Which one of the following would count as investment in the GDP accounts?
a. Purchase of a new airplane by an airline.
b. Purchase of a U.S. government bond.
c. Purchase of 100 shares of Wal-Mart stock.
d. Purchase of an existing house.
When airplanes take off and land at Logan airport, residents of East Boston complain
about the noise. The same planes make the same noise during the trip to Boston from
Paris, but there are no ____ for most of the trip because ____.
a. jet sounds; noise doesn’t travel at high altitudes
b. third parties; there are no externalities
c. externalities; there are no third parties
d. complaints; airplanes are insulated
e. free riders; passengers must pay to board the plane
Exhibit 8-3 Disposable income and consumption data Disposable
income
Consumption
SavingMarginal propensity to consume (MPC)Marginal propensity to save (MPS)
0 $100
100 175
200 250
300 325
400 400
500 475
600 550 Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-3,
autonomous consumption is:
a. $75 billion.
b. $100 billion.
c. $175 billion.
d. $275 billion.
The major assets and liabilities of a bank are:
a. checkable deposits and total reserves, respectively.
b. checkable deposits and gold, respectively.
c. total reserves and checkable deposits, respectively.
d. total reserves and excess reserves, respectively.
e. checkable deposits and excess reserves, respectively.
Which of the following does not illustrate opportunity cost?
a. If I study, I must give up going to the football game.
b. If I buy a computer, I must do without a 35″ television.
c. More consumer spending now means more spending in the future.
d. If I spend more on clothes, I must spend less on food.
Exhibit 11-2 Aggregate demand and supply model
Suppose the economy in Exhibit 11-2
is in equilibrium at point E1 and the marginal propensity to consume (MPC) is 0.75.
Following Keynesian economics, the federal government can move the economy to full
employment at point E2 by:
a. decreasing government tax revenue by $100 billion.
b. decreasing government tax revenue by $750 billion.
c. increasing government tax revenue by $100 billion.
d. increasing government tax revenue by approximately $33 billion.
e. decreasing government tax revenue by approximately $33 billion.
One source of economic growth is:
a. producing inside the production possibilities curve.
b. producing outside the production possibilities curve.
c. increasing capital.
d. discouraging profit-seeking entrepreneurs.
The best definition of inflation is a(n):
a. temporary increase in prices.
b. increase in the price of one important commodity such as food.
c. persistent increase in the general level of prices as measured by a price index.
d. increase in the purchasing power of the dollar.
Goods whose benefits to society are not diminished as more people consume them and
whose benefits cannot be withheld from anyone are:
a. impossible since resources are limited.
b. examples of negative externalities.
c. public goods.
d. food and other necessities.
e. provided by free markets to free riders.
Which of the following is in charge of U.S. aid to foreign countries?
a. Agency for International Development (AID).
b. World Bank.
c. International Monetary Fund (IMF).
d. New International Economic Order (NIEO).
Exhibit 11-3 Aggregate demand and supply model
Suppose the economy in Exhibit 11-3
is in equilibrium at point E1, and the marginal propensity to consume (MPC) is 0.75.
Following Keynesian economics, to restore full employment, the government should
cut taxes by:
a. $0.20 trillion.
b. $1 trillion.
c. $0.5 trillion.
d. $0.25 trillion.
Exhibit 12-3 Income for two persons NameIncome
Meredith $124,000
Hillary $ 45,000 In Exhibit 12-3, if the income tax system is currently proportional, we
know that:
a. Meredith has a larger tax bill than Hillary, although they pay the same tax rate.
b. Meredith has a larger tax bill than Hillary and pays a higher tax rate.
c. Hillary has a larger tax bill than Meredith, although they pay the same tax rate.
d. Hillary has a larger tax bill than Meredith and pays a higher tax rate.
e. Meredith and Hillary’s tax bills are equal.
A production possibilities curve shows the:
a. dollar costs of producing two different goods.
b. amounts of labor and capital needed to produce one good.
c. various combinations of goods that can be produced.
d. prices of different goods that are produced in an economy.
e. inefficient use of available resources and technology.
In the aggregate expenditures model, if aggregate expenditures (AE) are less than GDP,
then:
a. inventory is depleted.
b. inventory is accumulated.
c. inventory is unchanged.
d. employment increases.
A nation should specialize in the production of the product for which it has a(n):
a. absolute advantage.
b. exchange rate.
c. specialization.
d. comparative advantage.
e. terms of trade.
Bank reserves will increase over time when:
a. the Fed sells government securities on the open market.
b. the Treasury sells government securities on the open market.
c. depositors take funds out of their checkable deposit accounts.
d. the Fed buys government securities on the open market.
e. the Fed lowers the discount rate.
Which of the following is a problem when comparing GDPs per capita between
nations?
a. GDP per capita fails to measure income distribution.
b. Fluctuations in exchange rates affect differences in GDP per capita.
c. GDP per capita is subject to greater measurement errors for LDCs compared to IACs.
d. All of these.
Assume we have a simplified banking system in balance-sheet equilibrium. Also
assume that all banks are subject to a uniform 10 percent reserve requirement and
checkable deposits are the only form of money. A commercial bank receiving a new
checkable deposit of $100 would be able to extend new loans in the amount of:
a. $10.
b. $90.
c. $100.
d. $1,000.
Supply-side economic policies are designed to shift the aggregate supply curve to the
right, whereas Keynesian economic policies focus on shifting the aggregate demand
curve to the right during recessions and to the left during an economic expansion.
The business cycle is the periodic but recurrent fluctuations in real GDP.
There is no difference between government expenditures or outlays and government
purchases or spending.
The term “public sector” refers only to federal government purchases of goods and
services.
Describe the major sources of tax revenue and expenditures for the federal government.