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Under which of the following circumstances should we be concerned about a rising
national debt?
a. When it rises at a slower pace than GDP.
b. When the government runs deficits over a long period of time, such as a decade.
c. When it rises at a faster pace than GDP.
d. When the government does not run enough surpluses to counteract prior deficits.
e. When it rises at a slower pace than the money supply.
The economy's self-correcting mechanism
a. prevents the economy from ever being in disequilibrium
b. guides the economy to full employment in the long run
c. maintains a steady long-run price level
d. is a short-run adjustment process
e. is controlled by the Fed
Refer to Figure 14-2. If the interest rate is 4 percent,
a. there is an excess demand for money equal to $100 billion
b. there is an excess demand for money
c. there is an excess demand for money equal to $400 billion
d. the Fed will decrease the money supply
e. the interest rate will tend to rise
To be effective, countercyclical fiscal policy must be temporary.
An increase in equilibrium price and a decrease in equilibrium quantity could be caused
by a(n)
a. increase in resource prices
b. increase in demand
c. increase in supply
d. favorable shift in tastes and preferences
e. improvement in production technology
If two goods are often consumed together, they are
a. substitute goods
b. inferior goods
c. complementary goods
d. normal goods
e. unrelated goods
If a nation uses all of its resources to produce capital goods, that will
a. force the government to increase its spending
b. leave the production function unchanged
c. rapidly increase the profitability of business firms
d. raise income and capital gains taxes
e. leave no resources available to produce consumption goods
Countercyclical fiscal policy has a serious problem with
a. the timing of its enactment and impact.
b. the easy reversibility of policy.
c. the tendency of the Federal Reserve to immediately counter Congressional action.
d. the courts as it has been held to be unconstitutional.
e. Presidential executive orders.
One macroeconomic goal is to achieve an unemployment rate of zero.
According to many economists, production that occurs in the underground economy
a. has no market value and therefore should not be included in GDP
b. is given too much weight by the Bureau of Economic Analysis, causing GDP to
overstate true output
c. consists exclusively of illegal production activities such as drug selling and
prostitution
d. is accurately accounted for by the Bureau of Economic Analysis in its measurement
of GDP
e. is given insufficient weight by the Bureau of Economic Analysis, causing GDP
statistics to understate true output
Suppose the nominal interest rate charged is 5 percent and the expected inflation rate is
2 percent. Which of the following is the expected real interest rate?
a. 2 percent
b. 5 percent
c. 7 percent
d. -3 percent
e. 3 percent
Refer to Figure 9-1. If labor supply shifts from S2 to S1, what will happen to the real
hourly wage rate?
a. It will remain constant and employment will increase to 130 million
b. It will rise to $15 and employment will increase to 120 million
c. It will rise to $10 and employment will remain at 110 million
d. It will rise to $15 and employment will remain at 110 million
e. It will rise to $20 and employment will fall to 110 million
Suppose the Fed reduces the reserve ratio from 0.25 to 0.20 and the current level of
demand deposits is $10,000. By how much would excess reserves change?
a. Excess reserves would increase by $2,500.
b. Excess reserves would increase by $2,000.
c. Excess reserves would decrease by $500.
d. Excess reserves would increase by $500.
e. Excess reserves would increase by $4,500.
Money is
a. any asset that is convertible into cash.
b. any asset with intrinsic value such as gold or silver.
c. any asset widely accepted as a means of payment.
d. anything that facilitates exchange.
e. cash only.
Refer to Figure 16-1. Suppose a demand shock causes output to rise above full
employment and increases money demand from to . If the Fed wants to maintain
the interest rate at r1, it will
a. use a constant monetary supply policy
b. increase the money supply, which will increase aggregate demand and increase
output further in the short run
c. increase the money supply, which will increase the price level, decrease aggregate
demand, and lower output back to full employment
d. decrease money demand, decrease the interest rate, and decrease aggregate demand
until output returns to full employment
e. be unable to meet its interest rate target without causing a recession.
In the long run, if the Fed lowers the inflation rate and holds it at that new rate,
a. a zero inflation rate will be reached
b. a recession will not occur
c. inflationary expectations will fall
d. the natural rate of unemployment will rise
e. structural unemployment will start to decrease
