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During a recession, both output and unemployment fall.
The classical model's theory of the interest rate does not apply in the short run.
Which of the following is a way in which a government could encourage spending on
research and development?
a. Increase the tax rate on capital gains
b. Enhance patent protection
c. Decrease funding to universities
d. Increase the tax on corporate profits
e. Increase the budget deficit
An increase in the number of buyers in the market causes
a. a decrease in equilibrium quantity
b. a decrease in equilibrium price
c. an increase in demand
d. a decrease in production
e. an increase in supply
Assuming the economy was in equilibrium, use the following information to determine
the total amount of funds demanded in the loanable funds market.
a. $0.3 trillion
b. $2.2 trillion
c. $2.5 trillion
d. $3.0 trillion
e. $5.2 trillion
Which of the following would lead to a rightward shift of the money demand curve?
a. Expectations that the interest rate will fall
b. New substitutes for money become popular
c. The use of electronic money increases
d. Substitutes for money become less popular
e. The use of credit cards increases.
Negative supply shocks confront the Fed with a dilemma because
a. full employment is no longer possible
b. the costs of fulfilling one objective are paid in terms of failure to meet the other
c. inflation cannot be prevented considering the reduced supply
d. all policy choices are equally undesirable
e. such shocks are entirely unpredictable
In the long run,
a. large government budget deficits cause productivity to increase, thereby leading to
inflation
b. large government budget deficits drive down interest rates and reduce investment
spending
c. large government budget surpluses mean reductions in the money supply
d. changes in the government budget deficit have no effect on the capital stock
e. large government budget deficits drive up interest rates and reduce investment
spending.
Which of the following is a supply shock?
a. A decrease in money demand
b. An increase in the money supply
c. An increase in investment spending
d. A change in oil prices
e. A change in taxes.
The world's total output will be greater the more self-sufficient each of the world's
economies becomes.
In the long run, unusually high unemployment
a. indicates that an economy is operating above potential GDP
b. forces the wage rate down
c. eventually causes the aggregate supply curve to shift upward
d. pushes the price level upward
e. causes the aggregate demand curve to shift rightward
Which of the following is not an example of a demand shock?
a. A reduction in government spending
b. An increase in income tax rates
c. A change in oil prices.
d. A money supply increase.
e. An increase in government spending.
Why were banking panics and failures largely eliminated after 1933?
a. There were fewer recessions.
b. There was more government spending.
c. All U.S. currency began to be backed by gold.
d. Congress created deposit insurance.
e. The banking sector became less important as the US became a more trade-oriented
economy.
Which of the following will the Federal Reserve do in order to increase the money
supply?
a. sell government bonds
b. buy corporate bonds
c. sell common stock
d. buy government bonds
e. increase the salaries of its governors
The labor demand curve slopes
a. upward to illustrate that the more productive the worker, the higher the real wage the
employer is willing to pay that worker
b. upward to illustrate that the higher the wage rate, the fewer workers are demanded
c. upward or downward in direct proportion to the rate of inflation
d. downward to illustrate that the lower the real wage, the more workers employers are
willing to hire
e. downward to illustrate that the availability of workers is directly proportional to the
real wage
Inflation imposes a cost on society by directly decreasing average real income in the
economy.
Your friend Shahla argues that inflation is bad for the economy because it lowers
everyone's purchasing power. How would an economist respond to Shahla's statement?
a. Her statement is true.
b. Her statement is false because inflation redistributes income but does not change the
average level of income in the economy.
c. Her statement is true when everyone's nominal income changes by the same amount.
d. Her statement is true when wages and benefits are not indexed to the CPI.
e. Her statement is true only in a closed economy.
If the Fed buys bonds in an open market operation, which of the following is most
likely to occur?
a. the equilibrium level of GDP will decrease.
b. the money supply will decrease.
c. the aggregate demand curve will shift to the right.
d. the interest rate will rise.
e. the aggregate supply curve will shift to the left.
The classical assumption that labor markets clear makes it difficult for that model to
explain recessions.
