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A model is defined as a:
a. description of all variables affecting a situation.
b. positive analysis of all variables affecting an event.
c. simplified description of reality to understand and predict an economic event.
d. prediction based on historical evidence.
Crowding out refers to the situation in which:
a. borrowing by the federal government raises interest rates and causes firms to invest
less.
b. foreigners sell their bonds and purchase U.S. goods and services.
c. borrowing by the federal government causes state and local governments to lower
their taxes.
d. increased federal taxes to balance the budget causes interest rates to increase and
consumer credit decreases.
Exhibit 9-3 Keynesian aggregate-expenditures model
As shown in Exhibit 9-3, if GDP is $14 trillion, the economy experiences unplanned
inventory:
a. accumulation of $12 trillion.
b. depletion of $14 trillion.
c. accumulation of $2 trillion.
d. depletion of $4 trillion.
Which of the following is a characteristic of capitalism?
a. Equality of income.
b. Government decision-making is preferred to decentralized decision-making.
c. Market determination of prices and quantity.
d. Government ownership of all capital.
The unreported or illegal production of goods and services in the economy that is not
counted in GDP is termed:
a. money laundering.
b. the underground economy.
c. disposable personal income.
d. indirect national income.
e. unreported capital consumption.
The proponents of adaptive expectations believe that:
a. there will be a substantial time lag before people anticipate the effects of a shift to a
more expansionary macro-policy.
b. macro-policies that stimulate demand and place upward pressure on the general level
of prices will temporarily increase output and employment.
c. discretionary changes in macro-policy can be made in a manner that will reduce the
economic ups and downs of a market economy.
d. all of these are true.
If one dollar exchanges for 20 Thailand baht, then:
a. a baht is worth $20.
b. $20 will exchange for one baht.
c. a baht is worth $2.
d. the United States and Thailand would not engage in trade.
e. a baht is worth a nickel.
Which of the following invests funds into a business and is considered an owner?
a. Stockholders
b. Creditors
c. Bankers
d. Lenders
Exhibit 1A-2 Straight line
In Exhibit 1A-2, as X increases along the
horizontal axis, corresponding to points C-D on the line, the Y values increase. The
relationship between the X and Y variables is:
a. direct.
b. inverse.
c. independent.
d. variable.
Suppose the United States decides to impose a $1,000 tax on every Japanese minivan
sold in the United States. This is an example of:
a. a tariff.
b. free trade.
c. comparative advantage.
d. the diversity of industry argument.
e. a quota.
The rate of interest charged by the Federal Reserve to member banks for reserves
borrowed from the Fed is known as the:
a. federal funds rate.
b. discount rate.
c. repurchase rate.
d. Q-ceiling rate.
According to the Monetarists, the primary cause of inflation is:
a. large budget deficits.
b. high taxes.
c. rapid expansion of the money supply.
d. government expenditures that are large relative to the size of the economy.
All of the following are the types of activities that businesses engage in except:
a. financing activities.
b. investing activities.
c. operating activities.
d. organizational activities.
Which of the following is a statement of positive economics?
a. Government control of rent is a fair way to help poor people afford housing.
b. Government control of rent keeps landlords from charging too much rent.
c. Government control of rent decreases the number of new apartments constructed.
d. Government control of rent is an injustice.
Suppose you transfer $1,000 from your checking account to your savings account. How
does this action affect the M1 and M2 money supplies?
a. M1 and M2 are both unchanged.
b. M1 falls by $1,000, and M2 rises by $1,000.
c. M1 is unchanged, and M2 rises by $1,000.
d. M1 falls by $1,000, and M2 is unchanged.
The exchange of one good for another, without the use of money, is known as:
a. acquisitive exchange.
b. liquidity.
c. volatility.
d. barter.
e. currency.
In the aggregate expenditures model, if an economy operates above equilibrium GDP,
there will be:
a. unplanned inventory depletion.
b. an increase in GDP.
c. an increase in employment.
d. a decrease in GDP.
"Preannounced, stable policies to achieve a low and constant money supply growth and
a balanced federal budget are therefore the best way to lower the inflation rate." This
statement best illustrates the:
a. Keynesian theory.
b. rational expectations theory.
c. incomes policy.
d. supply-side theory.
In an economy with persistent inflation,
a. real GDP will grow faster than nominal GDP.
b. nominal GDP will grow faster than real GDP.
c. nominal and real GDP will grow at the same rate.
d. nominal and real GDP will both fall.
A tax is structured so that the tax as a percentage of income declines as the level of
income increases is called a(n):
a. flat tax.
b. regressive tax.
c. progressive tax.
d. excise tax.
