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According to the monetarists, which of the following is true?
a. Instability in the money supply is the primary cause of economic instability.
b. A reduction in the money supply will cause consumers to increase spending.
c. A reduction in the money supply will cause a proportional reduction in wages and
prices, leaving output unchanged.
d. A rapid growth rate of the money supply will lead to a rapid growth rate of real GDP.
In a simplified banking system in which all banks are subject to a 10 percent required
reserve ratio, a $1,000 open market sale by the Fed to a bank would cause the money
supply to:
a. increase by $1,000.
b. increase by $100,000.
c. decrease by $10,000.
d. decrease by $1,000.
e. remain unchanged.
The number of people officially unemployed is not the same as the number of people
who can't find a job because:
a. people who have jobs continue to look for better ones.
b. the armed forces is included.
c. discouraged workers are not counted.
d. none of the above.
The equation for the spending multiplier is:
a. 1 / (1 - MPC).
b. 1 - MPC.
c. 1 - (MPC - MPS).
d. MPC / MPS.
e. none of these.
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 AD1 to AD2?
a. Raise the legal reserve requirement.
b. Lower the discount rate.
c. Lower the federal funds rate.
d. Sell government securities.
e. Raise the federal funds rate.
Economic values that are measured in units per period of time are referred to as:
a. stocks.
b. flows.
c. unit values.
d. dollars.
The sum of the marginal propensity to consume (MPC) and the marginal propensity to
save (MPS) always equals:
a. 1.
b. 0.
c. the interest rate.
d. the marginal propensity to invest (MPI).
As shown in Exhibit 7-2, the rate of inflation for Year 4 is:
a. 5 percent.
b. 10 percent.
c. 19 percent.
d. 20 percent.
e. 25 percent.
If MPC = 0.80, how much should government spending change to increase real GDP by
$500?
a. -100.
b. +80.
c. -80.
d. +500.
e. +100.
One method of correcting for ____ externalities is to create a ____ to make sure the
market accounts for all costs and benefits.
a. market failure; tax
b. negative; tax
c. positive; mechanism
d. positive; tax
e. negative; free market
Which of the following represents positive economics?
a. Policy A is fair.
b. Outcome B is the best objective to achieve.
c. If policy A is followed, then outcome B results.
d. All of these.
Which of the following statements is true?
a. Above the optimal tax rate, a reduction in tax rates along the downward-sloping
portion of the Laffer curve would increase tax revenues.
b. According to supply-side fiscal policy, lower tax rates would shift the aggregate
demand curve to the right, expanding the economy and creating some inflation.
c. The presence of the automatic stabilizers tends to destabilize the economy.
d. To combat inflation, Keynesians recommend lower taxes and greater government
spending.
The federal funds market is the market in which:
a. banks borrow from the Fed.
b. bank customers borrow from their banks
c. banks borrow from each other.
d. the federal government borrows from the Fed.
e. the federal government borrows from members of the general public.
For a normal good, an increase in consumer income will cause the market demand for
the product to:
a. decrease, which is a shift to the left of the demand curve.
b. decrease, which is a shift to the right of the demand curve.
c. increase, which is a shift to the left of the demand curve.
d. increase, which is a shift to the right of the demand curve.
If income increases, then with regard to expensive cuts of steak, it is likely that the
demand curve:
a. shifts to the right.
b. shifts to the left.
c. becomes steeper.
d. does not change.
e. becomes flatter.
Which of the following appears on the asset side of a bank's balance sheet?
a. Required reserve deposits.
b. Loans.
c. Excess reserves.
d. All of these.
SeveralitemsfromthefinancialstatementsofStandardTiresarelistedbelow.Usethefollowing
answerchoicestoidentifythetypeofaccountforeachitemlisted.Placeyouranswersinthespac
eprovided.
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Owners' equity Selling expenses
Exhibit 8-5 Aggregate expenditures function
As shown in Exhibit 8-5,
saving occurs:
a. at 0.
b. between 0 and $4 trillion.
c. where disposable income is greater than $4 trillion.
d. at $2 trillion.
