Along the short run supply curve, when the price level rises, there is an increase in
aggregate quantity supplied.
An excess demand for money drives interest rates down.
The United States experienced a liquidity trap in the 1st decade of the 21st century.
If your assets are highly liquid, this means you can make transactions on short notice.
Individuals who are not working and are not actively looking for work are counted as
unemployed if they have looked for work in the past.
Marginally attached workers are discouraged workers who have stopped their job
search for reasons other than the lack of jobs.
If households base their consumption spending on permanent income, then a temporary
tax increase will cause a decrease in consumption.
The government plays no role in a market-based economy.
What is the reason that stabilization policies do not have an immediate effect on an
economy?
A) Consumers are slow to catch up on spending.
B) There is a time lag for policies to take effect.
C) Imports come into the country too fast.
D) Exports often are not shipped fast enough.
Recall the Application about Fed Chairman Ben Bernanke’s views on how to fight a
liquidity trap to answer the following question(s).
Recall the Application. Before becoming Fed Chairman, Ben Bernanke argued that the
Bank of Japan should have committed to increasing inflation as a response to the
Japanese liquidity trap. Doing this would allow for
A) real interest rates to be negative.
B) real interest rates to increase even if nominal rates decreased.
C) nominal interest rates to be negative.
D) both nominal and real interest rates to decrease and become negative.
Recall Application 4, “The Argentine Financial Crisis,” to answer the question below:
According to the Application, the exchange rate system that Argentina had between the
1980s and 2002 was a:
A) fixed exchange rate with the U.S. dollar.
B) floating exchange rate with the British pound.
C) fixed exchange rate with the Mexican peso.
D) floating exchange rate with the Brazilian real.
Suppose a product suddenly becomes very popular and the firms producing the product
begin to realize large profits. In response, entrepreneurs would:
A) enter the market and increase production.
B) enter the market and decrease production.
C) exit the market and decrease production.
D) exit the market and increase production.
One role government can play in addressing market failure is to
A) enforce the rules of exchange.
B) increase economic uncertainty.
C) promote imperfect competition.
D) facilitate decision making for private goods.
Consider the following daily production possibilities of apples and bananas in Ireland
and Scotland:
Supposed that the production of apples require skilled
workers while the bananas require unskilled workers. If Scotland and Ireland choose to
trade with each other in order to take advantage of their opportunity costs:
a) Who will sell bananas? Who will sell Apples?
b) Which worker will gain in Scotland? Which worker will be hurt?
Financial intermediaries are:
A) organizations that receive funds from savers and channel those funds to investors.
B) individuals who play the stock market.
C) a type a financial asset.
D) responsible for regulating the amount of money supply in the economy.
In the Solow Model, an increase in the saving rate will result in:
A) a shift in the sY line upwards.
B) a flatter dK line.
C) a shift in the sY line downwards.
D) a steeper dK line.
The consumption possibilities curve shows the combinations of goods that can be:
A) consumed by a nation before trade begins.
B) consumed by a nation after trading begins.
C) produced by a nation before trading begins.
D) produced by a nation after trade begins.
Rank these three goods in the order of least sticky to most sticky: fresh fish, used cars,
steel rods.
A) fresh fish, used cars, steel rods
B) steel rods, fresh fish, used cars
C) used cars, fresh fish, steel rods
D) steel rods, cars, fresh fish
Which of the following is an example of a normative question?
A) How will an increase in the inheritance tax affect tax revenues?
B) What fraction of an income tax cut will be spent on imported goods?
C) Should Florida implement a state income tax to reduce its deficit?
D) How will an increase in unemployment benefits affect the unemployment rate?
In 2012, the city of Canfield collected $500,000 in taxes and spent $550,000. In 2012,
the city of Canfield had a:
A) budget surplus of $450,000.
B) budget surplus of $50,000.
C) budget deficit of $$50,000.
D) budget surplus of $5,000.