Which of the following was a proponent of supply-side economics?
A) Herbert Hoover
B) Franklin Roosevelt
C) Jimmy Carter
D) Ronald Reagan
Diversification in investment is achieved when:
A) the government invests in several projects of different lengths to increase total
output.
B) a business produces multiple unrelated products so that the firm can maximize
profit.
C) an economy trades with multiple trading partners for maximum benefit.
D) an individual invests in several assets with independent or unrelated risks so that
total risk from loss is reduced.
Following the panic of 1893 in the United States and the Swedish banking crisis in
1991, the two countries had rapid growth of real GDP and low unemployment rates.
A) True
B) False
Table: The Consumer Price Index
Look at the table The Consumer Price Index. The approximate rate of inflation in year 3
is:
A) 5%.
B) 10%.
C) 19%.
D) 20%.
In Japan during the 1990s _____ policies were put into effect to _____.
A) contractionary tax; counter inflation
B) contractionary spending; counter inflation
C) expansionary tax; counter inflation
D) expansionary spending; prop up aggregate demand
If planned aggregate spending rises by $25 billion and the marginal propensity to
consumeis 0.8, then equilibrium real GDP changes by:
A) $25 billion.
B) $125 billion.
C) $200 billion.
D) $250 billion.
Table: Pizza Economy III
Look at the table Pizza Economy III. Using 2010 as the base year, nominal GDP in
2010 was:
A) $47,000.
B) $69,000.
C) $72,000.
D) $114,000.
Households buy goods and services in the _____ markets.
A) factor
B) product
C) resource
D) financial
Look at the table The Demand for Chocolate-Covered Peanuts. If the price of
chocolate-covered peanuts is $0.60, the quantity demanded by George is _____ bags
per month.
A) 10
B) 15
C) 25
D) 30
As the balance of payments in the financial account_____, the balance of payments on
current account increases and the U.S. dollar _____.
A) increases; depreciates
B) decreases; depreciates
C) increases; appreciates
D) decreases; appreciates
If the government increases its spending when the economy is expanding, automatic
stabilizers _____ the government spending multiplier.
A) may or may not affect
B) will increase
C) will not affect
D) will decrease
In the long run, an increase in saving will generally:
A) reduce the rate of economic growth.
B) leave the rate of economic growth unchanged.
C) increase the rate of economic growth.
D) increase consumption simultaneously.
Look at the table Kenya’s Economy in 2010. Aggregate output per capita at the end of
2010, assuming no changes in the price level, was:
A) $7,000.
B) $7,005.
C) $795.
D) $7,490.
Table: Investment Projects
Look at the table Investment Projects. If the market interest rate is 11%, the last project
undertaken is:
A) G.
B) H.
C) I.
D) J.
Fiscal policy can be used to reduce the severity of recessions.
A) True
B) False
Scenario: A Country’s Consumption Function
A country is closed. It has no government sector, and its aggregate price levels and
interest rates are fixed. Furthermore, the marginal propensity to consume is constant
and the country’s consumption function is as follows: C= 200 + 0.75YD, where YDis
disposable income and Cis consumption. Assume that planned investment equals 75.
Look at the scenario A Country’s Consumption Function. Holding everything else
constant, what will happen if aggregate wealth decreases by $100?
A) The aggregate expenditures curve will shift downward.
B) The income”expenditure equilibrium real GDP will increase by more than $100.
C) There will be no multiplier effect on real GDP, since there is a drop in aggregate
wealth.
D) Planned investment will increase.
Figure: A Tariff on Oranges in South Africa
Look at the figure A Tariff on Oranges in South Africa. When the government imposes a
tariff on imported oranges, the price of oranges in South Africa rises from PWto PTand
there’s a net _____ to total surplus of _____.
A) addition; I+ J +K+L
B) addition; I+ J+ K
C) reduction; I+ K
D) reduction; I+ J+ K+ L
When real GDP is above potential GDP, the Fed uses contractionary monetary policy.
A) True
B) False
Sub-Saharan Africa is so poor mainly because:
A) settlers from Europe own all of the land.
B) the diamond merchants took all of the money away to other countries.
C) of political instability and civil wars.
D) all of the bright people move to other countries.
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 investment 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
Figure: The Production Possibilities for Two Countries
Look at the figure The Production Possibilities for Two Countries. If Indonesia and
Malaysia specialize completely in the production of the good of their comparative
advantage, the two nations together will produce _____ tires and _____ radios.
A) 600; 800
B) 800; 1,200
C) 1,200; 1,600
D) 800; 600
Scenario: Employment in Xenia
Xenia has 10,000 people. Of this population, 1,000 residents are below age 16, and
2,000 have given up looking for work. Currently, 500 people are unemployed but are
actively looking for work; 2,500 work part-time, and the rest are fully employed.
Look at the scenario Employment in Xenia. What is the unemployment rate?
A) 7.14%
B) 4.25%
C) 11.11%
D) 2%
Decreasing funding for space exploration will shift the _____ curve to the _____.
A) short-run aggregate supply; left
B) short-run aggregate supply; right
C) aggregate demand; left
D) aggregate demand; right
_____ answers NO to all five key questions about whether macroeconomic policy,
either monetary or fiscal, can help fight recession, reduce unemployment, or should be
used in a discretionary way.
A) Classical macroeconomics
B) Keynesian economics
C) Rational expectations theory
D) Monetarism
Last month Brent lost his job at the auto parts factory because the factory relocated to
Asia. Brent has been looking for similar jobs in his town but has found no openings.
Brent is best classified as:
A) structurally unemployed.
B) frictionally unemployed.
C) a discouraged worker.
D) out of the labor force.
When the interest rate in the U.S. increases as a result of contractionary monetary
policy, investment spending _____ and consumption _____ .
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Figure: The Market for Tea in Sri Lanka
Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P1. When
the economy is opened to trade, the price rises to PWand consumer surplus _____ to
_____.
A) falls; F
B) falls; F+ G
C) rises; F+ G+ H+ I
D) rises; G+ H+ I
Figure: Fiscal Policy I
Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E1. If
there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the
price level and a(n) _____ in real GDP.
A) AD2; left; increase; decrease
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; right; decrease; increase
When markets don’t achieve efficiency:
A) they must achieve equity.
B) government must be participating in the market.
C) government may intervene to improve society’s welfare.
D) they should be closed.
In which of the following areas does the United States significantly limit imports?
A) computers
B) aircraft
C) agriculture
D) oil
Since fiscal policy can be manipulated by partisan political interests:
A) the political business cycle may drive the economic business cycle.
B) we may see lower interest rates before elections and higher interest rates after
elections.
C) the economic business cycle may lead the political business cycle.
D) we may see lower inflation and higher unemployment before elections.
A bank offers two compensation plans to its tellers. Plan A provides an hourly wage of
$12. Plan B offers $10 per hour plus additional compensation if customers sign up for a
related bank product. If a teller chooses plan B, most likely this person would:
A) be more helpful to customers than if he or she chose plan A.
B) not be thinking wisely in choosing this plan.
C) be less helpful to customers than if he or she chose plan A.
D) not alter his or her behavior.
The marginal propensity to consume equals:
A) consumption divided by disposable income.
B) a change in consumption divided by a change in disposable income.
C) income divided by consumption.
D) a change in income divided by a change in consumption.
Look at the table Bongos and Frisbees. Bill and Mickey make bongos and Frisbees.
Who has the comparative advantage in producing Frisbees?
A) Bill
B) Mickey
C) both
D) neither