During the expansion phase of a business cycle
a. employment and output are both at a peak
b. employment and output are both rising
c. employment is falling and output is rising
d. unemployment is rising and output is falling
e. employment is rising and output is falling
In Figure 3-8, using the supply and demand curves denoted S1 and D2, respectively, the
equilibrium price and quantity are
a. $100 and 50,000
b. $100 and 100,000
c. $150 and 50,000
d. $150 and 75,000
e. $150 and 100,000
If expectations of future income become more optimistic, which of the following would
occur?
a. Nothing would occur.
b. The consumption-income line would shift downward.
c. The consumption-income line would shift upward.
d. There would be an rightward movement along the consumption-income line.
e. There would be a leftward movement along the consumption-income line.
The most important macroeconomic goal is
a. economic growth
b. stable prices
c. high employment
d. increased investment
e. no one economic goal is categorically the most important
Which of the following would be included in the GDP Price Index but not in the
Consumer Price Index?
a. The price of a Chrysler automobile
b. The price of a fighter aircraft
c. The price of a used computer
d. The price of a tube of toothpaste
e. The price of a bottle of shampoo
Suppose the Federal Reserve wants to decrease the money supply by $100,000. If the
required reserve ratio is 0.1, which of the following actions will achieve the Fed’s goal?
a. The Fed must purchase $100,000 in bonds.
b. The Fed must sell $100,000 in bonds.
c. The Fed must purchase $10,000 in bonds.
d. The Fed must sell $10,000 in bonds.
e. The Fed must sell $90,000 in bonds.
Most economists believe that substitution behavior by consumers causes inflation
measured by the Consumer Price Index (CPI) to overstate the true rate of inflation.
Which of the following assumptions of the classical model is the best reason we cannot
use it to explain short-run economic fluctuations?
a. Markets never clear in the long run.
b. The labor market clears.
c. Prices remain constant and supply and demand adjust.
d. It does not show how an economy recovers from a recession.
e. Government intervention is essential to get markets to clear.
The 2008-2009 recession began as oil prices increased, and then was followed by a
negative demand shock..
If the Fed had not changed the money supply after the recession in the early 1990s, then
the long run effects would have been
a. a return to the original output and price level
b. increased long run GDP equilibrium and price level
c. unchanged long run output, but an increased price level
d. a decreased long run output and price level
e. a return to the original long run output, but a decreased price level
The historical record of the Fed’s success in controlling inflation has been
a. consistently strong
b. inconsistent
c. consistently disappointing
d. shaped primarily by supply shocks
e. incapable of measurement
The objective of an economic model is to
a. be an accurate description of reality
b. yield better understanding of important relationships
c. use simplifying assumptions to make positive economic statements
d. use basic principles of economics to derive fundamental assumptions about human
behavior
e. predict real-world occurrences with complete accuracy
Holders of a foreign currency are willing to supply that currency to Americans in
exchange for dollars
a. only because they want to buy American goods
b. only because they want to purchase American services
c. primarily because they want to purchase American assets
d. because they want to purchase American goods, services and assets
e. because their governments force them to do so
A household’s quantity of money demandedis defined as
a. the amount of income that the household chooses to hold in the form of money, at
each possible interest rate
b. the amount of wealth that the household chooses to hold as money, rather than as
other assets
c. the household’s desire to have greater financial wealth
d. the percentage of each dollar of income that the household wishes to spend
e. the total amount the household decides to hold in cash, bonds, and other assets, at
each possible interest rate.
Which of the following best describes the history of the U.S. price level from 1970 to
2008?
a. The price level increased during the 1970s and 1980s, but decreased during the
1990s.
b. The price level increased during the 1970s but decreased during the 1980s and 1990s.
c. The price level decreased over the whole period.
d. The price level increased over the whole period.
e. The price level increased during the 1970s but decreased during the 1980s, and
1990s.
The Bureau of Economic Analysis estimates the size of the underground economy but
many economists believe that the estimates are too low.
Suppose a local union has a contract that calls for the nominal wage to increase by 5
percent plus 100percent of any increase in the CPI. If the CPI increases by 4% and there
is a 1% positive bias in the inflation rate, by how much would nominal wages
unnecessarily increase?
a. 9 percent
b. 1 percent
c. 5 percent
d. 3 percent
e. 4 percent
The Consumer Price Index (CPI) is a weighted average of all the prices paid by
households for goods and services.
Which of the following represent the Federal Reserve’s most important responsibilities?
a. Supervise and regulate banks.
b. Issuing paper currency.
c. Printing paper currency.
d. Both (a) and (b)
e. Deciding the maximum rate banks can charge for loans.