Suppose that immigration laws are relaxed and many workers from other nations enter
the U.S. labor force. The _____ for labor will _____.
A) demand; increase
B) demand; decrease
C) supply; decrease
D) supply; increase
Which of the following is (are) a task(s) of the financial system?
I. reducing transactions costs
II. reducing risk
III. providing liquidity
A) I only
B) II only
C) III only
D) I, II, and III
In the circular-flow diagram, a firm is:
A) an organization that produces goods or services for sale.
B) an individual or a group of people who share their income.
C) an organization that sells factors of production.
D) an organization that purchases goods and services.
An increase in expected inflation will affect the short-run Phillips curve:
A) by shifting it downward; the actual rate of inflation at any given unemployment rate
will fall by the same amount.
B) by shifting it upward; the actual rate of inflation at any given unemployment rate
will also be higher when the expected inflation rate is higher.
C) by moving along the same curve, where it equals the actual rate of inflation.
D) only if the economy is at the nonaccelerating inflation rate of unemployment.
Look at the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours
per day and divides the remaining time between study and leisure time. Suppose this
student is studying 4 hours and spending 10 hours doing leisure activities. This point is:
A) outside the production possibility frontier.
B) inside the production possibility frontier.
C) on the production possibility frontier.
D) both efficient and feasible.
Which one of the following equations is correct?
A) GDP = C + I + G + IM ” X.
B) GDP = C + I + G + X ” IM.
C) GDP = C + I + G + X + IM.
D) GDP = C + I + G ” T + TR.
Compared to individual loans, loan-backed securities provide _____diversification and
_____ liquidity than individual loans.
A) less; less
B) more; more
C) less; more
D) more; less
Technological progress allows workers to produce more:
A) because it increases the amount of physical capital available.
B) because it increases the amount of human capital available.
C) even when the amount of physical capital and human capital do not change.
D) only if the amount of physical capital grows at the same rate.
The narrowest definition of money EXCLUDES:
A) currency in the vault at the bank.
B) traveler’s checks.
C) currency in circulation.
D) checkable bank deposits.
Table: Disposable Income and Consumption
Disposable Income
(in Billions) Consumer Spending
(in Billions)
$ 0 $100
200 220
400 340
600 460
800 580
1,000 700
Look at the table Disposable Income and Consumption. The marginal propensity to
consume equals:
A) 0.8.
B) 2.
C) 1.2.
D) 0.6.
Figure: Consumption and Real GDP
Look at the figure Consumption and Real GDP. If real GDP is $4 trillion, consumption
is _____ trillion.
A) $0.75
B) $1
C) $3
D) $4
Cutting government spending to increase private-sector confidence, leading to increases
in output and employment, is called:
A) expansionary austerity.
B) expansionary monetary policy.
C) Ricardian equivalence.
D) new Keynesian economics.
To encourage an increase in economic growth rates, governments should increase
regulation of the economy.
A) True
B) False
Fiscal stimulus is:
A) expansionary fiscal policy, such as increases in government spending and tax cuts
designed to reduce unemployment and increase output.
B) expansionary fiscal policy, such as increases in government spending and tax cuts
designed to increase unemployment and decrease output.
C) contractionary fiscal policy, such as decreases in government spending and tax
increases designed to reduce budget deficits.
D) contractionary fiscal policy, such as decreases in government spending and tax
increases designed to increase budget deficits.
Proponents argued that fiscal stimulus was appropriate after the 2008 financial crisis
because:
A) austerity would only increase inflation and unemployment.
B) political instability in the Middle East was causing a depreciation of the euro and the
dollar.
C) the lag associated with automatic stabilizers was too long.
D) the effectiveness of monetary policy was limited by the zero bound on interest rates.
Which of the following policies will shift the AD curve to the LEFT?
A) The government spends more.
B) The government raises tax rates.
C) The Federal Reserve increases the money supply.
D) The government cuts tax rates.
The wealth effect is reflected in:
A) increases in interest rates to savers.
B) the upward slope in aggregate supply.
C) the upward slope in aggregate demand.
D) the downward slope in aggregate demand.
Spending on medical care is the largest portion of the consumer price index.
A) True
B) False
According to the liquidity preference model, if the Federal Reserve increases the money
supply, the equilibrium interest rate _____, and this leads to a(n) _____ in the quantity
demanded of nonmonetary interest-bearing financial assets.
A) rises; increase
B) falls; decrease
C) rises; decrease
D) falls; increase
If the quantity of housing supplied in a community is greater than the quantity of houses
demanded, the existing price:
A) is above the market equilibrium price.
B) will rise to clear the market.
C) will either rise or remain unchanged.
D) is below the market equilibrium price.
Purchases of foreign-produced goods and services are:
A) net exports.
B) exports.
C) imports.
D) transfer payments.
Figure: Classical Versus Keynesian Macroeconomics
Look at the figure Classical Versus Keynesian Macroeconomics. According to the
classical view, if this economy shifts from AD1 to AD2, perhaps because of a large
decline in investment spending by businesses, the price level will _____ and real GDP
will _____.
A) rise; fall
B) not change; increase
C) fall; not change
D) fall; fall
Resources are being used efficiently when:
A) scarcity is no longer an issue.
B) they are also used equitably.
C) every opportunity to make people better off without making others worse off has
been seized.
D) gains from trade are still available.
Discretionary fiscal policy may be counterproductive because:
A) the countercyclical nature of such policies sometimes reduces their effectiveness.
B) in the short run, only monetary policy is effective.
C) increases in the government budget deficit affect economic growth in the long run.
D) the various lags in fiscal policy mean that it may take effect when the economy has
already recovered.
Figure: Inflationary and Recessionary Gaps
Look at the figure Inflationary and Recessionary Gaps. A movement from AD1 to AD3
could be caused by:
A) increased government purchases.
B) decreased government transfers.
C) higher tax rates.
D) decreased government purchases.
In a vicious cycle of deleveraging:
A) banks buy some type of asset and push the price up to an unreasonable level.
B) banks are forced to sell assets at a deep discount to reduce their debt.
C) depository banks and shadow banks engage in maturity transformation.
D) the Fed is prohibited from acting as a lender of last resort.
You have heard about a new light bulb that is costly to purchase but uses little
electricity and thus allows you to save money on your utility bill. Suppose the new light
bulb costs $10 today but next year your electricity bill will be $50 lower. If the interest
rate is 10%, what is the net present value of buying this new light bulb and using it for
one year?
A) $40
B) “$45.45
C) $55
D) $35.45
If the money supply decreases by 10%, the aggregate price level will remain constant in
the long run.
A) True
B) False
When long-term interest rates are higher than short-term rates, as they were in 2010:
A) it implies that short-term interest rates are expected to fall.
B) it has no implication for short-term interest rates.
C) it implies that inflation will fall.
D) it implies that short-term interest rates are expected to rise.
Changes in the budget balance:
A) can be the result of fluctuations in the economy.
B) can cause fluctuations in the economy.
C) can be both the result of and the cause of changes in the economy.
D) are always bad idea.
If the marginal propensity to consume is 0.75, the multiplier for government purchases
of goods and services will be:
A) 0.75.
B) 1.33.
C) 4.
D) 7.5.