The Phillips curve represents the Fed’s short-run choices between inflation and
unemployment.
Market equilibrium occurs at that price for which
a. quantity supplied equals quantity demanded
b. cost equals the wages to labor
c. the surplus quantity drives increased demand
d. quantity supplied exceeds quantity demanded
e. quantity supplied is less than quantity demanded
The statement “The unemployment rate in the U.S. was 5 percent last month” is
a. a value judgment
b. an economic opinion
c. a normative statement
d. a positive statement
e. totally beyond anything that should be permitted by modern society
Everything else constant, who is least likely to lose from unexpected inflation?
a. A retired person whose pension payments are fixed in dollars
b. A person with a large amount of money deposited in a savings account
c. A bank scheduled to receive fixed nominal mortgage payments
d. A homeowner scheduled to make fixed nominal mortgage payments
e. A consumer who spends extra time shopping for the lowest prices
Which of the following is an implication of the classical model?
a. The supply of loanable funds curve is downward sloping.
b. The inflation rate is constantly rising.
c. Fiscal policy only changes the amount of consumption, investment and government
spending, not the amount of output produced.
d. Monetary policy can change both the interest rate and real output.
e. The interest rate can only be changed by monetary policy, not by changes in
government spending.
Refer to Figure 15-15. Suppose the economy is producing Y1 and a supply shock
moves the economy from AS1 to AS2. In the long run, we would expect
a. falling wages to shift aggregate supply back to AS1
b. rising wages to cause a further upward shift of the aggregate supply curve
c. the decrease in real GDP to shift the aggregate demand curve to the left
d. the increase in the price level to decrease aggregate demand
e. output to remain at the new equilibrium.
Suppose the current equilibrium real wage is $15 an hour. Which of the following is
true?
a. A real wage above $15 an hour would lead to an excess demand for labor
b. A real wage above $15 an hour would lead to an excess supply of labor
c. The real wage must fall to prevent unemployment
d. The real wage must rise to prevent unemployment
e. A real wage below $15 an hour would lead to an excess supply of labor
Supply and demand shocks are two different categories of
a. fiscal shocks.
b. monetary shocks.
c. tax shocks.
d. spending shocks.
e. commodity shocks.
Transfer payments are included in government budgets as spending, but are not
included in the government purchases category of GDP.
If the Fed wishes to increase the interest rate, it can do so by
a. selling bonds
b. buying bonds
c. increasing the money supply
d. setting a higher prime lending rate
e. encouraging the public to buy bonds
Assume you are lending money to a friend for a year and want to earn real interest of 5
percent on the loan. If you believe the inflation rate the next year will be 3 percent, you
should charge your friend a nominal interest rate of
a. 5 percent
b. 8 percent
c. 3 percent
d. 15 percent
e. whatever he will pay
Positive economics deals with
a. theories about improving people’s self-esteem
b. practical ways of improving people’s self-esteem by making money
c. opinions that affirm economists’ theories
d. statements about the way things ought to be
e. statements of fact
Assuming that households do not change their cash holdings and banks loan out all of
their excess reserves, if the required reserve ratio (RRR) is 10 percent and the Fed
purchases $2,000 worth of bonds from banks, how much money will be eventually
created?
a. $1,800
b. $2,000
c. $9,000
d. $18,000
e. $20,000
If the interest rate is below its equilibrium value, the price of
a. bonds will fall.
b. money will fall.
c. bonds will rise.
d. stocks will fall.
e. real estate will fall.