Question: If the world price of copper exceeds the domestic (U.S.) price of copper we would expect

Choices:
- the United States to be a net exporter of copper.
- the United States to impose a tariff on imported copper to protect domestic producers.
- the demand for U.S. copper to fall.
- a growing trade deficit in the United States in goods and services.


Question: Which of the following persons is considered to be unemployed? I. Mary who has quit her job to look for another. II. John who fulfilled his dream by retiring from work at age 45. III. Diane who works part-time but would like to work full-time.

Choices:
- I only
- II only
- III only
- I and III


Question: Which choice produces a faster rate of economic growth for the United States?

Choices:
- Institution of higher tariffs on imported goods
- More investment in capital infrastructure and less consumption of nondurable goods and services
- Elimination of mandatory school attendance laws
- Annual limits on the number of foreigners immigrating into the United States


Question: Which of the following would reduce economic growth?

Choices:
- A decline in investment.
- An increase in immigration from abroad.
- A technological advance.
- An increase in the labor force.


Question: An increase in the price level and a decrease in real GDP in the short run could be the result of

Choices:
- a prolonged period of very bad weather.
- a decrease in the money supply.
- a decrease in consumer confidence.
- an increase in consumer confidence.


Question: Inflation

Choices:
- encourages households to save more.
- does not affect savings in the economy.
- forces households to save more.
- discourages savings.


Question: Which of the following fiscal policy combinations would be most likely to slowly increase real GDP without putting tremendous upward pressure on the price level?

Choices:
- Increase government spending with a matching decrease in taxes.
- Decrease government spending with a matching increase in taxes.
- Increase government spending with no change in taxes.
- Increase taxes with a matching increase in government spending.


Question: Suppose the Japanese economy is suffering a prolonged recession. Lower Japanese household incomes will affect U.S. exports to Japan demand for the dollar and the value of the dollar relative to the yen in which of the following ways? EXPORTS TO JAPAN     DEMAND FOR $     VALUE OF $

Choices:
- Decrease     Decrease     Decrease
- Decrease     Decrease     Increase
- Decrease     Increase     Decrease
- Increase     Decrease     Decrease


Question: Which of the following is an example of expansionary monetary policy for the Federal Reserve?

Choices:
- Increasing the discount rate
- Increasing the reserve ratio
- Buying Treasury securities from commercial banks
- Lowering income taxes


Question: What is the main difference between the short-run and long-run Phillips curve?

Choices:
- The short-run Phillips curve is downward sloping and the long-run Phillips curve is upward sloping.
- The short-run Phillips curve is upward sloping and the long-run Phillips curve is vertical.
- The short-run Phillips curve is horizontal and the long-run Phillips curve is upward sloping.
- The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical.


Question: According to Classical economic analysis in the long run an increase in the money supply results in

Choices:
- a proportional increase in the quantity of output.
- stagflation.
- an increase in the real rate of interest.
- a proportional increase in the price level.


Question: An increase in the federal deficit may affect the demand for loan funds and therefore the real interest rate and investment spending. Which of the following gives the correct direction of these effects? Demand for loanable funds      Real interest rate      Investment spending

Choices:
- Increases            Increases      Increases
- Decreases            Decreases      Decreases
- Decreases            Decreases      Increases
- Increases            Increases      Decreases


Question: Which of the following is true of a typical contraction of the business cycle?

Choices:
- Consumption is falling but household wealth is rising.
- Consumption is increasing.
- Private investment is rising.
- Employment and inflation are low.


Question: If interest rates rise relatively more in country A than in country B then the value of country A's currency will

Choices:
- appreciate.
- depreciate.
- remain unchanged.
- change indeterminately.


Question: For a given level of government spending the federal government usually experiences a budget____during economic____and a budget ______during economic_______.

Choices:
- deficit recession surplus expansion
- surplus recession deficit expansion
- deficit expansion surplus recession
- surplus recession surplus expansion


Question: A decrease in the price of a particular product will result in

Choices:
- an increase in demand.
- a decrease in demand.
- an increase in the quantity demanded.
- a decrease in the quantity demanded.


Question: Which of the following would likely slow a nation's economic growth?

Choices:
- Guaranteed low-interest loans for college students
- Removal of a tax on income earned on saving
- Removal of the investment tax credit
- More research grants given to medical schools


Question: Suppose the economy is in long-run equilibrium when a temporary expansionary supply shock is felt in the economy. This changes the short-run Phillips curve the short-run unemployment rate and the long-run unemployment rate in which of the following ways? SHORT-RUN PHILLIPS CURVE     SHORT-RUN UNEMPLOYMENT     LONG-RUN UNEMPLOYMENT

Choices:
- Shifts down     Falls     Rises
- Shifts up     Rises     Falls
- Shifts down     Falls     Falls
- Shifts up     Rises     Rises


Question: Given the table below which statement is true? Labor hours needed to produce a unit of: Country      Wine      Cheese France      40      80 Belgium      15      60

Choices:
- France has the absolute advantage in both products.
- France should specialize in and export wine while Belgium should specialize in and export cheese.
- France has the comparative advantage in cheese.
- France has the absolute advantage in cheese.


Question: The natural rate of unemployment

Choices:
- includes structural and frictional unemployment
- includes cyclical and frictional unemployment
- includes structural and cyclical unemployment
- includes structural frictional and cyclical unemployment


Question: When nominal GDP is rising we would expect money demand to

Choices:
- increase as consumers demand more money as a financial asset increasing the interest rate.
- increase as consumers demand more money for transactions increasing the interest rate.
- decrease as the purchasing power of the dollar is falling decreasing the interest rate.
- decrease as consumers demand more money for transactions increasing the interest rate.


Question: GDP measures a country's level of I. production. II. stability. III. income.

Choices:
- I only.
- II only.
- III only.
- I and III.


Question: When the FED lowers the discount rate its intention is to

Choices:
- give depository institutions a break on their borrowings.
- signal participants in financial markets that a recession is coming.
- signal participants in financial markets that an inflationary period is coming.
- encourage borrowing by depository institutions so that the money supply may expand.


Question: The size of the labor force in Japan is expected to shrink beginning in 2010 as a large segment of its population retires. This will

Choices:
- affect labor productivity more than economic growth.
- affect economic growth more than labor productivity.
- not have a major effect on economic growth or labor productivity.
- affect labor productivity and economic growth equally.


Question: If firms that make a particular product expect its price will be lower in the future

Choices:
- this will cause the supply of the product to increase right now.
- this will cause the supply of the product to decrease right now.
- this will have no effect on the amount of the product supplied right now.
- this will have no effect on the supply of the product now or later.


Question: Excess reserves in the banking system will increase if

Choices:
- the reserve ratio is increased.
- the checking deposits increase.
- the discount rate is increased.
- the Fed sells Treasury securities to commercial banks.


Question: Which of the following statements is true of production possibility curves and trade between nations?

Choices:
- Nations specialize and trade based on absolute advantage in production.
- Free trade allows each nation to consume beyond the production possibility curve.
- The flow of goods and services is based on the principle of absolute advantage.
- Nations can consume at points beyond the production possibility curve by protecting domestic industries from free trade.


Question: If the economy is in disequilibrium where the price level is such that the aggregate quantity of products demanded exceeds the aggregate quantity of products supplied then

Choices:
- prices will be driven upward to restore equilibrium.
- supply will increase.
- demand will decrease.
- supply will decrease.


Question: In a long period of economic expansion the tax revenue collected ____ and the amount spent on welfare programs ____ creating a budget ____ .

Choices:
- increases decreases surplus
- increases decreases deficit
- decreases decreases surplus
- decreases increases deficit


Question: Which of the following will result in economic growth?

Choices:
- A decrease in the unemployment rate.
- An increase in the unemployment rate.
- An increase in the size of the labor force.
- A decrease in the population.


Question: According to Classical economic theory the equation of exchange demonstrates the neutrality of money only if the

Choices:
- velocity of money supply and the quantity of output are constant.
- money supply and its velocity are equal.
- velocity of money supply equals the speed of transactions.
- money supply and its velocity are inversely related.


Question: Which of the following lists contains only policies that will close an inflationary gap?

Choices:
- Increase the money supply; run a federal budget deficit.
- Decrease the money supply; run a federal budget deficit.
- Decrease the money supply; increase taxes; reduce government spending.
- Increase the money supply; increase taxes; reduce government spending.


Question: Appropriate fiscal and monetary polices during the contractionary phase of the business cycle include

Choices:
- budget surpluses and higher discount rates.
- tax reductions and open market purchases.
- budget surpluses and lower discount rates.
- increases in government spending and higher discount rates.


Question: According to Monetarist theory

Choices:
- the FED should actively conduct monetary policy.
- changes in the money supply do not have significant effects.
- fiscal policy is the preferred way of shifting the aggregate demand curve.
- the FED should allow the money supply to grow at a constant rate.


Question: Which function of money best defines $1.25 as the price of a 20-ounce bottle of pop?

Choices:
- Medium of exchange
- Unit of account
- Store of value
- Transfer of ownership


Question: A policy supported by supply-side economists would be

Choices:
- higher taxes on corporate profits.
- lower tax rates on interest earned from savings.
- removal of investment tax credits.
- a longer duration of unemployment benefits.


Question: To close a recessionary gap

Choices:
- the aggregate demand curve should be shifted to the right.
- the aggregate demand curve should be shifted to the left.
- the aggregate supply curve should be shifted to the right.
- the aggregate supply curve should be shifted to the left.


Question: What will happen to the equilibrium price and the equilibrium quantity of good A when producers of good A expect the price to be higher in the near future?

Choices:
- The equilibrium price will rise and the equilibrium quantity will fall.
- The equilibrium price will fall and the equilibrium quantity will rise.
- The equilibrium price and the equilibrium quantity will rise.
- The equilibrium price and the equilibrium quantity will fall.


Question: Which of the following would shift the aggregate demand curve to the right?

Choices:
- An increase in the price level
- Depreciation in the international value of the dollar
- An increase in personal income tax rates
- An increase in interest rates


Question: Fiat money

Choices:
- is not backed by any precious commodity.
- can be exchanged for gold.
- is backed by gold but cannot be exchanged for it.
- is not legal tender.


Question: If technology makes production less expensive and at the same time exports decrease which of the following will result with certainty?

Choices:
- Real GDP will increase.
- Real GDP will decrease.
- The price level will increase.
- The price level will decrease.


Question: Which of the following would not be an example of contractionary fiscal policy?

Choices:
- Decreasing money spent on social programs
- Increasing income taxes
- Canceling the annual cost of living adjustments to the salaries of government employees
- Increasing money spent to pay for government projects


Question: Crowding out

Choices:
- is one reason fiscal policy is so effective.
- occurs when interest rates fall due to government borrowing.
- occurs when consumers and firms spend less offsetting expansionary fiscal policy.
- causes the aggregate demand curve to shift to the right.


Question: Assume the reserve requirement is five percent. If the FED sells $10 million worth of government securities in an open market operation then the money supply can potentially

Choices:
- increase by $200 million.
- decrease by $200 million.
- increase by $50 million.
- decrease by $50 million.


Question: Which of the following is an example of capital as an economic resource?

Choices:
- A cement mixer
- A barrel of crude oil
- A registered nurse
- A share of corporate stock


Question: In the equation of exchange

Choices:
- M stands for the money supply and Q stands for quality.
- V stands for the velocity of GDP and Q stands for quality.
- P stands for the price level and Q stands for quarter.
- P stands for the price level and V stands for the velocity of money.


Question: Which of the following most likely increases aggregate demand in the United States?

Choices:
- An American entrepreneur founds and locates a software company in London.
- The U.S. military closes a military base in California.
- The Chinese government makes it increasingly difficult for American firms to export goods to China.
- A Mexican entrepreneur founds and locates a software company in St. Louis.


Question: In a recession expansionary monetary policy is designed to

Choices:
- decrease aggregate demand so that real prices will decrease which is good for the economy.
- increase aggregate demand which will increase real output and increase employment.
- increase unemployment but low prices negate this effect.
- keep interest rates high which attracts foreign investment.


Question: Classical economists generally believe that I.   wages fluctuate quickly II.   Say's law does not hold III.   input and output prices will stay in line with each other IV.   the government should not worry about maintaining aggregate demand at an adequate level

Choices:
- II and IV only
- I III and IV only
- I and IV only
- II and III only


Question: A difference between M1 and M2 is that

Choices:
- M1 is a first mortgage and M2 is a second mortgage
- M2 is M1 plus assets that are more liquid
- M2 includes savings deposits
- M1 is larger than M2


Question: Monetary tools of the Federal Reserve do not include which of the following choices?

Choices:
- Buying Treasury securities from commercial banks
- Changing tariffs and quotas on imported goods
- Changing the reserve ratio
- Changing the discount rate


Question: If the U.S. dollar and Chinese yuan are traded in flexible currency markets which of the following causes an appreciation of the dollar relative to the Chinese yuan?

Choices:
- Lower interest rates in the United States relative to China
- Lower price levels in China relative to the United States
- Growing American preference to consume more Chinese-made goods
- Rising per capita GDP in China increasing imports from the United States


Question: You hear that the United States has a negative balance in the current account. With this information we conclude that

Choices:
- there is a trade deficit.
- there is a capital account deficit.
- there is a capital account surplus.
- more U.S. dollars are being sent abroad than foreign currencies are being sent to the United States.


Question: Which of the following is NOT an argument for restricting trade?

Choices:
- To protect infant industry
- To promote employment
- To fight inflation
- To promote a diversity of industries


Question: The GDP Deflator differs from the CPI in that the GDP Deflator

Choices:
- is thought to slightly overestimate the inflation rate
- uses base year quantities in its calculations
- incorporates both current year prices and base year prices
- incorporates current year quantities in its calculations


Question: Business cycles

Choices:
- occur infrequently in capitalist economies.
- refer to reusing resources in production.
- are predictable ups and downs in economic activity.
- are each comprised of a recession and an expansion.


Question: When disposable income increases by $X

Choices:
- consumption increases by more than $X .
- saving increases by less than $X .
- saving increases by exactly $X .
- saving remains constant.


Question: Tariffs and quotas

Choices:
- result in higher domestic prices.
- promote trade between nations.
- do not necessarily affect domestic prices.
- affect domestic prices: the former raises them while the latter lowers them.