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The proponents of fixed exchange rates argue that flexible exchange rates
a. hamper international trade because of uncertainty over what the exchange rate will
be.
b. force a nation to use its domestic macroeconomic policies to maintain an exchange
rate.
c. lead to trade protectionism.
d. a and b
e. a, b, and c
The economy is in equilibrium, TP = TE, and Real GDP is $4,000 billion. The MPC is
0.70, the multiplier is operative, and idle resources exist at each expenditure round.
Government purchases fall by $17 billion. As a result, the TE curve shifts __________,
inventory levels unexpectedly __________, business firms __________ the quantity of
goods and services they produce, and Real GDP __________ by __________.
a. downward; rise; decrease; falls; approximately $56.7 billion
b. downward; fall; increase; falls; approximately $56.7 billion
c. upward; rise; decrease; falls; $17 billion
d. upward; fall; decrease; rises; $17 billion
e. downward; rise; decrease; falls; approximately $11.9 billion
Economist A believes that if tax rates are cut, tax revenue is likely to rise.This
economist most likely believes that the percentage decrease in tax rates will
______________________________ percentage rise in the tax base.
a. be larger than the resulting
b. be equal to the resulting
c. be smaller than the resulting
d. occur long after the
e. a and d
In contrast to neoclassical growth theory, new growth theory lays more emphasis on
a. intangibles than tangibles.
b. tangibles than intangibles.
c. changes in the money supply than changes in taxes.
d. fiscal policy than monetary policy.
e. objects than ideas.
In the production possibilities framework, economic growth is depicted by the PPF
a. shifting leftward (toward the origin).
b. shifting rightward (away from the origin).
c. becoming a straight line rather than a bowed outward curve.
d. becoming bowed outward rather than a straight line.
Investment equals inventory investment added to
a. business purchases of new capital goods.
b. purchases of new residential housing.
c. fixed investment.
d. business purchases of new capital goods and purchases of new residential housing.
e. either c or d
A balanced budget occurs when
a. the national debt is reduced to zero dollars.
b. a budget deficit during one year is matched by a budget surplus in the next year.
c. transfer payments equal tax revenues.
d. government expenditures equal tax revenues.
e. the deficit-GDP ratio equals one.
If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of1
percent per year, then rules-based monetary policy advocates who wish to maintain a
stable price level would set the annual money supply growth rate at
a. 1
b. 2
c. 3
d. 4
e. 6
Exhibit 15-4
Assume that people have only two choices when it comes to holding their wealth: in
money or in bonds.
Identify the appropriate state of the bond market that would fill in blanks (A), (B), and
(C), respectively.
a. surplus; shortage; equilibrium
b. shortage; surplus; equilibrium
c. surplus; surplus; equilibrium
d. shortage; shortage; equilibrium
The discount rate is the interest rate
a. banks pay on certificates of deposit.
b. the Fed pays on reserves held by banks.
c. the Fed charges when it lends reserves to banks.
d. banks charge their loan customers.
e. on short-term Treasury securities.
As the interest rate rises, businesses invest __________ and the AD curve shifts to the
__________.
a. more; right
b. more; left
c. less; right
d. less; left
In the simple Keynesian model, there are three simplifying assumptions. One of these
assumptions is:
a. no consumption
b. no investment
c. no exports or imports
d. a and b
e. a, b, and c
