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Without banks, people would:
A) hold more of their wealth as cash.
B) hold less of their wealth as cash.
C) invest most of their wealth in real estate.
D) earn higher rates of return and enjoy more liquidity.
Figure: Unemployment Rate over Time
Look at the figure Unemployment Rate over Time. In the time-series graph, as we move
from 1991 to 1993, we see that the unemployment rate has _____ from approximately
_____ to approximately _____.
A) decreased; 5%; 4%
B) increased; 5.5%; 7%
C) decreased; 7.8%; 5%
D) increased; 4%; 6.3%
Figure: Loanable Funds
Look at the figure Loanable Funds. Which of the following might produce a new
equilibrium interest rate of 4% and a new equilibrium quantity of loanable funds of $75
billion?
A) Profit expectations for business investments become less optimistic.
B) Capital inflows from foreign citizens decline.
C) The federal government runs a budget deficit rather than a surplus.
D) The government eliminates taxes on income from interest earned.
Generous unemployment benefits are likely to cause:
A) an increase in the employment level.
B) a reduction in job search time.
C) a decrease in the unemployment rate.
D) an increase in the unemployment rate.
An increase in the spread between interest rates on10-year bonds of Italy and Spain and
interest rates on 10-year bonds of Germany indicates:
A) an increasing probability of a liquidity trap in Italy and Spain.
B) an increasing probability of a liquidity trap in Germany.
C) a perception of increasing risk in Italy and Spain.
D) a perception of decreasing risk in Italy and Spain.
When interest rates increase, 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
Between 1929 and 1933, the U.S. economy moved upward from left to right along its
short-run aggregate supply curve.
A) True
B) False
In the circular-flow diagram, a household is:
A) an entity that sells goods and services.
B) an individual or group of people who share their income.
C) an entity that purchases factors of production.
D) a member of a group that is prohibited from buying imported goods and services.
Efficiency wages encourage:
A) workers to look for a better job.
B) potential workers to remain out of the labor force.
C) workers to stay in their current job.
D) workers to get more job training.
Scenario: The Production of Wheat and Toys
The table describes the production of two goods, wheat and toys, in country A and
country B. Each country has a linear production possibility frontier with respect to its
production of the two goods. The numbers in each column represent the total number of
units each country could produce if it used all of its resources to produce the good.
Look at the scenario Production of Wheat and Toys. Country A has an absolute
advantage in _____ and a comparative advantage in the production of _____.
A) toys; wheat
B) toys; toys
C) wheat and toys; wheat
D) neither good; toys
To increase the money supply, the central bank could:
A) raise the discount rate.
B) make open-market sales.
C) raise reserve requirements.
D) lower the discount rate.
Contractionary monetary policy in the United States will cause the dollar to:
A) appreciate.
B) be revalued.
C) depreciate.
D) be devalued.
If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%,
money demanded is _____ than money supplied.
A) less than
B) greater than
C) equal to
D) It is impossible to predict which is greater, money demanded or money supplied.
Four types of financial intermediaries are:
A) mutual funds, pension funds, government, and the central bank.
B) mutual funds, pension funds, life insurance companies, and banks.
C) banks, stock markets, pension funds, and the central bank.
D) the central bank, government, the stock market, and the Dow Jones Industrial
Average.
Look at the table Production Possibilities in the United States and Colombia. Suppose
that each nation specializes in producing the good in which it has the comparative
advantage, and the two nations agree to trade. A year later we observe Colombia
consuming 20 computers and 20 tons of coffee, and we observe the United States
consuming 80 computers and 5 tons of coffee. How many computers does the United
States export? How many tons of coffee does the United States import? If the world
price of a computer is $500, what is the world price of a ton of coffee? Justify your
answers.
Interest rates were high during the 1970s and decreased during the 1980s because
expected inflation was:
A) high during both decades.
B) low during both decades.
C) high during the 1970s and decreased during the 1980s.
D) low during the 1970s and increased during the 1980s.
The circular-flow diagram illustrates:
A) the minimum wage state by state.
B) fluctuations in exchange rates.
C) changes in worker productivity.
D) the key concepts in the national accounts.
The slope of the consumption function equals the slope of the:
A) 45-degree line.
B) aggregate expenditure line.
C) aggregate demand curve.
D) short-run aggregate supply curve.
The aggregate production function shows how productivity depends on natural
resources and financial capital.
A) True
B) False
Look at the table The Demand for Chocolate-Covered Peanuts. If George, Barbara, and
Dan are the only three buyers in the market and the price of a bag of chocolate-covered
peanuts is $0.50, the total market quantity demanded is _____ bags per month.
A) 80
B) 105
C) 210
D) 280
Which of the following is the best definition of GDP?
A) the total value of all final goods and services produced in the economy during a
given year
B) the total value of all goods and services produced in the economy during a given
year
C) the total value of all primary, intermediate, and final goods and services produced in
the economy during a given year
D) the total value of all goods and services produced and sold in the economy during a
given year
The cyclically balanced budget is an estimate of what the budget balance would be
during a recessionary gap with real GDP less than potential output.
A) True
B) False
Recent research suggests that certain plastic containers may have cancer-causing
elements in them. As a result of this research, one would expect:
A) the demand for such containers to decrease.
B) the quantity demanded for such containers to increase.
C) no effect.
D) the price of the containers to change because of a movement along the demand
curve.
When a firm buys a new machine for its business, it is considered to be:
A) consumption.
B) investment spending.
C) government spending.
D) private saving.
Milton Friedman was the leading figure in the movement called:
A) Keynesianism.
B) fiscalism.
C) monetarism.
D) big government.
All of the following are examples of demand shocks EXCEPT:
A) a reduction in money supply.
B) a tax increase.
C) an increase in government expenditure.
D) an increase in commodity prices.
Since the United States imports a large quantity of textiles from Asia, the overall wages
of U.S. textile workers has _____, while the price of textiles in the United States has
_____.
A) decreased; decreased
B) increased; decreased
C) decreased; increased
D) increased; not changed
If nominal wages fall, then the short-run aggregate _____ curve shifts to the _____.
A) supply; right
B) supply; left
C) demand; right
D) demand; left
Debt overhang results in _____ levels of debt and assets with _____ values.
A) reduced; higher
B) increased; higher
C) reduced; lower
D) increased; lower
Higher interest rates will lead to increased investment spending.
A) True
B) False
If the economy is at potential output and the Fed decreases the money supply, in the
SHORT run the aggregate demand will likely:
A) shift to the right.
B) remain the same.
C) increase.
D) decrease.
