If government purchases decrease so the budget may be balanced, some government
transfers will automatically increase, reducing the multiplier effect.
A) True
B) False
If a country runs a trade deficit, its investment spending is probably:
A) above its level of saving.
B) less than its level of saving.
C) equal to its level of saving.
D) equal to zero.
Stagflation occurs when the aggregate price level _____ and the aggregate output level
_____.:
A) falls; falls
B) falls; rises
C) rises; falls
D) rises; rises
Since 1960 in the United States, the rate of inflation has:
A) fluctuated.
B) remained the same.
C) decreased.
D) increased.
Some economists argue that when a government tries too hard to stabilize the economy
through fiscal or monetary policy, it can end up making the economy less stable.
A) True
B) False
Planned investment spending is _____ related to the interest rate because a _____ in the
market interest rate _____.
A) positively; fall; decreases the supply of loanable funds
B) negatively; rise; makes any given investment project less profitable
C) positively; fall; decreases the opportunity cost of investing
D) negatively; rise; causes consumption to crowd out investment
Figure: Change in the Demand for U.S. Dollars
Look at the figure Change in the Demand for U.S. Dollars. The change from D1 to D2
will occur, all other things being equal, if:
A) interest rates are higher in Europe.
B) interest rates are higher in the United States.
C) interest rates in the United States and Europe are equal.
D) inflation is higher in Europe.
The demand for stocks:
A) is largely a guessing game.
B) mostly depends on their price.
C) is mostly a function of buyers’ beliefs about their future prices.
D) comes from companies who want to borrow money.
Look at the table Production Possibilities Schedule II. If an economy is producing at X,
the opportunity cost to it of producing at Y is _____ units of consumer goods per period.
A) 2
B) 1
C) 6
D) 18
A mortgage-backed security is an asset that provides earnings to its owner based on
interest on the national debt paid by the Federal Reserve.
A) True
B) False
Real business cycle theory suggests that changes in _____ are the primary cause of
business cycles.
A) aggregate demand
B) the growth of factor productivity
C) fiscal policy
D) monetary policy
The business cycle and the budget balance are unrelated.
A) True
B) False
If the growth rate of GDP is above its historical average, then there is a tendency for the
unemployment rate to:
A) fall to zero.
B) rise.
C) fall.
D) stabilize.
Deflation:
A) raises the cost of making purchases.
B) can result in an increase in employment.
C) encourages people to hold cash rather than invest.
D) is caused by changes in interest rates.
To increase the money supply, the central bank could make open-market purchases.
A) True
B) False
If the NASDAQ is down and the Dow Jones Industrial Average is higher on a particular
day, which of the following is likely to be TRUE?
A) Investors are optimistic about the technology sector and pessimistic about the
old-economy sector.
B) Investors are pessimistic about the technology sector and optimistic about the
old-economy sector.
C) Investors prefer bonds to stocks.
D) Investors prefer stocks to bonds.
Increases in the average level of prices are called:
A) depreciation.
B) deflation.
C) inflation.
D) expectations.
Suppose the economy is operating at an output level of $5,400 billion. Assume
furthermore that potential output is $5,000 billion and the marginal propensity to
consume is 0.75. _____ would close this inflationary gap.
A) A $400 billion tax hike
B) Raising government purchases of goods and services by $400 billion
C) Decreasing government purchases of goods and services by $100 billion
D) Increasing government purchases of goods and services by $100 billion
A typical family in the United States in 1900 had a purchasing power equal to _____ of
the real U.S. GDP per capita in 2010.
A) 1%
B) 13%
C) 70%
D) 136%
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. Income”expenditure equilibrium
is achieved when GDP is:
A) $8,000.
B) $7,000.
C) $3,500.
D) $700.
The rate of unemployment is found by dividing the:
A) number of people looking for work by the population.
B) number of people not working but looking for work by the number of people not
working but looking for work plus the number of people employed.
C) labor force by the number of people looking for work.
D) unemployed and discouraged workers by the labor force.
Higher interest rates encourage investment spending.
A) True
B) False
Natural resources:
A) are still the most important factor in determining the productivity of human or
physical capital for all countries.
B) are the only factor that consistently shows a positive effect on productivity for
wealthy countries.
C) are a less significant source of productivity growth in most countries today than in
earlier times.
D) can be used to explain the differences in productivity growth among countries.
Government’s efforts to stabilize the business cycle through fiscal policy can destabilize
the economy because of:
A) the time necessary to draw up a budget appropriate to the circumstances.
B) a negative interaction between fiscal and monetary policy due to the multiplier
effect.
C) a tendency of prices to change faster than the interest rate.
D) business cycles that are closely synchronized to the political cycle.
To hinder growth, a government might:
A) provide basic health measures.
B) support research and development.
C) not protect property rights.
D) encourage saving.
When the Treasury Department borrows from the public to finance the government’s
purchases of goods and services and the Fed buys the debt back from the public in the
form of Treasury bills, it is known as:
A) moral suasion.
B) money illusion.
C) structuring the deficit.
D) monetizing the debt.
In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of
tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750
boxes of tulips. In autarky, the opportunity cost of 1 ton of beef in the Netherlands is:
A) 100 tons of beef.
B) 1,000 boxes of tulips.
C) 10 boxes of tulips.
D) 0.1 box of tulips.
When the government invests in building roads, ports, and a reliable power grid, it is
investing in a nation’s:
A) private property.
B) human capital.
C) technological progress.
D) infrastructure.
Greta starts using a new baking technique, and she can now do twice as much of
everything. In a single day Greta can now make 10 cakes or 8 pies, rather than the 5
cakes and 4 pies she could previously bake. Greta’s production possibility frontier has
_____, but her opportunity costs of making pies _____.
A) shifted right; are unchanged
B) shifted right; have decreased
C) not changed; have increased
D) not changed; have decreased
An inferior good is one for which a(n) _____ in buyers’ income causes a(n) _____.
A) increase; increase in demand
B) increase; increase in quantity demanded
C) increase; decrease in demand
D) decrease; decrease in demand