Question: Suppose that an expansionary fiscal policy leads to a large increase in real output and a small increase in the price level. From this it can be inferred that

Choices:
- inflation had already impacted the economy before the fiscal stimulus.
- the economy initially had some unemployed resources.
- aggregate supply decreased.
- aggregate demand is steeply sloped.


Question: Which of the following is included in U.S. GDP? I.   The market value of movies made in Africa by U.S. citizens II.   The market value of olive oil made in Italy and sold in the United States. III.   The market value of blue jeans made in the United States and sold in Japan IV.   The market value of wine made in the United States by Canadian citizens

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


Question: When both short-run aggregate supply and aggregate demand increase which of the following can be said for certain?

Choices:
- The price level rises but real GDP falls.
- Both the price level and real GDP rise.
- The price level rises but the change in real GDP is uncertain.
- Real GDP rises but the change in the price level is uncertain.


Question: Tariffs and quotas

Choices:
- result in lower domestic prices.
- sometimes raise and sometimes lower the amount of the product sold domestically.
- lower the amount of the product sold domestically.
- raise the amount of the product sold domestically.


Question: A likely cause of falling Treasury bond prices might be

Choices:
- expansionary monetary policy.
- contractionary monetary policy.
- a depreciating dollar.
- fiscal policy designed to reduce the budget deficit.


Question: Households demand more money as an asset when

Choices:
- nominal GDP falls.
- the nominal interest rate falls.
- bond prices fall.
- the supply of money falls.


Question: Allocative efficiency

Choices:
- means that no inferior products will be produced.
- implies that the economy's output is distributed evenly.
- means that those who work hardest will get more.
- implies that resources are used to produce the goods and services society desires in just the right amounts.


Question: GDP measures

Choices:
- production within a nation's borders.
- production by a nation's citizens wherever they may be.
- income earned by the factors of production plus depreciation and indirect business taxes.
- (A) and (C)


Question: Every choice results in a foregone best alternative which economists call the

Choices:
- accounting cost
- switching cost
- inferior cost
- opportunity cost


Question: When a nation is operating at the natural rate of unemployment

Choices:
- there is no cyclical unemployment.
- the inflation rate is zero.
- there is no structural unemployment.
- the nation is experiencing a recession.


Question: If a country has a negative value on its current account then it must

Choices:
- pay that amount to its trading partners.
- have a positive value of equal magnitude on its capital account.
- depreciate its currency.
- appreciate its currency.


Question: Which of the following transactions would be counted in GDP?

Choices:
- The cash you receive from babysitting your neighbor’s kids
- The sale of illegal drugs
- The sale of cucumbers to a pickle manufacturer
- The sale of a pound of tomatoes at a supermarket


Question: If your nominal income rises 4 percent and your real income falls 1 percent by how much did the price level change?

Choices:
- 5 percent decrease
- ¼ percent increase
- 3 percent increase
- 5 percent increase


Question: Economy X is an open economy with flexible exchange rates. Economy Y is closed. Ceteris paribus expansionary monetary policy is

Choices:
- more effective in X because the policy will increase net exports.
- more effective in X because the policy will decrease net exports.
- equally effective in X and Y.
- less effective in X because the policy will decrease net exports.


Question: Equilibrium real GDP is far below full employment and the government lowers household taxes. Which is the likely result?

Choices:
- Unemployment falls with little inflation.
- Unemployment rises with little inflation.
- Unemployment falls with rampant inflation.
- Unemployment rises with rampant inflation.


Question: If $1000 is deposited into a checking account and excess reserves increase by $700 the reserve ratio must be:

Choices:
- 70%.
- 30%.
- 40%.
- 90%.


Question: Automatic or built-in stabilizers

Choices:
- prevent inflation.
- prevent recessions from occurring.
- prevent inflation and recessions from occurring.
- are government policies already in place that promote deficit spending during recessions and surplus budgets during expansions.


Question: Suppose consumers expect the price of corn to be lower in the near future while the price of seed corn and fertilizer fall. What will happen to the equilibrium price and the equilibrium quantity?

Choices:
- The equilibrium price will rise while the equilibrium quantity is indeterminate.
- The equilibrium price will fall while the equilibrium quantity is indeterminate.
- The equilibrium price is indeterminate while the equilibrium quantity will rise.
- The equilibrium price is indeterminate while the equilibrium quantity will fall.


Question: An increase in the demand for money in the economy could result from

Choices:
- a recession.
- a higher price level.
- higher interest rates.
- expected future inflation.


Question: An increase in the consumer price index is commonly referred to as

Choices:
- economic growth.
- inflation.
- unemployment.
- discouraged workers.


Question: GDP measures I. production II. income earned during the production process III. spending by consumers businesses governments and foreigners

Choices:
- Only I is correct.
- Only II is correct.
- Only III is correct.
- I II and III are correct.


Question: The economy is currently operating at full employment. Assuming flexible wages and prices how would a decline in aggregate demand affect GDP and the price level in the short run and GDP and the price level in the long run? SHORT-RUN GDP     SHORT-RUN PRICE LEVEL     LONG-RUN GDP     LONG-RUN PRICE LEVEL

Choices:
- Falls     Falls     No change     Falls
- Falls     Falls     Falls     Falls
- No change     Falls     No change     No change
- Falls     Falls     No change     No change


Question: If the economy is operating at full employment which of the following policies will create the most inflation in the short run?

Choices:
- An increase in government spending matched by an equal increase in taxes
- An increase in government spending with no change in taxes
- A decrease in government spending and a matching increase in taxes
- A decrease in taxes with no change in government spending


Question: The real interest rate is

Choices:
- what one sees when looking at bank literature
- the nominal interest rate divided by the inflation rate
- the nominal interest rate plus the anticipated inflation rate
- the nominal interest rate minus anticipated inflation


Question: Which of the following would be an example of fiat money?

Choices:
- Cigarettes used as money in prisons
- Dollar bills
- Gold coins
- Arrowheads used as a medium of exchange


Question: Which of the following fiscal policies is likely to be most effective when the economy is experiencing an inflationary gap?

Choices:
- The government decreases taxes and keeps spending unchanged.
- The government increases spending and keeps taxes unchanged.
- The government increases spending matched with an increase in taxes.
- The government increases taxes and decreases spending.


Question: Among those hurt by inflation are I.   borrowers at fixed interest rates II.   individuals on fixed incomes III.   those with savings earning fixed interest rates IV.   restaurant owners

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


Question: Required reserves

Choices:
- can be used by banks to make loans or buy investments.
- can be held in a bank's vault or its account at the FED.
- must be kept in a bank's vault.
- must be used to make loans.


Question: Potential GDP will fall ceteris paribus if

Choices:
- the unemployment rate rises.
- the retirement age is lowered.
- tariffs protecting domestic jobs are eliminated.
- more immigration is allowed.


Question: Contractionary monetary policy implies which of the following about the discount rate the nominal interest rate and aggregate demand? Discount rate      Nominal interest rate      Aggregate demand

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


Question: Which of the following is a fundamental economic question?

Choices:
- Who will get how much of each good and service?
- Who should pay taxes?
- Who will work?
- Who will make the economic decisions?


Question: Fisher's Hypothesis states that

Choices:
- the real interest equals the nominal interest rate plus the inflation rate.
- the nominal interest rate equals the real interest rate minus the inflation rate.
- the nominal interest rate equals the unemployment rate plus the real interest rate.
- the nominal interest rate equals the real interest rate plus the inflation rate.


Question: The best example of a negative supply shock to the economy would be

Choices:
- a decrease in government spending.
- a decrease in the real interest rate.
- an increase in the money supply.
- unexpectedly higher resource prices.


Question: According to Say's law

Choices:
- when price goes up supply goes up
- it is better to give than receive
- demand creates its own supply
- supply creates its own demand


Question: What will happen to the equilibrium price level and the equilibrium quantity of output if the aggregate supply curve shifts to the left? Assume an upward sloping aggregate supply curve.

Choices:
- The equilibrium price level increases while the equilibrium quantity of output decreases.
- The equilibrium price level decreases while the equilibrium quantity of output increases.
- The equilibrium price level and quantity of output increase.
- The equilibrium price level and quantity of output decrease.


Question: The Federal Open Market Committee

Choices:
- advises the President of the United States.
- is part of the Federal Reserve System.
- has seven members.
- promotes free trade.


Question: An increase in the price of forklifts imported into the United States from Belgium will

Choices:
- increase the consumer price index and the GDP deflator.
- increase the consumer price index but not the GDP deflator.
- increase the GDP deflator but not the consumer price index.
- have no effect on the consumer price index or the GDP deflator.


Question: Theo loses his job at the public swimming pool when the pool closes for the winter. This is an example of

Choices:
- cyclical unemployment.
- discouraged worker.
- seasonal unemployment.
- frictional unemployment.


Question: Keynes

Choices:
- advanced Classical economic theory by making several refinements.
- showed how Say's Law operated in capitalist economies.
- was a great American economist.
- explained the cause of and cure for the Great Depression.


Question: Assume commercial banks save no excess reserves and the reserve requirement is 20 percent. How much money is created in new loans from all banks after this bank receives a deposit of $1000 ?

Choices:
- $800
- $1,000
- $4,000
- $5,000


Question: Which of the following policies is most likely to bring about economic growth in the long run?

Choices:
- Imposing tariffs to protect domestic industries from foreign competition.
- Placing taxes on savings.
- Increasing government spending.
- Promoting improvements in the education of the population.


Question: When a country has a balance of trade deficit

Choices:
- it must make up the difference by shipping gold to its creditors.
- its exports exceed its imports.
- its currency will appreciate.
- its imports exceed its exports.


Question: National income measures

Choices:
- household income in the nation.
- income earned by the factors of production.
- GDP minus depreciation and indirect business taxes.
- (B) (C) and (D).


Question: Assume the reserve requirement is 10 percent. If the FED sells $29 million worth of government securities in an open market operation then the money supply can

Choices:
- increase by $2.9 million.
- decrease by $2.9 million.
- increase by $290 million.
- decrease by $290 million.


Question: The "crowding-out" effect refers to which of the following?

Choices:
- Lower interest rates that result from borrowing to conduct expansionary monetary policy
- Higher interest rates that result from borrowing to conduct contractionary fiscal policy
- Higher interest rates that result from borrowing to conduct expansionary fiscal policy
- Higher interest rates due to borrowing to conduct contractionary monetary policy


Question: Suppose transfer payments are greater than Social Security contributions corporate taxes and retained earnings combined. In that case

Choices:
- NDP will be greater than GDP.
- NI will be greater than GDP.
- PI will be greater than NI.
- DPI will be greater than PI.


Question: The FED's Board of Governors has members each serving -year terms.

Choices:
- 14 7
- 7 14
- 8 8
- 50 2


Question: Which of the following would lead to a decrease in the money supply?

Choices:
- The FED lowers the discount rate.
- The FED sells government securities in the secondary market.
- The federal government spends less money.
- The FED lowers reserve requirements.


Question: Which of the following insures the value of the U.S. dollar?

Choices:
- The euro and other foreign currencies held by the Federal Reserve
- Gold bars in secure locations like Fort Knox
- The promise of the U.S. government to maintain its value
- The value of the actual paper on which it is printed.


Question: In what ways is contractionary fiscal policy in the United States likely to affect domestic interest rates and the international value of the dollar?

Choices:
- Interest rates increase and the dollar depreciates.
- Interest rates decrease and the dollar appreciates.
- Interest rates increase and the dollar appreciates.
- Interest rates decrease and the dollar depreciates.


Question: Which of the following results from stagflation?

Choices:
- Unemployment decreases
- The price level decreases
- The aggregate supply curve shifts to the right
- The Phillips curve shifts to the right


Question: What does the presence of discouraged workers do to the measurement of the unemployment rate?

Choices:
- Discouraged workers are counted as "out of the labor force" thus the unemployment rate is understated making the economy look stronger than it is.
- Discouraged workers are counted as "out of the labor force" thus the unemployment rate is understated making the economy look weaker than it is.
- Discouraged workers are not surveyed so there is no impact on the unemployment rate.
- Discouraged workers are counted as "unemployed" thus the unemployment rate is understated making the economy look stronger than it is.


Question: Which of the following statements is true?

Choices:
- Some of the things included in M2 are not as liquid as the things in MI.
- M2 is smaller than MI.
- M I is backed by gold and M2 is backed by silver.
- The biggest component of M I is currency.


Question: To close an expansionary 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: If the short-run aggregate supply curve is horizontal it is because

Choices:
- there exist many unemployed resources so that output can be increased without increasing wages and prices.
- any increase in output requires a corresponding increase in wages and prices.
- increases in output cause prices to increase but wages adjust much less quickly.
- falling interest rates increase the demand for goods and services putting upward pressure on prices.


Question: In the equation GDP = C + I + G + X X stands for

Choices:
- exports.
- expenditures.
- exports minus imports.
- imports minus exports.


Question: Which of the following represents a combination of contractionary fiscal and expansionary monetary policy? FISCAL POLICY     MONETARY POLICY

Choices:
- Higher taxes     Selling Treasury securities
- Lower taxes     Buying Treasury securities
- Lower government spending     Increasing the reserve ratio
- Higher taxes     Buying Treasury securities


Question: Inflation

Choices:
- hurts creditors who do not anticipate it.
- hurts creditors who anticipate it.
- hurts debtors.
- both A and D are correct.


Question: Stagflation most likely results from

Choices:
- increasing AD with constant SRAS.
- decreasing SRAS with constant AD.
- decreasing AD with constant SRAS.
- a decrease in both AD and SRAS.


Question: Which group of people will suffer the most from a rising price level?

Choices:
- debtors with fixed interest rates
- people with fixed money incomes
- investors in gems coins and stamps
- property owners


Question: Which of the following lists contains only Fed actions that will increase the money supply?

Choices:
- Raise reserve requirements; lower the discount rate; sell bonds.
- Raise reserve requirements; lower the discount rate; buy bonds.
- Raise reserve requirements; raise the discount rate; sell bonds.
- Lower reserve requirements; lower the discount rate; buy bonds.


Question: The government measures inflation using the

Choices:
- GNP
- URL
- CPI
- FED


Question: If people expect the price of a particular product to increase in the near future

Choices:
- this will not affect the demand for the product right now.
- this will decrease the demand for the product.
- this will not affect the demand for the product now or later.
- this will increase the demand for the product.


Question: The effect of the spending multiplier is lessened if

Choices:
- the price level is constant with an increase in aggregate demand.
- the price level falls with an increase in aggregate supply.
- the price level is constant with an increase in long-run aggregate supply.
- the price level rises with an increase in aggregate demand.


Question: Operating in the intermediate range of the aggregate supply curve an increase in aggregate demand results in an increase in

Choices:
- price level only
- real GDP only
- neither price level nor real GDP
- price level and real GDP


Question: Suppose DVD players are a normal good and are exchanged in a competitive market. All else equal an increase in household income will

Choices:
- increase the equilibrium quantity and increase the price.
- decrease the equilibrium quantity and increase the price.
- increase the equilibrium price but the change in quantity is ambiguous.
- decrease the equilibrium quantity and decrease the price.


Question: According to Keynesian theory a decrease in the money supply would

Choices:
- lower interest rates which would encourage borrowing and therefore increase spending.
- raise interest rates which would discourage borrowing and therefore increase spending.
- raise interest rates which would discourage borrowing and therefore reduce spending.
- lower interest rates which would discourage borrowing and therefore reduce spending.


Question: If the money supply increases what happens in the money market (assuming money demand is downward sloping)?

Choices:
- The nominal interest rates rises.
- The nominal interest rates falls.
- The nominal interest rate does not change.
- Transaction demand for money falls.


Question: If XYZ Corporation buys an original Matisse painting to hang in its board room then

Choices:
- GDP decreases by the amount of the purchase because C decreases.
- GDP increases by the amount of the purchase because I increases.
- GDP is unaffected because it is a second hand sale.
- GI)P decreases because I decreases.


Question: The tax multiplier increases in magnitude when

Choices:
- the MPS increases.
- the spending multiplier falls.
- the MPC increases.
- government spending increases.


Question: The international value of the dollar will appreciate if

Choices:
- American income falls relative to the rest of the world.
- American interest rates fall relative to interest rates in other countries.
- American prices rise.
- foreigners boycott American products.


Question: Which of the following is not included in MI?

Choices:
- Coins.
- Paper money.
- Travelers' checks.
- Credit cards.


Question: The domestic purchasing power of a currency

Choices:
- varies directly with the cost of living
- is inversely related to the savings rate
- is inversely related to the price level
- varies directly with economic growth


Question: It is unlikely that the unemployment rate will ever fall to zero because of

Choices:
- frictional unemployment.
- cyclical unemployment.
- government policies.
- corporate policies.


Question: Which of the following is an accurate statement of the money supply in the United States?

Choices:
- The money supply is backed by gold reserves.
- The least liquid measure of money is M2.
- M1 is larger than M3.
- The most liquid measure of money is M1.


Question: Which of the following is an example of an expansionary supply shock?

Choices:
- Rapid increasing wages
- A greatly depreciated currency
- Declining labor productivity
- Lower factor prices in major industries


Question: Which of the following shifts the production possibilities frontier outward?

Choices:
- A decrease in the price level.
- An increase in labor productivity.
- An increase in the money supply.
- A decrease in the unemployment rate.


Question: The money supply will increase as a result of which of the following?

Choices:
- A decrease in the required reserve ratio
- An increase in the discount rate
- The selling of bonds by the Federal Reserve
- An increase in the fraction of deposits that must be held by banks


Question: Output in country X is 30000 units and there are 3000 persons working while country Z has an output of 40000 units and 8000 workers.

Choices:
- The productivity of labor in country Z is 33 percent higher than in country X.
- The productivity of labor in country Z is 25 percent higher than in country X.
- The productivity of labor in country X is 33 percent higher than in country Z.
- The productivity of labor in country X is twice as much as country Z.


Question: Milton Friedman

Choices:
- never won a Nobel Prize despite his contributions to economic analysis.
- is a Monetarist.
- is a Keynesian.
- won a Nobel Prize for his contributions to Classical economic analysis.


Question: According to Monetarist theory when the money supply is changed the economy is affected

Choices:
- only because a change in the money supply affects interest rates.
- in several ways.
- because interest rates change and so do many other factors that affect spending.
- because many factors that affect spending change but not interest rates.


Question: Which of the following is true of money and financial markets?

Choices:
- As the demand for bonds increases the interest rate increases.
- For a given money supply if nominal GDP increases the velocity of money decreases.
- When demand for stocks and bonds increases the asset demand for money falls.
- A macroeconomic recession increases the demand for loanable funds.


Question: Using the model of AD and AS what happens in the short run to real GDP the price level and unemployment with more consumption spending (C)? REAL GDP     PRICE LEVEL     UNEMPLOYMENT

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


Question: Suppose the economy is operating beyond full employment. Which of the following is true at this point?

Choices:
- The short-run aggregate supply curve is horizontal.
- Further increases in aggregate demand will result in a lower price level.
- A decrease in aggregate demand will result in a lower price level if prices are sticky.
- Further increases in aggregate demand will not lower the unemployment rate but will create inflation.


Question: An American buys an entertainment system that was manufactured in China. How does the U.S. national income accounts treat this transaction?

Choices:
- Net exports and GDP both rise.
- Net exports and GDP both fall.
- Net exports and GDP go in opposite directions.
- Net exports fall and there is no change in GDP.


Question: A nation that must consistently borrow to cover annual budget deficits risks

Choices:
- a depreciation of the nation's currency as foreigners increase investment in the nation.
- a decline in net exports as the nation's goods become more expensive to foreign consumers.
- lower interest rates that discourage foreign investment in the nation.
- an appreciation of the nation's currency as foreigners decrease investment in the nation.


Question: All else equal when the United States exports more goods and services

Choices:
- the value of the dollar falls as the supply of dollars increases.
- the value of the dollar rises as demand for dollars increases.
- the value of the dollar falls as demand for dollars decreases.
- the value of the dollar rises as the supply of dollars increases.


Question: According to Classical analysis an economy in a recession can return to full employment through

Choices:
- falling wages and prices.
- rising wages and prices.
- expansionary monetary policy.
- increased government spending.


Question: One strategy a corporation may use to gain market share in a foreign market is

Choices:
- raising the price of its product.
- convincing its government to put an import tariff on the product.
- convincing its government to place a quota on the product.
- dumping.


Question: GDP is $10 million consumer spending is $6 million government spending is $3 million exports are $2 million and imports are $3 million. How much is spent for investments?

Choices:
- $0 million
- $1 million
- $2 million
- $3 million


Question: If the Japanese economy suffers a deep prolonged recession in what ways would U.S. net exports and the values of the dollar and yen change? U.S. NET EXPORTS     VALUE OF DOLLAR     VALUE OF YEN

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


Question: Of the following choices which combination of fiscal and monetary policy would most likely reduce a recessionary gap? FISCAL POLICY     MONETARY POLICY

Choices:
- Increase taxes.     Increase the reserve ratio.
- Decrease spending.     Sell Treasury securities.
- Decrease taxes.     Buy Treasury securities.
- Increase spending.     Increase the reserve ratio.


Question: The appropriate fiscal policy to remedy a recession is to

Choices:
- increase government spending and taxes.
- reduce government spending and taxes.
- increase government spending and reduce taxes.
- decrease government spending and increase taxes.


Question: If real GDP per capita was $20000 in 1980 and $21000 in 1990 then we conclude that the standard of living has increased

Choices:
- 0.5 percent.
- 5.0 percent.
- 50 percent.
- 3.3 percent.


Question: A use of easy money (expansionary) policy by the Fed could result in which of the following?

Choices:
- an increase in net exports
- a decrease in net exports
- an increase in the real interest rate
- an increase in the nominal interest rate


Question: If the inflation rate is expected to increase in the immediate future then

Choices:
- consumers will begin saving more now.
- the velocity of money will fall.
- this will put upward pressure on the nominal interest rate.
- this will put downward pressure on the real interest rate.


Question: Which of the following is not included in M2?

Choices:
- Currency.
- Travelers' checks.
- Certificates of deposit.
- Credit cards.


Question: Rising prices are a problem because

Choices:
- money in household savings accounts can now buy fewer goods and services.
- household incomes generally do not rise with prices.
- the economy could run out of money.
- borrowers have to repay loans with more dollars.


Question: According to Keynesian theory

Choices:
- the FED should not conduct monetary policy.
- changes in the money supply 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: If the economy were experiencing a recessionary gap choose the option below that would be an appropriate fiscal policy to eliminate the gap and the predicted impact of the policy on real GDP and unemployment. FISCAL POLICY     REAL GDP     UNEMPLOYMENT

Choices:
- Increase taxes.     Increase     Decrease
- Decrease spending.     Decrease     Increase
- Decrease taxes.     Increase     Increase
- Decrease taxes.     Increase     Decrease


Question: Which of the following tends to increase the spending multiplier?

Choices:
- An increase in the marginal propensity to consume
- A decreased velocity of money
- An increase in the marginal propensity to save
- An increase in the real interest rate


Question: A negative or contractionary supply shock will

Choices:
- shift the Phillips curve to the left.
- shift the investment demand curve to the right.
- shift the money demand curve to the right.
- shift the Phillips curve to the right.


Question: The crowding-out effect from government borrowing is best described as

Choices:
- the rightward shift in AD in response to the decreasing interest rates from contractionary fiscal policy.
- the leftward shift in AD in response to the rising interest rates from expansionary fiscal policy.
- the effect of the President increasing the money supply which decreases real interest rates and increases AD.
- the effect on the economy of hearing the chairperson of the central bank say that he or she believes that the economy is in a recession.


Question: Which of the following best describes a key difference between the short-run and long-run aggregate supply curve?

Choices:
- Short-run aggregate supply is upward sloping as nominal wages quickly respond to price level changes.
- Long-run aggregate supply is upward sloping as nominal wages quickly respond to price level changes.
- Short-run aggregate supply is vertical as nominal wages quickly respond to price level changes.
- Short-run aggregate supply is upward sloping as nominal wages do not quickly respond to price level changes.


Question: In order to reduce or eliminate crowding out expansionary fiscal policy can be accompanied by

Choices:
- an increase in government spending
- a decrease in investment
- expansionary monetary policy
- contractionary monetary policy


Question: For years you work as a grocery checker at a supermarket and one day you are replaced by self-serve checkout stations. What type of unemployment is this?

Choices:
- Cyclical
- Structural
- Seasonal
- Frictional


Question: Monetarists believe that V and Q are

Choices:
- constant.
- stable.
- variable.
- not critical for understanding how money affects the economy.


Question: The appropriate fiscal policy to remedy a recession

Choices:
- calls for the federal government to run a deficit.
- calls for the federal government to run a surplus.
- is increased taxes and government spending.
- is decreased government spending and taxes.


Question: Suppose that Tiger Woods buys a golf ball in England for $1 and the marginal propensity to consume in England is 0.75. What is the total increase in England's real GDP resulting from Mr. Woods' purchase?

Choices:
- $1
- $1.25
- $1.75
- $4


Question: Which of the following monetary policies would lessen the effectiveness of expansionary fiscal policy?

Choices:
- Decreasing the value of the domestic currency.
- Lowering the income tax rate.
- Selling Treasury securities to commercial banks.
- Lowering the discount rate.


Question: In the equation of exchange if V and Q are constant then

Choices:
- changes in the price level must be proportional to changes in the money supply.
- changes in the money supply have no effect on the price level.
- changes in the price level have no effect on the money supply.
- the equation is invalid.


Question: In 2004 the United States had a trade deficit of $603 billion; therefore

Choices:
- net exports were positive.
- Americans consumed more than they produced.
- America's government spent more than it took in.
- $603 billion worth of capital flowed out of America.


Question: If interest rates rise in the United States relative to other nations then

Choices:
- the value of the dollar will tend to appreciate.
- the value of the dollar will tend to depreciate.
- exchange rates will be affected but not the value of the dollar.
- the exchange rate will not be affected.


Question: Use the following three responses to answer the question: Fiscal policy is not always effective because of I. crowding out. II. rational expectations. III. the balanced budget amendment.

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


Question: The reserve ratio is .10 and Mommy Morebucks withdraws $1 million from her checking account and keeps it as cash in her refrigerator. How does this withdrawal potentially impact money in circulation?

Choices:
- Decreases it by $9 million
- Decreases it by $1 million
- Decreases it by $100000
- Increases it by $1 million


Question: Which of the following is a consequence of a protective tariff on imported steel?

Choices:
- Net exports fall.
- Income is transferred from domestic steel consumers to domestic steel producers.
- Allocative efficiency is improved.
- Income is transferred from domestic steel to foreign steel producers.


Question: Of the following choices the one most likely to be preferred by supply-side economists would be

Choices:
- increased government spending.
- higher tariffs on imported goods.
- lower taxes on household income.
- a tax credit on capital investment.


Question: Economic growth is

Choices:
- measured by the number of businesses in the economy.
- shared equally among the population.
- critical in determining the standard of living in a nation.
- measured by the amount of government spending.


Question: If Real GDP = $200 billion and the price index = 200 Nominal GDP is

Choices:
- $4 billion
- $400 billion
- $200 billion
- $2 billion


Question: Which of the following is NOT included in GDP?

Choices:
- Federal government purchases of goods and services.
- Imports.
- State and local government purchases of goods and services.
- Exports.


Question: Which of the following will promote economic growth?

Choices:
- An increase in the amount of capital.
- Lower wages.
- Price controls that keep prices low.
- Increased government spending.


Question: Automatic stabilizers in the economy serve an important role in

Choices:
- increasing the length of the business cycle.
- balancing the budget.
- increasing a budget surplus in a recession.
- lessening the impact of a recession.


Question: To deflate nominal gross domestic product (GDP) you must

Choices:
- divide nominal GDP by the GDP deflator.
- multiply real GDP by the GDP deflator.
- divide real GDP by the GDP deflator.
- multiply nominal GDP by the GDP deflator.


Question: To move the economy closer to full employment the central bank decides that the federal funds rate must be increased. The appropriate open market operation is to ______ which ______ the money supply ______ aggregate demand and fights ______. OMO     MONEY SUPPLY     AD     TO FIGHT

Choices:
- Buy bonds     Increases     Increases     Unemployment
- Buy bonds     Increases     Increases     Inflation
- Sell bonds     Decreases     Decreases     Unemployment
- Sell bonds     Decreases     Decreases     Inflation


Question: Say's Law

Choices:
- is the basis of Keynesian economic analysis.
- is the basis of Classical economic analysis.
- states that demand creates its own supply.
- indicates that prices will be stable in capitalist economies.


Question: The aggregate supply curve will shift to the right in response to

Choices:
- a decrease in the labor supply
- an increase in investment in capital
- an increase in corporate taxes
- a decrease in the availability of education and training


Question: U.S. real GDP most likely falls when

Choices:
- tariffs and quotas are removed.
- investment in human capital is high.
- the money supply is increased.
- the value of the dollar relative to foreign currencies is high.


Question: The term "menu costs" refers to

Choices:
- less choices due to inflation.
- financial assets being worth less due to inflation.
- a la carte savings falling.
- resource misallocation due to inflation.


Question: Investment demand most likely increases when

Choices:
- real GDP decreases.
- the cost of acquiring and maintaining capital equipment rises.
- investor optimism improves.
- the real rate of interest rises.


Question: The population of country X is exactly the same as country Y but country X produces twice as much output as country Y. We can conclude that

Choices:
- the people of country X are smarter than the people of country Y.
- the people of country X enjoy a standard of living twice as much as country Y.
- the people of country Y enjoy a standard of living twice as much as country X.
- the people of country Y work twice as hard as the people of country X.


Question: A nation is producing at a point inside of its production possibility curve. Which of the following is a possible explanation for this outcome?

Choices:
- This nation has experienced a permanent decrease in its production capacity.
- This nation has experienced slower than usual technological progress.
- This nation has avoided free trade between other nations.
- This nation is experiencing an economic recession.


Question: Which of the following is characteristic of a centrally planned economic system?

Choices:
- Resources are allocated based on relative prices.
- The circular flow of goods and services minimizes the role of the federal government.
- Private ownership of resources is fundamental to economic growth.
- Government planners decide how best to produce goods and services.


Question: If the Federal Reserve was concerned about the "crowding-out" effect they could engage in

Choices:
- expansionary monetary policy by lowering the discount rate.
- expansionary monetary policy by selling Treasury securities.
- contractionary monetary policy by raising the discount rate.
- contractionary monetary policy by lowering the discount rate.


Question: According to Keynesian analysis a decrease in the money supply would

Choices:
- raise the price level and output in the economy.
- lower the price level and output in the economy.
- raise the price level in the economy.
- lower the price level in the economy.


Question: Suppose the exchange rates are 0.5 British Pound per dollar; 10 Mexican Pesos per dollar; and 100 Chinese Yuan per dollar. Further suppose that a Big Mac costs 3 dollars in America; 2 pounds in England; 50 pesos in Mexico; and 200 yuan in China. In which country is a Big Mac most expensive?

Choices:
- America ($3).
- England ($4).
- Mexico ($5).
- China ($2).


Question: When a bank's balance sheet shows that the bank has excess reserves

Choices:
- the bank’s reserves exceed the bank’s assets
- the bank can make additional loans
- the bank’s actual reserves are less than its required reserves
- the bank is required to change its interest rate


Question: Which is the best way to describe the AS curve in the long run?

Choices:
- Always vertical in the long run.
- Always upward sloping because it follows the Law of Supply.
- Always horizontal.
- Always downward sloping.


Question: Suppose that current disposable income is $10000 and consumption spending is $8000. For every $100 increase in disposable income saving increases $10. Given this information

Choices:
- the marginal propensity to consume is .80.
- the marginal propensity to save is .20.
- the marginal propensity to save is .10.
- the marginal propensity to save is .90.


Question: When the United States places an import quota on imported sugar we expect which of the following effects?

Choices:
- Consumers seek substitutes for sugar and products that use sugar.
- Consumers consume more sugar and products that use sugar.
- The supply of sugar increases.
- Net exports in the United States fall.


Question: Which of the following is the source of the supply of loanable funds?

Choices:
- The stock market
- Investors
- Net exports
- Savers


Question: Congress has embarked on another round of expansionary fiscal policy to boost employment and get reelected. As chair of the central bank how would you reduce the "crowding-out" effect and what macroeconomic problem might your policy exacerbate?

Choices:
- Increase the reserve ratio risking the devaluation of the dollar
- Sell government securities risking inflation
- Buy government securities risking a recessionary gap
- Lower the discount rate risking inflation


Question: A change in government spending will have a greater short run impact on real output when

Choices:
- the marginal propensity to consume is lower.
- the velocity of money is lower.
- the velocity of money is higher.
- the marginal propensity to consume is larger.


Question: An American firm moves a manufacturing plant from the United States to Brazil. How will this affect gross domestic product (GDP) in the United States and in Brazil?

Choices:
- U.S. GDP falls and Brazil's GDP falls.
- U.S. GDP rises and Brazil's GDP falls.
- U.S. GDP falls and Brazil's GDP remains constant.
- U.S. GDP falls and Brazil's GDP rises.


Question: In the United States over the years V and Q

Choices:
- have not changed significantly.
- are perfectly constant.
- have decreased significantly.
- have increased significantly.


Question: Which of the following best measures changes in the price level of national product?

Choices:
- The consumer price index
- The real interest rate
- The unemployment rate
- The GDP deflator


Question: Suppose the demand for a particular product falls while the supply simultaneously increases. What will happen to the equilibrium price and the equilibrium quantity?

Choices:
- The equilibrium price will rise while the equilibrium quantity is indeterminate.
- The equilibrium price will fall while the equilibrium quantity is indeterminate.
- The equilibrium price is indeterminate while the equilibrium quantity will rise.
- The equilibrium price is indeterminate while the equilibrium quantity will fall.


Question: When a large increase in aggregate demand has an even greater increase in real GDP economists refer to this as

Choices:
- the balanced budget multiplier.
- the money multiplier.
- the foreign substitution effect.
- the spending multiplier.


Question: Output in country A is 1200 units and its population is 100 persons. Output in country B is 2400 units and its population is 400 persons.

Choices:
- Country A has a higher standard of living than country B.
- Country A has a lower standard of living than country B.
- Country A and B have identical living standards.
- Country A is less productive than country B.


Question: Private industry can promote economic growth by

Choices:
- implementing innovative production techniques.
- offering products at artificially low prices.
- giving a significant amount of profits to charity.
- hiring workers who are not really needed.


Question: Which of the following would be included in U.S. GDP calculations?

Choices:
- An auto mechanic fixing his dentist’s car for a filling
- A stay-at-home dad providing childcare for his children
- A worker donating $200 to the Red Cross
- High school students spending their Saturdays building homes for the homeless


Question: The U.S. economy currently suffers a recessionary gap and a budget deficit exists. If the government wishes to fix the recession which of the following choices best describes the appropriate fiscal policy the impact on the market for loanable funds the interest rate and the market for the U.S. dollar? FISCAL POLICY     LOANABLE FUNDS     INTEREST RATE     MARKET FOR $

Choices:
- Tax increase     Demand rises     Falling     Demand falls
- Tax cut     Supply rises     rising     Demand rises
- Tax cut     Demand rises     rising     Demand rises
- Tax increase     Supply falls     Falling     Demand rises


Question: Expansionary monetary policy is designed to

Choices:
- decrease the interest rate increase private investment increase aggregate demand and increase domestic output.
- decrease the interest rate increase private investment increase aggregate demand and increase the unemployment rate.
- increase the interest rate increase private investment increase aggregate demand and increase domestic output.
- increase the interest rate decrease private investment increase aggregate demand and increase domestic output.


Question: One drawback of using fiscal policy to close a recessionary gap is that

Choices:
- unemployment will rise.
- taxes will have to be raised.
- the equilibrium price level will rise.
- government spending on important programs will have to be cut.


Question: Which of the following would be considered contractionary monetary policy?

Choices:
- The purchase of bonds
- The sale of bonds
- An increase in taxes
- An increase in government spending


Question: U.S. dollars and the European Union's (EU's) euro are exchanged in global currency markets. Which of the following is true?

Choices:
- If inflation is high in the EU and the price level in the United States is stable the value of the dollar appreciates.
- If the Fed decreases the money supply the value of the dollar depreciates.
- If EU consumers are less inclined to purchase American goods the dollar appreciates.
- If U.S. income levels are rising relative to incomes in the EU the euro depreciates.


Question: Which of the following is likely to shift the long-run aggregate supply curve to the right?

Choices:
- A nation that devotes more resources to nondurable consumption goods rather than durable capital goods
- Research that improves the productivity of labor and capital
- More restrictive trade policies
- Annual limits to immigration of foreign citizens


Question: If the cost of the basket of goods and services the Bureau of Labor Statistics uses to calculate the consumer price index rises from $200 in the base period to $400 in the current period then the consumer price index

Choices:
- equals 0.5 in the current period.
- has risen 5 percent from the base to the current period.
- equals 50 in the current period.
- equals 200 in the current period.


Question: Which of the following is a consequence of removal of a protective tariff on imported steel?

Choices:
- Imports fall.
- Income is transferred from steel consumers to domestic steel producers.
- Income is transferred from foreign steel producers to domestic steel producers.
- Allocative efficiency is improved.


Question: If the FED buys bonds in the secondary market

Choices:
- the money supply will increase.
- the money supply will decrease.
- the money supply will not be affected.
- the discount rate would be affected.


Question: A financial planner on a popular TV show convinces more Americans to save for retirement. What is the result on the supply and demand for loanable funds?

Choices:
- The supply curve would shift up increasing the equilibrium interest rate.
- The demand curve would shift up increasing the equilibrium interest rate.
- The supply curve would shift down decreasing the equilibrium interest rate.
- The demand curve would shift down decreasing the equilibrium interest rate.


Question: The aggregate demand curve has a negative slope in part because when the price level increases

Choices:
- the value of cash increases
- imports become relatively more expensive
- the real quantity of money increases
- the interest rate increases


Question: A budget deficit exists when

Choices:
- the total amount that the government owes at a given time is positive
- government spending exceeds tax collections for a given period
- exports exceed imports in a given year
- imports exceed exports in a given year


Question: Of the following choices the most direct exchange in the circular flow model of a private closed economy is when

Choices:
- households provide goods to firms in exchange for wage payments.
- households provide resources to firms in exchange for goods.
- households provide revenues to firms in exchange for wage payments.
- firms supply goods to households in exchange for revenues.


Question: Depreciation of the dollar is most likely to

Choices:
- increase imports
- increase travel abroad
- increase exports
- decrease a trade surplus


Question: Which of the following increases the size of the tax multiplier?

Choices:
- An increase in the marginal propensity to consume.
- An increase in the reserve ratio.
- An increase in the marginal propensity to save.
- A decrease in the spending multiplier.


Question: Which of the following is not a scarce economic resource?

Choices:
- Labor
- Capital
- Human wants
- Land


Question: Lower interest rates in the United States cause the value of the dollar and exports to change in which of the following ways? VALUE OF THE DOLLAR     U.S. EXPORTS

Choices:
- Increasing     Increasing
- Increasing     Decreasing
- Decreasing     Increasing
- Decreasing     Unchanged


Question: Which of the following is true of automatic fiscal policy stabilizers?

Choices:
- For a given level of government spending they produce a deficit during a recession and a surplus during an expansion.
- They serve to prolong recessionary and inflationary periods.
- The regressive tax system is a fundamental component of automatic stabilizers.
- For a given level of government spending they produce a surplus during a recession and a surplus during an expansion.


Question: Which of the following would NOT shift the aggregate demand curve?

Choices:
- A change in consumer confidence.
- A change in technology.
- A change in the money supply.
- A change in spending by state governments.


Question: Which of the following would likely contribute to faster rates of economic growth?

Choices:
- A more restrictive immigration policy
- Negative net investment
- Higher taxes on households and firms
- Higher government funding of research on clean energy supplies


Question: The Phillips curve represents the relationship between

Choices:
- inflation and the money supply.
- unemployment and the money supply.
- the money supply and the real interest rate.
- inflation and unemployment.


Question: If real GDP per capita grows at a rate of 10 percent a year then we can expect the standard of living to double in

Choices:
- 10 years.
- 9 years.
- 8 years.
- 7 years.


Question: The government can promote economic growth by

Choices:
- setting a minimum wage.
- regulating industry.
- taxing firms that waste resources.
- job training programs.


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

Choices:
- An increase in consumer confidence.
- Business firms expect lower sales in the future.
- Foreigners develop a preference for our products.
- Government increases its level of spending.


Question: Which component of a nation's balance of payments recognizes the purchase and sale of real and financial assets between nations?

Choices:
- The capital account
- The official reserves account
- The current account
- The trade deficit account


Question: At the break-even point

Choices:
- the expenses of corporations just equal their revenues.
- household spending equals household income.
- total spending equals income.
- dissaving occurs and inventories are accumulating.


Question: A dark room technician who develops film into photographs loses his job because few people use film cameras any more. This is an example of which of the following?

Choices:
- Frictional unemployment
- Structural unemployment
- Cyclical unemployment
- Seasonal unemployment


Question: The fractional reserve banking system's ability to create money is lessened if

Choices:
- households that borrow redeposit the entire loan amounts back into the banks.
- banks hold excess reserves.
- banks lend all excess reserves to borrowing customers.
- households increase checking deposits in banks.


Question: If a bank has $500 in checking deposits and the bank is required to reserve $50 what is the reserve ratio? How much does the bank have in excess reserves?

Choices:
- 10 percent $450 in excess reserves
- 90 percent $50 in excess reserves
- 90 percent $450 in excess reserves
- 10 percent $50 in excess reserves


Question: The government of a country decides to increase government spending and taxes by the same amount in order to keep a balanced budget. The MPC is 0.75. Which of the following is true of this situation? Policy Direction     Expenditure Multiplier     Tax Multiplier

Choices:
- expansionary     4     3
- expansionary     4     -3
- contractionary     4     3
- contractionary     4     -3


Question: How does an increasing national debt impact the market for U.S. dollars and the value of the dollar with respect to other currencies? MARKET FOR THE DOLLAR     VALUE OF THE DOLLAR

Choices:
- Increased demand     Appreciating
- Increased supply     Appreciating
- Decreased supply     Depreciating
- Decreased demand     Depreciating


Question: What will happen to the equilibrium price level and the equilibrium quantity of output if the aggregate supply curve shifts to the left? Assume a Classical aggregate supply curve.

Choices:
- The equilibrium price level increases while the equilibrium quantity of output decreases.
- The equilibrium price level decreases while the equilibrium quantity of output increases.
- The equilibrium price level and quantity of output increase.
- The equilibrium price level remains unchanged while the equilibrium quantity of output increases.


Question: If Nation A can produce a good at lower opportunity cost than Nation B can produce the same good it is said that

Choices:
- Nation A has comparative advantage in the production of that good.
- Nation B has comparative advantage in the production of that good.
- Nation A has absolute advantage in the production of that good.
- Nation B has absolute advantage in the production of that good.


Question: A stronger stock market is likely to cause which of the following changes in the consumption function and aggregate demand? CONSUMPTION FUNCTION     AGGREGATE DEMAND

Choices:
- Increase     Increase
- No change     No change
- Increase     No change
- Increase     Increase


Question: Suppose the President plans to cut taxes for consumers and also plans to increase spending on the military. How does this affect real GDP and the price level?

Choices:
- GDP increases and the price level decreases.
- GDP decreases and the price level increases.
- GDP stays the same and the price level increases.
- GDP increases and the price level increases.


Question: Which of the following statements is correct in regard to the federal budget deficit and the federal debt?

Choices:
- When the debt is negative the deficit decreases.
- When the debt is positive the deficit decreases.
- The deficit is the accumulation of past debts.
- When the deficit is negative the debt decreases.


Question: Suppose that elected officials and the central bank agree to combine fiscal and monetary policies to lessen the threat of inflation. Which of the following combinations would likely accomplish this goal? FISCAL POLICY     MONETARY POLICY

Choices:
- Decrease taxes     Increase the reserve ratio
- Decrease spending     Buy government securities
- Decrease taxes     Sell government securities
- Increase taxes     Increase the discount ratio


Question: Kevin wants shoes and grows turnips. Lisa wants turnips and makes sheet metal. Bob wants sheet metal and makes shoes. Which function of money will cater most directly to the situation at hand?

Choices:
- Store of value
- Unit of account
- Medium of exchange
- Means of deferred payment


Question: Economic growth is best described as

Choices:
- an increase in the production possibility curve and an increase in the natural rate of unemployment.
- an increase in the production possibility curve and a leftward shift in long-run aggregate supply.
- a decrease in the production possibility curve and a rightward shift in long-run aggregate supply.
- an increase in the production possibility curve and a rightward shift in long-run aggregate supply.


Question: Suppose that households increase the demand for U.S. Treasury bonds as financial assets. Which of the following accurately describes changes in the money market the interest rate and the value of the dollar in foreign currency markets? MONEY MARKET     INTEREST RATE     DOLLAR

Choices:
- Increased supply     Rising     Appreciates
- Increased demand     Rising     Appreciates
- Decreased demand     Falling     Appreciates
- Decreased demand     Falling     Depreciates


Question: Expansionary fiscal policy would best be prescribed to

Choices:
- eliminate a recessionary gap
- reduce inflation
- reduce the interest rate
- eliminate an inflationary gap


Question: Which of the following could cause the aggregate demand curve to shift to the left?

Choices:
- An increase in the money supply.
- Contractionary demand management policies.
- Expansionary demand management policies.
- An increase in government spending.


Question: At the peak of a typical business cycle which of the following is likely the greatest threat to the macroeconomy?

Choices:
- Unemployment
- Bankruptcy
- Declining labor productivity
- Inflation


Question: Which of the following choices is most likely to create the greatest decrease in real GDP?

Choices:
- The government decreases spending matched with a decrease in taxes.
- The government increases spending with no increase in taxes.
- The government decreases spending with no change in taxes.
- The government holds spending constant while increasing taxes.


Question: The CPI is calculated for each by

Choices:
- week; The Bureau of Economic Analysis
- month; The Bureau of Economic Analysis
- month; The Bureau of Labor Statistics
- quarter; The Bureau of Economic Analysis


Question: Which of the following creates the trade-offdepicted by the Phillips curve?

Choices:
- A rightward shift in the aggregate supply curve
- An increase in input costs that corresponds with an increase in unemployment
- An increase in output that corresponds with a decrease in the price level
- A rightward shift in the aggregate demand curve


Question: What will happen to the equilibrium price level and the equilibrium quantity of output if consumer confidence increases? Assume an upward sloping aggregate supply curve.

Choices:
- The equilibrium price level increases while the equilibrium quantity of output decreases.
- The equilibrium price level decreases while the equilibrium quantity of output increases.
- The equilibrium price level and quantity of output increase.
- The equilibrium price level and quantity of output decrease.


Question: You buy 100 shares in XYZ Corporation on the Internet and your broker charges you $29.95.

Choices:
- This will increase the investment component of GDP and therefore overall GDP.
- This has no effect on GDP.
- This will increase GDP by $29.95.
- This will increase GDP by the cost of the shares minus $29.95.


Question: Higher levels of consumer wealth and optimism would likely have which of the following changes in the market for loanable funds? MARKET FOR LOANABLE FUNDS     INTEREST RATE

Choices:
- Increase in supply     Rising
- Increase in demand     Buying Rising
- Decrease in demand     Falling
- Decrease in supply     Rising


Question: Which of the following is not an addition to national income?

Choices:
- Wages
- Salaries
- Interest
- Depreciation of physical capital


Question: What will happen to the equilibrium price and the equilibrium quantity of good Z when the price of good X which is a close substitute for Z rises?

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 both rise.
- The equilibrium price and the equilibrium quantity will both fall.


Question: Which of the following is a predictable advantage of expansionary monetary policy in a recession?

Choices:
- Decreases aggregate demand so that the price level falls.
- Increases aggregate demand which increases real GDP and increases employment.
- Increases unemployment but low prices negate this effect.
- It keeps interest rates high which attracts foreign investment.


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

Choices:
- In the short run there is a positive relationship between inflation and unemployment and in the long run the relationship is negative.
- In the short run there is a positive relationship between inflation and unemployment and in the long run the relationship is constant.
- In the short run there is a negative relationship between inflation and unemployment and in the long run the relationship is positive.
- In the short run there is a negative relationship between inflation and unemployment and in the long run the relationship is constant.


Question: Which of the following likely results in a permanent increase in a nation's productive capacity?

Choices:
- A decline in the birth rate
- Declining adult literacy rates
- Widespread relocation of manufacturing firms to low-wage nations
- National program of child immunization


Question: If the economy is experiencing a recession how will a plan to decrease taxes for consumers and increase spending on government purchases affect real gross domestic product (GDP) and the price level?

Choices:
- real GDP rises and the price level falls.
- real GDP falls and the price level rises.
- real GDP rises and the price level rises.
- real GDP falls and the price level falls.


Question: Sue loses her job at a shoe factory when the economy falls into a recession. Sue is

Choices:
- frictionally unemployed.
- cyclically unemployed.
- seasonally unemployed.
- structurally unemployed.


Question: The United States produces rice in a competitive market. With free trade the world price is lower than the domestic price. What must be true?

Choices:
- The United States begins to import rice to make up for a domestic shortage.
- The United States begins to export rice to make up for a domestic shortage.
- The United States begins to import rice to eliminate a domestic surplus.
- The United States begins to export rice to eliminate a domestic surplus.


Question: Which of the following is NOT a major cost of inflation?

Choices:
- Resources will be misallocated.
- Wealth will be redistributed.
- Savings will be discouraged.
- Real incomes will fall.


Question: Long-run aggregate supply is most likely to increase as the result of

Choices:
- an increase in the real interest rate
- increased investment in capital
- an increase in aggregate demand
- an increase in the unemployment rate


Question: According to monetarist analysis a decrease in the money supply would

Choices:
- raise the price level and output in the economy.
- lower the price level and output in the economy.
- raise the price level in the economy.
- lower the price level in the economy.


Question: There is a strong demand for welders in California but Bill an unemployed welder lives in New York. Bill is

Choices:
- frictionally unemployed.
- cyclically unemployed.
- structurally unemployed.
- considered to be a hidden worker.


Question: If households are more optimistic about the future how would the consumption function be affected?

Choices:
- The marginal propensity to consume would increase increasing the slope of the consumption function.
- The entire consumption function would shift downward.
- The entire consumption function would shift upward.
- The marginal propensity to consume would decrease increasing the slope of the consumption function.


Question: Which of the following is the most likely to be a deterrent to growth in the economy?

Choices:
- Spending on education and training
- Increases in capital
- Increases in the interest rate
- Expenditures on research and development


Question: An increase in the price level reduces total spending in the economy because I. consumers' incomes cannot go as far now that prices have risen. II. foreigners by less. III. higher prices result in higher interest rates which lower spending.

Choices:
- Only I is correct.
- I and II are correct.
- I and III are correct.
- II and III are correct.


Question: Which of the following statements is true?

Choices:
- The velocity of money is equal to real GDP divided by the money supply.
- Dollars earned today have more purchasing power than dollars earned a year from today.
- The supply of loanable funds consists of investors.
- The demand for loanable funds consists of savers.


Question: A balance of trade surplus can be the result of

Choices:
- a loose monetary policy.
- foreigners having no taste for this country's products.
- an appreciation of the country's currency.
- low levels of income relative to other nations.


Question: If the economy experienced a decrease in real GDP and price level this could best be explained by

Choices:
- a decline in labor productivity.
- a technological advance.
- a decline in investment.
- an uptick in net exports.


Question: If the consumer price index (CPI) increases by 2 percent and your nominal income increases by 8 percent your real income has approximately

Choices:
- increased by 4 percent.
- decreased by 4 percent.
- increased by 6 percent.
- decreased by 6 percent.


Question: On a bank's balance sheet which of the following is considered a liability?

Choices:
- Required reserves
- Excess reserves
- Loans
- Deposits


Question: The standard of living is measured by

Choices:
- GDP.
- GDP per capita.
- Real GDP per capita.
- Actual GI)P per capita.


Question: If the marginal propensity to consume is 0.8 what is the largest total increase in GDP that can result from $500 of new spending?

Choices:
- $400
- $500
- $625
- $2,500


Question: Suppose that the unemployment rate falls from 6 percent to 5 percent and the inflation rate falls from 3 percent to 2 percent. Which of the following best explains these trends?

Choices:
- An increase in aggregate demand.
- A decrease in both aggregate demand and aggregate supply.
- An increase in both aggregate demand and aggregate supply.
- An increase in aggregate supply.


Question: If prices are expected to rise more slowly in the future

Choices:
- the Phillips curve will shift to the right
- the actual rate of inflation will increase
- the actual inflation rate will remain steady unless supply shocks set in
- these expectations will become reality


Question: If a bank has $1000 in checking deposits and the bank is required to reserve $250 what is the reserve ratio? How much does the bank have in excess reserves? What is the size of the money multiplier?

Choices:
- 25% $750 M = ¼
- 75% $250 M = 4
- 25% $750 M = 4
- 75% $750 M = ¼


Question: As a result of automatic stabilizers during economic expansions government expenditures

Choices:
- and taxes fall.
- and taxes rise.
- rise and taxes fall.
- fall and taxes rise.


Question: Which of the following events has no effect on GDP?

Choices:
- You buy a 1957 Chevy from a friend.
- The Department of Transportation repaves a road.
- Your friends make a music CD that doesn't sell any copies.
- A college buys computers.


Question: In the short run contractionary monetary policy causes aggregate demand to output to  and the price level to Aggregate demand      Output      Price Level

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


Question: If the demand for dollars rises while the supply of dollars falls then the

Choices:
- dollar will appreciate.
- dollar will depreciate.
- exchange rates will be affected but not the value of the dollar.
- exchange rate will not be affected.


Question: When products improve in quality the CPI will

Choices:
- automatically increase.
- automatically decrease.
- become negative.
- overestimate the inflation rate.


Question: Which of the following is true when expansionary fiscal and expansionary monetary (easy money) policy are used at the same time?

Choices:
- Unemployment will increase.
- Real GDP will decrease.
- Interest rates will remain relatively constant.
- Inflation will decrease dramatically.


Question: Suppose real GDP increases. We can conclude without a doubt that

Choices:
- prices are higher.
- employment is higher.
- production is higher.
- prices and/or output is higher.


Question: It is a monetarist point of view that

Choices:
- monetary policy should be used to fine-tune the economy
- crowding out is not a problem
- the money supply should be increased steadily
- the velocity of money is unstable


Question: Labor productivity and economic growth increase if

Choices:
- a nation subsidizes education for all citizens.
- a nation imposes tariffs and quotas on imported goods.
- a nation removes penalties for firms that pollute natural resources.
- a nation ignores societal barriers like discrimination.


Question: Which of the following is a component of the M 1 measure of money supply?

Choices:
- Savings deposits
- Gold bullion
- Cash and coins
- 30-year Treasury certificates


Question: If nominal GDP equals $5000 and real GDP equals $4000 then the GDP Deflator equals

Choices:
- 125
- 1.25
- 800
- 0.8


Question: According to the quantity theory of money increasing the money supply serves to

Choices:
- stimulate short-run production and employment with very little long-run inflation.
- increase short-run output but it is the source of long-run inflation.
- lower the unemployment rate while also lowering the rate of inflation.
- increase the nation's long-run capacity to produce.


Question: Which of the following would increase the aggregate demand function?

Choices:
- Higher levels of imported goods
- Lower levels of consumer wealth
- A higher real interest rate
- Lower taxes on personal income


Question: Classical economists believe

Choices:
- in the quantity theory of money—that both the velocity and the quantity of goods and services sold per period are fairly stable
- there is a serious risk of a liquidity trap because the demand curve for money is relatively flat
- that the government should make every effort to fine-tune the economy
- that the aggregate supply curve is L-shaped


Question: Which of the following will shift the demand curve for the Mexican peso to the left?

Choices:
- Speculation that the peso will increase in value
- An increase in interest rates in Mexico relative to other countries
- A lower rate of inflation in Mexico relative to other countries
- A decrease in the international demand for Mexican-made textiles


Question: Real GDP

Choices:
- is actual GDP as opposed to the estimate made by the BEA.
- is also called current-dollar GDP.
- is GDP adjusted for price changes.
- is not calculated for the United States.


Question: Which of the following is a predictable consequence of import quotas?

Choices:
- Increased competition and lower consumer prices
- Increased government tax revenue from imported goods
- Rising net exports and a rightward shift in aggregate supply
- Higher consumer prices and a misallocation of resources away from efficient producers


Question: The "crowding-out" effect is the result of

Choices:
- decreasing interest rates from contractionary fiscal policy.
- increasing interest rates from expansionary fiscal policy.
- increasing interest rates from expansionary monetary policy.
- increasing unemployment rates from expansionary monetary policy.


Question: Suppose a nation is experiencing an annual budget surplus and uses some of this surplus to pay down part of the national debt. One potential side effect of this policy would be

Choices:
- increase interest rates and throw the economy into a recession.
- increase interest rates and depreciate the nation's currency.
- decrease interest rates and risk an inflationary period.
- decrease interest rates and throw the economy into a recession.


Question: Which of the following lessens the impact of expansionary fiscal policy?

Choices:
- An increase in the marginal propensity to consume.
- Lower interest rates that cause a decrease in net exports.
- Higher interest rates that cause an increase in net exports.
- Higher interest rates that decrease private investment.


Question: Which of the following is an example of contractionary monetary policy?

Choices:
- The Fed lowers the reserve ratio.
- The Fed lowers the discount rate.
- The Fed increases taxes on household income.
- The Fed sells Treasury securities to commercial banks.


Question: When we observe an unplanned decrease in inventories we can expect

Choices:
- prices to begin to fall.
- output to begin to rise.
- saving to begin to fall.
- output to begin to fall.


Question: A contractionary monetary policy will cause the nominal interest rate aggregate demand output and the price level to change in which of the following ways? NOMINAL INTEREST RATE     AGGREGATE DEMAND     OUTPUT     PRICE LEVEL

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


Question: A decrease in real investment stemming from higher interest rates due to government purchases is most commonly called

Choices:
- crowding out
- zero policy effectiveness
- the Laffer effect
- fiscal defeat


Question: If the standard of living increases we can conclude that

Choices:
- output must have increased.
- population must have increased.
- output and population must have increased.
- output must have increased proportionally more than population.


Question: The cabbages you grow in your summer garden are

Choices:
- counted in GDP under C.
- counted in GDP under I.
- counted in GDP but not NDP.
- not counted in GDP.


Question: Which of the following might worsen a nation's trade deficit?

Choices:
- Lower wages relative to other nations.
- Lower taxes on corporate profits relative to other nations.
- A higher interest rate on financial assets relative to other nations.
- A higher rate of inflation relative to other nations.


Question: If prices rise in the United States relative to other countries then

Choices:
- the value of the dollar will tend to appreciate.
- the value of the dollar will tend to depreciate.
- exchange rates will be affected but not the value of the dollar.
- the exchange rate will not be affected.


Question: Which of the following is true about the consumption function?

Choices:
- The slope is equal to the MPC.
- The slope is equal to the MPS.
- The slope is equal to MPC + MPS.
- It shifts upward when consumers are more pessimistic about the future.


Question: Recessions

Choices:
- are a thing of the past.
- are very severe depressions.
- are marked by a sustained decline in output.
- are regular occurrences in capitalist economies.


Question: When the value of the U.S. dollar appreciates relative to other currencies which of the following is the most likely to occur?

Choices:
- Imports into the United States will decrease.
- Exports from the United States will increase.
- U.S. residents will take more vacations in foreign countries.
- More foreign visitors will travel to the United States.


Question: According to Keynesian analysis the Great Depression was caused by

Choices:
- a lack of spending.
- a sharp rise in the marginal propensity to consume.
- too much investment.
- too much foreign influence on the economy.


Question: An expansionary monetary policy tends to

Choices:
- improve the balance of trade.
- have no effect on imports.
- worsen the balance of trade.
- have no effect on exports.


Question: If a nation is operating at full employment and the central bank engages in contractionary monetary policy the nation can expect the interest rate the purchases of new homes and the unemployment rate to change in which of the following ways? INTEREST RATES     NEW HOMES     UNEMPLOYMENT RATE

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


Question: Which of the following statements would "supply-side" economists disagree with?

Choices:
- Tax changes cause shifts in aggregate supply that work against shifts in aggregate demand thus reducing the effect of the tax change on real GDP.
- A tax cut is likely to increase aggregate supply by boosting saving investment and thus capital accumulation.
- A tax increase is likely to decrease aggregate supply by decreasing after-tax wages and thus providing disincentives to work.
- A tax cut is likely to increase aggregate supply by providing greater rewards for risk taking.


Question: Suppose the reserve ratio is 10 percent and the Fed buys $1 million in Treasury securities from commercial banks. If money demand is perfectly elastic which of the following is likely to occur?

Choices:
- Money supply increases by $10 million lowering the interest rate and increasing AD.
- Money supply remains constant the interest rate does not fall and AD does not increase.
- Money supply increases by $10 million the interest rate does not fall and AD does not increase.
- Money supply decreases by $10 million raising the interest rate and decreasing AD.


Question: Assuming there is no statistical discrepancy a trade surplus must be offset elsewhere in the

Choices:
- current-account balance only
- financial-account balance only
- merchandise balance of trade only
- current-account or financial-account only


Question: Which of the following is most likely to produce stronger economic growth over time?

Choices:
- More rapid consumption of natural resources.
- Higher adult illiteracy rates.
- A falling stock of capital goods.
- Investment tax credits.


Question: The secondary market for government securities is

Choices:
- where used items are traded.
- located in smaller cities.
- where the government borrows money.
- where government securities that have already been issued may be bought or sold.


Question: An important assumption underlying monetarism is that

Choices:
- the marginal propensity to consume is constant.
- the money supply is continuous.
- the exchange rate is fixed.
- the velocity of money is stable.


Question: Which of the following could limit the ability of a central bank to conduct expansionary monetary policy?

Choices:
- Money demand is nearly perfectly elastic.
- Investment demand is nearly perfectly elastic.
- Banks make loans with all excess reserves.
- Households carry very little cash holding their money in checking and saving deposits.


Question: Fiscal policy refers to

Choices:
- increases in taxes to fight recessions.
- decreases in taxes to fight inflations.
- changes in government spending and taxes to fight recessions or inflations.
- federal deficits.


Question: If real GDP per capita was $10000 in 1990 and $15000 in 2000 then the amount of economic growth is

Choices:
- 0.5 percent.
- 5.0 percent.
- 50 percent.
- 3.3 percent.


Question: GDP is calculated for each by

Choices:
- quarter; The Bureau of Economic Analysis
- week; The Bureau of Economic Analysis
- month; The Bureau of Economic Analysis
- month; The Bureau of Labor Statistics


Question: A balance of payments deficit means that a country has

Choices:
- imported more than it has exported.
- exported more than it has imported.
- taken in more money than it has sent abroad.
- lowered its official reserve position.


Question: In a given period the average price level in the country of Sherwood tripled and Robin's income increased from $30000 to $60000. What happened to Robin's nominal and real income? Nominal Income     Real Income

Choices:
- (A) Increased     Decreased
- (B) Increased     Increased
- (C) Decreased     Decreased
- (D) Increased     Stayed the same


Question: The economy is in a deep recession. Given this economic situation which of the following statements about monetary policy is accurate?

Choices:
- Expansionary policy would only worsen the recession.
- Expansionary policy greatly increases aggregate demand if investment is sensitive to changes in the interest rate.
- Contractionary policy is the appropriate stimulus for investment and consumption.
- If the demand for money is perfectly elastic expansionary monetary policy might be quite effective.


Question: If the government of country Z increases spending by $12 million dollars and raises tax collections by the same amount then what will be the overall impact of these moves on real GDP in country Z?

Choices:
- Real GDP will increase by $6 million.
- Real GDP will decrease by $6 million.
- Real GDP will remain unchanged.
- Real GDP will increase by $12 million.


Question: Suppose the price level in the United States has risen in the past year but production of goods and services has remained constant. Based on this information which of the following is true? NOMINAL GDP     REAL GDP

Choices:
- Increased     Increased
- No change     Decreased
- Decreased     Decreased
- Increased     Decreased


Question: Imagine an economy that produces only two goods cheese and crackers. Calculate GDP for this economy if cheese retails for $3 a pound and 10 pounds are produced while crackers sell for $2 a pound and 20 pounds are produced.

Choices:
- $35
- $1,200
- $70
- $150


Question: In the balance of payments the trade balance

Choices:
- is ignored.
- appears in the capital account.
- appears in the current account
- is included in the official reserves.


Question: In the last 20 years firms that produce cameras have begun to produce fewer 35-mm cameras and more digital cameras. This trend is an example of

Choices:
- how central planners dictate which cameras are produced.
- the market system answering the question of "how" cameras should be produced.
- the market system answering the question of "what" cameras should be produced.
- the market system answering the question of "who" should consume the cameras that are produced.


Question: Which of the following events most likely increases real GDP?

Choices:
- An increase in the real rate of interest
- An increase in taxes
- A decrease in net exports
- An increase in government spending


Question: What will happen to the equilibrium price level and the equilibrium quantity of output if a major earthquake destroys much of the plant and equipment on the West Coast? Assume an upward sloping aggregate supply curve.

Choices:
- The equilibrium price level increases while the equilibrium quantity of output decreases.
- The equilibrium price level decreases while the equilibrium quantity of output increases.
- The equilibrium price level and quantity of output increase.
- The equilibrium price level and quantity of output decrease.


Question: The Federal Reserve is

Choices:
- part of the legislative branch of government.
- the monetary authority for banks but not other depository institutions.
- part of the judicial branch of government.
- in control of the money supply.


Question: In a private closed economy which of the following statements is true?

Choices:
- Household saving can never be negative.
- Investment is always greater than savings.
- The economy is in equilibrium when consumption equals saving.
- Saving is equal to zero when consumption equals disposable income.


Question: Imagine someone who is not looking for work because they are embarrassed in the interview process when their inability to read is revealed. However this person would take just about any job that was offered. According to the Bureau of Labor Statistics this person is

Choices:
- in the labor force and unemployed.
- in the labor force and employed.
- not in the labor force.
- not in the labor force but counted as unemployed.


Question: If current real GDP is $5000 and full employment real GDP is at $4000 which of the following combinations of policies is the most likely to have brought the economy to this point?

Choices:
- A decrease in taxes and a lower discount rate
- An increase in government spending and an increase in taxes
- A decrease in taxes and selling bonds in an open market operation
- An increase in government spending and an increase in the discount rate


Question: Which of the following will promote economic growth?

Choices:
- Government regulation.
- A new production technique that lowers costs.
- Increased taxes.
- More strict pollution standards for corporations.


Question: According to experts the CPI

Choices:
- overstates increases in the cost of living.
- understates increases in the cost of living.
- accurately estimates changes in the cost of living.
- could over- or underestimate changes depending on the season.


Question: Which of the following are harmed by unexpectedly high rates of inflation?

Choices:
- Borrowers repaying a long-term loan at a fixed interest rate.
- Savers who have put their money in long-term assets that pay a fixed interest rate.
- Workers who have negotiated cost-of-living raises into their contracts.
- Renters of apartments who have signed a lease that holds rent constant for two years.


Question: Prices in capitalist economies are

Choices:
- unfair.
- determined by supply and demand.
- determined in most cases by the federal government.
- a reflection of our basic values.


Question: Which of the following will cause the aggregate demand curve to shift to the left?

Choices:
- Expectations of surpluses of goods in the future
- A decrease in income taxes
- An increase in government spending
- An increase in foreign income


Question: According to Keynesian economists

Choices:
- the investment demand curve is relatively elastic
- fiscal policy is more effective than monetary policy
- the economy is inherently stable
- inadequate supply is largely to blame for periods of stagnation


Question: If the reserve ratio is 10 percent and a new customer deposits $500 what is the maximum amount of money created?

Choices:
- $500
- $4,500
- $5,000
- $50


Question: Which of the following would NOT shift the aggregate supply curve?

Choices:
- An increase in the price level.
- A decrease in the amount of resources in the economy.
- An increase in the amount of resources in the economy.
- An increase in technology.


Question: Which of the following is equal to one?

Choices:
- The elasticity of the long-run aggregate supply curve
- The spending (or expenditure) multiplier
- The money (or banking) multiplier
- The balanced budget multiplier


Question: If in a given year the government collects more money in net taxes than it spends there would exist

Choices:
- a current account deficit.
- a budget surplus.
- a trade surplus.
- a budget deficit.


Question: Which of the following policies might the Fed adopt to counter a recession?

Choices:
- A decrease in taxes
- An increase in government spending
- An increase in the discount rate
- The purchase of bonds


Question: With a managed float

Choices:
- countries occasionally intervene in foreign exchange markets.
- countries never have to intervene in foreign exchange markets.
- countries must constantly intervene to maintain the value of their currencies.
- exchange rates are fixed.


Question: If nominal GDP equals $6000 and the GDP deflator equals 200 then real GDP equals

Choices:
- $30
- $3,000
- $12,000
- $1,200


Question: If 200 computers with a retail value of $100000 are domestically produced in 2005 but not sold until 2006 then GDP in 2005 is

Choices:
- $100000 higher because of the computers.
- 200 higher because of the computers.
- unaffected until 2006 when the computers are sold and the figure for GDP in 2005 is revised.
- higher by the wholesale value of the computers.


Question: In order to go from national income to GDP one must

Choices:
- add depreciation expenses
- add indirect taxes
- subtract subsidies
- all of the above


Question: The appropriate fiscal policy to remedy inflation calls for

Choices:
- the federal government to run a deficit.
- the federal government to run a surplus.
- increased taxes and government spending.
- decreased government spending and taxes.


Question: The potential amount of money created after the Fed increases bank reserves will be diminished if

Choices:
- the public prefers to hold less cash.
- the velocity of money falls.
- depository institutions decide to hold more excess reserves.
- the marginal propensity to consume falls.


Question: In a command economy

Choices:
- the market dictates the answers to the fundamental economic questions.
- competition helps answer the fundamental economic questions.
- state and local governments respond to the fundamental economic questions.
- the central government dictates the answers to the fundamental economic questions.


Question: Total spending

Choices:
- is all of the spending done by all of the households in a nation.
- slopes downward because less spending occurs when prices rise.
- slopes downward because less spending occurs when income falls.
- slopes upward because more household spending occurs when income rises.


Question: The velocity of money

Choices:
- cannot be calculated for an actual economy.
- is how fast money can be transferred.
- is required to calculate the money multiplier.
- is the number of times a typical dollar is used to make a purchase in a year.


Question: There is relatively more crowding out as the result of expansionary fiscal policy when

Choices:
- expansionary monetary policy accompanies the fiscal policy
- the investment demand curve is inelastic
- government spending improves profit expectations among businesses
- the investment demand curve is elastic


Question: "Flash" estimates of GDP

Choices:
- are subject to revision.
- do not require revision.
- are available after a thirty-day lag.
- both (A) and (C)


Question: Which transactions will not be counted in GDP?

Choices:
- Pirated DVDs entering the nation illegally
- The services of a physician
- A retiree's social security benefits
- A and C


Question: If the CPI goes to 150 from 120 then prices have

Choices:
- risen 20 percent.
- risen 25 percent.
- fallen 30 percent.
- risen 30 percent.


Question: The short-run Phillips curve depicts the ____ relationship between ____ and ____.

Choices:
- positive price level interest rate
- negative interest rate private investment
- negative the inflation rate the unemployment rate
- positive price level real GDP


Question: If the demand for our exports rises while our tastes for foreign goods falls off then

Choices:
- the value of the dollar will tend to appreciate.
- the value of the dollar will tend to depreciate.
- exchange rates will be affected but not the value of the dollar.
- the exchange rate will not be affected.


Question: Having a fractional reserve banking system means that

Choices:
- no single loan can be larger than 20 percent of the bank’s holdings
- the central bank reserves the right to audit any bank at any time
- the central bank holds a certain fraction of GDP on reserve at all times
- a bank cannot lend out all of its deposits


Question: As the Japanese economy expands in what ways do U.S. net exports the values of the dollar and the yen change? U.S. NET EXPORTS     VALUE OF DOLLAR     VALUE OF YEN

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


Question: Droughts technical glitches and restrictions on the use of resources can all result in

Choices:
- a vertical Phillips curve
- supply shocks
- structural shocks
- demand-pull inflation


Question: The GDP Deflator I. is used to calculate inflation rates. II. is an alternative to the CPI. III. is more accurate than the CPI.

Choices:
- Only I is true.
- I and II are true.
- I and III are true.
- II and III are true.


Question: Which of the following would be classified under C when calculating GDP?

Choices:
- A homeowner mowing her own lawn
- $50.00 spent eating out at a restaurant
- The purchase of new computer software by an accounting firm
- Flour purchased by a baker to make donuts


Question: The aggregate demand curve is

Choices:
- a horizontal summation of market demand curves
- a horizontal summation of firm demand curves
- a simple aggregation of demand curves for individual goods
- not found by adding product demand curves horizontally or vertically


Question: Suppose the reserve ratio is 0.1. If a bank gets $200 in deposits what is the maximum amount it can lend?

Choices:
- $20
- $180
- $2,000
- Greater than $200 but less than $500


Question: Corn is exchanged in a competitive market. Which of the following definitely increases the equilibrium price of corn?

Choices:
- Both supply and demand shift rightward.
- Both supply and demand shift leftward.
- Supply shifts to the right; demand shifts to the left.
- Supply shifts to the left; demand shifts to the right.


Question: Which of the following will have an effect on GDP?

Choices:
- You lose $50 betting with a friend.
- You fix your brother's car without buying any new parts.
- Your father's firm makes computers and exports them to China.
- You buy 1000 shares of stock in a corporation.


Question: Which of the following is a tool used by the Fed to increase the money supply?

Choices:
- A lower discount rate.
- Selling Treasury securities to commercial banks.
- A higher reserve ratio.
- A lower personal income tax rate.


Question: Suppose yesterday the euro was trading on the foreign exchange market at $1.36 U.S. and today it is trading at $1.40 U.S. Which of the following is true?

Choices:
- The U.S. dollar has appreciated.
- The euro has depreciated.
- Interest rates in the United States have decreased.
- The euro has appreciated.


Question: The government has just lowered personal income taxes. Which of the following best describes the effects that this policy has on the economy?

Choices:
- Higher disposable income higher consumption higher real GDP lower unemployment
- Higher disposable income lower consumption higher real GDP lower unemployment
- Lower disposable income higher consumption higher real GDP lower unemployment
- Lower disposable income lower consumption lower real GDP higher unemployment


Question: Suppose you observe an economy where prices are falling and real GDP is rising. This may have been caused by

Choices:
- stagflation.
- an advance in technology.
- an increase in government spending.
- a decrease in government spending.


Question: An import quota on foreign automobiles is expected to

Choices:
- increase domestic efficiency and protect domestic producers at the expense of foreign producers.
- decrease the price of automobiles and protect domestic consumers at the expense of foreign producers.
- increase the price of automobiles and protect domestic producers at the expense of consumers.
- increase the price of automobiles and protect domestic consumers at the expense of domestic producers.


Question: Ceteris paribus

Choices:
- is Greek for "never changing."
- means anything can change at any time.
- is Latin for "everything else remains constant.
- means "when in equilibrium."


Question: Suppose taxes are cut in an economy that is in equilibrium at full employment. In the long run the tax cut will

Choices:
- raise real output and raise the price level.
- lower real output and raise the price level.
- raise real output and lower the price level.
- raise the price level.


Question: An increase in corporate optimism will have which of the following effects in the market for loanable funds?

Choices:
- An increase in supply lowering the interest rate.
- A decrease in demand increasing the interest rate.
- An increase in both supply and demand and an ambiguous change in interest rates.
- An increase in demand increasing the interest rate.


Question: Suppose the real interest rate in a country rises. What can be expected to happen to the demand for this nation's currency and therefore the value of its currency and net exports? Demand for currency      Value of currency      Net exports

Choices:
- Decreases            Appreciate      Decreases
- Decreases            Depreciate      Decreases
- Decreases            Depreciate      Increases
- Increases            Appreciate      Increases


Question: Lowering reserve requirements would

Choices:
- force banks to hold more reserves and make more loans.
- allow banks to make more loans and buy more investments thus decreasing the money supply.
- allow banks to make more loans and buy more investments thus increasing the money supply.
- allow banks more freedom to merge and acquire other businesses.


Question: How would fiscal and monetary policymakers combine spending tax and monetary policy to fight a recessionary gap while avoiding large budget deficits? SPENDING POLICY     TAX POLICY     MONETARY POLICY

Choices:
- Higher spending     Lower taxes     Sell Treasury securities
- Lower spending     Higher taxes     Buy Treasury securities
- Lower spending     Lower taxes     Increasing the reserve ratio
- Higher spending     Higher taxes     Lowering the discount rate


Question: You are working at a supermarket bagging groceries but you are unhappy about your wage so you quit and begin looking for a new job at a competing grocery store. What type of unemployment is this?

Choices:
- Cyclical
- Structural
- Seasonal
- Frictional


Question: Stagflation is the result of

Choices:
- a leftward shift in the aggregate supply curve.
- a leftward shift in the aggregate demand curve.
- a leftward shift in both the aggregate supply and aggregate demand curves.
- a rightward shift in the aggregate supply curve.


Question: If $100 of new autonomous private investment were added to an economy with a marginal propensity to consume of .90 by how much would aggregate demand shift to the right?

Choices:
- $190
- $900
- $1,000
- $1,900


Question: What will happen to the equilibrium price level and the equilibrium quantity of output if the aggregate demand curve shifts to the right? Assume a Classical aggregate supply curve.

Choices:
- The equilibrium price level increases while the equilibrium quantity of output decreases.
- The equilibrium price level decreases while the equilibrium quantity of output increases.
- The equilibrium price level and quantity of output increase.
- The equilibrium price level increases while the equilibrium quantity of output remains unchanged.