A decrease in inventories is:
A) a fall in investment spending that will lead to a drop in sales.
B) an increase in investment spending that will lead to an increase in sales.
C) thought to have no impact on investment, since it is not part of investment spending.
D) part of government spending.
Suppose the government increases spending more than is necessary to close a
recessionary gap. What is the most likely result?
A) Inflation will increase.
B) The price level will decline.
C) The equilibrium real GDP will fall.
D) The equilibrium real GDP will fall short of potential GDP.
If the money supply is growing at a constant rate of 2% and the economy undergoes a
negative demand shock, the theory of monetarism recommends:
A) coordinating a monetary expansion with a fiscal expansion to increase aggregate
demand.
B) raising the growth rate of money supply to 3% to lower the interest rate.
C) lowering the growth rate of money supply to 1% to increase saving.
D) maintaining the growth rate of money supply at 2% and letting the aggregate price
level fall.
Suppose a country has floated its currency and the central bank sets an expansionary
monetary policy. Which of the following is LIKELY to occur?
A) Interest rates will fall and capital will flow in.
B) Interest rates will rise and capital will flow out.
C) Interest rates will fall and capital will flow out.
D) Its exchange rate will appreciate.
An increase in the price of oil is likely to shift the short-run aggregate supply curve to
the right.
A) True
B) False
In the market for corn tortilla chips, what would cause a price increase?
A) Doctors tell their patients that tortilla chips are unhealthy.
B) There is a technological advance in tortilla chip production.
C) A fungus kills much of the corn crop in Nebraska.
D) The price of salsa triples.
Which of the following is (are) an advantage(s) of stock?
I. reduction of risk for the owners of the company
II. increased welfare for investors who buy the stocks
A) I only
B) II only
C) both I and II
D) neither I nor II
Trusts _____ than national banks.
A) were more closely regulated
B) had lower reserve requirements
C) had higher reserve requirements
D) kept more capital
Figure: Tom’s Production Possibilities
Look at the figure Tom’s Production Possibilities. Which point or points represent(s) an
infeasible combination of coconuts and fish?
A) A only
B) A and B
C) B and C
D) D only
A tax on imports of foreign goods is called:
A) an import quota.
B) a subsidy.
C) a tariff.
D) an export restriction.
Which of the following would NOT be included in this year’s GDP?
A) the production of a television show
B) the purchase of a new work truck
C) the hiring of a new police officer
D) your purchase of your neighbor’s 2001 Toyota
The marginal propensity to save is the increase in household savings when investment
spending increases by $1.
A) True
B) False
If planned aggregate spending rises by $20 billion and the marginal propensity to
consume is 0.9, then the income”expenditure equilibrium increases by $18 billion.
A) True
B) False
The Fed prints money only when it is conducting monetary policy.
A) True
B) False
A trade surplus occurs:
A) during economic contractions only.
B) when the value of imports exceeds the value of exports.
C) when the value of imports is less than the value exports.
D) when unemployment is rising.
Nearly all economists agree that fiscal policy _____ keep the economy _____.
A) cannot; below the natural rate of unemployment.
B) cannot; above the natural rate of unemployment.
C) can; at the natural rate of unemployment.
D) can; on the production possibility curve.
When the Federal Reserve was established in 1913, it was granted the authority to:
I. require all depository institutions to hold reserves.
II. inspect all deposit-taking institutions.
III. issue currency.
A) I only
B) II only
C) III only
D) I, II, and III
If in Equitania, 20% of the population receive 80% of the income and the remaining
80% of the population receive 20% of the income, Equitania’s economy:
A) is efficient.
B) cannot be efficient, since efficiency requires a more nearly equal distribution of
income.
C) may be efficient.
D) is neither efficient nor equitable.
The most diversified portfolio in terms of risk is $100,000 worth of stock in:
A) 10 companies in the same industry.
B) 10 companies in two industries.
C) 10 companies in five industries.
D) one company that sells 10 products.
Interest rates between two countries tend to converge if:
A) both countries have a financial account surplus.
B) both countries have a current account surplus.
C) the residents of the two countries believe that a foreign asset is as good as a domestic
one.
D) the residents of the two countries prefer domestic assets to foreign assets.
When overall price levels rise over time, it is referred to as:
A) deflation.
B) inflation.
C) an increase in purchasing power.
D) the consumer price index.
All of the following are costs of inflation EXCEPT _____ costs.
A) menu
B) shoe-leather
C) unit-of-account
D) efficiency wage
The Great Moderation consensus includes the belief that expansionary monetary policy
is effective in fighting recessions.
A) True
B) False
Income tax brackets are indexed to the consumer price index.
A) True
B) False
Figure: Monetary Policy I
Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E1and
the central bank chooses to buy Treasury bills, _____shift to _____ a(n) _____ gap.
A) AD2will; right, causing; inflationary
B) AD2may; AD1, causing; recessionary
C) AD1may; AD2, closing; recessionary
D) AD1will; left, increasing; recessionary
A nation’s real GDP increased from $225 billion to $230 billion in one year. In that
same year, the nation’s population increased from 125 million to 126 million.
a. Calculate the nation’s real GDP per capita growth rate.
b. If this nation maintained this growth rate, how many years would it take for real GDP
per capita to double?
For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza
causes _____ in the equilibrium price of a hamburger and _____ in the equilibrium
quantity of hamburgers.
A) a rise; an increase
B) a rise; a decrease
C) a fall; an increase
D) a fall; a decrease
One of the elements addressed in the Dodd-Frank bill was authority over nonbank
financial institutions that face bankruptcy.
A) True
B) False
Rational expectations theory suggests that people and firms base their expectations on:
A) the recent past.
B) government announcements.
C) “animal spirits.”
D) all available information.
A survey reveals that on a small island 1,000 people have jobs, 200 people don’t have
jobs but are looking for jobs, and 200 people are neither working nor looking for work.
The unemployment rate on the island is:
A) 12.5%.
B) 16.7%.
C) 20%.
D) 30%.