Which of the following is TRUE?
A) Currency in circulation is not part of the monetary base.
B) Bank reserves are part of the monetary base.
C) Most of the monetary base consists of checkable deposits.
D) The money multiplier is the ratio of the monetary base to the money multiplier.
Assume that the consumer price index for 2009 was 103.9 and for 2010 was 107.6.
What was the inflation rate between the two years?
A) 0.97%
B) 1.04%
C) 3.56%
D) 3.70%
Scenario: The Production of Wheat and Toys
The table describes the production of two goods, wheat and toys, in country A and
country B. Each country has a linear production possibility frontier with respect to its
production of the two goods. The numbers in each column represent the total number of
units each country could produce if it used all of its resources to produce the good.
Look at the scenario Production of Wheat and Toys. The opportunity cost of producing
a unit of toys in country A is _____ unit(s) of wheat.
A) 0.5
B) 1
C) 50
D) 100
The size of the multiplier increases as the size of the marginal propensity to consume
increases.
A) True
B) False
A bubble is a large decrease in asset prices caused by unrealistic expectations about
future prices.
A) True
B) False
Keynes’s theory did not endorse the use of monetary policy during the Great Depression
because:
A) at the time, the nominal interest rate was very close to zero.
B) during WWII, the convertibility of the pound sterling into gold was suspended.
C) under the gold standard, the zero bound on nominal interest rates did not exist.
D) monetary expansions were impossible under a gold standard.
An example of human capital is a person’s:
A) money.
B) job skills.
C) capital goods or machines.
D) stocks and bonds.
The Fed’s minimum required reserve requirement for checkable bank deposits is:
A) 05%.
B) 3%.
C) 10%.
D) 50%.
When nominal wages decrease, the short-run aggregate supply curve shifts to the left.
A) True
B) False
Scenario: Taylor Rule
Suppose the Federal Reserve is following the Taylor rule, which takes both inflation
and business cycles into account when setting the federal funds rate. Also suppose that
the inflation rate in the economy is 3% and the unemployment gap is “2%.
Look at the scenario Taylor Rule. In this case, the Federal Reserve will set the federal
funds rate at:
A) 9.8%.
B) 6.25%.
C) 5.75%.
D) 4.75%.
Which of the following institutions is important for channeling savings into investment?
A) schools
B) religious institutions
C) banks
D) the federal government
The natural rate of unemployment:
A) would increase if a larger percentage of the labor force were over 25 years old.
B) would increase if union membership fell.
C) would increase if unemployment benefits were increased.
D) will always remain fixed.
To lower the short-term interest rate, the Federal Reserve can:
A) buy Treasury bills.
B) sell Treasury bills.
C) tell the banks to make more loans.
D) tell the banks to make fewer loans.
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, autonomous consumption is:
A) $0.
B) $200.
C) $240.
D) $440.
The end of the Great Depression was due largely to increased government spending for
World War II.
A) True
B) False
More than 50% of the world’s population lives in countries whose population is poorer
than the United States population was a century ago.
A) True
B) False
All other things equal, an appreciation of the domestic currency will cause aggregate
demand to increase.
A) True
B) False
The measure used by the Fed that excludes food and energy prices is the:
A) consumer price index.
B) wholesale price index.
C) core inflation rate.
D) federal funds rate.
“Tuition at State University this year is $8,000.” Which function of money does this
statement best illustrate?
A) store of value
B) medium of exchange
C) unit of account
D) means of deferred payment
From 1979 to 1982, the Federal Reserve System:
A) followed monetarist policy suggestions.
B) initiated a sharply expansionary monetary policy.
C) pursued a policy that shifted AD to the right.
D) fell into the liquidity trap.
The purpose of quantitative easing is to drive down long-term interest rates, which are
usually more important for private investment spending than short-term rates.
A) True
B) False
I know when I shop at the local grocery store, I am helping my community. This
statement best represents this economic concept:
A) People usually exploit opportunities to make themselves better off.
B) There are gains from trade.
C) One person’s spending is another person’s income.
D) Overall spending sometimes gets out of line with the economy’s productive capacity.
The fact that many stores in the United States have found it economical to accept credit
cards has:
A) increased the demand for money.
B) decreased the demand for money.
C) increased the demand for credit card transactions but has not affected the demand for
money.
D) decreased the demand for credit card transactions but has not affected the demand
for money.
Money is the most liquid asset in the economy.
A) True
B) False
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their
income. There are no taxes and no foreign trade. Its currency is the arc. Potential output
is 600 billion arcs.
Look at the scenario Fiscal Policy. If actual output is 500 billion arcs, to restore the
economy to potential output the government should _____ by 25 billion arcs.
A) increase taxes
B) decrease taxes
C) increase spending
D) decrease spending
The term human capital describes improvement:
A) made possible by better machines and equipment.
B) in the technology available to the work force.
C) in a worker’s skills made possible by education, training, and knowledge.
D) in the robotics technology that can substitute for a human worker.
Which of the following is NOT true of a fixed exchange rate system?
A) It is good for business.
B) Foreign exchange reserves are costly.
C) It keeps a country from using inflationary policies.
D) It makes pursuing domestic macroeconomic objectives easier.
An economy operating at a real GDP level below its potential will have:
A) relatively high unemployment levels.
B) nominal wages moving upward as the economy moves from the short run to the long
run.
C) the SRAS curve shifting left as the economy corrects itself from the short run to the
long run.
D) no change in price levels.
When the aggregate price level rises:
A) AD will shift right.
B) SRAS will shift left.
C) there will be a movement along the SRAS curve.
D) AD will shift left.
According to the convergence hypothesis, the richest countries have the fastest growth
rate of real GDP per capita.
A) True
B) False
According to Keynes, changes in “animal spirits” will affect actual output through
changes in:
A) business investment spending.
B) government expenditure and taxes.
C) money supply and interest rates.
D) labor productivity and technological progress.
Which view of the macro economy holds that since the long-run growth of real GDP is
3%, the money supply should grow at 3%?
A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus