Figure: AD”AS
Look at the figure AD”AS. Suppose that initially the economy is at long-run
equilibrium. If the government cuts taxes, _____ will shift to the _____.
A) SRAS; right
B) SRAS; left
C) AD1; right to AD2
D) AD1; left to AD3
If an economy is operating below its potential output level, holding everything else
constant, one would expect:
A) nominal wages to rise.
B) nominal wages to stay the same.
C) nominal wages to fall.
D) price levels to increase.
The short-run aggregate supply curve will shift to the:
A) right if commodity prices increase.
B) left if productivity increases.
C) left if nominal wages increase.
D) right if government spending increases.
Which of the following is NOT one of the reasons that the Japanese tend to keep large
amounts of cash?
A) Banks have invested heavily in credit card technology.
B) Japan has a low crime rate.
C) Interest rates in Japan have been below 1% since the 1990s.
D) Japan’s retail sector is dominated by mom-and-pop stores that don’t accept credit
cards.
If real GDP equals $700 billion and planned aggregate expenditures equal $400 billion:
A) consumption plus planned investment equals $300 billion.
B) actual investment equals “$300 billion.
C) actual investment plus savings equals $300 billion.
D) unplanned inventory accumulation equals $300 billion.
Robert McNamara developed the national income accounts in the early 1970s to
document spending on the Vietnam War.
A) True
B) False
The short-run Phillips curve represents the relationship between the unemployment rate
and the rate of change in:
A) the interest rate.
B) output.
C) wages only.
D) the aggregate price level.
If the interest rate rises:
A) planned investment spending rises.
B) more investment projects have a rate of return above that of the interest rate.
C) the opportunity cost of investment is greater.
D) excess capacity will increase.
If real GDP doubles in 35 years, its average annual growth rate is approximately:
A) 1%.
B) 2%.
C) 3%.
D) 4%.
During the Great Recession policy makers were not as worried as usual about the lags
associated with discretionary fiscal policy because:
A) the severity of the recession led Congress to pledge to pass a bipartisan spending
package immediately.
B) businesses had pledged to respond quickly to the lower interest rates.
C) the economy was likely to depressed for a long time, so the lags were not likely to be
as destabilizing as usual.
D) the financial sector of the economy was not affected by the recession and was ready
to make loans to consumers and businesses.
Figure: An Increase in Aggregate Demand
Look at the figure An Increase in Aggregate Demand. The short-run equilibrium at Y2
and P2:
A) exerts pressure for nominal wages to fall as workers seek to restore lost purchasing
power.
B) exerts pressure for prices to fall, since real GDP exceeds potential real GDP.
C) results in a recessionary gap.
D) results in an inflationary gap.
Which of the following countries switched from fixed to floating exchange rates?
I. Britain
II. Argentina
A) I only
B) II only
C) I and II
D) neither I nor II
Figure: AD”AS
Look at the figure AD”AS. Suppose the economy is producing the output level Yp and a
negative demand shock shifts the AD1 curve to AD3. The economy now has a(n) _____
gap, which can be closed by _____ fiscal policy.
A) inflationary; expansionary
B) recessionary; contractionary
C) recessionary; expansionary
D) inflationary; contractionary
If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to
reach the target rate, the government should sell that currency and buy foreign
currencies.
A) True
B) False
Maturity transformation is converting _____ liabilities into _____ assets.
A) short-term; long-term
B) short-term; short-term
C) long-term; long-term
D) long-term; short-term
Table: Real and Nominal Output
Look at the table Real and Nominal Output. In which year is all of the increase in
nominal output due to an increase in real output?
A) 2
B) 3
C) 5
D) 6
To encourage people to retire later, because people usually exploit opportunities to
make themselves better off, the government could:
A) reduce Social Security benefits.
B) raise the tax rate on older individuals.
C) engage in a public service campaign explaining the value of these employees to the
economy.
D) increase Social Security benefits.
Private saving by households is:
A) the portion of disposable income not spent on goods and services.
B) the portion of income coming from transfer payments.
C) often larger than consumption spending.
D) not related to consumption spending.
Table: Measuring GDP
Look at the table Measuring GDP. Exports are:
A) “$5 billion.
B) zero.
C) $5 billion.
D) $10 billion.
If the U.S. dollar depreciates relative to currencies in other countries, then U.S. imports
will _____ and exports will _____.
A) increase; increase
B) decrease; decrease
C) decrease; increase
D) increase; decrease
Money used to buy groceries is a:
A) medium of exchange.
B) reserve of wealth.
C) unit of account.
D) store of value.
Figure: The Market for Tea in Sri Lanka
Look at the figure The Market for Tea in Sri Lanka. In autarky, the price is P1. When
the economy is opened to trade, the price rises to PW, and producer surplus _____ to
_____.
A) falls; J+ K
B) falls; G+ H+ J+ K
C) rises; G+ H+ I+ J+ K
D) rises; G+ H+ I
Consider the simple economy of Behr, whose government does not tax its citizens. The
consumption function of Behr is given by C= 500 + 0.80Y, where Yis income. The
autonomous consumer spending in this economy is:
A) 1,000.
B) 800.
C) 500.
D) not possible to calculate.
If real GDP in country A is $500 billion one year and is $540 billion the following year,
this means the growth rate for this country between the two years is:
A) 4%.
B) 8%.
C) 0.8%.
D) 10%.
Which of the following assets is the MOST liquid?
A) checkable bank deposits
B) currency
C) stocks
D) money market mutual funds
Figure: The Market for Melons in Russia II
Look at the figure The Market for Melons in Russia II. Suppose producers lobby
effectively for the imposition of a tariff that raises the world price from $10 to $15.
Tariff revenue to the government will equal:
A) $150.
B) $200.
C) 75.
D) $5.
Floating exchange rates help insulate countries from recessions in other countries.
A) True
B) False
Nara has gone to three movies this week. She has some extra money, so she decides to
go to another. 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.
With inflation:
A) overall prices are increasing, although some may be decreasing.
B) all prices must be increasing.
C) the economy must be contracting.
D) the economy must be producing at full employment.
One advantage of inflation targeting over the Taylor rule is that with inflation targeting,
because the public knows the target in advance, uncertainty is reduced.
A) True
B) False
Which of the following is part of M1?
A) short-term certificates of deposit
B) shares of corporate stock
C) currency in a bank’s vault
D) checkable bank deposits