Exhibit 16A-1 Policy Alternatives
In Panel (a) of Exhibit 16A-1, the economy is initially in short-run equilibrium at real
GDP level Y1 and price level P2. Classical theory argues:
a. the federal government must shift AD1 to AD2 as shown in Panel (b).
b. the federal government must shift SRAS1 to SRAS2.
c. that SRAS1 will shift to SRAS2 without government intervention.
d. that AD will shift rightward without government intervention.
Suppose the prices of petroleum products, including gasoline and fuel oil, fell sharply.
Which of the following would most likely occur as the result of the lower prices of
petroleum products?
a. A reduction in the consumption of gasoline.
b. An increase in demand for solar heating systems.
c. An increase in demand for smaller, more efficient automobiles.
d. A reduction in the demand for home insulation products.
Matchthefollowingbusinessformswiththeircharacteristicsbelow.
a. Sole proprietorship
b. Partnership
c. Corporation
Must file articles of incorporation with the state
When new checkable deposits are created through loans,
a. the money supply contracts.
b. excess reserves are destroyed.
c. the money supply remains the same.
d. the money supply expands.
e. the required reserve ratio declines
Which of the following is the largest source of revenue for the federal government?
a. corporate income tax
b. payroll tax
c. personal income tax
d. user charges
Between 1998 and 2001, the federal budget was:
a. never in surplus.
b. in surplus about as often as it was in deficit.
c. in surplus.
d. never in deficit.
The minimum price for a good set by the government above the equilibrium price is
called a:
a. price ceiling.
b. price floor.
c. parity price ratio.
d. market-generated price.
e. deficiency price.
Assuming that generic brands are inferior goods, an increase in consumer income, other
things being equal, will cause a(n):
a. leftward shift in the demand curve for generic goods.
b. downward movement along the demand curve for generic goods.
c. rightward shift in the demand curve for generic goods.
d. upward movement along the demand curve for generic goods.
Specialization and trade allow an economy to expand its:
a. production possibilities.
b. consumption possibilities.
c. technological advantage.
d. absolute advantage.
Consumer surplus is the:
a. number of consumers who are excluded from a market because of scarcity.
b. amount of a good that consumers will buy at a price below the equilibrium price.
c. amount consumers are willing to pay for a good minus the amount the consumers
actually pay for it.
d. amount consumers are willing to pay for a good minus the cost of producing the
good.
Which of the following is true in a market economy?
a. Central planners determine answers to the basic economic questions.
b. Resources are used efficiently.
c. The distribution of wealth is equal.
d. Information for production and distribution decisions pass directly to buyers from the
government.
Each and every point along a production possibilities curve represents an efficient
output option for an economy.
The consumer price index (CPI) is a number that measures movements in the average
(general) level of prices.
The monetarists totally reject the importance of changes in the money stock as
determinants of changes in real GDP, the price level, and employment.
In a simplified banking system, the money multiplier falls as the required reserve ratio
rises.
If the economy is experiencing an inflationary gap, classical economists argue that the
Federal Reserve should lower interest rates.
Excessive government spending can cause demand-pull inflation.
In a command economy, resources are publicly owned by government and economic
activity is coordinated through a central government planning authority.
Describe the three basic tools used by the Fed to change the money supply. Which of
these tools is most relied on in practice? Least relied on? Why?
Structural unemployment refers to short periods of unemployment needed to match jobs
and job seekers.
An increase in a nation’s trade deficit occurs when that nation’s exports rise and/or its
imports fall.