If monetary authorities ease credit or money, ________ will rise.
a. interest rates
b. unemployment
c. tax rates
d. the money supply
e. the gold supply
Large federal government budget deficits financed by foreign lenders tend to
a. depress net exports.
b. lower the value of the dollar and reduce imports.
c. crowd out domestic lenders and reduce investment.
d. immediately transfer purchasing power to the foreign investors.
e. reduce the size of the national debt, since the bonds are held by foreign investors.
The following questions are based on the following Laffer curve:
According to this curve, tax revenue is maximized when the tax rate is
a. 0a.
b. 0.
c. 0c.
d. 0e.
e. 0d.
The notion that the appropriate monetary policy at all times is one that requires the
Federal Reserve to expand the money supply at a steady rate of 4 to 5 percent per year
is an example of
a. the rules of the game.
b. the rule of reason.
c. a rule of thumb.
d. a rigid policy rule.
e. a feedback policy rule.
The economy is experiencing
a. demand-side inflation.
b. a serious recession.
c. falling money GDP.
d. too many goods chasing too few dollars.
e. price stability.
A market-based approach for reducing pollution to a specific overall authorized level
can be achieved by using
a. laws that ban polluting activities.
b. tax credits for pollution control equipment.
c. open market operations.
d. transferable emissions permits.
e. direct regulation.
The commercial banking system’s ability to expand demand deposits is reduced when
a. the public wants to hold currency rather than demand deposits.
b. banks become members of the Federal Reserve System
c. someone deposits newly printed money in the banking system.
d. banks reduce their holdings of cash assets and increase business and consumer loans.
e. the Fed lowers the legal reserve requirement on checkable deposits.
When the total amount spent on final goods and services falls short of the total value of
final goods and services produced
a. expected rates of return on investment must rise.
b. the economy is in equilibrium.
c. households must not be saving.
d. firms accumulate unwanted inventories.
e. intended investment is negative.
If variations in the price of an input do not lead to changes in the amounts of the input
available to the economy, the payment received by the input is referred to as
a. profit.
b. interest.
c. capital.
d. compensation.
e. rent.
The major indicators of monetary tightness or ease are the
a. discount rate and the prime rate of interest.
b. level of interest rates and the rate of growth of the money supply.
c. government deficit and the tax rate.
d. size and composition of the money supply.
e. level of real output and the level of interest.
Most economists today agree that a situation like the Panic of 1907 is unlikely to recur
because
a. of better bank management; unwise investments are very rare.
b. our economy is no longer as dependent on the banking system as in the past.
c. most people entrust only a small percentage of their money to banks.
d. Congress has removed the burden of public regulation, freeing banks to be more
profitable.
e. government oversight and deposit insurance have given people more faith in banks
than they used to have.
Which of the following describes the world’s experience with the gold standard since
the nineteenth century?
a. Prior to World War I, it was unfavorable because of the flexibility of exchange rates.
b. After World War I, differences among nations in their rates of inflation caused a gold
exchange standard to be established in the 1920s.
c. Downward inflexibility of wages and prices invalidated the Hume adjustment
mechanism after World War I.
d. For the most part, it worked well until after World War II, when the International
Monetary Fund was established.
e. The gold and gold exchange standards worked well until the early 1980s when gold
skyrocketed and nations had to adopt flexible exchange rates.
The primary reason President Johnson opposed raising taxes during his administration
was that
a. until rather late in his administration, he feared that falling price levels would reduce
government income.
b. he believed a tax increase to fund an unpopular war would be politically unwise.
c. his Council of Economic Advisers warned him that such a move would harm more
than help the economy.
d. his attention was largely consumed with putting a man on the moon.
e. he felt the Federal Reserve System could control inflation by issuing more money.
Profits
a. are the largest component of GDP.
b. are a reward for the productivity of land.
c. have no useful function in a capitalistic economy.
d. primarily result from the exploitation of labor.
e. vary greatly from year to year and behave more erratically than wages.
It is frequently difficult to separate supply-side from demand-side inflation because
a. they are ultimately caused by the same forces.
b. resource price increases may be responsible for the initial price level increase, but
further price level increases result from the Fed’s efforts to reduce the resulting
unemployment.
c. in cases where there is too much aggregate spending, the economy has excess
capacity and therefore has a horizontal aggregate supply curve.
d. both kinds of inflation lead to a rapidly increasing total real output.
e. the resulting price level effects of each offset one another.
Lower personal tax rates reduce
a. intended spending.
b. the equilibrium level of GDP.
c. the value of the multiplier.
d. the difference between GDP and disposable income.
e. the level of employment.
A quota is
a. a tariff on exports.
b. a quantitative limit on the amount of a good that may be imported.
c. the same as a nonprohibitive tariff.
d. the amount of exports a country needs to finance its imports.
e. a per unit cash rebate to an exporter.
Exports from the United States
a. represent about one-half of world trade.
b. amount to about 10 percent of GDP.
c. amount to about 13 percent of GDP.
d. are primarily raw materials.
e. go mainly to third world countries.
One generally recognized problem of large government budgetary deficits is
a. that they crowd out private investment and lower U.S. exports.
b. that the debt is primarily “owed to ourselves.”
c. the burden any current government borrowing inevitably imposes on future
generations.
d. the recessions that such government deficits simultaneously cause.
e. the addition to our country’s productive capacity as a result of the deficits.
New classical macroeconomists believe that the predominant factor causing fluctuations
in aggregate demand is
a. increases in taxes.
b. instability in the investment function.
c. the weak self-regulating mechanisms of a free enterprise economy.
d. the unstable marginal propensity to consume.
e. erratic and unpredictable government policy.
A force that tends to weaken collusive agreements is found when
a. the colluding firms number two or three rather than 10 or 12.
b. there are significant differences among the cost structures of the colluding firms.
c. the firms produce virtually identical products.
d. sales and profits in the industry are large and all the colluding firms experience high
levels of capacity utilization.
e. there is a lack of government enforcement of antitrust laws.
An important distinction between corporate and unincorporated businesses is that
a. corporations are able to borrow money; unincorporated businesses must be financed
from internal sources.
b. corporation owners have unlimited liability; unincorporated businesses are limited in
their liability.
c. income earned by corporations may be subject to double taxation; income of
unincorporated businesses is taxed only once.
d. corporations have a limited life; unincorporated businesses have an unlimited life.
e. it is impossible for the income of unincorporated businesses to be taxed at a higher
rate than the income of corporations.
Combining monetary and fiscal policies to achieve full employment can lead to a
one-shot improvement in economic growth by
a. decreasing the gap between actual and potential output.
b. shifting the production possibilities curve outward.
c. pushing to a new equilibrium where desired GDP exceeds actual GDP.
d. reducing government expenditures.
e. increasing nominal GDP faster than real GDP.
The following questions are based on the following diagram, showing the market for
Swiss francs. Assume Switzerland and the United States are engaged in a system of
fixed exchange rates. The official rate is $0.40 per franc.
If, despite U.S. government intervention in the currency markets, the supply and
demand curves remain as shown, the U.S government might try to
a. curtail the tourism of Swiss citizens in the United States.
b. discourage imports of Swiss goods.
c. appreciate the dollar relative to the Swiss franc by changing the official exchange
rate.
d. increase its imports from Switzerland and reduce them from other countries.
e. buy gold.
A basic task of any economic system is to
a. ensure that producers and consumers have the maximum freedom of choice in their
economic decisions.
b. increase the size of its population relative to its annual output.
c. estimate its per capita output annually.
d. promote the use of money for exchanging goods and services.
e. make decisions regarding the degree of economic egalitarianism.
The following questions are based on the following graph:
If average total cost is $0.75 when output is 100 units and total fixed cost is $10,
average variable cost is
a. $0.65.
b. $9.25.
c. $10.75.
d. $65.
e. $75.
The following questions are based on the following information regarding the gross
monthly receipts of a miniature golf course in a resort community at the shore.
Between $2.50 and $3.00, demand is
a. perfectly price inelastic. d. of unitary elasticity.
b. relatively price inelastic. e. absolutely elastic.
c. relatively price elastic.
Two general principles of taxation are the ________ principle and the ________
principle.
a. income; revenue
b. public; private
c. Republican; Democratic
d. demand-side; supply-side
e. ability-to-pay; benefit
If the ratio of the value of a set of goods expressed in current dollars to their value
expressed in constant dollars is 1.54, prices on average must have risen by ________
percent.
a. 154
b. 100
c. 54
d. 46
e. 1.54
The view that the cause of economic stabilization is best served by adherence to a rigid
monetary rule is associated with
a. Milton Friedman.
b. new Keynesians.
c. Franco Modigliani.
d. policy activists.
e. eclectic subversives.
An improvement in technology or an increase in the amount of capital goods will
a. result in movement along a fixed production possibilities curve.
b. diminish the society’s production potential.
c. increase the opportunity costs of all goods.
d. cause the production possibilities curve to become vertical.
e. shift the production possibilities curve outward.
If the demand curve slopes downward and the supply curve slopes upward, which of the
following events leads to an increase in both the equilibrium price and quantity?
a. a rightward shift in supply with demand unchanged
b. a leftward shift in both demand and supply
c. a leftward shift in supply with demand unchanged
d. a leftward shift in demand with supply unchanged
e. a rightward shift in demand with supply unchanged
A major factor leading to the supply-side inflation of the middle and late 1970s was the
a. tight money policies carried out by the Fed.
b. presence of considerable slack in the economy.
c. decreases in spending when resources were less than fully employed.
d. significant increases in the prices of important materials (for example, crude oil).
e. the rapid increase in labor productivity in the economy.
Which of the following legal reserve ratios will generate the greatest amount of excess
reserves?
a. 1:2
b. 1:3
c. 1:4
d. 1:5
e. 1:6
Cross elasticity of demand measures the
a. percentage change in the price of one good when the price of a complement increases
by 1 percent.
b. dependence of the quantity demanded of one commodity on the quantity demanded
of another.
c. dependence of the quantity demanded of one commodity on changes in the prices of
that commodity.
d. sensitivity of the quantity demanded of one commodity to changes in the price of
another.
e. relative importance of the price elasticity of demand to the income elasticity of
demand.