Scenario: Gizmovia
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 $0.40.
Look at the scenario Gizmovia. At the target rate of $0.50:
A) the quantity demanded of gizmos equals the quantity supplied.
B) there is a surplus of gizmos.
C) there is a shortage of gizmos.
D) the quantity demanded of gizmos is greater than the quantity supplied.
It is generally accepted that a binding minimum wage does all of the following
EXCEPT:
A) decrease the quantity of labor demanded.
B) increase unemployment.
C) increase the amount of labor supplied.
D) decrease the amount of labor supplied.
A $600 million decrease in investment spending will decrease real GDP by more than
$600 million.
A) True
B) False
The existence of government intervention often suggests that:
A) markets may not be able to provide for efficient results all of the time.
B) individual actions have no side effects.
C) equilibrium will be achieved through this intervention.
D) markets can efficiently manage the allocation of goods.
Which of the following is NOT a reason that markets usually lead to efficiency?
A) People are naturally efficient.
B) Individuals have incentives to offer what people want.
C) Trade encourages efficiency.
D) Inefficient firms will lose business.
Which of the following is TRUE of the Federal Reserve’s response to the banking crises
of the 1930s and 2008?
A) In both crises, the Fed acted aggressively as a lender of last resort and to guarantee
liabilities of troubled banks.
B) In both crises, the Fed failed to use its power to act as a lender of last resort or to
guarantee liabilities of troubled banks.
C) In the 1930s the Fed acted aggressively as a lender of last resort and to guarantee
liabilities of troubled banks, but it did not act in 2008.
D) In 2008 the Fed acted aggressively as a lender of last resort and to guarantee
liabilities of troubled banks, but it did not act in the 1930s.
Given an annual interest rate of 2%, the present value of a future payment of $1,500 to
be paid in one year is:
A) $1,250.55.
B) $1,470.59.
C) $1,530.
D) $1,500.
Business cycles are defined by the expansion, contraction, then expansion again of
nominal GDP.
A) True
B) False
The sum of the frictional and structural rates of unemployment is the:
A) cyclical rate of unemployment.
B) cyclical rate of employment.
C) natural rate of unemployment.
D) natural rate of employment.
Scenario: Money and Interest Rates
Banks decide to do away with fees charged when other banks’ customers use the bank’s
own ATM.
Look at the scenario Money and Interest Rates. If the Federal Reserve wants to
maintain the same federal funds rate, it should:
A) increase taxes.
B) decrease government spending.
C) sell Treasury bills.
D) buy Treasury bills.
Look at the table Competitive Market for Good Z. A surplus of the good will occur at a
price of
A) $0.
B) $5.
C) $10.
D) $15.
Long-run growth is sustainable if:
A) it can continue in the face of limited natural resources and the impact of growth on
the environment.
B) people continue to buy enough goods and services.
C) energy prices are low.
D) environmental concerns are ignored during global recessions.
According to Ben Bernanke, the primary cause of the U.S. current account deficit of the
early 2000s was:
A) political unrest in developing African nations.
B) the war against terror.
C) the decreasing productivity of U.S. workers.
D) a global savings glut that decreased interest rates and led to an excess of investment
over savings in the United States.
The panic of 1873 began when:
A) the Federal Reserve began to require banks to hold reserves and meet capital
requirements.
B) the Civil War started.
C) Jay Cooke and Co., a financial firm that was heavily invested in the railroad
industry, failed.
D) Franklin Delano Roosevelt declared a bank holiday.
The rate of return on a business project equals:
A) (Cost of project / revenue from project) 100.
B) (Revenue from project / cost of project) 100.
C) (Revenue from project cost of project) 100.
D) (Revenue from project ” cost of project) / Cost of project) 100.
Transactions costs are likely to be the highest for:
A) loans.
B) bonds.
C) stocks.
D) bank deposits.
If the actual interest rate is below the target rate, the Fed should sell Treasury bills.
A) True
B) False
The main objective of contractionary monetary policy is to:
A) decrease aggregate demand.
B) close a recessionary gap.
C) increase investment.
D) raise the level of potential output.
Over the course of the twentieth century, real GDP per capita in the United States rose
mostly as a result of:
A) rising population.
B) rising employment.
C) rising productivity.
D) reduced vacation time.
A tariff imposed on U.S. imports into Japan tends to _____ U.S. producers and _____
Japanese producers.
A) penalize; benefit
B) benefit; penalize
C) penalize; penalize
D) benefit; benefit
When tracking economic growth, why do economists prefer real GDP per capita over:
a. real GDP?
b. nominal GDP per capita?
Which of the following is a function of the Federal Reserve System?
I. conducting monetary policy
II. examining and supervising commercial banks in the Fed regions
III. providing liquidity to financial institutions
A) I only
B) II only
C) III only
D) I, II, and III
Look at the table The Production Possibilities for Tractors and Crude Oil. _____ has
(have) an absolute advantage in producing tractors.
A) The United States
B) Mexico
C) Both the United States and Mexico
D) Neither the United States nor Mexico
Milk is an important ingredient in the production of ice cream. If the price of milk
increases, then one would expect, holding all other things constant:
A) the supply curve for ice cream to shift left.
B) the supply curve for ice cream to shift right.
C) no change in the supply curve for ice cream.
D) a movement along the supply curve for ice cream curve, resulting in more ice cream
supplied.
Scenario: Money and Interest Rates
Banks decide to do away with fees charged when other banks’ customers use the bank’s
own ATM.
Look at the scenario Money and Interest Rates. The demand for money will _____, and
the supply of money will _____.
A) increase; not change
B) increase; decrease
C) decrease; not change
D) decrease; increase
Table: Balance Sheet
Look at the table Balance Sheet. If the reserve ratio is 25%, deposits are:
A) $5,000.
B) $15,000.
C) $60,000.
D) $80,000.
Look at the table Production Possibilities for Machinery and Petroleum. The
opportunity cost of _____ is _____ in the United States as (than) in Mexico.
A) petroleum; less
B) petroleum; more
C) petroleum; the same
D) machinery; the same
The models that economists construct:
A) usually make simplifying assumptions.
B) often rely on physical constructs, such as those used by architects.
C) rarely use mathematical equations or graphs.
D) attempt to replicate the real world.
In the foreign exchange market, an increase in the rate of return available in the
eurozone, all other things equal, will shift the _____ curve for the _____ to the _____,
and the euro will _____.
A) demand; euro; right; appreciate
B) supply; euro; right; depreciate
C) demand; euro; left; depreciate
D) demand; U.S. dollar; right; appreciate
Discretionary fiscal policy may destabilize the economy because of lags in
implementing policy and lags in the effect of fiscal policy on the economy.
A) True
B) False
Figure: Fiscal Policy II
Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If
there is a decrease in government transfers, _____ will shift to the _____, causing a(n)
_____ in the price level and a(n) _____ in real GDP.
A) AD2; left; increase; decrease
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; left; decrease; decrease