When milk prices increased in 2008, one milk consumer stated that the reason he cut
down on milk consumption was so that he could drive his car. This action represents a:
A) movement along the demand curve for milk.
B) movement along the supply curve for milk.
C) shift of the demand curve for milk.
D) shift of the supply curve for milk.
According to historical economic data for the United States from 1949 to 2014, the
unemployment rate is most likely to rise:
A) whenever the economy grows at a rate below 3.25%.
B) only when there is no economic growth.
C) only when there is positive economic growth.
D) whenever the economy grows at a rate between 4% and 4.8%.
When the economy is developing an inflationary gap, the Fed should increase the
money supply to decrease interest rates.
A) True
B) False
From 2010 to 2011 nation A’s real GDP increased from $100 billion to $106 billion and
its population grew from 50 million to 51 million. As a result real GDP per capita
_____, because it rose _____ than the population.
A) increased; more slowly
B) increased; faster
C) decreased; more slowly
D) decreased; faster
The discount rate is usually exactly equal to the federal funds rate.
A) True
B) False
If Brazil gives up three automobiles for each ton of coffee it produces, while Peru gives
up seven automobiles for each ton of coffee it produces, then Brazil has a comparative
advantage in _____ production and should specialize in _____.
A) automobile; coffee
B) coffee; automobiles
C) coffee; coffee
D) automobile; automobiles
Figure: Fiscal Policy Options
Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD”:
A) the economy is in long-run equilibrium.
B) an expansionary fiscal policy may be warranted.
C) a contractionary fiscal policy may be warranted.
D) the economy is in a recessionary gap.
Scenario: Exchange Rates
The value of a euro goes from US$1.25 to US$1.50.
Look at the scenario Exchange Rates. In the United States, exports will _____ and
imports will _____.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
Figure: The Demand and Supply of Wheat
Look at the figure The Demand and Supply of Wheat. What is the equilibrium quantity
in this wheat market?
A) 12,000 bushels
B) 2,000 bushels
C) 10,000 bushels
D) 6,000 bushels
Which of the following is NOT a resource in the production of rice?
A) fertile land
B) labor
C) capital equipment
D) money
Challenges to Keynesian economics were based on:
A) the fact that lags in fiscal policy make it relatively ineffective.
B) the liquidity trap, which makes fiscal policy ineffective.
C) the possibility of a trade-off between inflation and unemployment.
D) the usefulness of discretionary fiscal policy.
The consumer price index is used to set payments from the U.S. government to
individuals. To the extent it is biased upward, this index:
A) leads to lower benefits.
B) raises government expenditures.
C) lowers government expenditures.
D) leads to lower benefits and raises government expenditures.
South Korea has real GDP per capita of $25,000, while England has real GDP per
capita of $50,000. If real GDP per capita in South Korea grows at 7% and England’s
real GDP per capita grows at 3.5%, how long will it take for real GDP per capita in the
two nations to converge?
A) 10 years
B) 20 years
C) 25 years
D) 35 years
In the United States, financial crises have often resulted in:
A) increased calls for tighter financial regulation.
B) more competition in the financial industry.
C) no changes in the financial industry, since such crises are rare.
D) less financial regulation.
Since they reduce uncertainty, fixed exchange rates are good for business.
A) True
B) False
The advantage of a fixed exchange rate is that it:
A) leaves monetary policy available for macroeconomic stabilization.
B) eliminates the possibility of the twin deficits.
C) eliminates uncertainty about the value of a currency.
D) tends to create trade surpluses.
The U.S. inflation rate was lower in the 2000s than it was in the 1970s.
A) True
B) False
Although for smokers the marginal benefit from smoking may exceed the marginal cost
of smoking, the negative effects of second-hand smoke may increase the marginal costs
of smoking to society to a point where it exceeds that marginal benefit to society. This
is an example of:
A) individual actions whose side effects are not properly taken into account by the
market.
B) one party preventing mutually beneficial trades in an attempt to capture a greater
share of resources for itself.
C) some goods’ unsuitability for efficient management by markets.
D) regulating self-interest.
The Federal Open Market Committee, composed of the Board of Governors and five of
the regional bank presidents, makes the decisions about monetary policy.
A) True
B) False
Whenever real GDP exceeds planned aggregate expenditure, unplanned investment is
_____; whenever real GDP falls short of planned aggregate expenditure, unplanned
investment is _____.
A) positive; negative
B) negative; positive
C) zero; positive
D) zero; negative
If debt increases faster than GDP, the ratio of debt to GDP will fall.
A) True
B) False
The long-run Phillips curve is:
A) the same as the short-run Phillips curve.
B) negatively sloped, showing an inverse relationship between unemployment and
inflation.
C) vertical at the nonaccelerating inflation rate of unemployment (NAIRU).
D) unrelated to the NAIRU.
When the Fed conducts open market purchases from banks, interest rates are most
likely to:
A) decrease.
B) increase.
C) remain constant.
D) fluctuate randomly.
Imports are good and services that are:
A) sold outside of the country.
B) domestically produced.
C) purchased from another country.
D) purchased inside the country.
Loans to home buyers who do not qualify for a standard mortgage are called _____
mortgages.
A) subsidized
B) subprime
C) government-guaranteed
D) shadow
Scenario: Money Supply Changes
The reserve requirement is 10% and Jack withdraws $5,000 travel money from his
checkable deposit. Assume that banks do not hold any excess reserves and that the
public holds no currency, only checkable bank deposits.
Look at the scenario Money Supply Changes. As a result of the withdrawal, required
reserves _____ by _____.
A) increase; $5,000
B) increase; $500
C) decrease; $5,000
D) decrease; $500
If a worker becomes unemployed because of an increase in the minimum wage, that
worker is:
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) engaged in job search.
If 99 million people are working and 1 million are unemployed but actively seeking
work, then the unemployment rate is:
A) 1%.
B) 5%.
C) 10%.
D) 100%.
Table: Price Levels
2011 221.3
2012 227.7
2013 232.2
2014 234.8
Look at the table Price Levels. What is the rate of inflation from 2012 to 2013?
A) 6.4%
B) 4.5%
C) 2.9%
D) 2.0%
If there has been a downward movement along the fixed short-run Phillips curve, the
_____ curve has shifted to the _____.
A) AD; left
B) AD; right
C) SRAS; left
D) SRAS; right
Scenario: Capital
An economy initially has 200 units of physical capital per worker. Each year it
increases the amount of physical capital by 10%. According to the aggregate production
function for this economy, each 1% increase in physical capital per worker, holding
human capital and technology constant, increases output per worker by 0.25%.
Look at the scenario Capital. In three years’ time, what is the level of physical capital
per worker in this economy?
A) 220 units
B) 242 units
C) 266.2 units
D) 200 units
Actual investment spending equals:
A) the difference between unplanned investment spending and planned investment
spending.
B) the difference between planned investment spending and unplanned investment
spending.
C) the sum of planned investment spending and unplanned investment spending.
D) the ratio of planned investment spending to unplanned investment spending.