According to classical economics,
a. the economy moves to full employment in the long run
b. the economy is always at full employment in the short run
c. the economy is rarely at full employment
d. business cycles explain long-run fluctuations in the economy
e. the economy is at full employment in the short run, but in the long run, business
cycle movements lead the economy away from full employment
Celia buys 24 gallons of gasoline per month when the price is $2 per gallon, but only 16
gallons if the price rises to $3 per gallon. Within this range, her demand for gasoline is
Assume a bank currently holds $75 million in demand deposits, $10 million in vault
cash and $25 million deposited at the Federal Reserve. If the required reserve ratio is 15
percent, how much must the bank hold in required reserves?
a. $15.0 million
b. $3.75 million
c. $11.25 million
d. $16.5 million
e. $12.75 million.
What does it mean for the government to “roll over” its debt?
a. Buying bonds from the public to pay off old bonds
b. Continuing to pay interest on old bonds
c. Issuing new bonds to pay off old bonds
d. Running a budget surplus to pay off old bonds
e. Printing money to pay off old bonds
You are reading a newspaper article that refers to expansions and contractions in the
economy. The references are to changes in
a. wage rates
b. inflation rates
c. movements in exchange rates
d. real GDP
e. investment expectations
When long-run average total cost decreases as output increases, a firm experiences
The slope of the consumption function can be determined by dividing the change in
a. real consumption spending by the change in real disposable income
b. nominal spending by the change in nominal disposable income
c. real disposable income by the change in real consumption spending
d. nominal disposable income by the change in nominal consumption spending
e. total consumption spending by the change in autonomous consumption spending
A pizza shop owner needs to buy a pizza oven and is deciding between a new one and a
used one. If he buys an older used one it will generate $4,000 of net income for 3 years.
If he buys a new one it will generate $5,000 of net income for 4 years. If the interest
rate is 10%, what is the difference in value between the two ovens? (Assume that each
year’s revenue is received at the end of the year.)
Economic efficiency requires all Pareto improvements to be made.
Many less developed countries have low rates of economic growth because
a. high population growth rates reduce living standards
b. low population growth rates result in an inadequate labor supply
c. high current output per capita reduces incentives for growth
d. interest rates are too high
e. they invest too much in infrastructure leaving little for private capital investment
When the economy reaches its potential output, the price level cannot rise any further.
If the Fed wants to move the economy up and to the left along the Phillips curve, what
must it do?
a. Increase the rate at which the aggregate supply curve shifts upward
b. Decrease the rate at which the aggregate demand curve shifts rightward
c. Increase the rate at which the aggregate demand curve shifts rightward
d. Increase the rate at which the aggregate demand curve shifts leftward
e. Decrease the rate at which the aggregate supply curve shifts upward