Because one person’s spending is another person’s income, if one group in the economy
spends more, they increase their share of income and decrease the incomes of other
groups.
A) True
B) False
The notion that there is a trade-off between inflation and unemployment is expressed as
a _____ curve.
A) Phillips
B) Keynes
C) Schumpeter
D) Friedman
For developed countries, which of the following is considered the most important driver
in productivity growth?
A) the level of educational attainment
B) the amount of physical capital
C) technological progress
D) the abundance of natural resources
The rational expectationstheorystates that when individuals and firms make decisions,
they take everything into account. Thus:
A) if it’s clear that the government intends to trade off higher inflation for lower
unemployment, the public will understand this and help the government achieve its
goal.
B) if it’s clear that the government intends to trade off higher inflation for lower
unemployment, the public will understand this and inflation expectations will
immediately rise.
C) a government attempt to trade off higher inflation for lower unemployment would
not work in the short run but would be fine in the long run.
D) even if people are not expecting inflation and are unaware of government policies,
inflation expectations are still going to be embedded.
Suppose a new regulation lowers the interest rates banks can offer on checking account
funds. This will result in a shift _____ of the money _____ curve.
A) leftward; demand
B) rightward; demand
C) rightward; supply
D) leftward; supply
Which of the following is an explanation of banking crises?
A) Many banks make the same mistake: investing in an asset bubble.
B) Banks engage in maturity transformation.
C) The Federal Reserve, acting as a lender of last resort, introduces too much
competition into the system.
D) Banks are paying low interest rates on deposits and charging high interest rates on
loans.
If all prices, including the nominal wage rate, double in the long run, then aggregate
output supplied will:
A) double.
B) rise.
C) fall.
D) remain unchanged.
If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real
GDP will:
A) increase by exactly $30 billion.
B) decrease by exactly $30 billion.
C) decrease by less than $120 billion.
D) decrease by more than $120 billion.
In most cases, economic efficiency is achieved through:
A) incentives built into a market economy.
B) regulation.
C) individuals seeking out opportunities that involve no risk.
D) maximizing equity.
Which of the following statements is TRUE?
A) Some very talented people have a comparative advantage in everything they do.
B) Some very untalented people have a comparative advantage in nothing they do.
C) Some very talented people have a very low opportunity cost in everything they do.
D) It is possible to have an absolute disadvantage but a comparative advantage in
something.
An inward shift in the U.S. economy’s production possibility frontier could represent
U.S.:
A) workers moving to Canada.
B) workers moving from New Jersey to Massachusetts.
C) economic growth.
D) economic growth as workers move to different states.
Which of the following will shift the short-run aggregate supply curve to the RIGHT?
A) a widespread decrease in commodity prices
B) an increase in nominal wages
C) a decrease in productivity
D) a decrease in government purchases of goods and services
The topics studied in macroeconomics include:
A) inflation.
B) monopolies.
C) spillovers, such as pollution.
D) mergers.
According to the circular-flow diagram, which of the following economic agents
engage in consumer spending?
A) firms
B) households
C) factor markets
D) financial markets
If chicken and beef are substitutes, then a fall in the price of chicken will bring about:
A) an increase in the demand for beef.
B) a decrease in the demand for beef.
C) a decrease in the quantity demanded of beef.
D) no change in the demand for beef.
In an economy with no taxes and no imports, disposable income increases from $1,000
to $2,000. If consumption increases from $800 to $1500, the marginal propensity to
consume is 0.7.
A) True
B) False
Figure: Consumption and Disposable Personal Income
Look at the figure Consumption and Disposable Personal Income. When disposable
personal income is $2,000 billion, consumption is _____ billion.
A) $400
B) $1,000
C) $1,200
D) $1,600
A friend comes up to you and offers you a free ticket to a professional baseball game
that night. You decide to attend the game. The game takes five hours and costs you $15
for transportation. If you had not attended the game, you would have worked at your
part-time job for $8 an hour. What is the cost to you of attending the game?
A) The cost is zerothe ticket is free.
B) $65
C) $40
D) $55
The cost of sensors used in making digital cameras falls, while a successful ad
campaign makes digital cameras more fashionable. As a result, the equilibrium price of
digital cameras _____ and the equilibrium quantity _____.
A) increases; increases
B) increases; may increase, decrease, or stay the same
C) may increase, decrease, or stay the same; increases
D) decreases; increases
The difference between the growth rate of actual and potential GDP is the output gap.
A) True
B) False
If a government fixes the exchange rate _____ the market equilibrium, there will be a
shortage of the domestic currency and a tendency for the exchange rate (U.S. dollars
per unit of the other currency) to _____.
A) below; fall
B) above; rise
C) below; rise
D) above; fall
Scenario: Price Index
Suppose that in the base period a college student buys 20 gallons of gasoline at $2 per
gallon, 2 CDs for $13 each, and 4 movie tickets for $7 each. In the next month, the
price of gasoline is $2.25 per gallon, CDs cost $12.50 each, and the price of a movie
ticket is $7.50.
Look at the scenario Price Index. The change in prices from the first to the second
month is:
A) 1.1%.
B) 94%.
C) 6.4%.
D) “6%.
According to rational expectations, monetary policy is:
A) always effective.
B) effective only if it is unexpected.
C) ineffective compared to fiscal policy.
D) effective only when fiscal policy accommodates it.
Available international evidence for the period 1970″2010 shows that the:
A) increases in the quantity of money led to a proportionate increase in the aggregate
price level.
B) relationship between money and the aggregate price level changes over time and
across countries.
C) concept of monetary neutrality applies only to developing countries.
D) increases in the money supply in the long run led to equal percent rises in the
aggregate price level.
The velocity of money is equal to:
A) nominal GDP divided by the money supply.
B) real GDP divided by the aggregate price level.
C) nominal wages divided by the aggregate price level.
D) real GDP divided by the money supply.
Money that some authority, generally a government, has ordered to be accepted as a
medium of exchange is called _____ money.
A) fiat
B) intrinsic
C) bank-created
D) debt
Spain’s financial difficulties following the crisis of 2008 were due primarily to a
housing bubble.
A) True
B) False
“Unemployment of 5% is too high” is:
A) a normative statement.
B) a positive statement.
C) the circular-flow model.
D) an example of comparative advantage.
Look at the figure Wine and Wheat. If this economy is producing 12 tons of wheat and
9,000 bottles of wine, we know the economy:
A) is using its resources efficiently.
B) is using its resources inefficiently.
C) is producing at an unattainable point.
D) has unemployment.
Proponents of the theory of rational expectations contend that:
A) people make rational forecasts using all existing information.
B) business cycles are generally caused by shifts in aggregate demand.
C) full employment is rarely achieved.
D) stickiness of prices is the primary cause of inflation.
Figure: Strawberries and Submarines II
Look at the figure Strawberries and Submarines II. Suppose the economy is operating at
point A. The first submarine, which is achieved at point B, would have an opportunity
cost of _____ million tons of strawberries.
A) 50
B) 150
C) 400
D) 950
The relation between two variables that move in the same direction is said to be:
A) independent.
B) neutral.
C) positive.
D) indirect.
In 1936 economic theory changed dramatically with the publication of:
A) The General Theory of Employment, Interest, and Money, by John Maynard Keynes.
B) The Wealth of Nations, by Adam Smith.
C) The Road to Serfdom, by F. A. Hayek.
D) Principles of Economics, by Paul Samuelson.
Aggregate demand will increase if:
A) the public becomes more optimistic.
B) the aggregate price level falls.
C) government spending is reduced.
D) household wealth decreases.