If a country has a working-age population of 200 million, 120 million people with jobs,
and 30 million people unemployed and seeking employment, then its unemployment
rate is:
A) 5%.
B) 7.5%.
C) 15%.
D) 20%.
The terms decrease in demand and decrease in quantity demanded can be used
interchangeably.
A) True
B) False
Table: Real and Nominal Output
Look at the table Real and Nominal Output. Nominal GDP in year 4 is equal to:
A) $40.
B) $60.
C) $100.
D) $280.
Look at the table The Consumer Price Index (CPI). The consumer price index in 2009
was 212.2. In 2010, it was 216.7. What was the rate of inflation from 2009 to 2010?
A) 12.2%
B) 4.5%
C) 2.1%
D) 16.7%
Raising taxes shifts the _____ curve to the _____.
A) aggregate demand; left
B) long-run aggregate supply; left
C) aggregate demand; right
D) short-run aggregate supply; left
In the income”expenditure model, if the price level increases, the wealth and interest
rate effects will decrease planned expenditures.
A) True
B) False
The present value of future payments depends on:
A) whether the payment is interest or dividends.
B) the marginal propensity to save.
C) the interest rate.
D) sunk costs.
Which of the following illustrates the law of demand?
A) An increase in tuition encourages more students to enroll in college because the
quality of education has risen.
B) Consumers buy more personal computers because prices have fallen.
C) Oil companies drill for new sources because prices are higher.
D) Fewer people play golf because incomes are lower.
If the real money supply is $500 billion and the money supply grows by 2%, then real
seignorage is:
A) $25 trillion.
B) $1 trillion.
C) $10 billion.
D) $1 billion.
Table: National Income Accounts
Trillions
Look at the table National Income Accounts. The value of private savings is:
A) $1.8 trillion.
B) $0.5 trillion.
C) $2.8 trillion.
D) $1.6 trillion.
A transfer payment is a payment for:
A) a military transfer to a war zone.
B) which no services were rendered.
C) transfer of a debt to a different person.
D) being transferred to a different city by your employer.
In the long run, nominal wages are:
A) sticky downward but flexible upward.
B) sticky upward but flexible downward.
C) sticky both upward and downward.
D) flexible, because contracts and informal agreements are renegotiated in the long run.
One factor contributing to a slow rate of economic growth in Latin America is that
broad basic education has been underemphasized in most countries.
A) True
B) False
Which of the following is sold in the product market?
A) footballs
B) labor
C) physical capital
D) human capital
The Federal Reserve controls:
A) the discount rate only.
B) the monetary base only.
C) the reserve ratio only.
D) the discount rate, the monetary base, and the reserve ratio.
Suppose small business owners decide to spend less. How will this affect an economy?
A) It will have no impact, since this group makes up a small portion of any economy.
B) It will decrease the level of income of other people, since one person’s spending is
someone else’s income.
C) It will cause prices for many goods to increase.
D) It will increase the level of income in the economy, since other groups will spend
more.
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. If 2012 is the base year, what is the value of the price
index in 2012?
A) 0
B) 90
C) 100
D) 111.25
Macroeconomic policy activism:
A) is the use of monetary and fiscal policy to smooth out the business cycle.
B) is the primary theory of classical economics.
C) gives the Federal Reserve the sole responsibility for economic policy.
D) advocates that all of the people in a democracy should decide what type of economic
policy is appropriate.
During most of the 1990s and 2000s, Ireland was called:
A) the Celtic Tiger.
B) a tax haven for wealthy people who were avoiding the U.S. income tax.
C) the Sapphire Isle.
D) the Axis of Evil.
Which of the following is a requirement to pay in the future?
I. a financial asset
II. a physical asset
III. a liability
A) I only
B) II only
C) III only
D) I, II, and III
If Nike sells basketball shoes for $150 per pair and the cost of producing and selling a
pair of basketball shoes is $15, Nike’s profit per unit on a pair of basketball shoes is:
A) $135.
B) $160
C) $165.
D) $10.
In an economy with no taxes and no imports, disposable income increases from $1,000
to $2,000. If consumption increases from $800 to $1,500, the marginal propensity to
save is 0.25.
A) True
B) False
When a market is in equilibrium:
A) a person could do better if he or she did something different.
B) people have exploited all opportunities to make themselves better off.
C) government has directed the market in such a way as to achieve this point.
D) markets are not working efficiently.
A positive demand shock leads to:
A) higher prices and higher employment.
B) higher prices and higher unemployment.
C) higher prices and lower output.
D) lower prices and lower output.
An example of a public good that encourages economic growth is public health
services, such as vaccinations.
A) True
B) False
Real GDP equals $200 billion, the government collects 20% of any increase in real
GDP in the form of taxes, and the marginal propensity to consume is 0.8. If the
government increases spending by $10 billion, real GDP will increase by:
A) $10 billion.
B) $20 billion.
C) $27.8 billion.
D) $50 billion.
The level of output that the economy would produce if all prices, including nominal
wages, were fully flexible is called:
A) real GDP.
B) Keynesian GDP.
C) structural GDP.
D) potential output.
According to the textbook, markets usually lead to efficiency.
A) True
B) False
To help increase investment spending, the government can:
A) lower taxes on consumption, so that disposable income rises.
B) lower taxes on the returns from savings, so that total savings increase and the
interest rate falls.
C) raise taxes on the returns from bonds while lowering taxes on stock dividends.
D) lower taxes on investment spending while raising taxes on savings, so that total tax
revenue remains constant.
The dollar value of final goods and services only is counted in GDP because:
A) we can measure only the value of final goods and services, not the value of inputs.
B) if we counted the value of all goods, we would count inputs, like the value of steel in
a new automobile, more than once.
C) intermediate goods reduce GDP.
D) only final goods and services matter for the economy.
The Great Moderation consensus among macroeconomists is that fiscal policy should
be used sparingly because:
A) monetary policy is always more effective.
B) it always requires higher taxes.
C) lags in adjusting to fiscal policy can make it counterproductive.
D) of the risk of government waste.
Which of the following is an example of maturity transformation?
A) Anne sells her house for $200,000 and uses the money to open a bakery.
B) Matthew sells his car and uses the money to pay college tuition.
C) Justin takes $10,000 from his savings account and uses it to buy some Apple stock.
D) Michael closes his checking account at Bank of America and opens a checking
account at a local credit union.
If the monetary authorities decide to increase the nominal money supply by 10% when
the economy is at its full-employment level of output, in the long run the aggregate
price level increases by _____ and real GDP _____.
A) 10%; increases by 10%
B) 5%; increases by 5%, according to Okun’s law
C) 10%; returns to the potential level of output
D) 5%; increases by 20%, given a marginal propensity to consume of 0.5
Which of the following describes two goods that are most likely substitutes in
consumption?
A) loaves of bread and sticks of butter
B) loaves of bread and toasters
C) loaves of bread and hamburger buns
D) loaves of bread and gasoline