The economy is in a recessionary gap, wages are inflexible downward, and there is
complete crowding out. Which of the following is consistent with this state of affairs?
a. The economy will soon self-regulate and produce Natural Real GDP.
b. Expansionary fiscal policy will be effective at removing the economy from the
recessionary gap.
c. If expansionary fiscal policy is implemented, the AD curve will shift to the right, and
eventually the price level and Real GDP will rise.
d. b and c
e. none of the above
An increase in the interest rate __________ purchases of consumer __________.
a. increases; durables
b. increases; nondurables
c. reduces; durables
d. reduces; nondurables
Suppose that the Fed undertakes an open market sale, selling $1 million worth of
securities to a bank.If the required reserve ratio is 8%, checkable deposits (or the money
supply), would _______________ by ________________ million, assuming that there
are no cash leakages and that banks hold zero excess reserves.
a. rise; $12.5
b. decline; $8
c. decline; $12.5
d. rise; $8
Exhibit 3-10
$20 is the
a. equilibrium price.
b. market-clearing price.
c. price at which there is neither a surplus nor a shortage.
d. all of the above
An increase in short-run aggregate supply is
a. the result of an increase in the price level.
b. represented by a movement up along the SRAS curve.
c. represented by a rightward shift in the SRAS curve.
d. both a and b
e. both a and c
Assuming that the increase in the value of the dollar in the foreign exchange market has
a greater impact on aggregate demand than on aggregate supply, an increase in the
United States budget deficit will raise Real GDP
a. more in an open economy than in a closed economy.
b. more in a closed economy than in an open economy.
c. to the same level irrespective of whether it is a closed or an open economy.
d. none of the above (i.e. Real GDP will decrease)
Exhibit 39-2
Given a target price of P1, what price does the consumer pay?
a. P1.
b. P0.
c. P2.
d. a price not shown on the diagram.
Last year, Bentley bought a bond for $1,000 that promises to pay $115 a year. This year,
a person who buys a bond for $1,000 receives $125 a year. If Bentley were to sell his
(old) bond, its price would be approximately
a. $920.
b. $1,125.
c. $1,087.
d. $1,350.
Government always makes individuals better off when it removes them from a
prisoner’s dilemma setting.
a. True
b. False
In an economy with a population of 100 million persons, 50 million hold civilian jobs
and 20 million are not working but are looking for a job. The unemployment rate is
a. 28.6%.
b. 20%
c. 25%
d. 13.33%
e. There is not enough information to answer this question.
The Fed
a. clears checks.
b. holds depository institutions’ reserves.
c. is the government’s banker.
d. supplies Federal Reserve Notes.
e. all of the above
The first bankers were
a. sheriffs.
b. goldsmiths.
c. clergy.
d. innkeepers.
e. economists.