As a result of the long-term growth between 1900 and 2010, the output per person in
the United States was about twice as large in 2010 as it was in 1900.
A) True
B) False
The marginal propensity to consume equals the:
A) proportion of consumer spending as a function of aggregate disposable income.
B) change in savings divided by the change in aggregate disposable income.
C) ratio of the change in consumer spending to the change in aggregate disposable
income.
D) change in savings divided by the change in consumer spending.
Figure: Loanable Funds Market
Look at the figure Loanable Funds Market. If the interest rate is 8%, businesses will
want to borrow approximately:
A) $3 trillion.
B) $2 trillion.
C) $4 trillion.
D) $1 trillion.
Aggregate spending increases when:
A) prices rise.
B) prices fall.
C) unplanned investment spending increases.
D) planned investment spending increases.
The higher current production capacity is, the higher current planned investment will
be.
A) True
B) False
If a checking account has an interest rate of 1% and a Treasury bill has an interest rate
of 3%, the opportunity cost of holding cash in a checking account is:
A) zero.
B) 0.02%.
C) 1%.
D) 2%.
When the dollar appreciates relative to the Canadian dollar:
A) Canadian goods become more expensive in the United States.
B) U.S. goods become more expensive in Canada.
C) U.S. residents tend to buy more from Canada, since the United States has a weak
currency.
D) the United States sells more goods to Canada.
Japan’s comparative advantage in automobiles can be attributed to:
A) climate.
B) factor endowments.
C) technology.
D) exchange rates.
During the Great Depression:
A) investment fell, but consumption increased.
B) investment increased, but consumption decreased.
C) both consumption and investment decreased.
D) overall GDP rose.
A loan is:
A) a liability for the lender and an asset for the borrower.
B) a physical asset that is traded in financial markets.
C) a claim on a bank that obliges the bank to provide funds to a lender.
D) a liability for the borrower and an asset for the lender.
Long recessions often follow banking crises because:
A) banking crises may cause a surplus of credit, so that interest rates fall to levels so
low that investors earn very little in interest income.
B) the vicious cycle of deleveraging that follows leads to overpriced assets.
C) consumer and investment spending increase too rapidly, causing high rates of
inflation.
D) monetary policy is not very effective because banks hold on to excess reserves and
are unwilling to lend them out.
Following the banking crises of the 1930s, both real GDP and the price level increased
immediately.
A) True
B) False
When the Fed purchases short-term government securities from banks, the primary
effect on excess reserves is that they:
A) decrease.
B) increase.
C) remain constant.
D) fluctuate randomly.
Suppose the real interest rate is 2.1% and the nominal interest rate is 5.4%. The
inflation rate is:
A) 7.5%.
B) 3.3%.
C) “3.3%.
D) 2.1%.
Table: The Production Possibilities for Cars and Leather Boots
Look at the table The Production Possibilities for Cars and Leather Boots. The
opportunity cost of producing one car in Mexico is:
A) 500 pairs of leather boots.
B) 1,000 pairs of leather boots.
C) different from the opportunity cost in the United States.
D) 2,000 pairs of leather boots, which is the same as in the United States.
Figure: Fiscal Policy Options
Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD’, the
most appropriate discretionary fiscal policy is to _____ government spending and
_____ income tax rates.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; maintain