A decrease in aggregate demand will generate _____ in real GDP and _____ in the
price level in the short run.
A) an increase; no change
B) a decrease; no change
C) a decrease; a decrease
D) no change; an increase
An economic recovery encompasses all of the following EXCEPT:
A) sustained economic growth.
B) a short-run increase in aggregate production.
C) a time of increasing employment.
D) the end of the business cycle.
When a person makes price comparisons among products, money is being used mainly
as a(n):
A) unit of account.
B) expander of economic activity.
C) medium of exchange.
D) checkable deposit.
You have an opportunity to pay $1,000 today and receive $1,200 a year from now. If the
annual interest rate is 20%, the difference between the present value of the benefit and
your investment is:
A) $440.
B) $200.
C) $166.
D) 0.
Today, more than _____ of the world’s population lives in countries poorer than the
United States was a century ago.
A) one-fifth
B) one-third
C) one-half
D) two-fifths
Included in the financial account is the income U.S. residents earn on assets owned in
other countries.
A) True
B) False
Checkable deposits are about _____ of M1.
A) 100%
B) 67%
C) 30%
D) 10%
When the dollar depreciates, exports _____ and imports _____ .
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
If the economy is in a recessionary gap, actual output will be _____ potential output.
A) below
B) the same as
C) above
D) in equilibrium with
Figure: Shifts of the AD”ASCurves
Look at the figure Shifts of the AD”AS Curves. A decrease in wages in the short run is
illustrated by:
A) panel (a).
B) panel (b).
C) panel (c).
D) panel (d).
Because people usually exploit opportunities to make themselves better off, if the price
of gasoline rises and stays high for an extended period, we expect people to:
A) increase the number of miles they drive.
B) buy larger and less fuel-efficient cars.
C) use more public transportation.
D) ride their bicycles less.
The production possibility frontier will shift outward for all of the following reasons
EXCEPT:
A) an increase in the unemployment rate.
B) an increase in the labor force.
C) an improvement in technology.
D) an increase in worker productivity.
Which of the following would NOT be included in this year’s GDP?
A) the production of a television show
B) the purchase of a new hybrid truck
C) the hiring of a new schoolteacher
D) your purchase of your neighbor’s house, which was built in 1994
Figure: Aggregate Supply Movements
Look at the figure Aggregate Supply Movements. Which statement is CORRECT?
A) An increase in the price level is responsible for pushing the curve to the right.
B) A decrease in the price level is responsible for pushing the short-run aggregate
supply curve to the right.
C) Short-run aggregate supply has increased.
D) Short-run aggregate supply has decreased.
The discount rate is the interest rate the Federal Reserve charges on loans to:
A) consumers.
B) the federal government.
C) state governments.
D) banks.
The global savings glut of the early 2000s was caused primarily by:
A) financial crises in the late 1990s and early 2000s that led to an increase in savings in
some relatively poor countries.
B) the high price of oil.
C) the impact of global warming on agriculture.
D) trade restrictions.
Look at the table The Consumer Price Index (CPI). The inflation rate between 2011 and
2012 was:
A) 10%.
B) 3%.
C) 1.4%.
D) 24.6%.
Look at the scenario Assets and Liabilities of the Banking System. If the reserve ratio is
8% and the banking system does NOT want to hold excess reserves, how much more
can be added to the money supply?
A) about $667,000
B) about $111,000
C) $250,000
D) $1 million
Which federal agency calculates and reports the official unemployment rate?
A) Federal Reserve Bank
B) Treasury Department
C) Department of Health and Human Services
D) Bureau of Labor Statistics
Figure: Monetary Policy and the AD“SRASModel
Look at the figure Monetary Policy and the AD”SRASModel. If the economy is at point
hbecause of an open market purchase by the Federal Reserve and no further monetary
policy is implemented, in the LONG run nominal wages will _____, SRASwill shift
_____, real GDP will _____, and the price level will _____.
A) increase; to SRAS’; decrease; increase
B) increase; to SRAS’; increase; decrease
C) decrease; farther to the right; decrease; increase
D) decrease; to SRAS’; increase; decrease
In the short run, the equilibrium price level and the equilibrium level of total output are
determined by the intersection of:
A) LRAS and SRAS.
B) LRAS and aggregate demand.
C) SRAS and aggregate demand.
D) potential output and LRAS.
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%, no inflation, and no expectation of
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%.
All of the following are financial intermediaries EXCEPT:
A) mutual funds.
B) pension funds.
C) insurance companies.
D) the New York Stock Exchange.
Suppose that more police and security workers become aware that wearing bulletproof
vests can protect them from injury and decide to start wearing bulletproof vests. At the
same time, the price of ceramics used to produce the vests falls. The equilibrium price
of bulletproof vests _____ and the equilibrium quantity produced _____.
A) increases; increases
B) decreases; decreases
C) probably changes, but in an ambiguous direction; probably changes, but in an
ambiguous direction
D) probably changes, but in an ambiguous direction; increases
The aggregate price level is the average of stock prices on the New York Stock
Exchange.
A) True
B) False
The economic view that reducing tax rates will increase the incentives to work and
invest and will ensure a high growth rate of the potential output is known as _____
economics.
A) supply-side
B) demand-side
C) new classical
D) new Keynesian
A revaluation can help reduce an inflationary gap.
A) True
B) False
Which of the following statements is FALSE?
A) Both frictional and structural unemployment can occur even if unemployment is at
its natural level.
B) Cyclical unemployment is unemployment in excess of the natural rate.
C) A new college graduate looking for that first professional job may be frictionally
unemployed.
D) Efficiency wages may cause frictional unemployment.
The aggregate production function typically increases at an increasing rate with
additions to capital.
A) True
B) False
The convergence hypothesis fits the data only when the factors that affect growth are
held equal across countries. These factors include all of the following EXCEPT:
A) education.
B) infrastructure.
C) favorable policies and institutions.
D) GDP per capita.