An example of the frictionally unemployed is a(n):
A) autoworker who is temporarily laid off because of a decline in sales.
B) geologist who is permanently laid off from an oil company because of a
technological advance.
C) worker at a fast-food restaurant who quits work and attends college.
D) real estate agent who leaves a job in Texas and searches for a similar higher-paying
job in California.
Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 20%.
Then Andy deposits $1,000 of cash in his checking account and the bank lends $600 to
Molly. That bank can lend an additional:
A) $200.
B) $1,000.
C) $800.
D) $2,400.
Holding everything else constant, if the U.S. dollar falls against the Mexican peso:
A) U.S. goods will look cheaper to Mexico.
B) U.S. goods will look more expensive to Mexico.
C) Mexico’s goods will look cheaper to the United States.
D) one peso buys fewer U.S. dollars.
A leftward shift of a supply curve is caused by:
A) an increase in the number of sellers.
B) a technological improvement in production.
C) an increase in the cost of an input.
D) an increase in the number of buyers.
Real GDP equals $400 billion, the government collects 25% of any increase in real
GDP in the form of taxes, and the marginal propensity to consume is 0.8. If the
government decreases spending by $40 billion, real GDP will decrease by:
A) $40 billion.
B) $80 billion.
C) $100 billion.
D) $200 billion.
Following a severe banking crisis, the average increase in the unemployment rate is:
A) 25%.
B) 20%.
C) 10%.
D) 7%.
All other things unchanged, an increase in the value of the dollar against the euro _____
U.S. net exports and shifts the aggregate demand curve to the _____.
A) increases; right
B) decreases; right
C) increases; left
D) decreases; left
Suppose a typical basket of goods is now more expensive than it used to be. All else
equal, we would expect:
A) the demand for money to shift inward.
B) a downward movement along a fixed money demand curve.
C) the demand for money to shift outward.
D) an upward movement along a fixed money demand curve.
Suppose that a presidential candidate who promised large personal income tax cuts is
elected. Which of the following is most likely?
A) a decrease in short-run aggregate supply
B) a decrease in aggregate demand
C) an increase in short-run aggregate supply
D) an increase in aggregate demand
After a revaluation, all other things equal, exports will likely _____ and imports will
likely _____ .
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
A vicious cycle of deleveraging occurs when:
A) asset sales to cover losses produce negative balance sheet effects and force creditors
to call in loans, forcing more sales of assets at decreasing prices.
B) bank regulators take over a bank.
C) deposit insurance is paid out.
D) top executives at failing companies are forced to return bonuses.
A devaluation of a currency tends to decrease the current account deficit.
A) True
B) False
Which of the following two statements is a positive statement? Which is a normative
statement?
I. The federal minimum wage in 2014 was $7.25 an hour.
II. The minimum wage should be high enough that families will not live in poverty.
A) I is positive; II is normative.
B) I is positive; II is positive.
C) I is normative; II is positive.
D) I is normative; II is normative.
Figure: The Loanable Funds Model in the U.S. Market
Look at the figure The Loanable Funds Model in the U.S. Market. If the actual interest
rate is equal to 4% in the U.S. market, then the quantity supplied of loanable funds will
be _____ the quantity of loanable funds demanded.
A) greater than
B) less than
C) equal to
D) unrelated to
All other things equal, a contractionary monetary policy in Canada will decrease
Canadian interest rates and increase the demand for and decrease the supply of the
Canadian dollar.
A) True
B) False
If the price level rises by 10%, the purchasing power of $10,000 will:
A) increase to $11,000.
B) decrease to $9,000.
C) decrease to $1,000.
D) remain constant.
Look at the scenario Monetary Base and Money Supply. By how much can checkable
bank deposits increase?
A) $100 billion
B) $250 billion
C) $500 billion
D) $1,650 billion
Investment spending refers to the:
A) accumulation of financial stock by an individual firm.
B) addition to the economy’s supply of productive physical capital.
C) total net value of assets sold to foreigners.
D) total spending by households.
When borrowers don’t respond to short-term interest rates of zero, the economy is in:
A) a liquidity trap.
B) hyperinflation.
C) an asset bubble.
D) maturity transformation.
Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If
Harley-Davidson raises the price of its motorcycles, we can expect:
A) a shift to the right in the supply curve of Hondas and lower prices for Hondas.
B) a shift to the left in the supply curve of Hondas and higher prices for Hondas.
C) a shift to the right in the demand curve for Hondas and higher prices for Hondas.
D) a shift to the left in the demand curve for Hondas and lower prices for Hondas.
In 1798, the Essay on the Principle of Population was published by:
A) Adam Smith.
B) Karl Marx.
C) Thomas Malthus.
D) David Ricardo.
In 1979 and 1980, because of the interest rate and wealth effects, the economy was
moving upward along the aggregate demand curve from right to left.
A) True
B) False
Table: Pizza Economy III
Look at the table Pizza Economy III. Considering 2010 as the base year, given that total
population was 1,140 in 2010 and 1,380 in 2011, real GDP per capita between 2010 and
2011 grew at a rate of:
A) “50%.
B) “25%.
C) 50%.
D) 75%.
Which of the following statements is INCORRECT?
A) The dollar amount of a future payment is more than its present value.
B) The present value of a future payment is approximately the same as its future dollar
amount.
C) The present value of a future payment is less than its future dollar amount.
D) The bigger the future payment, the more its present value, all other things held
constant.
Figure: Shifts in Demand and Supply III
Look at the figure Shifts in Demand and Supply III. The figure shows how supply and
demand might shift in response to specific events. Suppose the technology for
producing snowboards improves. Which panel BEST describes how this will affect the
market for winter parkas, a complement in consumption of snowboards?
A) panel A
B) panel B
C) panel C
D) panel D
Figure: Fiscal Policy I
Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If
there is a decrease in government purchases, _____ will shift to the _____, causing a(n)
_____ in the price level and a(n) _____ in real GDP.
A) AD2; left; increase; decrease
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; right; decrease; increase
In an economy with no taxes and no imports, disposable income increases from $1,000
to $2,000. If consumption increases from $800 to $1,500, the multiplier is 3.33.
A) True
B) False
A floating exchange rate is:
A) determined by the market.
B) set by government.
C) set by the International Monetary Fund.
D) determined by the United Nations.
Which of the following is a positive statement?
A) The rate of unemployment should be 4%.
B) A high rate of economic growth should be a more important economic goal than a
low rate of inflation.
C) The federal government spends half of its budget on national defense.
D) Everyone in the country should be covered by national health insurance.
In the circular-flow diagram the flow of money going into each sector or market is
_____ the flow of money coming out of that market or sector.
A) equal to
B) greater than
C) less than
D) unrelated to
Consider an economy that produces only DVDs and DVD players. Last year, 10 DVDs
were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15
DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Nominal GDP
this year is:
A) $100.
B) $650.
C) $700.
D) $500.
Scenario: Aggregate Consumption Equation
Suppose that the aggregate consumption function is given by the equation C= 200 +
0.8YD, where Crepresents consumption and YDrepresents disposable income.
Look at the scenario Aggregate Consumption Equation. If the stock market crashes
suddenly, which of the following equations could represent the new aggregate
consumption function?
A) C= 100 + 0.8YD
B) C = 250 + 0.8YD
C) C= 200 + 0.9YD
D) C = 200 + 0.7YD
Scenario: Growth Rates
Suppose that real GDP per capita of the United States is $32,000 and its growth rate is
2% per year. Real GDP per capita of China is $4,000, and its annual growth rate is 7%.
Look at the scenario Growth Rates. How long will it take real GDP per capita of the
United States to double?
A) 35 years
B) 50 years
C) 2.25 years
D) 14 years
The Fed’s primary liabilities are the monetary base, that is, currency in circulation plus
bank reserves.
A) True
B) False