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Since 1960 the price level in the United States has increased in most years.
A) True
B) False
If Debbie gets a loan to remodel her kitchen, the loan is a liability for Debbie and an
asset for the bank that issued the loan.
A) True
B) False
What do a rubbernecking traffic jam and the paradox of thrift have in common?
A) Individual behavior has large negative consequences for the whole of society.
B) Seemingly bad behavior ends up harming everyone.
C) Seemingly careless behavior leads to good times for all.
D) Government intervention can only make matters worse.
Figure: Consumer and Capital Goods
Look at the figure Consumer and Capital Goods. The movement from curve 1 to curve
2 indicates:
A) economic growth.
B) a change from unemployment to full employment.
C) a decrease in the level of technology.
D) instability.
When a bank lends excess reserves to a customer:
A) this does not affect the money supply.
B) the money supply is increased.
C) the money supply is decreased.
D) it has the same effect as when one customer writes a check to another customer at a
different bank.
In general, expansions are characterized by:
A) increasing unemployment.
B) falling unemployment.
C) decreasing employment.
D) constant employment.
Milton Friedman and Anna Schwartz wrote:
A) The Great Depression.
B) The General Theory of Employment, Interest, and Money.
C) The Wealth of Nations.
D) A Monetary History of the United States, 1867"1960.
Scenario: A Small Economy
Suppose there is no trade and no government in a small economy. GDP is $25 trillion,
and consumption spending is $18 trillion this year.
Look at the scenario A Small Economy. What is the level of investment spending?
A) $18 trillion
B) $7 trillion
C) $25 trillion
D) "$7 trillion
The point at which the axes of a graph intersect is called the:
A) slope.
B) origin.
C) graph.
D) intercept.
If a country's price in the absence of trade is lower than the price with trade, then the
domestic quantity supplied with trade is _____ the domestic quantity demanded.
A) greater than
B) less than
C) equal to
D) not comparable to
When the interest rate in the U.S. decreases as a result of expansionary monetary policy,
investment spending _____ and consumption _____ .
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Fiscal policy refers to changes in _____ to affect overall spending in the economy:
A) interest rates
B) government spending and taxation
C) the quantity of money
D) interest rates and of government spending
After the 2008 financial crisis, proponents of austerity argued that fiscal stimulus was
inappropriate because:
A) cuts in government spending had increased interest rates.
B) the increase in government spending had raised interest rates.
C) unemployment remained high after the stimulus was implemented in 2009.
D) monetary policy is more effective when the economy is close to the zero bound on
interest rates.
Suppose actual aggregate output is equal to the potential output; the actual
unemployment rate is:
A) equal to the natural rate of unemployment.
B) higher than the natural rate of unemployment.
C) zero.
D) equal to the cyclical rate of unemployment.
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. An increase in savings by the
private sector will shift the supply of loanable funds to the_____ and _____ the interest
rate.
A) left; increase
B) right; decrease
C) right; increase
D) left; decrease
Currency is about _____ of M1.
A) 10%
B) 22%
C) 75%
D) 100%
Technological progress is advanced through:
A) research and development.
B) government regulation.
C) consumption.
D) infrastructure.
Figure: AD"AS
Look at the figure AD"AS. Suppose the economy is in an inflationary gap so that SRAS1
intersects AD2. The size of the gap is equal to:
A) Y1 " YP.
B) Y1.
C) Y1 " Y2.
D) YP " Y2.
The Cuban peso is on a fixed rate. If the government of Cuba uses foreign exchange
controls to change the exchange rate of the peso from $1 to $1.20, the Cuban peso has
been revalued.
A) True
B) False
Price stability occurs when:
A) the overall price level is zero.
B) the economy is at full employment.
C) the overall cost of living is changing very slowly.
D) food prices have remained the same.
To fix its exchange rate, a government can use:
A) competition.
B) exchange market intervention.
C) speculation.
D) arbitrage.
Figure: Market for Loanable Funds I
Look at the figure Market for Loanable Funds I. The equilibrium interest rate in the
loanable funds market is:
A) 2%.
B) 4%.
C) 6%.
D) 8%.
Scenario: Money Supply Changes
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his
checkable deposit. Assume that banks do not hold any excess reserves and that the
public holds no currency, only checkable bank deposits.
Look at the scenario Money Supply Changes. As a result of the withdrawal, excess
reserves _____ by _____.
A) increase; $5,000
B) increase; $500
C) decrease; $4,500
D) decrease; $500
(Table: Investment Spending, Private Spending, and Capital Inflows) Northlandia has a
_____, while Southlandia has a _____.
A) balanced budget; budget deficit
B) budget deficit; balanced budget
C) budget surplus; balanced budget
D) balanced budget; balanced budget
Look at the table Employment Data.
The labor force is:
A) 33 million.
B) 32 million.
C) 31 million.
D) 22 million.
An increase in the price of contact lenses will increase the supply of contact lenses.
A) True
B) False
A budget deficit occurs when tax revenue is higher than government spending plus
government transfers.
A) True
B) False
The money supply curve is:
A) downward sloping.
B) vertical.
C) upward rising.
D) horizontal.
The first bankers were:
A) farmers.
B) merchants who engaged in foreign trade.
C) insurance companies.
D) goldsmiths.
Assuming no taxes and no trade, the multiplier equals:
A) MPC / MPS.
B) 1 / (1 " MPS).
C) MPC+ MPS.
D) 1 / (1 " MPC).
A firm does NOT want to borrow money for a project when:
A) the interest rate is higher than the rate of return on the project.
B) the interest rate is lower than the rate of return on the project.
C) the interest rate is positive.
D) the rate of return on the project is positive.
In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of
tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750
boxes of tulips. From this information, we know that:
A) the Netherlands has a comparative advantage in raising beef.
B) the Netherlands has a comparative advantage in raising tulips.
C) Belgium has a comparative advantage in raising beef.
D) Belgium has an absolute advantage in raising beef.
The _____ the _____, the _____ the multiplier.
A) smaller; level of wealth; bigger
B) bigger; marginal propensity to save; bigger
C) bigger; marginal propensity to consume; smaller
D) bigger; marginal propensity to consume; bigger
An economy is in the midst of a recession. A government policy aimed at moving the
economy back to potential GDP is:
A) an increase in taxes.
B) an increase in government purchases for infrastructure improvements.
C) an increase in the property tax.
D) a decrease in unemployment benefits.
