When an economy dips into recession, automatic stabilizers will:
a. enlarge the budget deficit (or reduce the surplus).
b. reduce the budget deficit (or increase the surplus).
c. ensure that the budget remains in balance.
d. expand the supply of money and, thereby, stimulate aggregate demand.
When the spending of consumers, businesses, government, and foreigners (net exports)
is less than the aggregate output level of the economy, the Keynesian model result is
that:
a. output will rise.
b. output will fall.
c. prices will rise.
d. inventories will tend to decline.
Exhibit 5-4 Gross domestic product data National income accountBillions of
dollars
Depreciation $ 800
Net interest 1,500
Compensation of employees 4,000
Profits 1,000
Rental income 100
Indirect business taxes 600
Social Security payments 1,000 As shown in Exhibit 5-4, using the income approach,
gross domestic product (GDP) is:
a. $9,000 billion.
b. $6,600 billion.
c. $7,400 billion.
d. $8,000 billion.
Which of the following is an infant-industry argument in favor of restrictions on foreign
trade?
a. Foreign producers must be stopped from selling their products in this country below
cost of production.
b. Domestic workers must be protected from the lower wages paid in foreign countries.
c. The nation’s security demands we ensure an adequate domestic supply capacity of
certain products.
d. Do unto others as they do unto you.
e. Industries in the early stages of development must be protected from more mature
producers.
Which of the following statements draws a false conclusion?
a. Life expectancy in an average African country is lower than in an average European
country; therefore Europeans can expect to outlive Africans.
b. Nations that currently produce no capital goods, and whose inhabitants are hungry,
risk famine with internally funded capital investments.
c. Some African nations have substantially more food and capital investment than
others; therefore, their standard of living is higher.
d. Population reduction policies, if effective, can improve the nation’s wealth by
increasing real per capita GDP.
e. The vicious circle of poverty argument states that poverty precludes capital
investment and that no capital investment perpetuates poverty.
If a nation follows a policy of being self-sufficient, its:
a. production possibilities equal its consumption possibilities.
b. consumption possibilities are greater than its production possibilities.
c. production possibilities curve shifts rightward.
d. consumption possibilities are less than its production possibilities.
Exhibit 2-1 Production possibilities curve dataConsumption
Goods Capital
Goods
10 0
9 1
7 2
4 3
0 4In Exhibit 2-1, according to the information, the opportunity cost of producing 3
units of capital is:
a. 3 units of consumption goods.
b. 4 units of consumption goods.
c. 6 units of consumption goods.
d. 7 units of consumption goods.
A demand curve for The Steel Porcupines’ concert tickets would show the:
a. quality of service that customers demand when they buy a ticket.
b. number of people who like to attend the concert.
c. number of tickets the promoters are willing to sell at each price.
d. number of concert tickets that will be purchased at each price.
A fixed exchange rate is:
a. determined by the forces of supply and demand.
b. the value of a nation’s money in gold.
c. the value of a nation’s money determined by the World Bank.
d. none of these.
Which of the following will not cause a movement along the supply curve?
a. Changes in the sellers’ expectations.
b. Increases in taxes per unit of output.
c. Advances in technology.
d. All of these.
When one observes consumption and investment patterns over time, one finds that:
a. like consumption, investment is fairly stable over time.
b. like consumption, investment is fairly erratic over time.
c. unlike consumption, which is fairly stable over time, investment is subject to erratic
fluctuations.
d. unlike consumption, which is subject to erratic fluctuations, investment is fairly
stable over time.
e. investment is rarely affected by technological and economic factors.
If the required reserve ratio decreases, the:
a. money multiplier increases.
b. money multiplier decreases.
c. amount of excess reserves the bank has decreases.
d. money multiplier stays the same.
e. amount of excess reserves stays the same.
If your income increases from $30,000 to $40,000 and your savings increases from
$2,000 to $4,000, your marginal propensity to save (MPS) is:
a. 0.2.
b. 0.4.
c. 0.5.
d. 0.8.
e. 1.0.
Which of the following explain(s) better the fact that computers are cheaper now than
10 years ago?
a. c and d.
b. c and e.
c. The technology used in the production of computers has improved during this period.
d. Resources used in the production of computers have become cheaper during this
period.
e. The demand for computers has increased substantially during this period.
Which of the following can create demand-pull inflation?
a. Excessive aggregate spending.
b. Sharply rising oil prices.
c. Higher labor costs.
d. Recessions and depressions.
When the Fed raises the discount rate, it:
a. lowers the cost of borrowing from the Fed, encouraging banks to make loans to the
general public.
b. raises the cost of borrowing from the Fed, discouraging banks from making loans to
the general public.
c. increases the amount of excess reserves that banks hold, encouraging them to make
loans to the general public.
d. increases the amount of excess reserves that banks hold, discouraging them from
making loans to the general public.
e. decreases the amount of excess reserves that banks hold, discouraging them from
making loans to the general public.
Which of the following is not a lagging indicator?
a. Duration of unemployment.
b. Stock prices.
c. Outstanding commercial and industrial loans.
d. Prime rate.