The labor force is equal to the:
A) sum of employment and unemployment.
B) population minus the number of employed.
C) sum of the employed and the underemployed.
D) number of people working.
Fertilizer, used to grow pumpkins, is a factor of production.
A) True
B) False
If the required reserve ratio rises:
A) the money multiplier will also rise.
B) the banking system must keep more of a deposit in its reserves.
C) the amount of reserves in the banking system will decrease.
D) excess reserves will also rise.
Scenario: Money Supply Changes II
Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this
semester. Assume that the reserve requirement is 20% and that banks do not hold excess
reserves.
Look at the scenario Money Supply Changes II. As a result of the withdrawal, required
reserves:
A) decrease by $1,600.
B) decrease by $6,400.
C) decrease by $8,000.
D) don’t change.
Figure: Expanded Circular-Flow Model
Look at the figure Expanded Circular-Flow Model. What is GDP?
A) $200
B) $700
C) $1,000
D) $1,080
The Federal Open Market Committee does NOT directly control the _____ with
monetary policy.
A) discount rate
B) reserve ratio
C) prime rate
D) federal funds rate
Figure: Demand for Loanable Funds
Look at the figure Demand for Loanable Funds. When the interest rate is 6%, the
quantity demanded of loanable funds will equal:
A) $30 billion.
B) $40 billion.
C) $50 billion.
D) $60 billion.
Gasoline, a derivative of oil, is a large part of transportation costs for many producers.
If the price of oil increases at the same time that incomes fall for many consumers, one
would expect the equilibrium price of many normal goods to _____, while their
equilibrium quantities would _____.
A) fall; rise
B) fall, rise, or stay the same; decrease
C) decrease; fall, rise, or stay the same
D) fall; fall
Financial markets:
A) increase transaction costs.
B) reduce diversification.
C) provide liquidity.
D) determine tax rates.
Figure: The Market for Candy
Look at the figure The Market for Candy. A surplus of the good will exist at a price of:
A) P1.
B) P2.
C) P3.
D) There are no surpluses in this market.
In 1798, the English economist Thomas Malthus predicted that:
A) countries with a large supply of natural resources would always enjoy economic
growth.
B) the recently independent United States would rejoin the British empire out of
economic necessity.
C) the French Revolution would improve the economies of most European countries.
D) rising population growth would cause productivity per capita to fall.
Expansionary fiscal policy includes:
A) decreasing taxes.
B) increasing taxes.
C) increasing the money supply.
D) decreasing government expenditures.
The aggregate consumption function depends on:
A) disposable income.
B) expected disposable income.
C) wealth.
D) disposable income, expected disposable income, and wealth.
A monetary policy rule:
A) occurs when the central bank pursues a formula that determines its actions.
B) brings politics into the monetary policy process.
C) is the same as discretionary monetary policy.
D) is likely to be advocated by Keynesians.
In the 1970s and first half of the 1980s the U.S. economy had low inflation and low
unemployment.
A) True
B) False
Gains from trade will result if a country specializes in:
A) all of its goods.
B) the goods in which it has a comparative advantage.
C) goods in which it has an absolute advantage.
D) goods in which it has an absolute and comparative advantage.
In the circular-flow diagram, an individual or a group of people (usually a family) who
share their income is a(n):
A) market.
B) factor.
C) household.
D) business.
Over the past year, Eli has been working very hard. His employer has taken notice and
is giving Eli a 6% raise in salary. During this past year, overall prices in the economy
have increased by 4%. Given this information, Eli’s real wage has:
A) stayed constant.
B) increased by 6%.
C) increased by 2%.
D) decreased by 4%.
An increase in the nominal wage will increase potential output.
A) True
B) False
Government debt is monetized when:
A) commercial banks buy newly issued Treasury bills.
B) the Fed conducts open-market purchases.
C) the Fed transfers part of its financial reserves to the Treasury, which in turn buys
Treasury bills back.
D) the Fed sells Treasury bills in the bond market.
Scenario: The Quantity Theory of Money
Suppose the money supply is equal to $10 billion and the velocity of money is 6.
Look at the scenario The Quantity Theory of Money. If the aggregate price level is 4,
then the real GDP is:
A) $60 billion.
B) $30 billion.
C) $20 billion.
D) $15 billion.
In the early twenty-first century, the United States has had a current account:
A) surplus.
B) deficit.
C) balance equal to zero.
D) deficit and a capital account deficit.
Fiscal austerity is _____ fiscal policy, such as _____ in government spending and tax
_____ designed to _____ unemployment and _____.
A) expansionary; increases; cuts; reduce; increase output
B) expansionary; increases; cuts; increase; decrease output
C) contractionary; decreases; increases; ignore; reduce budget deficits
D) contractionary; decreases; increases; ignore; increase budget deficits
An overall decrease in the price level is called:
A) inflation.
B) deflation.
C) long-run growth.
D) the result of an increase in economic production.
In the United States, consumer spending accounts for approximately _____ of GDP.
A) 50%
B) 60%
C) 70%
D) 80%
An example of investment spending is the:
A) amount of funds raised by the government in the financial markets.
B) purchase of government bonds by a private household.
C) purchase of a freezer by an ice-cream parlor.
D) purchase of stock shares by a mutual fund.
Keynesians argued that monetary policy would NOT be effective if:
A) there was a liquidity trap.
B) the Fed was independent of political pressure.
C) other countries did not follow monetary policy similar to that of the United States.
D) no one bought bonds when the Fed conducted open-market operations.
The macroeconomic theory that because workers and firms take all information into
account, only unexpected changes in the money supply affect aggregate output is called
_____ theory.
A) real business cycle
B) rational expectations
C) new classical
D) supply-side
Figure: Shifts in Demand and Supply
Look at the figure Shifts in Demand and Supply. The figure shows how supply and
demand might shift in response to specific events. Suppose the population increases.
Which panel BEST describes how this will affect the market for apples?
A) panel A
B) panel B
C) panel C
D) panel D
A negative relationship between quantity demanded and price is called the law of:
A) demand.
B) increasing returns.
C) market clearing.
D) supply.
The horizontal summation of individual demand curves for a particular product, holding
the quantity demanded constant, is:
A) market demand.
B) market supply.
C) complements in production.
D) substitutes in production.
If the interest rate is below equilibrium, then the quantity demanded of interest-bearing
financial assets is less than the quantity supplied, so people selling interest-bearing
financial assets have to offer higher interest rates to get people to buy them, thus raising
interest rates back to the equilibrium level.
A) True
B) False
An asset formed by pooling individual loans and selling shares in that pool is called a:
A) loan-backed security.
B) mutual fund.
C) stock.
D) bond.