Taxes equal:
A) government spending plus private savings.
B) total spending minus consumption minus investment minus private savings.
C) total income minus consumption minus private savings.
D) consumption plus private savings plus total income.
If the marginal propensity to consume is 0.9, the multiplier will be 0.1.
A) True
B) False
Macroeconomic policy activism:
A) is the use of political activism made popular by liberal economists.
B) mandates a balanced government budget.
C) is the use of monetary and fiscal policy to smooth out the business cycle.
D) was the tool used by classical economists.
Annie’s credit union charges a fee for transferring funds from her money market
account to her checking account. The rate of inflation has been 12% lately, so Annie has
transferred funds from her money market account to her checking account more often
than usual. This cost is an example of the _____ cost of high inflation.
A) unit-of-account
B) menu
C) shoe-leather
D) redistributive
If we add up the consumer spending on goods and services, investment spending,
government purchases of goods and services, and the value of exports, then subtract the
value of imports, we have measured the nation’s:
A) disposable income.
B) gross domestic product.
C) trade deficit.
D) budget deficit.
Scenario: The Employment Rate
A group of 10 people includes 3 retirees, 2 part-time workers, 2 discouraged workers, 1
unemployed worker, and 2 full-time workers.
Look at the scenario The Employment Rate. If the discouraged workers in this group
became active job searchers, the:
A) unemployment rate would fall.
B) unemployment rate and the labor force participation rate would rise.
C) labor force participation rate would fall.
D) unemployment rate and the labor force participation rates would both fall.
A shift of the demand curve for thin-crust pizza would NOT be caused by a change in:
A) buyers’ incomes.
B) the price of thin-crust pizza.
C) the price of thick-crust pizza.
D) the popularity of thin-crust pizza.
Prior to the Great Depression, many policy makers:
A) believed activist policies were important to the well-being of an economy.
B) focused on short-run economic problems.
C) believed that long-run economic performance was the most important goal.
D) believed economies always performed below their potential output level.
Ireland’s recent economic growth and improving living standard are due primarily to its
investment in all of the following types of physical and human infrastructure EXCEPT:
A) a good education system.
B) airports.
C) telecommunications.
D) a more open election process.
Researchers find a new strain of genetically modified seeds that results in a higher yield
for corn producers. Holding all other things constant, this research will:
A) shift the supply curve for corn left.
B) increase the quantity supplied of corn.
C) decrease the quantity supplied of corn.
D) shift the supply curve for corn to the right.
Market failure occurs when:
A) prices of essential goods such as gas become very high.
B) individual actions have side effects that are not properly taken into account.
C) mutually beneficial trades take place.
D) a business declares bankruptcy.
Suppose that a financial crisis decreases investment spending by $100 billion and the
marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will
_____ by _____.
A) decrease; $500 billion
B) decrease; $200 billion
C) decrease; $800 billion
D) increase; $400 billion
All of the following are examples of bank regulations designed to prevent bank runs
EXCEPT:
A) reserve requirements.
B) deposit insurance.
C) the federal funds rate.
D) capital requirements.
All of the following are examples of job search EXCEPT:
A) attending class at a community college to learn database management.
B) reading the employment section of the local newspaper while sitting at a coffee
shop.
C) calling a former college roommate to see if there are any job openings in her
company.
D) visiting a former college professor to learn about work as a research assistant.
President Johnson’s use of a temporary 10% surcharge on income taxes is a classic
example of _____ policy.
A) expansionary fiscal
B) contractionary fiscal
C) expansionary monetary
D) contractionary monetary
If policy makers want to decrease real GDP by $100 billion and the marginal propensity
to consume is 0.6, they should _____ government purchases of goods and services by
_____ .
A) decrease; $100 billion
B) decrease; $60 billion
C) decrease; $40 billion
D) increase; $100 billion
The savings and loans crisis of the 1980s was caused by an asset bubble in commercial
real estate.
A) True
B) False
When a country joins the World Trade Organization, it gives up all of its ability to
determine its trade policy.
A) True
B) False
To achieve the gains from trade, each nation should specialize in the production of a
good or service if:
A) its production possibility frontier is farther from the origin than that of any other
country.
B) its production possibility frontier is closer to the origin than that of any other
country.
C) the country can make the product using fewer resources than any other country.
D) the country can make the product while forgoing fewer alternative products than any
other country.
All of the following are factors that drive productivity growth EXCEPT:
A) growth convergence.
B) physical capital.
C) technological progress.
D) human capital.
In much of the country, homeowners choose to heat their houses with either natural gas
or heating oil. Which of the following would cause an increase in the demand for
natural gas?
A) an increase in the price of natural gas
B) a decrease in the price of natural gas
C) a decrease in the price of heating oil
D) an increase in consumer incomes
Scenario: Real GDP
Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75
pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell
for $3.25 each and 80 pizzas that sell for $9 each.
Look at the scenario Real GDP. Using year 1 as the base year, real GDP in year 2 is:
A) $900.
B) $970.
C) $1,000.
D) $1,077.50.
Government transfer payments rise when the economy is contracting and fall when the
economy is expanding. In this role, transfer payments are described as:
A) automatic stabilizers.
B) discretionary fiscal policy.
C) balanced budget policy.
D) deficit reduction policy.
In the Republic of Sildavia, a market basket of goods and services cost $130 in 2009,
$140 in 2010, and $160 in 2011. Based on this information and considering 2009 to be
the base year, the price index in 2011 was:
A) 100.
B) 107.69.
C) 123.07.
D) 130.
The special office created by the Dodd-Frank Act to police financial industry practices
and protect borrowers is called the:
A) Food and Drug Administration.
B) Consumer Financial Protection Bureau.
C) Board of Governors.
D) Consumer Protection Agency.
If money income remains the same while the average price level doubles:
A) nominal income will fall.
B) real income will fall.
C) interest rates will fall.
D) purchasing power will increase.
Scenario: Gizmovia
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40.
Look at the scenario Gizmovia. If Gizmovia uses exchange market intervention to
increase the value of its currency to $0.50, it should _____ gizmos and _____ dollars in
the foreign exchange market.
A) sell; sell
B) sell; buy
C) buy; sell
D) buy; buy
Aggregate output is:
A) equal to consumer spending on goods and services.
B) the value of new construction, changes in inventories, and the purchase of physical
capital by businesses.
C) the total quantity of intermediate goods produced by an economy.
D) the total quantity of final goods and services produced by an economy.
Renting a car to go on a vacation will result in more GDP than if you used your own
car.
A) True
B) False
A country with a recessionary gap and a fixed exchange rate will be helped most by
a(n):
A) revaluation of its currency.
B) devaluation of its currency.
C) expansionary monetary policy.
D) No policy option will aid this country.
In an economy without government purchases, government transfers, or taxes,
aggregate autonomous consumer spending is $750 billion, planned investment spending
is $300 billion, and the marginal propensity to consume is 0.75. What is the expression
for planned aggregate spending?
A) AEPlanned= $1,050 + 0.75 YD
B) AEPlanned= $300 + 0.25 YD
C) AEPlanned= $750 + 0.75 YD
D) AEPlanned= $500 + 0.25 YD
Which of the following is part of M1?
A) long-term certificates of deposit
B) corporate bonds
C) currency in a person’s purse
D) money market fund account balances
If the value of homes in University City increases and as a result the people of
University City spend more, incomes in University City will:
A) decrease.
B) increase.
C) remain the same.
D) be unaffected.
Which of the following is (are) a tool(s) of monetary policy used by the Federal
Reserve?
I. open market operations
II. government purchases of goods and services
A) I only
B) II only
C) I and II
D) neither I nor II
The 1944 Bretton Woods agreement established a system of fixed exchange rates
among major currencies.
A) True
B) False