Which of the following provides the best explanation of why money is valuable?
a. Money is valuable because it is indivisible.
b. Money is valuable because it is scarce.
c. Money is valuable because it is backed by precious metals, primarily gold and silver.
d. Money is valuable because it has intrinsic value, independent of its use as a means of
exchange.
Which of the following would be a private cost to a cigarette smoker?
a. Cost to the employer of the higher health insurance premiums due to the hiring of a
smoker.
b. Cost to the employer of the extra effort lost due to the increased missed days of work
as a result of smoking.
c. Cost to the city of extra park cleanup due to the presence of cigarette butts.
d. Price of the pack of cigarettes.
e. Cost to the government to pay the hospital expenses of indigent smokers.
Use the aggregate expenditures model and assume the marginal propensity to consume
(MPC) is 0.80. An increase in government spending of $1 billion would result in an
increase in GDP of:
a. $0.
b. $0.8 billion.
c. $1.0 billion.
d. $5.0 billion.
e. $8.0 billion.
Assume that peanut butter and jelly are complementary goods. A decrease in the
number of peanut butter suppliers will cause the:
a. demand for peanut butter to increase.
b. supply of peanut butter to increase.
c. demand for jelly to increase.
d. demand for jelly to decrease.
e. supply of jelly to decrease.
Assume Q represents the quantity supplied at a given price and Qd represents quantity
demanded at the same given price. Which of the following market conditions produces
an upward movement of the price?
a. Q = 1,000, Qd = 750.
b. Q = 750, Qd = 750.
c. Q = 750, Qd = 1,000.
d. Q = 1,000, Qd = 1,000.
Exhibit 16-4 Aggregate demand and supply model
In Exhibit 16-4, which one of the following actions could the Fed use to shift the AD
curve from AD3 to AD2?
a. Lower the legal reserve requirement.
b. Lower the discount rate.
c. Lower the federal funds rate.
d. Raise the discount rate.
e. Buy government securities.
Suppose the price of banana rises over time and consumers respond by buying fewer
bananas. This situation contributes to which bias in the consumer price index?
a. Substitution bias.
b. Transportation bias.
c. Quality bias.
d. Indexing bias.
In Adam Smith’s competitive market economy, the question of what goods to produce is
determined by:
a. the “invisible hand” of the price system.
b. businesses.
c. unions.
d. the government, through laws and regulations.
If the MPS = .25, and investment falls from $100 to $75, real GDP will decrease by:
a. $25.
b. $75.
c. $150.
d. $125.
e. $100.
Exhibit 1A-3 Straight line
Straight line AB in Exhibit 1A-3 shows that:
a. increasing values for X reduces the value of Y.
b. decreasing values for X increases the value of Y. c. there is an inverse relationship
between X and Y.
d. all of these.
A primary emphasis of the Keynesian school is the economy:
a. has a tendency to always create a full-employment level of output.
b. has a tendency to always create inflationary pressure at all levels of output.
c. has a tendency to eliminate unemployment by lowering wage rates to create an
equilibrium in the labor market.
d. is driven by the supply-side of the market.
e. has a tendency to be in equilibrium at less than full employment.
Assuming that dry cleaning is a normal good, an increase in consumer income, other
things being equal, will:
a. increase the demand for dry cleaning.
b. decrease the demand for dry cleaning.
c. increase the quantity demanded of dry cleaning.
d. decrease the quantity of dry cleaning demanded.
Scarcity means we are unable to have as much as we would like to have.
Most economists agree that the government should use incomes policies to control
inflation during peacetime.
State and local sales taxes are typically progressive.
The deadweight loss equals the consumer surplus minus the producer surplus resulting
from a non-equilibrium price.
The required reserves of a bank are determined by multiplying the bank’s checkable
deposits by the required reserve ratio.
Fiscal policy is the manipulation of government spending and taxes.
Under a fixed exchange rate system, a government is at risk of running out of foreign
currency reserves when the country’s imports exceed its exports.
The spending multiplier effect is the result of a shift in the aggregate expenditures (AE)
line.
If free trade is opened between two countries, then one country must gain at the other
country’s expense.
All changes in nominal GDP are due to price changes.