Included in M1 are:
A) checkable bank deposits.
B) savings deposits.
C) U.S. Treasury bills.
D) demand deposits, savings deposits, and U.S. Treasury bills.
Nearly all economists agree that decreases in money supply can _____ aggregate
_____.
A) increase; supply
B) decrease; supply
C) decrease; demand
D) increase; demand
To reduce risk through diversification, a person must invest in several assets with
related, or dependent, risk of loss.
A) True
B) False
The student center on campus has burritos, bagels, or burgers for lunch, and they all
cost the same. You decide to have a burger today, but if they were out of burgers, you
would have bought a bagel. Your opportunity cost of buying a burger is your enjoyment
of the:
A) burger.
B) bagel.
C) burrito.
D) bagel and the burrito.
The best way to reduce financial risk is to:
A) buy stock only in a major company.
B) buy bonds only in a major company.
C) buy a variety of assets, both financial and physical.
D) never buy stock in foreign companies.
Look at the figure Wine and Wheat. The opportunity cost of moving from producing
ONLY wheat to producing at point D is _____ tons of wheat.
A) 3
B) 6
C) 9
D) 15
The Federal Reserve System is the _____ for the United States.
A) central bank
B) government-owned bank
C) U.S. Treasury bank
D) social insurance system
A negative relationship between the quantity demanded and price is called the law of:
A) demand.
B) marginality.
C) efficiency.
D) supply.
Look at the table Pizza Economy 1. GDP in this economy is:
A) $73,000.
B) $65,000.
C) $57,000.
D) $51,000.
A decrease in capital flows into a country, holding everything else constant, will:
A) increase its current account.
B) be recorded as an increase in its balance of financial account.
C) decrease the balance of payments on the current account.
D) make the balance of payments negative.
In an economy with no taxes and no imports, disposable income decreases from $6,000
to $4,000. If consumption decreases from $4,500 to $3,000, the marginal propensity to
consume is:
A) “0.75.
B) “0.20.
C) 0.75.
D) 1.
Figure: Strawberries and Submarines II
Look at the figure Strawberries and Submarines II. Point F:
A) is unattainable, all other things unchanged.
B) is attainable if the quantity and/or quality of factors decreases.
C) is attainable if the economy is able to reach full employment.
D) is feasible but not efficient.
When the Fed buys $250 million of Treasury bills from commercial banks, the banks’
reserves increase by less than $250 million.
A) True
B) False
If the dollar appreciates because of a capital inflow from Asia, the balance on the U.S.
financial account will increase and the balance on the current account will decrease.
A) True
B) False
The price of microchips used to produce computers falls. As a result, the equilibrium
price of computers _____ and the equilibrium quantity _____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
What did the panic of 1893 in the United States and the Swedish banking crisis of 1991
have in common?
A) Each was followed by a period of record high growth rates of real GDP.
B) Both were ended by aggressive monetary policies of the central bank.
C) Each was followed by a deep recession and slow recovery.
D) Both were caused by a real estate bubble.
After the 2008 financial crisis, interest rates on Italian debt increased because:
A) they were approaching the zero bound, so the central bank raised them.
B) the Italian government revalued the lira.
C) Italy imposed trade sanctions on Iran.
D) the Italian economy was growing too slowly to generate enough tax revenue to
repay its public debt.
The scaling of the axes of a time-series graph:
A) is not a critical element in presenting the intended information.
B) may change the interpretation of the data.
C) generally places the time period on the vertical axis.
D) generally puts values of a variable, such as the unemployment rate, on the vertical
axis.
If an economy’s resources are used efficiently, then it is guaranteed that the economy
will also achieve equity.
A) True
B) False
Canada, Mexico, and the United States have:
A) joined together and are operating in what is called a closed-trade area with respect to
the European Union.
B) developed a currency similar to the euro.
C) eliminated many trade barriers among themselves.
D) reduced trade among themselves to protect jobs at home.
The life-cycle hypothesis suggests that consumers:
A) spend in response to current income.
B) plan spending over their lifetime.
C) always spend more when income rises.
D) always save more when incomes rise.
Figure: Tom’s Production Possibilities
Look at the figure Tom’s Production Possibilities. The opportunity cost for Tom to move
from point A on the curve to point B is:
A) 10 coconuts.
B) 10 fish.
C) 5 coconuts.
D) 5 fish.
Currency in circulation plus bank reserves:
A) forms the monetary base.
B) is equal to M1 plus M2.
C) equals the required reserves for a bank.
D) equals the excess reserves for a bank.
The Rule of 70 applies:
A) only to GDP.
B) only to GDP per capita.
C) to any growth rate.
D) only to developed countries.
Fannie Mae and Freddie Mac are quasi-government agencies established during the
Great Depression to make home ownership more affordable for low- and
moderate-income households.
A) True
B) False
Look at the table Income and Consumption. When disposable personal income is $400,
the level of personal savings is:
A) “$40.
B) “$20.
C) $0.
D) $20.
Figure: The Production Possibilities for Two Countries
Look at the figure The Production Possibilities for Two Countries. If Indonesia
specializes completely in the production of the good of its comparative advantage, it
will produce:
A) 600 radios.
B) 800 radios.
C) 800 tires.
D) 1,200 tires.
Figure: AD”ASModel II
Look at the figure AD”AS Model II. As the size of the labor force increases over time,
the _____ curve will shift to the _____.
A) LRAS; right
B) LRAS; left
C) AD; left
D) AD; right
According to the Heckscher”Ohlin model, Brazil will have a comparative advantage in
oranges if the factors _____ in the production of oranges are _____.
A) intensive; abundant
B) intensive; imported
C) that are scarce; imported
D) intensive; inexpensive
Ireland’s recent economic growth and improving living standard are due primarily to:
A) its refusal to join the European Union and abandon its own currency for the euro.
B) the capture and imprisonment of Sinn Fein leader Gerry Adams.
C) the large number of immigrants from Eastern Europe.
D) an excellent physical and human infrastructure, including a good education system,
airports, telecommunications, and shipping facilities.
If the exchange rate is initially $1 = 12.95 pesos but changes to $1 = 15 pesos, then the
dollar has _____ and the price in Mexico of a $10,000 U.S.-built Harley Davidson
motorcycle has _____.
A) depreciated; decreased
B) depreciated; increased
C) appreciated; increased
D) appreciated; decreased
If membership in labor unions falls, production costs will:
A) increase, and SRAS will shift to the left, decreasing equilibrium GDP and increasing
the aggregate price level.
B) fall, there will be a downward movement along SRAS, equilibrium GDP will
increase, and aggregate price level will fall.
C) not change and AD will shift to the right, increasing equilibrium GDP and aggregate
price level.
D) fall and SRAS will shift to the right, increasing equilibrium GDP and lowering the
aggregate price level.