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Improvements in information technology have:
A) shifted the demand for cash to the right.
B) decreased the demand for money.
C) not affected the demand for money.
D) increased the demand for money.
Which of the following would NOT be a part of GDP?
A) used car sales
B) new residential construction
C) a new truck purchased by a building contractor
D) cable TV service purchased for a home
Figure: Circular-Flow Model
Look at the figure Circular-Flow Model. What is GDP in this economy?
A) $100
B) $400
C) $500
D) $600
The measure that the Fed regards as the best guide to underlying inflation is the:
A) consumer price index.
B) wholesale price index.
C) core inflation rate.
D) federal funds rate.
Table: Per Capita GDP
Look at the table Per Capita GDP. If 2011 is the base year, real GDP in 2011 was:
A) $500.
B) $3,000.
C) $4,000.
D) $300,000.
The belief that expansionary monetary policy is NOT at all helpful to the economy in
fighting recessions is attributed to:
A) classical macroeconomics.
B) Keynesian macroeconomics.
C) monetarism.
D) Great Moderation consensus.
According to Keynesian economics, a tax cut will _____ aggregate demand and output
by _____.
A) increase; decreasing exports
B) decrease; decreasing incentives to work and save
C) increase; increasing income and consumption
D) increase; decreasing government spending
For most of U.S. modern economic history, when the unemployment rate is _____, real
GDP is _____.
A) falling; rising
B) falling; falling
C) rising; unchanged
D) rising; rising
Investment spending is undertaken when the rate of return is:
A) positive.
B) higher than the equilibrium interest rate.
C) equal to the equilibrium interest rate.
D) less than the equilibrium interest rate.
Monetary policy affects GDP and the price level by:
A) changing aggregate supply.
B) changing aggregate demand.
C) changing the aggregate amount of labor supplied.
D) changing exports.
The theory of rational expectations contends that policy activism is:
A) not warranted, because we don't know enough about the workings of the economy to
stabilize it.
B) not warranted; the public defeats discretionary policies because everyone expects
them and therefore their effectiveness is thwarted.
C) warranted, because discretionary policies have a strong effect on real output.
D) warranted, because expectations are rational only in the short run.
Figure: The Domestic Market for Digital Cameras
Look at the figure The Domestic Market for Digital Cameras. Assume that PAis the
autarky price and PWis the world price. Consumer surplus after international trade is
equal to the area:
A) A.
B) A + B.
C) A + B + D + E.
D) A + B + D + E " C.
If farmer Sam MacDonald can produce 200 pounds of cabbages and no potatoes or no
cabbages and 100 pounds of potatoes and if he faces a linear production possibility
frontier, the opportunity cost of producing an additional pound of potatoes is _____
pound(s) of cabbage.
A) 0.5
B) 2
C) 100
D) 200
A budget deficit necessarily indicates that fiscal policy is expansionary.
A) True
B) False
Government spending will NOT crowd out private spending if:
A) all of the resources in the economy are employed.
B) aggregate income is at its potential level.
C) there is an inflationary gap.
D) there is a recessionary gap.
If the market for corn is in equilibrium:
A) every buyer who wants to consume corn can acquire corn.
B) every producer who wants to sell corn can do so.
C) the price is set so that the quantity of corn produced is equal to the quantity of corn
consumed.
D) all producers of corn earn the same amount of income from the sale of corn.
The Great Moderation consensus is the school of thought that monetary policy should
be the main tool of stabilization policy and is skeptical about the use of fiscal policy.
A) True
B) False
Suppose that marginal propensity to consume is equal to 0.9 and the government
increases its spending by $200 billion. This increase in spending is financed by a $200
billion increase in taxes. As a result of this, GDP will:
A) not change at all.
B) decrease by $200 billion.
C) increase by $2,000 billion.
D) increase by $200 billion.
In the market for wheat, if the price of ethanol (which is made from corn, a substitute in
production) increased dramatically, the _____ wheat would _____.
A) supply of; increase
B) supply of; decrease
C) demand for; increase
D) demand for; decrease
Lower wages in China reflect _____ labor productivity in China than in the United
States. This means that if the United States moved high-tech industries to China, the
overall cost of production would be _____ in China than in the United States.
A) lower; higher
B) lower; lower
C) higher; higher
D) higher; lower
Crowding out is a phenomenon in which:
A) an increase in the government's budget surplus decreases overall investment
spending.
B) overproduction in the goods market leads to a sharp drop in the aggregate price
level.
C) an increase in the government's budget deficit reduces overall investment spending.
D) an increase in imports reduces overall domestic production.
Look at the table Production Possibilities Schedule II. The production of 14 units of
consumer goods and 1 unit of capital goods per period would result in:
A) full employment.
B) no unused resources.
C) some unused or inefficiently used resources.
D) an increase in economic growth.
When the price level increases, firms in imperfectly competitive markets will:
A) decrease output and increase the price.
B) decrease output and leave their price unchanged.
C) increase output and increase their price.
D) increase output and leave their price constant.
An increase in aggregate demand will generate _____ in real GDP and _____ in the
price level in the short run.
A) an increase; an increase
B) an increase; no change
C) a decrease; no change
D) no change; an increase
When you are using money to purchase a new MP3 player, money is serving as a:
A) store of value.
B) medium of exchange.
C) unit of account.
D) double coincidence of wants.
For an economist, the cost of something is:
A) the amount of money you paid for it.
B) what you gave up to get it.
C) always equal to its market value.
D) the quantity of resources used to produce it.
You have purchased a new mattress for $2,000, and the store has given you a "12
months, same as cash" deal. This means that you do not actually have to pay for the
mattress for another year. One year from now you will have to give the store the full
price of $2,000. If the annual interest rate is 10%, how much money do you need today
to ensure that you will have $2,000 one year from today?
A) $1,980
B) $1,818
C) $2,200
D) $20,000
The federal funds rate is the interest rate at which:
A) banks borrow funds directly from the Federal Reserve.
B) banks borrow from other banks with excess reserves.
C) the influential companies borrow from banks.
D) households' savings are invested in the Federal Reserve.
Between 2000 and 2013, the nominal GDP of Venezuela grew by 29% annually because
prices in Venezuela decreased rapidly during the period.
A) True
B) False
When the Fed decreases the discount rate, banks are likely to _____ their lending and
the money supply _____.
A) increase; increases
B) increase; decreases
C) decrease; increases
D) decrease; decreases
