The real interest rate on a loan
a. is the amount that the consumer agrees to pay
b. is always the same as the nominal rate
c. is always greater than the nominal rate
d. is only of concern when serious inflation occurs
e. is the percentage increase in the lender’s purchasing power that results from making
the loan
A demand shock
a. is any event that causes the aggregate demand curve to shift
b. is usually caused by a change in the price level
c. is usually caused by a change in real GDP
d. can be traced back to a shift in the economy’s production possibilities frontier
e. is generally a good thing for the economy
Financial intermediaries
a. harm both borrowers and lenders because they pay lenders a lower rate of interest
than they charge to borrowers
b. specialize in assembling loanable funds from households and firms, and channeling
those funds to other households, firms, and government agencies
c. are all depository institutions
d. increase the risk of lending and borrowing because a financial intermediary has
nothing to lose from such transactions
e. reduce efficiency because they add an extra step to many financial transactions
Which organization has the goal of helping to provide capital and investment assistance
to less-developed nations?
a. The World Trade Organization
b. The International Development Fund
c. The European Union
d. The International Monetary Fund
e. NATO
Which of the following would lead the Fed to increase the money supply under an
interest rate rule?
a. an unexplained decrease of money demand
b. an increase in taxes
c. a decrease in spending that caused the money demand curve to decrease
d. an increase in spending that caused the money demand curve to increase
e. a decrease in government spending.
The prices of stocks and bonds move
a. in opposite directions to the Fed’s interest rate target
b. in opposite directions to the spending patterns of Congress
c. in similar directions to the Fed’s interest rate targets
d. in similar directions to the spending patterns of Congress
e. whenever the Open Market Committee threatens a change in the money supply
The principle of comparative advantage says that
a. every individual should specialize in producing that good for which the absolute cost
is the smallest
b. the output of society as a whole will be the greatest if every individual specializes in
producing that commodity for which his opportunity cost is the smallest
c. monopoly power is gained by specializing in a large market and reducing costs
d. monopoly power is gained by specializing in a small market and producing a
differentiated product
e. your financial investments should be “compared” in a common fashion to determine
your maximum advantage
Suppose a bank has total assets of $300 million and a net worth of $15 million. Its
demand deposit liabilities must be equal to
a. $20 million
b. $315 million
c. $0.05 million
d. $285 million
e. $585 million.
The average percentage markup in the economy is
a. relatively stable, but the price level may not be
b. relatively stable, causing the price level to also be relatively stable
c. relatively unstable, despite which the price level remains relatively stable
d. relatively unstable, causing the price level to also be relatively unstable
e. determined by the unit costs of production.
Studies show that the supply curve for bananas has shifted. All of the following could
be possible explanations for the shift, except one. Which is the exception?
a. The price of land for growing bananas has risen.
b. Weather conditions in banana-growing countries have worsened.
c. The price of apples has fallen.
d. The price of bananas has risen.
e. The salaries paid to banana growers has risen.
Refer to Figure 9-3. An investment tax credit that increases the demand for loanable
funds from D1 to D2 will increase investment spending by
a. $400 billion and leave the interest rate unchanged
b. $100 billion and leave the interest rate unchanged
c. $100 billion and increase the interest rate by 2 percentage points
d. $200 billion and leave the interest rate unchanged
e. $500 billion and increase the interest rate by 2 percentage points
Which of the following statements best describes the U.S. economy since 1960?
a. Potential output has risen steadily, but actual output has fluctuated above and below
full-employment output.
b. Actual output has risen steadily, but potential output has fluctuated above and below
actual output.
c. Potential output and actual output have both not risen steadily.
d. Potential output and actual output have both fluctuated above and below what the
classical model predicts.
e. Potential output has remained constant but actual output has risen.
Why do policymakers have the goal of stable prices?
a. Stables prices always keep the economy in expansion
b. Firms make too much money when prices are rising
c. Inflation is always associated with wars
d. Inflation imposes costs on society
e. Inflation is always associated with trade deficits
Refer to Figure 11-3. Which of the following could explain the shift from C1 to C2?
a. An increase in disposable income
b. An increase in net taxes that increases the marginal propensity to consume
c. A decrease in net taxes that increases the marginal propensity to consume
d. An increase in net taxes that increases autonomous consumption spending
e. A decrease in net taxes that increases autonomous consumption spending.
Which of the following best describes the aggregate production function if output is
measured on the vertical axis and the number of workers employed is measured on the
horizontal axis? The curve is
a. downward sloping and becomes flatter as the number of workers employed increases
b. downward sloping and becomes steeper as the number of workers employed
increases
c. downward sloping with the same slope throughout
d. upward sloping and becomes steeper as the number of workers employed increases
e. upward sloping and becomes flatter as the number of workers employed increases
An important function of the Federal Reserve is
a. clearing checks
b. printing currency
c. overturning reserve requirements
d. controlling the demand for money
e. making a large profit
Banks are not allowed to hold reserves in excess of those required by law.
Which of the following is more of a short-run than a long-run goal?
a. Increasing the capital stock
b. Encouraging investment in human capital
c. Moderating economic fluctuations
d. Stimulating economic growth
e. Increasing private investment