Investment spending is spending on:
A) productive physical capital.
B) bonds.
C) shares of stock.
D) productive physical capital, bonds, and shares of stock.
The exchange rate is the _____ between countries.
A) interest rate differential
B) balance of trade differential
C) relative price of currencies
D) relative price of gold
Figure: Demand and Supply of Gasoline
Look at the figure Demand and Supply of Gasoline. Given the initial equilibrium of S1
and D, any price lower than _____ will exert pressure for the price to _____.
A) $2.00; fall
B) $2.50; rise
C) $3.00; rise
D) $2.50; fall
Figure: Tom’s Production Possibilities
Look at the figure Tom’s Production Possibilities. Which point or points represent(s) an
inefficient combination of coconuts and fish?
A) A only
B) A and B
C) C only
D) B and D
Unit-of-account costs arise from the way inflation makes money a less reliable measure
of value.
A) True
B) False
In an economy with no taxes or imports, if disposable income decreases by $2,000 and
consumption decreases by $1,400, the marginal propensity to save is 0.3.
A) True
B) False
If Japanese buyers demand more U.S. dollars, then the dollar will _____, the yen will
_____, the U.S. balance of payments on current account will _____, and the U.S.
balance of payments on financial account will _____.
A) appreciate; depreciate; rise; fall
B) depreciate; appreciate; rise; fall
C) appreciate; depreciate; rise; rise
D) appreciate; depreciate; fall; rise
If the marginal propensity to consume is 0.8, the multiplier for taxes and transfer
payments will be more than 5.
A) True
B) False
By 1933, banks were able to borrow from:
I. the Reconstruction Finance Corporation.
II. the Federal Reserve System.
A) I only
B) II only
C) I and II
D) neither I nor II
Market equilibrium occurs when:
A) there is no incentive for prices to change in the market.
B) quantity demanded equals quantity supplied.
C) the market clears.
D) there is no incentive for prices to change in the market, quantity demanded equals
quantity supplied, and the market clears.
It’s your birthday, and your uncle opens up his wallet and gives you a $20 gift card to
the local movie theater. You take the $20 gift card and use it to watch a movie and buy
some popcorn and soda. What is the effect of this transaction on M1 or M2? Explain.
If _____, expansionary fiscal policy is most likely to crowd out private spending.
A) the unemployment rate is 15%
B) aggregate income is $500 billion above its potential level
C) aggregate income is $800 billion below its potential level
D) aggregate output is $300 billion below its potential level
Don has built an addition to his house. This transaction will be:
A) not included in GDP because it is not produced for the marketplace.
B) included in GDP because Don is a professional builder.
C) not included in GDP because it is an intermediate good.
D) included in GDP because building is Don’s hobby.
Assume that I = SPrivate + SGovernment + (IM ” X). Furthermore, let’s say that imports are
equal to exports. In this case, private savings:
A) plus government savings exceed investment.
B) exceed investment.
C) plus government saving are less than investment.
D) plus government saving are equal to investment.
According to the liquidity preference model, the equilibrium interest rate is determined
by:
A) the supply of and demand for loanable funds.
B) the supply of and demand for money.
C) the level of investment spending and saving.
D) the International Monetary Fund.
Figure: Shifts in Demand and Supply III
Look at the figure Shifts in Demand and Supply III. The figure shows how supply and
demand might shift in response to specific events. Suppose scientists discover that
eating asparagus slows the aging process. Which panel BEST describes how this will
affect the market for asparagus?
A) panel A
B) panel B
C) panel C
D) panel D
Figure: An Increase in Aggregate Demand
Look at the figure An Increase in Aggregate Demand. Assume that the economy is
initially in long-run equilibrium at YP and P1. Now suppose that there is an increase in
the level of government purchases at each price level. This will:
A) shift the aggregate demand curve from AD2 to AD1.
B) shift the aggregate demand curve from AD1 to AD2.
C) lead to increased output and a decrease in the price level.
D) lead to decreased output and a decreased price level.
Look at the table Trade-off of Study Time and Leisure Time. A student sleeps 8 hours
per day and divides the remaining time between study time and leisure time. The table
shows the combinations of study and leisure time that can be produced in the 16 waking
hours of each day. If a student decides to consume one additional hour of leisure time,
how many hours of study time must she give up?
A) 4
B) 0.25
C) 1
D) 16
Since the 1960s, nations like South Korea have been a part of the so-called East Asian
economic miracle because:
A) high rates of human capital growth have offset slow savings rates.
B) of high rates of national savings that offset the slower rate of technological progress.
C) of high savings rates, greater quantities of physical capital per worker, and slower
growth of human capital.
D) of the combination of rapid technological progress, high savings rates, and rapid
improvement in human capital.
Scenario: Taylor Rule
Suppose the Federal Reserve is following the Taylor rule, which takes both inflation
and business cycles into account when setting the federal funds rate. Also suppose that
the inflation rate in the economy is 3% and the unemployment gap is “2%.
Look at the scenario Taylor Rule. The economy has:
A) an inflationary gap, since the inflation rate is high.
B) a recessionary gap, since the economy is not producing potential GDP.
C) an inflationary gap, since actual real GDP exceeds potential real GDP.
D) a recessionary gap, since potential real GDP exceeds actual real GDP.
Scenario: Open Economy S= I
In an open economy GDP is $12 trillion this year. Consumption is $8 trillion, and
government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and
imports are $3 trillion.
Look at the scenario Open Economy S = I. What is the government budget balance?
A) a surplus of $1.5 trillion
B) a deficit of $1.5 trillion
C) a deficit of $0.5 trillion
D) a surplus of $3.5 trillion
The Great Moderation consensus about macroeconomic policy is that:
A) only monetary policy works against recessions, but fiscal policy is effective only in
the long run.
B) expansionary monetary and fiscal policies can both reduce unemployment in the
long run.
C) expansionary monetary and fiscal policies are both effective in the short run but not
in the long run.
D) discretionary monetary and fiscal policies are effective in the short run and in the
long run.
Rice and potatoes are substitutes in consumption. If the price of rice rises and there is a
bumper crop of potatoes, in the market for potatoes one would expect the equilibrium
price to _____ and the equilibrium quantity to _____.
A) rise, fall, or stay the same; rise
B) rise; fall
C) fall; fall
D) rise; fall, rise, or stay the same
The difference between a fixed and a floating exchange rate regime is that with a _____
rate system, the _____, whereas with a _____ rate system it does not.
A) fixed; central bank retains its ability to use independent monetary policy; floating
B) floating; central bank retains its ability to use independent monetary policy; fixed
C) fixed; government can use independent fiscal policy; floating
D) floating; government can use independent fiscal policy; fixed
Figure: The Domestic Supply and Demand for SUVs in the United States
Look at the figure The Domestic Supply and Demand for SUVs in the United States.
Suppose the world price equals $50,000 and there is free trade. Calculate the loss of
consumer surplus.
A) $41,250 million
B) $30,000 million
C) $52,500 million
D) $22,250 million
When the demand for money exceeds the supply:
A) people offering to sell nonmonetary financial assets must increase the interest rate
these assets pay to sell them.
B) interest rates will fall.
C) the opportunity cost of holding money will fall.
D) more people will hold money.
The housing market in Ft. Myers collapsed in the mid to late 2000s because of
extensive damage to homes from hurricanes.
A) True
B) False
The life-cycle hypothesis of consumer spending says that consumers plan their
spending:
A) based only on current disposable income.
B) based on interest rates.
C) over their lifetime.
D) according to fluctuations in the stock market.
A ______ graph shows how the value of one or more variables has changed over some
period.
A) linear
B) time-series
C) nonlinear
D) periodic table
Economists tend to believe that to change people’s behavior you must:
A) appeal to their concern for society.
B) change their incentives.
C) legislate the change.
D) appeal to their religious values.
Look at the table ABC Bank’s Balance Sheet. If the minimum reserve ratio for ABC
Bank is 10%, then the bank is required to maintain minimum reserves of:
A) $10 million.
B) $15 million.
C) $9.5 million.
D) $7.5 million.
Saudi Arabia has a tremendous comparative advantage in petroleum. Which of the
following is a source of this comparative advantage?
A) mild temperatures
B) large reserves of crude oil
C) no opportunity cost associated with oil production
D) high tariffs on oil from other nations
If two variables are negatively 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 can never be a trade-off between the two.
D) one variable is always the reciprocal of the other.
Scenario: The Production of Wheat and Toys
The table describes the production of two goods, wheat and toys, in country A and
country B. Each country has a linear production possibility frontier with respect to its
production of the two goods. The numbers in each column represent the total number of
units each country could produce if it used all of its resources to produce the good.
Look at the scenario Production of Wheat and Toys. If each country specializes in the
good for which it has the comparative advantage, then the price of wheat in terms of
toys will be:
A) between two units of toys and one-third unit of toys.
B) between two units of toys and three units of toys.
C) three units of toys.
D) between one-third unit of toys and one-half unit of toys.