Figure: AD”ASModel II
Look at the figure AD”AS Model II. If the value of household wealth increases, the
_____ curve will shift to the _____.
A) SRAS; left
B) SRAS; right
C) AD; right
D) AD; left
The TED spread is:
A) the interest rate charged on subprime loans.
B) the difference between the interest rate at which banks lend to each other and the
interest rate on U.S. government debt.
C) the rate of return in securitization.
D) the difference between interest rates in the U.S. and interest rates in China.
A reduction in the value of a floating currency is called a depreciation.
A) True
B) False
Positive economics:
A) describes opinions and perspectives on how the world should work.
B) is based on opinion polls.
C) describes how the world does work.
D) is the same as normative economics.
Most physical capital, except infrastructure, is financed by private investment spending
by people and corporations.
A) True
B) False
Look at the table Supply of Lemonade. If the price of lemonade is $1 per cup, the total
quantity of lemonade supplied will be:
A) 50 cups.
B) 80 cups.
C) 25 cups.
D) 90 cups.
When the economy is in stagflation, the price level is falling.
A) True
B) False
The economic slump in the 1970s looked different from the slump at the beginning of
the Great Depression because it was:
A) the result of a lack of confidence that led businesses and consumers to spend less.
B) largely caused by events in the Middle East that led to sudden cuts in world oil
production and soaring prices for oil.
C) the direct result of a contractionary monetary policy.
D) the result solely of a negative demand shock.
When the price level increases, firms in perfectly competitive markets will:
A) decrease output and increase the price.
B) decrease output.
C) increase output and decrease the price.
D) increase output.
Aggregate output is the sum of consumer spending on goods and services and
investment spending by firms.
A) True
B) False
The value of real GDP divided by population for a given country:
A) is the real GDP per capita.
B) is always increasing in value for any country.
C) remains constant for developing countries.
D) is per capita GDP.
Classical economic theory describes agricultural economies fairly well because:
A) early agricultural economies used barter rather than money.
B) the short-run aggregate supply curve in an agricultural economy is vertical.
C) agricultural economies are immune to recessions.
D) agricultural economies don’t need fiscal policy.
Saving deposits are counted in:
A) M1 but not in M2.
B) vault cash but not in M2.
C) M2 but not in M1.
D) M1, M2, and the gold stock.
According to the life-cycle hypothesis, consumers plan their spending based on their
current disposable income when they are very young.
A) True
B) False
Double counting would occur if:
A) GDP were calculated by adding C, I, G, and NX.
B) used goods were included in the GDP calculation.
C) imports were subtracted from GDP.
D) inventories were added to the GDP calculation.
Long-run economic growth is best measured by:
A) a sustained rise in the production of goods and services.
B) the growth of the money supply.
C) trade surpluses in the long run.
D) the rate of private saving.
The Taco Hut charges the same price for everything on its menu: $3 will buy a taco, a
burrito, or nachos. You buy the taco and think that if you had not purchased the taco,
you would have purchased the burrito. The opportunity cost of the taco is:
A) $3.
B) your enjoyment of the burrito.
C) $3 and your enjoyment of the burrito.
D) $3, your enjoyment of the burrito, and your enjoyment of the nachos.
The federal government regulates how much carbon dioxide a factory can emit. This
statement best represents this economic concept:
A) Resources are scarce.
B) “How much” is a decision at the margin.
C) Markets usually lead to efficiency.
D) When markets don’t achieve efficiency, government intervention can improve
society’s welfare.
The MOST important factors affecting the rate of inflation are:
A) expected inflation and the real growth rate.
B) the unemployment rate and expected inflation.
C) the real growth rate and the unemployment rate.
D) fiscal policy effects and the presence of liquidity traps.
In 2010, China saved:
A) less than the United States saved.
B) more and spent more on investment as a percentage of its GDP than the United
States.
C) less and spent less on investment as a percentage of its GDP than the United States.
D) more but still had an economic growth rate less than that of the United States.
Look at the table Production Possibilities Schedule II. If an economy is producing at
alternative W, the opportunity cost of producing at X is _____ unit(s) of consumer
goods per period.
A) 0
B) 1
C) 4
D) 18
Use of activist fiscal and monetary policy can bring rapid growth, as was the case in the
United States before the 1972 election. One consequence of an activist policy is:
A) use of macroeconomic policy that stabilizes the economy.
B) a political business cycle caused by the use of macroeconomic policy to serve
political ends.
C) countercyclical macroeconomic policy designed to help the economy.
D) crowding out as decreases in government spending push out the private business
spending.
What did the panic of 1873 and the panic of 1893 have in common?
A) They were both caused by the Federal Reserve’s failure to implement the proper
monetary policy.
B) They were both caused by a real estate bubble.
C) They both led to large increases in real GDP and decreases in the unemployment
rate.
D) They were both caused by overbuilding in the railroad industry.
The U.S. dollar is defined as:
A) fiat money, because it was established as money by an act of law.
B) faith money, because we trust the government to defend its value.
C) commodity-backed money, because it is convertible to gold.
D) commodity money, because it is widely used to buy commodities.
If a one-year project costs $100,000 and is expected to return the firm $105,000, the
rate of return of the project is:
A) 4.8%.
B) 5%.
C) $5,000.
D) $105,000.
Structural changes in an economy and changes in consumer tastes are reasons for:
A) job creation and job destruction.
B) job searches.
C) unemployment during recessions.
D) unemployment during expansions.
Scenario: The Aggregate Production Function
Holding the human capital per worker and technology unchanged, the estimated
aggregate production function in Jamaica is Y / L = 50 K / L, where Y = real output,L =
number of workers, and K = quantity of physical capital.
Look at the scenario The Aggregate Production Function. If real GDP per worker equals
$3,200, physical capital per worker equals:
A) $81.
B) $64.
C) $49.
D) $100.
An increase in demand with no change in supply will lead to _____ in equilibrium
quantity and _____ in equilibrium price.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
If the marginal propensity to consume is 0.5, the multiplier is:
A) 5.
B) 2.
C) 1.
D) 0.5.
The primary difference between M1 and M2 is that:
A) the dollar amount of M1 is much larger than the dollar amount of M2.
B) M1 includes checkable deposits, but M2 does not.
C) M2 includes checkable deposits, but M1 does not.
D) M2 includes savings deposits and time deposits, but M1 does not.
Banks are nonprofit financial intermediaries that collect the savings of their members
and invest those funds in a diversified portfolio of assets to provide income to members
when they retire.
A) True
B) False
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. Given this income”expenditure
equilibrium, firms will tend to:
A) raise prices.
B) hire more people.
C) increase output.
D) decrease output.
For much of the 1990s and 2000s, Ireland, known as the Celtic Tiger, grew faster than
the rest of Europe.
A) True
B) False