“Many economists agree that income taxes should be increased for rich people” is a
positive statement.
A) True
B) False
A floating exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. is less expensive to maintain than a fixed exchange rate.
III. adds uncertainty to international trade.
A) I only
B) II only
C) III only
D) I, II, and III
If the marginal propensity to consumeis greater than zero but less than one, when
disposable income rises by $1, consumption will:
A) not be affected.
B) rise by more than $1.
C) rise by less than $1.
D) rise by exactly $1.
From 2000 to 2008 Zimbabwe’s prices:
A) decreased by 50%.
B) increased by 50%.
C) increased by 100%.
D) increased by 80 trillion percent.
Figure: Consumption and Disposable Personal Income
Look at the figure Consumption and Disposable Personal Income. The slope of the
consumption function is:
A) 0.25.
B) 0.50.
C) 0.60.
D) 0.67.
The alternation between recessions and expansions is known as the:
A) unemployment rate.
B) long-run economic growth.
C) business cycle.
D) macroeconomy.
You win a prize at your sorority, and you are given the following two payoff options:
Option 1 is to receive $100 one year from today and $100 two years from today. Option
2 is to receive $180 today. If the annual interest rate is 10%, the present value of option
1 is:
A) $173.56.
B) $190.91.
C) $182.65.
D) $181.80.
Which of the following principles underlies the economics of individual choices?
A) There are gains from trade.
B) Markets move toward equilibrium.
C) People usually exploit opportunities to make themselves better off.
D) Resources should be used as efficiently as possible to achieve society’s goals.
In 2003, Congress passed a tax cut. The country did NOT incur any opportunity cost
from this decision.
A) True
B) False
A gift certificate that can be used to buy goods at Walmart is money.
A) True
B) False
The GDP deflator for a given year is 100 times _____ GDP for that year _____ GDP for
that year.
A) nominal; divided by real
B) real; divided by nominal
C) nominal; minus real
D) real; plus nominal
Scenario: Gizmovia II
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75.
Look at the scenario Gizmovia II. If Gizmovia uses monetary policy to bring the
exchange rate for the gizmo to $0.50, it should _____ interest rates, which will _____
capital outflows of gizmos.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
By acting as a lender of last resort, the central bank:
A) causes a vicious cycle of deleveraging.
B) prevents a vicious cycle of deleveraging.
C) is decreasing the amount of reserves that a bank is required to hold.
D) may keep interest rates low but will likely drive unemployment up.
When the Fed acts as a lender of last resort, it lends money to homeowners who are in
danger of losing their home through foreclosure.
A) True
B) False
Expansions are periods when real GDP and employment are growing.
A) True
B) False
Look at the table Employment Data. If marginally attached workers are included in the
labor force and in the unemployment rate, the unemployment rate is:
A) 39.4%.
B) 30.3%.
C) 9.1%.
D) 6.25%.
Figure: Circular-Flow Model
Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium
(the sum of money flowing into each box is equal to the sum of the money flowing out
of it) and there is a decrease in government spending, which of the following is likely to
happen?
A) an increase in the nominal GDP
B) an increase in the real GDP
C) an increase in the unemployment rate
D) an increase in the inflation rate
The loanable funds model focuses on the:
A) demand for money.
B) supply of funds from lenders.
C) supply of funds from borrowers and the demand by lenders.
D) supply of funds from lenders and the demand from borrowers.
Look at the table Present Value of Projects A, B, C, and D. If the annual interest rate is
2%, which project do you choose?
A) A
B) B
C) C
D) D
Enchant Inc., a designer clothing company, buys $400 worth of silk and $30 worth of
accessories to produce each dress. If the value added by Enchant is equal to $200, then
according to the value-added approach, the price of the designer dress should be:
A) $630.
B) $230.
C) $200.
D) $830.
After swimming 100 laps at the pool, Erik decides to swim 10 more before lifting
weights. This statement best represents this economic concept:
A) Resources are scarce.
B) The real cost of something is what you must give up to get it.
C) “How much” is a decision at the margin.
D) There are gains from trade.
Figure: Demand and Supply of Gasoline
Look at the figure Demand and Supply of Gasoline. The initial equilibrium price and
quantity (at intersection of S1 and D) of gasoline are:
A) $2.00 and 450 gallons.
B) $1.50 and 400 gallons.
C) $2.00 and 200 gallons.
D) $2.50 and 300 gallons.
A physical asset is:
A) a tangible asset that can be used to generate income and whose owner has the right
to dispose of it at will.
B) a paper claim that entitles the owner to future income from the seller.
C) the value of accumulated savings.
D) human capital.
In a closed economy, national savings equals private savings:
A) minus consumption spending.
B) plus the budget balance.
C) minus investment spending.
D) minus tax receipts.
When the Knickerbocker Trust failed, the New York Clearinghouse stepped in and
guaranteed its liabilities, avoiding a major financial crisis.
A) True
B) False
A government surplus is contractionary because _____ are contractionary.
A) increases in taxation
B) increases in government purchases
C) increases in government transfers
D) decreases in taxation
Figure: Technological Progress and Productivity Growth
Look at the figure
Technological Progress and Productivity Growth. Which of the following changes in
real GDP is most likely to have resulted from the deterioration of the nation’s
infrastructure over time?
A) A to B
B) B to C
C) C to B
D) B to A
Real GDP is:
A) the value of the production of all final goods and services measured in current
prices.
B) the value of the production of all final goods and services adjusted for price changes.
C) the projected future value of GDP.
D) calculated by adding up only the real number of all items sold in the United States
regardless of their prices.
Lehman Brothers was forced to declare bankruptcy in September 2008, when:
A) Barack Obama was elected president.
B) it purchased Bear Stearns, another investment bank.
C) one of its short-term lenders, JPMorgan Chase, demanded $5 billion in cash as
collateral for loans it had made to Lehman.
D) the European Union abandoned the euro.
The law of demand is illustrated by a demand curve that is:
A) horizontal.
B) downward-sloping.
C) vertical.
D) upward-sloping.