The Fed typically decreases the money supply by
a. selling government bonds
b. buying government loans
c. selling government loans
d. printing more currency
e. buying government bonds
Supply curves are usually assumed to slope upward because
a. profits fall as prices rise
b. a higher price leads to increases in demand
c. a higher price leads to decreases in demand
d. a higher price attracts resources from other less valued uses
e. firms drop out of the market as prices rise
Which of the following would lead to an increase in the demand for British pounds?
a. A declining interest in British goods
b. A decrease in the U.S. interest rate relative to the British interest rate
c. Expectations that the exchange rate will fall
d. A decrease of the U.S. price level relative to the British price level
e. A decrease in the exchange rate.
The Fed’s goal is
a. moderate and stable inflation
b. zero inflation
c. a low price level
d. an inflation rate that diminishes over time
e. low and stable inflation
If the Fed wishes to maintain its interest rate target in the face of decreased money
demand it would likely
a. increase the money supply.
b. decrease the money supply.
c. more stringently enforce already existing banking regulations.
d. propose new banking regulations.
e. become more lax when it enforces already existing banking regulations.
Economists monitor economic growth by keeping track of
a. the stock market
b. population growth
c. the total quantity of goods and services produced in the United States each year
d. the inflation rate
e. the distribution of income among U.S. states
The U.S. economy experienced fluctuations in employment and output over the last half
of the twentieth century. However, the length of the average recession has been about
the same as the length of the average expansion.
Suppose Bob and Tom are writing jokes for a their new TV show. Suppose there are
two types of jokes, political jokes and jokes about celebrities. The number of jokes that
can be produced by each person in each category are listed in Figure 2-12. From this
table they should
Figure 2-12
a. have Bob specialize in both political and celebrity jokes
b. have Tom specialize in both political and celebrity jokes
c. cooperate on the writing of both political and celebrity jokes
d. have Bob write political jokes and Tom write celebrity jokes
e. have Tom write political jokes and Bob write celebrity jokes
Which of the following could explain the shift in the production possibilities frontier
shown in Figure2-7 from AC to AB?
Figure 2-7
a. technical improvements in both petroleum and clothing production
b. a productive improvement in clothing production that has no effect on petroleum
production
c. a decrease in the size of the labor force that can produce either petroleum products or
clothing
d. major oil reserves in Alaska are declared off-limits to producers in order to protect
the environment
e. major oil reserves are discovered off the coast of Africa
If the labor demand decreases, what will happen to the real wage, employment, and
output, assuming no change in the labor supply?
a. The real wage will increase, employment will decrease, and real output will increase.
b. The real wage will decrease, employment will decrease, and real output will increase.
c. The real wage will increase, employment will decrease, and real output will decrease.
d. The real wage will increase, employment will increase, and real output will increase.
e. The real wage will decrease, employment will decrease, and real output will
decrease.
To stabilize real GDP when the money demand curve shifts on its own, the Fed must
change the money supply.
Which of the following is a definition of the real interest rate in a world with a positive
inflation rate?
a. The percentage increase in the borrower’s purchasing power from taking a loan
b. The percentage decrease in the borrower’s dollars from taking a loan
c. The percentage increase in the lender’s purchasing power from making a loan
d. The percentage increase in the lender’s dollars from making a loan
e. The percentage decrease in the lender’s dollars from making a loan
If there is an excess demand for money, there is an excess
a. supply of bonds and the price of bonds will increase.
b. supply of bonds and the price of bonds will decrease.
c. demand for bonds and the price of bonds will increase.
d. demand for bonds and the price of bonds will decrease.
e. supply of bonds and the price of bonds will not change.
A method of allocating scarce resources is a necessary component of
a. all economic systems
b. all economic systems except market capitalism
c. centrally-planned socialism and market socialism only
d. centrally-planned capitalism and market capitalism only
e. all economic systems except centrally planned socialism
A tax cut designed to encourage investment and stimulate economic growth
a. must be matched by a cut in government spending in order to be effective
b. must be matched with tax increases in other areas, or with a cut in government
spending, if crowding out is to be avoided
c. will only work if it decreases the size of the budget deficit
d. can only be effective if the tax burden is redistributed or government spending is cut
e. will only work if it is a cut in the capital gains tax
If the Consumer Price Index (CPI) decreases from 100 to 50 and the nominal wage
decreases from $200 to $50, what is the change in the real wage in terms of the
beginning year’s dollars?
a. +$200
b. -$100
c. +$50
d. -$200
e. +$250
Which of the following would not be included in government purchases?
a. The purchase of a computer by a government agency
b. Welfare payments
c. Wages of government employees
d. The purchase of a police car
e. Spending on a new missile program
If investment spending increases due to increased optimism in the business sector,
which of the following would occur?
a. an increase in GDP, an increase in the price level, an increase in money demand, and
an increase in the interest rate
b. an increase in GDP, a decrease in the price level, an increase in money demand, and a
decrease in the interest rate
c. a decrease in GDP, a decrease in the price level, a decrease in money demand, and a
decrease in the interest rate
d. a decrease in GDP, a decrease in the price level, an increase in money demand, and
an increase in the interest rate
e. an increase in GDP, an increase in the price level, a decrease in money demand, and a
decrease in the interest rate
The classical model is a poor predictor of short-run economic fluctuations in part
because it assumes that
a. all workers wish to work
b. government will prevent these fluctuations
c. the labor market always clears
d. the long run is just a series of short-run periods
e. labor demand curve is stable
In a circular flow diagram of the economy, households and businesses interact
a. in both product markets and resource markets
b. in neither product markets and resource markets
c. in product markets but not resource markets
d. in resource markets but not product markets
e. very rarely