When the U.S. government issues Treasury bills, its sells them directly to the Federal
Reserve.
A) True
B) False
If the slope of the aggregate expenditures curve is 0.8, the multiplier is:
A) 1.
B) 4.
C) 5.
D) infinity.
Which of the following is an example of cyclical unemployment?
A) An autoworker is laid off because a recession has caused a decline in sales.
B) A geologist is permanently laid off from an oil company because of a technological
advance.
C) A worker at a fast-food restaurant quits work and attends college.
D) A real estate agent leaves a job in Texas and searches for a similar higher-paying job
in California.
Diminishing returns to physical capital implies that when the human capital per worker
and the state of technology remain fixed, each successive increase in physical capital
leads to _____ productivity.
A) a smaller increase in
B) a larger increase in
C) a decrease in
D) negative
The period of relative calm in the economy between 1985 and 2007 is called the:
A) Great Depression
B) Great Moderation.
C) Great Recession.
D) Great Modernization.
The inflation tax is the effect on the public of:
A) the higher tax paid by individuals whose incomes are indexed to inflation.
B) the sales taxes paid during periods of inflation.
C) the reduction in the value of money caused by inflation.
D) the higher prices consumers pay due to inflation.
Usually there is an inverse relationship between the federal funds rate and the output
gap.
A) True
B) False
Figure: Aggregate Demand
Look at the figure Aggregate Demand. The quantity of output demanded if the price
level is 120 is:
A) $9 trillion.
B) $10 trillion.
C) $11 trillion.
D) $12 trillion.
Scenario: Linear Production Possibility Frontier
Largetown has a linear production possibility frontier, and it produces socks and shirts
with 80 hours of labor. The table shows the number of hours of labor necessary to
produce one pair of socks or one shirt.
Look at the scenario Linear Production Possibility Frontier. Largetown CANNOT
produce _____ shirts and _____ pairs of socks.
A) 20; 0
B) 40; 40
C) 0; 40
D) 10; 20
Figure: Circular-Flow Model
Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium
(the sum of money flowing into each box is equal to the sum of the money flowing out
of it) and there is an increase in consumer spending, which of the following is likely to
happen?
A) an increase in the nominal GDP
B) a decrease in the nominal GDP
C) an increase in the unemployment rate
D) a decrease in the inflation rate
If the public holds $300 billion in monetary purchasing power and the inflation rate is
5%, then the inflation tax that year is:
A) $5 billion.
B) $15 billion.
C) $60 billion.
D) $1,500 billion.
Monetary policy is often ineffective in a banking crisis because businesses and
consumers:
A) respond to low interest rates by borrowing and spending so much that inflation
results.
B) borrow large amounts because interest rates are so low, but they are unwilling to
spend the money that they have borrowed.
C) aren’t willing to borrow and spend even though interest rates are very low.
D) aren’t willing to borrow and spend because interest rates are so high.
One of the first forms of paper money emerged when:
A) the Federal Reserve was formed in the early 1900s.
B) the government of Rome printed money to pay Roman soldiers.
C) customers who had deposited gold and silver with medieval goldsmiths began to use
their receipts to pay for purchases.
D) Europe adopted the euro.
If an economy produces the desired mix of goods from its available resources, then this
mix of goods is:
A) allocatively efficient.
B) both productively and allocatively efficient.
C) productively efficient.
D) neither productively nor allocatively efficient.
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. Other things being equal, if there
is a decrease in the interest rate below 8%, _____ quantity of loanable funds will be
demanded.
A) the same
B) a larger
C) a smaller
D) at first a smaller and then a larger
Since 1982, the Federal Reserve has:
A) pursued a passive monetary policy.
B) pursued a discretionary monetary policy, which has led to large swings in the money
supply.
C) pursued a discretionary monetary policy, which has stabilized interest rates.
D) abandoned interest rate targeting.
The primary difference between a change in supply and a change in the quantity
supplied is that:
A) a change in quantity supplied is a movement along the supply curve, while a change
in supply is a shift in the supply curve.
B) both a change in quantity supplied and a change in supply are movements along the
supply curve, only in different directions.
C) a change in supply is related to the supply curve, while a change in quantity supplied
is related to shifts in the demand curve that elicit a change in supply.
D) a change in supply is a movement along the supply curve, while a change in quantity
supplied is a shift in the supply curve.
Figure: Expanded Circular-Flow Model
Look at the figure Expanded Circular-Flow Model. Which of the following is a type of
market?
A) household
B) rest of the world
C) government
D) financial
We hold money to:
A) earn interest.
B) reduce transaction costs.
C) increase transaction costs
D) protect our purchasing power.
Keynes emphasized short-run effects of aggregate demand on aggregate output.
A) True
B) False
Look at the scenario Assets and Liabilities of the Banking System. Suppose that the
reserve ratio is 10% and the Fed buys $100,000 worth of U.S. Treasury bills from the
banking system. If the banking system does NOT want to hold any excess reserves,
_____ will be added to the money supply.
A) about $667,000
B) about 111,000
C) $250,000
D) $1 million
During a recessionary gap:
A) holding everything else constant, the budget deficit would increase.
B) contractionary fiscal policy would help correct this problem.
C) an increase in taxes or a decrease in government purchases would shift the AD curve
to the right.
D) unemployment would most likely be falling.
The value of _____ is counted in GDP.
A) glass for windshields purchased by a car manufacturer
B) a new car sold by a dealer
C) a used car sold by a dealer
D) a share of stock in a car manufacturer
Unit-of-account costs of inflation are the:
A) costs associated with money not being a reliable unit of measurement.
B) costs of transactions associated with avoiding the inflation tax.
C) costs associated with businesses changing prices.
D) transfers the government gets from printing money.
An inflationary gap caused by a demand shock can be addressed by _____ to _____.
A) raising government spending; lower the unemployment rate
B) raising taxes; lower the unemployment rate
C) lowering government spending; lower the aggregate price level
D) lowering taxes; lower the aggregate price level
Figure: The Market for Calculators
Look at the figure The Market for Calculators. Assume that Sand Drepresent the
domestic demand and supply of calculators. The world price, PW,equals $100. The
government imposes an import tariff of $20 per calculator. Compared with the free
trade situation, the tariff leads to a deadweight loss equal to area:
A) K+ L.
B) G+ J.
C) G+ H+ I+ J.
D) There is no deadweight loss, since the tariff revenue the government receives offsets
any losses.
Scenario: Gizmovia
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40.
Look at the scenario Gizmovia. If Gizmovia uses monetary policy to bring the
exchange rate for the gizmo to $0.50, it should _____ interest rates, which will _____
capital inflows of gizmos.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
Assume that marginal propensity to consume is 0.8 and potential output is $800 billion.
The tax multiplier is:
A) exactly 0.8.
B) impossible to determine.
C) greater than 5.
D) less than 5.
Bank runs in the United States during the 1930s damaged the economy because:
A) capital requirements prevented bank managers from taking additional lending risks.
B) the reserve ratio was set too high.
C) the Federal Reserve system did not exist at the time.
D) the loss of confidence at one bank quickly extended to other banks.
Table: Price and Output Data
Look at the table Price and Output Data.
Nominal GDP in year 5 is:
A) $1.29.
B) $16.
C) $45.
D) $63.
A general increase in wages will result primarily in the _____ curve shifting to the
_____.
A) aggregate demand; right
B) aggregate demand; left
C) short-run aggregate supply; right
D) short-run aggregate supply; left
Which of the following most accurately depicts the formula for the expenditure
multiplier?
A)
B)
C)
D)
Suppose a lender expects a real interest rate of 6% and the inflation rate is expected to
be 3%. In this case, the nominal interest rate equals:
A) 3%.
B) 9%.
C) 12%.
D) 6%.