The inflation rate is the:
A) price level in the current year minus the price level in the previous year.
B) price level in the current year plus the price level in the previous year.
C) percentage change in the price level from one year to the next.
D) price level in the current year multiplied by the price level in the previous year.
When a bank deposit is withdrawn and kept as currency, bank reserves decrease and
the:
A) monetary base decreases.
B) monetary base does not change.
C) monetary base increases.
D) money supply decreases.
Changing government spending and taxes to affect overall spending is use of _____
policy.
A) tax-and-spend
B) monetary
C) fiscal
D) free-trade
The threat of a second European financial crisis in 2011 and 2012 was due primarily to
problems with:
A) home loans.
B) commercial real estate loans.
C) credit cards.
D) public debt.
Most economists today agree that the Federal Reserve should remain independent so
that it is insulated from political pressure.
A) True
B) False
If stock prices follow a random walk, it means that stock prices are:
A) unpredictable.
B) increasing.
C) decreasing
D) constant.
Figure: The Market for Melons in Russia
Look at the figure The Market for Melons in Russia. If the world price of melons is
equal to E, Russia will _____ of melons.
A) import I ” H
B) export I ” H
C) import G ” F
D) export G ” F
Monetarism asserts that GDP will grow steadily if the money supply grows steadily.
A) True
B) False
Figure: Short-Run Equilibrium
Look at the figure Short-Run Equilibrium. The economy is in short-run equilibrium. To
move the economy to potential GDP, the government should reduce its spending by an
amount equal to:
A) (Y1 ” YP).
B) (Y1 ” YP) / (1 ” MPC).
C) (Y1 ” YP)MPC.
D) (Y1 ” YP)(1 ” MPC).
Banks’ assets tend to be less liquid than their liabilities.
A) True
B) False
Table: National Income Accounts
Trillions
Look at the table National Income Accounts. The value of net capital inflow is:
A) $1.8 trillion.
B) $0.5 trillion.
C) $4.9 trillion.
D) $1.6 trillion.
If the slope of the aggregate expenditures curve is 0.9, the multiplier is:
A) 1.
B) 4.
C) 5.
D) 10.
Assume that the United States imposes an import quota on Italian shoes. Relative to the
equilibrium world price that would exist in the absence of import quotas, the
equilibrium price of shoes in the United States will most likely _____, and the
equilibrium price of shoes in Italy will most likely _____.
A) increase; decrease
B) decrease; remain the same
C) decrease; increase
D) increase; remain the same
If a bank falls short of its reserve requirement, it might borrow reserves from banks
with excess reserves in the federal funds market.
A) True
B) False
Figure: The Aggregate Consumption Function and Planned Aggregate Spending
Look at the table The Aggregate Consumption Function and Planned Aggregate
Spending. If disposable income decreases, then the:
A) aggregate expenditures curvewill shift up.
B) aggregate expenditures curvewill shift down.
C) economy will move upward along the aggregate expenditures curve.
D) economy will move downward along the aggregate expenditures curve.
If the economy is at potential output and the Fed decreases the money supply, in the
LONG run real GDP will likely:
A) fluctuate randomly.
B) remain the same.
C) decrease.
D) increase.
Scenario: Technological Progress and Productivity Growth in Techland
In Techland, from 1980 to 2010, holding technology and human capital fixed,
increasing physical capital per worker from $25,000 to $100,000 would have led to a
doubling of real GDP per worker, from $40,000 to $80,000. However, not only did
physical capital per worker increase from $25,000 to $100,000, but technological
progress shifted the productivity curve upward so that real GDP per worker actually
increased from $40,000 to $320,000.
Look at the scenario Technological Progress and Productivity Growth in Techland.
What share of the growth rate of real GDP per capita was attributable to higher total
factor productivity?
A) 2.0%
B) 5%
C) 8.75%
D) 6.5%
The U.S. government reports a core inflation rate that EXCLUDES _____ and _____
prices to remove the volatility of those two sectors from inflation estimates.
A) housing; automobile
B) steel; housing
C) energy; food
D) gasoline; housing
Japan must give up the production of 75 computers to produce 25 additional cellular
telephones. The opportunity cost of producing 3 computers is _____ cell phone(s).
A) 1
B) 3
C) 22
D) 28
If the euro depreciates, then a Mediterranean cruise will be cheaper for U.S. tourists.
A) True
B) False
The convergence hypothesis helps explain why:
A) highly educated people converge in high-income countries.
B) high-income individuals marry other high-income individuals.
C) high-income countries continue their high growth rates.
D) the income of high-income and lower-income countries get closer.
An asset that can be quickly converted to cash with relatively little loss of value is:
A) illiquid.
B) liquid.
C) diversified.
D) risk averse.
Two-thirds of total spending is usually attributed to:
A) consumption.
B) investment.
C) government spending.
D) net exports.
Freshwater is considered a scarce good because:
A) not enough of it is available for all needs.
B) it does not have any uses.
C) scarce goods are not expensive.
D) not enough of it is available for all needs and because it is not expensive.
Interest rates:
A) were very high in the 1970s and decreased in the 1980s.
B) were very low in the 1970s and increased in the 1980s.
C) steadily increased from 1960 through 2012.
D) steadily decreased from 1960 through 2012.
If the price of corn rises, we expect:
A) the quantity of corn demanded to rise.
B) the quantity of corn supplied to rise.
C) the demand for corn to shift inward.
D) the supply of corn to shift outward.
Given an inflationary gap, the Federal Reserve will use monetary policy to _____
interest rates and _____ aggregate demand.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Which of the following would supply dollars in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A) I only
B) II only
C) III only
D) I, II, and III
During the 2008 financial crisis, investors feared that Spain’s government might default
on its debt because:
A) it spent large amounts of money helping homeowners avoid foreclosure.
B) it lent too much money to Greece.
C) the government might have to spend large amounts of money to bail out Spanish
banks.
D) it was leaving the European Union.
Alison lends $100 to Vanessa for one year. Alison expects that inflation will be 10%. If
Alison wishes to maintain the real value of her $100, she should expect payment from
Vanessa in the amount of:
A) $100.
B) $110.
C) $120.
D) $101.
A surplus in the current account means there will be:
A) a surplus in the financial account.
B) a deficit in the financial account.
C) a balanced financial account.
D) either a surplus or a deficit in the financial account.
Fiscal policy measures of the same dollar amounts will have equal effects on the budget
balance but may change real GDP by different amounts.
A) True
B) False
Assume the marginal propensity to consume is 0.8 and potential output is $800 billion.
If actual real GDP is $850 billion, which of the following policies would bring the
economy to potential output?
A) Increase taxes by $50 billion.
B) Increase taxes by $10 billion.
C) Increase taxes by $12.5 billion.
D) Increase transfers by $12.5 billion.
One of the functions of the Fed is to use monetary policy, which involves changes in the
money supply and changes in interest rates to affect aggregate spending, to lessen the
impact of economic fluctuations on the economy.
A) True
B) False
During the financial crisis of 2008, many financial assets lost value, but
mortgage-backed securities never underwent default.
A) True
B) False