In the long run, if the money supply rises by 10%, then the price level may rise by more
than 10%.
A) True
B) False
The first country to adopt the euro was Great Britain.
A) True
B) False
Large technological gains often result:
A) in immediate rapid growth of an economy.
B) only if the innovation is broad and monumental.
C) from modest as well as large innovations.
D) from deliberate attempts at specific types of innovation.
If there is purchasing power parity between currencies, a Big Mac will be cheaper in
countries whose currency has appreciated.
A) True
B) False
Table: Hypothetical Relationship
Look at the table Hypothetical Relationship. This economy is undergoing:
A) increasing returns to physical capital per worker.
B) decreasing total productivity.
C) constant total productivity.
D) diminishing returns to physical capital per worker.
According to official statistics, discouraged workers are:
A) included in the employment statistics.
B) included in the labor force.
C) not included in the labor force.
D) treated just like the underemployed.
If real GDP is smaller than planned aggregate spending:
A) unplanned inventory investment is positive.
B) real GDP will fall.
C) the economy is in equilibrium.
D) unplanned inventory investment is negative.
A firm is considering a new capital expenditure of $2 million. This expenditure is
expected to yield $1 million in annual profits for each of two years. Given this
information, the firm should _____ the project, _____
A) refuse; since the costs are not offset by the profits.
B) undertake; since the profits will be greater than the costs.
C) undertake; only if the interest rate is zero.
D) undertake; regardless of the interest rate.
Gross domestic product is defined as:
A) consumer spending + government purchases of goods and services + financial
spending + exports ” imports.
B) consumer spending + government transfers + investment spending + exports ”
imports.
C) disposable income + taxes + investment spending + exports + imports.
D) consumer spending + government purchases of goods and services + investment
spending + exports ” imports.
Look at the table Wages and Hours Worked. Graphing the relation with wages on the
vertical axis and hours worked on the horizontal axis, the slope between point D and
point E is:
A) 0.5.
B) 5.
C) 45.
D) 2.
U.S. banks did not offer interest on checking accounts until the beginning of the 1980s.
Then banking regulations changed, allowing banks to pay interest on checking account
funds. As a result, the _____ money _____ and shifted the money demand curve to the
_____.
A) supply of; fell; left
B) demand for; fell; left
C) demand for; rose; right
D) supply of; rose; right
Suppose the banking system does NOT hold excess reserves and the reserve ratio is
25%. If Molly deposits $1,000 cash in her checking account, the banking system can
increase the money supply by:
A) $5,000.
B) $1,000.
C) $3,000.
D) $4.000.
Which one of the following is NOT included in M1?
A) savings deposits
B) checkable bank deposits
C) currency
D) traveler’s checks
Figure: AD”ASModel II
Look at the figure AD”AS Model II. If productivity increases, the _____ curve will shift
to the _____.
A) SRAS; left
B) SRAS; right
C) AD; left
D) AD; right
A laptop computer purchased by a private individual for personal use is considered to
be:
A) consumption spending.
B) investment spending.
C) private saving.
D) a transfer of income.
Market failure occurs when the pursuit of self-interest leads to bad results.
A) True
B) False
Figure: Aggregate Expenditures I
Look at the figure Aggregate Expenditures I. The equilibrium real GDP is:
A) $500 billion.
B) $300 billion.
C) $700 billion.
D) $625 billion.
Look at the table Price, Quantity Demanded, and Quantity Supplied. The slope of the
line representing the relation between price on the vertical axis and quantity supplied on
the horizontal axis is:
A) equal to 1/2.
B) equal to 1.
C) equal to 2.
D) different at different points on the line.
The real interest rate is the nominal interest rate less the rate of inflation.
A) True
B) False
In the factor market, firms buy goods and services.
A) True
B) False
Figure: Comparative Advantage
Eastland and Westland produce only two goods, boxes of peaches and boxes of oranges,
and this figure shows each nation’s production possibility frontier for the two goods.
Look at the figure Comparative Advantage. Westland has a comparative advantage in
producing:
A) oranges only.
B) peaches only.
C) both oranges and peaches.
D) neither oranges nor peaches.
If the economy exhibited an inflationary gap, the government should follow a(n) _____
policy, which would shift the AD curve to the _____.
A) expansionary; right
B) contractionary; right
C) expansionary; left
D) contractionary; left
After a banking crisis, when the Federal Reserve buys government securities to increase
the money supply and decrease interest rates:
A) consumers and businesses may not respond by increasing their spending because of
debt overhang.
B) consumers and businesses usually borrow too much and spend too much, causing
inflation.
C) banks may fear runs, so they hold on to excess reserves rather than lending them to
consumers and businesses.
D) consumers and businesses may not respond because the recession has increased the
value of their assets so much that they don’t need to borrow money to buy more.
Suppose the yen falls from 800 to 1,200 to the dollar and the price level in Japan
increases by 50% but there is no change in the price level in the United States. Which of
the following is TRUE?
A) The nominal exchange rate of the yen has appreciated against the dollar.
B) The nominal exchange rate of the dollar has depreciated against the yen.
C) The real exchange rate has decreased.
D) The real exchange rate has remained unchanged.
Banks:
A) reduce the opportunity cost of the trade-off between rate of return and liquidity.
B) increase the opportunity cost of the trade-off between rate of return and liquidity.
C) encourage people to hold more cash.
D) reduce the amount of liquidity in the economy.
Deposit insurance:
A) is essentially the same as a bank’s required reserves.
B) provides depositors with assurances that they will receive their deposits up to
$250,000 even if there are questions about a bank’s soundness.
C) can be used only if depositors lose deposits in excess of $250,000.
D) encourages banks to carefully consider to whom they lend funds.
In the long run, changes in the aggregate price level will be accompanied by _____
proportional changes in input prices.
A) less than
B) more than
C) equal
D) opposite
If the Fed decreases the quantity of money in circulation, interest rates _____,
investment spending _____, and the aggregate demand curve shifts to the _____.
A) decrease; increases; right
B) decrease; decreases; left
C) increase; decreases; left
D) increase; decreases; right
The cyclically adjusted budget balance is an estimate of:
A) the contractionary fiscal policy needed to close an inflationary gap.
B) the tax increase needed to compensate for larger government transfers so that the
budget remains balanced.
C) the expansionary fiscal policy needed to close a recessionary gap.
D) what the budget balance would be if real GDP were exactly equal to potential
output.
Look at the table Present Value of Projects A, B, C, and D. If the annual interest rate is
10%, which project do you choose?
A) A
B) B
C) C
D) D
If the population and GDP increase by the same percentage, then real GDP per capita:
A) stays the same.
B) increases.
C) decreases.
D) may change, but one cannot be sure of the direction.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(a), it is in:
A) a recessionary gap.
B) an inflationary gap.
C) simultaneous short-run and long-run equilibrium.
D) full employment.