High interest rates in the 1970s:
A) helped S&Ls because it increased their return on investment.
B) helped S&Ls because higher interest rates on their mortgages increased their
profitability.
C) hurt S&Ls because they lost savings deposits to investments that paid higher interest
rates.
D) hurt S&Ls because paying higher interest rates on their deposits decreased their
profits.
Changes in short-run aggregate supply can be caused by changes in:
A) wealth.
B) commodity prices.
C) government spending.
D) the price level.
The theory of rational expectations states that:
A) people make decisions optimally as often as they make decisions less than optimally.
B) expectations about future real wages are often irrational.
C) people make decisions using all available information.
D) designing effective economic policy is very difficult because of the shortage of
information.
If the marginal propensity to save is 0.25 in an economy with no taxes and no imports,
the marginal propensity to consume is 0.75.
A) True
B) False
Real GDP equals $200 billion, the government collects 20% of any increase in real
GDP in the form of taxes, and the marginal propensity to consume is 0.8. What is the
value of the expenditure multiplier?
A) 1
B) 2
C) 2.8
D) 5
If the _____ differ(s) between two countries, this suggests the possibility for mutually
advantageous trade.
A) currency
B) factor endowments
C) exchange rate
D) level of government spending for defense
A person without a job who is actively seeking and available for work is considered:
A) employed.
B) unemployed.
C) underemployed.
D) marginally attached.
The rule of 70 states that:
A) the average score on standardized tests is normally distributed with a mean of 70 and
a standard deviation of 10.
B) everyone should retire by age 70.
C) the number of years for a variable to double equals 70 divided by its annual growth
rate.
D) Social Security benefits should increase when people reach 70.
Expectations of an improving economy will generally cause an increase in investment
by shifting the loanable funds demand curve to the right.
A) True
B) False
Look at the table Comparative Advantage I. The opportunity cost of producing 1 box of
herring for Sweden is _____ box(es) of cell phones.
A) 10
B) 0.5
C) 5
D) 0.1
You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and
a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of
buying the chips is:
A) $1 plus the enjoyment you would have received from the candy bar.
B) $2 minus the enjoyment you received from the bag of chips.
C) $1.
D) the enjoyment you would have received from the candy bar.
The U.S. production possibility frontier will _____ if there is a large influx of
working-age immigrants.
A) shift in
B) shift out
C) not change
D) The answer cannot be determined from the information provided.
Figure: Supply and Demand in the Orange Juice Market
Look at the figure Supply and Demand in the Orange Juice Market. The market is in
equilibrium at point C. Suppose most people drink orange juice only with champagne.
What will be the new equilibrium point in the orange juice market if a law banning
alcohol passes?
A) A
B) B
C) D
D) E
If the short-run Phillips curve has shifted downward, the _____ curve has shifted to the
_____.
A) SRAS; left
B) SRAS; right
C) AD; left
D) AD; right
Mary spends $5 on food for her cat. This is an example of a:
A) business buying goods and services in the product market.
B) household buying goods and services in the product market.
C) household buying goods and services in the factor market.
D) household selling a resource in the factor market.
The government budget balance equals taxes _____ purchases _____ transfers.
A) plus; plus
B) minus; minus
C) minus; plus
D) plus; minus
Fiscal experts in the United States are most concerned about the country’s:
A) implicit liabilities.
B) high ratio of debt to GDP.
C) risk of debt default.
D) low ratio of debt to GDP.
Time lags associated with policy decision making and implementation suggest that:
A) increases in spending to fight a recessionary gap can be timed correctly.
B) increases in spending to fight a recessionary gap may occur too early.
C) increases in spending to fight a recessionary gap may occur too late.
D) most information is old before the public is aware of it.
The interest rate effect of a change in the aggregate price level causes:
A) the long-run aggregate supply curve to be vertical.
B) the aggregate demand curve to be negatively sloped.
C) the short-run aggregate supply curve to be positively sloped.
D) the aggregate demand curve to be positively sloped.
In the 1980s which factor contributed to slow growth in Latin America countries?
A) reliance on the drug trade
B) excessive government intervention in the economy
C) an overly high birth rate
D) excessive reliance on the United States for foreign trade
A vicious cycle of deleveraging occurs when sales of assets to cover losses produce
negative balance sheet effects on other firms, causing creditors to call in their loans,
which forces further sales of assets and further decreases in prices.
A) True
B) False
All other things unchanged, a decrease in the value of the dollar against the euro _____
U.S. net exports and shifts the aggregate demand curve to the _____.
A) increases; right
B) decreases; right
C) increases; left
D) decreases; left
Suppose the economy is operating in long-run equilibrium and a positive demand shock
hits. We expect a short-run increase in real GDP and the price level and a long-run
in_____ real GDP and _____ the price level.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease
When the government borrows funds to pay for budget deficits:
A) planned aggregate spending decreases rather than increases.
B) the multiplier effect of government purchases increases.
C) private investment spending may be crowded out.
D) the interest rate and savings decrease.
Look at the table The Market for Chocolate-Covered Peanuts. If the price of
chocolate-covered peanuts is $0.60, the price will:
A) not change.
B) fall to $0.30.
C) fall to $0.50.
D) rise to $0.70.
Long-run economic growth has been mostly dependent on:
A) rising productivity.
B) a low unemployment rate.
C) an increase in the population, which eventually leads to an increase in the labor
population.
D) countries following the rule of 70.
The purpose of macroeconomic policy is to:
A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate, rein in excessively strong expansions,
and reduce the severity of recessions.
Following the 2008 financial crisis, by 2011, almost half of unemployed workers were
long-term unemployed.
A) True
B) False
Since the early 1980s, shadow banks have increased because they:
A) are not subject to capital requirements and reserve requirements.
B) offer online bill payment to their depositors.
C) pay lower interest rates on their deposits than commercial banks.
D) offer lower interest rates on their commercial loans than commercial banks.
Money is neutral in _____, since it cannot alter _____.
A) the short run; real aggregate output
B) both the short and long run; price levels
C) the long run; real aggregate output
D) the short run; price levels
Bonds of the U.S. government that mature in less than a year are called:
A) commercial paper.
B) U.S. Treasury bills.
C) federal funds.
D) U.S. reserves.