The largest monetary aggregate is:
A) M1, because it contains all of the currency in circulation.
B) M2, because it contains currency in circulation, all bank deposits, other deposits, and
deposit-like assets.
C) the reserves in the vaults of Federal Reserve banks, because they are the money
multiplier.
D) the total volume of stocks and bonds, because they store most of the national wealth.
Zimbabwe’s inflation problems arose mainly when its president, Robert Mugabe, seized
the farmland of the white minority and turned it over to his supporters, which disrupted
production and undermined the country’s tax base.
A) True
B) False
In the factor market, firms buy resources.
A) True
B) False
Which of the following best describes demand?
A) A change in demand is a movement along the demand curve, and a change in
quantity demanded is a shift in the demand curve.
B) A change in quantity demanded is a movement along the demand curve, and a
change in demand is a shift in the demand curve.
C) Both a change in quantity demanded and a change in demand are shifts in the
demand curve, only in different directions.
D) Both a change in quantity demanded and a change in demand are movements along
the demand curve, only in different directions.
Fast-growing economies often have a greater demand for loanable funds than do
slower-growing economies because fast-growing economies:
A) also have high private savings rates.
B) have more investment opportunities.
C) tend to have high public savings rates.
D) tend to have a surplus balance of payments most of the time.
Mexico has an abundance of unskilled labor and the United States has an abundance of
skilled labor. The Heckscher”Ohlin model implies that trade between the United States
and Mexico will lead to a decrease in the wages of unskilled labor in the United States
and an increase in the wages of skilled labor in the United States.
A) True
B) False
The two parts of the Federal Reserve are the Board of Governors and the 12 regional
Federal Reserve Banks.
A) True
B) False
Which of the following is a normative statement?
A) The minimum wage has not kept pace with inflation.
B) The minimum wage is an important tool in fighting poverty and should be increased.
C) The minimum wage can cause higher unemployment for teens and unskilled
workers.
D) A higher minimum wage is expected to increase the price of a fast-food
cheeseburger.
If you are paid $10,500 in one year on a $10,000 loan made today, then your annual
interest rate is:
A) 0.5%.
B) 5%.
C) 10%.
D) 10.5%.
Zoe’s grandparents are excited about finally paying off their mortgage, because, as they
say, “Our cost of housing is now zero.” Zoe should explain to them the economic
principle of:
A) marginal analysis: if the additional cost of housing is zero, then their additional
benefit is also zero.
B) opportunity cost: by living in the house, they are giving up the opportunity to sell the
house, buy a smaller one, and pocket the difference.
C) efficiency: If their cost of housing is now zero, they should let Zoe move in without
charging her any rent. Zoe is better off, and her grandparents aren’t hurt.
D) equity: it is unfair that some people are still paying off their mortgage.
After the 2008 financial crisis, proponents of austerity argued that it was the appropriate
policy because:
A) cuts in government spending would increase the interest rates that savers could earn
and would therefore increase the supply of loanable funds.
B) cuts in government spending would keep interest rates on government debt low and
improve investor confidence.
C) fiscal stimulus would likely cause deflation.
D) the lag associated with fiscal stimulus was too long.
A liquidity trap results from:
A) the inflation tax.
B) expansionary fiscal policy.
C) the Fisher effect.
D) the zero bound of the nominal interest rate.
The circular-flow diagram represents the market for _____ and the market for _____.
A) goods and services; factors
B) households; firms
C) money; goods and services
D) factors; money
If the country’s balance of payments on the current account is positive:
A) the balance of payments on the financial account is also positive.
B) the balance of payments on the financial account is negative, so that the sum of the
accounts equals zero.
C) a country’s flow of funds into the country is greater than the flow of funds out of the
country.
D) the country’s imports are greater than its exports.
The difference between a country’s exports and its imports of goods and services is
known as the:
A) trade balance.
B) balance of payments on goods and services.
C) balance of payments on current account.
D) balance of exchange.
A cap and trade system limits, or caps, the total amount of a negative externality, and
producers must buy licenses to generate that externality.
A) True
B) False
Katherine has a physics exam tomorrow. However, a free lecture by one of her favorite
authors is taking place this evening. Katherine decides to attend the lecture instead of
studying for her exam. Katherine’s opportunity cost is:
A) the time spent listening to the lecture.
B) not relevant, since no money is involved.
C) the cost of getting to the lecture itself plus the reduction in her physics exam grade
as a result of not studying tonight.
D) the time spent getting to the lecture.
To close a recessionary gap with fiscal policy, the government could:
A) increase national savings so that the interest rate falls.
B) lower the annual income exempt from paying the personal income tax.
C) lower the corporate income tax rate.
D) lower the amount of unemployment insurance benefits.
The following is an algebraic representation of the consumption function: C= A+ MPC
YD. Which of the following represents the slope of the function?
A) C
B) A
C) MPC
D) YD
The inflation tax refers to:
A) moving into higher tax brackets.
B) the reduction in the real value of money when inflation falls.
C) the reduction in the real value of money when inflation rises.
D) the tax imposed on inflation by the government.
In equilibrium there will be no further opportunities for gains from trade.
A) True
B) False
A fundamental feature of early classical macroeconomics is that:
A) aggregate demand and aggregate income are usually unequal.
B) prices of inputs and outputs are usually relatively rigid.
C) the economy’s level of employment can remain substantially below its natural level
over a long period.
D) the economy can achieve full employment on its own, though there may be short
periods in which employment falls below the natural level.
Figure: The Market for Loanable Funds II
Look at the figure The Market for Loanable Funds II. If the interest rate is lower than
8%, the quantity supplied of loanable funds will _____ the quantity of loanable funds
demanded.
A) be greater than
B) be less than
C) equal
D) The quantity supplied of loanable funds cannot be determined from the information
provided.
Efficiency wages are:
A) market equilibrium wages.
B) set above equilibrium wages to act as an incentive for better performance.
C) set below the equilibrium wage to increase profits.
D) allowed to be below minimum wage.
A country has a capital account deficit if the balance on the:
A) financial account is negative.
B) financial account is positive.
C) current account is negative.
D) current account is zero.
In June 2008 _____ had the world’s highest inflation rate, _____ Germany’s rate in
1922″1923.
A) Zimbabwe; equal to
B) Zimbabwe; even higher than
C) the Republic of Congo; equal to
D) the Republic of Congo; less than
Table: Investment Projects
Look at the table Investment Projects. If the market interest rate is 17%, the amount of
investment demanded is:
A) $200.
B) $800.
C) $1,000.
D) $2,000.
Actual investment spending equals:
A) planned investment plus unplanned investment.
B) planned investment minus unplanned investment.
C) unplanned investment, even if there is a positive amount of planned investment.
D) unplanned investment minus planned investment.
Figure: Technological Progress and Productivity Growth
Look at the figure
Technological Progress and Productivity Growth. If there is an increase in physical
capital per worker (all other factors remaining unchanged), it is best indicated by a
move from:
A) A to B.
B) B to A.
C) C to B.
D) B to C.
Which of the following would demand dollars in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A) I only
B) II only
C) III only
D) I, II, and III
Which of the following is an automatic stabilizer?
A) military spending
B) unemployment compensation payments
C) disability payments to war veterans
D) Medicare payments