By driving up interest rates, an increase in investment spending causes
a. a voluntary decrease in consumption
b. a voluntary increase in consumption
c. an involuntary decrease in consumption
d. an involuntary increase in consumption
e. government spending to be crowded out
Assume that Ernesto earned a nominal wage rate of $15 per hour in 2001, the base year
for the CPI. If the CPI in 2002 was 102.6 and his nominal wage rate was $16 per hour,
what was his real wage rate in 2001?
a. $14.62
b. $15.00
c. $15.59
d. $16.00
e. His real wage for 2001 cannot be determined with the information given.
A less developed country can increase its capital stock by
a. raising taxes on purchases of capital goods
b. temporarily accepting unusually high unemployment rates
c. reducing government spending
d. shifting resources away from production of consumer goods and toward production
of capital goods
e. providing more opportunities for individuals to spend their accumulated savings
Financial intermediaries are important because
a. the process of finding loans is complicated
b. firms are usually unwilling to part with extra revenue
c. they are examples of banks
d. we could not function in society without them
e. they facilitate efficient transactions between borrowers and lenders
In the short run, an increase in the money supply will
a. decrease the interest rate, increase real GDP, and decrease the price level
b. increase the interest rate, decrease real GDP, and decrease the price level
c. result in decreases in the interest rate and real GDP, which are then followed by
increases in the interest rate which offset some of the change in real GDP
d. result in decreases in the interest rate and increases in real GDP, which are then
followed by increases in the interest rate which offset some of the increase in real GDP
e. result in an increase in the interest rate and a decrease in real GDP, which are then
followed by decreases in the interest rate which offset some of the decrease in real GDP
Which of the following is not a function of the Federal Reserve System?
a. Supervising the banking system.
b. Deciding the maximum interest rates banks can charge for loans.
c. Clearing checks.
d. Acting as a bank for banks.
e. Dealing with financial crises.
Which of the following is the most liquid asset?
a. Traveler’s checks.
b. Savings-type deposits.
c. Small time deposits.
d. Large time deposits.
e. A modern art painting.
Which of the following will lower the interest rate and increase investment spending?
a. An increase in the demand for loanable funds
b. A decrease in the demand for loanable funds
c. An increase in the supply of loanable funds
d. A decrease in the supply of loanable funds
e. An equal and simultaneous decrease in the demand for and supply of loanable funds
The Federal Reserve has been quite consistently successful in keeping the inflation rate
low over its entire history.
A tax imposed on the part of income that households spend is known as a
a. luxury tax
b. flat tax
c. consumption tax
d. income tax
e. value tax.
What does economics have in common with sociology?
a. Economics and sociology ask fundamentally the same questions.
b. Economics and sociology use the same tools to analyze issues.
c. Both are social sciences.
d. What and how economists study is very similar to what and how sociologists study.
e. Explaining something about society is only a secondary purpose in both areas.
Refer to Figure 8-5. What is the equilibrium interest rate?
a. 4 percent
b. 6 percent
c. 8 percent
d. 10 percent
e. It cannot be determined with the information given.