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If the economy is in equilibrium at full employment, a decrease in aggregate demand
will:
A) decrease the price level and leave the level of output unchanged in the short run.
B) increase the price level and leave the level of output unchanged in the short run.
C) increase both the price level and the level of output in the short run.
D) decrease both the price level and the level of output in the short run.
The tax cuts enacted during the first term of President Reagan were proposed to:
A) increase aggregate demand.
B) improve economic incentives.
C) decrease the supply of output.
D) decrease the supply of labor.
Huge increases in government spending and record low levels of unemployment during
the Vietnam War era in the late 1960s led policy makers to fear that
A) the economy was growing too fast, which would increase unemployment.
B) the economy was growing too fast, which would increase inflation.
C) the economy was slipping into a recession, which would increase unemployment.
D) the economy was slipping into a recession, which would increase inflation.
Let C = 120 + 0.8y. Assume no government or foreign sectors. At the equilibrium level
of income, y* = 200, the level of saving is
A) -80.
B) -30.
C) 96.
D) 160.
Table 11.1
Refer to Table 11.1. If the marginal propensity to import increases to 0.5 (mpi = 0.5),
what is the new equilibrium level of output?
A) 568.00
B) 760.00
C) 946.67
D) 1,266.67
Which of the following countries ran trade deficits in the 19th century to build vast
railroad systems?
A) the United States
B) Canada
C) Australia
D) All of the above are correct.
Uncertainty about the future is likely to:
A) increase current consumption.
B) have no impact on current consumption.
C) decrease current consumption.
D) either increase or decrease current consumption.
Recall Application 3, "A Troubled Euro," to answer the following questions:
According to the application, why did the investors pour investments into Italy and
Greece after the creation of the euro?
A) Investors believed that the governments of Italy and Greece would be forced to
adopt fiscal policies consistent with stable long term growth.
B) Investors that Germany will bail out Italy and Greece in case a fiscal crisis erupts.
C) Investors believed that Italy and Greece now had more ability to increase deficits in
order to make the economy grow.
D) Interest rates were higher in Italy and Greece after the creation of the euro.
Nations with low levels of GDP per capita may converge to richer nations if
A) nations with high levels of income experience a continuously increasing growth rate.
B) nations with lower levels of income grow more quickly than those with higher levels
of income.
C) nations with lower levels of income spend less on investment.
D) nations with lower levels of income grow more slowly than those with higher levels
of income.
How large was the federal government deficit during the fiscal year 2011?
A) $1.3 trillion
B) $700 billion
C) $160 billion
D) $3.7 trillion
Figure 9.1 shows three aggregate demand curves. A movement from point to point c
could be caused by a(n)
A) increase in the money supply.
B) decrease in taxes.
C) decrease in the price level.
D) decrease in government spending.
A balance of payments deficit occurs if
A) exports exceed imports.
B) the supply of a nation's currency exceeds the demand for the currency at the current
exchange rate.
C) the demand for a nation's currency exceeds the supply of the currency at the current
exchange rate.
D) the supply of a nation's currency is equal to the demand for the currency at the
current exchange rate.
An increase in the money supply will cause output:
A) to increase in the short run; not change in the long run.
B) to decrease in the short run; decrease in the long run.
C) to increase in the short run; increase in the long run.
D) to decrease in the short run, increase in the long run.
Microeconomics is best described as the study of
A) the choices made by individual households, firms, and governments.
B) inflation, unemployment, gross national product, and the nation's economy as a
whole.
C) how markets interact in the aggregate economy.
D) marginal changes in the economy.
If a bond has a promised value next year of $440 and the interest rate is 10 percent, then
the price of a bond today is:
A) $44.
B) $400.
C) $444.4.
D) $484.
Figure 4.4
Figure 4.4 illustrates the demand for guitars. Assume guitars are a normal good. An
increase in income would bring about a movement from:
A) point B to point C.
B) point B to point A.
C) D1 to D0.
D) D1 to D2.
An open market sale by the Fed
A) increases the money supply and increases output.
B) increases the money supply and decreases output.
C) decreases the money supply and increases output.
D) decreases the money supply and decreases output.
Table 11.2 Refer to Table 11.2. The equilibrium level of aggregate output equals:
A) $400.
B) $600.
C) $800.
D) $1,000.
By law, banks are required to
A) hold 100 percent of customer deposits as reserves.
B) hold a fraction of their reserves at the Federal Reserve bank.
C) hold a fraction of demand deposits as reserves.
D) lend out no more than the amount of their required reserves.
Recall Application 2, "World Savings and the U.S. Current Account Deficits," to answer
the following questions:
According to the application, Japan has a low investment rate because:
A) they cautious in making domestic investment following rapid economic growth.
B) they are cautious in making domestic investment following a slow economic growth.
C) they do not know how to use investment to make money.
D) they do not need to use investment to make money.
