When the United States gives foreign aid to developing nations in Africa, the _____
account is affected.
A) current
B) financial
C) reserve
D) foreign exchange
In the liquidity preference model, the money supply is represented by:
A) a vertical line.
B) an upward-sloping curve with a slope of 1 / V.
C) a horizontal line.
D) a downward-sloping curve with a slope of 1 / k.
The reduction in a firm’s net worth from falling asset prices is called:
A) the balance sheet effect.
B) the income statement effect.
C) leverage.
D) securitization.
An inflationary gap can be closed with:
A) expansionary monetary policy.
B) a decrease in taxes.
C) a decrease in government purchases.
D) expansionary fiscal policy.
One role of government policy is:
A) to provide insurance to cover damages from macroeconomic fluctuations.
B) to attempt to manage short-run macroeconomic fluctuations.
C) to subsidize private insurance for businesses to cover harm from macroeconomic
fluctuations.
D) to avoid Keynesian economics.
An effective minimum wage can lead to:
A) frictional unemployment.
B) structural unemployment.
C) a decrease in wages.
D) a shortage of workers in that labor market.
Look at the table Production Possibilities Schedule II. The production of eight units of
consumer goods and two units of capital goods per period would result in:
A) full employment.
B) no unused resources.
C) some unused or inefficiently used resources.
D) increased economic growth.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. In panel (a), an expansionary
policy designed to move the economy from Y1 to Yp would attempt to shift the:
A) aggregate demand curve to the left by increasing aggregate demand.
B) aggregate demand curve to the right by increasing aggregate demand.
C) SRAS curve to the left.
D) LRAS curve to the left.
Look at the table Gadget GDP in Rayistan. Rayistan is a small nation that produces only
one good, the gadget. The table shows production and prices of gadgets for two
consecutive years, as well as the population of Rayistan.
a. Compute nominal GDP in 2010 and 2011.
b. Compute real GDP in 2010 and 2011.
c. Has Rayistan’s standard of living, as measured by real GDP per capita, increased,
decreased, or stayed the same?
Chile has a comparative advantage over the United States in copper. Which of the
following is a source of this comparative advantage?
A) mild temperatures
B) large deposits of copper ore
C) no opportunity cost associated with copper production
D) high tariffs on copper from other nations
Both the United States and Canada produce automobiles and their components;
however, each particular model or component is produced in only one of the two
countries. Which of the following explains this pattern of production and trade?
A) differences in climate
B) differences in factor endowments
C) differences in technology
D) the role of increasing returns
Sources of funds for investment spending include both foreign and domestic savings.
A) True
B) False
When the government injected capital into banks during the 2008 financial crisis, it was
buying bonds issued by the troubled banks.
A) True
B) False
The primary economic disadvantage of adopting the euro for Britain is:
A) the loss of the ability to conduct an independent monetary policy.
B) the loss of national pride.
C) a decrease in international trade and growth of GDP.
D) the risk of a higher rate of unemployment.
An economic policy maker would rank a _____ shock as the LEAST preferred type.
A) positive demand
B) negative demand
C) positive supply
D) negative supply
If the marginal propensity to consumeis 0.9, then the government spending multiplier
is:
A) 0.1.
B) 1.11.
C) 9.
D) 10.
Financial assets with the highest risk are:
A) stocks.
B) U.S. government bonds.
C) bonds.
D) bank deposits.
If the required reserve ratio is 10% and the Fed conducts an open market purchase of
$100, what is the maximum possible change in the money supply?
A) $100
B) $1,000
C) $10,000
D) $10
A worker classified as frictionally unemployed is one who is:
A) laid off during a recession.
B) discouraged and has dropped out of the labor force.
C) unemployed while looking for a job that demands his or her skills.
D) working part-time but would prefer to work full-time.
U.S. banks did not offer interest on checking accounts until the beginning of the 1980s.
As a result, before the early 1980s:
A) the opportunity costs of keeping funds in checking accounts was zero.
B) the opportunity costs of keeping funds in checking accounts was lower.
C) the opportunity costs of keeping funds in checking accounts was higher.
D) people kept money under their mattress.
Figure: The Money Supply and Aggregate Demand
Look at the figure The Money Supply and Aggregate Demand. If the economy is in an
inflationary gap, the Federal Reserve will _____ Treasury bills, which will _____ the
money supply and _____ interest rates. This is shown in panel _____.
A) buy; increase; lower; (a)
B) sell; decrease; raise; (b)
C) buy; decrease; raise; (b)
D) sell; increase; raise; (b)
Retained earnings are earnings that:
A) firms keep to pay taxes.
B) firms keep to pay dividends.
C) firms keep to finance investments.
D) firms do not pay taxes on.
The sum of frictional and structural unemployment is the:
A) actual unemployment level.
B) cyclical amount of unemployment.
C) natural rate of unemployment.
D) amount of unemployment in an economy during a recession.
If a company fails and declares bankruptcy, its physical and financial assets must be
used to pay its bondholders before the stockholders can be paid.
A) True
B) False
Economists generally agree that ____ are the best way for governments to reduce
greenhouse gases to address climate change.
A) military actions
B) market-based incentives
C) direct pollution controls
D) subsidies for offshore oil exploration
By acting as a lender of last resort, the central bank:
A) prevents a loss of confidence in banks and avoids bank runs.
B) keeps interest rates high so that spending increases.
C) increases the amount of reserves that a bank is required to hold.
D) may keep inflation low but will likely drive unemployment up.
Economists summarize a country’s transactions with other countries with a(n) _____
account.
A) circular flow
B) balance of payments
C) exchange rate
D) purchasing power parity
Which view of macroeconomics holds that a decrease in the money supply will reduce
inflationary pressure?
A) classical
B) Keynesian
C) monetarist
D) rational expectations
The natural rate hypothesis suggests there are limits to what macroeconomic policy can
achieve.
A) True
B) False
Which of the following is a function of the Federal Reserve System?
I. conducting fiscal policy
II. examining and supervising commercial banks in the Fed regions
III. evaluating corporate mergers
A) I only
B) II only
C) III only
D) I,II, and III
Explain how the output gap is related to the unemployment rate and the natural
unemployment rate.
Explain how fluctuations in asset prices contributed to the financial crisis of 2008.
Suppose the economy is in short-run equilibrium. Use the AD”AS model to predict
short-run changes to real GDP and the aggregate price level if the U.S. stock market has
a prolonged fall in value. Explain your reasoning.
Explain how shadow banks, which don’t take deposits, can have bank runs.
A nation’s real GDP increased from $250 billion to $265 billion in one year. In that
same year, the nation’s population increased from 125 million to 130 million. Calculate
the nation’s real GDP per capita growth rate.
Explain the difference between the consumer price index and the producer price index.
Which is likely to be the first to indicate inflation?
Suppose that real GDP is $1,300, potential GDP is $1,800, and the marginal propensity
to consume is 0.6. If the government is going to close the gap by changing government
purchases of goods and services and imposes no taxes, what specific fiscal policy action
should policy makers take?
What are the three tasks of a financial system? Explain how a mutual fund performs
these three tasks.
Some products, like tobacco, are taxed. Why would the government interfere in a
market that if left untaxed would probably move to equilibrium on its own?
In the following cases, explain what happens to demand or quantity demanded and how
the change would be shown on a graph of the demand schedule.
I. Assuming that tickets to an NFL game are normal goods, what is the effect of an
increase in the incomes of NFL fans?
II. Assuming that Direct TV and Dish satellite are substitutes, what happens if the price
of a Direct TV subscription increases?
III. Assuming that data plans and cell phones are complements, what happens if the
price of data plans decreases?
What is a bank run, how can it begin, and why is it dangerous for the greater economy?
If the economy is operating on its short-run aggregate supply curve at an output below
potential, what adjustment will occur?
Suppose you have estimated the consumption function as C= 250 + 0.90 YD. What is
the equation for the corresponding savings function?
Suppose that the U.S. adopts a fixed exchange rate regime, and the target rate is €1.50
per dollar. If the current rate is €1.25 per dollar, what can the U.S. do to reach the target
rate?
The economy is in an inflationary gap. What are the fiscal policy options available to
the government?
Explain the two main causes of banking crises.
A newspaper article documents the closing of a factory and the many jobs that are lost.
A separate article describes the rising U.S. unemployment rate. Why is the first article a
microeconomic issue and the second article a macroeconomic issue?
The market for loanable funds is in equilibrium. All else equal, the federal government
has eliminated taxes on interest earned from savings. Describe how this will affect the
market for loanable funds, the equilibrium interest rate, and the equilibrium quantity of
loanable funds.
Table: Disposable Income and Spending
Look at the table Disposable Income and Spending. Develop a linear equation of the
consumption function. Use this consumption function to forecast the amount of
consumption spending that would occur if disposable income were equal to $500.