Bonds are less risky than stocks because a company legally must pay what it owes to
lenders before it can distribute profits to stockholders.
A) True
B) False
The United States dollar”Mexican peso exchange market is initially in equilibrium.
Suppose there is a decrease in demand for U.S. dollars. Holding everything else
constant, this will result in a movement along the _____ of U.S. dollars and a(n) _____
in pesos per U.S. dollar.
A) supply of; increase
B) demand for; increase
C) supply of; decrease
D) demand for; decrease
When a central bank prints money to pay government debts, causing rising prices that
erode the purchasing power of money held by the public, it is called a(n) _____ tax.
A) payroll
B) inflation
C) currency
D) budget
Figure: The Market for MP3 Players
Look at the figure The Market for MP3 Players. Assume that Sdrepresents the domestic
supply curve and Ddrepresents the domestic demand curve. If the world price equals
$100 and there is free trade, what is the gain in consumer surplus?
A) $5 million
B) $2.5 million
C) $2.625 million
D) $750,000
If a financial institution is systemically important:
A) it is an important part of the Federal Reserve banking system.
B) the business cycle affects it more than it affects the average financial institution.
C) its activities have the potential to cause a banking crisis.
D) it is not allowed to engage in maturity transformation.
If real GDP falls while nominal GDP rises, then prices on average have:
A) risen.
B) fallen.
C) stayed the same.
D) Real GDP cannot rise when nominal GDP falls.
If the Fed reduces the inflation rate from 5% to 3%, it is:
A) following a policy rule.
B) engaging in disinflation.
C) increasing employment.
D) raising economic growth.
Suppose the economy of Alpha in 2008 imported $800 billion in goods and $400 billion
in services. The nation exported $500 billion in goods and $600 billion in services.
Citizens of foreign nations also purchased $200 billion of Alpha’s assets.
a. What was the merchandise trade balance?
b. What was the balance of payments on the current account?
c. What was the balance of payments on the financial account, and what was the value
of Alpha’s purchases of assets from the rest of the world?
Suppose you transfer $500 from your checking account to your savings account. With
this transaction, M1 _____ and M2_____.
A) increases; stays the same
B) stays the same; increases
C) decreases; increases
D) decreases; stays the same
The marginal propensity to consume is the change in _____ divided by the change in
_____.
A) savings; disposable income
B) disposable income; consumption
C) disposable income; savings
D) consumption; disposable income
The monetary policy in which the Fed purchased assets other than short-term
government securities is called:
A) maturity transformation.
B) shadow banking.
C) quantitative easing.
D) debt overhang.
All of the following are examples of fiscal policyEXCEPT:
A) government spending on infrastructure to stimulate aggregate demand.
B) reducing the interest rate by increasing the money supply.
C) an economic stimulus package.
D) a $1,500 per family tax rebate.
Table: Peanut Butter and Jelly
Look at the table Peanut Butter and Jelly. Suppose a market basket consists of 20 jars of
peanut butter and 10 jars of jelly. If 2012 is the base year, what is the rate of inflation
between 2013 and 2014?
A) 4.9%
B) 11.25%
C) 22.5%
D) 10.1%
Suppose the Federal Reserve were to buy $100 million of U.S. Treasury bills. The
money supply would:
A) stay the same.
B) decrease by $100 million.
C) increase by $100 million.
D) increase by more than $100 million.
Which of the following would supply euros in the foreign exchange market?
I. Americans who want to buy U.S. goods, services, and assets
II. Americans who want to buy European goods, services, and assets
III. Europeans who want to buy U.S. goods, services, and assets
A) I only
B) II only
C) III only
D) I, II, and III
A _____ balance on the financial account means a _____.
A) positive; financial account surplus.
B) negative; financial account surplus.
C) positive; financial account deficit.
D) positive; current account surplus.
Scarcity exists when:
A) making choices among two or more alternatives is not necessary.
B) individuals can have more of any good without giving up anything.
C) individuals can have more of one good but only by giving up something else.
D) resources are unlimited.
Scenario: Income”Expenditure Equilibrium
Real GDP is $8,000, autonomous consumption is $500, and planned investment
spending is $200. The marginal propensity to consume is 0.8.
Look at the scenario Income”Expenditure Equilibrium. How much is consumption?
A) $500
B) $8,000
C) $700
D) $6,900
Which country had the fastest growth rate of real GDP per capita between 1980 and
2010?
A) the United States
B) Ireland
C) China
D) France
Figure: Comparative Advantage and the Production Possibility Frontier
Look at the figure Comparative Advantage and the Production Possibility Frontier.
_____ has an absolute advantage in the production of _____ and a comparative
advantage in the production of _____.
A) The United States; computers; roses
B) Colombia; computers; roses
C) The United States; computers; computers
D) Colombia; roses; computers
If the economy is at potential output and the Fed increases the money supply, in the
SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in
consumption.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Foreign exchange reserves are gold and silver that a government maintains to buy its
currency in foreign exchange markets.
A) True
B) False
The difference between a budget deficit and government debt is that:
A) a deficit is the amount by which government spending exceeds tax revenues,
whereas debt is the sum of money the government owes.
B) debt is the amount by which government spending exceeds tax revenues, whereas a
deficit is the sum of money the government owes.
C) a deficit is measured as of a particular time, whereas debt is measured over time.
D) a deficit harms the economy, whereas debt improves the economy.
Decisions about monetary policy are made by:
A) the president and Congress.
B) the President’s Council of Economic Advisers.
C) the Federal Open Market Committee.
D) representatives of banks that are members of the Federal Reserve System.
Real business cycle theory suggests the business cycle is caused by:
A) discretionary monetary policy.
B) fluctuations in the rate of productivity.
C) “animal spirits.”
D) protectionism.
If resources are scarce, it means that they:
A) are insufficient to provide enough goods and services to satisfy all human material
wants and needs.
B) have no opportunity cost.
C) are probably not valued by consumers.
D) have an unlimited supply.
Politicians have an incentive to push the unemployment rate below the natural rate of
unemployment right before their reelection because:
A) the expansionary monetary policy is used to finance the political campaigns.
B) the political benefits are immediate and the economic costs are delayed.
C) the Phillips curve is horizontal in the long run.
D) the opportunistic seignorage gains are very large.
If all of the opportunities to make someone better off (without making someone else
worse off) have been exploited, an economy is:
A) equitable.
B) inefficient.
C) marginally optimal.
D) efficient.
Among the liabilities of banks are:
A) customers’ deposits.
B) loans.
C) reserves.
D) loans and reserves.
Which of the following trade patterns is best explained by increasing returns?
A) Honduras exports bananas to the United States and the United States exports
airplanes to Honduras.
B) Pakistan exports clothing to the United States and the United States exports airplanes
to Pakistan.
C) Japan exports cars to the United States and the United States exports airplanes to
Japan.
D) Mexico exports beef to the United States and the United States exports airplanes to
Mexico.
Look at the scenario Market Basket. What is the value of the price index in 2011?
A) 100
B) 90
C) 111
D) 132