During the 1940s, 1950s, and 1960s:
A) the role of the government in the economy increased.
B) the role of the government in the economy decreased.
C) Keynes’s ideas were constantly challenged by free-market policies.
D) Keynes’s views were accepted only by left-wing socialist economists.
If the Federal Reserve increases interest rates to reduce inflation and all other things
remain constant:
A) planned investment spending is most likely to increase.
B) planned investment spending is most likely to decrease.
C) planned investment spending is most likely to remain the same.
D) unplanned investment in inventories is likely to be negative.
Figure: Shifts in Demand and Supply IV
Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and
demand might shift in response to specific events. Suppose the Surgeon General
announces that eating chocolate prevents heart disease. Which panel BEST describes
how this will affect the market for chocolate?
A) panel A
B) panel B
C) panel C
D) panel D
If the United States exports $100 billion of goods and services and imports $150 billion
of goods and services and there is no other factor income or transfers, the balance on
the current account is:
A) $250 billion.
B) “$250 billion.
C) $50 billion.
D) “$50 billion.
What can the federal government do to finance a deficit?
A) cut taxes
B) increase purchases of goods and services
C) increase transfer payments
D) borrow funds
Marla will make $10 by tutoring for an additional hour, but she will lose an hour of
studying for her economics test. Marla decides to study rather than tutor. Marla’s choice
indicates that she:
A) values an additional hour of studying more than the $10 she would earn tutoring.
B) values an hour of studying less than the $10 she would earn tutoring.
C) does not understand that there is no benefit from studying.
D) doesn’t need the money.
If government spending increases and taxes decrease:
A) implicit liabilities will increase.
B) implicit liabilities will decrease.
C) the public debt will increase.
D) the public debt will decrease.
Explain why a constitutional amendment requiring the federal government to balance
the budget annually is a bad idea.
Figure: AD”ASModel II
Look at the figure AD”AS Model II. If the central bank reduces the quantity of money
that is circulating in the economy, the _____ curve will shift to the _____.
A) LRAS; right
B) LRAS; left
C) AD1; left to AD3
D) AD1; right to AD2
If all retail stores announce unexpectedly high sales volumes, holding other things
constant, stock prices in the retail sector will:
A) increase.
B) decrease.
C) not change.
D) It is impossible to say how stock prices will change.
A reduction in the value of a currency that is set under a fixed exchange rate regime is
a(n):
A) depreciation.
B) devaluation.
C) appreciation.
D) revaluation.
If a central bank announces an inflation target, it:
A) may have to sacrifice some control over interest rates.
B) is in effect also announcing an interest rate target.
C) will achieve this goal only by allowing price levels to vary.
D) must do so in coordination with fiscal policy makers.
“Macroeconomics is nothing but a simple aggregation of all the microeconomic parts.”
Do you agree or disagree with this statement?
A) Don’t agree; there is a lot more to the study of macroeconomics than the sum of its
microeconomic parts.
B) Agree; macroeconomics is exactly equal to the total of all microeconomic units.
C) Don’t agree; these two disciplines deal with completely independent issues.
D) Don’t agree; microeconomics is an aggregation of all the macroeconomic parts.
Figure: Crowding Out
Look at the figure Crowding Out. The supply of loanable funds curve SLF1 shifts to
SLF2. This shift implies that:
A) private savings has increased.
B) national investment has decreased.
C) private savings has decreased.
D) national savings has decreased.
The demand for money is higher in Japan than in the United States because:
A) telecommunications and information technology is more advanced in the United
States than in Japan.
B) Japanese consumers use credit cards more than people in the United States.
C) Japanese interest rates are higher than those in the United States.
D) Japanese interest rates are lower than those in the United States.
Following a severe banking crisis, unemployment usually begins to decrease in a few
months.
A) True
B) False
Households derive income from all of the following EXCEPT:
A) wages or labor income.
B) interest from lending.
C) rent from allowing firms to use their land.
D) imports.
Classical macroeconomists believed that government could reduce the unemployment
rate to a permanently low rate.
A) True
B) False
The base period for the consumer price index is 1941″1945.
A) True
B) False
Figure: Fiscal Policy Choices
Look at the figure Fiscal Policy Choices. If the government uses discretionary fiscal
policy for the economy in panel (a) when real GDP is Y1, government spending is likely
to be _____ and taxes are likely to be _____.
A) reduced; cut
B) increased; increased
C) reduced; increased
D) increased; cut
The producer price index is often regarded as a warning sign of inflation because:
A) commodity producers are relatively quick to raise prices.
B) producers are likely to have monopoly control over prices.
C) consumers have to pay the prices charged.
D) commodity producers can sell whatever they want at higher prices.
Scenario: Growth Rates
Suppose that real GDP per capita of the United States is $32,000 and its growth rate is
2% per year. Real GDP per capita of China is $4,000, and its annual growth rate is 7%.
Look at the scenario Growth Rates. How long will it take China’s real GDP per capita to
double?
A) 14 years
B) 10 years
C) 35 years
D) 50 years
When aggregate demand decreased between 1929 and 1933, the GDP deflator
decreased.
A) True
B) False
A shadow bank engages in maturity transformation by:
A) accepting short-term deposits and making short-term loans.
B) accepting long-term deposits and making long-term loans.
C) borrowing short term and lending or investing long term.
D) borrowing long term and lending or investing short term.
Goods that are produced domestically but sold abroad are:
A) imports.
B) exports.
C) part of domestic consumption.
D) investment.
In long-run macroeconomic equilibrium, actual aggregate output equals potential
output.
A) True
B) False
A large inflation tax causes people to do all of the following EXCEPT:
A) substitute real goods for money.
B) substitute interest-bearing assets for money.
C) reduce their real money holdings.
D) sell gold.
When households invest their wealth in financial markets, they purchase financial
assets.
A) True
B) False
If nominal GDP decreases from one year to the next, _____ must have fallen.
A) prices
B) real GDP
C) prices and real GDP
D) output or prices or both
Figure: Monetary Policy and the AD“SRASModel
Look at the figure Monetary Policy and the AD”SRASModel. If the economy is at point
f because of an open market sale by the Federal Reserve and no further monetary policy
is implemented, in the LONG run nominal wages will _____ and _____ will shift to
_____, real GDP will _____, and the price level will _____.
A) increase; SRAS; SRAS’; decrease; increase
B) increase; SRAS; SRAS’; increase; decrease
C) decrease; SRAS; SRAS; increase; decrease
D) decrease; SRAS; SRAS; decrease; decrease
Look at the table Wheat and Aluminum. The United States and Germany can produce
both wheat and aluminum. The table shows, in tonnage, the maximum annual output
combinations of wheat and aluminum that can be produced. Which of the following
choices represents a possible trade based upon specialization and comparative
advantage?
A) Germany would trade 2 tons of wheat to the United States for 1 ton of aluminum.
B) Germany would trade 2 tons of aluminum to the United States for 0.5 ton of wheat.
C) The United States would trade 1 ton of wheat to Germany for 1 ton of aluminum.
D) The United States would trade 1 ton of wheat to Germany for 1.5 tons of aluminum.
If the price level at the end of year 1 is 150 and the price level at the end of year 2 is
160, the inflation rate in year 2 is 6.67%.
A) True
B) False
If the marginal propensity to consume is 0.9 and investment spending increases by $50
billion, the change in real GDP will be $5 billion.
A) True
B) False
The dollar amount of the wage paid is called the sticky wage.
A) True
B) False
The use of counterfeit money leads to:
A) costs for a government only if government has endorsed fiat money.
B) losses only if consumers recognize that counterfeit money is present.
C) lost revenue to pay for operations of the economy’s government.
D) problems only when commodity-backed money is used.