Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent
the past few days browsing the help wanted ads but hasn’t found anything that matches
her skills. Stephanie is best classified as:
A) structurally unemployed.
B) frictionally unemployed.
C) a discouraged worker.
D) out of the labor force.
In the U.S. banks are required to keep capital equal to at least 7% of the value of their
assets.
A) True
B) False
Which of the following would NOT fit the economist’s definition of money?
A) currency
B) checkable bank deposits
C) coins
D) bonds
By doing research on the companies in their portfolios, mutual funds reduce
transactions costs for their investors.
A) True
B) False
Figure: The Market for Computers
Look at the figure The Market for Computers. Assume that PAis the autarky price and
PWis the world price. Producer surplus with international trade would be area:
A) X+ Y+ Z.
B) W+ X+ Y.
C) X+ Y.
D) Y.
Scenario: Gizmovia
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40.
Look at the scenario Gizmovia. If Gizmovia uses monetary policy to bring the
exchange rate for the gizmo to $0.50, it should _____ interest rates, which will _____
capital outflows of gizmos.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
Both binding minimum wages and union wages may cause structural unemployment.
A) True
B) False
Planned investment spending and actual investment spending are NOT always equal.
A) True
B) False
The most likely effects of tariffs and/or import quotas are to _____ prices and to _____
consumption of the protected goods in the importing country.
A) raise; raise
B) raise; lower
C) lower; raise
D) lower; lower
A repo is a long-term loan.
A) True
B) False
Figure: The Market for Tea in Sri Lanka
Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P1. When
the economy is opened to trade, the price rises to PWand the change in total surplus is:
A) I.
B) G+ H+ I.
C) G+ H+ I+ J+ K.
D) F+ G+ H+ I+ J+ K.
During Brazil’s hyperinflation of the 1990s the economy lost real resources when the
_____ sector grew very large to cope with the consequences of the high rate of
inflation.
A) banking
B) transportation
C) government
D) manufacturing
Figure: Output Gap
Look at the figure Output Gap. If the economy is at Y1as a result of expansionary
monetary policy and no further policy is implemented, in the long run nominal wages
will _____ and shift the short-run aggregate supply curve to the _____, which will
_____ real output.
A) increase; left; decrease
B) increase; right; increase
C) decrease; left; decrease
D) decrease; right; increase
The short-run aggregate supply curve is:
A) downward sloping.
B) upward sloping.
C) horizontal at the natural level of employment.
D) vertical at the natural level of employment.
When a country moves from autarky to free international trade, consumers and
producers in the import and export sectors all gain (i.e., both consumer surplus and
producer surplus increase in both sectors).
A) True
B) False
China has fixed the exchange rate between the yuan and the U.S. dollar. Therefore, a
recession in China _____ U.S. _____ to China more than if the exchange rate floated.
A) raises; exports
B) reduces; imports
C) raises; imports
D) reduces; exports
If planned aggregate spending rises by $10 billion and the marginal propensity to
consumeis 0.75, then equilibrium real GDP changes by:
A) $2.5 billion.
B) $7.5 billion.
C) $10 billion.
D) $40 billion.
Figure: Short-Run Determination of the Interest Rate
Look at the figure Short-Run Determination of the Interest Rate. If the money supply is
at MS1and the central bank buys Treasury bills, then the resulting short-run shift in the
supply of savings (loanable funds) may be represented by a shift of the:
A) money supply curve to MS2,which raises the interest rate.
B) supply of loanable funds from S1to S2, which lowers the interest rate.
C) supply of loanable funds from S2to S1, which raises the interest rate.
D) interest rate from r2to r1.
If Allison drives to a large city 100 miles from her small community to do her
back-to-school shopping, this will:
A) hurt Allison’s community because Allison’s spending will be income for people in
the large city.
B) hurt the city because Allison will take the goods that she purchases back home to her
small town.
C) help Allison’s community because Allison’s shopping in the big city leaves more
goods for the other small-town residents to buy.
D) help the city because people from small towns usually buy things that people in big
cities don’t want.
Changes in taxes and government transfers shift the aggregate demand curve _____
government purchases.
A) by more than
B) by exactly as much as
C) by less than
D) in inverse proportion to
In an open economy:
A) the exchange rate is determined by the government.
B) specialization in activities with a comparative advantage is not possible.
C) trade is beneficial only to the larger economy.
D) there is trade in goods, services, and/or assets with other countries.
About 75% of the financial assets that Americans own are held through financial
intermediaries rather than directly.
A) True
B) False
Figure: The Market for Laptop Sleeves
Look at the figure The Market for Laptop Sleeves. Assume that Sand Dare the domestic
supply and demand curves and the world price is PW. Identify the area of consumer
surplus when a tariff raises the domestic price from the world price to PT.
A) A + B
B) A + B + C + D + E + F
C) A + C + G
D) D + F
Figure: The Market for Oranges in South Africa
Look at the figure The Market for Oranges in South Africa. In autarky, the price of
oranges in South Africa is P1. When the economy is opened to trade, the price falls to
PW.South Africa will _____ oranges and the volume of trade will equal _____.
A) import; CT” QT
B) export; CT” QT
C) import; Q1” QT
D) export; CT” Q1
In building models, economists often assume that opportunity costs don’t matter.
A) True
B) False
If the economy is in an inflationary gap, the Federal Reserve should conduct _____
monetary policy to _____ aggregate demand.
A) contractionary; decrease
B) contractionary; increase
C) expansionary; decrease
D) expansionary; increase
Sally works 20 hours a week for an accounting firm. She would like to work full-time
and expects that she will in the future. Sally is a(n) _____ worker.
A) discouraged
B) unemployed
C) underemployed
D) full-time
A firm is an organization that produces goods and/or services for sale.
A) True
B) False
Over the past few decades in the United States, large federal budget deficits most often
have been caused by:
A) decreased spending on welfare payments.
B) excessive spending by the state governments.
C) a depressed economy.
D) excessive tax increases.
In 2010, the $471 billion deficit on the U.S. current account was offset by a surplus of
$255 billion on financial account. This difference is the result of a:
A) budget deficit.
B) statistical discrepancy.
C) trade deficit.
D) national debt.
(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and
Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates:
A) a short-run equilibrium.
B) a long-run equilibrium.
C) that unemployment is too high.
D) stagflation.
Which of the following does NOT represent the broad consensus among
macroeconomists?
A) Monetary policy should play the main role in stabilization policy.
B) The central bank should be independent, insulated from political pressures, to avoid
a political business cycle.
C) Discretionary fiscal policy should be used sparingly because of policy lags and the
risks of the political business cycle.
D) Discretionary fiscal policy can lower the natural rate of unemployment.