In the circular-flow diagram, firms:
A) supply goods and services.
B) demand goods.
C) supply resources.
D) demand services.
If the marginal propensity to consume increases, the multiplier will:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
If the marginal propensity to consume is 0.8 and government purchases of goods and
services decrease by $30 billion, real GDP will decrease by $24 billion.
A) True
B) False
If an economy is closed and wishes to increase its investment spending:
A) its only source of funding is domestic saving.
B) its sources of funding are domestic and foreign saving.
C) the government will have to increase its spending to provide for this.
D) the government will increase taxes to provide for this.
Classical economists point out that:
A) there is a trade-off between unemployment and inflation.
B) an increase in the money supply leads to a proportional rise in the price level.
C) government spending can affect aggregate demand.
D) there is a possibility of a liquidity trap.
Scenario: Holding Cash
Suppose that the public holds 50% of the money supply in currency and the reserve
requirement is 20%. Banks hold no excess reserves. A customer deposits $6,000 in her
checkable deposit.
Look at the scenario Holding Cash. As a result of the deposit, the bank’s loans will
increase by:
A) $6,000.
B) $1,200.
C) $3,000.
D) $4,800.
A bond is:
A) share of ownership in a company.
B) a promise to pay interest each year and to repay the principal on a specified date.
C) a liquid asset, since it is a standardized product with a market in which the owner
can sell it.
D) both a promise to pay interest each year and to repay the principal on a specified
date and a liquid asset, since it is a standardized product with a market in which the
owner can sell it.
The natural rate of unemployment is:
A) the rate during recessions.
B) equal to the sum of frictional and cyclical unemployment.
C) equal to the sum of frictional and structural unemployment.
D) cyclical unemployment less frictional unemployment.
U.S. Treasury bills are a(n):
A) liability of the U.S. government but an asset to the Federal Reserve.
B) asset of the U.S. government but a liability to the Federal Reserve.
C) part of the net worth of the U.S. government.
D) liability to both the U.S. government and the Federal Reserve.
Figure: Aggregate Expenditures Curve I
Look at the figure Aggregate Expenditures Curve I. The multiplier in the aggregate
expenditures model shown in this figure is:
A) 1.
B) 2.
C) 3.
D) 5.
If at the beginning of the year the public debt is $12 trillion, government spending and
transfers are $2 trillion, and tax revenues are $3 trillion, at the end of the year the public
debt is $13 trillion.
A) True
B) False
Which would most likely be a MICROECONOMIC question?
A) Should I go to business school or take a job?
B) What determines the overall salary levels paid to workers in a given year?
C) What government policies should be adopted to promote full employment and
growth?
D) What determines the level of output for the economy as whole?
As the manager of a professional football team, you just offered the kicker a two-year
contract that pays $2 million at the end of each of the next two years. The kicker refuses
the contract, stating he wants $3 million at the end of this year. If you offer $3 million at
the end of this year, about how much will you have to offer at the end of next year to
keep the present value of the contract the same as your original offer? Assume a 10%
annual interest rate.
A) $1 million
B) $900,000
C) $808,080
D) $743,800
When private lenders refused to lend to the Greek government in 2009, other European
countries:
A) also refused to lend money to Greece.
B) forced Greece to abandon the euro and return to the drachma.
C) provided emergency loans to Greece but demanded harsh budget cuts in return.
D) forced Greece to leave the European Union.
A shift to the right of the short-run aggregate supply curve may be caused by:
A) a decrease in productivity.
B) an increase in productivity.
C) an increase in the price of inputs.
D) an increase in wages.
If the stock of physical capital increases, all other things unchanged, the aggregate
demand curve will:
A) shift to the right.
B) shift to the left.
C) remain constant.
D) become positively sloped.
A fixed interest rate of _____ with _____ inflation will yield the highest rate of return
for a lender.
A) 8%; 1%
B) 11%; 5%
C) 12%; 7%
D) 19%; 15%
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 MS2and the central bank sells 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 MS1, which lowers 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 r1to r2.
A risk-averse person:
A) considers any risk unacceptable.
B) would never buy a financial asset.
C) has an asymmetric view of the value of losses and gains.
D) would never buy insurance.
The standard of living in a country can be best measured by:
A) nominal GDP per capita.
B) real GDP per capita.
C) the productivity growth rate.
D) the business cycles.
In terms of foreign currency, a revaluation makes:
A) domestic goods cheaper relative to foreign goods.
B) both domestic and foreign goods less expensive.
C) both domestic and foreign goods more expensive.
D) domestic goods more expensive relative to foreign goods.
To close a recessionary gap using monetary policy, the Federal Reserve should _____
the money supply to _____ investment and consumer spending and shift the aggregate
demand curve to the _____.
A) increase; increase; left
B) decrease; decrease; left
C) increase; increase; right
D) decrease; decrease; right
Figure: AD”ASModel and the Short-Run Phillips Curve
Look at AD”AS Model and the Short-Run Phillips Curve. If the central bank decreases
the money supply so that aggregate demand shifts from AD2 to AD1, then the
unemployment rate will be:
A) zero.
B) 2%.
C) 4%.
D) 6%.
Figure: Aggregate Supply
Look at the figure Aggregate Supply. If the economy is at point E, nominal wages will
_____, and the short-run aggregate supply curve will shift _____ until actual potential
is _____ potential output.
A) increase; left; equal to
B) increase; right; greater than
C) decrease; right; equal to
D) decrease; right; less than
Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available
resources to produce wheat, it can produce 500 tons of wheat and no steel. If it uses all
of its resources to produce steel, it can produce 250 tons of steel and no wheat. If
country B spends all of its available resources producing wheat, it can produce 400 tons
of wheat, and if it spends all of its resources on the production of steel, it can produce
400 tons of steel.
Look at the scenario Countries A and B. If each country devotes half of its resources to
the production of wheat and half to the production of steel, then their combined total
production of wheat will be _____ tons and their combined total production of steel will
be _____ tons.
A) 450; 325
B) 900; 650
C) 500; 250
D) 400; 400
Disinflation is a drop in the price level.
A) True
B) False
Figure: The Production Possibility Frontiers for Jackson and Tahoe
Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. Tahoe
has an absolute advantage in producing:
A) wheat only.
B) cattle only.
C) both wheat and cattle.
D) neither wheat nor cattle.
If aggregate expenditures are higher than real GDP:
A) there are unplanned decreases in inventories.
B) employment decreases.
C) aggregate output decreases.
D) actual real output is greater than equilibrium real output.
The banking panics in 1873 and 1893 were caused by:
A) asset bubbles in real estate.
B) overbuilding in the railroad industry.
C) gold rushes.
D) overly strict regulation of the banking industry.
Including intermediate goods in the GDP calculation is:
A) the value-added method.
B) double counting.
C) deflating the value of GDP.
D) the expenditure method of GDP calculation.
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. If real GDP is $3,000, how
much is unplanned inventory investment?
A) 0
B) $600
C) $100
D) “$100
A period of falling real GDP is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.
If you transfer $1,000 from your savings account to your checking account:
A) M1 decreases by $1,000, and M2 increases by $1,000.
B) M1 increases by $1,000, and M2 decreases by $1,000.
C) M1 and M2 don’t change.
D) M1 increases by $1,000, but M2 doesn’t change.