In the long run, an increase in AD will result in:
A) no change in the aggregate price level.
B) no change in the aggregate output level.
C) increases in both the aggregate price level and the aggregate output level.
D) an increase in the aggregate price level but no change in the aggregate output level.
The long-run aggregate supply curve is vertical because in the long run:
A) technological progress outpaces raises in nominal wages.
B) all factors of production increase.
C) the price of labor is flexible, while the price of physical capital is fixed.
D) all prices are flexible.
To close an inflationary gap, the Great Moderation consensus on macroeconomics
suggests that:
A) a close coordination of fiscal and monetary policy is crucial.
B) the automatic fiscal stabilizers are powerful enough to bring the economy back to
equilibrium.
C) policy makers should wait until a negative productivity shock brings the economy
back to equilibrium.
D) monetary policy should take the leading role in economic stabilization.
The classical model of the price level is more accurate during low inflation than high
inflation.
A) True
B) False
In autarky a country:
A) trades with other countries based on comparative advantage.
B) trades with other countries based on absolute advantage.
C) does not trade with other countries.
D) follows the Heckscher”Ohlin model of trade behavior.
The Wall Street Reform and Consumer Protection Act established a government
committee with the right to regulate ‘systemically important” nonbank financial
institutions as if they were banks.
A) True
B) False
When Disney builds a new amusement park in the United States, it is counted as part of
GDP.
A) True
B) False
Inflation targeting is different from the Taylor rule because the Taylor rule is based on a
forecast of inflation, but inflation targeting adjusts monetary policy to past inflation.
A) True
B) False
Shadow banks differ from commercial banks because shadow banks:
A) accept deposits only from businesses and state and local governments, not from
individuals.
B) are not subject to as many regulations as commercial banks.
C) are not allowed to pay interest on deposits.
D) can operate branches in more than one state.
The interest rate is 5% in the market for loanable funds. Investors wish to borrow $100
million and savers wish to save $125 million at this interest rate. We would expect the
interest rate to _____, as there is a _____ of loanable funds.
A) fall; shortage
B) rise; surplus
C) rise; shortage
D) fall; surplus
According to supply-side economics, tax cuts:
A) cause dangerous budget deficits.
B) unfairly sacrifice equity to efficiency.
C) increase incentives to work and save and cause increases in potential output.
D) increase output by directly increasing aggregate demand.
Figure: Consumer and Capital Goods
Look at the figure Consumer and Capital Goods. The movement from curve 1 to curve
2 indicates:
A) a growing ability of the economy to produce capital and consumer goods.
B) going from unemployment to full employment.
C) a decrease in the factors of production.
D) a shift of the production possibility frontier toward producing fewer goods.
If the marginal propensity to save decreases from 0.6 to 0.5:
A) the slope of the consumption function increases from 0.4 to 0.5.
B) the vertical axis intercept of the consumption function changes from 0.6 to 0.5.
C) the slope of the consumption function decreases from 0.6 to 0.5.
D) the horizontal axis intercept of the consumption function changes from 0.4 to 0.5.
The largest spending category in GDP is consumption.
A) True
B) False
Which of the following offices of the U.S. government is a major employer of
economists?
A) International Monetary Fund
B) United Nations
C) World Bank
D) Bureau of Labor Statistics
Most economists believe that a balanced budget requirement would:
A) undermine the role of taxes and transfers as automatic stabilizers.
B) enhance the effect of automatic stabilizers.
C) strengthen the ability of policy makers to conduct discretionary fiscal policy.
D) not have any impact on the role of taxes and transfers as automatic stabilizers.
Originally trusts were formed to manage inheritances and estates of wealthy clients and
were supposed to avoid risky financial practices.
A) True
B) False
Irving Fisher described debt deflation as:
A) increasing aggregate demand and improving the economic downturn, leading to less
deflation.
B) reducing aggregate demand and worsening the economic downturn, leading to
further deflation.
C) reducing the debt obligation of borrowers as they become better off under deflation.
D) hurting lenders by reducing the value of their loans and lowering the interest rate on
loan.
According to the loanable funds model, in the short run contractionary monetary policy
shifts the _____ curve for loanable funds to the _____.
A) demand; right
B) supply; right
C) demand; left
D) supply; left
As a result of expansionary monetary policy, lower U.S. interest rates will result in a(n)
_____ in the demand for dollars and a(n) _____ in the supply of dollars.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Between 1990 and 2005 the price of oil was high relative to prices in the 1970s and
1980s, and consumers responded by buying small, fuel-efficient cars.
A) True
B) False
Look at the table Peanut Butter and Jelly Economy. In 2011, nominal GDP was ____
and real GDP was _____.
A) $450; $400
B) $525; $450
C) $525; $400
D) $450; $575
Figure: Aggregate Expenditures Curve II
Look at the table Aggregate Expenditures Curve II. Suppose that the consumption
function in this figure rises by $100. The aggregate expenditures curve would shift
upward by:
A) $100.
B) $250.
C) $100 times the multiplier.
D) $150.
Scenario: The Production of Wheat and Toys
The table describes the production of two goods, wheat and toys, in country A and
country B. Each country has a linear production possibility frontier with respect to its
production of the two goods. The numbers in each column represent the total number of
units each country could produce if it used all of its resources to produce the good.
Look at the scenario Production of Wheat and Toys. The opportunity cost of producing
a unit of wheat in country B is:
A) 75 toys.
B) 3 toys.
C) 25 units of wheat.
D) 0.33 units of wheat.
Figure: Policy Alternatives
Look at the figure Policy Alternatives. Assume that the economy depicted in panel (a) is
in short-run equilibrium at a real GDP level of Y1. The economy will correct itself:
A) rapidly, without use of fiscal policy.
B) in the long run as wages fall.
C) in the short run as wages rise.
D) because the aggregate demand curve shifts.
Figure: Expected Inflation and the Short-Run Phillips Curve
SRPC0 is the Phillips curve with an expected inflation rate of zero; SRPC2 is the
Phillips curve with an expected inflation rate of 2%.
Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that
this economy has an unemployment rate of 6%, inflation of 2%, and an expectation of
2% inflation. If the central bank increases the money supply such that aggregate
demand shifts to the right and unemployment falls to 4%, then inflation will:
A) fall to “2%.
B) not change.
C) rise to 2%.
D) rise to 4%.
Before 2000, investors were reluctant to buy mortgage-backed securities because:
A) economic models predicted that they were bad investments.
B) they were illegal in many states.
C) they could not calculate the risk of losing money on mortgage-backed securities.
D) it was difficult to obtain the foreign currencies that were required for purchasing
them.
The federal budget tends to move toward _____ as the economy ____.
A) deficit; contracts
B) deficit; expands
C) surplus; contracts
D) a balanced budget; contracts
The GDP deflator for a given year is equal to 100 times nominal GDP for that year
divided by real GDP for that year expressed in prices of a selected base year.
A) True
B) False
Diminishing returns to physical capital means that as more and more physical capital is
combined with a fixed amount of human capital and a fixed technology, eventually:
A) aggregate output or real GDP declines.
B) aggregate output or real GDP grows.
C) additions to aggregate output or real GDP decline.
D) additions to aggregate output or real GDP increase.
Nominal GDP:
A) has not been adjusted for changes in prices over time.
B) has been adjusted for changes in prices over time.
C) is a small or nominal amount of output.
D) excludes the international sector.
Figure: The Domestic Supply and Demand for SUVs in the United States
Look at the figure The Domestic Supply and Demand for SUVs in the United States.
Suppose the world price equals $50,000 and there is free trade. In the United States,
consumer surplus would _____ and producer surplus would _____.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase
In 2002, the steel industry argued that higher tariffs on steel were necessary to help
fight the war on terrorism. This is an example of the _____ argument.
A) infant industry
B) national security
C) job creation
D) predatory pricing