When the Fed decreases the reserve requirement, banks lend _____ of their deposits,
which leads to a(n) _____ in the money supply.
A) less; decrease
B) less; increase
C) more; decrease
D) more; increase
As long as people have different _____, everyone has a comparative advantage in
something.
A) direct costs
B) benefits
C) utility
D) opportunity costs
In the long run, the aggregate price level has no effect on the quantity of aggregate
output supplied.
A) True
B) False
Assume that the marginal propensity to consume is 0.8 and potential output is $800
billion. If real GDP is $850 billion, to bring the economy to potential output the
government should:
A) decrease spending by $50 billion.
B) increase spending by $50 billion.
C) decrease transfers by $50 billion.
D) decrease spending by $10 billion.
The aggregate consumption function:
A) relates household consumption to interest rates.
B) describes what people would like to buy.
C) describes the relationship of spending to family wealth.
D) relates disposable income to total consumer spending.
The official unemployment rate reported by the government may tend to understate the
amount of unemployment because it:
A) includes discouraged workers.
B) excludes discouraged workers.
C) includes people over 65 who aren’t retired.
D) excludes teenagers.
Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal
year, its purchases of goods and services and its transfers are $2 trillion, and tax
revenues are $1.5 trillion. At the end of the fiscal year, the debt is:
A) $10.5 trillion.
B) $6.5 trillion.
C) $9 trillion.
D) $7.5 trillion.
The cost of disinflation is the:
A) leftward shift in aggregate supply.
B) decrease in prices.
C) loss of real GDP in the process.
D) loss of international markets when prices change.
The ______ of a curve shows the point at which the curve intersects an axis.
A) slope
B) steepness
C) intercept
D) origin
The population of discouraged workers causes the:
A) actual unemployment rate to increase when the workers are not included in the
unemployment calculation.
B) actual unemployment rate to understate the true level of unemployment.
C) actual unemployment rate to overstate the true level of unemployment.
D) natural rate of unemployment to increase.
Figure: Consumer and Capital Goods
Look at the figure Consumer and Capital Goods. Technological improvements will
likely:
A) shift the production possibility frontier inward to curve 1.
B) shift the production possibility frontier outward to curve 2.
C) lead to increased unemployment.
D) leave the production possibility frontier unchanged.
Scenario: A Country’s Consumption Function
A country is closed. It has no government sector, and its aggregate price levels and
interest rates are fixed. Furthermore, the marginal propensity to consume is constant
and the country’s consumption function is as follows: C= 200 + 0.75YD, where YDis
disposable income and Cis consumption. Assume that planned investment equals 75.
Look at the scenario A Country’s Consumption Function. If real GDP is $1,100:
A) unplanned investment equals zero.
B) planned investment equals zero.
C) the aggregate expenditures curve shifts up.
D) the marginal propensity to consume decreases.
Table: Investment Projects
Look at the table Investment Projects. If the market interest rate declines from 15% to
11%, then the amount of investment demanded will increase by:
A) $200.
B) $1,000.
C) $2,000.
D) $2,200.
Which of the following is TRUE?
A) Inflation means an increase in the overall level of prices.
B) Deflation refers to a decrease in prices only in the energy and transportation sectors.
C) During inflation most people enjoy an increase in their standard of living even if
their wages don’t increase.
D) Inflation was a problem for the first time in the recession of 1929″1933.
Which of the following accurately portrays the shape of the long-run Phillips curve?
A) a horizontal curve
B) a vertical curve
C) an upward-sloping curve
D) a downward-sloping curve
Expansionary fiscal policy:
A) increases long-run aggregate supply.
B) decreases long-run aggregate supply.
C) increases aggregate demand.
D) decreases aggregate demand.
If two variables are positively related:
A) as one goes up in value, the other must go up in value, too.
B) as one goes up in value, the other must go down in value.
C) there is always a trade-off between the two.
D) one variable is always the reciprocal of the other.
Fiscal policy entails changes in the quantity of money or the interest rate.
A) True
B) False
A survey reveals that on a small island initially 1,000 people have jobs, 200 people are
unemployed but are looking for jobs, and 200 people are neither working nor looking
for work. Suppose that 100 of the 200 people who weren’t looking for work now begin
looking for work and that half of the new entrants find a job. The unemployment rate:
A) rises to 19.2%.
B) rises to 21.4%.
C) rises to 28.6%.
D) Nothing happens to the unemployment rate.
Politicians may accept moderate inflation in an election year, since the _____ in
aggregate _____ serves to _____.
A) increase; supply; increase output
B) decrease; supply; decrease employment
C) decrease; demand; decrease output
D) increase; demand; increase output
The U.S. production possibility frontier would _____ if all computers using Microsoft
operating systems contracted a virus that deleted all information on those computers.
A) shift in
B) shift out
C) not change
D) The answer cannot be determined from the information provided.
To be classified as unemployed, a worker must:
A) be working less than full-time (40 hours a week).
B) not have a job and must be actively looking for work.
C) not be looking for a job and must not have a job.
D) be a discouraged worker.
The Japanese will demand U.S. dollars in all of the following cases EXCEPT:
A) to buy real estate in New York City.
B) to buy a GM car in Japan.
C) to see a Hollywood movie in Tokyo.
D) to invest in Japanese stocks.
Banks don’t lend out all of the funds deposited because:
A) it would not be profitable.
B) they have to satisfy any depositor who wants to withdraw funds.
C) they have to reduce their liquidity position.
D) they have to make more money on interest-bearing deposits.
Exports increase producer surplus but decrease consumer surplus and total surplus.
A) True
B) False
The multiplier effect of changes in government purchases of goods and services is equal
to:
A) 1 / (1 ” MPS).
B) 1 / (1 ” MPC).
C) MPS / (1 ” MPC).
D) MPC / (1 ” MPS).
Expansionary fiscal measures, such as more government spending and tax cuts
designed to reduce unemployment, are called:
A) fiscal austerity.
B) fiscal stimulus.
C) automatic stabilizers.
D) maturity transformation.
Open-economy macroeconomics deals with:
A) reducing regulations on business.
B) the relationships between economies of different nations.
C) reducing employment discrimination.
D) providing financial information to investors.
If the interest rate in the market for loanable funds is above the equilibrium rate:
A) there is a shortage of loanable funds.
B) savings exceed investment spending.
C) the quantity demanded of loanable funds exceeds the quantity supplied.
D) consumption is smaller than savings.
Figure: The Labor Market
Look at the figure
The Labor Market. What will be the level of employment if firms decide to pay an
efficiency wage of $16?
A) 80,000
B) 100,000
C) 110,000
D) 200,000
Monetary neutrality implies that in the long run:
A) monetary policy does not affect the level of economic activity.
B) long-run aggregate supply depends on monetary policy.
C) changing the money supply does not affect the aggregate price level.
D) aggregate demand is independent from monetary policy.
An U.S. deposits $10,000 in an account in a London bank. In the U.S. balance of
payments, this transaction causes the balance on the _____ account to _____.
A) financial; increase
B) financial; decrease
C) current; decrease
D) current; increase
In practice much trade protection reflects the political influence of import-competing
producers.
A) True
B) False
Table: Components of the Money System
Look at the table Money Supply. The money supply measured by M1 is:
A) $325 billion.
B) $450 billion.
C) $1,425 billion.
D) $1,875 billion.