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Most economists now agree that:
A) the government should seek to balance its budget.
B) fiscal policy can shift aggregate demand.
C) fiscal policy can change the natural rate of unemployment.
D) fiscal policy should be conducted by the Federal Reserve.
A decrease in the demand for money would result from:
A) an increase in income.
B) a decrease in real GDP.
C) an increase in the price level.
D) an increase in nominal GDP.
Figure: Aggregate Expenditures Curve II
Look at the table Aggregate Expenditures Curve II. Suppose that the consumption
function rises by $100. The equilibrium level of real GDP would rise by:
A) $100.
B) $200.
C) $250.
D) $50.
The producer price index is also known as the wholesale price index.
A) True
B) False
In the circular-flow diagram, households:
A) supply goods.
B) supply services.
C) buy resources.
D) buy goods and services.
Debt overhang often causes a recession because businesses and consumers with a
_____ level of debt _____ their spending.
A) low; increase
B) low; decrease
C) high; increase
D) high; decrease
The circular-flow diagram is important because it shows that the flow of money into
each market or sector of the economy is _____ the flow of money coming out of that
sector.
A) greater than
B) equal to
C) less than
D) unrelated to
A country that contracts its money supply will MOST likely have a(n):
A) increase in the level of investment spending.
B) increase in the demand for its currency in the foreign exchange market.
C) increase in the supply of its currency in the foreign exchange market.
D) a lowering of its interest rate.
Consider a production possibility frontier for Iraq. If in 2014 Iraq's resources are not
being fully utilized, Iraq will be somewhere _____ of its production possibility frontier.
A) inside
B) outside
C) near the bottom
D) near the top
Figure: The Market for MP3 Players
Look at the figure The Market for MP3 Players. Assume that Sdrepresents the domestic
supply curve and Ddrepresents the domestic demand curve. If the world price equals
$100 and there is free trade, this country:
A) will import 150,000 MP3 players.
B) will export 150,000 MP3 players.
C) has a domestic supply equal to 250,000 MP3 players.
D) has a domestic demand equal to 100,000 MP3 players.
Fiat money:
A) is currency from Italy.
B) can include currency backed by gold but not by silver.
C) is currency backed by the gold in Fort Knox.
D) has advantages over commodity-backed money.
Most of the subprime loans were made by loan originators, who sold the loans to other
investors for securitization.
A) True
B) False
The nominal wage is the dollar amount of the wage paid.
A) True
B) False
Look at the table Loanable Funds. At what interest rate will the market for loanable
funds be in equilibrium?
A) 7%
B) 6%
C) 5%
D) 4%
Figure: The Labor Market
Look at the figure
The Labor Market. What is the size of the labor force at an efficiency wage of $16?
A) 80,000
B) 100,000
C) 110,000
D) 200,000
When the economy is in a recessionary gap, the government can improve economic
outcomes by:
A) increasing taxes and aggregate spending via the multiplier.
B) increasing the money supply, lowering the interest rate, increasing investment
spending and consumption spending, and thus increasing aggregate demand.
C) cutting government expenditure, decreasing investment spending and consumption
spending, and thus increasing aggregate supply.
D) increasing nominal wages, shifting the short run aggregate supply to the left and thus
removing the recessionary gap.
Suppose a fall in commodity prices causes a supply shock. The short-run Phillips curve
will:
A) shift down.
B) show a movement along the same curve.
C) not be affected at all.
D) shift up.
Contractionary fiscal policy includes:
A) increasing government purchases.
B) increasing government transfers.
C) raising tax rates.
D) decreasing money growth.
The _____ the period, the _____ is the present value of a given future payment, all
other things held constant.
A) longer; less
B) shorter; less
C) longer; more
D) shorter; the more uncertain
Other things equal, rising interest rates lead to a _____ in investment spending and a
_____ in _____ spending.
A) fall; fall; consumer
B) rise; rise; consumer
C) fall; rise; consumer
D) fall; rise; investment
In a simple economy with no taxes, government spending, exports, or imports, if
disposable income increases by $500 and $450 is consumed, $950 is saved.
A) True
B) False
If the wage rate is $20 per hour and the price level is 2, then the real wage is $40 per
hour.
A) True
B) False
During a liquidity trap:
A) monetary policy is ineffective, since nominal interest rates cannot fall below zero.
B) the money market is in disequilibrium.
C) the only tool that the Federal Reserve finds effective is expansionary monetary
policy.
D) nominal interest rates will rise regardless of what policy the Federal Reserve
pursues.
The federal funds rate is the interest rate on _____, and it is controlled by the _____.
A) loans from the Federal Reserve to banks; Federal Open Market Committee
B) reserves that banks lend to each other; Federal Open Market Committee
C) loans from the Federal Reserve to banks; president and Congress
D) reserves that banks lend to each other; president and Congress
Negative inventory investment caused the growth of GDP to be fairly low when the
recovery from the recession began in the fourth quarter of 2001.
A) True
B) False
A firm has enough retained earnings to finance an investment project. For this firm, the
market interest rate:
A) is not relevant to the investment decision.
B) indicates the opportunity cost of using retained earnings.
C) will help to calculate the rate of return for the project.
D) has no impact on the profitability of the investment project.
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. If 2012 is the base year, what is the value of the price
index in 2014?
A) 122.5
B) 111.25
C) 90
D) 81.6
Figure: International Capital Flows
Look at the figure International Capital Flows. At an interest rate of 4%, the quantity of
loanable funds demanded by British borrowers is _____ the quantity of loanable funds
supplied by British lenders.
A) greater than
B) less than
C) equal to
D) not related to
Proponents argued that fiscal stimulus was appropriate after the 2008 financial crisis
because most major economies had _____ unemployment and _____ inflation.
A) low; low
B) low; high
C) high; low
D) high; high
Which of the following is a function of financial intermediaries?
A) transforming funds from many individuals to financial assets
B) transforming funds from many individuals to physical assets
C) helping individuals and businesses determine their tax liabilities
D) conducting fiscal policy
Figure: The Gains from International Trade
Look at the figure The Gains from International Trade. If each country specializes
completely in the good for which it has a comparative advantage, each country must
trade _____ computer(s) for _____ box of roses to consume at combination C.
A) 1; 0.5
B) 2; 1
C) 0.5; 1
D) 1; 1
The correct formula for the output gap is:
A)
B)
C)
D)
The major tools of monetary policy available to the Federal Reserve System include:
A) reserve requirements, margin regulations, and moral suasion.
B) reserve requirements, open-market operations, and the discount rate.
C) open-market operations, margin regulations, and moral suasion.
D) the discount rate, margin regulations, and moral suasion.
