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If there is a large increase in the price of oil and the Fed wishes to maintain stable
output, which of the following should it do?
a. Do nothing, because the self-correcting mechanism will adjust the economy
b. Sell bonds in the open market
c. Wait, because output seldom changes when there is an increase in the price of oil
d. Encourage firms to not adjust the wages they pay
e. Buy bonds in the open market.
Which of the following describes what would happen after an increase in oil prices?
a. A downward shift of the aggregate supply curve as unit costs decrease, followed by a
gradual increase in the wage as employment increases, leading to a leftward shift of the
aggregate supply curve
b. An upward shift of the aggregate supply curve as unit costs increase, followed by a
gradual decrease in the wage as employment decreases, leading to a leftward shift of the
aggregate supply curve
c. An upward shift of the aggregate supply curve as unit costs increase, followed by a
gradual decrease in the wage as employment decreases, leading to a rightward shift of
the aggregate supply curve
d. A downward shift of the aggregate supply curve as unit costs decrease, followed by a
gradual decrease in the wage as employment decreases, leading to a rightward shift of
the aggregate supply curve
e. An upward shift of the aggregate supply curve as unit costs increase, followed by a
gradual decrease in the wage as employment increases, leading to a rightward shift of
the aggregate supply curve.
If the Fed wants to lower the interest rate, it will
a. increase the money supply
b. decrease the money supply
c. increase money demand
d. decrease money demand
e. simply set a lower market interest rate
We say that a particular life saving method is efficient
a. if it requires very few resources
b. if it requires many resources
c. if total expenditures on that method are low
d. if the cost per life year saved is very high
e. if the cost per life year saved is very low
A negative demand shock
a. shifts the AD curve to the right
b. decreases real GDP and increases the price level in the short run
c. is the result of an increase in money demand
d. results in a movement down and to the right along the AD curve
e. decreases both real GDP and the price level in the short run
Whether or not a reduction in the budget deficit is a pro-growth measure depends on
how the budget deficit shrinks.
An increase in human capital would lead to
a. a decrease in the standard of living
b. an upward shift of the production function
c. a decrease in productivity
d. cutbacks in government skill-training programs
e. a decrease of the capital stock
When the Fed conducts open market operations, what type of bonds does the Fed
purchase?
a. Newly issued bonds from the treasury
b. Bonds newly issued by companies
c. Previously issued bonds from the treasury
d. Bonds previously issued by companies
e. Newly issued bonds from other countries.
When borrowing money to purchase an automobile, Raul has the choice between a
fixed nominal interest rate or adjustable nominal interest rate loan. Typically the
adjustable rate loans start with a lower rate than the fixed rate loans. Given that, under
what circumstances would Raul most likely want to borrow money at the higher fixed
rate?
a. When he expects the inflation rate to rise
b. When he expects the inflation rate to decrease
c. When he expects the inflation rate to remain unchanged
d. When he expects the price level to remain stable
e. When he expects the government to act to lower the inflation rate
Refer to Figure 14-8 above. If the interest rate is currently 5%,
a. the interest rate must fall to restore equilibrium.
b. the interest rate will not change.
c. the interest rate must rise to restore equilibrium.
d. there is an excess supply of money.
e. the excess demand for money is $200 billion.
The three primary systems for allocating resources are
a. tradition, command, and central planning
b. tradition, central planning, and communal
c. command, market, and socialism
d. tradition, command, and market
e. communal, command, and capitalism
Which of the following would shift the production function downward?
a. An improvement in technology
b. A decrease in the interest rate
c. An increase in number of workers
d. An increase in the stock of human capital
e. A decrease in the stock of physical capital
According to the information in Figure 2-11,
a. Jill has an absolute advantage in fetching pails
b. Jill has an absolute advantage in sawing boards
c. Jill has a comparative advantage in sawing boards
d. Jack has a comparative advantage in sawing boards
e. Jill has a comparative advantage in fetching pails
