Which of the following is consumption?
A) a new computer purchased by Federal Express for one of its corporate executives
B) a storage facility for a moving company
C) a new car purchased for personal use
D) a dump truck purchased by a demolition company
If during 2011 the Republic of Sildavia recorded a value added of $78 billion, wages of
$40 billion, profits of $8 billion, and total sales of $90 billion, the value of intermediate
goods purchased during 2011 in Sildavia was:
A) $42 billion.
B) $30 billion.
C) $12 billion.
D) $4 billion.
The natural rate of unemployment will rise for all of the following reasons EXCEPT:
A) more generous terms for unemployment compensation.
B) an increase in union membership.
C) an increase in labor productivity that translates into greater demand for labor.
D) a surge in the number of young and inexperienced workers.
A reserve ratio is the:
A) proportion of cash and security reserves the bank holds.
B) fraction of deposits that the bank is required to hold as reserves.
C) loan-to-deposit ratio in the bank’s balance sheet.
D) money belonging to the bank’s largest depositors.
Income”expenditure equilibrium occurs when:
A) real GDP equals planned aggregate spending.
B) real GDP equals actual aggregate spending.
C) real GDP equals unplanned aggregate expenditure.
D) consumption and investment are equal.
The organization that oversees global trade negotiations and settles trade disputes
among its members is the:
A) World Bank.
B) European Union.
C) World Trade Organization.
D) North American Free Trade Agreement.
A recession in the United States could begin with our trading partners.
A) True
B) False
The marginal propensity to consume (MPC) equals the change in _____ divided by the
change in _____.
A) consumer spending; disposable income
B) consumer spending; investment spending
C) consumer spending; gross domestic product
D) disposable income; consumer spending
Potential output:
A) is the level of output that the economy would produce if all prices, including
nominal wages, were fully flexible.
B) varies with the price level.
C) depends on the level of consumer confidence.
D) is greater in periods of expansion than in recessions.
Classical economists focused mainly on:
A) unemployment.
B) the short run.
C) the long run.
D) government economic policy.
Figure: The DVD Rental Market
Look at the figure The DVD Rental Market. If the rental price of DVDs rises from $5 to
$7:
A) demand will decrease from 50 to 30 rentals per weekend.
B) the quantity demanded will decrease from 50 to 30 rentals per weekend.
C) supply will increase from 50 to 70 rentals per weekend.
D) the quantity supplied will increase from 50 to 60 rentals per weekend.
Lyndon Johnson’s tax surcharge was an expansionary fiscal policy that increased
aggregate demand.
A) True
B) False
To close a recessionary gap, the central bank could adopt an expansionary economic
policy.
A) True
B) False
If the government wants to decrease the value of its currency in foreign exchange
markets, it can sell its domestic currency in the foreign exchange market.
A) True
B) False
Suppose the economy is in income”expenditure equilibrium. How will each of the
following situations affect planned investment and unplanned inventory investment?
a. The Federal Reserve decreases interest rates.
b. Major economic indicators decrease business optimism about growth in real GDP.
If equilibrium exists:
A) all individuals must have an equal amount of income.
B) the price in that market will not fluctuate by more than 5%.
C) there will be no remaining opportunities for individuals to make themselves better
off.
D) the number of buyers will equal the number of sellers.
One advantage of bonds over loans is that:
A) interest rates on bonds are generally lower than interest rates on loans.
B) interest rates on bonds are generally higher than interest rates on loans.
C) each bond is specifically tailored to meet the needs of the borrower so that no two
bonds are alike.
D) bonds are more standardized than loans.
Figure: Fiscal Policy and the End of the Great Depression
Look at the figure Fiscal Policy and the End of the Great Depression. The period from
1933 through 1936 would seem to indicate that in the short run a moderate level of
government deficit spending can _____ the unemployment rate.
A) reduce
B) increase
C) not affect
D) eliminate
The Federal Reserve reports on two main monetary aggregates:
A) M2 and total debt.
B) M1 and currency held by banks.
C) M1 and M2.
D) M1 and total stock purchases.
Look at the scenario Assets and Liabilities of the Banking System. If the reserve ratio is
6% and the banking system does NOT want to hold excess reserves, how much more
can be added to the money supply?
A) about $667,000
B) about $111,000
C) $250,000
D) $1 million
If a firm considering the purchase of an asset determines that the asset’s net present
value is greater than zero, then _____ the asset will _____ profits.
A) not buying; increase
B) purchasing; increase
C) purchasing; decrease
D) not buying; decrease
_____ would likely shift the short-run aggregate supply curve to the left.
A) A decrease in consumer spending
B) A decrease in the price of oil
C) An increase in the price of oil
D) An increase in consumer spending
The federal funds rate is the rate:
A) a private borrower would pay a bank for a loan.
B) one bank would pay another bank for a loan of reserves.
C) a bank would pay the Federal Reserve for a loan of reserves.
D) the Federal Reserve would pay to borrow money from government.
Which of the following statements is TRUE?
A) Very talented people may have a comparative advantage in everything they do.
B) Very untalented people have a comparative advantage in something they do.
C) Very talented people may have a low opportunity cost in most things they do.
D) Very untalented people may have a high opportunity cost in most things they do.
Suppose the demand curve for good Z is downward-sloping. If the price of good Z
decreases because of a shift in supply, this will cause:
A) an increase in the demand for good Z.
B) a movement along the demand curve of good Z.
C) no effect on the quantity demanded of good Z.
D) fewer people to purchase good Z.
The classical model of the price level:
A) holds that the short run is distinct from the long run.
B) holds that the economy is always producing at some point on the LRAS.
C) works best when an economy has low levels of inflation.
D) does not consider the effects of the real quantity of money.
Table: Real and Nominal Output
Look at the table Real and Nominal Output. Assuming year 3 is the base year, real
output in year 3 is:
A) $100.
B) $120.
C) $140.
D) $200.
Underemployed people are counted as employed even though they are not fully using
their skills.
A) True
B) False
If Mega Corp. borrows $9,000 and agrees to pay the lender $10,500 in one year, the
annual interest rate on this loan is approximately:
A) 8.6%.
B) 14.3%.
C) 16.7%.
D) 15%.
The European Central Bank is the equivalent of:
A) the Bank of Italy.
B) the Board of Governors of the U.S. Federal Reserve.
C) the Bank of Japan.
D) the Federal Deposit Insurance Corporation.