The real exchange rate between the U.S. dollar and the Canadian dollar will remain
constant if an increase in the value of the U.S. dollar against the Canadian dollar is
offset by:
A) inflation in the United States.
B) inflation in Canada.
C) worldwide deflation.
D) inflation in the United States and in Canada.
The monetary policy rule suggests that:
A) we should follow the rules set by the Fed.
B) the Fed should follow the rules set by Congress.
C) the interest rate should grow at a slow and steady pace.
D) the money supply should grow at a slow and steady pace.
The Dow Jones Industrial Average is likely to respond more quickly to price changes
than the other indexes, so it is regarded as a warning sign of inflation.
A) True
B) False
An increase in supply is caused by:
A) an increase in input prices.
B) suppliers’ expectations of higher prices in the future.
C) an increase in the price of the good.
D) a decrease in the price of resources used in production.
An increase in the supply of money with no change in demand will lead to a(n) _____
in the equilibrium quantity of money and a _____ in the equilibrium interest rate.
A) increase; rise
B) increase; fall
C) decrease; rise
D) decrease; fall
Between 1921 and 1923 Germany underwent a period of hyperinflation.
A) True
B) False
The problem with the paper money issued by private banks in the nineteenth century
was that if the issuing bank failed, the money was worthless.
A) True
B) False
If a country’s current account is positive, its:
A) financial account is also positive.
B) balance of payments is positive.
C) financial account is negative.
D) balance of payments is negative.
A business will want a loan when:
A) interest rate < (return on project ” cost of project) / cost of project 100.
B) rate of return < interest rate.
C) rate of return ” interest rate < 0.
D) rate of return > (cost of project ” interest rate) / interest rate 100.
Figure: The Market for Loanable Funds III
Look at the figure The Market for Loanable Funds III. If the government in a closed
economy is running a budget balance of zero when it decides to increase defense
spending by $200 billion and then finances the spending by selling bonds, the
equilibrium interest rate will:
A) fall to 12%.
B) rise to 16.5%.
C) rise to 18%.
D) rise to 21%.
All of the following would result in an increase in the supply of a good EXCEPT:
A) a decrease in input prices.
B) a beneficial technological change.
C) an increase in the number of suppliers.
D) an increase in input prices.
The natural rate of unemployment:
A) is composed of frictional, structural, and cyclical unemployment.
B) is equal to zero.
C) is always greater than the actual unemployment rate.
D) is composed of structural and frictional unemployment.
Look at the table Population Data for Estill County. What is the labor force
participation rate?
A) 64%
B) 81%
C) 17%
D) 79%
Over the past few years, the technology associated with producing flat-panel televisions
has improved. This has led to a(n) _____ in the _____ flat-panel televisions.
A) increase; supply of
B) decrease; demand for
C) decrease; supply of
D) decrease; quantity supplied of
A high-school graduate who gets a college degree is adding to the economy’s stock of:
A) labor.
B) capital.
C) human capital.
D) financial capital.
The short-run alternation between economic downturns and recessions, then economic
upturns and expansions is known as the _____ cycle.
A) business
B) contractionary
C) expansionary
D) disequilibrium
The minimum wage is higher in the United States than in most Western European
countries.
A) True
B) False
Look at the table Production Possibilities Schedule I. The opportunity cost of producing
the third unit of consumer goods is _____ units of capital goods.
A) two
B) four
C) six
D) eight
A 30% increase in the aggregate price level will:
A) increase money demand by 30%.
B) increase money demand by the money multiplier.
C) decrease money demand by 30%.
D) not affect the demand for money.
Which of the following are sources of funds for investment spending?
I. domestic savings
II. foreign savings
III. consumption
A) I only
B) II only
C) I and II
D) I, II, and III
One parent picks up the child from day care while the other parent goes to the grocery
store and begins to make dinner. This is an example of the principle that:
A) markets move toward equilibrium.
B) government policies can change spending.
C) there are gains from trade.
D) markets usually lead to efficiency.
The World Trade Organization:
A) assists importers and exporters in conducting their trade.
B) works together with United Nations forces to enforce international decisions.
C) organizes the negotiations involved in trade agreements and resolves disputes among
members.
D) promotes trade by organizing educational conferences.
Scenario: A Country’s Consumption Function
A country is closed. It has no government sector, and its aggregate price levels and
interest rates are fixed. Furthermore, the marginal propensity to consume is constant
and the country’s consumption function is as follows: C= 200 + 0.75YD, where YDis
disposable income and Cis consumption. Assume that planned investment equals 75.
Look at the scenario A Country’s Consumption Function. When real GDP equals $900:
A) planned investment equals $900.
B) unplanned inventory investment is negative.
C) autonomous consumption equals $900.
D) the economy is in income”expenditure equilibrium.
A floating exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. reduces the uncertainty of international trade.
A) I only
B) II only
C) I and II
D) neither I nor II
If the economy is at potential output and the Fed decreases the money supply so that
actual output is less than potential output, eventually nominal wages will_____ and
short-run aggregate supply will _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
If you are paid $5,500 in one year on a $5,000 loan made today, then your annual
interest rate is:
A) 0.5%.
B) 10%.
C) 1%.
D) 5%.
Under fixed exchange rates, a devaluation:
A) decreases aggregate demand.
B) increases aggregate demand.
C) decreases aggregate supply.
D) increases aggregate supply.
In a single day, George can bake 10 cakes and Greta can bake 5 cakes. We know that
_____ has a(n) _____ advantage in baking cakes.
A) George; comparative
B) George; absolute
C) Greta; comparative
D) Greta; absolute
The inflation rate for the current year is the percentage change in the price level from
the previous year.
A) True
B) False
An increase in the prices of goods in the short run will:
A) increase producers’ profit per unit.
B) decrease producers’ profit per unit.
C) lead to a movement along the AD curve.
D) reduce output.
Look at the table Production Possibilities Schedule I. If the economy produces 4 units
of consumer goods per period, it also can produce at most _____ units of capital goods
per period.
A) 30
B) 28
C) 10
D) 18
Figure: Short- and Long-Run Equilibrium II
Look at the figure Short- and Long-Run Equilibrium II. If the economy is at
equilibrium at E1, it is in a(n):
A) recessionary gap.
B) inflationary gap.
C) high level of unemployment.
D) liquidity trap.