Which one of the following transactions is included in a current year’s GDP as
investment spending?
A) ABC company purchased 10,000 shares of IBM stock.
B) Ronnie bought a new BMW.
C) Anton purchased his friend’s condo.
D) Maggie bought a play-gym set for her day-care business.
The income expenditure model predicts that if the marginal propensity to consume is
0.75 and the federal government increases spending by $100 billion, real GDP will
increase by:
A) $100 billion.
B) $750 billion.
C) $400 billion.
D) $300 billion.
Look at the table Income and Consumption. When disposable personal income is $300,
the marginal propensity to consume is:
A) 0.80.
B) 0.92.
C) 0.95.
D) 1.00.
The aggregate demand curve shows a negative relationship between the price level and
the quantity of aggregate output demanded.
A) True
B) False
The importance of an economic model is that it allows us to:
A) build a complex and accurate model of the economy.
B) build an accurate mathematical model of the economy.
C) focus on the effects of only one change at a time.
D) avoid opportunity costs.
Checkable deposits are bank accounts on which people can write checks.
A) True
B) False
The federal government began issuing estimates of gross domestic product and gross
national product during the Civil War.
A) True
B) False
The Bretton Woods agreement was abandoned in the early 1990s.
A) True
B) False
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. If 2012 is the base year, what is the value of the price
index in 2013?
A) 0
B) 90
C) 100
D) 111.25
Figure: Demand for Coconuts
Look at the figure Demand for Coconuts. If there is an increase in preference for
coconuts, it will be represented in the figure as a movement from:
A) A to C.
B) B to A.
C) C to A.
D) B to E.
A firm is an organization that produces goods and/or services.
A) True
B) False
According to the short-run aggregate supply curve, when the _____ rises, the quantity
of aggregate output _____ rises.
A) profit per unit; demanded
B) aggregate price level; supplied
C) aggregate price level; demanded
D) interest rate; supplied
The wealth effect explains why:
A) the aggregate demand curve slopes downward, since changes in aggregate price
levels change the purchasing power of people’s assets.
B) the aggregate supply curve slopes upward, since an increase in wealth leads to more
consumption.
C) the aggregate supply curve shifts, since changes in wealth affect production.
D) the aggregate demand curve slopes upward, since wealth allows consumers to
purchase more regardless of the price level.
Figure: Strawberries and Submarines II
Look at the figure Strawberries and Submarines II. Suppose the economy is operating at
point B. Achieving production at point F would require that the economy:
A) achieve full employment and an efficient allocation of resources.
B) reduce its production of strawberries.
C) reduce its production of submarines.
D) improve its technology or increase its resources.
The modern macroeconomic tools used by the government are _____ policy and _____
policy.
A) tax; antitrust
B) fiscal; monetary
C) monetary; exchange rate
D) capital; labor
Table: Lemonade and Cookies
Look at the table Lemonade and Cookies. Assume that an economy produces only
lemonade and cookies. If 2014 is the base year, real GDP in 2014 was:
A) $400.
B) $420.
C) $425.
D) $445.
An exchange rate regime is a rule governing policy for the exchange rate.
A) True
B) False
Scenario: The Velocity Equation
Suppose that real GDP equals $10 trillion, nominal GDP equals $20 trillion, and the
aggregate price level equals 2.
Look at the scenario The Velocity Equation. If the velocity of money is 2, the money
supply is:
A) $20 trillion.
B) $10 trillion.
C) $5 trillion.
D) $40 trillion.
Scenario: Open Economy S= I
In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and
government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and
imports are $3 trillion.
Look at the scenario Open Economy S = I. How much is private saving?
A) $4 trillion
B) $2.5 trillion
C) $3.5 trillion
D) $1.5 trillion
Figure: Demand and Supply of Shirts
Look at the figure Demand and Supply of Shirts. If the line labeled S shows how many
shirts per week will be offered for sale at various prices, then it is clear that for supply,
quantity and price are:
A) the same.
B) positively related.
C) negatively related.
D) not related.
Comparative advantage arises from:
A) differences in climate, factor endowments, and technology.
B) absolute advantage.
C) countries engaging in autarkic behavior.
D) an emphasis on export production.
Economists are optimistic that growth can continue in the face of resource scarcity
because:
A) the oil industry vastly understates the level of oil reserves.
B) prices of scarce resources fall and provide incentives to use more of those resources.
C) prices of scarce resources rise and provide incentives to find alternative energy
sources.
D) resource scarcity no longer limits economic growth.
Real GDP per capita is:
A) a perfect measure of a country’s standard of living.
B) the only way to measure living standards among different countries.
C) an incomplete measure of a country’s standard of living.
D) used by the United Nations to compare nations based on measures of welfare.
Figure: Shifts in Demand and Supply II
Look at the figure Shifts in Demand and Supply II. The graph shows how supply and
demand might shift in response to specific events. Suppose scientists discover that
eating pomegranates causes aging. Which panel BEST describes how this will affect the
market for pomegranates?
A) panel A
B) panel B
C) panel C
D) panel D
Implicit rent is an estimate of the amount that homeowners would pay if they had to
rent their home and is also an estimate of the benefit of owning a home.
A) True
B) False
If there is too much deflation:
A) people will switch from money to real assets.
B) the nominal interest rate will be constrained by the zero interest rate bound.
C) lenders will be harmed.
D) aggregate demand will increase.
Which of the following qualifies as an asset from the viewpoint of a household?
A) a house
B) mortgage
C) credit card debt
D) car loan
Look at the table Production Possibilities Schedule I. If the economy produces two
units of consumer goods per period, it also can produce at most _____ units of capital
goods per period.
A) 30
B) 28
C) 24
D) 18
The main role of financial systems is to:
A) make the capitalist class richer.
B) provide credit cards to as many people as possible.
C) channel goods and services to the people willing to pay for them.
D) channel funds from savers into investments.
Chained dollars:
A) is money that banks are required to keep in their vaults to back deposits.
B) is the measure of the value of intermediate goods.
C) is a method for calculating changes in real GDP using an early base year and a late
base year.
D) is a method used to convert real to nominal GDP.