Which of the following is an advantage to the recipient of foreign investment?
A) Foreigners are content to receive lower profits and interest rates than are domestic
investors.
B) Foreigners don’t expect to receive profits and interest as often as do domestic
investors.
C) Domestic firms with foreign investors are exempt from domestic income taxes on a
portion of their net income.
D) Foreign companies often bring new technology to the recipient country, and this
increases productivity.
If the target rate of interest is higher than the equilibrium interest rate, the Federal
Reserve will _____ Treasury bills in the open market, _____ the supply of money, and
_____ the interest rate to the target rate.
A) sell; increase; lower
B) buy; increase; lower
C) sell; decrease; raise
D) buy; decrease; raise
A new startup airline is offering free round-trip tickets to anywhere to the first 600
people who enter the office on the airline’s first day of business. You arrive 24 hours
before it is scheduled to open to be sure to get the free tickets, and you buy food from
vendors while waiting in line. The cost of the tickets to you is:
A) zero.
B) the cost of food while you wait in line.
C) the cost of food while you wait in line and the opportunity cost of your time spent in
line.
D) the actual value of the ticket.
Discretionary fiscal policy is the direct result of deliberate actions by policy makers
rather than an automatic adjustment.
A) True
B) False
The accelerator principle states that planned investment spending by firms is:
A) positively related to the expected growth of real GDP.
B) negatively related to the expected growth of real GDP.
C) negatively related to the current level of real GDP.
D) positively related to the current level of real GDP.
Figure: Monetary Policy II
Look at the figure Monetary Policy II. If the short-run equilibrium is at Y2, appropriate
central bank policy is:
A) contractionary.
B) expansionary.
C) neutral.
D) balanced.
Which of the following is an example of an import quota?
A) A limit on the total number of shoes imported from Italy.
B) Regulations specifying that each imported toy from China must meet certain safety
guidelines.
C) A tax of $100 on each Suzuki motorcycle produced in the United States.
D) A tax of 10% of the value of each Suzuki motorcycle imported from Japan.
Devaluation is reduction in the:
A) value of a currency due to inflation.
B) value of a currency in a floating exchange rate system.
C) value of a currency in a fixed exchange rate system.
D) rate of inflation of a country.
A graphical representation of the relationship between the total quantity of goods and
services demanded and the price level is the:
A) aggregate demand curve.
B) average price level.
C) circular-flow model.
D) GDP curve.
According to monetarism:
A) Congress and the president should be responsible for controlling the money supply.
B) output will grow steadily if the money supply grows at a steady rate.
C) the Fed should vary the growth rate of the money supply on a monthly basis.
D) changes in the money supply affect the real output only in the long run.
The quantity demanded of money is negatively related to _____, and the demand for
money is positively related to _____.
A) the interest rate; real GDP
B) the interest rate; unemployment
C) real GDP; the interest rate
D) real GDP; the money supply
The initial impact of a sudden decrease in the growth rate of GDP will most likely be a
change in _____ investment spending.
A) planned
B) unplanned
C) both planned and unplanned
D) neither planned nor unplanned
If the Federal Open Market Committee conducts an open market purchase:
A) interest rates will fall.
B) interest rates will remain unchanged.
C) interest rates will rise.
D) the money supply will decrease.
The student center on campus has burritos, bagels, or burgers for lunch, and they all
cost the same. You love burgers and bagels, but you decide to have a burger today. If
they were out of burgers, you would have bought a bagel. This statement best represents
this economic concept:
A) The real cost of something is what you must give up to get it.
B) “How much” is a decision at the margin.
C) Resources are used to produce something else.
D) There are gains from trade.
A credit crunch causes a recession because:
A) potential borrowers can’t get loans or must pay very high interest rates, so they cut
back on spending.
B) banks have a surplus of funds to loan, so interest rates fall to very low levels.
C) unemployment falls to very low levels, causing a problem of inflation.
D) interest rates are so low that investors’ incomes fall, and they decrease their
spending.
Foreign currencies are traded in the _____ market.
A) stock
B) bond
C) commodities
D) foreign exchange
Which of the following is a normative statement?
A) The rate of unemployment is 9%.
B) The price of gasoline should be less than $4 per gallon.
C) The federal government spends half of its budget on national defense.
D) Millions of Americans lack health insurance.
Look at the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours
per day and divides the remaining time between study time and leisure time. The table
shows the combinations of study and leisure time that can be produced in the 16 waking
hours of each day. Suppose the student completes a speed-reading course that allows
him to do the same amount of studying in half as many hours. His opportunity cost:
A) of leisure has increased.
B) of studying has increased.
C) of leisure has decreased.
D) has not changed.
Figure: Strawberries and Submarines
Look at the figure Strawberries and Submarines. As the economy moves from point A
toward point D, it will find that the opportunity cost of each additional submarine:
A) falls.
B) rises.
C) remains unchanged.
D) doubles.
If Benjamin considers sushi to be a normal good and if his income increases by 20
percent, his purchases of sushi will:
A) decrease by 20 percent.
B) increase.
C) decrease.
D) not change.
The government can increase savings by:
A) taxing more than it spends.
B) spending more than it taxes.
C) increasing inflation.
D) increasing the deficit.
Contractionary monetary policy causes _____ in the price level in the short run and
_____ in the price level in the long run.
A) no change; a decrease
B) a decrease; a decrease
C) a decrease; no change
D) no change; no change
Core inflation EXCLUDES the price of:
A) new cars.
B) luxury items, such as fur coats.
C) houses.
D) energy and food.
Seignorage refers to the:
A) problems faced by Social Security as the population ages.
B) government’s right to print money.
C) problems senior citizens face in retirement.
D) problems created when the government prints too much money.
The effect of the harsh budget cuts required by the European countries who made
emergency loans to Greece in 2011 was:
A) the speedy return of the Greek economy to full employment.
B) an inflationary gap in the Greek economy.
C) that the Greek economy fell into a liquidity trap.
D) that the Greek economy became even more depressed and was unable to repay its
debts in full.
In a simple economy with no taxes, government spending, exports, or imports, if
disposable income increases by $100 and $70 is consumed, _____ is saved.
A) $30
B) $70
C) $100
D) $170
The _____ money paid back after borrowing money, the _____ the interest rate.
A) more; higher
B) less; higher
C) more; lower
D) There is not enough information to determine the answer.
Which of the following is a tangible object that can be used to generate future income?
I. a financial asset
II. a physical asset
III. a liability
A) I only
B) II only
C) III only
D) I, II, and III
Money is whatever the government decrees is money.
A) True
B) False
A change in _____ has the most DIRECT effect on aggregate demand.
A) taxes
B) interest rates
C) the money supply
D) government spending
All of the following factors determine planned investment spending EXCEPT:
A) expected real GDP.
B) expectations about disposable income.
C) the market interest rate.
D) production capacity.
The balance sheet effect is the increase in a firm’s net worth due to falling asset prices.
A) True
B) False
Keynes believed that “animal spirits,” or confidence levels, had their greatest impact on:
A) investment spending.
B) government spending.
C) monetary policy officials.
D) the foreign sector.
In economies with persistently high inflation, an increase in the money supply will
have:
A) a positive effect on the real quantity of money in the long run.
B) a negative effect on the real quantity of money, as the aggregate price level increases
by more than the money supply.
C) a positive effect on the aggregate real output in the long run.
D) no effect on the real quantity of money, making money neutral in the long run.