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When a country utilizes more physical capital per worker over time, there will be:
A) lower and eventually zero growth rate of productivity.
B) higher growth rates of productivity.
C) no change in the growth rate of productivity.
D) lower but always positive growth rates of productivity.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(a) and the government does not intervene, the result will likely be:
A) a shift of AD1 to the left.
B) a shift of SRAS1 to SRAS2.
C) a shift of LRAS to the left.
D) no change in AD or SRAS.
If during several months the economy is simultaneously increasing its levels of output
and employment, then the economy is in a(n):
A) depression.
B) expansion.
C) recession.
D) turning point between a recovery and a downturn.
When a currency becomes more valuable in terms of other currencies, it depreciates.
A) True
B) False
Look at the table Individual and Aggregate Consumption Functions. Which of the
following represents Fred's individual consumption function?
A) C= 100 + 0.7YD
B) C= 100 + 0.5YD
C) C= 150 + 0.8YD
D) C= 0.80YD
In a simple economy with no government and no foreign sector, autonomous consumer
spending is $250 and planned investment spending is $500. The marginal propensity to
consume is 0.80.
a. Solve for the equilibrium level of real GDP.
b. Suppose that interest rates fall and planned investment increases by $100. What is the
new level of equilibrium real GDP?
The interest rate effect states that as the aggregate price level rises, holding everything
else constant, people demand _____ money, which drives the interest rate _____ and
investment _____.
A) less; down; up
B) more; up; down
C) less; up; down
D) more; down; down
The convergence hypothesis states that international differences in real GDP per capita
tend to _____ over time.
A) diverge
B) fluctuate
C) remain constant
D) narrow
A high demand for money (as in Japan) would result from:
A) a decrease in nominal GDP and a high crime rate.
B) a decrease in real GDP and a preference from businesses to accept only debit cards.
C) a decrease in the price level.
D) low crime rates and widespread lack of capacity to accept noncash payments.
The aggregate demand curve is negatively sloped in part because of the impact of
interest rates on:
A) potential output.
B) net exports.
C) consumption and investment spending.
D) government purchases.
The real estate market in Ft. Myers, Florida, had collapsed by 2008 because:
A) houses were overpriced.
B) most Floridians prefer to rent apartments rather than buy houses.
C) hurricanes damaged so much property.
D) climate change has made much of the retiree population leave Florida.
An intermediate good would be:
A) a new boat to be used for vacations.
B) lumber used to build a house.
C) payments to military personnel.
D) a professor's salary.
When the government guarantees a troubled bank's liabilities:
A) the bank is merged into the Federal Reserve System and becomes a Federal Reserve
bank.
B) the owners of the bank must pay a fee to receive the guarantee.
C) the government takes over the bank temporarily and then reprivatizes the bank by
selling it to private investors.
D) the bank is permanently closed.
Because of the multiplier effect, an increase in government spending of $200 billion
will increase aggregate output by less than that amount.
A) True
B) False
Which of the following is TRUE?
A) M2 includes the gold stock but not M1.
B) M2 includes M1.
C) The gold stock backs M2 but not M1.
D) M1 includes M2 but not the gold stock.
Figure: International Capital Flows
Look at the figure International Capital Flows. At an interest rate of 4%, the total
quantity of loanable funds demanded across the two markets is _____ the total quantity
of loanable funds supplied by lenders.
A) greater than
B) less than
C) equal to
D) not related to
During the Great Depression, the United States moved to the _____ along its _____
curve.
A) right; aggregate demand
B) right; short-run aggregate supply
C) left; aggregate demand
D) left; short-run aggregate supply
Policy makers use a contractionary fiscal policy when they want to close:
A) a recessionary gap.
B) any kind of output gap.
C) an inflationary gap.
D) an open economy.
Substitutes in production suggest that a producer with a fixed set of resources initially
will need to reduce production of one good when the producer:
A) produces less of the other good.
B) produces more of the other good.
C) has an increase in resources.
D) produces more of the other good and has an increase in resources.
In a market basket of goods:
A) the quantities stay constant and the prices may change.
B) the quantities may change and the prices are held constant.
C) both the prices and the quantities are held constant.
D) both the prices and the quantities may change.
Scenario: Productivity
The economy has grown by 4% per year over the past 30 years. During the same period
the labor force has grown by 1% per year and the quantity of physical capital has grown
by 5% per year. Each 1% increase in physical capital per worker is estimated to
increase productivity by 0.4%. Assume that human capital has not changed during the
past 30 years.
Look at the scenario Productivity. How much has growing physical capital per worker
contributed to productivity growth?
A) 6%
B) 5.4%
C) 2%
D) 1.6%
Assume that the United States imposes an import quota on Scottish wool suits. Relative
to the equilibrium price that would prevail in the absence of quotas, the equilibrium
price of suits in the United States will most likely _____ and the equilibrium price of
suits in Scotland will most likely _____.
A) remain the same; decrease
B) remain the same; increase
C) increase; increase
D) increase; decrease
Friedman and Schwartz's work A Monetary History of the United States, 1867"1960
showed that the business cycle historically was associated with fluctuations in:
A) prices.
B) interest rates.
C) the money supply.
D) business investment.
On average short-term interest rates are higher than long-term rates to compensate for
higher risk in the short term.
A) True
B) False
Among the assets of a bank are:
A) customers' deposits.
B) loans.
C) customers' borrowings.
D) deposits and loans.
A tax on imported goods or services is a:
A) quota.
B) tariff.
C) nontariff barrier.
D) trade embargo.
A reduction in the interest rate has _____ impact on aggregate demand with _____
exchange rates than with _____ exchange rates.
A) a smaller; floating; fixed
B) a larger; floating; fixed
C) the same; fixed; floating
D) the same; floating; fixed
In a typical business cycle, the trough is immediately followed by the:
A) peak.
B) recession.
C) depression.
D) expansion.
Figure: The Aggregate Consumption Function and Planned Aggregate Spending
Look at the table The Aggregate Consumption Function and Planned Aggregate
Spending. If expected disposable income decreases in this economy, then the:
A) aggregate expenditures curvewill shift up.
B) aggregate expenditures curvewill shift down.
C) economy will move upward along the aggregate expenditures curve.
D) economy will move downward along the aggregate expenditures curve.
Look at the table Comparative Advantage I. The opportunity cost of producing 1 box of
cell phones for Sweden is _____ box(es) of herring.
A) 10
B) 0.2
C) 5
D) 0.1
An increase in aggregate wealth:
A) increases consumption by each individual.
B) increases the aggregate consumption function.
C) decreases consumption by each individual.
D) decreases the aggregate consumption function.
