Price serves as a
a. rationing device.
b. transmitter of information.
c. means of determining who gets what of the available limited resources and goods.
d. a and b
e. all of the above
When the Fed purchases securities from a bank, it __________ reserves and
____________ the money supply.
a. decreases; decreases
b. increases; increases
c. decreases; increases
d. increases; decreases
e. has no impact on; has no impact on
New classical economists believe that if policy is correctly anticipated and if rational
expectations hold, when the Fed increases the money supply the result will be a(n)
______________ in the price level and ____________________________.
a. decrease; no change in Real GDP
b. decrease; decrease in Real GDP
c. increase; no change in Real GDP
d. increase; increase in Real GDP
According to economist Benjamin Friedman, sustained economic growth can make
people more willing to work toward improving the environment and reducing poverty.
a. True
b. False
Exhibit 10-9
What is the value of the marginal propensity to save (MPS) that would correctly fill in
blank (E) and the multiplier that would correctly fill in blank (F)?
a. 0.012; 0.83
b. 0.12; 88
c. 0.15; 15
d. 0.15; 6.67
During the early 2000s the Fed’s __________ federal funds rate targets led to a
___________ in mortgage interest rates.
a. low; rise
b. high; rise
c. low; rise
d. low; decline
New classical economists build their theories upon
a. adaptive expectations.
b. inflexible wages and prices.
c. rational expectations.
d. the assumption that it takes a long time for markets to achieve equilibrium values.
Two of the variables used to construct the KOF Swiss Economic Institute’s economic
globalization index are _______________ as a percentage of GDP, and tariff rates (the
______________ the tariff rate, the _____________ degree of economic globalization).
a. public debt; higher; lower
b. trade; higher; lower
c. trade; higher; higher
d. budget deficits; lower; higher
The rules-based monetary policy reads: The money supply will increase 3 percent each
year. If the average annual growth rate in Real GDP is 2 percent and velocity increases
by 1 percent each year, it follows that
a. the price level will, on average, rise 2 percent a year.
b. the price level will rise 2 percent this year.
c. in some years the price level will rise by more than in other years.
d. in some years the price level may not change at all.
e. a, c and d
Exhibit 38-1
The yield on bond D is approximately
a. 11 percent.
b. 3 percent.
c. 6.4 percent.
d. 0.064 percent
When Bank A obtains a loan from the Fed, the
a. discount rate is probably higher than the federal funds rate.
b. bank’s reserves increase.
c. simple deposit multiplier decreases.
d. b and c
e. none of the above
If Real GDP is $6 billion and the population is 300,000, per-capita Real GDP is
a. $30,000.
b. $20,000.
c. $33,333.
d. $39,434.
When there is a recessionary gap, (actual) Real GDP is __________ Natural Real GDP,
and the (actual) unemployment rate is __________ the natural unemployment rate.
a. greater than; less than
b. greater than; greater than
c. greater than; equal to
d. less than; greater than
e. less than; less than
Federal Reserve Notes held by the Fed are considered part of the
a. money supply.
b. bank reserves.
c. both of the above
d. none of the above
Which of the following statements is false?
a. Not all economists are agreed as to whether government should bail out companies in
financial trouble.
b. Not all economists prefer a rule-based monetary policy to discretionary monetary
policy.
c. Rule-based monetary policy advocates often assert that discretionary monetary policy
can be motivated by politics.
d. The tax multiplier is always larger than the government spending multiplier.
Exhibit 4-3
If P1 is a price ceiling, the highest price for good Y, which is tied (a tie-in sale) to good
X, is
a. P1.
b. P2.
c. P3.
d. P3 – P1.
e. P1 + P2.
Another term for stocks is equity.
a. True
b. False
In the calculation of national income, dividends paid to stockholders are part of
a. compensation of employees.
b. proprietors’ income.
c. rental income.
d. net interest.
e. corporate profits.
Exhibit 34-6
The opportunity cost of 1 unit of wine in terms of units of cheese is __________ for
country B.
a. 15
b. 10
c. 5
d. 1
Which of the following statements is false?
a. Real GDP is the quantity of goods and services valued in base-year prices or
base-year dollars.
b. “Aggregate demand” and the “quantity demanded of Real GDP” are the same.
c. According to the aggregate demand (AD) curve, the quantity demanded of Real GDP
and the price level are inversely related.
d. Real GDP is denominated in current-year prices.
e. b and d