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The discount rate is the interest rate:
a. commercial banks charge their low-risk customers for a loan.
b. savings and loan associations pay for using savings deposit funds.
c. the U.S. Treasury pays individuals who buy Treasury bonds in denominations of
$10,000 or more.
d. the Federal Reserve charges banking institutions for borrowing its funds.
When the federal government is running a budget deficit:
a. government tax revenues exceed government expenditures.
b. government expenditures exceed government tax revenues.
c. the economy must be in an economic recession.
d. the size of the national debt will decline.
Assuming compact discs and cassettes are substitute goods, a decrease in the price of
cassettes will cause the demand curve for compact discs to:
a. shift to the left as consumers switch from buying discs to cassettes.
b. shift to the right as consumers switch from buying discs to cassettes.
c. shift to the left as producers increase cassette production and reduce disc production.
d. remain unchanged since discs and cassettes are sold in separate markets.
Suppose workers become pessimistic about their future employment, which causes
them to save more and spend less. If the economy is on the intermediate range of the
aggregate supply curve, then:
a. both real GDP and the price level will fall.
b. real GDP will fall and the price level will rise.
c. real GDP will rise and the price level will fall.
d. both real GDP and the price level will rise.
The Keynesian analysis of fiscal policy argues that:
a. fiscal policy should generally be expansionary except during periods of economic
recession.
b. fiscal policy should generally be restrictive except during inflationary booms.
c. the federal budget should be balanced annually except during war.
d. the federal budget should be used to maintain aggregate demand at a level consistent
with full employment.
Within the framework of the Keynesian model, if aggregate expenditures exceed
aggregate output, then:
a. the inventories of firms would decline, and the firms would expand output in order to
restore their inventories to desired levels.
b. the inventories of firms would increase, and the firms would reduce output until
inventories were cut back to the desired level.
c. the current level of income would persist in the future.
d. firms would reduce their investment, and the economy would fall into a recession.
If the economy experiences a recessionary gap then:
a. aggregate expenditures exceed the level of spending necessary to provide for full
employment.
b. Keynesian economics would recommend a reduction in government spending or an
increase in taxes.
c. Keynesian economics would recommend an increase in government spending or a
decrease in taxes.
d. the equilibrium level of output and income is above full employment.
Which of the following is not a variable in the index of leading indicators?
a. Average work week.
b. Duration of unemployment.
c. Employment claims.
d. New businesses.
Three basic decisions must be made by all economies. What are they?
a. How much will be produced, when it will be produced, and how much it will cost.
b. What the price of each good will be, who will produce each good, and who will
consume each good.
c. What will be produced, how goods will be produced, and for whom goods will be
produced.
d. How the opportunity cost principle will be applied, if and how the law of
comparative advantage will be utilized, and whether the production possibilities
constraint will apply.
Exhibit 10-2 Aggregate supply and demand curves
In Exhibit 10-2, the change in equilibrium from E1 to E2 represents:
a. cost-push inflation.
b. demand-pull inflation.
c. price-push inflation.
d. wage-push inflation.
If the Federal Reserve wants to increase the availability of money and credit, it can:
a. lower the discount rate.
b. raise the reserve requirements.
c. sell U.S. government bonds to the public.
d. encourage banks to increase their prime lending rate.
means the presentation of information is free from bias toward a particular result.
The federal government never has to pay off the national debt.
Although the chairman of its Board of Governors is appointed by the Treasury
Department, the Fed operates with considerable independence from the executive
branch of the government.
Factors which determine the price of corn would be studied in macroeconomics.
Money eliminates the need to barter.
Adam Smith believed that the pursuit of the public interest is also the best way to
promote the private self interest.
In the real world, countries use a mixture of the three basic types of economic systems.
Investment in capital accumulation, as well as investment in education and other labor
productivity enhancing programs, is necessary for economic growth.
Following Keynesian economics, and assuming a marginal propensity to consume
(MPC) of 0.75, an increase in taxes of $100 billion would be expected to shift the
aggregate demand curve by $300 billion to the left.
