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To _____ the money supply, the Federal Reserve could _____.
A) increase; decrease the money multiplier
B) decrease; lower the reserve requirements
C) increase; conduct open-market purchases
D) decrease; lower the discount rate
It is certain that the equilibrium price will fall when:
A) the supply curve and the demand curve both shift to the right.
B) the supply curve shifts to the right and the demand curve shifts to the left.
C) supply and demand both increase.
D) supply decreases and demand stays the same.
The problem of debt deflation deepens during an economic slump because:
A) borrowers have to reduce spending to pay off debts.
B) the Fisher effect raises the nominal interest rate during deflation.
C) lenders have to reduce spending to accommodate higher returns from loans.
D) the zero bound on the nominal interest rate is broken.
The present value of a future payment decreases if the:
A) period between the present and the future increases.
B) future payment increases.
C) interest rate decreases.
D) stock market rises.
Figure: Aggregate Expenditures Curve II
Look at the table Aggregate Expenditures Curve II. The multiplier is:
A) 1.0.
B) 2.0.
C) 2.5.
D) 5.0.
The problem of scarcity is confronted by:
A) industrialized societies only.
B) preindustrial societies only.
C) societies governed by communist philosophies only.
D) all societies.
Under the Glass-Steagall Act, commercial banks, which accept deposits and are covered
by deposit insurance, were not allowed to trade in financial assets, such as stocks and
bonds.
A) True
B) False
Assume that the consumer price index for 2009 was 124.0 and for 2010 was 130.7.
What was the inflation rate between the two years?
A) 0.95%
B) 5.40%
C) 6.70%
D) 3.20%
The inflation tax refers to the:
A) increase in taxes when inflation rises.
B) inflation rate when aggregate demand increases.
C) inflation rate multiplied by the tax rate.
D) inflation rate multiplied by the money supply.
When a bond becomes more attractive as an asset because of a rise in the interest rate:
A) the price of stock, a substitute asset, will rise.
B) the price of stock, a substitute asset, will fall.
C) the future price of bonds will fall.
D) people will stop buying bonds and buy other assets.
A negative demand shock can cause:
A) a liquidity trap.
B) crowding out.
C) a recessionary gap.
D) an inflationary gap.
Good X and good Y are substitutes. Holding all other things constant, this means that
when the price of good X increases, the:
A) demand for good X will increase.
B) demand for good Y will increase.
C) demand for both good X and good Y will increase.
D) demand for good Y will decrease.
Figure: Fiscal Policy Options
Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD , the ʺ
most appropriate discretionary fiscal policy is to _____ government transfer payments
and _____ income tax rates.
A) decrease; increase
B) decrease; decrease
C) increase; maintain
D) increase; decrease
The most liquid form of money is:
A) M1.
B) M2.
C) stocks and bonds.
D) houses.
The national income and product accounts keep track of:
A) consumer spending.
B) interest rates.
C) rates of inflation.
D) exchange rates.
A rise in interest rates due to a decrease in the money supply will _____ aggregate
demand.
A) reduce
B) not change
C) increase
D) cause random fluctuations in
The demand curve for season tickets for the Miami Dolphins is the graphical
representation of the number of season tickets consumers want to buy at any given
price.
A) True
B) False
Suppose the local real estate market is in equilibrium. A recession causes local
household incomes to decline. At the same time, construction of a large subdivision of
new homes has just been completed. Given these two changes and assuming that real
estate is a normal good, we can predict that the price of real estate will _____ and the
quantity of real estate bought and sold will _____.
A) fall; fall
B) fall; rise
C) fall; rise or fall
D) rise; fall or rise
Who wrote A Monetary History of the United States?
A) George and Jeb Bush
B) Bill Clinton and Al Gore
C) John Maynard Keynes and Karl Marx
D) Milton Friedman and Anna Schwartz
Economists generally agree that sufficiently high minimum wage laws:
A) cause unemployment.
B) help lower the structural unemployment rate.
C) decrease the labor force participation rate.
D) make an opportunity for discouraged workers.
A rule governing policy for the exchange rate is:
I. the terms of trade.
II. an exchange rate regime.
A) I only
B) II only
C) I and II
D) neither I nor II
Resolution authority means that:
A) the government has the power to seize control of financial institutions that need a
bailout.
B) a member of Congress has the power to propose resolutions on the floor of
Congress.
C) banks have the ability to transform short-term liabilities into long-term liabilities.
D) Congress has given the Federal Reserve permission to act as a lender of last resort.
If quota rents do not accrue to the government, then the net loss to the government from
an import quota is _____ the deadweight loss from an equivalent tariff.
A) less than
B) greater than
C) equal to
D) in the case of demand and supply both being elastic, less than
If the reserve ratio is 25% and the money supply increases by $100,000, then the initial
reserve injection by Federal Reserve was:
A) $2,500.
B) $10,000.
C) $4,000.
D) $25,000.
A rise in the aggregate price level will, other things equal, lead to a(n):
A) rightward shift in the AD curve.
B) leftward shift in the AD curve.
C) decrease in the quantity of aggregate output demanded.
D) increase in the quantity of aggregate output demanded.
A decrease in the demand for money would result from:
A) an increase in income.
B) an increase in real GDP.
C) a decrease in the price level.
D) an increase in nominal GDP.
Borrowers benefit:
A) when government engages in seignorage.
B) when unexpected inflation is low.
C) when the Fed engages in continual open-market sales.
D) when real GDP falls as a result of a decrease in AD.
Who loses when there is unexpected deflation?
A) nominal-asset holders
B) borrowers
C) lenders
D) nominal-asset holders, borrowers, and lenders
Demand for pounds sterling in the foreign exchange market might come from people in
Britain who want to buy U.S. goods, services, and assets.
A) True
B) False
Economists disagree more over normative economics than positive economics.
A) True
B) False
Each of the following is an expansionary fiscal policy EXCEPT:
A) an increase in government transfers.
B) an increase in government purchases.
C) an increase in tax rates.
D) a reduction in marginal tax rates.
