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It is certain that the equilibrium price will rise when the supply curve shifts to the
_____ and the demand curve shifts to the _____.
A) right; right
B) right; left
C) left; left
D) left; right
A shift away from taxing asset income and toward taxing consumption would lead to:
A) a larger demand for loanable funds, a higher interest rate, and more investment
spending.
B) a larger supply of loanable funds, a lower interest rate, and more investment
spending.
C) a larger government budget deficit and more investment spending.
D) a smaller supply of loanable funds, a higher interest rate, and more investment
spending.
The market for corn in Kansas is considered to be competitive. This means there are
_____ buyers and _____ sellers of corn in Kansas.
A) many; few
B) few; many
C) many; many
D) few; few
Which of the following factors have contributed to the lack of economic growth in
Latin America?
I. lack of natural resources
II. high rates of savings that led to insufficient consumption of goods and services
III. political instability
A) I only
B) II only
C) III only
D) I, II, and III
The best available measure of the standard of living in a country is:
A) nominal GDP per capita.
B) real GDP per capita.
C) the unemployment rate.
D) the growth rate of productivity.
An inflationary gap:
A) is generally regarded as desirable, especially by people living on a fixed income.
B) means that the economy is operating beyond its potential output.
C) means that there are pressures for wages to fall.
D) means that SRAS will soon shift rightward.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. A movement from AD3 to AD1
could be caused by:
A) increased government purchases.
B) increased government transfers.
C) higher tax rates.
D) lower tax rates.
A person who is risk averse loses less welfare from losing $100 than he or she gains in
welfare from winning $100.
A) True
B) False
(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and
Recessionary Gaps. The level of income associated with Y1 in panel (b):
A) is equal to potential output.
B) reveals an inflationary gap compared with Yp.
C) is a long-run equilibrium.
D) is caused by flexible wages and prices.
Consider an economy whose households save 20% of increases in their income. If the
government lowers its transfers by $100 billion, then the real GDP will:
A) decrease by $125 billion.
B) decrease by $400 billion.
C) increase by $125 billion.
D) decrease by $500 billion.
An expansion is a period in which:
A) output declines.
B) the price level falls.
C) output rises.
D) unemployment rises.
During times of high inflation people hold less cash and make more withdrawals, so
banks often open new branches.
A) True
B) False
If the marginal propensity to save is 0.5, the multiplier is:
A) 5.
B) 2.
C) 1.
D) 0.5.
The school of economics that predominated prior to the Great Depression was the:
A) business cycle theorists.
B) classical school.
C) post-Keynesian school.
D) Marxists.
In an asset bubble:
A) depositors withdraw their deposits from banks until the bank fails.
B) the price of an asset is pushed to an unreasonably high level because of expectations
of further price gains.
C) the price of an asset falls because demand for the asset is so high.
D) savers and investors engage in maturity transformation by long-term borrowing and
making short-term loans to take advantage of interest rate increases.
Which of the following countries did NOT adopt the euro?
I. Britain
II. Switzerland
III. Sweden
A) I only
B) II only
C) III only
D) I,II, and III
If overall inventories rise in a month because of unplanned inventory investment, most
likely:
A) the economy is slowing down.
B) sales were above forecasts.
C) inventory investment is negative.
D) the accelerator principle was contradicted.
One of the functions of the Reconstruction Finance Corporation, established in 1932,
was to make loans to commercial banks.
A) True
B) False
Which of the following actions would allow banks to lend out more money?
A) an increase in the required reserve ratio
B) a decrease in the discount rate
C) an increase in the federal funds rate
D) an increase in the required reserve ratio coupled with an increase in the federal funds
rate
The theory of Ricardian equivalence argues that expansionary fiscal policy:
A) will have no effect on the economy because consumers, anticipating higher taxes to
pay for government spending, will decrease spending today to save for the higher taxes.
B) is not effective because it causes higher interest rates and crowds out investment
spending.
C) is effective, but contractionary fiscal policy is not.
D) is more effective than expansionary monetary policy.
Devaluation of a currency occurs under _____ exchange rates when the price of the
domestic currency in terms of foreign currency _____.
A) flexible; falls
B) flexible; rises
C) fixed; falls
D) fixed; rises
In an economy with no taxes or imports, if the marginal propensity to consume is 0.7,
the marginal propensity to save must be:
A) 1.7
B) 0.7
C) 0.3
D) 0.21
Which of the following is (are) a serious challenge(s) to the efficient markets
hypothesis?
A) Stock prices fluctuate more than can be explained by news about fundamentals.
B) Individual investors behave in systematically irrational ways.
C) Stock prices follow a random walk.
D) Stock prices fluctuate more than can be explained by news about fundamentals, and
individual investors behave in systematically irrational ways.
When an economy's overall production grows faster than its population, it is
undergoing:
A) long-run growth per capita.
B) an increase in nominal GDP.
C) deflation.
D) the paradox of thrift.
Suppose that the budget deficit of a country remains level for five years. The federal
debt will:
A) remain constant.
B) fall.
C) rise.
D) either remain constant or fall.
An increase in Social Security benefits will likely increase consumption and shift the
aggregate demand curve to the right.
A) True
B) False
If the economy is at potential output and the Fed decreases the money supply, in the
SHORT run the price level will likely_____ and real GDP will likely_____ .
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Financial assets:
A) are paper claims that provide the buyer of the claim future income from the seller of
the claim.
B) in the form of loans by an individual are an asset to the individual receiving the loan.
C) are accompanied by high transaction costs.
D) have no financial risk.
If both aggregate output and the aggregate price level increase:
A) real GDP will increase faster than nominal GDP.
B) nominal GDP will increase faster than real GDP.
C) it makes no difference to real or nominal GDP.
D) real GDP and nominal GDP will increase faster than the price level.
If the value of a U.S. dollar changes from 120 to 110, it follows that:
A) the yen is depreciating and the dollar is appreciating.
B) U.S. goods become cheaper for Japanese consumers.
C) Japanese goods become cheaper for U.S. consumers.
D) U.S. services become more expensive for Japanese firms.
