Assume that an economy’s real GDP multiplier is 4. If this economy is in equilibrium at
$2,000 billion, then which one of the following actions will bring it to a full
employment equilibrium of $1,500 billion?
a. $500 billion spending cut.
b. $500 billion spending increase.
c. $125 billion spending cut.
d. $125 billion spending increase.
e. $2,000 billion spending cut.
Assume that an inflationary gap must be closed by reducing aggregate expenditures. If
consumers refuse to cut spending on consumption and producers won’t cut demand for
investment goods, the President:
a. can do nothing.
b. must build more roads.
c. must borrow from Wall Street.
d. must increase Social Security expenditures.
e. must cut government spending.
A surplus of wheat:
a. is impossible if people are hungry.
b. is impossible if the price of wheat is below equilibrium.
c. will result when the quantity demanded exceeds the quantity supplied at the current
price.
d. is unlikely to cause any change in the price of wheat.
e. indicates that the problem of scarcity of wheat has been solved.
Which of the following statements is true?
a. Sales, excise, and flat-rate taxes violate the ability-to-pay principle of taxation
fairness because each results in a greater burden on the poor than the rich.
b. Government failure may occur if voters are rationally ignorant.
c. Government failure may occur because of special-interest group political pressure.
d. All of these.
The fact that price and quantity demanded are related negatively illustrates the:
a. law of supply.
b. law of quantity supply.
c. law of demand.
d. law of quantity demanded.
e. point that some facts are unobservable.
Exhibit 15-5 Balance sheet of Tucker National Bank Assets Liabilities
Required reserves $ Checkable deposits $100,000
Excess reserves 5,000
Loans 70,000
Total $100,000 Total $100,000 If all banks in the system shown in Exhibit 15-5 were
identical to Tucker National Bank, the money multiplier for the system would be:
a. 4.
b. 5.
c. 10.
d. 25.
With respect to controlling the money supply, the law requires the Fed to take orders
from:
a. the President.
b. the Speaker of the House.
c. the Secretary of the Treasury.
d. no one¾the Fed is an independent agency.
If Congress decides to increase the tax per pack paid by sellers of cigarettes, other
things being equal, the price of cigarettes will rise. This rise in prices can be attributed
to a(n):
a. upward movement along the supply curve for cigarettes.
b. rightward shift of the supply curve for cigarettes.
c. upward movement along the demand curve for cigarettes.
d. leftward shift of the supply curve for cigarettes.
If the Fed sells $10 million in bonds to a bank, and the required reserve ratio is 20
percent, then the banking system can:
a. decrease the money supply by up to $10 million.
b. decrease the money supply by up to $40 million.
c. decrease the money supply by up to $50 million.
d. decrease the money supply by up to $2 million.
e. increase the money supply by up to $50 million.
Exhibit 8-7 Aggregate expenditures function
In Exhibit 8-7, what is the
households’ marginal propensity to consume (MPC)?
a. 0.5.
b. 0.75.
c. 0.8.
d. 1.
The concurrent problems of inflation and unemployment are termed:
a. depression.
b. downturn.
c. deflation.
d. demand-pull inflation.
e. stagflation.