Suppose that commodity prices across the economy begin to fall and consumers and
firms begin to expect a lower rate of inflation. The SRAS curve will shift to the _____,
and the short-run Phillips curve will shift _____.
A) left; downward
B) right; downward
C) left; upward
D) right; upward
Figure: Shifts in Demand and Supply II
Look at the figure Shifts in Demand and Supply II. The figure shows how supply and
demand might shift in response to specific events. Suppose the birthrate decreases.
Which panel BEST describes how this will affect the market for diapers?
A) panel A
B) panel B
C) panel C
D) panel D
Which of the following assets is the MOST liquid?
A) currency
B) checking account balance
C) stock in a publicly traded company
D) a townhouse
The costs that arise from the way inflation makes money a less reliable unit of
measurement are:
A) shoe-leather costs.
B) menu costs.
C) unit-of-account costs.
D) medium of exchange costs.
Figure: Consumption and Real GDP
Look at the figure Consumption and Real GDP. The marginal propensity to consume is:
A) 0.
B) 0.5.
C) 1.0.
D) 2.0.
Figure: Demand for DVDs
Look at the figure Demand for DVDs. A decrease in the price of DVD players (a
complement) would result in a change illustrated by the move from:
A) f to g in panel A.
B) h to i in panel B.
C) j to k in panel C.
D) l to m in panel D.
An economic model:
A) is useful for explaining past economic conditions but not for predicting.
B) often leads to faulty conclusions because of the ceteris paribus assumption.
C) allows nothing to change in the economic situation that is being described.
D) is a simplified version of reality used to understand real-world economic conditions.
The main difference between a tariff and an import quota is that:
A) an import quota reduces imports more sharply than a tariff.
B) a tariff will cause higher prices than an import quota.
C) a tariff generates tax revenue, while an import quota generates rents to the license
holders.
D) a tariff will cause lower prices than an import quota.
The Great Moderation consensus is that:
A) fiscal policy should play the main role in stabilization policy.
B) monetary policy should play the main role in stabilization policy.
C) automatic stabilizers should be the only type of policy used.
D) government budgets should always be balanced.
Microsoft, a Seattle software company, purchases a new office building in Vancouver.
In the U.S. balance of payments account, this transaction is entered as a payment _____
foreigners in the _____ account.
A) from; current
B) to; financial
C) to; current
D) from; financial
When consumers receive more disposable income, their spending:
A) will increase.
B) will decrease.
C) will stay the same, but their savings will decrease.
D) and their savings will both decrease.
Figure: Aggregate Expenditures Curve III
Look at the table Aggregate Expenditures Curve III. Suppose that the consumption
function shifts upward by $100. Equilibrium real GDP will rise by:
A) $100.
B) $400.
C) $800.
D) $3,200.
Wall Street is:
A) a district in New York City where all major investment companies have their
headquarters.
B) a district in New York City where most fashion designers have their headquarters.
C) an area of San Francisco where imports are received from other countries and from
which exports are shipped.
D) a street in Houston, Texas, where major oil companies have their headquarters.
As a country’s public debt grows, the portion of its budget devoted to interest payments
on the debt will decrease.
A) True
B) False
Potential real GDP is $10,000 and the current level of real GDP is $9,000. The output
gap is therefore:
A) “90%.
B) “110%.
C) “10%.
D) 10%.
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. Other things being equal, a
decrease in taxes on savings and investment income will shift _____ to the _____ and
_____ the interest rate.
A) demand; right; increase
B) demand; left; decrease
C) supply; right; decrease
D) supply; left; increase
During the banking crisis in the early 1930s approximately _____ of the banks in the
United States failed.
A) 2%
B) 10%
C) 40%
D) 90%
Diminishing returns to physical capital suggests that:
A) when the amount of human capital per worker and the state of technology are fixed,
successive increases in the amount of physical capital per worker lead to smaller
increases in productivity.
B) physical capital increases lead to drops in productivity when the amount of human
capital per worker and the state of technology are fixed.
C) increases in technological progress lead to decreases in productivity.
D) physical capital must be increased less than human capital and technological
progress for growth to occur.
Figure: Consumer and Capital Goods
Look at the figure Consumer and Capital Goods. Point Z:
A) is unattainable, all other things unchanged.
B) is attainable if the economy is able to reach full employment.
C) is attainable if the quantity and/or quality of factors decreases.
D) will be attained as soon as the economy becomes efficient and moves to curve 2.
If government decided to increase taxes or decrease its spending, most likely this was to
correct:
A) a recession.
B) inflation.
C) high unemployment.
D) equilibrium.
Alice goes to the local supermarket to purchase one package of her favorite taco shells.
She often pays $1.50 for a package, but she finds they are on sale for $1 each.
According to the law of demand, one can expect Alice to:
A) purchase an alternative good.
B) purchase more than one package of taco shells.
C) decide not to purchase taco shells on this visit.
D) buy only one package of taco shells.
Purchasing power parity refers to:
A) the number of units of foreign currency a dollar will buy.
B) the amount of foreign assets the United States is buying.
C) the amount of U.S. assets a foreign country is buying.
D) the nominal exchange rate for which a market basket would cost the same in each
country.
Table: Price and Output Data
Look at the table Price and Output Data.
Between years 2 and 3 the amount of change in nominal GDP due to inflation was:
A) 100%.
B) 34%.
C) 22%.
D) 5%.
If the exchange rate is $1 = 110, a $20,000 Ford truck costs _____ in Japan.
A) 20,000
B) 18,182
C) 2.2 million
D) 3 million
A reduction in the value of a fixed rate currency is called a depreciation.
A) True
B) False
Planned investment spending is:
A) investment that firms intend to make during a given period.
B) inventory investment changes.
C) not considered part of GDP.
D) dependent only on interest rates.
Historical evidence shows that for determining a country’s living standards, over:
A) an extended period, long-run growth is just as important as the business cycle.
B) short periods, long-run growth is less important than the business cycle.
C) an extended period, long-run growth is much more important than the business
cycle.
D) long periods, it is difficult to determine whether the business cycle or long-run
growth is more important.
A blockade at the border between the United States and Canada prevents the entry of all
lumber products to the United States from Canada. This blockade will:
A) increase the consumer surplus for American lumber consumers.
B) decrease the producer surplus for Canadian lumber producers.
C) increase the total surplus for the American lumber market.
D) increase the total surplus for the Canadian lumber market.
The Federal Reserve can influence financial crises because it:
A) determines tax rates.
B) determines government spending.
C) conducts monetary policy.
D) is responsive to the people who elected its members to office.
Real GDP equals $400 billion, the government collects 25% of any increase in real
GDP in the form of taxes, and the marginal propensity to consume is 0.8. If potential
output equals $250 billion, the government could close the _____ gap by decreasing
government spending by _____.
A) recessionary; $30 billion
B) recessionary; $150 billion
C) inflationary; $30 billion
D) inflationary; $60 billion
The present value of a future payment _____if the _____.
A) decreases; interest rate increases
B) increases; future payment decreases
C) decreases; interest rate decreases
D) increases; stock market falls