Macroeconomics studies the behavior of aggregates while microeconomics studies the
behavior of individual decision-making units.
Which of the following is the most liquid form of asset?
a. Small time deposits
b. Large time deposits
c. Savings accounts
d. Money market mutual fund (MMMF) balances
e. Travelers’ checks
If capital is not being used efficiently, an economy cannot be operating at a point along
its production possibilities frontier.
Which of the following is a cost of providing federal deposit insurance?
a. Banks have more incentive to monitor loans with the result that their profits have
declined and many have failed.
b. There are no significant costs to the insurance, only benefits.
c. Banks have less incentive to act responsibly with the result that they have made
riskier loans and some have failed.
d. The insurance makes it more difficult to regulate banks.
e. The insurance makes it more difficult for the fed to run open market operations.
Most nations do not push the rate of economic growth to the maximum because
a. it would be impossible to do so
b. they do not know how to do so
c. there is an opportunity cost associated with economic growth
d. maximum growth would create an inefficient economy
e. government budget deficits prevent them from doing so
One difficulty with any explanation of economic fluctuations based on a shift in labor
supply is that
a. workers’ preferences tend to change very quickly
b. labor supply shifts all the time without causing recessions or expansions
c. labor supply is difficult to measure
d. workers’ preferences tend to change very slowly
e. the unemployment rate changes during economic fluctuations
In the aggregate demand-aggregate supply model, an increase in the price level will
a. increase money demand, raise the interest rate, reduce aggregate expenditure, and
decrease equilibrium real GDP
b. decrease money demand, lower the interest rate, increase aggregate expenditure, and
increase real GDP
c. increase the money supply, lower the interest rate, increase aggregate expenditure,
and increase real GDP
d. decrease the money supply, raise the interest rate, reduce aggregate expenditure, and
decrease real GDP
e. not change money supply, money demand or the interest rate, but will shift the
aggregate demand curve to the right
Which of the following best defines an expansion?
a. Real GDP is below its potential level.
b. Real GDP is increasing.
c. Unemployment is unusually high.
d. Real GDP is decreasing.
e. Real GDP exceeds its potential level.
The existence of economic fluctuations makes it clear that
a. we should stimulate the economy with tax cuts
b. recessions are caused by shifts in labor supply
c. we should pass a balanced budget amendment to the U.S. Constitution
d. we need active monetary regulation
e. the classical model has a flaw
As the economy goes through an expansion,
a. fluctuations in GDP become more severe
b. unemployment finally stabilizes
c. investment stabilizes
d. the classical model becomes a better predictor
e. unemployment falls.
GDP can be used to measure both short-term changes (i.e., over several months) and
long-term changes in economic activity.
One of the main reasons that Malthus’ prediction of repeated wars and famines did not
come true is
a. the government’s intervention in the economy
b. the implementation of an income tax to raise money for governmental spending
c. increases in the supply of labor
d. continuing technological change
e. changes in planned investment spending
What is the difference between nominal and real GDP?
a. Nominal GDP is adjusted for changes in the price level; real GDP is not.
b. Real GDP is adjusted for taxes and transfer payments; nominal GDP is not.
c. Real GDP is adjusted for changes in the price level; nominal GDP is not.
d. Nominal GDP is adjusted for depreciation; real GDP is not.
e. Real GDP is adjusted for depreciation; nominal GDP is not.
If a firm bakes cookies and sells them for $1,000 while spending $100 on sugar, $150
on chocolate, $50 on other supplies, $300 on wages and $400 on rent, what is its value
added?
a. $300
b. $0
c. $700
d. $200
e. $400
The CPI is the price index used to calculate real GDP.
Under a market system of resource allocation
a. prices determine what consumers buy while the government determines what firms
produce
b. prices determine what firms produce while the government determines what
consumers buy
c. prices determine both what firms produce and what consumers buy
d. the government determines both what firms produce and what consumers buy
e. the government allocates resources while prices allocate goods and services
Many of the Fed’s actions were aimed squarely at stopping the downward spiral of
falling assets prices.
Economics is the study of
a. scarcity under conditions of democracy
b. choice within a system of free speech
c. financial markets
d. the role of government in a market system
e. choice under conditions of scarcity
Growth in employment can result
a. from an increase in labor supply only
b. from an increase in labor demand only
c. from changes in technology only
d. from an increase in either labor supply or labor demand
e. only when the wage rate falls
Suppose the population falls by 1 percent. For the standard of living to rise
a. nominal GDP can fall by as much as 1 percent
b. nominal GDP must grow by at least 1 percent
c. real GDP must grow by at least 1 percent
d. real GDP must fall by at least 1 percent
e. nominal GDP must fall by more than 1 percent