When an economy has high inflation:
A) wage and price stickiness lessens or disappears.
B) the Keynesian model of the economy is most relevant.
C) wages become more inflexible as workers wait for prices to stabilize.
D) changes in the money supply take much longer to affect the inflation rate.
According to the liquidity preference model, the supply and demand for money
determine the interest rate.
A) True
B) False
When portions of investment spending are financed by a capital inflow:
A) interest is being paid by government for the use of those funds.
B) interest is being paid to a foreigner for use of those funds.
C) consumers will need to cut back on spending.
D) taxes will be raised to pay for this capital inflow.
Before the Civil War, private banks, not the U.S. government, issued paper money that
could be redeemed for silver coins.
A) True
B) False
In the structure of the Federal Reserve, which of the following is part of the
government?
I. the Board of Governors
II. the 12 regional Federal Reserve Banks
A) I only
B) II only
C) I and II
D) neither I nor II
Suppose the economy is operating at an output of $4,000 billion. Assume furthermore
that potential output is $5,000 billion and the marginal propensity to consume is 0.75.
_____ would close this recessionary gap.
A) A $25 billion increase in government spending
B) A $25 billion increase in taxes
C) A $250 billion increase in government spending
D) A $1,000 billion increase in government spending
This year, Alan purchases a home built in the 1950s. Alan’s purchase:
A) counts as residential investment spending.
B) counts as government spending.
C) does not count as investment spending.
D) is considered business fixed investment.
Most physical capital, except for infrastructure, is provided by:
I. governments through public education
II. investment spending by private sector firms
A) I only
B) II only
C) both I and II
D) neither I nor II
If the opportunity cost of holding money rises, then the money demand curve shifts to
the left.
A) True
B) False
National savings equals:
A) private savings plus consumption spending.
B) trade balance plus the budget balance.
C) private savings plus the budget balance.
D) government spending plus taxes.
Figure: Demand and Supply
Look at the figure Demand and Supply. The curve labeled D indicates that a price of $2
is related to a quantity of:
A) 0.
B) 1.
C) 2.
D) 3.
The concept of the margin deals with:
A) making incremental choices.
B) all or none of something.
C) engaging in unethical activities.
D) making difficult choices.
An increase in the price and an ambiguous change in quantity is most likely caused by:
A) a shift to the left in demand and no shift in supply.
B) a shift to the left in supply and no shift in demand.
C) a shift to the right in supply and a shift to the left in demand.
D) a shift to the left in supply and a shift to the right in demand.
The largest source of federal tax revenues is:
A) property taxes.
B) personal income taxes.
C) corporate income taxes.
D) sales taxes.
The trough of the business cycle:
A) comes right after the expansion phase.
B) comes before the recession phase.
C) is a temporary maximum level of real GDP.
D) is a temporary minimum level of real GDP.
Figure: The Effect of a Minimum Wage
Look at the figure The Effect of a Minimum Wage. Suppose that after some time with a
minimum wage of WF, the government abolishes the minimum wage. Employment
will:
A) decrease to QE.
B) increase to QE.
C) stay at QE.
D) be impossible to determine.
Most households derive the bulk of their income from:
A) wages.
B) interest.
C) profit.
D) rent.
Specialization and trade should lead to all of the following EXCEPT:
A) individuals learning specific skills and earning a salary.
B) a decrease in total economic output.
C) higher living standards.
D) the exchange of goods and services in markets.
The planned aggregate spending line has a slope:
A) greater than 1.
B) less than 1.
C) equal to 1.
D) less than 0.
Monetarism suggests that:
A) money should be backed by gold.
B) the economy is unstable.
C) monetary policy should be used to offset economic fluctuations.
D) discretionary monetary policy does more harm than good.
An increase in the wealth of households, all other things unchanged, will result in
_____ the aggregate consumption function.
A) no effect on
B) an upward shift in
C) a downward shift of
D) a movement to the right along
Figure: Fiscal Policy Options
Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD, the most
appropriate discretionary fiscal policy is to _____ government spending and _____
income tax rates.
A) decrease; increase
B) decrease; maintain
C) increase; increase
D) increase; maintain
Discretionary fiscal policy entails:
A) changing the money supply to influence interest rates and investment spending.
B) using government spending or tax policy to affect aggregate demand.
C) lifting trade barriers on imports.
D) setting policy to raise the natural rate of unemployment.
The aggregate production function does NOT depend on:
A) the quantity of physical capital per worker.
B) human capital per worker.
C) the state of technology.
D) the amount of natural resources.
If an administration pursues expansionary policy before an election to bring down
unemployment, it can:
A) produce inflation only if the real interest rate is zero to begin with.
B) lower people’s expectations about inflation through a sense of false complacency.
C) produce inflation if the targeted rate of unemployment is too low.
D) produce disinflation if the expansionary monetary policy is unanticipated.
One of the impacts of the budget deficits that resulted from the fiscal stimulus of 2009
was that:
A) the public debt decreased.
B) interest rates remained very low.
C) interest rates increased to record high levels.
D) crowding-out occurred.
A U.S. firm buys a new Volvo, built in Sweden. In the U.S. balance of payments, this
transaction causes the balance on the _____ account to _____.
A) current; decrease
B) current; increase
C) financial; decrease
D) financial; increase
Foreign exchange controls are systems of a common currency used by a group of
countries, such as the Asian Tigers.
A) True
B) False
Because of diminishing returns to capital, doubling the amount of physical capital
available for one worker to use will _____ output by _____ a factor of two.
A) decrease; less than
B) increase; less than
C) increase; exactly
D) increase; more than
According to the natural rate hypothesis:
A) once inflation is built into expectations, a policy aimed at lowering unemployment
below the natural rate would lead to accelerating inflation.
B) the natural rate of unemployment is above the NAIRU.
C) once inflation is embedded in the public’s expectations, it will stop accelerating.
D) changes in discretionary policy aimed at increasing GDP will have no impact on
inflation expectations.
The Wall Street Reform and Consumer Protection Act of 2010 addressed all of the
following EXCEPT:
A) consumer protection.
B) derivatives regulation.
C) regulation of shadow banks.
D) interest rate ceilings on checkable deposits.
Suppose that the United States and European Union are the only trading partners in the
world. If interest rates in the United States are significantly lower than those in the
European Union, we would expect:
A) the supply of the dollar to fall, appreciating the dollar.
B) the demand for the dollar to fall, depreciating the dollar.
C) the supply of euros to increase, depreciating the euro.
D) the demand for euros to decrease, depreciating the euro.
Look at the table Labor Force Data.
Suppose the labor force participation rate is 70%. The number of unemployed adults is:
A) 8 million.
B) 53 million.
C) 103 million.
D) 50 million.
A general decrease in wages will result primarily in the _____ curve shifting to the
_____.
A) aggregate demand; right
B) aggregate demand; left
C) short-run aggregate supply; right
D) short-run aggregate supply; left