An example of physical capital is:
A) a truck a company purchases for deliveries.
B) a worker who physically learns to work on a truck his company buys.
C) a truck a worker buys for personal use.
D) a truck a company purchases for work, a worker who physically learns to work on a
truck his company buys, or a truck a worker buys for personal use.
A major drawback of a floating exchange rate is the:
A) opportunity cost associated with the accumulation of foreign exchange reserves.
B) uncertainty about the value of goods traded internationally.
C) increased discipline on monetary policy.
D) distorted incentives for the normal flow of imports and exports.
Unemployment rates tend to:
A) be the same across geographic areas.
B) vary between age groups and ethnicities.
C) increase when the economy expands.
D) stay the same only when there is cyclical unemployment.
Increased government spending in the short run will _____ aggregate output and _____
aggregate price levels.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
The main difference between the classical model of the price level and the modern
understanding of the relationship between the money supply, the price level, and real
GDP is that according to classical economists, _____, while today’s economists _____.
A) money is neutral in the long run; do not consider money to be neutral in the long
run.
B) the adjustment of prices takes some time; expect changes in the money supply to be
instantaneous.
C) did not consider money to be neutral in the long run; consider money neutral in the
long run.
D) the adjustment of prices to changes in the money supply is instantaneous; argue that
this adjustment process takes some time.
As a result of a sharp decrease in aggregate demand between 1929 and 1933, real GDP
was _____ its 1929 level.
A) 29% below
B) 100% below
C) 29% above
D) 50% above
The Federal Reserve’s main liabilities are:
A) currency and bank reserves.
B) the facilities of the 12 district banks.
C) corporate stocks and bonds.
D) U.S. Treasury bills.
Which of the following is a normative statement?
A) Women’s labor force participation rate has increased during the past 100 years.
B) The federal minimum wage is higher today than it was in 1990.
C) Children in the United States are required to go to school until they reach a certain
age.
D) The best way to encourage growth in the economy is through government spending.
Figure: Output Gap
Look at the figure Output Gap. If the economy is at Y2because of contractionary
monetary policy and no further policy is implemented, in the long run nominal wages
will _____ and shift the short-run aggregate supply curve to the _____, which will
_____ real output.
A) increase; left; decrease
B) increase; right; increase
C) decrease; left; decrease
D) decrease; right; increase
Fiscal policy attempts to affect the overall level of spending through:
A) changes in the inflation rate.
B) changes in the quantity of money or the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.
Which of the following statements is CORRECT?
A) Supply and demand cannot explain why a particular good or service becomes more
expensive relative to other goods and services.
B) Inflation affects only the more advanced countries, whereas less advanced countries
face deflation.
C) Prices of most goods and services remained stable during the Great Depression.
D) When the economy is in recession and jobs are hard to find, inflation tends to fall.
Before the Great Depression in the 1930s, the government:
A) nationalized all banks that were close to failure.
B) allowed banks to fail, believing that free-market forces should be allowed to work.
C) lent money to banks that were in poor financial condition.
D) guaranteed deposits of individuals.
Look at the table Individual and Aggregate Consumption Functions. Autonomous
consumption in the aggregate consumption function is:
A) $450.
B) $200.
C) $150.
D) $100.
Economists have identified several consecutive months of falling employment, and
forecasts for the next few months suggest more of the same. The economy is at the
_____ stage of the business cycle.
A) recession
B) expansion
C) peak
D) trough
According to the rule of 70, if a country has an average growth rate of 7%, its real GDP
per capita will double in:
A) 7 years.
B) 10 years.
C) 14 years.
D) 2 years.
A movement along the short-run AS curve occurs, holding everything else constant,
when there is a:
A) change in commodity prices.
B) supply shock.
C) change in the aggregate price level.
D) productivity change.
Scenario: Employment in Xenia
Xenia has 10,000 people. Of this population, 1,000 residents are below age 16, and
2,000 have given up looking for work. Currently, 500 people are unemployed but are
actively looking for work; 2,500 work part-time, and the rest are fully employed.
Look at the scenario Employment in Xenia. Suppose some of those who had given up
looking for work start looking again. The unemployment rate will:
A) increase.
B) decrease.
C) not be affected.
D) rise, fall, or stay the same.
The long-run aggregate supply curve is:
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
During the financial crisis of 2008, the Treasury Department prevented the failure of
Bear Stearns investment bank and AIG insurance company because they were
considered too important to the economy to fail.
A) True
B) False
Bangladesh exports shirts, the making of which is labor-intensive, to the United States.
The likely source of Bangladesh’s comparative advantage in shirts is:
A) a hotter climate, which makes it possible to produce shirts outdoors, eliminating the
need for factory buildings and hence reducing costs.
B) superior production technology.
C) that in comparison with the United States, Bangladesh is a labor-abundant country.
D) the higher labor productivity in Bangladesh.
The rule of 70 indicates that a 6% annual increase in the level of real GDP would lead
to the output doubling in approximately _____ years.
A) 6
B) 12
C) 24
D) 30
Which of the following is a normative statement?
A) The rate of unemployment is 9%.
B) A high rate of economic growth creates jobs.
C) The federal government spends half of its budget on national defense.
D) Everyone in the United States deserves to be covered by national health insurance.
M1 consists of:
A) currency only.
B) currency and checkable bank deposits only.
C) currency in circulation and checkable bank deposits only.
D) currency in circulation, checkable bank deposits, and traveler’s checks only.
A household is a person or group of people who share an income.
A) True
B) False
An increase in the expected rate of inflation:
A) shifts the short-run Phillips curve down.
B) shifts the short-run Phillips curve up.
C) moves the economy along the short-run Phillips curve to higher rates of inflation.
D) moves the economy along the short-run Phillips curve to higher rates on
unemployment.
Mr. Freezee operates a fleet of ice cream trucks that drive around neighborhoods selling
ice cream. He is trying to decide whether he should buy another ice cream truck to add
to his fleet. He determines that one more truck will add $750 to his revenue but that the
truck will also increase his costs by $1,000. Based on marginal analysis, Mr. Freezee
decides:
A) that he should not purchase the truck, since the costs outweigh the benefits.
B) that he should purchase the truck, since the benefits outweigh the costs.
C) that he should purchase the truck, since his profits will rise by $250.
D) to purchase several trucks with the same costs and benefits.
Which statement is CORRECT?
A) Automatic stabilizers indicate deliberate action by policy makers.
B) Discretionary fiscal policy shows automatic adjustments without any specific effort
by policy makers.
C) Discretionary fiscal policy indicates deliberate action by policy makers.
D) Automatic stabilizers are risky to use and sometimes can get the economy
destabilized.
Figure: Shifts in Demand and Supply IV
Look at the figure Shifts in Demand and Supply IV. The figure shows how supply and
demand might shift in response to specific events. Suppose half of the people in San
Diego move to Colorado Springs. Which panel BEST describes how this will affect the
market for houses in Colorado Springs?
A) panel A
B) panel B
C) panel C
D) panel D
After graduation from college, you might have an increase in your income from a new
job. If as a result you decide that you will purchase more T-bone steak and less
hamburger, then for you hamburger is a(n) _____ good.
A) normal
B) substitute
C) complementary
D) inferior
Scenario: Purchasing Power Parity
A car costs $30,000 in the United States and the exchange rate is $1 = 0.50. The same
car costs 12,000 in Britain.
Look at the scenario Purchasing Power Parity. For there to be purchasing power parity,
the nominal exchange rate for the dollar must be:
A) 2.
B) 1.25.
C) 1.
D) 0.40.
A devaluation will make exports _____expensive and imports _____ expensive.
A) more; more
B) more; less
C) less; less
D) less; more