A firm uses financial leverage when it:
A) replaces labor with capital.
B) borrows money from a bank to enlarge a factory.
C) raises the price of a product when demand is inelastic.
D) gets a volume discount from a supplier.
If the marginal propensity to save is 0.25, investment spending is $700 million, and the
government increases its purchases of goods and services by $100 million, then real
GDP increases by:
A) $25 million.
B) $175 million.
C) $400 million.
D) $2,800 million.
For the most part, Keynesians believe that:
A) monetary policy is best at fighting recessions.
B) fiscal policy is best at fighting recessions.
C) a monetary rule is best for evening out the business cycle.
D) balancing the budget is the best policy for fighting a recession.
In the 1980s many economists believed that one problem in Latin America was a lack
of government intervention in markets and recommended that the government seize
ownership of many struggling companies.
A) True
B) False
Almost all major economies faced high unemployment and low growth following the
2008 financial crisis.
A) True
B) False
Included in M2 is (are):
A) currency in circulation only.
B) money market funds only.
C) traveler’s checks only.
D) currency in circulation, money market funds, and traveler’s checks.
You decide whether to eat one more slice of pizza based on how hungry you feel. This
statement best represents this economic concept:
A) Resources are scarce.
B) The real cost of something is what you must give up to get it.
C) “How much” is a decision at the margin.
D) There are gains from trade.
In June 2008 Zimbabwe had the world’s highest unemployment rate.
A) True
B) False
The natural rate of unemployment changes when:
A) the cyclical unemployment changes.
B) the actual rate of unemployment changes.
C) labor market institutions change.
D) government policies remain the same.
If output is growing at 5% annually, how many years will it take for output to
quadruple?
A) 14 years
B) 10 years
C) 20 years
D) 28 years
In the federal funds market, governments of different countries obtain long-term loans
from the governments of other countries.
A) True
B) False
Figure: Productivity
Look at the figure Productivity. An
improvement in technology with everything else remaining unchanged is shown on the
diagram as a movement from:
A) B to A.
B) A to B.
C) B to C.
D) A to C.
Which of the following countries was known as the Celtic Tiger during much of the
1990s and 2000s?
A) China
B) France
C) India
D) Ireland
If the executives of the U.S. silicon chip industry lobby Congress for protection from
imports on the grounds that the military should have an unrestricted domestic supply of
silicon chips, they are using the _____ argument.
A) infant industry
B) job creation
C) national security
D) model industry
Free trade between countries:
A) should be based on absolute advantage.
B) will allow wealthy countries to exploit less developed nations.
C) will shift the domestic production possibility frontier to the right.
D) will allow for greater levels of consumption than without trade.
If the input costs associated with supplying gasoline increases in Wisconsin, the supply
of gasoline in Wisconsin will decrease.
A) True
B) False
Scenario: Money Creation
The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and
deposits the money in his checking account. The bank does NOT want to hold excess
reserves.
Look at the scenario Money Creation. How much of the $1,000 deposit is the bank
required to keep in reserves?
A) $1,000
B) $100
C) $200
D) $800
The most important use of GDP is to measure of the size of the economy, which can be
used to compare economic performance over time or between countries.
A) True
B) False
Since 1964, the budget deficit _____ of GDP.
A) has never been more than 12%
B) has been as high as 50%
C) has usually been 0%
D) has usually been between 0% and “20%
Figure: The Effect of a Minimum Wage
Look at the figure The Effect of a Minimum Wage. Suppose the labor market is in
equilibrium at E when the government imposes a minimum wage of WF. The quantity
of labor supplied may_____,resulting in structural unemployment.
A) decrease to QD
B) stay at QE
C) increase to QS
D) stay at WE
Which of the following would result in a movement along the demand curve?
A) a change in preferences
B) an increase in the number of buyers
C) an increase in the number of suppliers
D) a decrease in income
Table: Unemployment and Employment Data
Look at the table Unemployment
and Employment Data. If marginally attached workers are included, the labor force in
this economy is:
A) 170 million.
B) 103 million.
C) 100 million.
D) 98 million.
The marginal propensity to saveplus the marginal propensity to consumemust equal:
A) zero.
B) one.
C) income.
D) savings.
Which of the following believes that fiscal policy should have the central role in
fighting recessions?
I. classical macroeconomics
II. Keynesian macroeconomics
III. monetarism
A) I only
B) II only
C) III only
D) I, II, and III
Consumer spending will likely rise if:
A) government transfers rise.
B) the government raises tax rates.
C) government transfers fall.
D) the government raises tax rates or government transfers fall.
The market equilibrium is found at the:
A) price where quantity demanded exceeds quantity supplied.
B) price where quantity demanded equals quantity supplied.
C) price where quantity supplied exceeds quantity demanded.
D) highest price the market will bear.
Scenario: Exchange Rates
The value of a euro goes from US$1.25 to US$1.50.
Look at the scenario Exchange Rates. The euro has:
A) depreciated.
B) appreciated.
C) been devalued.
D) not been affected for use in international trade.
A semiconductor firm is considering opening a new plant. The plant will generate
profits of $100 million at the end of each of three years after the first year of production
and then no profits after that. If the interest rate is 10%, what is the maximum cost (to
the nearest million) the firm is willing to pay now for the plant?
A) $300 million
B) $249 million
C) $273 million
D) $100 million
An economic model is a simplified version of reality that is used to analyze real-world
economic situations.
A) True
B) False
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
the volume of imports falls to:
A) Q2” Q1.
B) C1” C2.
C) C1” Q1.
D) C2” Q2.
A period of rising real GDP is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.
Government purchases of goods and services _____, while changes in taxes and
transfer payments _____.
A) are exercises of fiscal policy; are exercises of monetary policy
B) are exercises of monetary policy; are exercises of fiscal policy
C) influence aggregate demand directly; influence aggregate demand indirectly
D) influence aggregate demand indirectly; influence aggregate demand directly
An independent panel of economic experts at the _____ analyzes the macroeconomy
and determines when recessions begin and end.
A) Bureau of the Census
B) President’s Council of Economic Advisers
C) Treasury Department
D) National Bureau of Economic Research
U.S. Treasury bills held by the Fed are assets for the U.S. government.
A) True
B) False