Suppose that Spain has a comparative advantage in hats and Portugal has a comparative
advantage in doormats. Under a system of free trade, each country specializes and then
trades with the other. If the price starts at four hats per doormat, and then increases to
five hats per doormat, then:
a. people in Portugal will not want to buy as many hats.
b. Spain no longer has a comparative advantage in hats.
c. Portugal is flooding the market with too many doormats.
d. some of the gains from trade shift to Portugal.
e. some of the gains from trade shift to Spain.
When the government imposes a price ceiling on a good whose price is too high,
a. surpluses are created.
b. supply will increase to meet the demand.
c. rationing is not necessary.
d. quantity demanded of the good will fall.
e. chronic excess demand occurs.
Which of the following is a valid statement?
a. Excess reserves = total reserves minus required reserves.
b. Required reserves = the minimum reserves required by the Fed.
c. Required reserve ratio = required reserves as a percentage to total deposits.
d. All of these.
Which of the following would shift the investment demand curve rightward?
a. A decrease in business taxes.
b. A tax credit for new investment.
c. Firms move from unused capacity to full capacity.
d. All of these.
The ratio of the change in GDP to an initial change in aggregate spending is the:
a. spending multiplier.
b. permanent income rate.
c. marginal expenditure rate.
d. marginal propensity to consume.
The balance on the current account ____.
a. d and e
b. c and d
c. will show a trade deficit or surplus, if one exists
d. must always be zero
e. multiplied by -1 becomes the capital account
If consumer tastes are changing more in favor of the consumption of a particular good
the:
a. market demand curve will shift to the left.
b. consumer will move up a given demand curve, decreasing the quantity demanded.
c. consumer would move down a given demand curve, decreasing the quantity
demanded.
d. consumer would move down a given demand curve, increasing the quantity
demanded.
e. market demand curve would shift to the right.
According to the Laffer curve, when the tax rate is 100 percent, tax revenue will be:
a. 0.
b. at the maximum value.
c. the same as it would be at a 50 percent tax rate.
d. greater than it would be at a 50 percent tax rate.
e. the same as it would be at a 20 percent tax rate.
When an economy’s resources are not fully employed, then it must be true that the:
a. production point is located outside and to the right of the production possibilities
curve.
b. production point is located along the production possibilities curve.
c. production point is located inside and to the left of the production possibilities curve.
d. production possibilities curve shifts to the right.
e. production possibilities curve shifts to the left.
Which of the following is not part of the Federal Reserve System?
a. Council of Economic Advisors.
b. Board of Governors.
c. Federal Open Market Committee.
d. 12 Federal Reserve District Banks.
e. Federal Advisory Council.
The Federal Reserve Board of Governors has:
a. seven members who serve 6-year terms.
b. 12 members who serve 14-year terms.
c. seven members who serve 4-year terms.
d. 12 members who serve 4-year terms.
e. seven members who serve 14-year terms.
Exhibit 11-7 Aggregate demand and supply model
Suppose the economy in Exhibit 11-7 is
in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.75.
Following Keynesian economics, to lower the price level from 170 to 150 the
government should raise taxes by:
a. $20 billion. c
b. $100 billion.
c. $133 billion.
d. $400 billion.
When economists say the quantity supplied of a product has increased, they mean the:
a. supply curve has shifted to the left.
b. supply curve has shifted to the right.
c. price of the product has risen, and consequently, suppliers are producing more of it.
d. price of the product has fallen, and consequently, suppliers are producing less of it.
In the basic Keynesian model, the major determinant of consumption expenditures is:
a. the interest rate.
b. inflation.
c. investment.
d. disposable income.
If consumption expenditures are $200 billion, total investment is $50 billion,
government purchases are $40 billion, exports are $45 billion, imports are $40 billion,
aggregate expenditures must be:
a. $275 billion.
b. $295 billion.
c. $320 billion.
d. $395 billion.
An increase in the marginal propensity to consume (MPC) leads to an increase in the
spending multiplier.
Money is one of our nation’s resources (factors or means of production).
If people’s incomes decrease, their demand for other currencies shifts to the right.
Total producer surplus is measured by the total area under the equilibrium price and
below the supply curve.
If real gross domestic product is $2,000 billion and aggregate demand is $2,500 billion,
unplanned inventory depletion must be taking place.
The aggregate demand curve is downward sloping.
Discuss how a single bank creates money. What is the limit to which a single bank can
add to the money supply? By how much can an entire banking system add to the money
supply?
How are demand-pull and cost-push inflation reflected in terms of the AD-AS model?
Inflation refers only to rising prices at a given time period.
Discuss the differences between Keynesian and supply-side fiscal policies.