Which of the following was an argument AGAINST Britain’s adopting the euro?
I. Using the same currency as many other European countries would discourage trade
and decrease productivity.
II. Using the euro would decrease the effectiveness of monetary policy.
A) I only
B) II only
C) I and II
D) neither I nor II
Figure: Macroeconomics Equilibrium
Look at the figure Macroeconomic Equilibrium. Curve 1 refers to _____, curve 2 refers
to _____, and curve 3 refers to _____.
A) long-run aggregate supply; short-run aggregate supply; aggregate demand
B) aggregate demand; short-run aggregate supply; long-run aggregate supply
C) short-run aggregate supply; long-run aggregate supply; aggregate demand
D) aggregate demand; long-run aggregate supply; short-run aggregate supply
The aggregate demand curve shows that at higher price levels the quantity of aggregate
output demanded will be less than at lower price levels.
A) True
B) False
Potential output is the level of real GDP that:
A) occurs when the economy has only cyclical unemployment.
B) the economy would produce if all prices, including nominal wages, were fully
flexible.
C) occurs when the actual rate of unemployment is zero.
D) the economy would produce if all prices, including nominal wages, were sticky.
“Foreign exchange controls” refers to the:
A) fixed exchange rate system maintained by a country.
B) restrictions imposed by a country on the amount of foreign exchange that its central
bank can hold.
C) system of a common currency used by several countries, such as the euro.
D) licensing systems that limit the rights of individuals to buy foreign currency.
When people want more goods and services than are available, the economy undergoes
inflation. This statement best represents this economic concept:
A) Resources are scarce.
B) When markets don’t achieve efficiency, government intervention can improve
society’s welfare.
C) Overall spending sometimes gets out of line with the economy’s productive capacity.
D) Government policies can change spending.
The Friedman”Phelps hypothesis claimed that the apparent trade-off between
unemployment and inflation would NOT survive an extended period of:
A) rising unemployment.
B) rising prices.
C) rising interest rates.
D) increases in the money supply.
_____ macroeconomists focused on the _____ effects of _____ policy on the aggregate
price level, ignoring any _____ effects on aggregate output.
A) Keynesian; long-run; monetary; short-run
B) Classical; short-run; monetary; long-run
C) Classical; long-run; monetary; short-run
D) Keynesian; long-run; fiscal; short-run
Suppose the economy is in an inflationary gap. To move equilibrium aggregate output
closer to the level of potential output, the best fiscal policy option is to:
A) lower tax rates.
B) decrease government purchases.
C) increase the investment tax credit.
D) lower the real interest rate.
The Bretton Woods monetary system:
A) was abandoned by the United States in 1996.
B) broke down in 1971.
C) was abandoned by the United States, but the dollar is still backed by gold.
D) remains in effect today.
The basic concern of microeconomics is:
A) to keep business firms from losing money.
B) to prove that capitalism is better than socialism.
C) to study the choices people make.
D) to use unlimited resources to produce goods and services to satisfy limited wants.
Maturity transformation must always begin with the financial institution accepting
deposits.
A) True
B) False
If a production possibility frontier is a straight line, it tells us that the opportunity cost
of producing one more unit of good X:
A) is an increasing amount of good Y.
B) is a decreasing amount of good Y.
C) is equal to the inverse of the amount of good Y.
D) is a constant amount of good Y.
According to the theory of new classical economics, if business sentiment and
investment spending decrease, the aggregate demand curve _____ and the price level
falls, while aggregate output_____.
A) shifts right; increases
B) shifts left; remains constant
C) shifts right; decreases
D) shifts left; decreases
In a deposits-only monetary system with a 5% required reserve ratio, a bank deposit of
$1,000 will increase the total amount of bank deposits by:
A) $5,000.
B) $10,000.
C) $20,000.
D) $50,000.
Suppose the reserve ratio is 20%. If Sam deposits $500 in his checking account, his
bank can increase loans by:
A) $500.
B) $2,500.
C) $100.
D) $400.
If the Federal Reserve conducts a $10 million open-market sale and the reserve
requirement is 20%, the maximum change in the money supply is:
A) an increase of $10 million.
B) a decrease of $10 million.
C) a decrease of $8 million.
D) a decrease of $50 million.
The Wall Street Reform and Consumer Protection Act, also called Dodd-Frank, was
passed in the 1930s to correct the problems that led to the Great Depression.
A) True
B) False
If a government has large consecutive budget deficit but its GDP is growing faster than
its debt, the ratio of debt to GDP will increase.
A) True
B) False
Look at the table Price, Quantity Demanded, and Quantity Supplied. A straight line
represents the relation between:
A) price and quantity demanded.
B) price and quantity supplied.
C) price and quantity demanded minus quantity supplied.
D) quantity demanded and quantity supplied.
If a bank has deposits of $100,000, cash in its vault of $10,000, and $15,000 on deposit
at the Federal Reserve and if the required reserve ratio is 20%, then the bank:
A) has no excess reserves.
B) has excess reserves of $5,000.
C) has insufficient reserves to meet requirements.
D) has an insufficient deposit to loan ratio.
The short-run aggregate supply curve is positively sloped because:
A) business people are subject to money illusion.
B) wages are sticky.
C) workers care about nominal wages, not real wages.
D) of diminishing returns to labor.
One of the issues of importance to macroeconomists is:
A) the behavior of individuals and their allocation of income.
B) how firms determine the profit-maximizing level of output.
C) understanding how living standards change over time.
D) the behavior of individual markets.
Figure: Short-Run Phillips Curve
Look at the figure Short-Run Phillips Curve. The NAIRU is:
A) 3%.
B) 5%.
C) 7%.
D) 8%.
A decrease in consumer spending is likely to be caused by:
A) expectation of an increase in personal income taxes.
B) expectation of a decrease in personal income taxes.
C) an increase in the multiplier.
D) an increase in investment spending.
Look at the scenario Monetary Base and Money Supply. How much is M1?
A) $325 billion
B) $330 billion
C) $380 billion
D) $480 billion
Which of the following is a paper claim that entitles the buyer to future income from
the seller?
I. a financial asset
II. a physical asset
III. a liability
A) I only
B) II only
C) III only
D) I, II, and III
Figure: The Money Supply and Aggregate Demand
Look at the figure The Money Supply and Aggregate Demand. If the economy is in a
recessionary gap, the Federal Reserve will _____ Treasury bills, which will _____ the
money supply and _____ interest rates. This is shown in panel _____.
A) sell; decrease; raise; (b)
B) buy; decrease; lower; (a)
C) buy; increase; lower; (a)
D) sell; increase; lower; (a)
Look at the table Peanut Butter and Jelly Economy. How much of the increase in
nominal GDP between 2010 and 2011 was due to inflation?
A) 31.25%
B) 18.75%
C) 12.5%
D) 4%
If the money supply decreases by 5%, in the long run:
A) interest rates rise by 5%.
B) the unemployment rate rises by 10%.
C) the price level drops by 5%.
D) real GDP drops by 5%.
Figure: Fiscal Policy II
Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E2. If
there is an increase in government transfers, _____ will shift to the _____, causing a(n)
_____ in the price level and a(n) _____ in real GDP.
A) AD2; right; increase; increase
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; left; decrease; decrease
An increase in health care insurance premiums would likely cause a decrease in
short-run aggregate supply and shift the short-run aggregate supply curve to the left.
A) True
B) False