Refer to Figure 15-3. Which of the following most likely caused the shifts from AE1 to
AE2, and from AD1 to AD2?
a. A decrease in the money supply
b. An increase in government purchases
c. An increase in investment spending
d. An increase in autonomous consumption
e. An increase in taxes.
Which of the following is a reason why the Consumer Price Index (CPI) is not
calculated as a simple average of all prices?
a. Some goods experience large price changes and the CPI would be too variable if
computed by a simple average.
b. Goods differ in their importance in the average consumer’s budget.
c. Some goods never experience price changes and the CPI would not be variable
enough if computed as a simple average.
d. It would be difficult to compute a price index using a simple average of all prices.
e. Actually, the CPI is a simple average of all prices.
Which of the following events triggered intense debate over the classical model of the
economy?
a. The U.S. Civil War
b. World War I
c. the Baby Boom
d. The Great Depression
e. World War II
During the 1990s and the first decade of the 2000s
a. polls have shown that U.S. citizens are more concerned about inflation than any other
national problem
b. the U.S. inflation rate reached double digits (10 percent or higher)
c. the U.S. economy consistently experienced deflation (a falling price level)
d. the U.S. inflation rate averaged about 8 percent per year
e. the U.S. inflation rate averaged less than 3 percent per year
As of 2008, approximately what fraction of U.S. GDP does government purchases now
represent?
a. One-half
b. Three-quarters
c. None; it is not included in GDP
d. Two-thirds
e. One-fifth
Which of the following is not part of M2?
a. savings-type deposits
b. noninstitutional money market mutual fund balances
c. small time deposits
d. large time deposits (over $100,000)
e. cash held by the public
If there is an excess demand for money in the economy,
a. there is also an excess supply of money.
b. there is also an excess demand for bonds.
c. there is also an excess supply of bonds.
d. the interest rate will fall.
e. there is also an excess supply of housing.
Assuming the economy was in equilibrium, use the following information to determine
the amount of funds supplied to the loanable funds market.
a. $2.2 trillion
b. $2.5 trillion
c. $2.7 trillion
d. $3.0 trillion
e. $5.2 trillion
The government can safely take on more debt
a. as long as private firms are taking on more debt
b. as long as the debt involves no interest payments
c. if GDP is growing faster than the debt is growing
d. if the interest rate is below 3 percent
e. as long as the debt is growing by less than 3 percent per year
If we included intermediate goods in the calculation of GDP,
a. we would be underestimating GDP
b. we would be accurately measuring GDP
c. we would be overestimating GDP
d. any measurement problems would be offset by including the sale of new goods
e. any measurement problems would be offset by including the final goods as well
If the MPC is 0.75, what is the value of the government purchases multiplier?
a. -1.33
b. 3.0
c. -3.0
d. 4.0
e. -4.0
One way for a less-developed country to break its cycle of poverty is to target the
wealthy.