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To fight inflation, the Federal Reserve should conduct _____ monetary policy to _____
interest rates, which will shift the aggregate demand curve to the _____.
A) contractionary; raise; left
B) contractionary; raise; right
C) expansionary; lower; right
D) expansionary; raise; left
Figure: Change in the Demand for U.S. Dollars
Look at the figure Change in the Demand for U.S. Dollars. A movement from E1 to E2
in this foreign exchange market would cause Americans to purchase _____ goods and
services from Europe.
A) the same amount of
B) fewer
C) more
D) The answer cannot be determined from the information provided.
The political business cycle implies all of the following EXCEPT that:
A) central banks should be independent of politics.
B) discretionary fiscal policy should be avoided.
C) politicians pumping up the economy in an election year make the economy less
stable.
D) monetary policy is ineffective if inflation is high.
Trade takes the form of _____ when people directly exchange goods they have for
goods they want.
A) exploitation
B) benevolence
C) barter
D) the zero-sum game
If the Federal Reserve wants to close an inflationary gap, it will _____ the money
supply and _____ the interest rate, thus _____ investment spending and GDP. The
ADcurve will shift to the _____.
A) increase; raise; increasing; right
B) increase; lower; lowering; left
C) decrease; raise; lowering; left
D) decrease; lower; lowering; right
If Jim buys a lunch at a restaurant, he has bought a factor of production in the factor
market.
A) True
B) False
A contractionary monetary policy is appropriate during a recession.
A) True
B) False
Government purchases or sales of currency in the foreign exchange market constitute:
I. a floating exchange rate regime.
II. foreign exchange controls.
III. exchange market intervention.
A) I only
B) II only
C) III only
D) I, II, and III
Expansionary monetary policy in the United States will cause the dollar to:
A) appreciate.
B) be revalued.
C) depreciate.
D) be devalued.
From the standpoint of economic growth, banks are important to:
A) fight inflation.
B) keep interest rates low.
C) channel savings into investment.
D) channel investment into savings.
According to the wealth effect, when prices decrease, the purchasing power of assets
_____ and consumer spending _____.
A) decreases; decreases
B) increases; decreases
C) decreases; increases
D) increases; increases
A country's GNP:
A) must be larger than its GDP.
B) is the total factor income earned by residents of a country.
C) includes factor income earned by foreigners.
D) excludes factor income earned abroad by Americans.
A floating rate can be expensive because it requires that a country keep large amounts
of foreign currency on handusually a low-return investment.
A) True
B) False
The natural rate of employment is achieved when:
A) the actual rate of unemployment is zero.
B) it is above the actual rate of unemployment.
C) the quantity of labor supplied is equal to the quantity of labor demanded.
D) there is no cyclical unemployment.
Figure: Consumption Functions
Look at the figure Consumption Functions. An economy's consumption function would
shift from curve Cto curve Cwhen there is a(n):
A) increase in expected disposable income.
B) decrease in expected GDP growth estimates.
C) drop in wealth.
D) increase in the unemployment rate.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(a) and government spending increases, the result will likely be:
A) an increase in unemployment.
B) a decrease in interest rates.
C) inflation.
D) deflation.
The theory of rational expectations is CONSISTENT with which of the following
statements?
A) It takes into account only current information about inflation.
B) It takes into account only past information about inflation.
C) It takes into account past rates of inflation and available information about monetary
and fiscal policy.
D) A government attempt to trade off higher inflation for lower unemployment would
work in the short run but would eventually fail because higher inflation would get built
into expectations.
When the federal government writes a check, it is written on an account at the U.S.
Treasury Department.
A) True
B) False
The larger the amount of outstanding public debt:
A) the lower the tax revenue the government must collect.
B) the more spending the government can afford.
C) the smaller the crowding out of private investment spending.
D) the larger the fraction of the federal budget deficit that must be devoted to interest
payments.
According to the interest rate effect, a decrease in the price level causes people to _____
their money holdings, which _____ interest rates and _____ investment spending.
A) increase; increases; decreases
B) decrease; increases; decreases
C) increase; decreases; decreases
D) decrease; decreases; increases
Figure: Demand for Coconuts
Look at the figure Demand for Coconuts. If coconuts are a normal good and consumers
believe that the price of coconuts will rise significantly in the near future, it will be
represented in the figure as a movement from:
A) C to A.
B) A to B.
C) B to E.
D) E to B.
In an economy with no taxes and no imports, disposable income decreases from $6,000
to $4,000. If consumption decreases from $4,500 to $3,000, the multiplier is:
A) 0.25.
B) 4.
C) 1.125.
D) "4.
Look at the table Coffee and Salmon Production Possibilities. The table shows the
maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just
produce one good. The opportunity cost of producing 1 unit of coffee for Brazil is:
A) 2 salmon.
B) 0.25 salmon.
C) 1 salmon.
D) 0.5 salmon.
If the slope of the aggregate expenditures curve is 0.75, the multiplier is:
A) 1.
B) 4.
C) 5.
D) infinity.
Which of the following statements do economists broadly consider to be TRUE?
A) A monetary rule can increase real GDP.
B) Discretionary fiscal policy is typically more effective than monetary policy in
fighting recessions.
C) A nation's central bank should be managed by elected officials.
D) Discretionary monetary and fiscal policy cannot affect the long-run level of
unemployment.
A dozen friends got together to celebrate a birthday. If the birthday cake is cut into 12
pieces of the same size and each of the 12 partygoers gets a slice, this cake distribution
is:
A) efficient but not equitable.
B) equitable but not efficient.
C) efficient and equitable.
D) equitable.
The long run in macroeconomic analysis is a period:
A) in which nominal wages and other prices are flexible.
B) in which wages are sticky.
C) of less than one year.
D) of one to two years.
Scenario: Open Economy S= I
In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and
government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and
imports are $3 trillion.
Look at the scenario Open Economy S = I. How much is national saving?
A) $4 trillion
B) $3.5 trillion
C) $2 trillion
D) $5.5 trillion
In an income"expenditure equilibrium:
A) there are no inventories.
B) there is no unplanned inventory investment.
C) inventory investment equals consumption.
D) there are no savings.
When the Fed increases the reserve requirement, banks lend _____ of their deposits,
which leads to a(n) _____ in the money supply.
A) less; decrease
B) less; increase
C) more; decrease
D) more; increase
