A stimulus is an expansionary fiscal policy.
A) True
B) False
The underlying motives behind capital flows reflect international differences in:
A) savings.
B) investment opportunities.
C) technology.
D) both savings and investment opportunities.
Which of the following statements is FALSE?
A) A rise in the price level lowers real wealth and results in a lower level of consumer
spending.
B) A rise in the price level increases the demand for money, raises the interest rate, and
reduces investment spending.
C) A fall in the price level will generally lead to a rise in the level of aggregate output
demanded.
D) A fall in the price level will reduce the demand for money, raise the interest rate, and
increase investment spending.
If the economy is at potential output and the Fed increases the money supply, in the
short run interest rates will likely increase.
A) True
B) False
In the short run changes in the money supply change the interest rate, but in the long
run changes in the money supply have no effect on interest rates.
A) True
B) False
Currency in the United States today is _____ money.
A) fiat
B) intrinsic
C) commodity
D) commodity-backed
Among the factors that are important for economic growth are:
A) property rights.
B) growth accounting.
C) natural resources.
D) convergence.
If the short-run macroeconomic equilibrium is to the _____ of the economy’s potential
output, then there is a(n) _____ gap and the aggregate price level is expected to _____.
A) right; inflationary; fall
B) right; recessionary; rise
C) left; inflationary; fall
D) left; recessionary; fall
Inflation can be measured by the:
A) percentage change in the consumer price index.
B) absolute change in the consumer price index.
C) absolute change in the GDP deflator.
D) percentage change in GDP.
The long-run Phillips curve is:
A) vertical at an unemployment rate equal to the nonaccelerating inflation rate of
unemployment (NAIRU).
B) horizontal at inflation rate equal to NAIRU.
C) upward sloping, showing that there is no trade-off between unemployment and
inflation.
D) downward sloping, showing that there is a trade-off between unemployment and
inflation.
Between 2003 and 2010, the unemployment rate in Ft. Myers, Florida, decreased from
13% to 3%.
A) True
B) False
A depreciated dollar will cause aggregate demand to:
A) increase.
B) decrease.
C) remain constant.
D) fluctuate randomly.
Before 2010 and passage of Dodd-Frank, shadow banks offered their customers a
higher rate of return than commercial banks because shadow banks _____, but
commercial banks _____.
A) could pay interest on deposits; could not.
B) were allowed to invest in stocks of foreign corporations; could invest only in stocks
of U.S. corporations.
C) had to hold a large amount of reserves and capital; were not required to keep as
much in reserve
D) were not subject to reserve and capital requirements; had to hold reserves and meet
capital requirements
Which of the following measures is likely to respond most quickly to price changes?
A) GDP deflator
B) Dow Jones Industrial Average
C) consumer price index
D) producer price index
Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real
GDP and _____ aggregate demand.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
If the consumption function is C= $100 million + 0.8 YD, then the marginal propensity
to consume is $100 million.
A) True
B) False
Compared to bonds, stocks generally provide a _____ return and carry a _____
financial risk.
A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher
Suppose a group of people decided to set up their own economic system with cartons of
milk serving as money. If we decided to use this “liquid asset” as our medium of
exchange and all prices were measured in cartons of milk, milk would still not be a
good form of money mainly because it would not be a good:
A) medium of exchange.
B) unit of account.
C) store of value.
D) near-money.
Figure: Aggregate Expenditures Curve III
Look at the table Aggregate Expenditures Curve III. Suppose that the consumption
function in this figure rises by $100. The aggregate expenditures curve will shift
upward by:
A) $100.
B) $400.
C) $100 times the multiplier.
D) $200 times the multiplier.
The difference between real GDP and potential GDP is known as the:
A) price gap.
B) unemployment gap.
C) output gap.
D) budget deficit.
Professor Macro wants to use a numerical graph to show the percentage of government
spending accounted for by its various components. Which of the following graphs is
most suitable for this purpose?
A) bar graph
B) pie chart
C) time-series graph
D) scatter diagram
Figure: The Market for Roses
Look at the figure The Market for Roses. Assume that PAis the autarky price and PWis
the world price. Consumer surplus without international trade would be area:
A) W+ X+ Y.
B) Z.
C) W+ X+ Z.
D) W.
Normally the discount rate is _____ the federal funds rate.
A) above
B) below
C) equal to
D) after the discount, less expensive than
The financial system performs certain tasks to make the financial market more efficient.
Which one of the following is NOT one of these tasks?
A) reducing risk
B) reducing menu costs
C) reducing transaction costs
D) providing liquidity
Following a trough, real GDP increases.
A) True
B) False
Interest rates can be determined in models of:
A) money demand and supply.
B) M1 markets only.
C) the demand and supply of loanable funds.
D) demand and supply of both money and loanable funds.
Table: Lemonade and Cookies
Look at the table Lemonade and Cookies. Assume that an economy produces only
lemonade and cookies. If 2014 is the base year, real GDP in 2014 was:
A) $400.
B) $420.
C) $425.
D) $445.
The Works Progress Administration, a government program that put millions of
unemployed Americans to work building bridges, roads, and parks in the 1930s, was an
automatic stabilizer.
A) True
B) False
If the euro depreciates, then a Chevrolet will be cheaper for Italians.
A) True
B) False
The economy is in a recession. The desired FISCAL policy is:
A) a decrease in government transfer payments.
B) an increase in government purchases of goods and services.
C) an increase in tax rates.
D) a decrease in interest rates.
An increase in _____ will have an ambiguous (uncertain) effect on price.
A) tastes and preferences
B) the price of a substitute
C) the price of a complement
D) income
Figure: The Domestic Market for Digital Cameras
Look at the figure The Domestic Market for Digital Cameras. Assume that PAis the
autarky price and PWis the world price. Total surplus after international trade _____ by
the area _____.
A) rises; B + D + E
B) falls; C
C) rises; C
D) rises; D + E
In August 2005, Hurricane Katrina damaged or destroyed oil platforms in the Gulf of
Mexico, refineries along the Gulf coast, and the pipeline infrastructure that transports
oil and gas to customers across the eastern United States. The winter of 2006 was
unusually cold in many parts of the country. How did these events affect the market for
natural gas?
A nation’s real GDP per capita increased from $250 billion to $275 billion in one year.
Calculate the nation’s growth rate.
Suppose Elmer Brown is campaigning for reelection as governor of his state. He claims
that during his first term the state’s citizens are 50% better off, since GDP has increased
from $10 billion to $15 billion. Why might his claim be misguided?
Leaders of a small town are tired of looking at a vacant and dilapidated warehouse that
sits on a prime piece of real estate. The town finds an investor who purchases the
warehouse and promises to renovate the old building and build condominiums in the
old building. Is this economic growth?
The table that follows shows four possible physical investment projects, the expected
revenue from each project, and the expected cost of each project. You may assume that
each project, once completed, lasts only one year. Complete the empty column in the
table by computing the rate of return on each project.
Explain the rational expectations theory and how it predicts the usefulness of fiscal and
monetary policy.
Explain how an economic model contributed to the financial crisis in 2008″2009.
Suppose the Federal Reserve is concerned about an inflationary gap, and as a result the
Fed reduces the money supply. All else equal, how will this affect the value of the dollar
in global currency markets? Explain.
You have agreed to borrow $2,000 from the bank for one year. The nominal rate of
interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was
3.5%. How does this affect the borrower (you) and the lender (the bank)? Who is better
off?
Explain why, in the short run, the unemployment rate tends to fall when the inflation
rate rises.
Suppose that you live in a city whose economic growth has been declining for several
months. Oddly, the official unemployment rate in your city has not begun to rise. How
can you explain this?
Your boss is impressed with your performance over the past year and has decided to
give you a 5% increase in your salary. Are you unambiguously better off with your
increased salary? What factors must be considered?
What is long-run economic growth, and why is it so important for a nation’s economy?
Look at the table Wheat and Aluminum. The table shows the maximum possible
production of wheat and aluminum for both the United States and Germany. Are gains
from trade possible between these nations? Explain.
Explain how floating exchange rates in the United States can help insulate the U.S.
economy from a recession in Europe.
How would each of the following events affect the supply of compact cars?
I. The price of steel rises.
II. The production technology for car manufacturing improves.
III. The price of sport utility vehicles falls.
Suppose that the United States and Canada are the only trading partners in the world.
What will happen to the value of the U.S. dollar if the U.S. Congress passes more
restrictive import policies? Explain.