Figure: Equilibrium in the Money Market
Look at the figure Equilibrium in the Money Market. If the interest rate is above
equilibrium, there will be an excess _____ money and the interest rate will _____.
A) demand for; rise
B) supply of; fall
C) demand for; fall
D) supply of; rise
Okun’s law suggests that a _____ increase in a positive output gap _____ the
unemployment rate by _____.
A) 1%; increases; 0.5%
B) 1%; decreases; 0.5%
C) 0.5% ; increases; 1%
D) 0.5%; decreases; 1%
Many economists favored using discretionary fiscal policy during the Great Recession
because monetary policy could not be used when interest rates were near zero.
A) True
B) False
The 2009 U.S. stimulus was a(n) _____ fiscal policy that _____ aggregate demand.
A) expansionary; increased
B) expansionary; decreased
C) contractionary; increased
D) contractionary; decreased
The short-run aggregate supply curve illustrates:
A) the price level at which real output will be consumed.
B) the price level at which real output will be in equilibrium.
C) the positive relationship between the aggregate price level and aggregate output
supplied.
D) the negative relationship between the aggregate price level and aggregate output
supplied.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. The intersection of SRAS with
AD in panel (a) indicates an economy:
A) in a recessionary gap.
B) in an inflationary gap.
C) in long-run equilibrium.
D) with an unusually low unemployment rate.
Technological change:
A) raises total factor productivity.
B) is not as important as infrastructure maintenance.
C) shifts the aggregate production function downward.
D) relies on consumption increases at the expense of saving.
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. A decrease in government
borrowing will shift the demand for loanable funds to the _____ and _____ the interest
rate.
A) left; increase
B) right; decrease
C) right; increase
D) left; decrease
Policy for dealing with banking crises changed from laissez-faire to taking steps to
contain the damage from bank failures:
A) after Ronald Reagan became president in 1980.
B) after World War II in 1945.
C) during the Great Depression in the 1930s.
D) after the Civil War in the 1860s.
After a revaluation, all other things equal, probably exports will increase and imports
will decrease.
A) True
B) False
In general, a change in the price level, all other things unchanged, causes:
A) a movement along the aggregate demand curve.
B) a shift of the aggregate demand curve.
C) both a movement along the aggregate demand curve and a shift in the curve.
D) no change in the purchasing power of assets.
Government’s right to print money to finance deficits is referred to as:
A) open-market sales.
B) seignorage.
C) fiat money implementation.
D) crowding out.
A country’s growth rate strongly depends on how it has invested in its physical capital.
Generally, countries that have used _____ as a source of their capital investment have
exhibited the highest growth rate.
A) foreign direct investment
B) domestic saving
C) foreign portfolio investment
D) contracted globalization
The law of demand states that other things equal, as the price:
A) increases, the quantity demanded will increase.
B) decreases, the demand curve will shift to the right.
C) increases, demand will decrease.
D) increases, the quantity demanded will decrease.
Frictional unemployment is a special type of structural unemployment.
A) True
B) False
Which of the following is NOT considered one of the three chief characteristics of
money?
A) It serves as a medium of exchange.
B) It acts as a store of value.
C) It is a highly illiquid asset.
D) It is a unit of account.
Figure: The Market for Oranges in South Africa
Look at the figure The Market for Oranges in South Africa. In autarky, the price of
oranges in South Africa is P1. When the economy is opened to trade, the price falls to
PWand consumer surplus will _____ to area _____.
A) fall; M
B) fall; M+ N
C) rise; M+ N+ O
D) rise; M+ N+ O+ P
If the multiplier is 4 and autonomous government spending increases by $100 billion,
real GDP will:
A) increase by $400 billion.
B) decrease by $400 billion.
C) increase by $100 billion.
D) increase by $25 billion.
Suppose there are 70 million people in the labor force, of whom 60 million are
employed. The unemployment rate is:
A) 7%.
B) 10%.
C) 14.28%.
D) 4.2%.
Scenario: Growth Rates in Two Countries
India is growing at a rate of 9% per year, and its real GDP per capita is about $3,500,
while the United States is growing at a rate of 3% per year, and its real GDP per capita
is about $47,000.Look at the scenario Growth Rates in Two Countries. How long will it
take India to double its real GDP per capita?
A) 7.8 years
B) 10.2 years
C) 14.6 years
D) 90 years
Between 1864 and 1913, U.S. banking was dominated by an unregulated system of
state banks, each issuing its own currency.
A) True
B) False
An increase in the price of imported oil leads to a _____ shock.
A) positive supply
B) negative supply
C) positive demand
D) negative demand
In an economy with no taxes or imports, if disposable income increases by $1,000 and
consumption increases by $600, the multiplier is:
A) $600.
B) 0.6.
C) 2.5.
D) 0.40.
Which of the following is NOT a determinant of supply?
A) expectations regarding future prices
B) the technology of production
C) the cost of production
D) consumer tastes
Which of the following is NOT a tool of fiscal policy?
A) changing tax rates
B) government transfers
C) government purchases of goods and services
D) changes in the money supply
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. Which of the following
measures a recessionary gap?
A) Y3 ” Y1
B) Y3 ” Y2
C) Y2 ” Y1
D) Y3 ” Y0
Of the following items, which would NOT be included in GDP?
A) the dollar value of a repair job done by your cousin on her own car
B) the dollar value of a lawyer’s service
C) new car sales by a local dealer
D) production of new cars that were not sold in the current year
Scenario: First National Bank
First National Bank has $80 million in checkable deposits, $15 million in deposits with
the Federal Reserve, $5 million cash in the bank vault, and $5 million in government
bonds.
Look at the scenario First National Bank. Given the bank’s minimum reserve ratio, how
much can the bank issue in loans?
A) $76 million
B) $8 million
C) $6 million
D) $4 million
When the output gap is _____, reflecting an inflationary gap, the unemployment rate is
_____ the natural rate of unemployment.
A) positive; above
B) negative; below
C) positive; below
D) negative; above
If the Federal Reserve wants to increase the money supply, it could:
A) sell U.S. Treasury bills.
B) cut taxes across the board.
C) lower the reserve requirement.
D) increase the discount rate.
Which of the following assets is the MOST liquid?
A) a house
B) 100 shares of Apple stock
C) money in a checking account
D) a life insurance policy
Suppose an investment project is projected to provide $200,000 in revenues. The
investment will cost the company $180,000. Given this information, one should commit
to the project:
A) regardless of the interest rate.
B) if the interest rate is less than or equal to 11%.
C) if the Fed is expected to decrease the money supply.
D) if the interest rate is higher than 11%.
The zero lower bound for interest rates is the target that the Taylor rule sets.
A) True
B) False
If the government guarantees not only the deposits but also the other liabilities of a
failing bank, the government usually:
A) temporarily takes over the bank but then reprivatizes it as soon as possible.
B) merges it with the Treasury.
C) merges it with the Federal Reserve.
D) closes the bank permanently.