The aggregate supply curve relating the price level to real GDP has three distinguishing
segments. Which one of the following indicates the segments?
a. The horizontal segment reflects the increasing pressure on the price level as firms bid
for resources. The upward-sloping segment reflects the availability of unused resources.
The vertical segment reflects the full employment of all resources.
b. The horizontal segment reflects the availability of unused resources. The
upward-sloping segment reflects the full employment of all resources. The vertical
segment reflects the increasing pressure on the price level as firms bid for resources.
c. The horizontal segment reflects the full employment of all resources. The
upward-sloping segment reflects the increasing pressure on the price level as firms bid
for resources. The vertical segment reflects the availability of unused resources.
d. The horizontal segment reflects the availability of unused resources. The
downward-sloping segment reflects decreasing pressure on the price level as firms bid
for resources. The vertical segment reflects the full employment of all resources.
e. The horizontal segment reflects the availability of unused resources. The
upward-sloping segment reflects increasing pressure on the price level as firms bid for
resources. The vertical segment reflects the full employment of all resources.
When the Fed decreases the money supply, interest rates:
a. rise.
b. fall.
c. are unaffected.
d. rise and then fall.
e. fall and then rise.
The unemployment rate will decrease whenever there is a(n):
a. increase in the number of persons classified as unemployed.
b. decrease in the number of unemployed relative to the size of the labor force.
c. decrease in the size of the population and there is no change in the number of persons
classified as employed.
d. reduction in the size of the labor force.
e. decrease in the number of unemployed and the population does not change.
Which of the following is not generally considered to be an ingredient for economic
growth?
a. Investment in human capital.
b. Political instability.
c. High savings rate and investment in capital.
d. Growth in technology.
e. Investment in infrastructure.
Which of the following societies is the most likely to have a traditional economy?
a. The United States.
b. The Inuit (native people of Northern Canada).
c. Cuba under Castro’s rule.
d. Modern-day Hong Kong.
Structural unemployment refers to unemployment resulting from:
a. technological change.
b. being in the wrong geographical location
c. taking the time to find the best job.
d. seasonal decreases in demand for labor.
e. a recession in the economy.
The person who assumes the risks and uncertainties of starting a new business is
considered to be:
a. the manager.
b. the out-resourcer.
c. a sales representative.
d. an entrepreneur.
Assume the economy is in recession and real GDP is below full employment. The
marginal propensity to consume (MPC) is 0.50, and the government follows Keynesian
economics by using expansionary fiscal policy to increase aggregate demand (total
spending). If an increase of $1,000 billion aggregate demand can restore full
employment, the government should:
a. increase spending by $250 billion.
b. decrease spending by $500 billion.
c. increase spending by $1,000 billion.
d. increase spending by $500 billion.
If each of us relied exclusively on the market to determine what to buy, we would
probably end up with few, if any:
a. streetlights.
b. strawberries.
c. CDs.
d. raincoats.
e. televisions.
The circular flow model assumes:
a. businesses and households own the factors of production.
b. businesses own the factors of production.
c. government owns the factors of production.
d. households own the factors of production.
e. firms, households, and the government own the factors of production.
It is difficult for cyclically unemployed individuals to find jobs because:
a. they do not meet the qualifications required for the available jobs.
b. the economy is in a recession.
c. they quit their last job and employers view them with suspicion.
d. they have not looked long enough to find a job.
If there is no one who is interested in borrowing from a bank:
a. the bank’s excess reserves will be zero.
b. there will be no process of money creation.
c. the required reserve ratio must be equal to zero.
d. the required reserve ratio must be equal to 100 percent.
In a two-asset economy with money and T-bills, the quantity of money that people will
want to hold, other things being equal, can be expected to:
a. decrease as real GDP increases.
b. increase as the interest rate decreases.
c. increase as the interest rate increases.
d. all of these.
A decrease in the supply of dollars to holders of Mexican pesos would cause the:
a. equilibrium quantity of dollars to decrease.
b. equilibrium quantity of dollars to increase.
c. equilibrium quantity to remain unchanged.
d. all of these.
If the demand for a good increases because consumer income increases, the good is
a(n):
a. inferior good. c. necessity good.
b. normal good. d. luxury good.
Using the income approach, the largest component in the calculation of GDP is:
a. net interest.
b. rental income. c. profits.
d. compensation of employees.
The federal funds market is the market where:
a. the federal government borrows money from banks to finance the national debt.
b. the federal government lends money to commercial banks.
c. banks borrow money from other banks for short periods of time.
d. banks borrow money from the Fed for short periods of time.
e. banks borrow money from the Treasury for long periods of time.
Which one of the following is not a component of GDP, as measured using the
expenditure approach?
a. Personal consumption.
b. Exports.
c. Durable goods.
d. Government spending.
e. Interest.
The law of increasing costs holds that the opportunity cost:
a. of a good decreases as the quantity of the good produced increases.
b. of a good is proportional to the resources used in its production.
c. of a good increases as more of the good is produced.
d. of a good does not change with the resources used its production.
e. changes as more of the good is produced.