GDP is the:
A) total market value of all final goods and services produced in an economy in one
year.
B) total accumulated wealth of an economy.
C) volume of all dollar transactions made in an economy in one year.
D) dollar amount of all sales made in the economy in one year.
The consumer price index is calculated by the Bureau of Labor Statistics.
A) True
B) False
Ron quit his job in retail management and moved to Florida with his wife, a physician
who opened a new practice there. He was not successful in his job search for the next
four months. Ron’s unemployment is:
A) structural.
B) cyclical.
C) frictional.
D) seasonal.
Bank reserves are the currency banks hold in their vaults minus the deposits at the
Federal Reserve.
A) True
B) False
Figure: Short- and Long-Run Equilibrium
Look at the figure Short- and Long-Run Equilibrium. If the economy is at equilibrium
at E1, the appropriate policy to return the economy to potential output is a(n):
A) increase in transfer payments.
B) decrease in transfer payments.
C) increase in taxes.
D) decrease in government spending.
Nominal GDP is:
A) inflation-adjusted GDP.
B) real GDP minus depreciation.
C) current-dollar GDP.
D) constant-dollar GDP.
Table: Per Capita GDP
Look at the table Per Capita GDP. If 2011 is the base year, real GDP in 2014 was:
A) $400.
B) $3,000.
C) $4,000.
D) $80,000.
Which of the following changes would contribute to a nation’s rapid long-run economic
growth?
A) faster technological progress
B) faster population growth
C) less physical capital per worker
D) lower levels of average human capital
The budget balance is calculated as:
A) T ” G ” TR.
B) T + G ” TR.
C) T ” G + TR.
D) T + G + TR.
Following a severe banking crisis, the average length of time that it takes the
unemployment rate to begin to fall is _____ years.
A) 2
B) 4.8
C) 10.5
D) 25
The national banking era is the period following the establishment of the Federal
Reserve in 1913.
A) True
B) False
The 2009 U.S. stimulus was an expansionary fiscal policy that increased aggregate
demand.
A) True
B) False
If all of the households and businesses start saving more during economic hard times,
then aggregate income will fall, hurting everyone in the economy. This is known as:
A) the quantity theory.
B) the crowding-out theory.
C) the paradox of thrift.
D) the permanent income hypothesis.
Policy makers before the Great Depression were:
A) uncertain about the appropriate measure to use against a recession in the absence of
any clear theory about the cause of business cycles.
B) using both fiscal and monetary policies to combat the harmful effects of recession on
output and employment.
C) against using monetary policies to fight the economic downturns caused by business
cycles.
D) in favor of using only fiscal policies to fight the economic booms caused by business
cycles.
Look at the table Furniture Production Schedule. What is the total value added at all
stages of production of the furniture?
A) $800
B) $1,200
C) $1,800
D) $2,000
A country’s living standard is best measured by:
A) per capita nominal GDP.
B) real GDP.
C) nominal GDP.
D) per capita real GDP.
Contractionary fiscal measures, such as less government spending and tax increases
designed to reduce budget deficits, are called:
A) fiscal austerity.
B) fiscal stimulus.
C) automatic stabilizers.
D) maturity transformation.
The Japanese yen is a floating currency. If the exchange rate for the yen changes from
$0.0098 to $0.01, the yen has appreciated.
A) True
B) False
A high inflation rate leads people to increase their money holdings, leading to more
money printing and higher inflation.
A) True
B) False
Value added is equal to the value of a company’s:
A) sales.
B) sales minus intermediate goods.
C) intermediate goods.
D) payments to labor and capital.
Because people usually exploit opportunities to make themselves better off, which of
the following methods of reducing pollution is likely to be most effective?
A) appealing to the polluter to be a good citizen
B) publicizing the harmful effects of pollution
C) imposing a tax per unit of pollution generated
D) All three methods are equally effective.
A system in which exchange rates are set by government policy is a ____ system.
A) universal exchange
B) floating exchange rate
C) commodity standard
D) fixed exchange rate
A decrease in health care insurance premiums paid by employers would likely:
A) cause a movement up the short-run aggregate supply curve from left to right.
B) cause a movement down the short-run aggregate supply curve from right to left.
C) shift the short-run aggregate supply curve to the right.
D) shift the short-run aggregate supply curve to the left.
An example of an intermediate good is:
A) wages paid to an employee.
B) steel purchased by aircraft manufacturers.
C) vegetables purchased for your dinner.
D) electric bills for the office.
Figure: Fiscal Policy with a Fixed Money Supply
Look at the figure Fiscal Policy with a Fixed Money Supply. Assume that this economy
is at E2. Now government deficit spending is decreased, but the Federal Reserve
expands the money supply. According to this model:
A) real GDP will decrease just as much as it would if the Federal Reserve had not
expanded the money supply.
B) real GDP will decrease, but not as much as it would if the Federal Reserve had failed
to expand the money supply.
C) real GDP will expand, but not as much as it would if the Federal Reserve had not
expanded the money supply.
D) interest rates will increase.
When troubled financial institutions are forced to sell assets quickly at a deep discount,
this is a(n):
A) debt overhang.
B) vicious cycle of deleveraging.
C) maturity transformation.
D) asset bubble.
The Federal Reserve System was established in:
A) 1913.
B) 1971.
C) 1857.
D) 1873.
A revaluation will make exports _____expensive and imports _____ expensive.
A) more; more
B) more; less
C) less; less
D) less; more
When interest rates are very high, the economy is in a liquidity trap, and monetary
policy may be ineffective in fighting a recession.
A) True
B) False
In the long run, wages and prices are considered to be:
A) sticky.
B) constant.
C) flexible.
D) irrelevant.
If the value of a country’s exports is greater than the value of its imports, it is:
A) running a trade surplus.
B) running a trade deficit.
C) in an economic contraction.
D) likely to find its investment spending greater than its level of saving.
Table: Price and Output Data
Look at the table Price and Output Data.
The value of year 3’s output in nominal dollars is:
A) $5.
B) $5.20.
C) $20.
D) $36.
Which of the following statements is FALSE?
A) Early Keynesianism downplayed the effectiveness of monetary as opposed to fiscal
policy.
B) Monetarism argued that discretionary monetary policy does more harm than good.
C) The natural rate hypothesis places sharp limits on what macroeconomic policy can
achieve.
D) Concerns about a political business cycle suggest that the central bank should not be
independent and argue for a strong discretionary fiscal and monetary policy.
After eating three slices of pizza, you decide to eat one more piece. Your decision is an
example of the economic principle called:
A) opportunity-cost decision.
B) people responding to incentives.
C) equity decision.
D) marginal decision making.