Assume that corn is an input in the production of beef but not in the production of pork.
Further, beef and pork are substitutes in consumption. A decrease in the price of corn
will _____ the supply of beef and _____ the demand for pork.
A) increase; increase
B) decrease; increase
C) decrease; decrease
D) increase; decrease
According to the loanable funds model, in the short run expansionary monetary policy:
A) increases the supply of loanable funds.
B) increases the demand for loanable funds.
C) increases the quantity of loanable funds supplied.
D) has no effect on the supply of loanable funds.
The consumer price index measures the cost of the consumption of a family of four
living below the poverty line.
A) True
B) False
Income divided by the price level is _____ income.
A) personal
B) real
C) disposable
D) national
If the target exchange rate of a fixed currency is above the equilibrium exchange rate, to
reach the target rate, the government should lower interest rates.
A) True
B) False
Figure: Production Possibility Frontier
Look at the figure Production Possibilities Frontier. If the economy is producing 8 cars
and 12 computers per period:
A) unemployment or inefficiency will ensue.
B) the notion of increasing opportunity cost is invalidated.
C) the economy is still efficient but has made a decision not to buy as much as it could.
D) something must be done to reduce the amount of employment.
Scenario: Aggregate Consumption Equation
Suppose that the aggregate consumption function is given by the equation C= 200 +
0.8YD, where Crepresents consumption and YDrepresents disposable income.
Look at the scenario Aggregate Consumption Equation. If disposable income increases
from $500 to $800, aggregate consumption is:
A) $840.
B) $440.
C) $240.
D) $200.
Economic models often:
A) vary greatly in assumptions and simplifications.
B) are correct.
C) provide similar answers.
D) fail to explain any of the real-life scenarios they are supposed to help solve.
In the factor market, households buy goods and services.
A) True
B) False
Whenever a choice is made:
A) the cost of that choice is opportunity cost.
B) the cost is easy to measure in dollar terms.
C) efficiency is improved.
D) scarcity is not the problem.
Among the factors that could cause money demand to shift are all of the following
EXCEPT:
A) real aggregate spending.
B) institutional constraints in the banking system.
C) technology of transactions.
D) interest rates.
One of the most important types of infrastructure that a government can provide is:
A) a good tax system.
B) basic health measures such as clean water and disease control.
C) the kind that private companies would provide if they were allowed to.
D) more intervention in the market mechanism.
Figure: Expanded Circular-Flow Model
Look at the figure Expanded Circular-Flow Model. The total flow of funds into and out
of financial markets is:
A) $70.
B) $110.
C) $170.
D) $300.
Figure: AD”ASModel II
Look at the figure AD”AS Model II. When consumers and firms become more
optimistic, in the short run the _____ curve will shift to the _____.
A) SRAS; left
B) SRAS; right
C) AD; right
D) AD; left
In an open economy:
A) a country with a positive capital inflow will also have X greater than IM.
B) savings of foreigners may be supporting investment spending.
C) capital inflows are always negative.
D) investment spending equals national savings.
The magnitude of the multiplier process that links planned aggregate spending to real
GDP is determined by:
A) the marginal propensity to save.
B) the interest rate.
C) the level of autonomous consumption.
D) the level of planned investment spending.
Which of the following is most likely to shift the supply of milk to the right?
A) a tax on each gallon of milk produced
B) an increase in household income, milk being a normal good
C) a decrease in the price of feed given to dairy cows
D) the bankruptcy of many small dairy farms
If the economy is at potential output and the Fed increases the money supply, in the
SHORT run interest rates will likely:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly
Individuals gain from trade because:
A) of specialization in production.
B) they can sell at a lower price than they can buy at.
C) self-sufficiency is efficient.
D) of the principle of absolute advantage.
Assume that the marginal propensity to consume is 0.8 and potential output is $800
billion. If GDP is $850 billion:
A) there is an inflationary gap.
B) there is a recessionary gap.
C) the economy is in long-run equilibrium.
D) taxes should be decreased.
Buying vegetables at a farmers’ market benefits the community because:
A) it is best to be self-sufficient when it comes to growing food.
B) this will eliminate the opportunity cost of buying food.
C) buying locally will increase human capital in the community.
D) one person’s local spending will increase another local person’s income.
The process observed when an economy’s production possibility frontier shifts outward
is:
A) comparative advantage.
B) economic growth.
C) full employment.
D) specialization.
A recessionary gap gradually:
A) increases short-run aggregate supply.
B) decreases short-run aggregate supply.
C) increases aggregate demand.
D) decreases aggregate demand.
According to the long-run aggregate supply curve, when _____, the quantity of
aggregate output supplied _____.
A) nominal wages rise; falls
B) the aggregate price level rises; does not change
C) the aggregate price level rises; falls
D) the price of commodities falls; rises
If the United States can produce 30 computers for every car it produces and Japan can
produce 15 computers for every car it produces, _____ has the _____ advantage in car
production.
A) the United States; comparative
B) Japan; comparative
C) the United States; absolute
D) Japan; absolute
Scenario: Gizmovia II
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75.
Look at the scenario Gizmovia II. If Gizmovia uses foreign exchange controls, it should
require licenses to _____ gizmos and _____ dollars.
A) buy; buy
B) buy; sell
C) sell; sell
D) sell; buy
An asset is liquid if it can be converted to cash quickly with little or no loss of value.
A) True
B) False
In the short run, the interest rate is determined in the _____ market.
A) stock
B) money
C) loanable funds
D) commodity
Figure: Fiscal Policy Choices
Look at the figure Fiscal Policy Choices. If the government uses discretionary fiscal
policy for the economy in panel (b) when real GDP is Y1, government spending is likely
to be _____ and taxes are likely to be _____.
A) reduced; cut
B) increased; increased
C) reduced; increased
D) increased; cut
If the economy is at potential output and the Fed increases the money supply, in the
short run the aggregate demand will likely decrease.
A) True
B) False
During the 1960s and 1970s, most monetarists believed that the velocity of money:
A) was stable.
B) was inversely related to the money stock.
C) moved in tandem with the money stock.
D) was irrelevant to the price level.