As a result of a sharp decrease in aggregate demand between 1929 and 1933, the
unemployment rate changed from _____ in 1929 to _____ in 1933.
A) 0%; 3%
B) 3%: 25%
C) 40%; 5%
D) 25%; 0%
Figure: Shift of the Aggregate Demand Curve
Look at the figure Shift of the Aggregate Demand Curve. A movement from point B on
AD1 to point E on AD2 could have been the result of:
A) an increase in consumer optimism.
B) an increase in consumer pessimism.
C) an increase in personal income taxes.
D) the central bank reducing the quantity of money.
One limitation of maintaining a fixed exchange rate system is that:
A) it subjects the country’s exchange rate to wide fluctuations in the foreign exchange
market.
B) it provides an incentive for the country to change its inflation policy frequently.
C) the country may not be able to use monetary policy to achieve other goals, such as
full employment.
D) it leads to wide fluctuations in the growth rate.
The asset bubble in commercial real estate that caused the savings and loan crisis in the
1980s burst because:
A) real estate developers built too much office space.
B) construction costs were too high.
C) the interest rates on construction loans were unprofitably low for banks.
D) the government established rent controls on newly constructed office buildings.
Figure: The Production Possibility Frontiers for Jackson and Tahoe
Look at the figure The Production Possibility Frontiers for Jackson and Tahoe. In
autarky, Jackson produces and consumes 30 head of cattle and 80 bushels of wheat,
while Tahoe produces and consumes 80 head of cattle and 60 bushels of wheat. If both
nations specialize completely in the good of their comparative advantage and Jackson
exports 120 bushels of wheat to Tahoe in exchange for 60 head of cattle, then the new
consumption point for Jackson after trade is _____ bushels of wheat and _____ head of
cattle.
A) 120; 30
B) 120; 60
C) 80; 60
D) 200; 100
The main source of Kuwait’s wealth is _____, while the main source of Germany’s
wealth is_____ .
A) oil; manufacturing
B) manufacturing; oil
C) tourism; manufacturing
D) information technology; tourism
Figure: Supply, Demand, and Equilibrium
Look at the figure Supply, Demand, and Equilibrium. In the figure, there will be an
excess supply of the good at a price of P1.
A) True
B) False
When demand declined in the Great Depression of 1929″1933, the GDP deflator:
A) increased by 15%.
B) increased by 26%.
C) decreased by 15%.
D) decreased by 26%.
Look at the table Production Possibilities in the United States and Colombia. Which
country should export coffee and which country should export computers? Justify your
answer.
Look at the table Dexter’s Employment Statistics. Use these data to complete the
following computations.
a. What is the size of the labor force?
b. What is the labor force participation rate?
Look at the table Competitive Market for Good Z. If the supply curve for good Z is
linear, it can be expressed as:
A) Q = 3P.
B) Q = 50 ” 2P.
C) Q = 100 ” 2P.
D) Q = Qd
Most economists today believe that effective monetary and fiscal policy can limit the
fluctuations of the actual unemployment rate around the natural rate, but they are
unable to keep unemployment permanently below the natural rate.
A) True
B) False
A lump sum tax is a tax whose rate increases as income increases.
A) True
B) False
Scenario: Gizmovia II
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the
gizmo, at $0.50, but the current exchange rate for the gizmo is $0.75.
Look at the scenario Gizmovia II. If Gizmovia uses exchange market intervention to
decrease the value of its currency to $0.50, it should _____ gizmos and _____ dollars in
the foreign exchange market.
A) sell; sell
B) sell; buy
C) buy; sell
D) buy; buy
Look at the table Coffee and Salmon Production Possibilities II. This table shows the
maximum amounts of coffee and salmon, both measured in pounds, that Brazil and
Alaska can produce if they just produce one good. Brazil has a comparative advantage
in producing:
A) coffee only.
B) salmon only.
C) both coffee and salmon.
D) neither coffee nor salmon.
Figure: Monetary Policy II
Look at the figure Monetary Policy II. To eliminate the inflationary gap from the
short-run equilibrium at Y2, monetary policy should be:
A) expansionary.
B) contractionary.
C) neutral.
D) balanced.
The General Theory of Employment, Interest, and Money, written by _____ and
published in _____, transformed the way economists thought about macroeconomics.
A) Milton Friedman; 1946
B) Paul Samuelson; 1940
C) John Maynard Keynes; 1936
D) Paul Lucas; 1966
In the late 1970s, the U.S. economy slid to the_____ along the aggregate _____ curve.
A) left; supply
B) right; supply
C) left; demand
D) right; demand
Among the public goods important for economic growth is (are):
A) publicly held companies like Ford.
B) political stability.
C) public regulation of businesses.
D) low taxes.
Which of the following is NOT part of infrastructure?
A) roads
B) iron ore deposits
C) power plants
D) cell phone towers
Scenario: Good A and Good B
The town of York produces two goods, good A and good B. The following is
information regarding York’s production of these two goods and their prices over three
years.
Look at the Scenario Good A and Good B. In 2010, nominal GDP was _____ nominal
GDP in _____.
A) greater than; 2011
B) greater than; 2009
C) equal to; 2011
D) equal to; 2009
The slope of a straight line is the ratio of the:
A) vertical change to the horizontal change.
B) horizontal change to the vertical change.
C) run over the rise.
D) vertical change to the horizontal change, and it must be positive.
In a simple economy with no taxes, government spending, exports, or imports, if
disposable income increases by $500 and $450 is consumed, $50 is saved.
A) True
B) False
Businesses will undertake projects if the rate of return is:
A) positive.
B) greater than or equal to the interest rate levied on the loan.
C) greater than 1.
D) less than the cost of borrowing for the project.
Which of the following is NOT a factor of production?
A) labor
B) machines and buildings
C) land
D) money
Figure: The Minimum Wage
Look at the accompanying figure on
the labor market. The binding minimum wage of P3 leads to unemployment of:
A) Q3 ” Q1.
B) Q3 ” Q2.
C) Q4 ” Q1.
D) Q4 ” Q2.
If real GDP rises while nominal GDP falls, then prices on average have:
A) risen.
B) fallen.
C) stayed the same.
D) decreased and then been offset by an equal increase.
A financial intermediary that provides liquid assets in the form of deposits to savers and
uses its funds to finance illiquid investment spending needs of borrowers is a(n):
A) insurance company.
B) bank.
C) pension fund.
D) hedge fund.
If there is an inflationary gap, nominal wages _____, and the _____ curve shifts _____
until the economy reaches long-run equilibrium.
A) fall; aggregate demand; left
B) rise; aggregate demand; right
C) fall; short-run aggregate supply; right
D) rise; short-run aggregate supply; left
Sustainable long-run economic growth can continue in the face of the limited supplies
of natural resources and the impact of growth on the environment.
A) True
B) False
Look at the table Price Index. Which year is most likely to be
the base year?
A) 2009
B) 2011
C) 2010
D) 2008
Suppose a panel of economists predicts that a nation’s real GDP per capita will double
in approximately 20 years. According to the rule of 70, what must be the predicted
annual growth rate of real GDP per capita?
A) 140%
B) 3.5%
C) 2.85%
D) 14%
A policy maker who aims at maintaining unemployment at 5% while the NAIRU for
this economy is 4% will most likely find the economy running into:
A) deflation.
B) inflation.
C) a much higher output level.
D) a much lower unemployment level.
When a person deposits money in a bank, it is:
A) only an asset for the bank.
B) only a liability for the bank.
C) a liability and an asset for the bank.
D) most likely to result in a decrease in the money supply.
Which of the following describes the difference between the Taylor rule and inflation
targeting?
A) The Federal Reserve uses inflation targeting, and the Bank of England uses the
Taylor rule.
B) The Taylor rule responds to past inflation, and inflation targeting is based on a
forecast of inflation.
C) Inflation targeting responds to past inflation, and the Taylor rule is based on a
forecast of inflation.
D) Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in
monetary policy.