When a market begins to engage in international trade:
A) producers in the exporting industry may be better off.
B) consumers of the imported good may be worse off.
C) consumers of the exported good may be better off.
D) producers in the importing industry are better off.
Keynesian economists didn’t oppose monetary policy, but they felt that it was
ineffective in fighting a recession.
A) True
B) False
The basis of the circular-flow diagram is that the money flowing into each sector or
market is greater than the money that flows out.
A) True
B) False
All of the following affect consumer spending EXCEPT:
A) current disposable income.
B) wealth.
C) past disposable income.
D) expected disposable income.
A $70 million decrease in investment spending will cause real GDP to:
A) decrease by $70 million.
B) increase by $70 million.
C) decrease by less than $70 million.
D) decrease by more than $70 million.
Figure: Production Possibility Frontier Curve for Tealand
Look at the figure Production Possibility Frontier for Tealand. If Tealand is producing
10 million scones and 10 million cups of tea (point A), we know that the economy:
A) is using its resources efficiently.
B) is using its resources inefficiently.
C) is fully employing its resources.
D) has found new resources.
Given a recessionary 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
The recommendation to use monetary policy to stabilize the economy and use fiscal
policy only when monetary policy is ineffective is consistent with _____
macroeconomics.
A) classical
B) Keynesian
C) monetarist
D) Great Moderation consensus
Suppose a U.S. dollar initially trades for €1.20. After a few months, the U.S. dollar
trades for €1.40. This means:
A) the dollar has depreciated.
B) the dollar has appreciated.
C) it now costs more U.S. dollars to buy euro-denominated goods.
D) one can expect to see less euro goods bought by U.S. citizens.
Figure: Short-Run Determination of the Interest Rate
Look at the figure Short-Run Determination of the Interest Rate. If the money supply is
at MS1and the Fed conducts expansionary monetary policy, in the short run the interest
rate drops to r2. In the long run prices will _____ the demand for money.
A) decrease, decreasing
B) decrease, increasing
C) increase, decreasing
D) increase, increasing
Shoe-leather costs are the costs of:
A) the raw material used in production.
B) the increased number of transactions as inflation increases.
C) living adjustments as inflation increases.
D) the raw material used in production, the increased number of transactions as
inflation increases, and living adjustments as inflation increases.
Setting government spending and taxes in an effort to change overall spending in an
economy is use of:
A) fiscal policy.
B) monetary policy.
C) investment.
D) the stock market.
China, which is labor-abundant, has a comparative advantage in clothing production,
which is labor-intensive. Which of the following models explains this pattern of
comparative advantage?
A) the Ricardian model
B) a model of increasing returns
C) the Heckscher”Ohlin model
D) a model of autarky
Private savings equals:
A) income after taxes minus consumption.
B) taxes minus government spending on goods and services.
C) the total amount of savings accounts plus stocks plus bonds owned by households.
D) income plus investment.
Which of the following principles underlies the interaction of individual choices?
A) Resources are scarce.
B) There are gains from trade.
C) Marginal analysis is used for “how much” decisions.
D) People usually exploit opportunities to make themselves better off.
The fact that a society’s production possibility frontier is bowed out, or concave to the
origin of a graph, demonstrates the law of _____ opportunity cost.
A) increasing
B) decreasing
C) constant
D) concave
In the short run, a lower unemployment rate may be achieved at the cost of a higher
inflation rate.
A) True
B) False
The higher the production capacity of the economy:
A) the higher is planned investment spending.
B) the lower is planned investment spending.
C) the higher is actual production.
D) the lower is current production.
Unanticipated inflation:
A) helps those on fixed incomes.
B) hurts borrowers and helps lenders.
C) helps borrowers and hurts lenders.
D) causes interest rates to decrease.
The labor force is considered to be:
A) everyone who is employed.
B) everyone who is employed plus everyone who is unemployed.
C) the population of the nation.
D) those not frictionally unemployed plus all others employed.
Quantitative easing occurs when instead of purchasing only short-term government
debt, the Fed buys long-term government debt as well.
A) True
B) False
Before the financial crisis in 2008 shadow banks:
A) were outside of the lender-of-last-resort system.
B) offered checkable deposits to their customers.
C) were not allowed to operate across state lines.
D) were required to hold more capital than depository banks.
If Congress passed a law last year that will increase corporate taxes this year, holding
other things constant, stock prices will _____ this year.
A) increase
B) decrease
C) not change
D) It is impossible to say how stock prices will change.
If the Federal Reserve sets the federal funds rate on the basis of inflation and the output
gap, then the Federal Reserve is following:
A) inflation targeting.
B) the Taylor rule.
C) money illusion.
D) the quantity theory.
Look at the table Competitive Market for Good Z. The equilibrium price and quantity in
this market are, respectively:
A) $5 and 40 units.
B) $20 and 60 units.
C) $10 and 30 units.
D) $15 and 20 units.
The market price of airline flights increased recently. Some economists suggest that the
price increased because of an increase in the number of business travelers. They believe
that in the market for flights:
A) supply increased.
B) supply decreased.
C) demand increased.
D) demand decreased.
When the nations that constitute the Organization of Petroleum Exporting Countries
(OPEC) restrict the supply of oil to increase their profits, the oil market:
A) achieves an efficient outcome because profits increase.
B) achieves an equitable outcome because the nations with oil resources receive the
profits commensurate with that resource.
C) fails because there is no longer an efficient allocation of resources.
D) fails because there is no longer an equitable allocation of resources.
Suppose banks are issuing personal loans at 9%. If expected inflation is 3%, then the
nominal interest rate is _____ and the real interest rate is _____.
A) 6%; 9%
B) 9%; 6%
C) 9%; 3%
D) 6%; 12%
Scenario: Gizmovia
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 $0.40.
Look at the scenario Gizmovia. If Gizmovia uses foreign exchange controls, it should
require licenses to _____ gizmos and _____ dollars.
A) buy; buy
B) buy; sell
C) sell; sell
D) sell; buy
A statement that the minimum wage should be increased is a:
A) positive statement.
B) normative statement.
C) ceteris paribus assumption.
D) scientific conclusion based on marginal analysis.
When faced with a recessionary gap, the government can increase taxes and cut
spending to close it.
A) True
B) False
Medieval goldsmiths were strongly opposed to lending out their customers’ gold and
silver.
A) True
B) False