Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
If goods A and Z are complements, an increase in the price of good Z will:
A) increase the demand for good A.
B) decrease the demand for good A.
C) decrease the demand for good Z.
D) decrease the demand for both good A and good Z.
If inflation increases from 2% to 5%, the money demand curve will:
A) remain constant.
B) remain constant, but the quantity of money demanded will decrease.
C) shift to the left.
D) shift to the right.
If policy makers want to decrease real GDP by $100 billion and the marginal propensity
to consume is 0.6, they should _____ transfer payments by _____ $40 billion.
A) increase; less than
B) increase; more than
C) decrease; less than
D) decrease; more than
Figure: Crowding Out
Look at the figure Crowding Out. The demand for loanable funds curve DLF1 will shift
to DLF2 when there is:
A) a decrease in the government budget deficit.
B) an increase in the government budget deficit.
C) an increase in private savings.
D) a decrease in private savings.
According to the rule of 70, a 10% annual increase in real GDP would lead to a
doubling of real GDP in seven years.
A) True
B) False
A country that is relatively labor-abundant and relatively land-scarce opens to
international trade. As a result, it finds that wages _____ and rents _____.
A) increase; decrease
B) decrease; decrease
C) decrease; increase
D) increase; increase
Following the banking crisis that began in 2007, the unemployment rate in Ireland,
which had been less than 5%, increased above 10%.
A) True
B) False
The natural rate hypothesis:
A) is now generally discredited.
B) implies sharp limits on what macroeconomic policy can achieve.
C) implies there is a long-run trade-off between inflation and unemployment.
D) implies that there is no liquidity trap.
The simplest circular-flow model shows the interaction between households and firms.
In this model:
A) only barter transactions take place.
B) households and firms interact in the market for goods and services, but firms are the
only participants in the factor markets.
C) firms supply goods and services to households, which in turn supply factors of
production to firms.
D) attention is focused on real flows of goods, services, and factors of production, but
money flows between households and firms are ignored for simplicity.
One of the shortcomings of fiscal policy is that:
A) it has significant time lags, which make it more effective.
B) it takes effect immediately, so it is the best policy to use in an economic crisis.
C) it affects aggregate demand indirectly through the interest rate.
D) it has time lags, so sometimes it may end up destabilizing the economy.
Scarcity in economics means that:
A) we do not have sufficient resources to produce all of the goods and services we
want.
B) the wants of people are limited.
C) there must be poor people in rich countries.
D) shortages exist in nearly all markets.
The models used in economics:
A) are always limited to variables that are directly related.
B) are essentially not reliable because they are not testable in the real world.
C) are of necessity unrealistic and not related to the real world.
D) emphasize basic relationships by abstracting from complexities in the everyday
world.
A natural disaster that destroys part of a country's infrastructure is a type of negative
_____ shock and therefore shifts the _____ curve to the _____.
A) demand; aggregate demand; right
B) supply; aggregate demand; left
C) supply; short-run aggregate supply; left
D) demand; long-run aggregate supply; left
In a particular labor market, the demand for labor is given by W = 20 " (1 / 100)L, and
the supply of labor is given by W = 4 + (1 / 100)L, where W is the wage rate and L is the
number of workers. The equilibrium wage is _____, and the equilibrium number of
workers is _____.
A) $10; 1,000
B) $12; 800
C) $8; 1,200
D) $20; 1,000
If the SRAS curve intersects the aggregate demand curve to the right of LRAS, the result
will be:
A) a recessionary gap.
B) an inflationary gap.
C) cyclical unemployment.
D) long-run equilibrium.
The theory of monetary neutrality implies that monetary policy is effective in the short
run but not in the long run.
A) True
B) False
The supply of euros is controlled by:
A) the Bank of England.
B) the U.S. Federal Reserve System.
C) the foreign exchange markets.
D) the European Central Bank.
Chain linking is the method of calculating changes in real GDP using averages between
an early base year and a late base year.
A) True
B) False
A share in the ownership of a company is a(n):
A) bond.
B) stock.
C) dividend.
D) IOU.
The initial impact of a sudden decrease in the growth rate of GDP will most likely be
a(n) _____ in _____ investment spending.
A) decrease; planned
B) decrease; unplanned
C) increase; planned
D) increase; unplanned
The money multiplier is equal to:
A) the ratio of the money supply to the monetary base.
B) the ratio of the monetary base to the money supply.
C) the money supply divided by the reserve ratio.
D) about 3.9 in the United States.
Fiscal policy that decreases aggregate demand is:
A) balanced.
B) supplemental.
C) contractionary.
D) expansionary.
If the economy is in a recessionary gap:
A) it will remain in a recession forever without any kind of government intervention.
B) nominal wages will fall and SRAS will shift to the right until the economy is at full
employment.
C) AD will shift to the right and prices of goods will rise until the economy goes back
to producing potential output.
D) nominal wages will rise, SRAS will shift to the left, and the economy will eventually
restore itself.
The European debt crisis in 2011 began with:
A) public debt problems in Great Britain.
B) public debt problems in Greece.
C) the collapse of the real estate market in Norway.
D) strikes by labor unions in Spain.
Figure: The Market for Melons in Russia
Look at the figure The Market for Melons in Russia. If Russia is trading based on
comparative advantage and the world price is D, then Russia has _____ in the
production of melons.
A) a comparative advantage
B) a comparative disadvantage
C) an absolute advantage
D) neither an absolute nor a comparative advantage
According to Keynesian theory:
A) the long-run and short-run aggregate supply curves are identical.
B) a decrease in aggregate demand leads to decreases in output and prices in the short
run.
C) a decrease in aggregate demand will decrease prices but not output in the short run.
D) the short run is relatively unimportant.
When a currency appreciates, the prices of its imports from other countries will:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. An increase in government
borrowing will shift the demand for loanable funds to the _____ and _____ the interest
rate.
A) left; increase
B) left; decrease
C) right; increase
D) right; decrease
As a result of a decrease in the value of the dollar in relation to other currencies, U.S.
imports decrease and exports increase. Consequently, there is a(n):
A) increase in short-run aggregate supply.
B) decrease in the quantity of aggregate output supplied in the short run.
C) increase in aggregate demand.
D) decrease in the quantity of aggregate output demanded.
It is impossible for economists to use computers to simulate how the economy works.
A) True
B) False
If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then
the natural rate of unemployment is:
A) 2%.
B) 5%.
C) 7%.
D) 9%.
Scenario: Real GDP
Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75
pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell
for $3.25 each and 80 pizzas that sell for $9 each.
Look at the scenario Real GDP. Using year 1 as the base year, the growth rate of real
GDP from year 1 to year 2 is:
A) 10%.
B) 7.8%.
C) 19.7%.
D) 8.8%.
A major input into vanilla ice cream is cream. An increase in the price of cream will
reduce the quantity of vanilla ice cream supplied, but it will not reduce the supply of
vanilla ice cream.
A) True
B) False
Figure: Consumption and Real GDP
Look at the figure Consumption and Real GDP. If real GDP is $12 trillion, consumption
is _____ trillion.
A) $5
B) $7
C) $9
D) $11
Which of the following fiscal policies would make a budget surplus smaller or a budget
deficit larger?
A) an increase in government purchases of goods and services
B) lower government transfers
C) higher taxes
D) lower interest rates
