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A high TED spread means that banks expect they are taking on a high level of risk
when they lend to each other.
A) True
B) False
Figure: The Aggregate Consumption Function and Planned Aggregate Spending
Look at the table The Aggregate Consumption Function and Planned Aggregate
Spending. If aggregate wealth decreases, then the:
A) aggregate expenditures curvewill shift up.
B) aggregate expenditures curvewill shift down.
C) economy will move upward along the aggregate expenditures curve.
D) economy will move downward along the aggregate expenditures curve.
An inflationary gap occurs when potential output is above actual aggregate output.
A) True
B) False
In the classical model of the price level, prices are _____, the short-run aggregate
supply curve is vertical, and as a result, a decrease in the money supply leads to _____
in the aggregate price level.
A) sticky; a more than proportional decrease
B) flexible; a proportional decrease
C) sticky; a more than proportional increase
D) flexible; a proportional increase
The model suggesting that countries will specialize in producing the good that uses its
relatively abundant factor of production most intensively is referred to as the _____
model.
A) Heckscher"Ohlin
B) absolute advantage
C) sweatshop labor
D) pauper labor fallacy
In 2000, the market for mortgage-backed securities:
A) grew rapidly because economists had developed a model that seemed capable of
predicting the risk associated with owning mortgage-backed securities.
B) closed down because Congress outlawed mortgage-backed securities.
C) took tremendous losses because the price of energy reached record highs.
D) was developed only in Europe.
Financial assets that carry more risk:
A) usually have a lower rate of return.
B) usually have a higher rate of return.
C) are purchased by risk-averse buyers.
D) are a hedge against the future.
If the Fed decreases the reserve requirement from 10% to 5%, the money multiplier will
_____ and the money supply will most likely _____.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
Goods and services purchased from abroad are _____, while goods and services sold
abroad are _____.
A) exports; imports
B) imports; exports
C) exports; quotas
D) quotas; factors
Historically, governments have turned to seignorage to pay their bills when:
A) the economy is growing.
B) the government lacks the will to reduce the budget deficit by raising taxes or
reducing spending.
C) the inflation rate is low.
D) the unemployment rate is low.
The members of the Board of Governors of the Fed serve 14-year terms.
A) True
B) False
According to the real business cycle theory, fluctuations in output are caused by:
A) fluctuations in the growth rate of total factor productivity.
B) changes in aggregate demand.
C) changes in the money supply.
D) discretionary fiscal policy.
When interest rates are higher in country A than in other countries:
A) other countries will borrow more from country A.
B) capital will flow into country A.
C) capital will flow out of country A.
D) country A will lend more to other countries.
During the 2008 financial crisis:
A) both the United States and the European Union underwent severe economic
downturns.
B) the United States underwent a severe economic downturn, but the European Union
was relatively unaffected by the crisis.
C) the European Union underwent a severe economic downturn, but the United States
was relatively unaffected by the crisis.
D) both the United States and the European Union were unaffected by the crisis, which
was severe in Latin America only.
If an economy has to sacrifice only one unit of good X for each unit of good Y produced
throughout the relevant range, then its production possibility frontier has:
A) a zero slope.
B) a constant negative slope.
C) an increasing negative slope.
D) a decreasing negative slope.
A bank run can result in bank failure because banks keep only a small fraction of their
depositors' funds in the bank vault and are therefore unable to meet their customers'
demands for their money.
A) True
B) False
The official unemployment rate is a useful but not altogether accurate measure of
joblessness.
A) True
B) False
A floating exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. is less expensive to maintain than a fixed exchange rate.
A) I only
B) II only
C) I and II
D) neither I nor II
The Reconstruction Finance Corporation:
A) was established to extract war reparations from the South after the Civil War.
B) supervised the government assistance to AIG and Lehman Brothers.
C) was established in the 1930s to make loans to banks and to buy their preferred stock.
D) supervised the rebuilding of Iraq.
Unemployment rates are usually highest for:
A) white teenagers.
B) African American teenagers.
C) male workers aged 25 to 54.
D) female workers aged 25 to 54.
The _____ apples will decrease when apple prices rise.
A) demand for
B) quantity demanded of
C) supply of
D) equilibrium of
Look at the table Monetary Aggregates. The value of M1 is:
A) $880 billion.
B) $895 billion.
C) $2,005 billion.
D) $920 billion.
The idea that relatively poor nations should have higher rates of growth of real GDP per
capita than relatively rich nations is known as the:
A) East Asian miracle.
B) Industrial Revolution.
C) sustainable development hypothesis.
D) convergence hypothesis.
Which of the following is NOT a government transfer?
A) unemployment compensation
B) food stamps
C) payments by the Defense Department for a new weapons system
D) Social Security benefits paid to someone who is retired
The United States can produce wine domestically, but it can also import wine if the
world price is lower than the domestic price. If the United States imports wine,
consumer surplus will _____ by _____ the _____ in producer surplus; total surplus will
_____.
A) increase; less than; decrease; decrease
B) increase; the same amount as; decrease; stay constant
C) decrease; less than; increase; increase
D) increase; more than; decrease; increase
The belief that government spending will crowd out private spending is part of:
A) new Keynesian economics.
B) Keynesian economics.
C) monetary policy.
D) monetarism.
In debt overhang consumers' debt level is diminished and the value of their assets has
increased.
A) True
B) False
A fixed exchange rate:
I. leaves monetary policy available for domestic stabilization.
II. is less expensive to maintain than a floating exchange rate.
A) I only
B) II only
C) I and II
D) neither I nor II
Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(a) and the government decides to intervene, it will most likely:
A) increase taxes.
B) decrease the money supply.
C) increase its spending.
D) decrease its spending.
A new wonder diet that results in a dramatic weight loss sweeps through the United
States. The key to the diet is to eat unlimited amounts of red meat (beef) but no poultry
or carbohydrate-rich foods. As millions of Americans switch to the new diet, we can
expect a(n) _____ in the _____ beef, leading to a shift to the _____ in the _____ curve
for beef and _____ beef prices.
A) increase; demand for; right; demand; higher
B) increase; demand for; right; demand; lower
C) decrease; supply of; left; supply; higher
D) decrease; demand for; left; demand; higher
In financial markets:
A) households sell liabilities.
B) wealth is transformed into savings.
C) households purchase financial assets.
D) physical assets change hands.
