Policies that limit imports, usually to insulate domestic producers from foreign
competition, are known as:
A) import-competing clauses.
B) import reduction acts.
C) trade protection.
D) competition protection.
If wages grew at 5% last year and average prices grew at 3%, then the average worker:
A) is better off.
B) is worse off.
C) has lost purchasing power.
D) is unaffected.
You have won the lottery and have been given the choice of receiving $5 million today
or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per
year for the entire 10-year period. You should choose:
A) $10 million after 10 years, since this is more than you would get if you invested $5
million for 10 years at an annual rate of interest of 10%.
B) $10 million after 10 years, since that is a larger amount than the present value of $5
million paid after 10 years.
C) $5 million today, since it would be worth more than $10 million after 10 years if the
$5 million earned interest at the rate of 10% per year.
D) $10 million after 10 years, since it is the larger amount.
The pound sterling floats. If the exchange rate for the pound changes from $1.68 to
$1.60, the pound has:
A) depreciated.
B) been devalued.
C) appreciated.
D) been revalued.
An increase in investment spending leads to _____ in the price level and _____ in real
GDP in the short run.
A) an increase; no change
B) a decrease; no change
C) no change; no change
D) an increase; an increase
Suppose the required reserve ratio increased from 10% to 20%. This would:
A) reduce the money multiplier from 10 to 5.
B) increase the amount of excess reserves available.
C) increase the money multiplier from 5 to 10.
D) not change the money multiplier.
You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you buy
only Sports Illustrated. This statement best represents this economic concept:
A) Resources are scarce.
B) The real cost of something is what you must give up to get it.
C) “How much” is a decision at the margin.
D) There are gains from trade.
The main purpose of the Federal Reserve, which was established in 1913, was to put an
end to the bank crises that occurred during the national banking era.
A) True
B) False
Changes in aggregate demand can be caused by changes in:
A) the stock of physical capital.
B) business costs.
C) raw materials costs.
D) the expenses of complying with government regulations.
Money used to buy a ticket to a football game is functioning primarily as a:
A) medium of exchange.
B) store of value.
C) unit of account.
D) standard of deferred payment.
When the housing market collapsed in 2007, the demand for loanable funds decreased
and caused interest rates to decrease.
A) True
B) False
Keynes suggested that money is:
A) the most important factor affecting aggregate supply.
B) the most important factor affecting aggregate demand.
C) only one of a variety of factors affecting aggregate supply.
D) only one of a variety of factors affecting aggregate demand.
In the nineteenth century before the Civil War, most commodity-backed money in the
United States was:
A) issued by the Treasury Department.
B) issued by the Federal Reserve and redeemable for gold coins.
C) issued by private banks and redeemable for silver coins.
D) borrowed from banks in Europe.
Look at the table Production Possibilities in the United States and Colombia. Suppose
that in autarky, Colombia produces 10 tons of coffee and 3 computers. The United
States produces 8 tons of coffee and 20 computers. Can specialization and trade
increase global production? Justify your answer.
The promise to pay Social Security benefits to the baby boomers is an example of the
implicit liabilities of the U.S. government.
A) True
B) False
Import protections are often imposed because:
A) import protections increase total surplus, even though some groups are harmed.
B) groups representing import-competing industries are more cohesive than consumers.
C) benefits to producers outweigh the costs to the consumer.
D) the loss in consumer surplus is usually quite small.
If the Federal Reserve increases reserve requirements, the fed funds rate will likely
increase, banks will loan less, and the money supply will likely decrease.
A) True
B) False
The topics studied in macroeconomics include:
A) inflation.
B) unemployment.
C) economic growth.
D) inflation, unemployment, and economic growth.
In an economy with no taxes and no imports, disposable income increases from $2,000
to $3,000. If consumption increases from $1,500 to $2,100, the marginal propensity to
consume is:
A) $600.
B) 0.71.
C) 0.60.
D) 0.50.
Table: Components of the Money System
Look at the table Money Supply. The money supply measured by M2 is:
A) $450 billion.
B) $1,425 billion.
C) $1,725 billion.
D) $2,075 billion.
In a closed economy, national savings equals:
A) (disposable income minus consumption spending) minus (tax receipts minus
government spending).
B) (disposable income minus consumption spending) plus (government spending minus
tax receipts).
C) (disposable income minus consumption spending) plus (tax receipts minus
government spending).
D) (consumption spending minus disposable income) plus (government spending minus
tax receipts).
A survey reveals that on a small island initially 100 people have jobs, 25 people don’t
have jobs but are looking for jobs, and 45 people are neither working nor looking for
work. Suppose that 15 of the 45 people who weren’t looking for work now begin
looking for work. There are now 40 people looking for work and 100 people working.
The unemployment rate:
A) falls to 20%.
B) rises to 28.6%.
C) rises to 50%.
D) Nothing happens to the unemployment rate, because these people weren’t working
before and they aren’t working now.
When long-term rates are lower than short-term rates, the market is signaling that it
expects short-term rates to fall.
A) True
B) False
The inflation-adjusted measure of aggregate output typically used by economists is
called:
A) aggregate output.
B) nominal gross national product.
C) net domestic product.
D) real gross domestic product.
A recessionary gap occurs if:
A) actual real GDP is less than potential output.
B) actual real GDP is greater than potential output.
C) actual real GDP is equal to potential output.
D) unemployment is less than the natural rate.
If the marginal propensity to save is 0.25 in an economy with no taxes and no imports,
the marginal propensity to consume is 1.25.
A) True
B) False
Figure: The Multiplier
Look at the figure The Multiplier. If this economy is at Y1 and investment spending
increases:
A) AD1 will shift to the left, reflecting a multiplied decrease in real GDP at every price
level.
B) AD1 will shift to the right, reflecting a multiplied increase in real GDP at every price
level.
C) an upward movement along the AD1 will take place, reflecting an increase in the
price level.
D) a downward movement along the AD1 will take place, reflecting a decrease in the
price level.
Fiscal policies that require no government action but that are expansionary when the
economy contracts and contractionary when the economy expands are known as:
A) discretionary fiscal policy.
B) automatic stabilizers.
C) autonomous spending policies.
D) destabilizing fiscal policies.
In the circular-flow diagram households buy _____ in the _____ market.
A) goods and services; product
B) goods and services; factor
C) resources; factor
D) resources; product
Many economists argued against using discretionary fiscal policy during the Great
Recession because interest rates were very low and fiscal policy is ineffective when
interest rates are near zero.
A) True
B) False
If aggregate expenditures equal $800 billion and real GDP equals $600 billion:
A) unplanned inventory accumulation equals $200 billion.
B) unplanned inventory accumulation equals “$200 billion.
C) consumption plus investment equals $200 billion.
D) actual investment equals “$200 billion.
Changes in the prices of stock are the result of changes in the supply and demand for
stocks of investors.
A) True
B) False