If the currency to deposit ratio decreases and the monetary base is unchanged, the value
of the money multiplier will ________ and the value of the money supply will
________
A) decline; decline
B) decline; increase
C) increase; decline
D) increase; increase
Over the past 70 years in the United States, employment in service-producing industries
had increased significantly and employment in goods-producing industries has declined
significantly. Economists would refer to this process as
A) the classical dichotomy.
B) production parity.
C) demographic imbalance.
D) sectoral shifts.
All else equal, as the capital stock increases, the marginal product of capital will
A) increase at an increasing rate.
B) increase at a decreasing rate.
C) decrease at an increasing rate.
D) decrease at a decreasing rate.
Suppose Chevrolet produced 90,000 Camaros in the United States in 2012 and during
2012 sold 69,000 to U.S. customers and exported 14,000 to foreign buyers. How many
Camaros would the BEA count as investment spending by Chevrolet in 2012?
A) 7,000
B) 21,000
C) 76,000
D) 90,000
The Phillips curve will shift up with ________ or ________.
A) a positive supply shock; an increase in expected inflation
B) a positive supply shock; a decrease in expected inflation
C) a negative supply shock; an increase in expected inflation
D) a negative supply shock; a decrease in expected inflation
If you were building a macroeconomic model that explores the effect of the increase in
interest rates on the inflation rate in Great Britain, interest rates would be an ________
variable and the inflation rate would be an ________ variable.
A) endogenous; endogenous
B) endogenous; exogenous
C) exogenous; exogenous
D) exogenous; endogenous
Figure 8.3
Refer to Figure 8.3. Holding other variables constant, if the economy is originally in
equilibrium at the intersection of D2 and S2 and households increase their preference for
leisure over labor, the economy would move to the new equilibrium point represented
by
A) w1 and L2.
B) w3 and L2.
C) w2 and L2.
D) w2 and L1.
Figure 13.3
Panel (a) Panel (b)
Refer to Figure 13.3. If exchange rates are floating, fiscal policy designed to reduce the
federal deficit and the typical Fed response to the change in inflation caused by the
fiscal policy would best be represented by a movement from ________ in panel (a) and
a corresponding movement from ________ in panel (b).
A) point A to point D; point X to point Y
B) point C to point B; point X to point Y
C) point D to point A; point Y to point X
D) point B to point C; point Y to point X
The labor input in the production function can increase
A) only if the number of workers increases.
B) only if the efficiency of the existing workers improves.
C) if the number of workers increases and/or the efficiency of the existing workers
improves.
D) only if both the number of workers increases and the efficiency of the existing
workers improves.
From 2005-2008, the unemployment rate in the United States was significantly different
from the rates in France, Germany, and Italy. This is often attributed to the idea that the
rate of ________ unemployment in these European countries was ________ than it was
in the United States.
A) frictional; lower
B) structural; higher
C) cyclical; lower
D) seasonal; higher
The marginal product of capital is the ________ curve for capital and the marginal
product of labor is the ________ curve for labor.
A) demand; demand
B) demand; supply
C) supply; demand
D) supply; supply
Suppose the economy is in a recession and the government decides it needs to reduce
the budget deficit. Other things equal, this would tend to
A) increase the output gap and make the recession worse.
B) decrease the output gap and make the recession worse.
C) help to eliminate the recession, but at the cost of a much higher inflation rate.
D) keep output from declining further, but increase the real interest rate and the
inflation rate.
Figure 10.4
Refer to Figure 10.4. Suppose the economy’s equilibrium starts out with an output gap
of 1, and real GDP increases so the output gap increases to 2. If the Fed acts to keep
the short-term nominal interest rate at the target and the term structure effect, the
default-risk premium, and the expected inflation rate remain constant, then the
long-term nominal interest rate will
A) increase.
B) decrease.
C) remain constant.
D) be indeterminant, since the Fed has no control over long-term rates.
Suppose a Treasury bond will mature in 3 years. If the bond pays a coupon of $100 per
year and will make a final par value payment of $3,000 at maturity, what is its price if
the relevant market interest rate is 7%?
A) $2,448.89
B) $2,711.33
C) $3,247.57
D) $3,510.00
If individuals save less because inflation lowers returns on savings, this should
________ real interest rates and ________ investment expenditures.
A) raise; increase
B) raise; reduce
C) lower; increase
D) lower; reduce
All else equal, an increase in net exports accompanied by a decrease in expected future
profits would definitely result in
A) an increase in the equilibrium real interest rate.
B) a decrease in the equilibrium real interest rate.
C) an increase in the equilibrium level of saving and investment.
D) a decrease in the equilibrium level of saving and investment.
An economic expansion tends to cause the federal budget deficit to ________ because
tax revenues ________ and government spending on transfer payments ________.
A) increase; rise; falls
B) decrease; rise; falls
C) decrease; fall; rises
D) increase; fall; rises
Holding other factors constant, the implementation of a federal job retraining program
would likely
A) reduce cyclical unemployment and the natural rate of unemployment.
B) reduce structural unemployment and the natural rate of unemployment.
C) reduce frictional unemployment and the natural rate of unemployment.
D) increase the natural rate of unemployment.
The White House’s deficit commission has proposed several ways for the government
to reduce the federal budget deficit, including raising the retirement age for Social
Security. Other things equal, raising the retirement age for Social Security would tend
to ________ the supply of labor and ________ the equilibrium wage rate.
A) increase; raise
B) increase; lower
C) decrease; raise
D) decrease; lower
The sale of Treasury securities by the Federal Reserve will, in general,
A) not change the money supply.
B) not change the quantity of reserves held by banks.
C) decrease the quantity of reserves held by banks.
D) increase the quantity of reserves held by banks.
Other things equal, if planned investment spending is greater than actual investment
spending, then aggregate expenditure will be ________ real GDP and inventories will
________.
A) greater than; rise
B) greater than; fall
C) less than; rise
D) less than; fall
An increase in the unemployment rate which is accompanied by an increase in the
inflation rate is represented by a ________ the Phillips curve.
A) movement down
B) movement up
C) upward shift of
D) downward shift of
A financial asset is considered a security if
A) its value increases after it is sold in a primary market.
B) it guarantees to repay its owner a fixed amount of money at maturity.
C) it represents financial ownership in a corporation.
D) it can be sold in a secondary market.
Changes in all of the following will shift the demand curve for labor except
A) the real wage rate.
B) the quantity of capital.
C) the technology of production.
D) the skill level of workers.
What will the value of $18,000 be in 10 years if the current interest rate is 12%?
A) $5,795.52
B) $39,600.00
C) $40,579.20
D) $55,905.27
According to the permanent-income hypothesis, a transitory increase in a person’s
income will
A) increase consumption more than savings.
B) increase savings more than consumption.
C) be smoothed out to where the increases in consumption and savings are roughly
equal.
D) have the same effect on consumption as a permanent increase in income.
Suppose for every dollar change in household wealth, consumption expenditures
change by $0.05. If real household wealth declines by $45 billion, potential GDP is
$120 billion, and the multiplier effect for the third year after an expenditure shock is
0.7, what is the total change in output relative to potential for the third year?
A) -1.31%
B) -1.84%
C) -2.68%
D) -3.57%
If total private-sector employment increased from 15,000 in March to 15,750 in April,
then we know for sure that
A) the private sector created 750 jobs during that time frame.
B) the unemployment rate deceased during that time frame.
C) the change in private-sector employment was 750 during that time frame.
D) All of the above answers are correct interpretations of the information.
At full-employment GDP,
A) the long-run aggregate demand curve is horizontal.
B) the long-run aggregate demand curve is vertical.
C) the long-run aggregate supply curve is horizontal.
D) the long-run aggregate supply curve is vertical.
Under a fixed exchange rate system, a real interest rate corresponding to the
upward-sloping portion of the NCF curve reflects the fact that a central bank ________,
and the real interest rate corresponding to the horizontal portion of the NCF curve
reflects the fact that a central bank ________.
A) can always supply more domestic currency; can always meet the demand for foreign
currency
B) can always supply more domestic currency; is limited in meeting the demand for
foreign currency
C) is limited in meeting the demand for domestic currency; can always meet the
demand for foreign currency
D) is limited in meeting the demand for domestic currency; is limited in meeting the
demand for foreign currency
According to the permanent-income hypothesis,
A) the present value of lifetime consumption equals the present value of lifetime
income.
B) the income earned in a lifetime will be evenly divided between consumption and
saving.
C) household consumption depends on income that households expect to receive each
year, and financial markets are used to smooth consumption in response to changes in
transitory income.
D) households use financial markets to transfer funds from periods when income is high
to periods when income is low.
When nominal interest rates increase, the opportunity cost of holding money will
________, and the quantity of money demanded by households and firms will
________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
If the federal government tries to make fiscal policy sustainable by increasing taxes on
capital income, the after-tax return to capital goods will ________ and will result in
________ potential GDP.
A) increase; lower
B) decrease; higher
C) decrease; lower
D) increase; higher
Suppose consumer confidence declines and as a result, consumer spending decreases by
$4 billion dollars. Other things equal, if households spend $0.75 of each extra dollar of
income and save the remaining $0.25, by how much will spending decrease during the
third round through the circular flow?
A) $1 billion
B) $2.25 billion
C) $3 billion
D) $4 billion
Suppose a Big Mac costs $4.20 in the United States and 9.55 zlotys in Poland. If the
exchange rate is 2.77 zlotys per dollar, purchasing power parity predicts that
A) the dollar is undervalued.
B) the zloty is undervalued.
C) the zloty is overvalued.
D) both the dollar and the zloty are undervalued.