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The need for a double coincidence of wants is necessary:
A) to use money.
B) for barter exchanges.
C) anytime credit cards or debit cards are used.
D) to increase the number of exchanges taking place.
If the cost of the market basket in the base year is $5,000 and the cost of the market
basket in the current year is $5,100, the price index for the current year is 102.
A) True
B) False
Inflation affects people adversely because:
A) nominal income falls.
B) purchasing power tends to increase.
C) the budget deficit increases.
D) it causes money to lose its value over time.
An economy is operating at an output level below potential real GDP. If the government
wishes to use fiscal policy to bring the economy back to its potential real GDP, it will:
A) increase the money supply.
B) increase its spending.
C) increase taxation.
D) decrease the money supply.
If the economy is in a recessionary gap, the Federal Reserve should conduct _____
monetary policy by _____ the money supply.
A) expansionary; decreasing
B) expansionary; increasing
C) contractionary; decreasing
D) contractionary; increasing
Which of the following is NOT an argument AGAINST the use of expansionary fiscal
policy?
A) Government spending may crowd out private spending.
B) Government borrowing may crowd out private investment spending.
C) Government borrowing may reduce the marginal propensity to consume.
D) Government budget deficits may lead to reduced private spending.
Inventory is counted as investment because:
A) it is used for future production.
B) it is a source of future sales.
C) it has no opportunity cost.
D) it is tax deductible.
Treasury bills purchased from commercial banks by the Fed are assets for the Federal
Reserve.
A) True
B) False
Investment banks differ from commercial banks because commercial banks _____, but
investment banks _____.
A) are allowed to advertise; must not advertise.
B) can have offices only in one state; can have offices in many countries
C) do not sell foreign currencies; sell foreign currencies
D) accept deposits from customers; do not accept deposits
Deviations from the natural rate of unemployment are _____ unemployment.
A) frictional
B) structural
C) random
D) cyclical
Depository banks:
A) buy short-term securities from investors, change their maturity, and sell them as
long-term securities to other investors.
B) buy long-term securities from investors, change their maturity, and sell them as
short-term securities to other investors.
C) accept short-term deposits from depositors and use them to make long-term loans.
D) accept long-term deposits from depositors and use them to make short-term loans.
Look at the table Kenya's Economy in 2010. Aggregate output at the end of 2010,
assuming no changes in the price level, was about:
A) $326 billion.
B) $32.632 billion.
C) $3,635 billion.
D) $6,500 billion.
A government might want to increase aggregate demand to:
A) close an inflationary gap.
B) close a recessionary gap.
C) reduce prices.
D) reduce employment.
Assuming a positive interest rate, the dollar amount of a future payment is _____ its
present value.
A) exactly the same as
B) approximately the same as
C) less than
D) more than
The short-term interest rate applies to financial assets that mature within:
A) less than a year.
B) a year or more.
C) 2 years.
D) 5 years.
To stabilize the banking crisis in Ireland the:
A) Irish government guaranteed all bank debt.
B) European Union central bank revalued the euro.
C) European Union central bank devalued the euro.
D) Irish government declared a bank holiday for several weeks.
Classical economics is based primarily on the works of John Maynard Keynes.
A) True
B) False
Figure: The Labor Market
Look at the figure
The Labor Market. The size of the labor force at the equilibrium wage rate is:
A) 80,000.
B) 110,000.
C) 100,000.
D) 200,000.
Efficiency wages are:
A) above equilibrium to encourage better performance.
B) below equilibrium to encourage better performance to get a raise.
C) responsible for all structural unemployment.
D) above equilibrium to encourage better performance and are responsible for all
structural unemployment.
Which of the following is a positive statement?
A) The poverty rate is 14%.
B) A high rate of inflation is the most important economic goal for the country.
C) Everyone in the country should save money for retirement.
D) Basketball players should not be paid higher salaries than teachers.
The United States can produce 30 computers for every car it produces, and Japan can
produce 15 computers for every car it produces. Based on this information, which of the
following statements is INCORRECT?
A) The United States should specialize in computer production.
B) Japan has the comparative advantage in car production.
C) There will be gains from trade if the United States exports computers to Japan.
D) Japan has an absolute advantage in car production.
Table: Real and Nominal Output
Look at the table Real and Nominal Output. Nominal GDP in year 2 is equal to:
A) $40.
B) $60.
C) $100.
D) $280.
If a country finds its fixed rate currency falling:
A) it can use foreign exchange reserves to purchase some of its currency.
B) it can add to its foreign exchange reserves by selling some of its currency.
C) it cannot use monetary policy to maintain its exchange rate.
D) it will allow its currency devaluate.
The primary function of the financial system is to channel funds from savers to
investors.
A) True
B) False
Structural unemployment consists of people who are unemployed because of:
A) temporary changes in jobs.
B) more labor demanded than labor supplied.
C) the time it takes for employers and workers to find each other.
D) more job hunters than jobs.
Economists use real GDP per capita to measure economic growth:
A) because it ignores the effect of price changes.
B) because poor nations have a large population and the population of richer nations is
declining.
C) because it is the inflation-adjusted value of a country's production of goods and
services corrected for the change in a country's population.
D) even though nominal GNP per capita is a far superior measure of economic growth.
Table: Price and Output Data
Look at the table Price and Output Data.
The value of year 3's output in real dollars is:
A) $5.
B) $20.
C) $27.
D) $36.
An increase in demand for good X can be caused by a decrease in the price of X.
A) True
B) False
If the price levels in two countries are equal, then the real exchange rate between their
currencies equals the nominal exchange rate.
A) True
B) False
Figure: Equilibrium in the Money Market
Look at the figure Equilibrium in the Money Market. Equilibrium will occur at interest
rate _____ and quantity of money _____.
A) r2; Q0
B) r0; Q2
C) r1; Q1
D) r1; Q2
