A reduction in government transfers _____, therefore shifting the aggregate demand
curve to the _____.
A) increases labor costs to companies, increasing investment; left
B) decreases government purchases of goods and services, decreasing consumption;
right
C) increases the marginal propensity to save, decreasing consumption; right
D) decreases disposable income and consumption; left
One problem with holding money as an asset is that it doesn’t earn any income.
A) True
B) False
The demand curve for running shoes has shifted to the right. What could have caused
it?
A) a fall in the price of running shoes
B) an increase in the price of running shoes
C) an increase in the supply of running shoes
D) an increase in the income of buyers of running shoes
Alice’s disposable income increases by $1,000, and she spends $600 of it. Assuming no
taxes, Alice’s:
A) marginal propensity to save is 0.4 and she saves $400.
B) MPCis 0.4 and she saves $400.
C) marginal propensity to save is 0.4 and she saves $600.
D) MPCis 0.6 and she consumes $400.
After graduation many students’ demand for used cars decreases. This may be because
used cars are considered a normal good to college graduates.
A) True
B) False
Although loan-backed securities provide more diversification than individual loans,
they are much less liquid than individual loans.
A) True
B) False
Monetarism asserts that GDP will grow steadily if the:
A) government keeps its budget deficit high.
B) government engages in crowding out.
C) money supply grows steadily.
D) money supply grows faster than the economy.
Scenario: A Country’s Consumption Function
A country is closed. It has no government sector, and its aggregate price levels and
interest rates are fixed. Furthermore, the marginal propensity to consume is constant
and the country’s consumption function is as follows: C= 200 + 0.75YD, where YDis
disposable income and Cis consumption. Assume that planned investment equals 75.
Look at the scenario A Country’s Consumption Function. If this country’s income
increased by $10,000, consumption would increase by:
A) $10,000.
B) $7,500.
C) $200.
D) $7,700.
If the aggregate price level rises, holding everything constant, consumers will:
A) need more money to purchase the same basket of goods, which will lead to an
increase in the demand for money, hence to interest rate increases and a reduction in the
quantity of aggregate output demanded via a drop in investment demand.
B) find their purchasing power has increased and will purchase more goods and
services, leading to an increase in the aggregate output demanded.
C) demand less aggregate output at all price levels, resulting in a shift right of the AD
curve.
D) need less money to purchase the same basket of goods, which will lead to a decrease
in the demand for money, hence to interest rate decreases and an increase in the quantity
of aggregate output demanded via an increase in investment demand.
A new wonder diet that results in a dramatic weight loss sweeps through the United
States. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry
or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can
expect a(n) _____ in the _____ poultry, leading to a shift to the _____ in the _____
curve for poultry and _____ poultry prices.
A) decrease; supply of; left; supply; higher
B) increase; supply of; right; supply; higher
C) decrease; demand for; right; demand; lower
D) decrease; demand for; left; demand; curve lower
Government borrowing is:
A) the amount of funds raised by government in financial markets.
B) government spending on goods and services.
C) government tax revenues.
D) the amount of funds raised by government in the financial markets, government
spending on goods and services, and government tax revenues.
An example of structural unemployment is a(n):
A) autoworker who is temporarily laid off because of a decline in sales.
B) geologist who is permanently laid off because of an increase in wages won by labor
unions.
C) worker at a fast-food restaurant who quits work and attends college.
D) real estate agent who leaves a job in Texas and searches for a similar, higher-paying
job in California.
Scenario: Good A and Good B
The town of York produces two goods, good A and good B. The following is
information regarding York’s production of these two goods and their prices over three
years.
Look at the Scenario Good A and Good B. With 2009 as the base year, real GDP in
2009 was _____ GDP in _____.
A) equal to real; 2010
B) equal to nominal; 2009
C) greater than real; 2010
D) greater than nominal; 2011
When a currency depreciates, the prices of its imports from other countries will:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
Unexpected inflation _____ lenders and _____ borrowers.
A) benefits; hurts
B) hurts; benefits
C) does not affect; benefits
D) benefits; does not affect
Unanticipated inflation does all of the following EXCEPT:
A) reduce the value of money.
B) reduce the value of debt.
C) cause uncertainty about the future.
D) cause disinflation.
In a simple closed economy, all investment spending must come from:
A) savings.
B) money creation.
C) debt issuance.
D) foreign borrowing.
Consumer spending will likely fall if:
A) government transfers rise.
B) the government raises tax rates.
C) the government lowers tax rates.
D) government transfers rise or tax rates are lowered.
Mutual funds allow investors with a relatively small amount of money to indirectly hold
a diversified portfolio, which allows them to invest in stocks more safely than they
could otherwise.
A) True
B) False
If during 2010, the Republic of Sildavia recorded investment spending of $3 billion,
government purchases of $3 billion, consumer spending of $7 billion, imports of $5
billion, government transfers of $1 billion, and exports of $3 billion, Sildavia’s GDP in
2010 was:
A) $11 billion.
B) $12 billion.
C) $13 billion.
D) $14 billion.
Look at the table The Production Possibilities for Tractors and Crude Oil. In Mexico the
opportunity cost of producing 40 tractors is _____ barrels of crude oil.
A) 30,000
B) 90,000
C) 120,000
D) 270,000
If requirements for having a credit card become stricter, so that fewer people qualify for
one, the demand for money will decrease.
A) True
B) False
If the marginal propensity to consume decreases, the multiplier will increase.
A) True
B) False
After 1873, the U.S. government:
A) stopped redeeming greenbacks for gold.
B) guaranteed the value of a dollar in terms of gold.
C) guaranteed the value of a dollar in terms of gold or silver.
D) stopped the use of commodity-backed money.
If the U.S. is in an inflationary gap, the appropriate policy is to _____ the money supply
to _____ interest rates.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
An economy’s short-run Phillips curve will shift up in response to:
A) a change in the inflation rate.
B) an increase in the unemployment rate.
C) an increase in expected inflation.
D) a contractionary fiscal policy.
Whenever real GDP exceeds planned aggregate spending:
A) firms reduce production, reducing real GDP.
B) households increase consumption, increasing disposable income.
C) firms increase production, increasing real GDP.
D) households decrease consumption, decreasing disposable income.
Suppose the economy is in a short-run equilibrium and actual output is greater than
potential output. The economy is in:
A) an inflationary gap; nominal wages will increase and SRAS will shift to the left until
actual GDP is equal to potential GDP in the long run.
B) a recessionary gap; nominal wages will decrease and AD will shift to the left until
actual GDP is equal to potential GDP in the long run.
C) an inflationary gap; prices of goods will increase and AD will shift to the right until
the economy is in long-run equilibrium.
D) a recessionary gap; prices of goods will decrease and LRAS will shift to the left until
the economy is in long-run equilibrium.
During deflation the:
A) general price level falls.
B) general price level increases.
C) interest rate rises.
D) general price level becomes negative.
If long-term interest rates are 8% and short-term rates are 3%, the market expects:
A) short-term rates to fall.
B) short-term rates to rise.
C) short-term rates to remain the same.
D) there is no relationship between long-term and short-term rates.
Which of the following is likely to be TRUE if actual output is equal to potential
output?
A) The actual unemployment rate is equal to the natural rate of unemployment.
B) The actual unemployment rate is above the natural rate of unemployment.
C) There will be zero unemployment.
D) The natural rate of unemployment will be above the actual unemployment rate.
Promotion of employment and growth in the economy as a whole is the focus of:
A) macroeconomics.
B) fiscal policy.
C) monetary policy.
D) microeconomics.
Figure: Fiscal Policy Choices
Look at the figure Fiscal Policy Choices. It would be appropriate to use expansionary
fiscal policy to shift aggregate demand in _____ from _____.
A) panel (b); AD1 to AD2
B) panel (a); AD2 to AD1
C) panel (a); AD1 to AD2
D) panel (b); AD2 to AD1