The aggregate demand curve is downward sloping because of:
A) the inverse relationship between price and quantity demanded.
B) changes in expectation of future prices.
C) unexpected changes in commodity prices.
D) the wealth effect of a change in aggregate price level.
Producing an aggregate output level that is higher than potential output is possible only
if nominal wages:
A) remain fixed.
B) fully adjust upward.
C) haven’t yet fully adjusted upward.
D) haven’t yet fully adjusted downward.
During the early 1930s, approximately _____ of the banks in the United States failed.
A) 75%
B) 40%
C) 10%
D) 3%
Economists make predictions about individual behavior based on the assumption that
people exploit opportunities to make themselves better off. The fact that different
individuals make different choices when confronted with the same situation implies that
this assumption is often violated.
A) True
B) False
The marginal propensity to consume is the percentage of a household’s income that is
used to pay income tax.
A) True
B) False
The absolute value of the slope of the production possibility frontier at any point:
A) gives the autarky price of the good on the vertical axis.
B) is found by dividing the horizontal change by a vertical change.
C) gives the quantity of the good on the vertical axis that must be given up to produce
an additional unit of the good on the horizontal axis.
D) gives the autarky price of the good on the horizontal axis relative to the autarky
price of the good on the vertical axis.
The marginal propensity to consume is:
A) increasing if the marginal propensity to save is increasing.
B) the proportion of total disposable income that the average family consumes.
C) the change in consumer spending divided by the change in aggregate disposable
income.
D) the change in consumer spending minus the change in aggregate disposable income.
Between 2000 and 2013, the nominal GDP of Venezuela grew by an average of _____
per year, and real GDP grew by an average of _____ per year.
A) 84%; 19%
B) 0%; 50%
C) 29%; 3%
D) “10%; “2%
Social Security spending is projected to:
A) increase as baby boomers retire.
B) decrease as baby boomers retire.
C) stay the same over the next decade.
D) increase for this decade and then decline.
If the United States placed larger tariffs on all textiles, domestic _____ surplus would
_____.
A) producer; increase
B) consumer; increase
C) total; increase
D) producer; decrease
Refer to the table Balance of Payments. In this case, the country’s balance of payments
on goods and services is:
A) $375 billion.
B) “$375 billion.
C) $4,045 billion.
D) $355 billion.
During a recession:
A) unemployment and the growth rate of real GDP both decrease.
B) unemployment decreases and the growth rate of real GDP increases.
C) unemployment increases and the growth rate of real GDP decreases.
D) there is no relation between unemployment and the growth rate of real GDP.
Scenario: Open Economy S= I
In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and
government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and
imports are $3 trillion.
Look at the scenario Open Economy S = I. How much is investment spending?
A) $2 trillion
B) $3 trillion
C) $3.5 trillion
D) $4 trillion
The marginal propensity to save is the increase in household savings when _____
increase(s) by $1.
A) investment spending
B) taxes
C) consumption
D) disposable income
There are two countries on a peninsula. The first has a per capita annual growth rate of
2%, and its neighbor to the south has an annual growth rate of 5%. How much sooner
will the country in the south double its GDP per capita than its neighbor in the north?
A) 5 years
B) 10 years
C) 15 years
D) 21 years
Disinflation is costly to the economy if _____ is forced on the economy, _____, and
_____.
A) deflation; employment decreases; aggregate output falls
B) increasing inflation; unemployment decreases; aggregate price level increases
C) stagflation; unemployment increases; inflation increases
D) a recession; unemployment increases; aggregate output falls
If legislation required the budget to be balanced at all times, _____ as an automatic
stabilizer of the business cycle.
A) fiscal policy could not operate
B) it would reduce the effectiveness of monetary policy
C) it would increase the effectiveness of discretionary fiscal policy
D) monetary policy could not operate
As people try to avoid the inflation tax, the government must _____ the inflation rate to
_____.
A) lower; avoid a budget deficit
B) lower; raise the same revenue from inflation
C) increase; raise the same revenue from inflation
D) increase; avoid a budget surplus, which will harm employment
If they bake only cakes, in a single day George can bake 10 cakes and Greta can bake 5
cakes. If they make only pies, in a single day George can bake 10 pies while Greta can
bake 4 pies. We know that _____ has an absolute advantage and a comparative
advantage in making _____.
A) George; cakes
B) George; pies
C) Greta; cakes
D) Greta; pies
People who are changing jobs are counted in _____ unemployment.
A) frictional
B) involuntary
C) structural
D) cyclical
The discount rate is the interest rate that the Federal Reserve charges on loans to banks.
A) True
B) False
In the long run, the unemployment rate will equal the natural rate of unemployment at
any price level.
A) True
B) False
Trade can be beneficial to an economy because:
A) it results in a more efficient use of the combined resources of some of the trading
countries, even though it reduces efficiency in others.
B) more goods and services can be obtained at lower opportunity cost.
C) it prevents specialization in activities in which countries have a comparative
advantage.
D) it prevents unemployment.
Which of the following would be included in the U.S. current account?
A) a factory in Japan purchased by a firm in the United States
B) stock in a U.S. company sold to someone in Japan
C) a dividend on stock in a U.S. company paid to someone in Japan
D) a bond issued by a firm in Japan sold to someone in the United States
In the long run, inflationary and recessionary gaps are self-correcting because
eventually:
A) nominal wages rise to close an inflationary gap or fall to close a recessionary gap.
B) the government applies the right combination of fiscal and monetary policies.
C) the multiplier compensates for the negative supply or demand shocks.
D) nominal wages rise to close a recessionary gap and fall to close an inflationary gap.
If the government wants to increase the value of its currency in foreign exchange
markets, it can use expansionary monetary policy.
A) True
B) False
The 2009 American Recovery and Reinvestment Act was an example of:
A) an automatic stabilizer.
B) a contractionary government policy.
C) a contractionary monetary policy.
D) an expansionary fiscal policy.
Figure: Fiscal Policy II
Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If
there is a decrease in government purchases, _____ will shift to the _____, causing a(n)
_____ in the price level and a(n) _____ in real GDP.
A) AD2; left; increase; decrease
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; left; decrease; decrease
The interest rate is determined in the money market in the short run.
A) True
B) False
The loanable funds model focuses on interest rates in the short run.
A) True
B) False
A major reason for the end of the Great Depression was an increase in government
spending:
A) for social security.
B) for space exploration
C) for environmental protection.
D) during World War II.
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. What is the consumption
function?
A) C= 8,000 + 0.8 YD
B) C= 8,700 + 0.2 YD
C) C= 500 + 0.8 YD
D) C= 1,700 + 0.2 YD
The effect of international trade on U.S. factor markets is to:
A) increase the wage of highly educated workers.
B) increase the wage of unskilled workers.
C) decrease the wage of both highly educated workers and unskilled workers.
D) increase the wage of both highly educated workers and unskilled workers.