Scenario: Real GDP
Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75
pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell
for $3.25 each and 80 pizzas that sell for $9 each.
Look at the scenario Real GDP. The value of nominal GDP in years 1 and 2 respectively
is:
A) $900 and $1,077.50.
B) $900 and $990.
C) $180,000 and $257,400.
D) $1,000 and $1,005.
If Congress imposes a $5 tax on each ATM transaction, the demand for money will
likely:
A) increase.
B) decrease.
C) fluctuate randomly.
D) be unaffected.
Figure: Monetary Policy III
Look at the figure Monetary Policy III. Expansionary economic policy will lead to an
equilibrium GDP of:
A) Y1.
B) Y2.
C) Y3.
D) Y4.
Figure: Exchange Market Intervention
Look at panel (b) in the figure Exchange Market Intervention. Which of the following
approaches could the Genovian government use to decrease the value of the geno below
its present equilibrium exchange rate and into the target range?
A) use its own currency to buy U.S. dollars
B) shift the demand for genos to the right by increasing interest rates in Genovia
C) eliminate exchange controls that limit the right of Genovian citizens to sell foreign
currency
D) tighten the exchange controls that limit purchases of U.S. dollars by Genovian
citizens
Prior to the 1930s, the _____ model dominated thinking about how the economy
worked.
A) Keynesian
B) classical
C) monetarist
D) real business cycle
Figure: Classical Model of the Price Level
Look at the figure Classical Model of the Price Level. If the central bank increases the
money supply such that aggregate demand shifts from AD1 to AD2, according to this
classical model, real GDP will:
A) not change.
B) increase from YE to Y1.
C) increase from Y1 to YE.
D) establish a new potential output.
Which of the following situations is likely to increase the natural rate of
unemployment?
A) the entrance of many new people into the labor force
B) a decrease in unemployment compensation benefits
C) a decrease in job search time due to information advances like the Internet
D) the elimination of the minimum wage
Look at the scenario Monetary Base and Money Supply. How much is the monetary
base?
A) $325 billion
B) $330 billion
C) $225 billion
D) $175 billion
The United States is a net recipient of foreign savings.
A) This has never happened before.
B) This is bad because we are borrowing money from overseas.
C) This is bad because we are losing control over our own destiny.
D) This has been true throughout much of our history.
In a liquidity trap:
A) fiscal policy becomes ineffective because of the high budget deficit.
B) monetary policy becomes ineffective because the nominal interest rate is close to the
zero bound.
C) the aggregate price level becomes downwardly sticky.
D) any increase in government spending drives out planned investment spending.
Figure: Actual and Natural Rates of Unemployment
Look at the figure Actual and Natural Rates of Unemployment. In 2014 the output gap
was:
A) positive.
B) negative.
C) zero.
D) impossible to determine without more information.
During the banking crisis of the 1930s, the Federal Reserve:
A) ended the crisis by acting aggressively as a lender of last resort.
B) rushed to guarantee the liabilities of failing banks.
C) was established to resolve the banking crisis.
D) had the legal ability to act as a lender of last resort but failed to do so.
Menu costs of inflation are the:
A) costs associated with money not being a reliable unit of measurement.
B) costs of transactions associated with avoiding the inflation tax.
C) costs associated with businesses changing prices.
D) revenue the government gets from printing money.
The present value (PV) of a payment one year in the future (FV), given an interest rate
(r), is given by the equation:
A) PV = 1 / FV.
B) PV = FV / 1.
C) PV = FV / (1 + r).
D) PV = FV (1 + r).
In securitization a pool of loans is assembled and shares of that pool are sold to
investors.
A) True
B) False
To decrease the money supply, the central bank could:
A) lower the discount rate.
B) make open-market sales.
C) decrease the discount rate.
D) lower the federal funds rate.
Factors contributing to differences in countries’ growth rates include all of the following
EXCEPT:
A) adherence to the rule of 70.
B) differences in savings and investment rates.
C) the amount of physical capital available.
D) a lack of spending on infrastructure.
Zimbabwe’s economic instability was caused primarily by:
A) its joining the Coalition of the Willing in the Iraq war.
B) its attempts to join the European Union.
C) the government’s seizure of the country’s farms, which disrupted production.
D) its high tariffs on imported goods.
The _____in an economy whose aggregate real output is growing faster than the total
population.
A) real GDP per capita is rising
B) standard of living is declining
C) national income is falling
D) nominal GDP per capita is decreasing
Figure: Fiscal Policy I
Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If
there is an increase in taxes_____ will shift to the _____, causing a(n) _____ in the
price level and a(n) _____ in real GDP.
A) AD2; left; increase; decrease
B) AD2; left; decrease; decrease
C) AD1; right; increase; increase
D) AD1; right; decrease; increase
Unemployment decreased to its lowest level in 10 years last month. This statement is:
A) an example of an opportunity cost.
B) a positive economic statement.
C) a normative economic statement.
D) a value judgment.
Scenario: Countries A and B
Two countries, A and B, produce two goods, wheat (W) and steel (S). Each has a linear
production possibility frontier in both goods. If country A spends all of its available
resources to produce wheat, it can produce 500 tons of wheat and no steel. If it uses all
of its resources to produce steel, it can produce 250 tons of steel and no wheat. If
country B spends all of its available resources producing wheat, it can produce 400 tons
of wheat, and if it spends all of its resources on the production of steel, it can produce
400 tons of steel.
Look at the scenario Countries A and B. Given this information, the country that has the
absolute advantage in wheat is _____, and the country that has the absolute advantage
in steel is _____.
A) A; A
B) A; B
C) B; B
D) B; A
After the 2008 financial crisis, policy makers realized that the scope of banking
regulation was:
A) too narrow, because the Federal Reserve was the only agency with any power to
regulate banks.
B) too broad, because both depository and shadow banks were overregulated.
C) too broad, because market forces, not government regulation, should be allowed to
determine the outcome of a financial crisis.
D) too narrow, because shadow banks were not subject to much regulation.
A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and
a _____ equilibrium interest rate.
A) increase; higher
B) increase; lower
C) decrease; higher
D) decrease; lower
If two variables are positively related, on a graph they will always be represented by:
A) a line or curve that slopes downward.
B) a straight line.
C) a horizontal line.
D) a line or curve that slopes upward.
In 1820, Mexico had a higher real GDP per capita than Japan. Yet now Japan is one of
the richest countries in the world and Mexico is poor. Japan’s high rate of economic
growth can be explained by all of the following EXCEPT a high:
A) investment in physical capital.
B) investment in human capital.
C) investment in technological progress.
D) level of government interference.
Which of the following can best be considered to be a resource used in the production
of computers?
A) money from investors
B) wages of computer engineers
C) computer engineers
D) taxes on the profits from the sale of the computers
A decrease in the supply of money with no change in demand for money will lead to
a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest
rate.
A) increase; rise
B) increase; fall
C) decrease; rise
D) decrease; fall
The producer price index usually responds to price changes more quickly than the
consumer price index.
A) True
B) False
Government payments to households for which no good or service is provided in return
are called:
A) transfer payments.
B) government purchases.
C) consumption expenditures.
D) investment expenditures.