
a.
real wealth falls, interest rates rise, and net exports fall.
b.
real wealth falls, interest rates rise, and net exports rise.
c.
real wealth rises, interest rates fall, and net exports fall.
d.
real wealth rises, interest rates fall, and net exports rise.
34. The change in the aggregate quantity of goods and services demanded in the U.S. is based on the logic
that as the price level falls,
a.
real wealth falls, interest rates rise, and net exports fall.
b.
real wealth falls, interest rates rise, and net exports rise.
c.
real wealth rises, interest rates fall, and net exports fall.
d.
real wealth rises, interest rates fall, and net exports rise.
35. Which of the following helps explain why the aggregate quantity demanded of goods and services is
inversely related to prices within the framework of the AD/AS model?
a.
As prices fall, domestic consumers have an incentive to buy more of the cheaper goods
and services.
b.
As prices fall, the monetary authorities will have to increase the money supply, which will
lead to an increase in the quantity of goods and services purchased.
c.
As prices fall, the government will have to reduce taxes, which will lead to an increase in
the quantity of goods and services purchased.
d.
As prices fall, the wealth of people holding the fixed quantity of money increases, causing
them to expand their purchases of goods and services.
36. Other things equal, which of the following is true?
a.
A reduction in prices will increase the real wealth of those holding a fixed quantity of
money.
b.
A reduction in prices will lead to a decline in net exports.
c.
A reduction in prices will increase the scarcity of money, raise the real interest rate, and,
thereby, encourage investment and consumption.
d.
A reduction in prices will increase profit margins and, thereby, stimulate additional
investment.
37. As prices rise, people will buy fewer goods and services because
a.
the interest rate has declined.
b.
aggregate demand has increased.
c.
the purchasing power of the fixed quantity of money has declined.
d.
the income of households has increased.
38. When prices rise, consumers and businesses hold larger money balances. This reduces the supply of
loanable funds, increases the interest rate, and discourages both consumption and investment. This
process is called the
a.
interest rate effect.
b.
real balance effect.
c.
investment effect.
d.
disinvestment effect.
39. The international substitution effect exists because a
a.
higher price level will reduce interest rates and stimulate foreign investment.
b.
lower price level will make domestically produced goods less expensive relative to foreign
goods.
c.
higher price level will reduce the purchasing power of money.
d.
lower price level will encourage Americans to import more foreign goods.
40. If prices in the United States rose, which of the following could be directly attributed to the
international substitution effect?
a.
Americans reduce their purchases of Japanese cars.
b.
Australians buy more American surfboards.
c.
Europeans purchase fewer American-made personal computers.
d.
Americans sell more wheat to India.
41. Ceteris paribus, a decrease in the U.S. price level will cause
a.
an increase in U.S. exports.
b.
an increase in U.S. imports.
c.
the aggregate demand curve to shift to the right.
d.
the aggregate demand curve to shift to the left.
42. If resource prices are fixed and the product selling price rises, then
a.
profits will decrease.
b.
profits will increase.
c.
profits will remain constant.
d.
both profits and output will decrease.
43. If scientific research produces a technological breakthrough in the production of computer memory,
then
a.
business costs will increase, profits will fall, and production will decrease.
b.
business costs will fall, but profits will also fall, and production will decrease.
c.
business costs will fall, profits will improve, and production will increase.
d.
profits will increase because businesses will cut back production.
44. Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will
a.
increase output when product prices increase.
b.
keep production levels constant when product prices decrease.
c.
keep their product prices constant even if the demand for their good increases.
d.
keep their product prices constant even if the demand for their good decreases.
45. If the actual price level exceeds the expected price level reflected in long-term contracts,
a.
many firms will find production more profitable than they had expected and will increase
the quantity of output supplied.
b.
many firms will find production less profitable than they had expected and will decrease
the quantity of output supplied.
c.
many firms will find production more profitable than they had expected and will decrease
the quantity of output supplied.
d.
many firms will find production less profitable than they had expected and will increase
the quantity of output supplied.
46. If the actual price level is lower than the expected price level reflected in long-term contracts,
a.
many firms will find production more profitable than they had expected and will increase
the quantity of output supplied
b.
many firms will find production less profitable than they had expected and will decrease
the quantity of output supplied
c.
many firms will find production more profitable than they had expected and will decrease
the quantity of output supplied
d.
many firms will find production less profitable than they had expected and will increase
the quantity of output supplied
47. Because many resource prices are set by long-term contracts, in the short run
a.
costs will increase by more than product prices when demand increases.
b.
costs will decrease when the demand for products increases.
c.
costs will increase by less than product prices when demand increases.
d.
costs will decrease by more than product prices when demand decreases.
48. If the actual price level exceeds the expected price level reflected in long-term contracts,
a.
firms will find production more profitable than they had expected and will decrease the
quantity of output supplied
b.
firms will find production less profitable than they had expected and will decrease the
quantity of output supplied
c.
firms will find production less profitable than they had expected and will increase the
quantity of output supplied
d.
unemployment will decrease
49. The short-run aggregate supply curve shows the relationship between
a.
the general level of prices and the quantity of goods and services purchased by all
consumers in the economy.
b.
the general level of prices and the quantity of goods and services that domestic firms will
supply.
c.
the interest rate and the quantity of goods and services that domestic firms will supply.
d.
the money supply and the quantity of goods and services that domestic firms will supply.
50. The aggregate supply curve indicates the
a.
relationship between prices and the aggregate quantity of goods and services purchased by
consumers, investors, governments, and foreigners (net exports).
b.
relationship between prices and the natural rate of unemployment.
c.
relationship between the real wage rate and the quantity of labor supplied by households.
d.
quantity of goods and services producers will supply at different price levels.
51. In the context of aggregate supply, the short run is defined as the period during which
a.
some prices are set by contracts and cannot be adjusted.
b.
prices can change, but neither aggregate supply nor aggregate demand can shift.
c.
individuals have sufficient time to modify their behavior in response to price changes.
d.
quantity changes cannot occur in response to changes in relative prices.
52. In the context of aggregate supply, the long run is defined as the period during which
a.
some prices are set by contracts and cannot be adjusted.
b.
prices can change, but neither aggregate supply nor aggregate demand can shift.
c.
individuals have sufficient time to modify their behavior in response to price changes.
d.
quantity changes cannot occur in response to changes in relative prices.
53. Which of the following explains why higher prices in the goods and services market will lead to an
upward sloping short-run aggregate supply curve?
a.
The higher prices will temporarily improve profit margins because many of the cost
components of firms will be fixed in the short run.
b.
The higher prices will reduce the purchasing power of the fixed quantity of money and,
thereby, stimulate additional output.
c.
The higher prices will expand the economy's resource base and, thereby, stimulate
additional output.
d.
The higher prices will improve technology and, thereby, stimulate additional output.
54. The short-run aggregate supply curve (SRAS) slopes upward to the right because unexpected increases
in prices will
a.
increase aggregate demand as consumers buy more.
b.
decrease aggregate demand as consumers buy less.
c.
cause firms to expand output since the higher product prices will improve profitability.
d.
cause firms to reduce output since the higher product prices will decrease profit margins.
55. Which of the following would generally cause firms to expand output in the short run?
a.
a proportional increase in the prices of goods and services and the costs of producing them
b.
higher profit margins as the result of an unexpected increase in the prices of goods and
services
c.
an unexpected reduction in aggregate demand
d.
an increase in wages and the prices of other resources
56. In the short run, an unexpected increase in prices will
a.
reduce resource prices and increase the quantity of goods supplied.
b.
decrease the productive capacity of firms and decrease the quantity of goods supplied.
c.
increase the profits of firms, thereby leading them to expand output.
d.
increase the profits of firms, thereby leading them to reduce output.
57. In the short run, a price increase in the goods and services market will
a.
increase the purchasing power of money.
b.
improve producer profits and, thereby, induce suppliers to expand output.
c.
increase resource prices, lower profits, and lead to a decline in output.
d.
reduce the natural rate of unemployment.
58. If the price level in the current period is lower than what buyers and sellers anticipated,
a.
profit margins will be unattractive, and firms will expand output.
b.
profit margins will be unattractive, and firms will reduce output.
c.
profit margins will be attractive, and firms will expand output.
d.
profit margins will be attractive, and firms will reduce output.
59. The supply of resources, level of technology, and the quality of an economy's institutional
arrangements provide the constraint that determines the shape of the
a.
short-run aggregate supply curve.
b.
long-run aggregate supply curve.
c.
supply of loanable funds.
d.
aggregate demand curve.
60. Once decision makers fully adjust to an increase in prices,
a.
the natural rate of unemployment will decline.
b.
competitive forces will restore the usual relationship between product prices and costs.
c.
producers' profits will exceed their normal level.
d.
producers will expand output beyond the economy's potential.
61. The vertical long-run aggregate supply curve reflects the fact that in the long run, an increase in the
price level
a.
will not alter the economy's maximum sustainable rate of output.
b.
will increase the economy's maximum sustainable rate of output.
c.
will reduce the quantity of goods and services purchasers will demand.
d.
will improve the overall efficiency of resource use.
62. A vertical long-run aggregate supply curve indicates that
a.
an increase in the price level will not expand an economy's output capacity in the long run.
b.
outputs greater than the long-run supply constraint cannot be achieved.
c.
an increase in the price level will permit the economy to achieve a higher level of output.
d.
an increase in the price level will promote technological change and more rapid economic
growth.
63. Which of the following basic economic concepts most clearly provides the foundation for the long-run
aggregate supply curve?
a.
the law of demand
b.
the production possibilities curve
c.
the law of comparative advantage
d.
the law of diminishing marginal utility
64. If the actual price level is lower than the expected price level reflected in long-term contracts,
a.
the actual rate of unemployment will be less than the natural rate of unemployment.
b.
the actual rate of unemployment will exceed the natural rate of unemployment.
c.
the natural rate of unemployment will rise.
d.
the natural rate of unemployment will fall.
65. In the aggregate demand and aggregate supply model,
a.
the factors that cause the individual demand curve to slope downward are the same as the
factors that cause the aggregate demand curve to slope downward.
b.
the factors that cause the individual supply curve to slope upward are the same as the
factors that cause the short-run aggregate supply curve to slope upward.
c.
the upward-sloping aggregate demand curve intersects the downward-sloping short-run
aggregate supply curve to determine the economy's price level and GDP.
d.
the upward-sloping short-run aggregate supply curve intersects the downward-sloping
aggregate demand curve to determine the economy's price level and GDP.
66. The potential output of an economy is the level of output produced when the
a.
real wage equals the nominal wage.
b.
price level is constant.
c.
expected real wage equals the inflation rate.
d.
expected price level equals the unemployment rate.
e.
expected price level equals the actual price level.
67. When equilibrium is present, if market conditions do not change,
a.
the current price will tend to rise in the future, and the current quantity will tend to fall.
b.
the current price will tend to fall in the future, and the current quantity will tend to rise.
c.
the current price and quantity will tend to persist in the future.
d.
the current price will tend to persist in the future, but the current quantity will tend to rise.
68. In the short run, if prices were below equilibrium,
a.
excess aggregate demand for goods and services would place downward pressure on
prices.
b.
excess aggregate supply of goods and services would place downward pressure on prices.
c.
excess aggregate demand for goods and services would place upward pressure on prices.
d.
excess aggregate supply of goods and services would place upward pressure on prices.
69. Long-run equilibrium in the goods and services market requires that decision makers who agreed to
long-term contracts must have
a.
incorrectly anticipated the level of prices when they made the agreements.
b.
correctly anticipated the level of prices when they made the agreements.
c.
correctly anticipated the natural rate of unemployment when they made the agreements.
d.
correctly anticipated actual GDP when they made the agreements.
70. Within the framework of the AD/AS model, if a long-run equilibrium is present in the goods and
services market,
a.
decision makers will have accurately forecast the current price level when they arrived at
resource price and loanable funds agreements.
b.
the profit rates of the firms will generally exceed the competitive level.
c.
the actual rate of unemployment will be less than the natural rate of unemployment.
d.
output will exceed the economy's long-run sustainable output.
71. Within the framework of the AD/AS model, if a long-run equilibrium is present in the goods and
services market,
a.
decision makers will have accurately forecast the current price level when they arrived at
resource price and loanable funds agreements.
b.
the profit rates of the firms will generally exceed the competitive level.
c.
the actual rate of unemployment will fall below the natural rate of unemployment.
d.
the current rate of output will be sustainable in the future.
e.
both a and d are correct.
72. Output in the goods and services market will be sustained into the future
a.
if aggregate demand and short-run aggregate supply are in balance.
b.
only when the prior choices of decision makers were based on a correct anticipation of
prices.
c.
only when prices are rising.
d.
only when wage rates are declining.
73. When an economy is in long run equilibrium,
a.
it will be impossible to sustain the current rate of output in the future.
b.
the interest rate will decline.
c.
the foreign exchange value of the dollar will tend to appreciate.
d.
the actual and natural rates of unemployment will be equal.
74. Which of the following is necessarily true when an economy is in long-run equilibrium?
a.
Prices will be constant (that is, inflation will be zero).
b.
The actual output will be less than the full-employment (or potential) output.
c.
The actual rate of unemployment equals the natural rate of unemployment.
d.
The output of the economy will be greater than the full-employment output.
75. When the actual GDP equals the full-employment level of GDP, the
a.
economy is in long-run equilibrium.
b.
price level must be rising.
c.
expected inflation must be zero.
d.
aggregate supply curve is not constrained by the scarcity of resources.
76. When an economy operates at its long-run potential output level,
a.
aggregate demand will exceed aggregate supply in the goods and services market.
b.
unemployment will decline to an abnormally low rate that cannot be sustained in the long
run.
c.
the actual rate of unemployment will exceed the natural rate of unemployment.
d.
the natural and actual rates of unemployment will be equal.
77. Which of the following will always be true when an economy is in long-run equilibrium?
a.
The level of prices will be constant (that is, inflation will be zero).
b.
Actual output will exceed the potential output.
c.
The actual rate of unemployment will be less than the natural rate of unemployment.
d.
The output of the economy will correspond with the full-employment output.
78. From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent.
When inflation is constant for an extended period, which of the following is most likely?
a.
People will correctly anticipate the actual inflation rate, and the actual rate of
unemployment will approach the natural rate of unemployment.
b.
People will correctly anticipate the actual inflation rate, and the actual rate of
unemployment will exceed the natural rate of unemployment.
c.
The actual inflation rate will be greater than the anticipated rate, leading to an actual rate
of unemployment that exceeds the natural rate of unemployment.
d.
Actual inflation will be less than the anticipated rate, leading to an actual rate of
unemployment that exceeds the natural rate of unemployment.
79. When the actual rate of unemployment is less than the natural rate of unemployment, the economy
a.
operates at an output greater than its long-run potential.
b.
operates at its maximum sustainable output.
c.
must also be experiencing stable prices (zero inflation).
d.
operates at an output less than its long-run potential.
80. The actual rate of unemployment will be greater than the natural rate of unemployment when
a.
the actual output is less than the economy's potential output.
b.
the actual output is greater than the economy's potential output.
c.
the actual output is equal to the economy's potential output.
d.
the inflation rate has been relatively constant for several years.
81. When prices in the goods and services market are below the level anticipated,
a.
output will temporarily exceed the economy's long-run potential.
b.
output will temporarily fall short of the economy's long-run potential.
c.
output will be equal to the economy's long-run potential.
d.
the actual rate of unemployment will be less than the natural rate of unemployment.
82. An unexpected sharp reduction in inflation will most likely result in
a.
the rapid growth of output and employment.
b.
a reduction in the actual rate of unemployment.
c.
a reduction in the natural rate of unemployment.
d.
a temporary increase in unemployment and a decline in real output.
83. An unanticipated reduction in the level of prices in the goods and services market, which results in a
temporary increase in real wage rates, will
a.
increase the natural rate of unemployment.
b.
reduce the natural rate of unemployment.
c.
result in an actual rate of unemployment that is less than the natural rate of unemployment.
d.
result in an actual rate of unemployment that is greater than the natural rate of
unemployment.
84. Which of the following will most likely result from an unexpected increase in prices that decreases
real wages and resource prices?
a.
a decrease in unemployment
b.
an increase in unemployment
c.
a decrease in the nominal interest rate
d.
a decrease in aggregate supply and real output
85. An unanticipated increase in the level of prices in the goods and services market, which results in a
temporary reduction in real wage rates, will
a.
decrease the natural rate of unemployment.
b.
increase the natural rate of unemployment.
c.
result in an actual rate of unemployment that is less than the natural rate of unemployment.
d.
result in an actual rate of unemployment that is greater than the natural rate of
unemployment.
86. Within the framework of the AD/AS model, when the current price level in the goods and services
market is above the level anticipated at the time decision makers agreed to long-term resource
contracts,
a.
producer profits will fall, leading to a reduction in output.
b.
the natural rate of unemployment will rise.
c.
the actual rate of unemployment will fall below the natural rate of unemployment.
d.
output will be temporarily below the economy's long-run sustainable output.
87. The resource market involves transactions dealing with
a.
natural resources and financial services.
b.
the borrowing and lending of financial capital.
c.
the buying and selling of final goods and services.
d.
labor services, natural resources, and physical capital.
88. Other things constant, an increase in resource prices will
a.
increase the demand for goods and services.
b.
increase the cost of producing goods and services, which will lead to a higher price level.
c.
reduce costs and improve profit margins, which will lead to an increase in aggregate
supply in the goods and services market.
d.
cause the natural rate of unemployment to rise.
89. Other things constant, a decrease in resource prices will lead to
a.
reduced profits and a reduction in short-run aggregate supply.
b.
increased profits and a reduction in short-run aggregate supply.
c.
reduced profits and an increase in short-run aggregate supply.
d.
increased profits and an increase in short-run aggregate supply.
90. Other things constant, a decrease in aggregate demand will
a.
lead to a decrease in the demand for resources.
b.
cause an increase in the general level of prices.
c.
result in higher nominal wage rates.
d.
reduce the rate of unemployment.
91. For a major country with extensive capital flows, what is the effect of an increase in interest rates?
a.
There will be an inflow of capital, a currency depreciation, and increased net exports.
b.
There will be an inflow of capital, a currency depreciation, and reduced net exports.
c.
There will be an outflow of capital, a currency depreciation, and increased net exports.
d.
There will be an inflow of capital, a currency appreciation, and reduced net exports.
92. For a major country with extensive capital flows, what is the effect of a decrease in interest rates?
a.
There will be an inflow of capital, a currency depreciation, and increased net exports.
b.
There will be an inflow of capital, a currency depreciation, and reduced net exports.
c.
There will be an outflow of capital, a currency depreciation, and increased net exports.
d.
There will be an inflow of capital, a currency appreciation, and reduced net exports.
93. If both borrowers and lenders anticipate the rate of inflation correctly, then
a.
borrowers will lose real income.
b.
lenders will lose real income.
c.
both borrowers and lenders will lose real income.
d.
neither borrowers nor lenders will lose real income.
94. A positive nominal interest rate indicates
a.
how fast the number of dollars in your savings account is rising over time.
b.
how fast the purchasing power of your savings account is rising over time.
c.
the number of dollars in your savings account today.
d.
the purchasing power in your savings account today.
95. A positive real interest rate indicates
a.
how fast the number of dollars in your savings account is rising over time.
b.
how fast the purchasing power of your savings account is rising over time.
c.
the number of dollars in your savings account today.
d.
the purchasing power of your savings account today.
96. Which of the following is the most accurate statement about nominal and real interest rates?
a.
Nominal and real interest rates always move together.
b.
Nominal and real interest rates never move together.
c.
Nominal and real interest rates often do not move together.
d.
Nominal and real interest rates always move in opposite directions.
97. Which of the following is the most accurate statement about real and nominal interest rates?
a.
Real interest rates can be either positive or negative, but nominal interest rates must be
positive.
b.
Real interest rates and nominal interest rates must be positive.
c.
Real interest rates must be positive, but nominal interest rates can be either positive or
negative.
d.
Real interest rates and nominal interest rates can be either positive or negative.
98. Suppose, over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent.
a.
The dollar value of savings increased at 2 percent, and the value of savings measured in
goods increased at 3 percent.
b.
The dollar value of savings increased at 1 percent, and the value of savings measured in
goods increased at 2 percent.
c.
The dollar value of savings increased at 3 percent, and the value of savings measured in
goods increased at 1 percent.
d.
The dollar value of savings increased at 4 percent, and the value of savings measured in
goods increased at 3 percent.
99. Suppose the nominal interest rate was 5 percent and the inflation rate was 3.5 percent.
a.
The dollar value of savings increased at 1.5 percent, and the value of savings measured in
goods increased at 3.5 percent.
