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When the government has a deficit, it will most likely finance the deficit by:
A) cutting the salaries of the president and Congress.
B) selling some military bases.
C) borrowing the money.
D) charging higher admission fees at national parks.
Which of the following would be included in the U.S. current account?
A) public purchases and sales of financial assets
B) trade balance
C) financial account balance
D) private purchases and sales of financial assets
Loans are more liquid than bonds because they are more standardized than bonds.
A) True
B) False
An increase in demand and a decrease in supply will lead to _____ in equilibrium
quantity and _____ in equilibrium price.
A) a decrease; a decrease
B) an indeterminate change; an increase
C) an indeterminate change; a decrease
D) an increase; an indeterminate change
Table: Measuring GDP
Look at the table Measuring GDP. Total expenditures on GDP by the household sector
are:
A) $100 billion.
B) $150 billion.
C) $200 billion.
D) $500 billion.
Look at the scenario Assets and Liabilities of the Banking System. If the reserve ratio is
5% 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
One advantage of inflation targeting over the Taylor rule is that the central bank's policy
can be evaluated by seeing how close to the target actual inflation rates are.
A) True
B) False
Figure: Income"Expenditure Equilibrium
Look at the table Income"Expenditure Equilibrium. If planned investment spending
increases in this economy:
A) aggregate expenditures curvewill shift up, increasing the income"expenditure
equilibrium.
B) aggregate expenditures curvewill shift down, decreasing the income"expenditure
equilibrium.
C) economy will move upward along the aggregate expenditures curve, increasing the
income"expenditure equilibrium.
D) economy will move downward along the aggregate expenditures curve, decreasing
the income"expenditure equilibrium.
Changes in the budget balance may be the result of economic policy, or they may be
caused by fluctuations in the economy.
A) True
B) False
Kelli is a server at a casual restaurant in a small town. In each of the following
situations, explain Kelli's type of unemployment.
a. The local economy is in a minor recession and the restaurant lays Kelli off. The
owner assures her that she will be rehired when business picks up again.
b. A large factory, the major employer in the town, permanently closes, and this hurts all
restaurants in town. The restaurant fires Kelli because the owner can only afford to stay
open on the weekends.
c. Kelli is dissatisfied with her schedule at the restaurant and quits her job. She is
qualified to work at other restaurants and immediately begins to send her rsum to
restaurants all over town.
Adopting a floating exchange rate regime:
A) makes the domestic economy less susceptible to business cycles abroad.
B) limits the use of monetary policy to stabilize the economy.
C) makes the domestic economy more susceptible to business cycles abroad.
D) commits the country to maintaining low inflation rates.
Figure: Money Market I
Look at the figure Money Market I. If the money market is initially in equilibrium at
point Eand the central bank buys Treasury bills, then the interest rate will:
A) move toward point H.
B) move toward point L.
C) remain at point E.
D) shift leftward.
A linear curve has the same slope between every pair of points.
A) True
B) False
The study of a single firm and how it determines prices falls under the study of:
A) macroeconomics.
B) microeconomics.
C) economic growth.
D) fiscal policy.
Scenario: A Country's Consumption Function
A country is closed. It has no government sector, and its aggregate price levels and
interest rates are fixed. Furthermore, the marginal propensity to consume is constant
and the country's consumption function is as follows: C= 200 + 0.75YD, where YDis
disposable income and Cis consumption. Assume that planned investment equals 75.
Look at the scenario A Country's Consumption Function. What is the
income"expenditure equilibrium for this country?
A) $900
B) $1,100
C) $275
D) $200
Since governments control the quantity of the currency of their country, they have more
control over exchange rates than other prices.
A) True
B) False
Which of the following is FALSE? Keynesian economics:
A) emphasizes that factors other than the money supply can affect aggregate demand.
B) provides the rationale for macroeconomic policy activism.
C) emphasizes short-run economic fluctuations.
D) emphasizes long-run fluctuations.
Liquidity traps are most likely to occur when the:
A) economy is going through a recovery.
B) economy is expanding rapidly.
C) public expects inflation.
D) public expects deflation.
A market basket is a hypothetical set of consumer purchases of goods and services.
A) True
B) False
The interest rate effect leads to a downward-sloping aggregate demand curve because a
higher price level causes consumption to _____ and investment to _____.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
One of the advantages of adopting a fixed exchange rate system is that it:
A) reduces uncertainty.
B) reduces the need for fiscal policy.
C) increases the strength of monetary policy.
D) does not require the country to maintain any large foreign exchange reserve.
In recent times, the U.S. government has been trying to help the economy through one
of the worst economic slumps ever. The policies used are based on _____ theory.
A) Keynesian
B) classical
C) supply-side
D) trickle-down
When inflation rises quickly, borrowers will _____ and lenders will _____.
A) be hurt; benefit
B) benefit; be hurt
C) be hurt; be hurt
D) benefit; benefit
The asset bubble that caused the savings and loan crisis of the 1980s was in:
A) gold.
B) oil futures.
C) stocks of Internet companies.
D) commercial real estate.
Suppose that roughly 8 million people in the United States were actively seeking jobs
but had not found them this month, the same number as last month. Suppose that 2
million of the people who were unemployed last month gave up their search this month
and stopped looking for work. What will happen to the official unemployment rate this
month, all other things unchanged?
A) It will rise, because 2 million people are not in the labor force this month and are not
counted as unemployed.
B) It will fall, because 2 million people are not in the labor force this month and are not
counted as unemployed.
C) It will be unaffected, because the same number of people is unemployed.
D) The unemployment rate will decrease by 25%.
A grocery store benefits when a new furniture factory moves to town and hires workers
because:
A) the new jobs at the factory will increase local incomes, some of which will be spent
at the grocery store.
B) the new factory will eliminate scarcity in the area.
C) the presence of a new factory will guarantee that resources are used efficiently.
D) the local circular flow will be smaller with a new factory in town.
From the standpoint of economic growth, banks are important to:
A) fight inflation.
B) keep interest rates low.
C) channel savings into investment.
D) channel investment into savings.
Deflation:
A) hurts borrowers and helps lenders.
B) helps borrowers and hurts lenders.
C) unlike inflation, affects neither borrowers nor lenders.
D) has effects on borrowers and lenders that depend on the amount of the loan.
Scenario: Japan and the United States
Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial
assets in the two countries are equal in risk.
Refer to the scenario Japan and the United States. The implication is that:
A) interest rates in Japan will increase.
B) interest rates in the United States will decrease.
C) the capital flow between Japan and the United States eventually will render the
interest rates equal.
D) the interest rates in both countries will remain unchanged.
In the long run, an increase in the quantity of money:
A) increases real output.
B) increases prices but not long-run output.
C) increases real interest rates.
D) has no effect on the economy.
If the consumer price index increases from 125 to 130 in one year, the rate of inflation
is 5%.
A) True
B) False
An important factor determining planned investment spending is:
A) company profits.
B) the prices of final products.
C) expected spending.
D) expected real GDP.
"The current rate of unemployment of 9% is too high" is a _____ statement.
A) normative
B) ceteris paribus
C) positive
D) marginal
Table: National Income Accounts
Trillions
Look at the table National Income Accounts. The value of investment spending is:
A) $15.9 trillion.
B) $4.9 trillion.
C) $2.1 trillion.
D) "$0.5 trillion.
Suppose that consumer expectations improve. The aggregate demand curve will
undergo a:
A) shift to the left.
B) movement upward.
C) shift to the right.
D) movement downward.
