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Fiscal and monetary policies:
A) have no role in macroeconomic policies.
B) have been used by the government for over 250 years.
C) are most effective in microeconomic settings.
D) are used to correct for short-term economic fluctuations.
Which of the following would NOT maintain a fixed exchange rate?
A) trading currency in the foreign exchange market
B) changing monetary policy to shift the supply and demand curves for its own
currency
C) implementing foreign exchange controls
D) passing a law requiring that the exchange rate remain fixed
Suppose Maria wins a $7 million lottery and is trying to decide whether to take $2
million all at once or $7 million over 20 years. One bit of information Maria would
need to know is what the prevailing _____ will be over the next 20 years.
A) unemployment rate
B) interest rate
C) deflation rate
D) standard of living
Which of the following CANNOT properly be called a part of infrastructure?
A) power lines
B) roads and bridges
C) human capital
D) seaports
Which of the following statements is FALSE? In the long run, monetary policy:
A) affects only the aggregate price level.
B) does not affect aggregate output.
C) is neutral.
D) increases potential output.
If a market begins to engage in international trade, we can assume that:
A) producers in the exporting industry may be worse off.
B) consumers of the imported good may be worse off.
C) consumers of the exported good may be better off.
D) producers in the importing industry may be worse off.
The additional profit earned by Microsoft Corporation by marketing and using a
proprietary method of coding software is a microeconomic issue.
A) True
B) False
Handicapped-designated parking spaces are an example of the market economy
achieving efficiency.
A) True
B) False
The fact that individuals in a market economy act so as to make themselves better off is
a major reason a market equilibrium is usually efficient.
A) True
B) False
Fiscal policy is usually:
A) more political than monetary policy.
B) less political than monetary policy.
C) neutral like monetary policy.
D) having the same impact on all citizens.
Which of the following will increase short-run aggregate supply?
A) a law that requires health insurance for all employees
B) an increase in the aggregate price level
C) a large decrease in the price of oil
D) an increase in the minimum wage
If the economy is at potential output and the Fed decreases the money supply so that
actual output is less than potential output, eventually nominal wages will decrease.
A) True
B) False
Most economists today believe that the appropriate monetary and/or fiscal policy can
permanently reduce the unemployment rate below the natural rate.
A) True
B) False
Banking crises are usually followed by periods of economic expansion.
A) True
B) False
Every year more and more purchases are made with credit cards on the Internet. Given
this trend, all else equal, we would expect:
A) the money demand curve to shift outward.
B) the money demand curve to shift inward.
C) a downward movement along a fixed money demand curve.
D) an upward movement along a fixed money demand curve.
Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells
a U.S. bond to a customer in Britain. Which of the following illustrates the difference
and/or similarity between these two transactions?
A) Only Tom will actually receive U.S. dollars as a result of this transaction.
B) The sale of the bond generates a liability, while the sale of the oranges does not.
C) Both sales generate an asset for the United States.
D) Both sales generate a liability for the United States.
If the U.S. dollar appreciates relative to currencies in other countries, then U.S. imports
will _____ and exports will _____.
A) increase; increase
B) decrease; decrease
C) decrease; increase
D) increase; decrease
Which of the following will NOT increase labor's productivity?
A) education
B) technology
C) new capital
D) growth in the population
Figure: Actual and Natural Rates of Unemployment
Look at the figure Actual and Natural Rates of Unemployment. In 1982, the natural
unemployment rate (structural plus frictional) was approximately:
A) zero.
B) 4%.
C) 6%.
D) 10%.
Holding everything else constant, when the government uses an expansionary policy in
the presence of a deficit, it will result in:
A) an increase in the equilibrium interest rate in the loanable funds market.
B) an increase in the level of private investment spending.
C) an increase in government savings.
D) a fall in the equilibrium interest rate in the loanable funds market.
Which of the following about new classical macroeconomics is FALSE?
A) It returned to the classical view that shifts in the aggregate demand curve affect only
the aggregate price level, not aggregate output.
B) It challenged traditional arguments about the slope of the short-run aggregate supply
curve based on the concept of rational expectations.
C) It suggested that changes in productivity cause economic fluctuations.
D) It embraced the Keynesian notion that changes in aggregate demand may affect
aggregate output in the short run.
In 2011 many European countries signed a stability pact in which they agreed to keep
their structural budget balanced.
A) True
B) False
Time lags in the implementation of fiscal policy:
A) make use of fiscal policy easier.
B) render such policies useless.
C) must be considered in implementation.
D) are less problematic than those facing monetary policy.
A $200 million increase in investment spending will increase real GDP by exactly $200
million.
A) True
B) False
The economic way of thinking entails:
A) the analysis of benefits but not costs.
B) the analysis of costs but not benefits.
C) making choices at the margin.
D) making the distinction between microeconomics and macroeconomics.
A farmer finds that when he produces more corn, he also has more cornstalks that he
can sell as decorations. To the farmer, corn and cornstalks are:
A) complements in production.
B) substitutes in production.
C) unrelated goods.
D) inferior goods.
Figure: Fiscal Policy and the End of the Great Depression
Look at the figure Fiscal Policy and the End of the Great Depression. The period from
1939 through 1943 would seem to indicate that in the short run a large increase in
government deficit spending can _____the unemployment rate.
A) reduce
B) increase
C) not affect
D) reduce or increase
If Europeans begin to view the United States as a more attractive investment
opportunity, the outcome will be a(n) _____ of the dollar, which will _____.
A) depreciation; raise U.S. exports
B) appreciation; discourage Europeans from buying U.S. goods and services
C) depreciation; lower U.S. exports
D) depreciation; persuade Europeans to buy more U.S. products
Because models make simplifying assumptions, they are of very little use in the real
world.
A) True
B) False
The Great Moderation consensus among macroeconomists is described by all of the
following EXCEPT that:
A) monetary policy should play the main role in stabilization policy.
B) the central bank should be independent of politics.
C) discretionary fiscal policy should be used sparingly.
D) monetary policy is the only way to get out of the liquidity trap.
