Foreign exchange reserves are:
I. stocks of foreign currency.
II. gold and silver.
III. bonds of foreign governments.
A) I only
B) II only
C) III only
D) I, II, and III
In the circular-flow diagram, the places where goods and services are bought and sold
are the:
A) product markets.
B) factor markets.
C) households.
D) firms.
The cyclically balanced budget is an estimate of what the budget balance would be if
real GDP were exactly equal to potential output.
A) True
B) False
Bank reserves are:
A) the money in bank vaults only.
B) the amount of cash that a bank must hold to pay FDIC insurance premiums.
C) the currency held at bank vaults plus bank deposits at the Federal Reserve.
D) the entire amount of checkable bank deposits.
Negative inventory investment occurs when companies _____ their inventories _____.
A) add to; because sales fall
B) add to; by increasing production
C) reduce; by decreasing production
D) reduce; because sales increase.
Capital inflow equals:
A) GDP plus exports minus imports.
B) the growth in capital stock minus investment spending.
C) foreign direct investment.
D) the total inflow of foreign funds minus the total outflow of domestic funds.
A random walk is:
A) the unpredictable movement over time of a variable.
B) the predicted fluctuations of a known variable.
C) the movement of GDP growth per capita in the long run.
D) a description of the economic fluctuations in the short run.
If the inflation rate is 3% this year, the demand for money will increase by 6% this year.
A) True
B) False
If the MPS= 0.1, then the multiplier equals:
A) 1.
B) 5.
C) 9.
D) 10.
Many S&Ls failed in the late 1970s and early 1980s when they lost most of their
depositors to Fannie Mae and Freddie Mac.
A) True
B) False
The national debt _____ when the federal government incurs a _____.
A) falls; deficit
B) rises; surplus
C) stays the same; surplus
D) rises; deficit
Student loans, auto loans, and credit card loans are often securitized.
A) True
B) False
When the Fed increases the discount rate, banks are likely to increase their lending, and
the money supply increases.
A) True
B) False
Figure: Loanable Funds
Look at the figure Loanable Funds. Which of the following might produce a new
equilibrium interest rate of 5% and a new equilibrium quantity of loanable funds of
$150 billion?
A) Consumption as a fraction of disposable income increases.
B) Businesses become more optimistic about the return on investment spending.
C) The federal government has a budget surplus rather than a budget deficit.
D) There is an increase in capital inflows from other nations.
Figure: Technological Progress and Productivity Growth
Look at the figure
Technological Progress and Productivity Growth. Which of the following changes in
real GDP is most likely to have resulted from a gradual decline in property rights
because of excessive government intervention?
A) A to B
B) B to C
C) C to B
D) C to A
According to classical economists, the short-run aggregate supply curve is _____, while
according to Keynesian economists, the short-run aggregate supply curve is _____.
A) vertical; upward sloping
B) downward sloping; vertical
C) vertical; vertical
D) upward sloping; horizontal
Stagflation may result from:
A) an increase in the supply of money.
B) a decrease in the supply of money.
C) an increase in the price of oil.
D) a decrease in the price of oil.
Look at the table Aggregate Spending. Suppose the economy has no government
spending and no foreign trade. With no taxes or transfers, real GDP equals disposable
income (YD). The income”expenditure equilibrium real GDP is found at _____. If
planned investment fell to $300, the new income”expenditure equilibrium real GDP
would fall to _____.
A) $3,500; $2,500
B) $3,500; $2,000
C) $3,000; $1,500
D) $4,000; $2,500
Between 1929 and 1933, bank deposits fell:
A) as consumers spent more money to buy goods.
B) as fears of bank failures compelled depositors to withdraw their deposits.
C) and M1 rose as the currency holdings by customers decreased.
D) and banks lent more money to customers.
Figure: The DVD Rental Market
Look at the figure The DVD Rental Market. At a rental price of $3, there will be:
A) equilibrium in the rental market for DVDs.
B) an increase in demand.
C) an excess supply of 40 DVD rentals.
D) an excess demand of 40 DVD rentals.
Table: Real and Nominal Output
Look at the table Real and Nominal Output. The price index in year 1, using year 3 as
the base period, is:
A) 25.
B) 50.
C) 100.
D) 150.
Economists are generally in support of:
A) government restrictions on trade.
B) free international trade.
C) tariffs to restrict trade.
D) subsidizing exports.
Which of the following would shift the production function upward?
A) an increase in the price of oil
B) an improvement in technology
C) a decrease in the supply of labor
D) a decline in the birth rate
The value of all of the following goods EXCEPT _____ is included in the calculation of
aggregate output.
A) Firestone tires sold at your local garage
B) a new shower installed in a 1920s house
C) the six-CD player replacing the factory-mounted radio-cassette player in your car
D) the tires on brand-new Volvo station wagons
A nation whose value of imports exceeds its value of exports is said to have:
A) hyperinflation.
B) a trade deficit.
C) price stability.
D) a trade surplus.
The law intended to reform the financial system after the crisis of 2008 was called the:
A) Wall Street Reform and Consumer Protection Act.
B) Glass-Steagall Act.
C) Camp David Accords.
D) Financial Modernization Act.
Education’s effect on productivity:
A) is believed to be less important than the amount of physical capital a worker has
available.
B) is even more important than increases in physical capital.
C) has fallen in the past century in the United States.
D) depends on the wealth of the country.
An apple is a resource sold in the factor market.
A) True
B) False
Labor and capital are the only two factors of production.
A) True
B) False
Scenario: A Small Economy
Suppose there is no trade and no government in a small economy. GDP is $25 trillion,
and consumption spending is $18 trillion this year.
Look at the scenario A Small Economy. There is a new government and it imposes taxes
on its citizens to spend on infrastructure. Taxes and government spending are both $2
trillion. What is the level of investment spending now?
A) $7 trillion
B) $5 trillion
C) $18 trillion
D) “$4 trillion
Assume that the marginal propensity to consume is 0.8. Government purchases of
goods and services increase by $100 billion, financed by a $100 billion tax increase.
Real GDP will:
A) expand by $100 billion.
B) contract by $100 billion.
C) expand by $500 billion.
D) expand by $400 billion.
Look at the table Labor Force Distribution. The unemployment rate is:
A) 3.85%.
B) 10%.
C) 4.55%.
D) 6.75%.
Open-market operations occur when the Federal Reserve:
A) buys U.S. Treasury bills from the federal government.
B) buys or sells foreign currency.
C) buys or sells existing U.S. Treasury bills.
D) sells U.S. Treasury bills to the federal government.
Suppose the U.S. dollar depreciates nominally against the Mexican peso by 5%. The
price level in the United States increases by 7%, but Mexico’s price level does not
change. From this we can conclude that:
A) U.S. goods became cheaper relative to Mexican goods.
B) U.S. goods became more expensive relative to Mexican goods.
C) There was no change in the real exchange rate.
D) The real exchange rate for the United States depreciated.
Money is anything that:
A) serves as a medium of exchange for goods and services.
B) can be converted to silver with relatively little loss in value.
C) can be converted to gold with relatively little loss in value.
D) is traded in the stock market.