In a particular labor market, the demand for labor is given by W = 20 ” (1 / 100)L, and
the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate, and L is
the number of workers. Suppose government decides to impose a minimum wage of
$15. The wage will:
A) have no effect, since it is below the equilibrium wage.
B) cause a shortage of workers, since it is above the equilibrium wage.
C) cause a surplus of workers, since it is above the equilibrium wage.
D) result in increases in wages for workers who were employed at the equilibrium wage
only.
Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%.
Then Andy deposits $1,000 of cash in his checking account and the bank lends $600 to
Molly. That bank can lend an additional:
A) $100.
B) $800.
C) $900.
D) $300.
Why did China buy $450 billion in foreign exchange reserves in 2010?
A) to encourage free trade between all nations
B) to keep the yuan from depreciating
C) to keep the yuan from appreciating
D) to slow down the growth of the Chinese economy
Figure: The Production Possibility Frontiers for Jackson and Tahoe
Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Jackson
has an absolute advantage in producing:
A) wheat only.
B) cattle only.
C) both wheat and cattle.
D) neither wheat nor cattle.
In terms of dollar costs, in the United States the three primary transfer payments are:
A) Social Security, Medicare, and Medicaid.
B) Social Security, education, and welfare.
C) welfare, interest payments on the debt, and military spending.
D) Social Security, interest payments on the debt, and education.
In many countries, economists adopt the rule that a recession is a period of at least
_____ during which aggregate output falls.
A) one quarter
B) two consecutive quarters
C) three consecutive quarters
D) a full year
Between 1970 and the present, research comparing similar wealthy countries found that
increases in the money supply:
A) and increases in the price level were roughly proportional.
B) had little effect on prices.
C) caused large increases in real GDP.
D) caused large decreases in real GDP.
Scenario: Price Index
Suppose that in the base period a college student buys 20 gallons of gasoline at $2 per
gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the
price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie
ticket is $7.50.
Look at the scenario Price Index. The price index for the second month is:
A) 94.
B) 106.4.
C) 100.
D) 101.1.
In a single year, Argentina can raise 100 tons of beef or produce 1,000 boxes of tulips.
In the same growing season, Venezuela can raise 50 tons of beef or produce 750 boxes
of tulips. When the two countries begin trading beef for tulips, we expect the total
surplus from beef consumption and production to:
A) fall in Argentina.
B) rise in Argentina.
C) stay the same in Venezuela.
D) either rise or fall in Venezuela.
If planned investment spending increases, the planned aggregate spending line:
A) becomes flatter.
B) shifts down.
C) becomes steeper.
D) shifts up.
Suppose the equilibrium aggregate price level and the equilibrium level of real GDP are
both rising. This is probably the effect of a(n) _____ in aggregate _____.
A) increase; supply
B) increase; demand
C) decrease; supply
D) decrease; demand
If real GDP grows at an annual rate of 1%, it will double in approximately _____ years.
A) 11
B) 23
C) 35
D) 70
An economic expansion in the United States is typically associated with a(n):
A) falling inflation rate.
B) increase in the poverty rate.
C) falling unemployment rate.
D) decrease in corporate profits.
Classical macroeconomists focused on the long-run effects of monetary policy on the
aggregate price level and argued that it had no short-run or long-run effects on
aggregate output.
A) True
B) False
Suppose that the marginal propensity to consume is 0.8 and investment spending
increases by $100 billion. The increase in real GDP is:
A) $100 billion, the same amount as investment spending.
B) $125 billion, composed of $100 billion in investment spending and $25 billion in
consumption.
C) $80 billion, composed of $100 billion in investment spending and a decrease in
consumption of $20 billion.
D) $500 billion, composed of $100 billion in investment spending and $400 billion in
consumption.
Table: Investment Projects
Look at the table Investment Projects. If the market interest rate is 13%, the amount of
planned investment spending is:
A) $200.
B) $800.
C) $1,000.
D) $2,000.
If the Fed increases the quantity of money in circulation, interest rates _____,
investment spending _____, and the aggregate demand curve shifts to the _____.
A) decrease; increases; right
B) increase; increases; right
C) decrease; increases; left
D) increase; decreases; left
Roads, telephone lines, power facilities, and schools are examples of a nation’s:
A) technostructure.
B) infrastructure.
C) physiostructure.
D) sociostructure.
Economists today generally believe that fiscal policy should be the primary tool for
stabilizing the economy.
A) True
B) False
Convergence is most likely between:
A) Mexico and Ghana.
B) France and Germany.
C) Brazil and the United Kingdom.
D) Mexico and Ghana or Brazil and the United Kingdom.
A devaluation will make exports less expensive and imports more expensive.
A) True
B) False
One factor that raises the natural rate of unemployment is:
A) a population boom that increases the number of young workers joining the labor
force.
B) the loss of labor union membership across industries.
C) the loss of retirement funds, so that more people in the baby boom generation
continue to work past the typical retirement age.
D) the use of new technology in the workplace that increases labor productivity.
Real income is income divided by the price level.
A) True
B) False
An increase in demand, all other things unchanged, will result in _____ in equilibrium
price and _____ in equilibrium quantity.
A) an increase; an increase
B) a decrease; a decrease
C) a decrease; an increase
D) an increase; a decrease
The underlying principle of the circular-flow diagram is that the flows of money into
each sector or market in the economy are greater than those coming out of the sector or
market.
A) True
B) False
The Exchange Rate Mechanism established a target zone for European exchange rates
during the late 1980s and 1990s.
A) True
B) False
Figure: Aggregate Expenditures and Real GDP
Look at the figure Aggregate Expenditures and Real GDP. If the level of real GDP
equals $9,000 billion and there are no changes in the consumption function or in
planned investment, then real GDP will _____in the next period.
A) rise
B) remain unchanged
C) fall
D) fall, but only if there is an offsetting change in autonomous consumption
Between 1929 and 1933, as aggregate demand decreased, the unemployment rate
increased.
A) True
B) False
Scenario: A Small Economy
Suppose there is no trade and no government in a small economy. GDP is $25 trillion,
and consumption spending is $18 trillion this year.
Look at the scenario A Small Economy. What is the level of private saving?
A) $7 trillion
B) $18 trillion
C) $43 trillion
D) “$7 trillion
An open economy:
A) trades goods and services with other countries.
B) does not regulate its industries.
C) does not impose taxes on its citizens.
D) allows free practice of speech and religion.
The view that the government should take an active role in the macroeconomy dates to:
A) the Civil War.
B) World War I.
C) the Great Depression.
D) the Vietnam War.
Before the Panic of 1907, trusts:
A) issued their own currency.
B) formed the New York Clearinghouse.
C) had become very unprofitable.
D) refused to join the New York Clearinghouse because it would have required the
trusts to hold higher cash reserves, which would have decreased their profits.
The point at which the long-run aggregate supply curve touches the X-axis is known as:
A) potential output.
B) the accelerator point.
C) the multiplier point.
D) the self-correcting economy point.
Historically, development of a new technology often:
A) results in immediate increases in productivity.
B) leads to increases in productivity only once firms learn how to use it.
C) requires a complementary increase in physical and human capital.
D) has had no impact on changes in productivity.