Severe banking crises are usually followed by deep recessions and slow recoveries.
A) True
B) False
Figure: Demand and Supply of Gasoline
Look at the figure Demand and Supply of Gasoline. A factor that may have changed
supply from S1 to S2 is:
A) better technology in the production of gasoline.
B) increased demand.
C) lower labor productivity in gasoline production.
D) increased prices of substitutes in production for gasoline.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. Assume that the economy depicted in panel (a) is
in short-run equilibrium with AD1 and SRAS1. If the economy is left to correct itself:
A) real interest rates will fall, which will shift SRAS rightward.
B) lower wages will result in a gradual shift from SRAS1 to SRAS2.
C) long-run equilibrium will be established at YP and P3.
D) the aggregate demand curve will shift leftward.
The interest earnings one gives up to hold more liquid assets are:
A) an opportunity cost.
B) a transaction cost.
C) an asset of the company.
D) a liability of the company.
The money velocity equation is stated as:
A) M V = P Y.
B) M P = V Y.
C) M Y = V P.
D) M Y P = V.
Pablo believed that short-run changes in aggregate demand affected aggregate output as
well as the price level. He believed that there was a role for monetary policy in
managing the economy, but he advocated a simple monetary rule that would increase
the money supply at a constant rate to grow the economy. Pablo was best described as
a:
A) Keynesian.
B) new classical economist.
C) supply-sider.
D) monetarist.
David receives a tax refund of $800. He spends $600 and saves $200. David’s marginal
propensity to consume is:
A) 0.6.
B) 0.75.
C) 0.25.
D) 0.20.
In the long run, changes in the money supply:
A) don’t affect the interest rate.
B) lower the interest rate.
C) raise the interest rate.
D) have a small but indeterminate impact on the interest rate.
If actual unemployment is 6.2% and the natural rate is 4%, cyclical unemployment is:
A) 6.2%.
B) 10.2%.
C) 4%.
D) 2.2%.
To determine the real exchange rate, one needs to know:
A) the nominal exchange rate and the aggregate price level in both countries.
B) the amount of exports and imports.
C) the balance of payments.
D) the purchasing power parity.
Irving Fisher argued that deflation is MOST likely to:
A) expand the economy because the cost of goods has fallen.
B) increase aggregate supply.
C) increase aggregate demand.
D) decrease aggregate demand.
The original purpose of savings and loans was to:
A) help businesses issue stocks and bonds.
B) invest in money market mutual funds.
C) accept deposits from state and local governments and loan them to businesses in
need of short-term loans.
D) accept savings and loan them to home buyers for long-term mortgages.
Table: Pizza Economy III
Look at the table Pizza Economy III. Using 2010 as the base year, real GDP in 2010
was:
A) $47,000.
B) $69,000.
C) $72,000.
D) $114,000.
Table: Lemonade and Cookies
Look at the table Lemonade and Cookies. Assume that an economy produces only
lemonade and cookies. The growth rate of nominal GDP from 2013 to 2014 was:
A) 5%.
B) 10%.
C) 11.25%.
D) 45%.
Look at the table Comparative Advantage I. Finland has an absolute advantage in
producing:
A) cell phones only.
B) herring only.
C) both cell phones and herring.
D) neither cell phones nor herring.
Relative to the size of their economy, many other countries engage in more foreign
trade than the United States.
A) True
B) False
Figure: Production Possibility Frontier
Look at the figure Production Possibilities Frontier. If the economy is operating at point
B, producing 16 cars and 12 computers per period, a decision to move to point E and
produce 18 computers:
A) indicates that you can have more computers and more cars simultaneously.
B) makes it clear that this economy has decreasing opportunity costs.
C) entails a loss of 8 cars per period.
D) entails a loss of 4 cars per period.
Expansionary fiscal policies:
A) make the budget surplus smaller.
B) make the budget deficit smaller.
C) affect only taxes.
D) affect only government purchases of goods and services.
Keynesian economics was mostly concerned with the short run.
A) True
B) False
It is the responsibility of the U.S. Department of Commerce to maintain stability in the
financial system by providing liquidity to commercial banks.
A) True
B) False
An increase in the marginal propensity to consume:
A) increases the multiplier.
B) shifts the autonomous investment line upward.
C) decreases the multiplier.
D) shifts the autonomous investment line downward.
If the economy is at potential output and the Fed decreases the money supply, in the
long run the price level will likely:
A) fluctuate randomly.
B) remain the same.
C) decrease.
D) increase.
Figure: Short-Run Determination of the Interest Rate
Look at the figure Short-Run Determination of the Interest Rate. If the money supply is
at MS2and the central bank sells Treasury bills, then in the short run the interest rate
will:
A) decrease below r2.
B) remain at r2.
C) increase to r1.
D) fluctuate randomly.
A share of stock is considered:
A) an asset for the owner of the stock.
B) part of M2.
C) a liability for the owner of the stock.
D) part of the money supply.
Table: Lemonade and Cookies
Look at the table Lemonade and Cookies. Assume that an economy produces only
lemonade and cookies. Nominal GDP in 2013 was:
A) $400.
B) $420.
C) $445.
D) $820.
Long-run economic growth depends almost entirely on rising productivity.
A) True
B) False
According to the accelerator principle there is a _____ relationship between _____ and
planned investment spending.
A) positive; expected growth
B) negative; expected growth
C) positive; unplanned inventory investment
D) positive; the interest rate
The 2008 financial crisis in Europe was caused primarily by problems with:
A) home loans.
B) commercial real estate loans.
C) credit cards.
D) public debt.
If policy makers want to increase real GDP by $100 billion and the marginal propensity
to consume is 0.75, they should increase government transfers by $75 billion.
A) True
B) False
If the economy is at potential output and the Fed decreases the money supply, in the
short run the likely result will be a decrease in investment and a decrease in
consumption.
A) True
B) False
Which of the following statements is FALSE? Keynesian economics:
A) emphasizes the effects of shifts in aggregate demand on aggregate output.
B) focuses the attention of economists on situations in which the short-run aggregate
supply curve slopes upward.
C) holds “animal spirits” mainly responsible for business cycles.
D) holds that changes in business confidence have no effect on either the aggregate
price level or aggregate output.
Figure: Output Gap
Look at the figure Output Gap. If the economy is producing at Y2, then it has a(n)
_____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve
should use _____ monetary policy.
A) recessionary; actual; potential; expansionary
B) recessionary; potential; actual; expansionary
C) inflationary; actual; potential; contractionary
D) inflationary; potential; actual; contractionary