Much of the housing boom in Ft. Myers was due to speculators who bought homes not
to live in themselves but to resell quickly at much higher prices.
A) True
B) False
Which of the following statements is TRUE?
A) The concept of equilibrium requires that all individuals have an equal amount of
income.
B) If a market is in equilibrium, the price in that market will not fluctuate by more than
5%.
C) If a market is in equilibrium, there will be no remaining opportunities for individuals
to make themselves better off.
D) A market is in equilibrium when the number of buyers is equal to the number of
sellers.
Table: Real and Nominal Output
Look at the table Real and Nominal
Output. The change in real output between years 3 and 4 is an increase of:
A) 40%.
B) 100%.
C) 140%.
D) 200%.
A family from New York City eats in a restaurant in Mexico City. In the accounting for
U.S. international transactions, this transaction would appear in the _____, and it would
be entered as a payment _____ foreigners.
A) current account; to
B) current account; from
C) financial account; to
D) financial account; from
Figure: Change in the Demand for U.S. Dollars
Look at the figure Change in the Demand for U.S. Dollars. The change from D1 to D2
will occur, all other things being equal, if the:
A) supply of euros decreases.
B) demand for euros increases.
C) demand for euros decreases.
D) demand for dollars increases.
During the Great Depression in the early 1930s:
A) bank deposits increased by 50% each year.
B) bank deposits decreased by 35%.
C) people refused to hold currency.
D) bank runs were not a problem.
GDP calculated via factor payments includes:
A) wages, interest payments, rent, and profits.
B) taxes, wages, interest payments, and rents.
C) rents, profits, value-added adjustments, and taxes.
D) consumption, investment, and government.
Figure: AD”ASModel and the Short-Run Phillips Curve
Look at the figure AD”AS Model and the Short-Run Phillips Curve. If the central bank
increases the money supply so that aggregate demand shifts from AD1 to AD2, then real
GDP will increase by:
A) zero.
B) 2%.
C) 4%.
D) 6%.
In a closed economy, all investment spending must come from:
A) government.
B) national savings.
C) foreign savings.
D) government, domestic savings, and foreign savings.
The national accounts keep track of everything EXCEPT:
A) the spending of consumers and the government.
B) the sales of producers.
C) business investment.
D) exchange rates.
If interest rates are high, people are willing to forgo consumption and save more, all
else equal.
A) True
B) False
In the classical model of the price level, there is NO distinction between the short run
and the long run.
A) True
B) False
Figure: Classical Model of the Price Level
Look at the figure Classical Model of the Price Level. If the central bank increases the
money supply such that aggregate demand shifts from AD1 to AD2, according to this
classical model, the price level will:
A) not change.
B) increase from P1 to P2.
C) increase from P1 to P3.
D) decrease from P1 to P2.
In the classical model, an increase in the money supply will result in:
A) inflation only, without affecting aggregate output.
B) economic expansion, as aggregate output will increase.
C) higher interest rates, lower investment, and ultimately lower aggregate output.
D) recession only, without affecting the aggregate price level.
Most of the interest on the Fed’s assets is:
A) used to maintain the buildings and grounds of the 12 regional banks.
B) used to purchase currency in the foreign exchange market.
C) returned to the U.S. taxpayers.
D) shared with banks that are members of the Federal Reserve System.
Congress sets the target federal funds rate, but it is the Fed’s responsibility to achieve
the target rate through purchases and sales of reserves.
A) True
B) False
Figure: Aggregate Expenditures Curve I
Look at the figure Aggregate Expenditures Curve I. The equilibrium level of real GDP
in the aggregate expenditures model shown in this figure is:
A) $800.
B) $1,000.
C) $1,600.
D) $3,200.
An amount that would equal a particular future value if deposited today at a specific
interest rate is the:
A) present value.
B) inflation rate.
C) discount premium.
D) market index.
If an economy is in short-run equilibrium such that the level of output is greater than
the potential output:
A) nominal wages will rise after some time.
B) the economy is in long-run equilibrium.
C) the short run AS curve will shift right over time.
D) unemployment is much higher than its natural rate.
The point on a business cycle when real GDP stops falling and begins rising is a(n):
A) peak.
B) expansion.
C) trough.
D) recession.
Planned investment spending is _____ related to the interest rate and _____.
A) positively; existing productive capacity
B) negatively; existing productive capacity
C) positively; expected GDP
D) negatively; expected GDP
Figure: Policy Alternatives
Look at the figure Policy Alternatives. The economy in panel (b) is initially in short-run
equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is:
A) an inflationary gap.
B) a recessionary gap.
C) no gap.
D) long-run equilibrium.
Consider the following transactions. How would they be entered in the U.S. balance of
payments accounts?
a. A U.S. citizen purchases a shirt produced in Mexico.
b. A bank in Mexico City purchases a U.S. Treasury bond.
c. A U.S. company buys an office building in Mexico City.
Which of the following will NOT cause an increase in the supply of cornflakes?
A) an increase in the price of cornflakes
B) a cost-saving improvement in the technology of corn production
C) a reduction in the price of corn
D) the expectation by producers that the price of cornflakes will fall in the future
Monetary and fiscal policy can be used to reduce the natural rate of unemployment.
A) True
B) False
Hyperinflation is often a result of a government trying to pay for its spending by using
the inflation tax.
A) True
B) False
Expecting the inflation rate to be 3%, Adrianna decides to put her savings in bonds
yielding a fixed 5% interest rate over a year. If the actual inflation rate is _____, it can
be argued that _____ is (are) better off.
A) below 3%; Adrianna
B) exactly 5%; both the bond issuer and Adrianna
C) above 3%; Adrianna
D) below 3%; the bond issuer
The labor force is the total:
A) number of people employed.
B) population.
C) number of people in the population of working age.
D) number of people who are employed or unemployed.
Figure: The Loanable Funds Model in the U.S. Market
Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest
rate is higher than 4% in the U.S. market, then the quantity supplied of loanable funds
will be _____ the quantity of loanable funds demanded.
A) greater than
B) less than
C) equal to
D) unrelated to
The short-run aggregate supply curve has a positive slope, showing that increases in the
price level will increase the quantity of aggregate output supplied by firms.
A) True
B) False
Figure: Short-Run Equilibrium
Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and
P1, the government should use _____ fiscal policy to shift the aggregate demand curve
to the _____.
A) expansionary; right
B) expansionary; left
C) contractionary; right
D) contractionary; left
Figure: Strawberries and Submarines II
Look at the figure Strawberries and Submarines II. Assume that the economy is
operating at point A. The opportunity cost of moving to point C is equal to _____
million tons of strawberries:
A) 800
B) 200
C) 2
D) 50
Look at the table Production Possibilities for the United States and Canada. Both
nations can produce cars and lumber. If these nations were to specialize and trade, the
United States would export 1 million cars to Canada in exchange for _____ million
board feet of lumber.
A) 2
B) 0.5
C) 8
D) 1
Figure: AD”ASModel II
Look at the figure AD”AS Model II. If commodity prices rise, the _____ curve will shift
to the _____.
A) SRAS; left
B) SRAS; right
C) AD; left
D) AD; right
Counted among the unemployed are underemployed people, who cannot find a job
working as many hours as they wish.
A) True
B) False