According to the Great Moderation consensus:
I. monetary policy should be the main stabilization tool.
II. the natural rate of unemployment doesn’t actually exist.
A) I only
B) II only
C) I and II
D) neither I nor II
A revaluation _____ exports and _____ imports.
A) increases; decreases
B) decreases; increases
C) increases; increases
D) decreases; decreases
Suppose a bank receives a $5,000 deposit and the reserve ratio is 25%. Based on this
deposit alone, the bank can lend out:
A) $4,500.
B) $4,000.
C) $3,750.
D) $3,500.
Table: Per Capita GDP
Look at the table Per Capita GDP. Per capita real GDP in 2011 was:
A) $600.
B) $400.
C) $300.
D) $30.
If the current account is in surplus, the financial account must also be in surplus.
A) True
B) False
Which is a microeconomic question rather than a macroeconomic question?
A) Will a decrease in the income tax rate lift the nation out of a recession?
B) Will an increase in consumer spending cause inflation?
C) Will a decrease in the income tax rate lead to a government budget deficit?
D) Will an increase in the cigarette tax reduce the number of packs sold?
A decrease in the money supply is likely to cause a(n) _____ in borrowing and interest
rates and a(n)_____ in aggregate demand.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
The long-run supply curve illustrates how the aggregate output supplied is _____ the
aggregate price level.
A) positively related to
B) negatively related to
C) unrelated to
D) a one-to-one correspondence with
Figure: The Market for Melons in Russia
Look at the figure The Market for Melons in Russia. Without trade, the country’s
producer surplus will equal area _____, and consumer surplus will equal area _____.
A) ACJ; ABJ
B) BCJ; ABJ
C) ABJ; BCJ
D) BJDK; ABJ
Figure: Short-Run Equilibrium
Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and
P1, the appropriate policy to return the economy to potential output would be a(n):
A) increase in transfer payments.
B) increase in government spending.
C) increase in taxes.
D) decrease in taxes.
The United States exports corn to other nations. In the U.S. balance of payments
account, this transaction is entered as a payment _____ foreigners in the _____ account.
A) from; current
B) from; financial
C) to; current
D) to; financial
A currency has depreciated when:
A) that currency buys less foreign goods than it did previously.
B) that currency buys more foreign goods than it did previously.
C) one unit of that currency buys more units of a foreign currency than it did
previously.
D) domestic goods become more expensive to holders of that currency.
Thinking in economic terms, when Mary Sweet-Tooth is deciding whether to eat
another brownie, she:
A) considers only the price of the brownie.
B) considers only how much additional exercise she will need to do to work off the
calories associated with eating another brownie.
C) compares all of the benefits and costs of eating another brownie.
D) considers whether she can do so without anyone else noticing.
According to Keynes, changes in business confidence are often responsible for business
cycles.
A) True
B) False
Figure: Short-Run Determination of the Interest Rate
Look at the figure Short-Run Determination of the Interest Rate. If the money supply is
at MS2and the Fed conducts contractionary monetary policy, in the short run the interest
rate increases to r1. In the long run: the demand for money will _____, and the interest
rate will_____.
A) increase; increase to r1
B) increase; remain at r2.
C) decrease; decrease to r2.
D) decrease; remain at r1.
Which of the following is TRUE about inflation and deflation?
A) Both are good for the economy.
B) Inflation is always good for the economy and deflation is always bad for the
economy.
C) Inflation is always bad for the economy and deflation is always good for the
economy.
D) Both inflation and deflation can pose problems for the economy.
Government economists have adopted the _____ method of calculating the change in
real GDP, which averages the GDP growth rate according to both an early base year and
a late base year.
A) cost indexation
B) straight-line depreciation
C) chain-linking
D) fixed base year
A downward shift in the consumption function can be caused by:
A) expectations of higher incomes.
B) an increase in the marginal propensity to consume.
C) a decline in consumer wealth.
D) an increase in the wealth of households.
Inflation:
A) was very low in the 1970s and increased in the 1980s.
B) was very high in the 1970s and decreased in the 1980s.
C) steadily increased from 1960 through 2012.
D) steadily decreased from 1960 through 2012.
Firms supply goods and services in the product markets.
A) True
B) False
The advantage of holding money as an asset is that it is perfectly liquid.
A) True
B) False
Look at the table Monetary Aggregates. M2 is:
A) $2,805 billion.
B) $3,340 billion.
C) $3,355 billion.
D) $2,005 billion.
When expected inflation was high during the 1970s, interest rates were low.
A) True
B) False
During hyperinflation in Germany in 1922″1923, prices rose at _____ per day.
A) 0.1%
B) 16%
C) 50%
D) 100%
An increase in the value of a floating currency is called a revaluation.
A) True
B) False
If the Federal Reserve buys $250 million worth of U.S. Treasury bills in the open
market and the reserve ratio is 10%, then the money supply will:
A) have the potential to increase by $2,500 million.
B) remain unchanged.
C) increase by only $250 million.
D) increase by only $25 million.
Opponents of quantitative easing argued that the _____ monetary policy would cause
_____.
A) contractionary; unemployment
B) expansionary; inflation
C) contractionary; inflation
D) expansionary; unemployment
When the Great Depression reached its trough in 1933, the unemployment rate was
approximately:
A) 5%.
B) 10%.
C) 25%.
D) 50%.
Currency, checkable deposits, and traveler’s checks are about _____ of M1.
A) 10%
B) 55%
C) 75%
D) 100%
An economic situation is in equilibrium when no individual would be better off taking a
different action.
A) True
B) False
Figure: Guns and Butter
Look at the figure Guns and Butter. The combination of guns and butter at point H:
A) can be attained but would cost too much.
B) cannot be attained, given the level of technology and the factors of production
available.
C) has no meaning, since it does not relate to the preferences of consumers.
D) is attainable but would increase unemployment.
If the government’s revenues are less than its expenditures, then it has a budget:
A) deficit.
B) surplus.
C) balance.
D) equality.
The short-run aggregate supplycurve slopes upward because a _____ aggregate price
level leads to _____.
A) higher; lower output as costs of production increase.
B) higher; higher output, since most production costs are fixed in the short run.
C) lower; higher output, since production costs tend to fall in the short run.
D) lower; higher profit and higher productivity.
Scenario: Consumption Spending
Suppose that the consumption function is C= $500 + 0.8 YD,where YD is disposable
income.
Look at the scenario Consumption Spending. The marginal propensity to consume is:
A) $500.
B) 0.
C) 0.8.
D) 0.2.
Contractionary monetary policy causes a short-run _____ in interest rates in the short
run and _____ in interest rates in the long run.
A) increase; an increase
B) increase; no change
C) decrease; no change
D) decrease; a decrease