A floating exchange rate is one that is allowed to move freely between two points that
have been determined by an exchange treaty.
The 2008 financial crisis peaked in September 2008, when Lehman Brothers declared
bankruptcy.
If the government lowered the capital gains tax, what would be the effect in the
loanable funds market? (Assume the government does not run a budget deficit.)
a. Both the supply and demand for funds would increase, lowering the interest rate and
raising investment spending.
b. The supply of funds would decrease, raising the interest rate and lowering investment
spending.
c. The supply of funds would decrease, lowering both the interest rate and investment
spending.
d. The supply of funds would increase, lowering both the interest rate and investment
spending.
e. The supply of funds would increase, lowering the interest rate and raising investment
spending.
Why is a rightward shift of the labor supply curve difficult to rationalize in the classical
model?
a. The labor supply curve is based on firms’ preferences.
b. Labor supply is very difficult to measure.
c. The labor supply curve is almost never a known entity.
d. Workers’ preferences and therefore labor supply tend to change very slowly.
e. Workers’ preferences and therefore labor supply tend to change very quickly.
If the interest rate increases, the money demand curve
a. shifts to the right.
b. shifts to the left.
c. neither shifts nor changes slope.
d. gets steeper.
e. becomes horizontal.
A country’s total output, or real GDP, is determined only by its aggregate production
function.
Because markets may not clear for several months or even several years, the classical
model
a. is no longer considered valuable by mainstream economists
b. has no value when explaining a situation where excess supply exists
c. is irrelevant to any discussion of a market in which excess demand exists
d. does a better job of explaining short-term fluctuations than long-run growth
e. does a better job of explaining long-run growth than short-run fluctuations
When economists and government officials speak about the money supply, they usually
mean M2.
For any change in net taxes, we can calculate the resulting change in equilibrium GDP
by using the following formula:
a. change in GDP = -MPC/(1 – MPC)
b. change in GDP = [-MPC/(1 – MPC)]x change in taxes
c. change in GDP = MPC x change in taxes
d. change in GDP = MPC/(1 – MPC)
e. change in GDP = [-MPC/(1 – MPC)] + change in taxes
A decrease in supply results in a(n)
a. decrease in demand
b. increase in equilibrium quantity and a decrease in equilibrium price
c. decrease in equilibrium quantity and a decrease in equilibrium price
d. increase in demand
e. increase in equilibrium price and a decrease in equilibrium quantity
If the national debt is growing no faster than GDP,
a. the government will have to raise taxes
b. the nation’s standard of living will fall
c. government investment spending will be negative
d. the government can pay interest on the debt without having to raise taxes
e. the government will be unable to pay interest on the debt
Which of the following would be most likely to increase the demand for money?
a. An increase in the price level
b. A decrease in real income
c. An increase in the interest rate
d. A decrease in the cost of converting other assets into money
e. A decrease in the price level
The Classical model
a. is now discredited
b. was developed by John Maynard Keynes
c. has been completely displaced by the short-run macro model
d. helps us to understand the performance of the economy in the long run
e. is most useful in helping us to predict when an economic downturn will occur
If both the demand and supply curves for computers shift to the right, the price of
computers may rise, fall, or remain unchanged.
Which of the following is a definition of the aggregate production function?
a. the relationship describing which inputs an economy can use with different quantities
of labor
b. the relationship describing how much labor an economy can supply with different
quantities of capital
c. the relationship describing how much output an economy can produce with different
quantities of labor
d. the relationship describing what services an economy can produce with different
quantities of capital
e. the relationship describing how much output a firm can produce with different
quantities of capital
One proposal is to index social security payments
a. to the CPI minus half a percentage point to correct for the CPI’s overstatement of
inflation.
b. to the CPI plus half a percentage point to correct for the CPI’s overstatement of
inflation.
c. to the CPI minus half a percentage point to correct for the CPI’s understatement of
inflation.
d. to the average tax rate that social security recipients face.
e. to the average increase in the CPI over the last five years.