Keynes’s ideas were:
A) quickly adopted in the 1930s to end the Great Depression.
B) slowly but consistently used in 2008 to end the Great Recession.
C) used somewhat to help reduce the Great Depression.
D) ignored in the Great Depression.
The natural rate of unemployment:
A) equals zero.
B) equals the actual rate of unemployment when cyclical unemployment equals zero.
C) equals the cyclical plus the actual rate of unemployment.
D) fluctuates around the actual rate of unemployment.
Before 1864 U.S. banking was dominated by an unregulated system of state banks, each
issuing its own currency, with little regulation.
A) True
B) False
The circular-flow diagram shows how:
A) banks receive deposits and create money.
B) money, goods and services, and factors of production flow through the economy.
C) the various levels of government allocate tax revenues to meet the needs of society.
D) the work force is educated and trained to increase labor productivity.
In the consumption function, an individual household’s consumer spending:
A) is positively related to its current disposable income.
B) is negatively related to its autonomous consumption and its marginal propensity to
consume.
C) is positively related to the interest rate.
D) is determined by the accelerator principle.
The eurozone is
A) another name for Scandinavia.
B) the only countries in Europe that engage in free trade with the United States.
C) the countries that use the euro as their common currency.
D) made up of the communist countries in eastern Europe.
Figure: Circular-Flow Model
Look at the figure Circular-Flow Model. What is disposable income?
A) $0
B) $100
C) $400
D) $500
When the short-term interest rate _____, the opportunity cost of holding money _____,
and the quantity of money individuals want to hold _____.
A) falls; falls; falls
B) falls; falls; rises
C) rises; falls; falls
D) rises; falls; rises
Financial intermediaries that manage a stock portfolio and sell shares of the portfolio to
individual investors are:
A) mutual funds.
B) pension funds.
C) life insurance companies.
D) banks.
Figure: Fiscal Policy II
Look at the figure Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If
there is an increase in government purchases, _____ 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; right; decrease; increase
Figure: Short-Run Determination of the Interest Rate
Look at the figure Short-Run Determination of the Interest Rate. If the money supply is
at MS2and the Fed conducts contractionary monetary policy, in the short run the interest
rate increases to r1. In the long run prices will _____ the demand for money.
A) decrease, decreasing
B) decrease, increasing
C) increase, decreasing
D) increase, increasing
If in a competitive market the quantity supplied exceeds the quantity demanded, we
expect prices to:
A) stay the same.
B) rise.
C) fall.
D) rise to clear the market.
When banks extend loans:
A) the money supply decreases.
B) the money supply increases.
C) the money supply is unaffected, since no new money was printed.
D) they do so with their required reserves.
Figure: The Market for Melons in Russia
Look at the figure The Market for Melons in Russia. Suppose the world price of melons
is D. Russia will _____ of melons.
A) import I ” H
B) export I ” H
C) import G ” F
D) export G ” F
A supply shock caused by an increase in the price of gasoline causes a(n) _____ in
output and a(n) _____ in prices.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
Suppose interest rates rise in the United States. We expect capital _____ to (from) the
United States and the U.S. dollar price of foreign currencies to _____, all other things
equal.
A) outflows; fall
B) outflows; rise
C) inflows; fall
D) inflows; rise
Figure: Y = f(X
Look at the figure Y = f(X). The slope of the relation between x and y:
A) is positive and constant.
B) is negative and getting steeper.
C) is positive and getting steeper.
D) is positive and getting flatter.
The money demand curve is _____ because a lower interest rate _____ the opportunity
cost of holding money.
A) upward-sloping; increases
B) downward-sloping; increases
C) upward-sloping; decreases
D) downward-sloping; decreases
In the United States in 2013, public debt accounted for about _____ of GDP.
A) 12%
B) 18%
C) 72%
D) 91%
A long-run Phillips curve has a(n) _____ slope because _____.
A) negative; there is a positive relationship between the output gap and the
nonaccelerating inflation rate of unemployment (NAIRU)
B) infinite; any unemployment rate below the NAIRU leads to ever-accelerating
inflation
C) zero; there is a positive relationship between expected inflation and unemployment
D) positive; any unemployment rate above the NAIRU leads to ever-accelerating
inflation
The most important factor affecting a household’s consumer spending is:
A) its expected disposable income.
B) its current disposable income.
C) its wealth.
D) the interest rate.
Figure: Aggregate Supply
Look at the figure Aggregate Supply. If the economy is at point E:
A) actual output is less than potential output.
B) actual output is more than potential output.
C) actual output is equal to potential output.
D) potential output will decrease.
Economists frequently use GDP per capita to reflect:
A) the impact of prices on GDP.
B) differences in living standards across countries.
C) people who are employed.
D) both people who are employed and those who are unemployed.
Which one of the following transactions will be included in the official measurement of
GDP?
A) Stan sold his house at a huge gain.
B) Monica illegally downloaded movies to her laptop.
C) Ben won the state lottery.
D) Sean bought a new truck.
The fundamental argument in the Essay on the Principle of Population was that
improvements in technology or increases in physical capital would lead to only
temporary improvements in productivity because they would always be offset by:
A) rising human capital demands.
B) falling land values.
C) the pressure of rising population and more workers on the supply of land.
D) falling birthrates.
In an inflationary gap:
A) aggregate output is above potential output.
B) aggregate output equals potential output.
C) aggregate output is less than potential output.
D) short-run flexibility will bring the economy back to its potential output without any
intervention.
If aggregate output decreases in an economy whose central bank is not changing its
monetary policy, one would expect the:
A) demand for money to fall.
B) interest rate to rise.
C) demand for money to rise.
D) demand for money to be unchanged.
In the long run, the economy is:
A) unstable.
B) self-correcting.
C) inflexible.
D) uncontrollable.
Suppose the equilibrium price of good X is $25 and the equilibrium quantity is 124
units. If the price of good X is $2:
A) there will be excess demand for good X.
B) there will be an excess supply of good X.
C) the market will clear.
D) the quantity demanded of good X will be less than 124 units.
Assume that the marginal propensity to consume is 0.8 and potential output is $800
billion. The government spending multiplier is:
A) 0.8.
B) 1.25.
C) 5.
D) 4.
Since 1960 the price level in the United States has decreased in most years.
A) True
B) False
An increase in the demand for money would result from a(n):
A) decrease in nominal GDP.
B) decrease in real GDP.
C) decrease in the price level.
D) increase in the price level.
If the United States imposes an import quota on French wines, the result in the short run
is likely to be _____ profits for American wine producers and _____ profits for French
wine producers.
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
People are likely to save the most _____ according to the life-cycle hypothesis.
A) as they get closer to retirement
B) in their peak earnings years
C) the older they get
D) in their old age
Aggregate demand will DECREASE if:
A) the aggregate price level falls.
B) the government raises tax rates.
C) productivity declines.
D) the money supply increases.