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The aggregate supply curve shows the relationship between the aggregate price level
and the aggregate:
A) output supplied.
B) money supply.
C) unemployment rate.
D) employment.
The benefits of fixed exchange rates served as one of the motivations for the
international system of fixed rates established after World War II.
A) True
B) False
A Phillips curve implies a negative relationship between:
A) consumption and saving.
B) inflation and prices.
C) inflation and unemployment.
D) consumption and inflation.
In building models, economists avoid making any assumptions that might leave out any
aspect of reality.
A) True
B) False
If banks temporarily don't have sufficient funds to pay their depositors, they can borrow
the needed funds at the Federal Reserve discount window.
A) True
B) False
In the long run, as the economy self-corrects, a decrease in aggregate demand, all other
things unchanged, will cause the price level to _____ and potential output to _____.
A) rise; increase
B) fall; decrease
C) rise; remain stable
D) fall; remain stable
Figure: The Market for Calculators
Look at the figure The Market for Calculators. Assume that Sand Drepresent the
domestic demand and supply of calculators. The world price, PW,equals $100. The
government imposes a quota restricting imports to 25 calculators. If import licenses are
granted to foreigners, the net loss due to the import quota is equal to area:
A) K+ L.
B) G+ J.
C) G+ H+ I+ J.
D) G+ H+ I+ J+ K+ L.
If they spend all night writing computer programs, Laurence can write 10 programs,
and Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can
make 6 pairs, and Carrie Anne can make 4. Given this information and supposing
Laurence and Carrie Anne have constant opportunity costs, we know that _____ has an
absolute advantage in _____.
A) Laurence; programs but not in sunglasses.
B) Laurence; both programs and sunglasses.
C) Carrie Anne; programs but not in sunglasses.
D) Carrie Anne; both programs and sunglasses.
If other things are equal, an increase in aggregate wealth will _____ and shift the
consumption function _____.
A) increase autonomous consumption; up
B) decrease the marginal propensity to consume; down
C) decrease autonomous consumption; down
D) increase the marginal propensity to consume; up
If a firm finds that the net present value of a project is _____ for a given interest rate, it
will _____ the project.
A) positive; undertake
B) positive; not undertake
C) negative; undertake
D) positive or negative; undertake
Long-run growth is the:
A) sustained upward trend in aggregate output per person over several decades.
B) expansion phase of business cycles.
C) downturn phase of business cycles.
D) sustained downward trend in the employment rate over several decades.
Figure: Shifts in Demand and Supply II
Look at the figure Shifts in Demand and Supply II. The graph shows how supply and
demand might shift in response to specific events. Suppose consumer incomes decrease.
Which panel BEST describes how this will affect the market for used clothing, an
inferior good?
A) panel A
B) panel B
C) panel C
D) panel D
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. What is the value of the market basket in 2013?
A) $3.35
B) $40
C) $42
D) $44.50
Table: The Consumer Price Index
Look at the table The Consumer Price Index. The approximate rate of inflation in year 2
is:
A) 10%.
B) 19%.
C) 20%.
D) 25%.
When banks borrow from and lend reserves to each other, they are participating in the
_____ market.
A) subprime mortgage
B) long-term capital
C) money
D) federal funds
Suppose that a country has a progressive income tax code, and taxable income is
calculated in nominal terms but the schedule of income tax rates is NOT indexed to
inflation. An individual whose income keeps up with inflation over time will pay:
A) the alternative minimum tax.
B) a lower percentage of income in taxes over time.
C) the same percentage of income in taxes over time.
D) a higher percentage of income in taxes over time.
Suppose the United States auctioned off all import quotas, the auctions were perfectly
competitive, and the government received the revenues from the auction. In this case,
the deadweight loss from a quota would be _____ the deadweight loss from an
equivalent tariff.
A) less than
B) greater than
C) equal to
D) in the case of demand being elastic, greater than
Which of the following statements is CORRECT?
A) A change in demand is a movement along the demand curve, and a change in
quantity demanded is a shift of the demand curve.
B) Both a change in quantity demanded and a change in demand are movements along
the demand curve, only in different directions.
C) Both a change in quantity demanded and a change in demand are shifts of the
demand curve, only in different directions.
D) A change in quantity demanded is a movement along the demand curve, and a
change in demand is a shift of the demand curve.
Given an inflationary gap, the Federal Reserve will use monetary policy to _____ real
GDP and _____ the interest rate.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
If the marginal propensity to consume is 0.75 and transfer payments increase by $30
billion, real GDP will:
A) increase by exactly $30 billion.
B) decrease by exactly $30 billion.
C) increase by more than $120 billion.
D) increase by less than $120 billion.
Suppose the input costs associated with manufacturing hair replacement treatments
decrease over time. This would lead to:
A) an increase in the supply of such treatments, lower prices, and an increase in the
equilibrium quantity.
B) a decrease in quantity supplied and lower prices.
C) an increase in demand and higher prices.
D) a decrease in the supply of such treatments, higher prices, and a decrease in the
equilibrium quantity.
If the short-run Phillips curve has shifted upward, the _____ curve has shifted to the
_____.
A) AD; right
B) AD; left
C) SRAS; right
D) SRAS; left
Foreign exchange controls may distort incentives for international trade.
A) True
B) False
The belief that neither monetary nor fiscal policy can reduce unemployment is
consistent with _____ economics.
A) Keynesian
B) classical
C) rational expectations
D) Great Moderation consensus
Interest rates decreased during the 1980s because expectations of future inflation were
lower.
A) True
B) False
An aggregate output level lower than potential output means there will be:
A) high interest rates.
B) high inflation.
C) low unemployment.
D) high unemployment.
According to the Dodd-Frank bill, shadow banks:
A) are prohibited.
B) must be merged with commercial banks.
C) are allowed to operate only in other countries.
D) are subject to regulation of capital and investments similar to that of banks.
If the Federal Reserve conducts an open-market purchase, bank reserves _____ and the
money supply _____.
A) decrease; decreases
B) increase; increases
C) decrease; increases
D) increase; decreases
Table: Per Capita GDP
Look at the table Per Capita GDP. Per capita real GDP in 2014 was:
A) $600.
B) $800.
C) $300.
D) $400.
While buying refreshments for an upcoming party, you notice that a six-pack of
Americana Beer costs $2 and a six-pack of Bavarian Beer costs $4. You buy the
six-pack of Bavarian Beer, although you wonder if maybe two six-packs of Americana
Beer would have been a better choice. The opportunity cost of the Bavarian Beer is:
A) $4.
B) a six-pack of Americana Beer.
C) two six-packs of Americana Beer.
D) $4 and the six-pack of Americana Beer.
If the real interest rate is 4% and the inflation rate is 1%, then the nominal interest rate
is 5%.
A) True
B) False
All of the following are responsibilities of the Federal Reserve EXCEPT to:
A) control the monetary base.
B) mint bills and coins.
C) oversee and regulate the banking system.
D) set the discount rate.
