Which of the following is an example of investment spending in macroeconomics?
A) The owner of a Domino’s Pizza store has employed two students to deliver pizzas.
B) The manager of a Domino’s Pizza store has deposited cash in the bank.
C) A Domino’s Pizza store has purchased a new pizza oven.
D) The owner of the Domino’s Pizza store has bought stock in Domino’s.
When building a model, economists:
A) simplify reality to highlight what really matters.
B) attempt to duplicate reality in all of its complexity.
C) ignore the facts and instead try to determine what the facts should be.
D) are careful to avoid the scientific method.
If the economy is at full employment, expansionary fiscal policy is most likely to lead
to:
A) lower inflation rates.
B) higher inflation rates.
C) increases in unemployment.
D) decreases in interest rates.
Figure: Actual and Natural Rates of Unemployment
Look at the figure Actual and Natural Rates of Unemployment. In 1982, the cyclical
unemployment rate was approximately:
A) zero.
B) 4%.
C) 6%.
D) 10%.
Purchases of imported products are:
A) subtracted from GDP.
B) considered domestic spending, since the money is spent by a domestic consumer.
C) double counting.
D) not a part of the GDP calculation.
The best available common measure of a nation’s standard of living is:
A) nominal GDP.
B) market GDP.
C) real GDP per capita.
D) nominal GDP per capita.
Figure: Fiscal Policy Choices
Look at the figure Fiscal Policy Choices. In panel (b), if real GDP is equal to Y1, there
is:
A) an inflationary gap.
B) a recessionary gap.
C) equilibrium at full employment.
D) no gap.
An increase in U.S. interest rates causes a decrease in aggregate demand by _____
investment spending, _____ the dollar, and _____.
A) increasing; appreciating; increasing imports
B) decreasing; appreciating; increasing imports
C) increasing; depreciating; increasing exports
D) decreasing; depreciating; decreasing exports
Figure: Monetary Policy I
Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E1and
the central bank chooses to buy Treasury bills,_____shift to _____ a(n) _____ gap.
A) AD1may; AD2, closing; recessionary
B) AD1will; left, increasing; recessionary
C) SRAS1will immediately; left, closing; inflationary
D) SRAS2will immediately; right, increasing; inflationary
A government has a budget deficit in an open economy. This means:
A) the government is spending less than its tax revenue.
B) exports minus imports are zero.
C) exports minus imports are positive.
D) the government is spending more than its tax revenue.
Which of the following CAN properly be called a part of infrastructure?
A) robots on an assembly line
B) professors
C) the Golden Gate bridge
D) a Broadway show
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 marginal propensity to
save is 0.3.
A) True
B) False
Unemployment that results when more people are seeking jobs than there are jobs
available is _____ unemployment.
A) frictional
B) structural
C) cyclical
D) natural
You notice that the price of Blu-ray players falls and the quantity of Blu-ray players
sold increases. This set of observations can be the result of the _____ Blu-ray players
shifting to the _____.
A) demand for; right
B) demand for; left
C) supply of; right
D) supply of; left
One day, Martha wakes up and in frustration yells, “Decisions, decisions, decisions!
Why do I have to make decisions about everything?” Martha’s frustrations stem from
the fact that:
A) like all economic beings, she faces constraints and cannot have everything she
wants.
B) she doesn’t realize she can have everything she wants.
C) she is the only one who faces constraints in life.
D) she really doesn’t want anything.
Which of the following could lead to moderate inflation?
A) a negative supply shock
B) a drop in consumer confidence
C) a contractionary fiscal policy
D) the pursuit of a balanced budget during an expansion
According to recent estimates of Okun’s law, if the unemployment rate FELL by a full
percentage point, it would most probably be attributable to a _____ in real GDP.
A) 3% increase
B) 2% increase
C) 1% increase
D) 3% decrease
According to the accelerator principle, a _____ rate of growth in real GDP leads to
_____.
A) lower; lower unplanned inventory investment
B) higher; higher inventory investment
C) higher; higher planned investment spending
D) lower; higher inventory investment
All of the following are roles of money EXCEPT a:
A) measure of wealth.
B) medium of exchange.
C) unit of account.
D) store of value.
During the latter half of the twentieth century, the Soviet Union made more physical
capital available to its workers, but this increase resulted in successively smaller
increases in productivity. This is an example of:
A) diminishing returns to human capital.
B) a decline in technology.
C) a declining standard of living.
D) diminishing returns to physical capital.
The U.S. inflation rate was higher in the 2000s than it was in the 1970s.
A) True
B) False
Automatic stabilizers are government spending and taxation rules that cause fiscal
policy to be automatically contractionary when the economy contracts and
automatically expansionary when the economy expands.
A) True
B) False
The loanable funds market maximizes:
A) the interest rate to savers.
B) the rate of return from borrowers.
C) the gains from trade between lenders and borrowers.
D) the amount of investment spending in the economy.
Figure: Short-Run Equilibrium
Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and
P1, it is in a(n):
A) recessionary gap.
B) inflationary gap.
C) high level of unemployment.
D) liquidity trap.
Since 2007 unemployment rates have been higher than average for recent college
graduates because they are less qualified than graduates of the 1990s.
A) True
B) False
According to Keynes, the remedy for a recessionary gap was straightforward. The
solution was to:
A) increase aggregate supply.
B) increase aggregate demand.
C) control big business.
D) decrease government involvement.
The sources of funds for investment spending are:
A) savings by households, government, and foreigners.
B) taxes and transfer payments.
C) always equal to U.S. spending on imports.
D) directed to their most productive uses by the U.S. government.
“Teachers in northern New Hampshire should earn more money” is a normative
statement.
A) True
B) False
Figure: Technological Progress and Productivity Growth
Look at the figure
Technological Progress and Productivity Growth. If there is a significant increase in
human capital per worker (all other factors remaining unchanged), it is best indicated
by a move from:
A) A to B.
B) B to A.
C) C to B.
D) B to C.
Most of Long-Term Capital Management’s funds were:
A) savings of small investors.
B) deposits of state and local governments.
C) borrowed.
D) subject to reserve requirements.
Suppose that political instability in the Middle East interrupts the supply of oil. The
_____ curve shifts _____, output _____, and prices _____.
A) short-run aggregate supply; right; increases; decrease
B) short-run aggregate supply; left; decreases; increase
C) aggregate demand; left; decreases; decrease
D) aggregate demand; right; increases; increase