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Suppose the economy is in long-run equilibrium at full employment levels of real GDP.
In the long run, if the money supply increases, we would expect _____ in the price level
and _____ in real GDP.
A) an increase; no change
B) an increase; an increase
C) a decrease; no change
D) no change; an increase
When a corporation issues a bond, it is an asset for the corporation and a liability for the
purchaser of the bond.
A) True
B) False
Figure: Expanded Circular-Flow Model
Look at the figure Expanded Circular-Flow Model. The total flow of funds into and out
of the rest of the world is:
A) $30.
B) $80.
C) $160.
D) $240.
If the dollar amount of GDP decreases, then aggregate output is definitely decreasing.
A) True
B) False
A revaluation will make exports less expensive and imports more expensive.
A) True
B) False
Scenario: The Production of Wheat and Toys
The table describes the production of two goods, wheat and toys, in country A and
country B. Each country has a linear production possibility frontier with respect to its
production of the two goods. The numbers in each column represent the total number of
units each country could produce if it used all of its resources to produce the good.
Look at the scenario Production of Wheat and Toys. If each country specializes in the
good for which it has the comparative advantage:
A) country A will produce wheat, and country B will produce toys.
B) country A will produce both wheat and toys.
C) country A will produce toys, and country B will produce wheat.
D) country B will produce both wheat and toys.
The short-run aggregate supply curve is _____, and the long-run aggregate supply curve
is _____.
A) vertical; upward sloping
B) upward sloping; vertical
C) downward sloping; vertical
D) vertical; horizontal
Keynesian theory argued that monetary policy could be very effective during a
depression.
A) True
B) False
A depreciation of a currency below the exchange rate fixed by its government can be
countered by all of the following measures EXCEPT by:
A) decreasing capital flows out of the country.
B) limiting the domestic purchase of foreign financial assets.
C) decreasing capital flows into the country.
D) decreasing foreign exchange reserves.
The Keynesian school of thought is that expansionary monetary policy has very little or
no effect on output.
A) True
B) False
Frictional and structural unemployment are a part of the natural rate of unemployment.
A) True
B) False
A decrease in the supply of money shifts the aggregate _____ curve to the _____.
A) supply; left
B) supply; right
C) demand; left
D) demand; right
If aggregate expenditures exceed real GDP, the economy will:
A) expand, increasing employment.
B) expand, reducing prices.
C) contract, decreasing employment.
D) neither expand nor contract, holding employment the same.
Samantha asks her employer for a 5% raise for the coming year. If the inflation rate
during the next year is 5.5%, then her real wage will:
A) increase by 5%.
B) decrease by 0.5%.
C) decrease by 5%.
D) increase by 0.5%.
Most human capital is provided by government through public education.
A) True
B) False
The improvement in labor made possible by education and knowledge that is embodied
in the work force is known as _____ capital.
A) physical
B) human
C) financial
D) real
The higher the short-term interest rate, the:
A) lower the opportunity cost of holding money.
B) higher the opportunity cost of holding money.
C) more quantity demanded of money the public will be willing to hold.
D) higher the level of investment spending.
If the cost of a market basket is $200 in year 1 and $230 in year 2, the price index for
year 2 using year 1 as the base is:
A) 100.
B) 115.
C) 130.
D) 200.
The amount of money that people demand is:
A) positively related to the interest rate.
B) independent the interest rate.
C) negatively related to the interest rate.
D) positively or negatively related to the interest rate depending on the state of the
economy.
Figure: The Business Cycle
Look at the figure The Business Cycle. The movement from point B to C is called a(n):
A) trough.
B) expansion.
C) depression.
D) peak.
A current account surplus occurs when:
A) the balance on the current account is positive.
B) net exports are negative.
C) spending flowing out of the country exceeds spending flowing into the country.
D) imports exceed exports.
The higher the existing physical capital stock, the higher is aggregate demand.
A) True
B) False
If the government wants to decrease the value of its currency in foreign exchange
markets, it can use expansionary monetary policy.
A) True
B) False
A government can target its exchange rate only if it:
A) is willing to give up use of monetary policy to stabilize its economy.
B) continues to use monetary policy for exchange market intervention and to stabilize
its economy.
C) increases the amount of uncertainty in the foreign exchange markets.
D) sets inflationary policies.
Figure: Tom's Production Possibilities
Look at the figure Tom's Production Possibilities. Which point or points represent(s) a
feasible combination of coconuts and fish?
A) A only
B) A and B
C) A, B, and C
D) D only
Figure: Actual and Natural Rates of Unemployment
Look at the figure Actual and Natural Rates of Unemployment. In 2014, the actual
unemployment rate was approximately:
A) zero.
B) 3%.
C) 5%.
D) 6%.
When the price level increases, people want to hold more money.
A) True
B) False
In baseball, when one manager decides to send in a pinch hitter, the other manager often
changes pitchers. This sometimes causes the first manager to send in a new pinch hitter.
Once both managers decide that no more player substitutions will benefit their team, the
situation has reached:
A) efficiency.
B) equilibrium.
C) equity.
D) the market.
Figure: AD"AS
Refer to the figure AD"AS. If our economy is at equilibrium and the Fed uses
expansionary monetary policy, _____ will shift to _____ and the economy will move
from _____. Then nominal wages will _____ and _____ will shift to _____. The
economy will move from _____.
A) AD2; AD1; E2 to E1; rise very quickly; SRAS1; SRAS2; E2 to E3
B) SRAS1 ; SRAS2 ; E2 to E3; stay the same; AD2; AD1; E2 to E1
C) SRAS2; SRAS1; E3 to E2; stay the same; AD2; AD1; E2 to E1
D) AD1; AD2; E1 to E2; rise very quickly; SRAS1; SRAS2; from E2 to E3
On any given production possibility frontier, we see the minimum quantity of one good
that can be produced for any given production of the other.
A) True
B) False
