If there is a sudden increase in government spending, which of the following should the
Fed do if it wants to keep the price level steady?
a. Do nothing, since the self-correcting mechanism will adjust the economy
b. Sell bonds in the open market
c. Wait, since the price level usually does not change when government spending
increases
d. Decrease the required reserve ratio
e. Buy bonds in the open market.
Economists who focus on long-run growth suggest that the government could lower
taxes on labor income in order to increase employment.
An industry’s typical percentage markup
a. should be expected to fluctuate wildly from year to year
b. equals 1 – (average cost per unit/average revenue per unit)
c. is determined by collusion
d. is of price concern for the macroeconomy
e. is relatively low if there is fierce competition among firms.
The demand deposit multiplier is likely to be smaller than 1/RRR if
a. the public will not want to change its holdings of currency
b. the public holds no currency
c. banks want to hold excess reserves
d. want to hold no excess reserves
e. banks increase the number of loans they offer to make a larger profit
A decrease in government spending would
a. lower the interest rate, which is unlikely to influence private investment spending
b. raise the interest rate and decrease private investment spending
c. lower the interest rate and decrease private investment spending
d. raise the interest rate and increase private investment spending
e. lower the interest rate and increase private investment spending
Diminishing marginal returns means that aggregate production function is
a. linear
b. downward sloping
c. upward sloping
d. concave
e. convex
After the Fed makes an open market purchase of bonds, the deposit-creation process
may continue only to the point where
a. the Fed reverses course and sells bonds
b. the Fed changes the required reserve ratio
c. all excess reserves have been converted into required reserves
d. all required reserves have been converted into excess reserves
e. the Fed raises interest rates
It is possible for an economy to produce more than its potential level of output, at least
for a short period of time.
An increase in the money supply will increase both the amount of money demanded
and output.
Which of the following would not lead to a shift of the demand curve for apples?
a. an increase in the price of oranges
b. a decrease in incomes for consumers
c. a decrease in the supply of apples
d. an increased preference for apples
e. a decrease in the population
Which of the following would shift the money demand curve to the left?
a. A decrease in the price level.
b. An increase in the interest rate.
c. An increase in the price level.
d. An increase in real income.
e. None of the above.
A good economic model
a. is as simple as possible, including only necessary details
b. is as complex as possible, including many details
c. represents reality as concretely as possible
d. tries to be as detailed as the reality it is describing
e. is very detailed regardless of its purpose
The Federal Reserve is
a. part of the executive branch of the government
b. not part of any branch of the government
c. part of the judicial branch of the government
d. part of both the legislative and the judicial branch of the government
e. part of both the executive and the legislative branch of the government
In the long run, there is a no tradeoff between inflation and unemployment.