Macroeconomics studies the determination of
a. total output, total employment, the general price level, and the general level of
interest rates
b. total output and the general level of interest rates only
c. total employment and the general level of prices only
d. the interaction of individual economic actors in specific markets and industries
e. the levels of employment and prices in specific markets and industries
If the Fed conducts an open market sale of bonds, which of the following will happen?
a. The interest rate will decrease, the aggregate expenditure line will shift upward and
the aggregate demand curve will shift rightward
b. The interest rate will decrease, the aggregate expenditure line will shift downward
and the aggregate demand curve will shift rightward
c. The interest rate will increase, the aggregate expenditure line will shift downward
and the aggregate demand curve will shift leftward
d. The interest rate will decrease, the aggregate expenditure line will shift upward and
the aggregate demand curve will shift leftward
e. The interest rate will increase, the aggregate expenditure line will shift downward
and the aggregate demand curve will shift rightward.
The Federal Reserve Open Market Committee meets about ____ times a year.
a. 8.
b. 12.
c. 4.
d. 2.
e. 24.
If the expenditure multiplier is 6.5, the tax multiplier is
a. 7.5
b. 5.5
c. -5.5
d. -6.5
e. -7.5
If income increases by $10,000, government purchases are fixed at $1,000, investment
spending is fixed at $2,000, net exports are fixed at $500, and the marginal propensity
to consume is 0.70, by how much does aggregate expenditure increase?
a. $700
b. $2,000
c. $7,000
d. $1,000
e. $1,400
In Figure 3-8, using the supply and demand curves denoted S1 and D1, respectively, if
demand were to increase to D2 and the equilibrium price stayed the same there would
be a
a. surplus
b. new equilibrium at 50,000
c. shortage
d. new equilibrium at 100,000
e. new equilibrium at 75,000
John Maynard Keynes, author of The General Theory of Employment, Interest, and
Money, argued that
a. classical economic theory was correct
b. the government should follow a policy of laissez faire
c. the critiques of classical economics were flawed
d. the economy does not always perform well in the absence of government guidance
e. instead of focusing on money, the government should control interest rates
If the Fed wanted to prevent a change in money demand from affecting real GDP, which
of the following responses would it choose?
a. A neutralization response
b. A constant interest rate response
c. A constant money supply response
d. A constant tax rate response
e. A constant government spending response.
A critical assumption in the classical model is that
a. markets are perfectly competitive in the short run
b. markets clear in the long run
c. markets clear in the short run
d. markets are perfectly competitive in the long run
e. all variables are expressed in nominal terms
Assume that the telephone company built a new plant this year. The value of the new
plant is
a. counted in GDP as public investment
b. not counted in GDP
c. not included in private investment spending
d. an intermediate good, but it is not counted in GDP
e. included in GDP
An example of a service counted in this year’s GDP is
a. buying shampoo to give your pet a bath
b. cleaning your house
c. trimming your own hair
d. hiring a gardener to weed your garden
e. polishing your friend’s car as a friendly gesture
Which of the following mechanisms helps output to return to potential after a demand
shock?
a. Change in business mentality
b. Change in nominal wage rate
c. Large changes in the capital stock
d. Inability of the price level to change
e. Change in inventories.
Using economic analysis to help understand world issues
a. assumes that all decision makers use detailed economic analysis
b. highlights the role of choice when resources are scarce
c. has unlimited application
d. is not appropriate because reality is too complex for economic modeling
e. typically enables one nation to gain only when another nation loses
As output increases, a typical firm’s unit costs
a. decrease because the firm buys its inputs in large quantities
b. increase because the supply of inputs increases
c. remain constant
d. increase due to the increasing scarcity of resources
e. decrease as firms take advantage of diseconomies of scale.
An economy is said to be saving lives efficiently
a. if the number of lives saved increases each year
b. whenever the cost of saving lives is decreasing
c. if it is operating on its production possibilities frontier
d. if more resources are devoted to saving lives than to any other activity
e. if fewer resources are devoted to saving lives than to any other activity
If a society is on its production possibilities frontier, and decides to produce more health
care,
a. the cost of producing an additional unit of health care will rise
b. it must employ some previously unemployed resources
c. its standard of living will rise
d. some kind of inefficiency will occur
e. the cost of producing an additional unit of some other good will rise
To stabilize real GDP when the money demand curve shifts up on its own, the Fed must
increase the money supply.