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If the opportunity costs of production are constant, then the production possibility
frontier is:
A) bowed out from the origin.
B) bowed in toward the origin.
C) a straight line.
D) circular.
Policies that expand output and decrease unemployment are popular with voters but are
likely to cause inflation later.
A) True
B) False
Which model states that nations that are abundant in a factor will have a comparative
advantage in a good whose production is intensive in that factor?
A) the pauper labor fallacy model
B) the Ricardian model
C) the Heckscher"Ohlin model
D) the oligopoly model
A sale of Treasury bills by the Federal Reserve _____ interest rates and _____ the
money supply.
A) raises; increases
B) raises; reduces
C) lowers; reduces
D) lowers; increases
In the late 1970s and early 1980s, the Federal Reserve:
A) began targeting the money supply.
B) began targeting interest rates.
C) stopped targeting the money supply.
D) began targeting both the interest rate and the money supply.
According to the Great Moderation consensus, fiscal policy should be the main
stabilization tool.
A) True
B) False
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%, inflation of 2%, and an expectation of
2% future inflation. If the central bank decreases the money supply such that aggregate
demand shifts to the left and unemployment rises to 8%, then inflation will:
A) fall to zero.
B) not change.
C) rise to 2%.
D) rise to 4%.
If an economy is in long-run equilibrium at its potential output level, this also means:
A) the money market is in equilibrium.
B) money demand is greater than money supply.
C) money supply is greater than money demand.
D) there is excess money in the money market.
A person who is risk-averse:
A) is more sensitive to a loss than to a gain of an equal dollar amount.
B) is less sensitive to a loss than to a gain of an equal dollar amount.
C) is willing to pay any price to avoid risk.
D) enjoys taking risks, especially in financial markets.
In A Monetary History of the United States, 1867"1960, Milton Friedman and Anna
Schwartz argued that:
A) only fiscal policy could be effective in managing the economy.
B) the Depression was caused by irresponsible government spending.
C) monetary policy should play a key role in stabilizing the economy.
D) the Federal Reserve should be abolished.
Aggregate demand will shift to the RIGHT if:
A) the aggregate price level increases.
B) government purchases increase.
C) taxes go up.
D) the money supply shrinks.
Which of the following is NOT included in investment spending in the national income
accounts?
A) new residential construction
B) the purchase of machinery and other productive physical capital
C) the purchase of stocks and bonds by a business
D) spending on inventories
When the price level increases and people want to hold more money, interest rates
decrease.
A) True
B) False
Funding for Social Security and Medicare:
A) must come from government borrowing.
B) comes from dedicated taxes.
C) is likely to increase with the retirement of baby boomers.
D) can be accomplished with lower taxes in the future.
If a country has a trade surplus, we can conclude that it also has:
A) a budget surplus.
B) a net capital outflow.
C) a net capital inflow.
D) a budget deficit.
If interest rates on bonds rise, holding other things constant, stock prices will:
A) increase.
B) decrease.
C) not change.
D) It is impossible to say how stock prices will change.
Which of the following is NOT a government transfer payment?
A) the federal payroll
B) Social Security
C) Medicare
D) Medicaid
Many economists believe that:
A) fiscal policy can be used effectively to reduce unemployment below its natural rate.
B) monetary policy can be used effectively to reduce unemployment below its natural
rate.
C) discretionary fiscal policy should be used sparingly because political influence may
manipulate its implementation and use.
D) monetary rules are best.
Someone who is risk-averse is:
A) willing to expend whatever resources necessary to gain an uncertain amount of
money.
B) willing to spend more resources to avoid losing a given sum of money than to gain
the same sum of money.
C) irrational in the need to hold all assets in liquid form.
D) one who does not believe in financial risk.
Between 2004 and 2006, the Fed raised its target federal funds rate to prevent inflation.
A) True
B) False
Diminishing returns to physical capital suggests that:
A) at some point, increasing the amount of physical capital per worker is not worth the
cost of the additional amount of capital.
B) after some point, increasing the amounts of physical capital per worker will lead to
decreases in productivity.
C) increasing the amount of physical capital per worker is always worth the cost of the
capital.
D) there are increasing returns to technology and human capital.
If the consumer price index is 180 in year 1 and 190 in year 2, the inflation rate between
year 1 and year 2 is about:
A) 5.26%.
B) 5.56%.
C) 6.5%.
D) 10%.
When other things are equal and using the classical model, an increase in the money
supply leads to an equal proportional _____ in the aggregate _____, with no effect on
aggregate_____.
A) rise; output; price level
B) fall; price level; output
C) rise; price level; output
D) fall; output; price level
When a market is in equilibrium, the quantity:
A) demanded is equal to zero.
B) demanded is equal to quantity supplied.
C) demanded is greater than quantity supplied.
D) supplied is zero.
When labor unions successfully bargain for wage rates that are _____ than the
equilibrium wage rate, they may cause _____.
A) lower; frictional unemployment.
B) equal to; shortages in that labor market.
C) higher than; an increase in structural unemployment.
D) higher than; shortages in that labor market.
Transaction costs are:
A) the return to an entrepreneur.
B) the return to moving a product to market.
C) the expenses of producing a product.
D) the expenses of negotiating and executing a deal.
Monetarists argue that:
A) the Federal Reserve System should allow the money supply to increase at a slow,
steady annual rate.
B) since the velocity of money is unstable, a fixed annual increase in the money supply
will exacerbate inflation in the long run.
C) self-correction is less effective than activist monetary policy.
D) fiscal policy should always be used before monetary policy.
All of the following are government policies to promote economic growth EXCEPT:
A) building infrastructure and providing public goods.
B) implementing a monetary policy that increases inflation.
C) subsidizing education.
D) providing political stability and protecting property rights.
If your professor wins the lottery:
A) GDP goes up.
B) GDP goes down.
C) GDP is not affected.
D) the economy will be better off.
Table: Per Capita GDP
Look at the table Per Capita GDP. Per capita nominal GDP in 2014 was:
A) $600.
B) $800.
C) $300.
D) $1,600.
A life insurance company is a financial intermediary that sets up a stock portfolio of
shares of companies and then sells shares of the stock portfolio to investors.
A) True
B) False
One argument in favor of quantitative easing is that:
A) long-term interest rates have more influence over private spending than short-term
interest rates.
B) short-term interest rates have more influence over private spending than long-term
rates.
C) the private sector, not the Federal Reserve, should determine interest rates.
D) it decreases the budget deficit.
