Figure: Policy Alternatives
Look at the figure Policy Alternatives. Suppose that the initial equilibrium is at real
GDP level Y1 and price level P2 in panel (a). At real GDP level Y1 there is:
A) an inflationary gap.
B) a recessionary gap.
C) no gap.
D) long-run equilibrium.
If a government fixes the exchange rate above the market equilibrium rate, there will be
a surplus of its currency.
A) True
B) False
An increase in the supply of money will lead to a(n) _____ in the equilibrium interest
rate and a(n) _____ in real GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Planned investment spending for a given period is:
A) actual investment.
B) investment spending minus depreciation.
C) investment spending that businesses plan to undertake.
D) always equal to savings.
Commodity-backed money is a medium of exchange with no intrinsic value, whose
ultimate value is guaranteed by a promise that it can be converted to valuable goods.
A) True
B) False
Which of the following is NOT one of the four principles for understanding individual
choice?
A) Resources are scarce.
B) Overall spending sometimes gets out of line with the economy’s productive capacity.
C) “How much” is a decision at the margin.
D) People usually take advantage of opportunities to make themselves better off.
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. The opportunity cost of producing 1 box of
peaches for Eastland is _____ box(es) of oranges.
A) 1
B) 0.25
C) 4
D) 10
If the nominal exchange rate and the price level fall, then the real exchange rate will fall
as well.
A) True
B) False
Table: The Consumer Price Index
Look at the table The Consumer Price Index. The approximate rate of inflation in year 5
is:
A) 25%.
B) 10%.
C) 19%.
D) 20%.
Figure: The Domestic Market for Rice
Look at the figure The Domestic Market for Rice. Assume that PAis the autarky price
and PWis the world price. After international trade, this nation will _____ a quantity of
rice equal to _____.
A) import; Q” Qd
B) export; Q” Qd
C) export; Q” Qa
D) import; Qa” Qd
Figure: Supply, Demand, and Equilibrium
Look at the figure Supply, Demand, and Equilibrium. In the figure, there will be excess
demand for the good at a price of P3.
A) True
B) False
Figure: Expanded Circular-Flow Model
Look at the figure Expanded Circular-Flow Model. The total flow of funds into and out
of households is:
A) $1,020.
B) $1,000.
C) $850.
D) $700.
Figure: Cold Drinks Sold and Temperature
Look at the figure Cold Drinks Sold and Temperature. If we move from point C to point
D in the figure, the outside temperature has ______ degrees and the number of cold
drinks sold has ______.
A) decreased by 30; decreased by 30
B) increased by 20; increased by 20
C) increased by 30; increased by 30
D) increased by 40; increased by 40
When the value of the euro changes from $1.30 to $1.20, it follows that:
A) European Union imports from the United States increase.
B) U.S. exports to the European Union increase.
C) U.S. imports from the European Union increase.
D) European Union exports to the United States decrease.
If a central bank pursues an expansionary monetary policy:
A) the aggregate price level and level of real GDP will increase in the short run.
B) the level of real GDP will increase, but the aggregate price level will stay the same
in the long run.
C) nominal prices and nominal wages will be unaffected in the long run.
D) the aggregate price level will increase and the level of real GDP will decrease in the
short run.
In a single year, Argentina can raise 100 tons of beef or produce 1,000 boxes of tulips.
In the same growing season, Venezuela can raise 50 tons of beef or produce 750 boxes
of tulips. When the two countries begin trading beef for tulips, we expect the price of
beef in Argentina:
A) to fall.
B) to rise.
C) to remain at the autarky price.
D) to be 10 boxes of tulips.
Table: Real and Nominal Output
Look at the table Real and Nominal
Output. Assuming year 3 is the base year, real output in year 4 is:
A) $100.
B) $120.
C) $140.
D) $200.
If asset owners in Japan and the United States consider Japanese and U.S. assets as
good substitutes for each other and if the U.S. interest rate is 5% and the Japanese
interest rate is 2%, then all of the following will occur EXCEPT that:
A) financial inflows will reduce the U.S. interest rate.
B) financial outflows will increase the Japanese interest rate.
C) the interest rate gap between the United States and Japan will diminish.
D) loanable funds will be exported from the United States to Japan.
Planned investment spending is inversely related to the interest rate, because fewer
projects are profitable at higher interest rates.
A) True
B) False
The Dodd-Frank bill affected derivatives by:
A) prohibiting them.
B) requiring that the issuer guarantee 50% of the purchaser’s investment.
C) allowing them to be purchased and sold only by the Federal Reserve.
D) requiring that they be traded in transparent markets.
Commodity-backed money is:
A) a medium of exchange with no intrinsic value.
B) equivalent to commodity money.
C) a medium of exchange with alternative economic uses.
D) gold and silver coins used for exchange.
When interest rates decrease, the demand for commercial and residential real estate will
_____ and the price of real estate will _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
If Congress places a $5 tax on each ATM transaction, there will likely be:
A) a movement up a stationary money demand curve.
B) a movement down a stationary money demand curve.
C) a shift to the left of the money demand curve.
D) a shift to the right of the money demand curve.
Figure: The Production Possibilities for Two Countries
Look at the figure The Production Possibilities for Two Countries. The opportunity cost
of producing 1 radio in Malaysia is:
A) 0.5 tire.
B) 1 tire.
C) 2 tires.
D) 6 tires.
Crowding out is MOST likely when expansionary fiscal policy is accompanied by:
A) expansionary monetary policy.
B) open-market purchases.
C) slow growth of the money supply.
D) an investment tax credit.
The total volume of business sales in the economy is much larger than GDP because:
A) GDP understates the value of total output.
B) the output approach to measuring GDP excludes intermediate transactions.
C) GDP includes transfer payments.
D) GDP excludes exports.
The termliquidity means that the:
A) asset is used in a barter exchange.
B) asset is used as the medium of exchange.
C) asset is readily convertible to cash without much loss of value.
D) market interest rate is too low.
Assume an economy is operating on its production possibility frontier, which shows the
production of military and civilian goods. If the output of military goods is increased,
the output of civilian goods:
A) will increase, too.
B) will not change.
C) must decrease.
D) may increase or decrease.
If the U.S. dollar depreciates, other things being equal:
A) the U.S. financial account is in surplus.
B) exports from the United States to other countries will decrease.
C) it falls in value against some other currency.
D) the U.S. current account is in deficit.
The government saves when it runs a budget deficit.
A) True
B) False
When the quantity of money demanded is less than the quantity of money supplied:
A) interest rates will fall.
B) people want to decrease their money holdings.
C) people will begin to sell their nonmonetary assets.
D) interest rates will remain unchanged.
When the Federal Reserve decreases bank’s reserves through an open-market operation:
A) deposits increase, currency in circulation increases, and the monetary base remains
the same.
B) the monetary base decreases, the money multiplier decreases, and the money supply
increases.
C) loans increase, the federal funds rate rises, and the discount rate rises.
D) the monetary base decreases, loans decrease, and the money supply decreases.
A negative externality:
A) is not as costly as a positive externality.
B) is a cost that individuals or firms impose on others without having to offer
compensation.
C) is immune to economic incentives.
D) is an unavoidable consequence of budget deficits.