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Figure: Policy Alternatives
Look at the figure Policy Alternatives. If the economy is in equilibrium at Y1 in panel
(a) and the government decreases taxes, the result will likely be:
A) an increase in unemployment.
B) a decrease in interest rates.
C) a decrease in aggregate demand.
D) an increase in aggregate demand.
If GDP increases from $10 trillion to $12 trillion in a year, it can only mean that
aggregate output grew by 20%.
A) True
B) False
Contractionary monetary policy:
A) increases aggregate demand.
B) increases aggregate supply.
C) works by discouraging investment spending.
D) decreases interest rates.
The aggregate supply curve shows the relationship of prices to:
A) sales.
B) the quantity of output people want to buy.
C) the quantity of output producers are willing to provide.
D) both the amount of output people want to buy and the amount of output producers
want to provide.
If the price of a commodity increases, you can expect the:
A) supply to increase.
B) quantity supplied to increase.
C) quantity supplied to decrease.
D) supply curve to shift to the right.
The value of accounting services purchased by clients in China is included in the
merchandise trade balance.
A) True
B) False
Lower government transfers or higher taxes make a budget surplus smaller or a budget
deficit larger.
A) True
B) False
Which of the following transactions would NOT be counted in GDP?
A) Nike builds a retail store.
B) Your mother buys a pound of Washington-grown apples.
C) Your mother buys 100 shares of Nike stock.
D) The Indiana state government pays for repair of a damaged bridge over the Wabash
River.
When nominal wages increase, the short-run aggregate supply curve:
A) shifts to the right.
B) shifts to the left.
C) remains constant.
D) disappears.
The higher the short-term interest rate, the lower the opportunity cost of holding money.
A) True
B) False
When the price of armchairs increases, the:
A) quantity supplied increases.
B) supply increases.
C) quantity supplied decreases.
D) supply decreases.
Of the following statements, which reflect(s) a normative view?
I. The United States should increase the minimum wage to $10 per hour.
II. There is a federal minimum wage in the United States.
III. The federal minimum wage in the United States is less than $10 per hour.
A) I, II, and III
B) None is normative.
C) I and II
D) I
If Indonesia has lower wage rates than India, trade between these two nations will make
India worse off.
A) True
B) False
A contractionary fiscal policy either _____ government spending or _____ taxes.
A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases
When the economy is in income"expenditure equilibrium:
A) exports equal imports.
B) savings is less than investment spending.
C) taxes equal transfer payments.
D) real GDP equals planned aggregate spending.
The annual percentage change in the aggregate price level is negative when there is:
A) deflation.
B) disinflation.
C) inflation.
D) spiraling inflation.
If exports from the United States decrease because of a recession in Japan, all other
things equal, the dollar will appreciate.
A) True
B) False
A negative supply shock often results in:
A) a leftward shift of the AD curve.
B) an increase in the aggregate price level and a decrease in aggregate output.
C) no change in the price level.
D) a drop in the unemployment level.
Two neighbors, Molly and Sandy, are separated by a white picket fence. Each neighbor
has a garden that grows tomatoes and peppers. To gain from trade, _____ can trade
_____ to _____ for _____ if _____ is the more efficient grower of peppers.
A) Molly; tomatoes; Sandy; peppers; Molly
B) Sandy; tomatoes; Molly; peppers; Sandy
C) Sandy; peppers; Molly; tomatoes; Molly
D) Molly; peppers; Sandy; tomatoes; Molly
Which of the following is NOT a stock market index?
A) the Dow Jones Industrial Average
B) the producer price index
C) the S&P 500
D) the NASDAQ
In a single year, the Netherlands can raise 100 tons of beef or produce 1,000 boxes of
tulips. In the same growing season, Belgium can raise 50 tons of beef or produce 750
boxes of tulips. In autarky the opportunity cost of beef:
A) is higher in the Netherlands than in Belgium.
B) is lower in the Netherlands than in Belgium.
C) is the same in the Netherlands as in Belgium.
D) cannot be determined in either country.
Social insurance is:
A) essentially any type of spending by the federal government.
B) available only when the economy is in an inflation.
C) a government program designed to protect individuals or families from economic
hardship.
D) available only when the economy is below the full employment level.
In the classical model, it is thought that the long-run:
A) and short-run aggregate supply curves are both upward sloping.
B) aggregate supply curve is vertical and the short-run aggregate supply curve is
upward sloping.
C) and short-run aggregate supply curves are both vertical.
D) aggregate supply curve is upward sloping and the short-run aggregate supply curve
is vertical.
Keynesian economics stresses the role of:
A) aggregate demand.
B) aggregate supply.
C) the long run.
D) both aggregate demand and the long run.
Periods of recession are likely to be marked by:
A) rising unemployment.
B) constant unemployment.
C) increasing employment.
D) constant employment.
Which of the following will cause a decrease in unplanned inventory investment?
A) an increase in interest rates
B) an unexpected increase in consumer spending
C) an increase in the growth rate of real GDP
D) a sudden decrease in consumer wealth
The underlying principle of the circular-flow diagram is that the flows of money into
each sector or market in the economy are equal to those coming out of the sector or
market.
A) True
B) False
The new stability pact signed in 2011 by the nations that adopted the euro required each
country to:
A) balance its budget annually.
B) keep its actual budget deficit below 3% of its GDP.
C) keep its structural budget balance to 0.5% or less of its GDP.
D) supply a certain amount of euros each year.
Investment spending:
A) must be paid for by consumption in domestic households.
B) comes from the savings of either domestic or foreign households.
C) is paid for by capital outflows.
D) must be paid for by government spending.
A financial intermediary transforms funds gathered from many individuals into
financial assets.
A) True
B) False
Since the 2007 recession, recent college graduates aged 21 to 23, have had an
unemployment rate lower than that of any other age group in the labor force.
A) True
B) False
Assume that the economy is contracting and unemployment is rising. Which of the
following would be a logical explanation for a sudden fall in the unemployment rate
even while the economy continues to contract?
A) a reduction in the number of discouraged workers
B) an increase in the number of discouraged workers
C) an increase in the level of employment
D) a decrease in the level of employment
Suppose a bank has excess reserves of $50 and the reserve ratio is 20%. If Andy
deposits $5,000 of cash in his checking account and the bank lends $2,500 to Molly, the
money supply:
A) is increased by $7,500.
B) is increased by $2,500.
C) remains unchanged.
D) is decreased by $5,000.
Capital flows as a share of world savings and investment today are much smaller than
they were over a century ago. Which of the following is a likely explanation?
A) lack of restrictions on migration
B) the absence of political risks
C) higher political risks and restrictions on migration
D) greater economic integration in the present
