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4. In the above diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines: A. 4 and 3. B. 4 and 1. C. 2 and 4. D. 2 and 3.

A. 4 and 3.

19. The multiplier for this economy is: A. 4. B. 3. C. 2. D. 2.33.

A. 4.

Other things equal, an increase in productivity will shift the aggregate supply curve rightward.

true

The aggregate supply curve (short-run) becomes steeper as the economy moves rightward and upward along it.

true

the APC is calculated as:

consumption/ income

Contractionary fiscal policy is so named because it:

is aimed at reducing aggregate demand and thus achieving price stability.

the difference between m1 and m2 is that:

the latter includes small time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances

(Consider This) The ratchet effect is the tendency of:

the price level to increase but not to decrease.

Unemployment and inflation can coexist.

true

Other things equal, if the U.S. dollar were to depreciate, the:

aggregate supply curve would shift to the left.

Refer to the above diagram. At disposable income level D, consumption is:

equal to D minus CD

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

the foreign purchases effect.

Refer to the above diagram. The Q3 level of real GDP is best described as:

the full-capacity level of real GDP.

Refer to the above diagram. The Q2 level of real GDP appears to be:

the full-employment level of real GDP.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

An appreciation of the U.S. dollar.

Use the following diagram for this question. Which of the following might have caused the shift from consumption schedule C1 to schedule C2?

An increase in household wealth

In the above diagram, the economy's short-run AS curve is line ___ and its long-run AS curve is line ___. A) 1; 3. B) 2; 4. C) 3; 4. D) 2; 1.

Efficiency wages are:

above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

The investment demand curve will shift to the left if:

business taxes increase

which of the fallowing relations is not correct? a) 1-MPC = MPS b) APS + APC = 1 c) MPS = MPC +1 d) MPC + MPS = 1

c) MPS = MPC +1

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

increase aggregate demand.

Given a fixed upsloping AS curve, a rightward shift of the AD curve will:

increase both the price level and real output.

Suppose that in an economy with a MPC of .5 the government wanted to shift the aggregate demand curve rightward by $80 billion at each price level to expand real GDP. It could:

increase government spending by $40 billion.

In the above diagram, a shift from AS2 to AS3 might be caused by a(n):

increase in business taxes and costly government regulation.

In the above diagram, a shift from AS1 to AS3 might be caused by a(n):

increase in the prices of imported resources.

Refer to the above diagram. If the equilibrium price level is P1, then:

producers will supply output level Q1

the primary purpose of the legal reserve requirement is to:

provide a means by which the monetary authorities can influence the lending ability of commercial banks

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

wage contracts.

a reserve requirement of 20% means a bank must have a $1000 of reserves if its checkable deposits are:

$5000, 1000 is 20% of 5000

22. In the above table, the after-tax MPC in the economy shown is: A. .5. B. .67. C. .75. D. .8.

B. .67.

11. The equilibrium price level is: A. 150. B. 200. C. 250. D. 300.

B. 200.

Investment is highly stable; it increases over time at a very steady rate.

False

T OR F: The interest-rate effect is one of the determinants of aggregate demand.

False

If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:

reducing government expenditures by $20 billion.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

If consumption and disposable income are equal at a particular level of income:

saving must be zero at this point.

if the consumption schedule is linear, then the:

saving schedule will also be linear

If the slope of the consumption line is .8:

the MPC is .8.

Along a particular saving schedule, each change in disposable income of $15 billion generates an additional $3 billion in saving. Therefore:

the MPS is .2.

The consumption schedule shows:

the amounts households intend to consume at various possible levels of aggregate income.

which of the fallowing is correct?

MPC + MPS = APC + APS

in the aggregate expenditures model, the:

MPC is greater than zero, but less than one

The MPC can be defined as that fraction of a:

change in income that is spent

the MPC can be defined as that fraction of a:

change in income that is spent

Discretionary fiscal policy refers to:

changes in taxes and government expenditures made by Congress to stabilize the economy.

the amount that a commercial bank can lend is determined by its:

excess reserves

Suppose the MPC is ¾. If investment spending falls by $10 billion, the level of GDP will:

fall by $40 billion

A decrease in per unit production costs will shift the aggregate supply curve leftward.

false

which of the fallowing is not part of the m2 money supply? a) money market mutual fund balances b) money market deposit accounts c) currency d) large (100,000 or more) time deposits

large (100,000 or more) time deposits

A tax reduction of a specific amount will be more expansionary, the:

larger is the economy's MPC.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level.

refer to the above table. the value of the dollar in year 2 is:

$.80

refer to the above diagram. the break-even level of GDP (=income) is:

$150

Refer to the above table. If the equilibrium level of real GDP is $43 billion, its level of consumption will be:

$26 billion.

(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income. Refer to the above data. The MPC is:

.90.

In the above diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, respectively, are lines:

4 and 1.

In the above diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines:

4 and 3.

What percentage of the average U.S. firm's costs are accounted for by wages and salaries?

An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to: A) a rightward shift of the aggregate demand curve in the AD-AS model. B) a leftward shift of the aggregate demand curve in the AD-AS model. C) a movement downward along a fixed aggregate demand curve in the AD-AS model. D) a decrease in aggregate supply in the AD-AS model.

As disposable income increases, consumption: A) and saving both increase. B) and saving both decrease. C) decreases and saving increases. D) increases and saving decreases.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. C) rightward by $40 billion at each price level. B) rightward by $20 billion at each price level. D) leftward by $20 billion at each price level.

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A) output would rise. C) price level would necessarily fall. B) output would fall. D) price level would necessarily rise.

In contrast to investment, consumption is: A) relatively stable. B) relatively unstable. C) measurable. D) unmeasurable.

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

Refer to the above graph. A movement from b to a along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) decrease in income tax rates. D) increase in saving.

Refer to the above information. As a result of the change indicated in the previous question, the aggregate: A) supply curve would shift to the left. C) demand curve would shift to the left. B) supply curve would shift to the right. D) demand curve would shift to the right.

The real-balances, interest-rate, and foreign purchases effects all help explain: A) why the aggregate demand curve is downsloping. B) why the aggregate supply curve is upsloping. C) shifts in the aggregate demand curve. D) shifts in the aggregate supply curve.

The so called wealth effect will result in households A. Spending more and saving less B. Spending less and saving more C. Spending less and saving less D. Spending more and saving more

We would expect a decline in personal and corporate income taxes to: A) shift the aggregate demand curve rightward. C) decrease real output. B) decrease consumption and investment spending. D) shift the aggregate supply curve leftward.

What do investment and government expenditures have in common? A. both represent injections to the circular flow B. both represent leakages from the circular flow C. neither is subject to the multiplier effect D. both represent a decline in indebtedness

27. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be: A. v and vz. B. w and wy. C. w and wz. D. vx and xz.

A. v and vz.

A required element of specialization is: A. A capitalist economy B. Exchange and trade C. Free enterprise D. Competition

Refer to the above data. The equilibrium price level will be: A) 150. B) 200. C) 250. D) 300.

Other things equal, an improvement in productivity will: A) increase the equilibrium price level. C) shift the aggregate supply curve to the right. B) shift the aggregate supply curve to the left. D) shift the aggregate demand curve to the left.

A leftward shift of the supply curve for oil in the United States is most likely the result from: A. In increase in the subsidy for oil exploration and drilling B. A decrease in the fees that oil companies must pay for drilling licenses C. A decrease in the world price of oil D. An increase in the costs of exploration and drilling for oil

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A) net export effect. B) wealth effect. C) real-balances effect. D) multiplier effect.

The multiplier effect relates to: A. Changes in the price level to changes in real GDP B. Changes in the interest rate to changes in investment C. Changes in disposable income to changes in consumption D. Changes in spending to changes in real GDP

(Last Word) Which of the following is a reason why changes in the price of imported oil have less of an effect on the U.S. economy than in the 1970s and early 1980s?

The amount of energy consumed in producing each dollar of GDP has greatly declined.

If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion.

True

The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:

in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.

checkable deposits are:

included in m1

if ben's MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

true

T OR F: A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

True

T OR F: Other things equal, an increase in productivity will shift the short-run aggregate supply curve rightward.

True

The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.

True

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible.

Suppose that for the entire economy, no investment projects will yield an expected real return of more than 12%. However, $10 billion worth of projects will yield expected real returns of 9.1% to 12%, an additional $10 billion will yield expected real returns of 6.1% to 9%, an additional $10 billion will yield expected real returns of 3.1% to 6%, and an additional $10 billion will yield expected real returns of 0% to 3%. If the real rate of interest is 6%, desired investment spending will be:

$20 billion

If the MPC is .63, the multiplier is:

1 / .37

Refer to the above diagram. The average propensity to consume is 1 at point: A) F. B) A. C) D. D) B.

Prices and wages tend to be:

flexible upward, but inflexible downward.

In annual percentage terms, investment spending in the United States is:

more variable than real GDP.

credit card balances are:

not a component of m1, m2, and m3

open-market operations refer to:

the purchase or sale of government securities by the Fed

the value of money varies

inversely with the price level

Discretionary fiscal policy is so named because it:

involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

23. The public debt declined in year: A. 6. B. 5. C. 4. D. 3.

A. 6.

The multiplier is A. 1/MPC B. 1/(1+MPC) C. 1/MPS D. 1/(1-MPS).

Refer to the above diagram. At income level F the volume of saving is:

CD.

The public debt as a percentage of GDP is higher in the US than in most other industrial nations. A. True B. False

with an MPS of .4, the MPC will be..

1.0 minus .4

if the price index rises from 100 to 120, the value of the dollar will fall by:

1/6th

Which of the following institutional structures is most likely to promote growth? A. A well enforced system of patents and copyrights B. A tightly regulated market system C. A system of tariffs and other trade barriers to protect domestic companies D. All of the above

Which of the following is the largest contributor to the growth of labor productivity in the United States? A. Technological advance B. Education and training of labor C. Increases in quantity of capital D. Improved resource allocation

Which one of the following would not shift the aggregate demand curve? A) a change in the price level B) depreciation of the international value of the dollar C) a decline in the interest rate at each possible price level D) an increase in personal income tax rates

22. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003? A. Japan exported much more to the United States during this period than it imported from the United States. B. Japan greatly increased its purchases of military equipment from the United States during this period. C. Japan's economy grew far faster than the U.S. economy during this period. D. Japan's government devalued the yen during this period.

A. Japan exported much more to the United States during this period than it imported from the United States.

34. Which of the following statements is false? A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies. B. The United States Constitution forbids individual states from levying tariffs. C. The high tariffs of the Smoot-Hawley Act of 1930 and the retaliation they caused worsened the Great Depression. D. The European Union has enhanced prosperity in Western Europe.

A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.

9. The production possibilities curves above suggest that: A. West Mudville should specialize in, and export, baseball bats. B. West Mudville should specialize in, and export, both baseballs and baseball bats. C. East Mudville should specialize in, and export, baseball bats. D. workers will try to immigrate from West Mudville to East Mudville.

A. West Mudville should specialize in, and export, baseball bats.

21. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,100. B. liabilities are $1,100. C. net worth is $300. D. profit is $1,000.

A. assets are $1,100.

10. Refer to the above data. Zabella's balance on capital and financial account shows a: A. deficit of $5 billion. B. surplus of $10 billion. C. deficit of $10 billion. D. surplus of $5 billion.

A. deficit of $5 billion.

17. The U.S. demand for euros is: A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services. B. downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services. C. downsloping because the dollar price of euros and the euro price of dollars are directly related. D. upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services.

1. In recent years the United States has: A. exported more services abroad than it has imported. B. had a small goods trade surplus with Japan. C. had a large goods trade surplus with the rest of the world. D. maintained an overall trade surplus (goods and services combined) with the rest of the world.

A. exported more services abroad than it has imported.

32. Other things equal, economists would prefer: A. free trade to tariffs and tariffs to import quotas. B. free trade to import quotas and import quotas to tariffs. C. import quotas to tariffs and tariffs to voluntary export restrictions. D. import quotas to free trade and free trade to tariffs.

A. free trade to tariffs and tariffs to import quotas.

20. "Subprime mortgage loans" refer to: A. high-interest rate loans to home buyers with above average credit risk. B. home-buying loans that charge interest rates below the prime interest rate. C. loans to buyers of homes that are in need of substantial repair. D. loans from the Federal Reserve to home mortgage lenders to support a greater volume of home-buying loans at affordable interest rates.

A. high-interest rate loans to home buyers with above average credit risk.

1. The desire to hold money for transactions purposes arises because: A. receipts of income and expenditures are not perfectly synchronized. B. people fear that prices will rise. C. households want money on hand in case a good financial investment opportunity arises. D. low interest rates reduce the opportunity cost of holding money.

A. receipts of income and expenditures are not perfectly synchronized.

19. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will: A. rise by $6,000 and the monetary multiplier will increase from 4 to 10. B. rise by $60,000 and the monetary multiplier will increase from 4 to 10. C. fall by $6,000 and the monetary multiplier will decline from 30 to 10. D. fall by $2,000 and the monetary multiplier will decline from 10 to 4.

A. rise by $6,000 and the monetary multiplier will increase from 4 to 10.

35. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to: A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility. B. buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility. C. sell government securities, lower reserve requirements, lower the discount rate, and increase the amount of reserves available through the term auction facility. D. sell government securities, raise reserve requirements, lower the discount rate, and increase the amount of reserves available through the term auction facility.

A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility.

5. If a nation has a current account deficit and it does not have to make any inpayments or outpayments of official reserves, it must have a: A. surplus in its capital and financial account. B. balance of payments deficit. C. balance of payments surplus. D. deficit in its capital and financial account.

A. surplus in its capital and financial account.

The real interest rate is: A) the percentage increase in money that the lender receives on a loan. B) the percentage increase in purchasing power that the lender receives on a loan. C) also called the after-tax interest rate. D) usually higher than the nominal interest rate.

The short run aggregte supply assumes that product prices are: A.Fixed while input prices are flexible B. Flexible while input prices are fixed C. Both input and product prices are flexible D. Both input and product prices are fixed

36. Which of the following best describes the cause-effect chain of a restrictive monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

7. Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that: A. the terms of trade will be 3X equals 1Y. B. Alpha should specialize in Y and Beta in X. C. Alpha should specialize in X and Beta in Y. D. there is no basis for mutually beneficial specialization and trade.

B. Alpha should specialize in Y and Beta in X.

1. International transactions fall into what two broad categories? A. Manufacturing trade and services trade. B. International trade and international asset transactions. C. Currency transactions and services trade. D. Newly created assets and preexisting assets.

B. International trade and international asset transactions.

7. Which of the following would contribute to a United States balance of payments deficit? A. Kawasaki builds a motorcycle manufacturing plant in Kansas City B. United States tourists travel in large numbers to Europe C. a wealthy Mexican citizen builds a mansion in Beverly Hills D. Zaire pays interest on its debt to the United States

B. United States tourists travel in large numbers to Europe

39. The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: A. International Monetary Fund (IMF). B. World Trade Organization (WTO). C. Common Market Organization (CMO). D. International Trade Commission (ITC).

B. World Trade Organization (WTO).

12. Federal Reserve Notes in circulation are: A. an asset as viewed by the Federal Reserve Banks. B. a liability as viewed by the Federal Reserve Banks. C. neither an asset nor a liability as viewed by the Federal Reserve Banks. D. part of M1, but not of M2.

B. a liability as viewed by the Federal Reserve Banks.

14. The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. of commercial banks are both unchanged.

B. and reserves of commercial banks both decrease.

37. If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: A. selling government securities, raising the reserve ratio, lowering the discount rate, increasing reserves available through the term auction facility, and a budgetary surplus. B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit. C. buying government securities, raising the reserve ratio, raising the discount rate, reducing reserves available through the term auction facility, and a budgetary surplus. D. buying government securities, reducing the reserve ratio, raising the discount rate, reducing reserves available through the term auction facility, and a budgetary deficit.

B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit.

6. Which of the following combinations is plausible, as it relates to a nation's balance of payments? A. current account = $+40 billion; capital account = $+20 billion; financial account = $-50 billion. B. current account = $-50 billion; capital account = $+20 billion; financial account = $+30 billion. C. current account = $+10 billion; capital account = $+40 billion; financial account = $+50 billion. D. current account = $+30 billion; capital account = $-20 billion; financial account = $-50 billion.

B. current account = $-50 billion; capital account = $+20 billion; financial account = $+30 billion.

3. The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B. deposits at the Federal Reserve Bank and vault cash.

11. An increase in the money supply of $20 billion will cause the equilibrium interest rate to: A. fall by 4 percentage points. B. fall by 2 percentage points. C. rise by 4 percentage points. D. rise by 2 percentage points.

B. fall by 2 percentage points.

8. Initially, the bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1250, the interest rate will: A. fall to 9 percent. B. fall to 8 percent. C. rise to 11 percent. D. rise to 12 percent.

B. fall to 8 percent.

25. In the above table, an increase in net exports of $10 would: A. increase real GDP by $10. B. increase real GDP by $30. C. decrease real GDP by $10. D. decrease real GDP by $30.

B. increase real GDP by $30.

47. An expansionary monetary policy may be frustrated if the: A. demand-for-money curve shifts to the left. B. investment-demand curve shifts to the left. C. saving schedule shifts downward. D. investment-demand curve shifts to the right.

B. investment-demand curve shifts to the left.

8. In the theory of comparative advantage, a good should be produced in that nation where: A. the production possibilities line lies further to the right than the trading possibilities line. B. its cost is least in terms of alternative goods that might otherwise be produced. C. its absolute cost in terms of real resources used is least. D. its absolute money cost of production is least.

B. its cost is least in terms of alternative goods that might otherwise be produced.

20. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,000. B. liabilities are $1,000. C. net worth is zero. D. profit is $1,000.

B. liabilities are $1,000.

15. Appreciation of the Canadian dollar will: A. intensify an existing disequilibrium in Canada's balance of payments. B. make Canada's exports less expensive and its imports more expensive. C. make Canada's exports more expensive and its imports less expensive. D. make Canada's exports and imports both more expensive.

B. make Canada's exports less expensive and its imports more expensive.

38. Dumping of goods abroad: A. constitutes a general case for permanent tariffs. B. may be part of a firm's price discrimination strategy. C. may be part of a nation's strategy to rectify its trade deficit. D. drives up prices of the dumped goods.

B. may be part of a firm's price discrimination strategy.

5. Refer to the above diagram of the market for money. The vertical money supply curve Sm reflects the fact that: A. bond prices and interest rates are inversely related. B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. C. the rate at which money is spent is zero. D. lower interest rates result in lower opportunity costs of supplying money.

B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.

16. The U.S. supply of Japanese yen is: A. downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese. C. upsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. D. downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

2. The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP.

B. varies inversely with the rate of interest.

(Last Word) Before computers, businesses counted their inventory so infrequently that changes in production needed to respond to changes in demand: A. Were very mild B. Never Happened C. Were quite sharp D. Happened very frequently

(Last Word) It is unclear whether: A) high European rates of inflation reflect demand-pull or cost-push forces. B) high European rates of poverty can be reduced by by higher transfer payments. C) high European unemployment rates have resulted from high natural rates of unemployment or insufficient aggregate demand. D) European trade deficits stimulate or retard the European economies.

As a Consequence of the problem of scarcity: A. There is never enough of anything B. Production that has to be planned by government C.Individuals have to make choices from among alternatives D.Things which are plentiful have relatively high prices

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: A.real-balances, interest-rate, and foreign purchases effects. B. determinants of aggregate supply. C.determinants of aggregate demand.

The per unit cost of production in the economy described above is: A) $.50. B) $1. C) $2. D) $5.

26. Refer to the above information and assume that Moolah Bank is "loaned up." If it receives a $100 deposit of currency, the banking system of which Moolah is a part could expand loans by: A. $100. B. $90. C. $900. D. $1000.

C. $900.

18. Refer to the above diagram. At the equilibrium exchange rate: A. $8 will buy 1 euro. B. 0.8 euros will buy $1. C. 1.25 euros will buy $1. D. $1 will buy 8 euros.

C. 1.25 euros will buy $1.

24. Refer to the above information. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be: A. 5. B. 8. C. 10. D. 20.

C. 10.

31. With a $1 per unit tariff, the quantities sold by foreign and domestic producers respectively will be: A. 1 unit and 15 units. B. 7 units and 4 units. C. 11 units and 4 units. D. indeterminate.

C. 11 units and 4 units.

18. When the legal reserve ratio is 30 percent, the monetary multiplier is: A. 5. B. 4. C. 3.33. D. 2.5.

C. 3.33.

27. Refer to the above diagram for the Federal funds market. If the Fed supplies $300 billion in reserves, the equilibrium Federal funds rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given.

C. 5.0 percent.

20. At a world price of $5: A. Alpha will want to import 50 units of steel. B. Beta will want to import 60 units of steel. C. Alpha will want to export 50 units of steel. D. neither country will want to export steel.

C. Alpha will want to export 50 units of steel.

8. It may be misleading to label a trade deficit as unfavorable or adverse because: A. the multiplier does not apply to a trade deficit. B. a trade deficit increases a nation's aggregate output and employment. C. a nation's consumers benefit from a trade deficit during the period it occurs. D. a trade deficit precludes inflation.

C. a nation's consumers benefit from a trade deficit during the period it occurs.

13. The Federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another.

C. banks borrow reserves from one another on an overnight basis.

25. Which is an example of a nontariff barrier (NTB)? A. an export subsidy B. an excise tax on the physical volume of imported goods C. box-by-box inspection requirements for imported fruit D. an excise tax on the dollar value of imported goods

C. box-by-box inspection requirements for imported fruit

10. Banks create money when they: A. allow loans to mature. B. accept deposits of cash. C. buy government bonds from households. D. sell government bonds to households.

C. buy government bonds from households.

15. The impact of increasing, as opposed to constant, costs is to: A. intensify and prolong the comparative advantages that any nation may have initially. B. expand the limits of the terms of trade. C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage. D. cause nations to realize economies of scale in those products in which they specialize.

C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage.

8. Commercial banks create money when they: A. accept cash deposits from the public. B. purchase government securities from the central banks. C. create checkable deposits in exchange for IOUs. D. raise their interest rates.

C. create checkable deposits in exchange for IOUs.

29. Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: A. the price of German bicycles to increase in the United States. B. employment to decrease in the German bicycle industry. C. employment to decrease in the U.S. bicycle industry. D. profits to rise in the U.S. bicycle industry.

C. employment to decrease in the U.S. bicycle industry.

14. If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: A. Americans will buy fewer Korean goods and services. B. the won has appreciated in value. C. fewer U.S. goods and services will be demanded by the South Koreans. D. the dollar has depreciated in value.

C. fewer U.S. goods and services will be demanded by the South Koreans.

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: A) GDP by $120 billion. B) GDP by $20 billion. C) saving by $25 billion. D) consumption by $80 billion.

24. Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a (n): A. protective tariff. B. export subsidy. C. import quota. D. voluntary export restriction.

C. import quota.

4. A nation's capital and financial account: A. contains inpayment items, but not outpayment items. B. includes service exports and service imports. C. includes both inpayments and outpayments. D. includes net investment income and net transfers.

C. includes both inpayments and outpayments.

22. Suppose that, for every 1-percentage point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves will: A. increase by $1 billion and the money supply will increase by $5 billion. B. decline by $1 billion and the money supply will decline by $10 billion. C. increase by $1 billion and the money supply will increase by $10 billion. D. increase by $10 billion and the money supply will increase by $100 billion.

C. increase by $1 billion and the money supply will increase by $10 billion.

49. (Consider This) During and immediately following the severe recession of 2007-2009, commercial bank reserves held on deposit in Federal Reserve banks: A. rose to a high of 50 percent of total checkable deposits held by banks. B. fell significantly as commercial banks withdrew reserves to pay off heavy debt obligations. C. increased significantly because of Fed purchases of securities from commercial banks, and the paying of interest on bank reserves. D. increased significantly because the Fed increased the required reserve ratio.

C. increased significantly because of Fed purchases of securities from commercial banks, and the paying of interest on bank reserves.

42. Between March 2001 and November 2002, the Fed reduced the Federal funds rate from 5 percent to just above 1 percent. The Fed's purpose was to: A. prevent rising inflation. B. reduce the public debt. C. promote recovery from recession. D. strengthen the international value of the dollar.

C. promote recovery from recession.

17. If the world price for this product is $1.60, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

C. surplus of 160 units, which it will export.

28. Which of the following represents a change in today's banking policies that should prevent a recurrence of the bank panics of 1930-1933? A. banks are more cautious lenders B. banks keep large amounts of excess reserves on hand C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems D. the President now has the authority to close banks whenever panics occur

C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems

11. In prosperous times commercial banks are likely to hold very small amounts of excess reserves because: A. the Fed wants commercial banks to increase the money supply during economic expansions. B. it is very costly to transfer funds between commercial banks and the central banks. C. the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves. D. the Federal Reserve Banks want to minimize their interest payments on such deposits.

C. the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

16. The four main tools of monetary policy are: A. tax rate changes, the discount rate, open-market operations, and the Federal funds rate. B. tax rate changes, changes in government expenditures, open-market operations, and the term auction facility. C. the discount rate, the reserve ratio, the term auction facility, and open-market operations. D. changes in government expenditures, the reserve ratio, the Federal funds rate, and the discount rate.

C. the discount rate, the reserve ratio, the term auction facility, and open-market operations.

1. When the receipts given by goldsmiths to depositors were used to make purchases: A. the gold standard was created. B. existing banking laws were violated. C. the receipts became in effect paper money. D. a fractional reserve banking system was created.

C. the receipts became in effect paper money.

The foreign purchases effect: A) shifts the aggregate demand curve rightward. B) shifts the aggregate demand curve leftward. C) shifts the aggregate supply curve rightward. D) moves the economy along a fixed aggregate demand curve.

13. The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that: A. 1 yen = 280 Swiss francs. B. 1 yen = 14 Swiss francs. C. 1 Swiss franc = 28 yen. D. 1 Swiss franc = 14 yen.

D. 1 Swiss franc = 14 yen.

6. Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be: A. 40 tons of pots. B. 20 tons of tea and 20 tons of pots. C. 20 tons of tea. D. 40 tons of tea.

D. 40 tons of tea.

10. The equilibrium interest rate is: A. 2 percent. B. 4 percent. C. 6 percent. D. 8 percent.

D. 8 percent.

12. Which of the following statements is true regarding why the balance on the current account and the balance on the capital and financial account must always sum to zero? A. Any deficit or surplus in the current account automatically creates an offsetting entry in the capital and financial account. B. People can only trade one of two things with each other; currently produced goods and services or preexisting assets. C. If trading partners have an imbalance in their trade of currently produced goods and services, the only way to correct that imbalance is with a net transfer of assets from one party to the other. D. All of these are true statements.

D. All of these are true statements.

29. Which of the following has contributed to large U.S. trade deficits in recent years? A. China fixing its exchange rate. B. Rapid increases in the price of oil. C. A declining U.S. saving rate. D. All of these have contributed.

D. All of these have contributed.

2. Which of the following statements is false? A. In recent years the United States has had large annual trade deficits in goods and services. B. The United States imports some of the same categories of goods as it exports. C. China has the largest share of world exports. D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

26. If the economy is opened to free trade, the price and quantity sold of this product would be: A. Pc and v. B. Pa and z. C. Pt and y. D. Pc and z.

D. Pc and z.

32. Other things equal, which of the following would increase the Federal funds rate? A. a decrease in loan demand in the Federal funds market B. a decrease in the reserve ratio C. Fed purchases of government securities from banks D. a decline in excess reserves in the banking system

D. a decline in excess reserves in the banking system

24. Refer to the above diagram where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. A shift of the demand curve to D' might be the result of: A. a relative decline in interest rates in Switzerland. B. a reduction in the United States' relative price level. C. a recession in the United States which slows its rate of growth. D. a relative decline in interest rates in the United States.

D. a relative decline in interest rates in the United States.

31. The prime interest rate: A. affects investment spending while the Federal funds rate affects consumption spending. B. affects consumption spending while the Federal funds rate affects investment spending. C. has no affect on exchange rates and net exports. D. affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves.

D. affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves.

30. Present consumption supported by large trade deficits may come at the expense of: A. permanent debt to foreign interests. B. permanent foreign ownership of formerly U.S. owned assets. C. large sacrifices of future consumption. D. all of these.

D. all of these.

28. Relatively rapid U.S. growth between 1999 and 2000, and from 2003 to 2007, contributed to large U.S. trade deficits by: A. increasing U.S. national income, which decreased U.S. exports. B. reducing real interest rates in the United States. C. increasing U.S. tax revenues and reducing the Federal budget deficit. D. increasing U.S. national income, which increased U.S. imports.

D. increasing U.S. national income, which increased U.S. imports.

26. If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal): A. both U.S. imports and U.S. exports to rise. B. both U.S. imports and U.S. exports to fall. C. U.S. exports to fall and U.S. imports to increase. D. inflation to occur.

D. inflation to occur.

25. Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as: A. insurance companies. B. thrifts. C. commercial banks. D. mutual funds companies.

D. mutual funds companies.

19. If the world price of this product is $1, this nation will: A. export all of the product. B. import all of the product. C. import some of the product and produce some of the product domestically. D. neither export nor import the product.

D. neither export nor import the product.

27. In saying that the present system of floating exchange rates is managed we mean that: A. countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF. B. the value of any IMF member's currency can only vary 2 percent from its par value. C. IMF officials determine exchange rates on a day-to-day basis. D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

A decline in the real interest rate will shift the investment demand curve to the right.

False

excess reserves refer to the:

difference between actual reserves and required reserves

An increase in imports (independently of a change in the U.S. price level) will increase both U.S. aggregate supply and U.S. aggregate demand.

false

Graphically, cost-push inflation is shown as a:

leftward shift of AS curve.

at the point where the consumption schedule intersects the 45-degree line:

saving is zero

Refer to the above diagram. If equilibrium real output is Q2, then:

the equilibrium price level is P2.

when the reserve requirement is increased:

the excess reserves of member banks are reduced

28. Which of the following would not help to relieve the Social Security and Medicare shortfalls? A. Extending the Social Security tax to a higher level of earnings. B. Restricting immigration of skilled working-age adults. C. Increasing the retirement age for collecting Social Security and Medicare benefits. D. Reducing Social Security and Medicare benefits for wealthier individuals.

**B. Restricting immigration of skilled working-age adults.

9. Refer to the above information. Money supply M2 for this economy is: A. $480. B. $130. C. $490. D. $630.

A. $480.

4. In the above diagram for a private closed economy, at the equilibrium level of GDP, investment and saving are both: A. $50. B. $100. C. $20. D. $40.

A. $50.

11. Which of the following does not explain what backs the money supply in the United States? A. It is backed by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the Federal government. D. It is relatively scarce.

A. It is backed by gold.

17. Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks.

2. If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. a medium of exchange.

7. Refer to the above diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with: A. an expansionary fiscal policy. B. a major recession. C. a contractionary fiscal policy. D. severe demand-pull inflation.

A. an expansionary fiscal policy.

11. In the above diagram for a private closed economy, the upward shift of the aggregate expenditures schedule from (C + Ig)1 to (C + Ig)2 reflects: A. an increase in investment expenditures. B. a decrease in consumption expenditures. C. an increase in the MPC. D. an increase in the APS.

A. an increase in investment expenditures.

10. The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation.

A. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

4. In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A. coins, paper currency, and checkable deposits.

10. Refer to the above diagram. If the full-employment level of GDP is A, then it would be appropriate fiscal policy for government to: A. decrease spending and increase taxes. B. decrease spending and decrease taxes. C. increase spending and increase taxes. D. increase spending and decrease taxes.

A. decrease spending and increase taxes.

16. A decrease in aggregate demand will cause a greater decline in real output the: A. less flexible is the economy's price level. B. more flexible is the economy's price level. C. steeper is the economy's AS curve. D. larger is the economy's marginal propensity to save.

A. less flexible is the economy's price level.

21. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A. output would necessarily rise. B. output would necessarily fall. C. price level would necessarily fall. D. price level would necessarily rise.

A. output would necessarily rise.

26. The most likely way the public debt burdens future generations, if at all, is by: A. reducing the current level of investment. B. causing future unemployment. C. causing deflation. D. reducing real interest rates.

A. reducing the current level of investment.

14. Graphically, demand-pull inflation is shown as a: A. rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

A. rightward shift of the AD curve along an upsloping AS curve.

25. (Last Word) In recent years: A. significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades. B. large increases in the price of oil have reduced U.S. aggregate supply and caused significant cost-push inflation. C. large decreases in the price of oil have increased U.S. aggregate supply and caused deflation. D. the United States has become a net exporter of oil.

A. significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades.

2. An economist who favors smaller government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

A. tax cuts during recession and reductions in government spending during inflation.

5. Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.

A. they can be readily used in purchasing goods and paying debts.

18. The equilibrium level of GDP for this economy is: A. $600. B. $530. C. $415. D. $400.

B. $530.

23. In the above table, equilibrium GDP is: A. $40. B. $70. C. $100. D. $130.

B. $70.

8. The equilibrium level of income (Y) is: A. 360. B. 225. C. 200. D. 135.

B. 225.

20. Which of the following fiscal policy actions is most likely to increase aggregate supply? A. An increase in personal income tax rates. B. A reduction in interest rates that encourages consumers to purchase more durable goods. C. An increase in transfer payments to unemployed workers. D. An increase in government spending on infrastructure that increases private sector productivity.

B. A reduction in interest rates that encourages consumers to purchase more durable goods.

6. Paper money (currency) in the United States is issued by the: A. United States Mint. B. Federal Reserve Banks. C. United States Treasury. D. national banks.

B. Federal Reserve Banks.

14. An upward shift of the aggregate expenditures schedule might be caused by: A. a decrease in exports, with no change in imports. B. a decrease in imports, with no change in exports. C. an increase in exports, with an equal decrease in investment spending. D. an increase in imports, with no change in exports.

B. a decrease in imports, with no change in exports.

13. If the amount of real output demanded at each price level falls by $200, this might have been caused by: A. an increase in net exports. B. a worsening of business expectations. C. an increase in consumer wealth. D. a decrease in the personal income tax.

B. a worsening of business expectations.

5. For a private closed economy, an unintended decline in inventories suggests that: A. aggregate expenditures are less than the business sector expected them to be. B. aggregate expenditures exceed production. C. actual investment exceeds saving. D. planned investment is greater than consumption.

B. aggregate expenditures exceed production.

17. In the above diagram, if the aggregate supply curve shifted from AS0 to AS1, and the aggregate demand curve remains at AD0 we could say that: A. aggregate supply has increased, equilibrium output has decreased, and the price level has increased. B. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased. C. an increase in the amount of output supplied has occurred. D. aggregate supply has increased and the price level has risen to G.

B. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

17. If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause: A. a rightward shift in the investment demand schedule. B. an $8 billion downshift in the consumption schedule. C. a $4 billion upshift in the consumption schedule. D. a $12 billion downshift in the consumption schedule.

B. an $8 billion downshift in the consumption schedule.

15. Other things equal, an excessive increase in the money supply will: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.

B. decrease the purchasing power of each dollar.

1. Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B. deficits during recessions and surpluses during periods of demand-pull inflation.

7. In the above diagram, a shift from AS2 to AS3 might be caused by a (n): A. decrease in interest rates. B. increase in business taxes and costly government regulation. C. decrease in the prices of domestic resources. D. decrease in the price level.

B. increase in business taxes and costly government regulation.

15. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined.

B. the price level is inflexible downward and a recession has occurred.

1. To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.

B. whatever performs the functions of money extremely well is considered to be money.

11. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

8. Refer to the above information. Money supply M1 for this economy is: A. $60. B. $70. C. $130. D. $140.

C. $130.

3. In the data above for a private closed economy, if gross investment is $12 billion, equilibrium GDP is: A. $380. B. $370. C. $360. D. $350.

C. $360.

16. Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by: A. $100 billion. B. $90 billion. C. $40 billion. D. $50 billion.

C. $40 billion.

29. In The General Theory of Employment, Interest, and Money: A. Adam Smith stated his idea of the invisible hand. B. Thorstein Veblen poked fun at the leisure class. C. John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself. D. J. B. Say developed "Say's law."

C. John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself.

18. Which of the following best describes the idea of a political business cycle? A. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. B. Fiscal policy will result in alternating budget deficits and surpluses. C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. D. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

18. Which of the following statements best describes the twelve Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

15. Other things equal, serious recession in the economies of U.S. trading partners will: A. have no perceptible impact on the U.S. economy. B. cause inflation in the U.S. economy. C. depress real output and employment in the U.S. economy. D. stimulate real output and employment in the U.S. economy.

C. depress real output and employment in the U.S. economy.

1. The aggregate demand curve is: A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises.

C. downsloping because of the interest-rate, real-balances, and foreign purchases effects.

13. For the open economy shown above the equilibrium GDP and the multiplier are: A. $300 and 2.5. B. $450 and 5. C. $400 and 4. D. $400 and 5.

D. $400 and 5.

9. In equilibrium the level of consumption spending will be: A. 170. B. 270. C. 160. D. 195.

D. 195.

24. Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions? A. 56 percent B. 71 percent C. 43 percent D. 29 percent

D. 29 percent

22. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: A. 7.5 percent. B. 1.39 percent. C. 2.5 percent. D. 3.9 percent.

D. 3.9 percent.

12. In the above diagram for a private closed economy, the multiplier is: A. GF/DE. B. GF/GB. C. FE/GF. D. AB/GF.

D. AB/GF.

12. Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? A. The value of the "wheat dollar" would be unstable depending on crop yields from year to year. B. Farmers would replace corn and soy crops with wheat. C. Wheat would function as money so long as people accept it in exchange for goods and services. D. All of these are possible outcomes.

D. All of these are possible outcomes.

18. In the above diagram, if aggregate supply is AS1 and aggregate demand is AD0, then: A. at any price level above G a shortage of real output would occur. B. F represents a price level that would result in a surplus of real output of AC. C. a surplus of real output of GH would occur. D. F represents a price level that would result in a shortage of real output of AC.

D. F represents a price level that would result in a shortage of real output of AC.

12. Which of the following best describes the built-in stabilizers as they function in the United States? A. The size of the multiplier varies inversely with the level of GDP. B. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

4. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in Federal tax rates on personal and corporate income.

D. Reductions in Federal tax rates on personal and corporate income.

14. During periods of rapid inflation, money may cease to work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.

D. because people and businesses will not want to accept it in transactions.D. because people and businesses will not want to accept it in transactions.

1. Refer to the above diagrams. Other things equal, curve B will shift upward when: A. the level of GDP increases. B. the interest rate increases. C. curve A shifts to the left. D. curve A shifts to the right.

D. curve A shifts to the right.

8. The determinants of aggregate supply: A. are consumption, investment, government, and net export spending. B. explain why real domestic output and the price level are directly related. C. explain the three distinct ranges of the aggregate supply curve. D. include resource prices and resource productivity.

D. include resource prices and resource productivity.

9. Refer to the above diagram. If the full-employment level of GDP is D, then it would be appropriate fiscal policy for government to: A. decrease spending and increase taxes. B. decrease spending and decrease taxes. C. increase spending and increase taxes. D. increase spending and decrease taxes.

D. increase spending and decrease taxes.

3. If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by: A. reducing government expenditures by $12 billion. B. reducing government expenditures by $60 billion. C. increasing taxes by $15 billion. D. increasing taxes by $20 billion.

D. increasing taxes by $20 billion.

26. In the above diagram, if the full-employment level of GDP is B and aggregate expenditures are at AE1, the: A. inflationary expenditure gap is BC. B. recessionary expenditure gap is BC. C. inflationary expenditure gap is zero. D. inflationary expenditure gap is ei.

D. inflationary expenditure gap is ei.

2. Refer to the above diagrams. Other things equal, an interest rate decrease will: A. shift curve A to the right and shift curve B upward. B. shift curve A to the left and shift curve B downward. C. leave curve A in place but shift curve B downward. D. leave curve A in place but shift curve B upward.

D. leave curve A in place but shift curve B upward.

8. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should: A. increase government expenditures by $80 billion. B. reduce government expenditures by $40 billion. C. reduce taxes by $40 billion. D. reduce taxes by $80 billion.

D. reduce taxes by $80 billion.

16. The Federal Open Market Committee (FOMC) is comprised of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

The price level in the United States is more flexible downward than upward.

false

Refer to the above table. If the amounts of GDP supplied at the price levels shown (in descending order) are $45, $43, $40, $37, and $31, the equilibrium level of real GDP will be:

$37 billion.

(Advanced analysis) Assume that the MPS is .33 in an economy that has an aggregate supply curve with a slope of 1. An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by: A) $30 billion and increase real GDP by $15 billion. B) $30 billion and increase real GDP by $30 billion. C) $10 billion and increase real GDP by $30 billion. D) $10 billion and increase real GDP by $10 billion.

(Consider This) The ratchet effect is the tendency of: A) the price level to increase but not to decrease. B) nominal GDP to increase more rapidly than real GDP. C) real interest rates to fall more rapidly than nominal interest rates. D) consumption to rise year after year regardless of what happens to disposable income

A rise in excess capacity, or unused existing capital goods, will reduce the demand for new capital goods and therefore reduce aggregate demand A. True B. False

An increase in aggregate demand will (increase; decrease) real domestic output and will (increase; decrease) the price level. If the economy is initially operating at its full-employment level of output, and aggregate demand increases, it will produce (demand-pull; cost-push) inflation. A. increase; increase; demand-pull B. decrease; decrease; cost-push C. increase; decrease; demand-pull D.decrease; increase; cost-push

Efficiency wages are: A) above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. B) wage payments necessary to compensate workers for unpleasant or risky work conditions. C) usually less than market wages. D) relevant to macro economics because they explain rightward shifts in aggregate demand.

Graphically, demand-pull inflation is shown as a: A) rightward shift of the AD curve along an upsloping AS curve. B) leftward shift of the AS curve along a downsloping AD curve. C) leftward shift of AS curve along an upsloping AD curve. D) rightward shift of the AD curve along a downsloping AS curve.

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is: A) 4. B) 5. C) 3.33. D) 2.5.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift: A. Leftward by 40 billion at each price level B. Rightward by 20 billion at each price level C. Rightward by 40 billion at each price level D. Leftward by 20 billion at each price level

In the above diagram, the economy's long-run aggregate supply curve is shown by line: A) 1. B) 2. C) 3. D) 4.

Refer to the above data. If the price level is 150 and producers supply $300 of real output: A) a shortage of real output of $200 will occur. B) a shortage of real output of $100 will occur. C) a surplus of real output of $300 will occur. D) neither a shortage nor a surplus of real output will occur.

Refer to the above table. If the amounts of GDP supplied at the price levels shown (in descending order) are $45, $43, $40, $37, and $31, the equilibrium level of real GDP will be: A) $37 billion. B) $35 billion. C) $26 billion. D) $43 billion.

The investment demand curve will shift to the left as the result of: A Business pessimism about future economic conditions B. Limited available productive capacity C. An increase in the interest rate D. A decrease in business taxes

14. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to: A. the reciprocal of the required reserve ratio. B. 1 minus the required reserve ratio. C. the reciprocal of the income velocity of money. D. 1/MPS.

A. the reciprocal of the required reserve ratio.

A rightward shift in the aggregate supply curve is best explained by an increase in: A) business taxes. B) productivity. C) nominal wages. D) the price of imported resources.

GDP is the market value of: A. Resources (Land,Labor,Capital and entrepreneurship) in an economy in a given deal. B. All final goods and services produced in an economy in a given year. C.Consumption and investment spending in an economy in a given year D. All output produced and accumulated over the years

If 40,000 worker- hours produced a total output of $600,000 in an economy, the labor productivity is: A. $10/worker-hour B. $15/worker-hour C. $24/worker-hour D. $240/worker-hour

Per unit production cost is: A) real output divided by inputs. C) units of output divided by total input cost. B) total input cost divided by units of output. D) a determinant of aggregate demand.

Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 3 percent of potential GDP to a surplus of 1 percent. The government is engaging in a(n): A. expansionary fiscal policy. B. contractionary fiscal policy C. neutral fiscal policy D. high-interest rate policy

The MPC can be defined as that fraction of a: A) change in income that is not spent. B) change in income that is spent. C) given total income that is not consumed. D) given total income that is consumed.

The immediate short run aggregate supply curve is: A. Vertical B. Horizontal C. Upsloping D.Downslopping

When deriving the aggregate demand (AD) curve from the aggregate expenditure model, an increase in U.S. product prices would cause an increase in: A) the value of household wealth and lower consumption expendtitures. B) interest rates and lower investment expenditures. C) exports and imports. D) U.S. resource prices and an increase in aggregate supply.

When the Federal government employs an expansionary fiscal policy to increase real GDP and employment in the economy, it usually runs a budget (surplus, deficit) and (lends, borrows) in the money market. These actions may (raise, lower) interest rates in the economy and (stimulate, crowd out) private investment spending. A. surplus; lends; raise; stimulate B. deficit; borrows; raise; crowd out C. surplus; borrows; lower; crowd out D. deficit; lends; raise; stimulate

24. The multiplier is: A) 1/MPC. B) 1/(1 + MPC). C) 1/MPS. D) 1/(1 - MPS).

3. The interest-rate effect suggests that: A) a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B) an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D) an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

A decrease in business taxes will tend to: A. Increase aggregate demand but not change aggregate supply B. Increase aggregate supply but not change aggregate demand C. Increase aggregate supply and increase aggregate demand D. Decrease aggregate supply and decrease aggregate demand

A depreciation of US dollar relative to foreign currency will tend to (increase; decrease) U.S. exports, (increase; decrease) U.S. imports , and therefore (increase; decrease) U.S. net exports and aggregate demand. A.increase; increase; decrease B.decrease; increase; decrease C.increase; decrease; increase D.decrease; decrease; increase

An increase in the overall level of prices is called: A. Growth B. Expansion C. Inflation D. Nominal GDP growth

If the MPS is .25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is: A. $5 billion below the full-employment GDP. B. $5 billion above the full-employment GDP. C. $20 billion below the full-employment GDP. D. $20 billion above the full-employment GDP.

If the US public debt is held domestically, then for U.S. taxpayers it is (a liability, an asset), and for U.S. citizens and institutions owning the U.S. debt securities, it is (a liability, an asset). The implication of domestically-held public debt is that the payments on the debt (will, will not) affect U.S. purchasing power. Aan asset; a liability; will B. a liability; a liability; will C. a liability; an asset; will not D.an asset; an asset; will not

Refer to the above data. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to: A) 250 and $200, respectively. C) 150 and $300, respectively. B) 200 and $300, respectively. D) 150 adn $200, respectively.

Refer to the above diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n): A) decrease in aggregate supply. C) increase in investment spending. B) decrease in the amount of output supplied. D) decrease in net export spending.

Refer to the above diagram. The marginal propensity to consume is equal to: A) AE/0E. B) CF/CD. C) CB/AB. D) CD/CF.

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment and price stability is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the: A) shift of the AD curve in panel (A). C) move from point a to point b in panel (B). B) shift of the AS curve in panel (B). D) move from point a to point c in panel (C).

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C)

The aggregate supply curve (short-run) is upsloping because: A) wages and other resource prices match changes in the price level. B) the price level is flexible upward but inflexible downward. C) per-unit production costs rise as the economy moves toward and beyond its full-employment real output. D) wages and other resource prices are flexible upward but inflexible downward.

The aggregate supply curve (short-run): A) slopes downward and to the right. C) slopes upward and to the right. B) graphs as a vertical line. D) graphs as a horizontal line.

The aggregate supply curve: A) is explained by the interest rate, real-balances, and foreign purchases effects. B) gets steeper as the economy moves from the top of the curve to the bottom of the curve. C) shows the various amounts of real output that businesses will produce at each price level. D) is downsloping because real purchasing power increases as the price level falls.

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore the rate of inflation in 2002 was about: A. 2.8 B. 3.4 C. 1.6 D. 4.1

The crowding-out effect from government borrowing is reduced when: A. interest rates are rising. B. the economy is operating at full employment. C. government spending improves human capital in the economy. D. government spending can substitute for private investment spending.

The inflationary expenditure gap in the United States in the late 1980s was caused by: A. a rapid decline of net exports. B. a major tax increase. C. rising aggregate expenditures. D. cost-push inflationary forces.

Which of the following is correct? A) Government expenditures and taxes both increase GDP. B) Government expenditures and taxes both decrease GDP. C) Government expenditures increase, but taxes decrease, GDP. D) Government expenditures decrease, but taxes increase, GDP.

Which of the following is correct? A. Government expenditures and taxes both increase GDP. B. Government expenditures and taxes both decrease GDP. C. Government expenditures increase, but taxes decrease, GDP. D. Government expenditures decrease, but taxes increase, GDP.

Which of the following relations is not correct? A. 1-MPC=MPS B. APS+APC=1 C. MPS=MPC+1 D. MPC+MPS=1

41. Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed: A. will have to increase interest rates to keep the price level from falling. B. will have to reduce the money supply to keep the price level from rising. C. will have to increase the money supply to keep the price level from falling. D. can keep the price level stable without altering the money supply or interest rate.

C. will have to increase the money supply to keep the price level from falling.

. If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by: A. $1 billion. B. $.9 billion. C. $10 billion. D. $9 billion.

Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy then: A. Both lenders and borrowers benefit. B. Both lenders and borrowers are hurt C. Borrowers are hurt but lenders benefit D. Lenders are hurt but borrowers benefit

Economic Resources are also called: A. free gifts of nature B. Consumption goods C. Units of money capital D. Units of production

Given a fixed upsloping AS curve, a rightward shift of the AD curve will: A) cause cost push inflation. C) increase the price level but not real output. B) increase real output but not the price level. D) increase both the price level and real output.

Refer to the above diagram. If aggregate supply is AS1 and aggregate demand is AD0, then: A) at any price level above G a shortage of real output would occur. B) F represents a price level that would result in a surplus of real output of AC. C) a surplus of real output of GH would occur. D) F represents a price level that would result in a shortage of real output of AC.

The equilibrium price level and level of real output occur where: A) real output is at its highest possible level. B) export equal imports. C) the price level is at its lowest level. D) the aggregate demand and supply curves intersect.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A) shift the aggregate demand curve leftward. B) shift the aggregate supply curve leftward. C) decrease U.S. exports and increase U.S. imports. D) increase U.S. exports and decrease U.S. imports

The graphical relationship between the price level and the amount of real GDP that businesses will offer for sale is known as the: A) aggregate demand curve. C) investment demand curve. B) investment supply curve. D) aggregate supply curve.

Suppose the economy's saving schedule shifts from S1 to S2 as shown in the above diagram. We can say that its:

MPS has increased

Which of the following represents the most expansionary fiscal policy?

a $10 billion increase in government spending

the 45-degree line on a chart relating consumption and income shows:

all the points at which consumption and income are equal

The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

an increase in saving.

Which of the following would not shift the aggregate supply curve?

an increase in the price level

As disposable income increases, consumption:

and saving both increase

Menu costs:

are the costs to firms of changing prices and communicating them to customers.

in the united states monetary policy is the responsiblity of the:

board of governors of the federal reserve system

the fed can change the money supply by:

changing bank reserves through the sale or purchase of government securites, changing the quantities of required and excess reserves by altering the legal reserve ratio, changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks

checkable deposits are also called:

checking accounts

in the united states, the money supply 1, is compromised of:

coins, paper currency, and checkable deposits

In the Employment Act of 1946, the Federal government:

committed itself to accept some degree of responsibility for the general levels of employment and prices.

the interest rate at which the Federal Reserve banks lend to commercial banks is called the:

discount rate

for all levels of income to the left of the intersection of the 45-degree line and the consumption schedule, the APC is:

greater than 100 percent

An increase in the price level will:

increase production costs and reduce short-run aggregate supply.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price level stability under these conditions the government should:

increase tax rates and reduce government spending.

A politically liberal economist who favored expanded government would recommend:

increases in government spending during recession and tax increases during inflation.

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

increasing government spending by $4 billion.

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:

increasing taxes by $20 billion.

Which of the following fiscal actions would be the most effective in curbing inflation?

incurring a budget surplus and impounding that surplus

If 100 percent of any change in income is spent, the multiplier will be:

infinitely large

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Refer to the above data. The marginal propensity to save:

is highest in economy (1).

A decrease in aggregate demand will cause a greater decline in real output the:

less flexible is the economy's price level.

Which of the following would shift the investment demand curve from ID1 to ID3?

lower expected rates of return on investment

currency in circulation is part of:

m1, m2, and m3

the transactions demand for money is most closely related to money functioning as a:

medium of exchange

Refer to the above table. If this nation's equilibrium price level is 125, its net exports will be:

minus $2 billion.

fiat money is:

money because the government asserts that it is

Other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve.

All else equal, if the interest rate rises:

planned investment spending will decrease

Productivity measures:

real output per unit of input.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

reduce worker morale and work effort, and thus lower productivity.

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

shift the AD curve to the left.

The aggregate supply curve:

shows the various amounts of real output that businesses will produce at each price level.

A politically conservative economist who favors smaller government would recommend:

tax cuts during recession and reductions in government spending during inflation.

in the aggregate expenditures model, dissaving means

that the households are spending in excess of their current incomes

at the point where the consumption schedule intersects the 45-degree line:

the APC is 1.00

Fiscal policy is carried out primarily by:

the Federal government.

(Last Word) Relative to previous decades, the U.S. economy is less affected by changes in the price of oil partly because:

the composition of GDP has changed from larger, heavier items such as earth movers and steel products toward smaller, lighter items such as software and microchips.

the three main tools of monetary policy are:

the discount rate, the reserve ratio, and open-market operations

The most important determinant of consumer spending is:

the level of income

The MPC for an economy is:

the slope of the consumption schedule or line

in defining money as m1 economists exclude time deposits because:

they are not directly or immediately a medium of exchange

checkable deposits are classified as money because:

they can be readily used in purchasing goods and paying debts

An increase in business excise taxes will shift the aggregate supply curve leftward.

true

In locating a particular aggregate demand curve it is assumed that the money supply is fixed.

true

In order to study the macroeconomy we must combine the prices and quantities generated in single-product markets into broad aggregates.

true

In contrast to investment, consumption is: A) relatively unstable. B) relatively stable. C) measurable. D) unmeasurable.

(Last Word) Classical macroeconomics was dealt severe blows by: A. the Great Depression and Keynes's macroeconomic theory. B. the Second World War and the writings of Milton Friedman. C. Adam Smith and his idea of the invisible hand. D. the strong recovery after the Second World War and Alvin Hansen's stagnation thesis.

(Last Word) In recent years: A) unemployment rates in Europe have been higher than in the United States. B) the natural rate of unemployment in Europe has fallen sharply. C) Europe has had strong aggregate demand and low unemployment rates. D) European nations have greatly reduced their unemployment rates by reducing minimum wages, welfare benefits, and government restrictions against firing workers.

A decline in investment will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.

A decrease in aggregate demand will cause a greater decline in real output the: A) less flexible is the economy's price level. B) more flexible is the economy's price level. C) steeper is the economy's AS curve. D) larger is the economy's marginal propensity to save.

A rightward shift of the AD curve in the very flat part of the upsloping AS curve will: A) increase real output by more than the price level. B) increase the price level by more than real output. C) reduce real output by more than the price level. D) reduce the price level by more than real output.

An increase in net exports will shift the: A) aggregate expenditures curve upward and the aggregate demand curve rightward. B) aggregate expenditures curve upward and the aggregate demand curve leftward. C) aggregate expenditures curve downward and the aggregate demand curve rightward. D) aggregate expenditures curve downward and the aggregate demand curve leftward.

Built-in stabilizers are not sufficiently strong to prevent recession or inflation, but they can reduce the severity of a recession or inflation. A. True B. False

Consider the market for tax return software. If professional tax return preparers raise the price of services they provide, how does the affect the market for tax return software? A. Demand increases and supply is unaffected B. Demand is unaffected and supply increases C. Demand is unaffected and supply decreases D. Demand decreases and supply is unaffected

Economic historians identify which items as a major factor that started the industrial revolution in Britain? A. Steam engine B. Automobile C. Telephone D. Electric Motor

If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect: A) inflation to occur. C) the aggregate demand curve to shift leftward. B) the aggregate demand curve to shift rightward. D) the aggregate supply curve to shift leftward.

If the price of each input is $5, the per unit cost of production in the above economy is: A) $5. B) $2.75. C) $2.50. D) $.40.

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect: A) aggregate demand to decrease and aggregate supply to increase. B) both aggregate demand and aggregate supply to decrease. C) both aggregate demand and aggregate supply to increase. D) aggregate demand to increase and aggregate supply to decrease.

In the aggregate expenditures model, a reduction in taxes may: A. increase saving. B. decrease real GDP. C. increase unemployment. D. reduce consumption.

Joe owns a store specializing in soccer jerseys. In 2012 he purchased $150,000 worth of jerseys from manufactures, employed one worker for $40,000 purchased $20,000 worth of supplies from an office supply store and sold jerseys for $280,000. Based on this information what was the value added at Alejandro's store in 2012? A. 70,000 B. 110,000 C. 280,000 D. 490,000

Other things equal if the national incomes of the major trading partners of the U.S were to rise, the U.S: A. aggregate demand curve would shift to the right B. Aggregate supply curve would shift to the left C. aggregate supply curve would shift to the right D. Aggregate demand curve would shift to the left

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.: A) aggregate demand curve would shift to the right. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

Productivity measures: A) real output per unit of input. B) per unit production costs. C) the changes in real wealth caused by price level changes. D) the amount of capital goods used per worker.

Refer to the above diagram. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be: A) F and C, respectively. C) F and A, respectively. B) G and B, respectively. D) E and B, respectively.

Refer to the above diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n): A) increase in government regulation. C) increase in productivity. B) increase in aggregate demand. D) decline in nominal wages.

Refer to the above diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant: A) the aggregate supply curve would have to shift rightward. B) the aggregate supply curve would have to shift leftward. C) real domestic output would have to remain constant. D) the aggregate supply curve would have to be vertical.

Refer to the above information. Given an increase in input price from $4 to $6, we would expect the aggregate: A) supply curve to shift to the left. C) demand curve to shift to the left. B) supply curve to shift to the right. D) demand curve to shift to the right

Refer to the above table. A decrease in the interest rate would: A) increase the values in column (3) and increase aggregate demand. B) decrease the values in column (3) and increase aggregate demand. C) increase the values in column (2) and decrease aggregate demand. D) decrease the values in column (2) and decrease aggregate demand.

Refer to the above table. The real-balances effect of changes in the price level is: A) shown by columns (1) and (2) of the table. C) shown by columns (1) and (4) of the table. B) shown by columns (1) and (5) of the table. D) not shown by the data in the table.

Refer to the above table. Which of the following schedules constitutes aggregate demand in this country? (a) (b) (c) (d) P GDP P GDP P GDP P GDP 128 $19 128 $23 128 $20 128 $34 125 25 125 27 125 22 125 37 122 31 122 31 122 24 122 40 119 37 119 35 119 26 119 43 116 43 116 39 116 28 116 46

The Labor force includes: A. employed workers and persons who are unemployed but actively seeking work B. Employed workers, but excludes persons who are unemployed C. Full-time workers, but excludes part time workers D. Permanent employees but excludes temporary employees

The MPC for an economy is: A. The slope of the consumption schedule B. The slope of the savings schedule C. 1 divided by the slope of the consumption schedule D. 1 divided by the slope of the savings schedule

The economy's long-run AS curve assumes that wages and other resource prices: A) eventually rise and fall to match upward or downward changes in the price level. B) are flexible upward but inflexible downward. C) rise and fall more rapidly than the price level. D) are relatively inflexible both upward and downward.

The greater the marginal propensity to consume, the: A) smaller is the marginal propensity to save. B) higher is the interest rate. C) lower is the average propensity to consume. D) lower is the price level

The immediate determinants of investment spending are the: A) expected rate of return on capital goods and the real interest rate. B) level of saving and the real interest rate. C) marginal propensity to consume and the real interest rate. D) interest rate and the expected price level.

The key to assessing discretionary fiscal policy is to observe the change in the cyclically adjusted budget. A. True B. False

The level of productivity in the above economy is: A) 2. B) .5. C) 4. D) 200.

The production possibilities curve illustrates the basic principle that: A. If all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. B. The production of more of any one good will require smaller and smaller sacrifices of other goods. C. An economy will automatically obtain full employment of its resources. D. An economy's capacity to produce increases in proprtion to its population size.

The public debt is equal to the sum of the Federal government's past (deficits, surpluses) minus its budget (deficits, surpluses). The most meaningful way to measure the public debt is relative to (interest rates, GDP). Most of the US public debt is (internal, external) because foreigners hold about (57, 29) percent. A. deficits; surpluses; GDP; internal; 29 B. surpluses; deficits; interest rates; external; 57 C. deficits; surpluses; GDP; external; 57 D. surpluses; deficits; interest rates; internal; 29

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may: A) not be possible due to the minimum wage law. C) reduce the demands for their products. B) increase the cost of raising money capital. D) may set off a price war.

When aggregate demand declines, the price level may remain constant, at lease for a time, because: A) firms individually fear that their price cut may set off a price war. B) menu costs rise. C) price cuts tend to increase efficiency wages. D) product markets are highly competitive.

When the price level rises, A.the demand for money and interest rates rises. B.spending that is sensitive to interest-rate changes increases. C.holders of financial assets with fixed money values increase their spending. D. holders of financial assets with fixed money values have more purchasing power

Which is an important consequence of the public debt of the United States? A. It transfers a portion of the U.S. output to foreign nations. B. It reduces the income inequality in the U.S. C. It increases incentives to work, innovate and invest. D.It may crowd out public investment in nation's infrastructure.

Which is the main problem with the barter system of exchange? A. It requires a coincidence of wants B. It fosters specialization and division of labor C It encourages self-interest and selfishness D. It undermines the right to bequeath

Which of the above diagrams best portrays the effects of an increase in resource productivity?

Which of the above diagrams best portrays the effects of an increase in resource productivity? A) A B) B C) C D) D

Which of the above diagrams best portrays the effects of declines in the prices of imported resources?

Which of the above diagrams best portrays the effects of declines in the prices of imported resources? A) A B) B C) C D) D

Which of the following statements is most accurate about advanced economies? A. Economies experience a positive growth trend over the long run, but experience significant variability in the short run B. Economies expereince positive and stable growth over both the long and short run C. Economies expereince a positive growth trend over the short run, but experience significant variability in the long run. D. Economies experience little long-run growth in output but can expereince significant growth in the short run

Which of the following would be a normative Economic Statement? A. The worsening balance of trade must be corrected if this nation is to remain competitive in the world economy. B.Consumer prices are rising at a faster then in past months, indicating a renewal of inflationary pressures on the economy. C. The unemployment rate fell for the fourth straight month. reflecting the effects from stronger economic growth in the second quarter D. To help balance the federal budget, congress increased the tax on gasoline to its highest level in the past ten years.

23. Tariffs: A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs). B. are also called import quotas. C. are excise taxes on goods exported abroad. D. are per unit subsidies designed to promote exports.

A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

15. The commercial banking system has excess reserves of: A. $0 billion. B. $30 billion. C. $60 billion. D. $70 billion.

A. $0 billion.

11. Suppose the balance on the financial account is -$300 billion and the balance on the capital account is +$5 billion. The size of the current account is: A. +$295 billion. B. -$295 billion. C. +$305 billion. D. +$5 billion.

A. +$295 billion.

23. Refer to the above information. If Moolah Bank is legally "loaned up," the reserve requirement must be: A. 10 percent. B. 15 percent. C. 20 percent. D. 25 percent.

A. 10 percent.

21. At a world price of $2: A. Alpha will want to import 20 units of steel. B. Beta will want to export 20 units of steel. C. Alpha will want to export 20 units of steel. D. neither country will want to import steel.

A. Alpha will want to import 20 units of steel.

27. In the above diagram, the value of the multiplier for this economy is: A. BC/hg. B. BC/AB. C. ed/di. D. df/BC.

A. BC/hg.

35. A high tariff on imported good X might reduce domestic employment in industry Y if: A. X is an input used domestically in producing Y. B. X and Y are substitute goods. C. X is an inferior good. D. Y is an inferior good.

A. X is an input used domestically in producing Y.

46. The problem of cyclical asymmetry refers to the idea that: A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. B. the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. C. cyclical downswings are typically of longer duration than cyclical upswings. D. an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.

A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.

40. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the MPC for the economy described by the figures is 0.8: A. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level. B. an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftward by $40 billion at each price level. C. a decrease in the interest rate from 9 percent to 6 percent will shift the aggregate demand curve leftward by $100 billion at each price level. D. a decrease in the interest rate from 6 percent to 3 percent will shift the aggregate demand curve leftward by $50 billion at each price level.

A. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.

19. Refer to the above diagram. Other things equal, a leftward shift of the supply curve would: A. appreciate the euro. B. cause a shortage of euros. C. increase the equilibrium quantity of euros. D. appreciate the dollar.

A. appreciate the euro.

29. Refer to the above diagram for the Federal funds market. If the Fed wants to increase reserves from $200 billion to $300 billion it should: A. buy bonds from banks and the public. B. sell bonds to banks and the public. C. buy bonds from banks and sell them to the public. D. buy bonds from the public and sell them to banks.

A. buy bonds from banks and the public.

45. One of the strengths of monetary policy relative to fiscal policy is that monetary policy: A. can be implemented more quickly. B. is subject to closer political scrutiny. C. does not produce a net export effect. D. entails a larger spending income multiplier effect on real GDP.

A. can be implemented more quickly.

15. Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n): A. expansionary fiscal policy. B. contractionary fiscal policy. C. neutral fiscal policy. D. low-interest rate policy.

A. expansionary fiscal policy.

24. When aggregate demand declines, the price level may remain constant, at least for a time, because: A. firms individually may fear that their price cut may set off a price war. B. menu costs rise. C. price cuts tend to increase efficiency wages. D. product markets are highly competitive.

A. firms individually may fear that their price cut may set off a price war.

20. In the above diagram and other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n): A. increase in government regulation. B. increase in aggregate demand. C. increase in productivity. D. decline in nominal wages.

A. increase in government regulation.

38. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should: A. increase the money supply from $80 to $100. B. increase the money supply from $80 to $120. C. maintain the money supply at $80. D. decrease the money supply from $80 to $60.

A. increase the money supply from $80 to $100.

3. The current account in a nation's balance of payments includes: A. its goods exports and imports, and its services exports and imports. B. foreign purchases of domestic assets. C. purchases of foreign assets. D. all of these.

A. its goods exports and imports, and its services exports and imports.

2. A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

A. liabilities of $75 billion.

16. In the real world, specialization is rarely complete because: A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing. B. production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin. C. one nation's imports are necessarily another nation's exports. D. international law prohibits monopolies.

A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.

15. The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. and reserves of commercial banks are both unchanged.

A. of commercial banks are unchanged, but their reserves increase.

18. If the world price for this product is $.50, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

A. shortage of 160 units, which it will meet with 160 units of imports.

14. Refer to the above data. Beta: A. should specialize in catching fish and trade with Alpha for chips. B. should specialize in producing chips and trade with Alpha for fish. C. will not realize gains from specialization and trade. D. will export both fish and chips to Alpha.

A. should specialize in catching fish and trade with Alpha for chips.

19. Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

13. Which of the following will increase commercial bank reserves? A. the purchase of government bonds in the open market by the Federal Reserve Banks B. a decrease in the reserve ratio C. an increase in the discount rate D. the sale of government bonds in the open market by the Federal Reserve Banks

A. the purchase of government bonds in the open market by the Federal Reserve Banks

44. From September 2007 to April 2008 the Fed lowered the Federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to: A. threats to the financial system from the mortgage default crisis. B. forecasts of higher inflation rates. C. Chinese refusal to allow their exchange rate to reflect market conditions. D. pressure from the President to offset contractionary effects of a tax increase.

A. threats to the financial system from the mortgage default crisis.

Refer to the above diagram. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:

AD0

Refer to the above diagram. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:

AD3

suppose a family's consumption exceeds of its disposable income. this means that its:

APC is greater than 1

(Advanced analysis) Assume that the MPC is .8 in an economy that has an aggregate supply curve with a slope of 1. Also, suppose that the price level is flexible downward. A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by: A) $50 billion and decrease real GDP by $50 billion. B) $50 billion and decrease real GDP by $25 billion. C) $10 billion and decrease real GDP by $10 billion. D) $10 billion and decrease real GDP by $25 billion.

. If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes: A) the output effect. C) the real-balances effect. B) the foreign purchases effect. D) the shift-of-spending effect

1. Which of the following statements is incorrect? A. Given the economy's MPS, a $15 billion reduction in government spending will reduce the equilibrium GDP by more than would a $15 billion increase in taxes. B. Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4. C. If the MPC is 0.8 and GDP has declined by $40 billion, this was caused by a decline in aggregate expenditures of $8 billion. D. A government surplus is anti-inflationary; a government deficit is expansionary.

2. A lump-sum tax means that: A. the tax only applies to one time period. B. the same amount of tax revenue is collected at each level of GDP. C. tax revenues vary directly with GDP. D. tax revenues vary inversely with GDP.

A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will: A) increase real output by more than the price level. B) increase the price level by more than real output. C) reduce real output by more than the price level. D) reduce the price level by more than real output.

A trough in the business cycle occurs when: A. Cyclical unemployment is at a minimum point B. Employment and output reach their lowest levels C. The natural rate of unemployment is at a minimum point D. The inflation rate is at its lowest point

According to many economists, the primary burden of the debt is the A. absolute size of the debt for the economy. B. annual interest charges from bonds sold to finance the public debt.

An increase in input productivity will: A) shift the aggregate supply curve leftward. B) reduce the equilibrium price level, assuming downward flexible prices. C) reduce the equilibrium real output. D) reduce aggregate demand.

An upsloping aggregate supply curve weakens the realized multiplier effect because any increase in aggregate: A. demand will not have a price and an output effect B. demand will have both a price and an output effect C. supply will have both a price and output effect D. supply will not have a price and output effect

Assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus: A. saving is $10 billion. B. unplanned decreases in inventories of $10 billion will occur. C. the MPC is .80. D. unplanned increases in inventories of $10 billion will occur.

Because every transaction has a buyer and a seller, A. GDP is more closely associated with an economy's income than it is with an economy's expenditure. B. Every transaction contributes equally to an economy's income and to its expenditure. C. THe number of firms must be equal to the number of households in a simple circular-flow diagram. D. Firms profits are necessarily zero in a simple circular flow diagram.

Because tax revenues are (directly, inversely) related to GDP, the economy has some (artificial, built-in) stability. If the GDP increases, then tax revenue will increase, and the budget surplus will (increase, decrease), thus (stimulating, restraining) the economy when it is needed A. Directly; Artificial; Increase; Stimulating B. Directly, Built-in; Increase; Restraining C. Inversely; Artificial; Decrease; Stimulating D. Directly, Built-in; Increase; Stimulating

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? A. The price of chicken has rises and the price of steak sauce has fallen B. New medical evidence has been released that indicates a negative correlation between a persons beef consumption and life expectancy. C. The demand curve for beef must be positively sloped. D. Consumers have experienced an increase in income and beef production technology has improved

Current thinking about discretionary fiscal policy among mainstream economists is that it should be designed to A. counteract the effects of monetary policy. B. contribute to long-run economic growth. C. "fine-tune" the economy in the short-run, but not in the long run. D. control inflationary pressure, but not be used to fight recessioin.

Economic Systems differ according to which two main characteristics? A. How goods are produced and who gets them. B. Who owns the factors of production, and the methods used to coordinate economic activity. C. The technology used in production, and the quantity and quality of natural resources. D. The political system in place, and the degree of scarcity facing the economy.

Economists who see evidence of a political business cycle argue that members of Congress tend to increase taxes and reduce expenditures before elections and to reduce taxes and increase expenditures after elections. A. True B. False

Fear of price wars, menu costs, and wage contracts are associated with A. a price level that is inflexible upward B. a price level that is inflexible downward C. a domestic output that cannot be increased D.a domestic output that cannot be decreased

For the average U.S. firms, the largest and the most important input cost is (spending on equipment; wages; business taxes), which takes about (25%; 50%; 75%) of the firm's total costs. A. spending on equipment; 50% B. wages; 75% C. business taxes; 25% D.wages; 50%

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, we can assume that: A) the money supply has declined. B) the price level is inflexible downward and a recession has occurred. C) cost-push inflation has occurred. D) productivity has declined.

If aggregate demand increases and aggregate supply decreases, the price level: A) will decrease, but real output may either increase or decrease. B) will increase, but real output may either increase or decrease. C) and real output will both increase. D) and real output will both decrease.

If bob's disposable income increases from $4,000 to $4,500 and her level of saving increases from $200 to $325, it may be concluded that her marginal propensity to: A. Consume is .80 B. Consume is .75 C. Consume is .60 D. Save is .30

If households expect that a tax cut will be temporary, they are likely to spend more and save less, thus reinforcing the intended effect of the tax cut on aggregate demand. A.True B. False

If the price level increases in the U.S relative to foreign countries then American consumers will purchase more foreign goods and fewer U.S goods. This statement describes: A. the output effect B. the foreign purchases effect C. the interest rate effect D. the exchange rate effect

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to: A. affect neither aggregate supply nor aggregate demand B. increase aggregate demand C. reduce aggregate demand D. reduce aggregate supply

In the above diagram, a shift from AS1 to AS3 might be caused by a(n): A) increase in productivity. C) decrease in the prices of domestic resources. B) increase in the prices of imported resources. D) decrease in business taxes.

In the above diagram, a shift from AS2 to AS3 might be caused by a(n): A) decrease in interest rates. B) increase in business taxes and costly government regulation. C) decrease in the prices of domestic resources. D) decrease in the price level.

In the above diagram, the economy's relevant aggregate demand and long-run aggregate supply curves are lines: A) 4 and 2. B) 4 and 1. C) 2 and 4. D) 2 and 3.

In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the above diagram produce: A) a higher price level. B) an expansion of real output and a stable price level. C) an expansion of real output and a higher price level. D) a decline in real output and a stable price level.

In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by: A) a reduction in the price level. B) the increased availability of entrepreneurial talent. C) an increase in business taxes. D) the real-balances, interest-rate, and foreign purchases effects.

National income accountants can avoid multiple counting by: A. Including transfer payments in their calculations B. Only counting final goods C. Counting both intermediate and final goods D. Only counting intermediate goods

Other things equal, a decrease in the real interest rate will: A) expand investment and shift the AD curve to the left. B) expand investment and shift the AD curve to the right. C) reduce investment and shift the AD curve to the left. D) reduce investment and shift the AD curve to the right.

Other things equal, a reduction in personal and business taxes can be expected to: A) increase aggregate demand and decrease aggregate supply. B) increase both aggregate demand and aggregate supply. C) decrease both aggregate demand and aggregate supply. D) decrease aggregate demand and increase aggregate supply.

Other things equal, if the U.S. dollar were to depreciate, the: A) aggregate demand curve would remain fixed in place. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

Recognition, administrative, and operational lags in the timing of federal fiscal policy make fiscal policies more effective in reducing the rate of inflation and decreasing unemployment in the economy. A. True B. False

Refer to the above data. The change in aggregate demand indicated in the previous question might have been caused by: A) an increase in net exports. C) an increase in consumer wealth. B) a worsening of business expectations. D) a decrease in the personal income tax.

Refer to the above diagram. At the equilibrium price and quantity: A) aggregate demand exceeds aggregate supply. B) the amount of real output demanded and supplied are equal. C) aggregate demand equals aggregate supply. D) aggregate supply exceeds aggregate demand.

Refer to the above diagram. If the aggregate supply curve shifted from AS0 to AS1, we could say that: A) aggregate supply has increased, equilibrium output has decreased, and the price level has increased. B) aggregate supply has decreased, equilibrium output has decreased, and the price level has increased. C) an increase in the amount of output supplied has occurred. D) aggregate supply has increased and the price level has risen to G.

Refer to the above diagram. Which of the following would shift the aggregate demand curve from AD2 to AD1? A) a decline in personal income tax rates B) an increase in the international value of the dollar C) an increase in government spending D) an upward revision of expected rates of return on investment projects

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the: A) shift of the AD curve in panel (A). C) shift of the AS curve in panel (B). B) move from point a to point b in panel (B). D) move from point a to point c in panel (C).

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

Refer to the above diagrams. A decline in aggregate expenditures from AE2 to AE1 resulting from the real balances, interest rate effect, and foreign purchases effects would be depicted as: A) a movement from A to C along aggregate demand curve AD1. B) a movement from C to A along aggregate demand curve AD1. C) a shift of aggregate demand from AD1 to AD2. D) a shift of aggregate demand from AD2 to AD1

Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in saving.

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a: A) increase in real GDP. B) reverse wealth effect, caused by a decrease in stock market prices. C) decrease in income tax rates. D) decrease in saving

Refer to the above information. The per unit cost of production in this economy is: A) $.05. B) $.10. C) $.50. D) $1.00.

Which of the following is used to measure directly the average standard of living across countries? A. Purchasing power party B. Real GDP C. Nominal GDP D. Real GDP per person

Refer to the above table. If the amounts of GDP supplied at the price levels shown (in descending order) are $27, $25, $22, $18, and $13, the equilibrium price level will be: A) 128. B) 125. C) 122. D) 119.

Refer to the above table. If this nation's equilibrium price level is 125, its net exports will be: A) minus $4 billion. B) minus $2 billion. C) zero. D) $2 billion.

State and local governments' fiscal policies have tended to assist and reinforce the efforts of the federal government to counter recession and inflation A. True B. False

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate: A) demand curve will shift leftward. C) supply curve will shift leftward. B) supply curve will shift rightward. D) expenditures curve will shift downward.

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by: A. $100 billion. B. $50 billion. C. $500 billion. D. $5 billion.

Suppose that the price of each input increased from $5 to $8. The per unit cost of production in the above economy would: A) rise by $1.50 and the aggregate supply curve would shift to the right. B) rise by 60 percent and the aggregate supply curve would shift to the left. C) rise by 60 percent and the aggregate demand curve would shift to the left. D) fall by $1.50 and the aggregate demand curve would shift to the right.

The Multiplier applies to: A. investment but not to net exports, government, spending, or consumption B. Investment, net exports, government spending and consumption C. increases in spending but not to decreases in spending D. Spending by the private sector but not by the public sector

The actual budget deficit of the Federal government in 2009 was about $1.4 trillion. On the basis of this information it can be concluded that fiscal policy was expansionary in 2009. A. True B. False

The aggregate supply curve (short-run): A) graphs as a horizontal line. B) is steeper above the full-employment output than below it. C) slopes downward and to the right. D) presumes that changes in wages and other resource prices match changes in the price level.

The consumption schedule shows: A) a direct relationship between aggregate consumption and accumulated wealth. B) a direct relationship between aggregate consumption and aggregate income. C) an inverse relationship between aggregate consumption and accumulated financial wealth. D) an inverse relationship between aggregate consumption and aggregate income.

The determinants of aggregate demand: A) explain why the aggregate demand curve is downsloping. B) explain shifts in the aggregate demand curve. C) demonstrate why real output and the price level are inversely related. D) include input prices and resource productivity.

The economy's long-run aggregate supply curve: A) slopes upward and to the right. C) is horizontal. B) is vertical. D) slopes downward and to the right.

The explanation as to why the aggregate demand curve slopes downward is the same as the explanation as to why the demand curve for a single product slopes downward. A. True B. False

The fear of unwanted price wars may explain why many firms are reluctant to: A) reduce wages when a decline in aggregate demand occurs. B) reduce prices when a decline in aggregate demand occurs. C) expand production capacity when an increase in aggregate demand occurs. D) provide wage increases when labor productivity rises.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: A) increase the amount of U.S. real output purchased. B) increase U.S. imports and decrease U.S. exports. C) increase both U.S. imports and U.S. exports. D) decrease both U.S. imports and U.S. exports.

The investment demand curve portrays an inverse (negative) relationship between: A) investment and real GDP. B) the real interest rate and investment. C) the nominal interest rate and investment. D) the price level and investment.

The investment demand curve suggests: A. that changes in the real interest rate will not affect the amount invested. B. There is an inverse relationship between the real rate of interest and the level of investment spending C. That an increase in business taxes will tend to stimulate investment spending D. There is a direct relationship between the real rate of interest and the level of investment spending.

The most important determinant of consumption and saving is the: A) level of bank credit. B) level of income. C) interest rate. D) price level.

The most important determinant of consumption and saving is the: A. Level of bank credit B. level of income C. interest rate D. Price level

The multiplier effect: A) reduces the MPC. B) magnifies changes in spending into larger changes in output and income. C) promotes stability of the general price level. D) lessens upswings and downswings in business activity.

The phrase "too much spending chasing too few goods" best describes: A. the GDP gap B. Demand-Pull inflation C. The inflation premium D. Cost Push inflation

The size of the multiplier associated with an initial increase in spending will be: A) the same whether or not inflation occurs. C) zero if any increase in the price level occurs. B) diminished if inflation occurs. D) enhanced if inflation occurs.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: A) reduce per unit production costs. B) reduce worker morale and work effort, and thus lower productivity. C) increase the firms' cost of raising financial capital. D) reduce the demands for their products

When the excess capacity of business expands unintentionally, agree: A. Demand increases B. Demand Decreases C. Supply Increases D. Supply decreases

Which of the above diagrams best portrays the effects of a decrease in the availability of key natural resources? A) A B) B C) C D) D

Which of the above diagrams best portrays the effects of a decrease in the availability of key natural resources?

Which of the above diagrams best portrays the effects of a dramatic increase in energy prices?

Which of the above diagrams best portrays the effects of a dramatic increase in energy prices? A) A B) B C) C D) D

Which of the following constitute the types of unemployment occurring the natural rate of unemployment? A. Frictional and cyclical unemployment B. Structural and frictional unemployment C. Cyclical and structural unemployment D. Frictional, structural, and cyclical unemployment

Which of the following factors have been the dominant source of economic grown in the U.S.? A. Increase in population B. Increase in labor productivity C. Increase in labor hours D. Increase in labor force

Which of the following is included in GDP? A. Public Assistance for welfare recipients B. Fees received by stockbrokers C. Cash gifts from relatives during the holidays D. Payments received from selling stocks in one's portfolio

Which of the following may shift the consumption schedule upward? A. an increase in disposable income B. A decrease in real interest rates C. A significant decrease in stock prices D. A decrease in people's ability to borrow

Which of the following most closely relates to the idea of opportunity costs? A.Technological Change B. Tradeoffs C. Economic Growth D. Capitalism

Which of the following statements is true? A. If prices were fully inflexible, there would be no short-run economic fluctuations B. If prices were fully flexible, there would be no short run economic fluctuations C. Short run economic fluctuations are made worse because prices are flexible D. Short run economic fluctuations would be less severe if prices were inflexible

Which of the following would an economist consider to be investment? A. A stockbroker buying 10,000 shares of starbucks stock B. Boeing building a new factory C. Oprah buying a 10 million dollar home from a fellow celebrity D. All of the above

Which one of the following will cause a movement up along an economy's saving schedule? A) an increase in household debt outstanding B) an increase in disposable income C) an increase in stock prices D) an increase in interest rates

6. In the above diagram for a private closed economy, equilibrium GDP is: A. $60 billion. B. $180 billion. C. between $60 and $180 billion. D. $60 billion at all levels of GDP.

B. $180 billion.

6. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be: A. $25,000 and $122,000 respectively. B. $22,000 and $110,000 respectively. C. $32,000 and $115,000 respectively. D. $22,000 and $105,000 respectively.

B. $22,000 and $110,000 respectively.

9. Refer to the above data. Zabella's balance on goods and services shows a: A. $5 billion deficit. B. $5 billion surplus. C. $10 billion surplus. D. $15 billion deficit.

B. $5 billion surplus.

25. Refer to the above information and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by: A. $100. B. $90. C. $900. D. $1,000.

B. $90.

30. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the Federal funds rate by one-half of a percentage point, it should: A. act to increase reserves by $50 billion. B. act to reduce reserves by $50 billion. C. pursue an expansionary monetary policy. D. buy bonds from banks and the public.

B. act to reduce reserves by $50 billion.

43. From 2004 to 2006 the Fed raised the Federal funds rate gradually in a series of steps. The Fed's purpose was to raise the prime interest rate so that: A. high inflation rates would fall. B. aggregate demand would continue to grow consistently and with low inflation. C. aggregate supply would grow, increasing output and lowering the price level. D. banks would reduce lending that was building up unmanageable consumer debt.

B. aggregate demand would continue to grow consistently and with low inflation.

If the consumption schedule shifts downward, and the shift was not caused by a tax change then the saving schedule: A May shift either upward or downward B. Will shift Downward C. Will shift upward D. Will not shift

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is: A) 18 percent. B) 24 percent. C) 12 percent. D) 6 percen

10. Assuming labor forces of equal size, the production possibilities curves above suggest that workers in West Mudville will have: A. lower wages than workers in East Mudville before trade but equal wages after trade. B. higher wages than workers in East Mudville both before and after trade. C. lower wages than workers in East Mudville both before and after trade. D. higher wages than workers in East Mudville before trade but lower wages after trade.

B. higher wages than workers in East Mudville both before and after trade.

6. Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to: A. do nothing since the economy appears to be achieving full-employment real output. B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility. C. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. D. increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1.

B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.

21. Suppose the Federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have: A. increased by $90 billion. B. increased by $20 billion. C. decreased by $70 billion. D. decreased by $20 billion.

B. increased by $20 billion.

19. The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

4. An increase in nominal GDP increases the demand for money because: A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline.

B. more money is needed to finance a larger volume of transactions.

11. If a nation has a comparative advantage in the production of X, this means the nation: A. cannot benefit by producing and trading this product. B. must give up less of other goods than other nations in producing a unit of X. C. has a production possibilities curve identical to those of other nations. D. is not subject to increasing opportunity costs.

B. must give up less of other goods than other nations in producing a unit of X.

41. According to Dallas Federal Reserve economist W. Michael Cox, taken to its extreme, the logic of "buying American" implies that: A. we should buy everything from abroad. B. people should only consume what they can produce themselves. C. consumers should only buy goods from other states. D. the best quality goods are found in the United States.

B. people should only consume what they can produce themselves.

13. Refer to the above data. The domestic opportunity cost of: A. producing a ton of chips in Alpha is 1/5of a ton of fish. B. producing a ton of chips in Beta is 6 tons of fish. C. catching a ton of fish in Alpha is 5 tons of chips. D. catching a ton of fish in Beta is 6 tons of chips.

B. producing a ton of chips in Beta is 6 tons of fish.

39. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS1 to MS3? A. an increase in the discount rate B. purchases of U.S. securities by the Fed in the open market C. sales of U.S. securities by the Fed in the open market D. an increase in the reserve ratio

B. purchases of U.S. securities by the Fed in the open market

21. The discount rate is the interest: A. rate at which the central banks lend to the U.S. Treasury. B. rate at which the Federal Reserve Banks lend to commercial banks. C. yield on long-term government bonds. D. rate at which commercial banks lend to the public.

B. rate at which the Federal Reserve Banks lend to commercial banks.

23. When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: A. reduce per unit production costs. B. reduce worker morale and work effort, and thus lower productivity. C. increase the firms' cost of raising financial capital. D. reduce the demands for their products.

B. reduce worker morale and work effort, and thus lower productivity.

40. The "Euro Zone": A. is another name for the European Union. B. refers to the common currency used by all European Union members. C. is a geographic region in Europe with no national sovereignty, where free trade between European nations is allowed to occur. D. is the subset of the EU that uses a common currency.

B. refers to the common currency used by all European Union members.

14. If the economy has a cyclically-adjusted budget surplus, this means that: A. the public sector is exerting an expansionary impact on the economy. B. tax revenues would exceed government expenditures if full employment were achieved. C. the actual budget is necessarily also in surplus. D. the economy is actually operating at full employment.

B. tax revenues would exceed government expenditures if full employment were achieved.

23. Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation: A. gold bullion will flow into Brazil. B. the Brazilian real will depreciate. C. the Mexican peso will depreciate. D. the Brazilian real will appreciate.

B. the Brazilian real will depreciate.

21. A recessionary expenditure gap is: A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures. B. the amount by which equilibrium GDP falls short of the full-employment GDP. C. the amount by which investment exceeds saving at the full-employment GDP. D. the amount by which aggregate expenditures exceed the full-employment level of GDP.

B. the amount by which equilibrium GDP falls short of the full-employment GDP.

7. The difference between M1 and M2 is that: A. the former includes time deposits. B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances. C. the latter includes negotiable government bonds. D. the latter includes cash held by commercial banks and the U.S. Treasury.

B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances.

21. Between 1985 and 2003 the: A. dollar appreciated in value relative to the yen. B. yen appreciated in value relative to the dollar. C. dollar price of yen fell. D. yen price of dollars rose.

B. yen appreciated in value relative to the dollar.

(Consider This) The idea that the price level readily moves upward but not downward is called the: A) elevator effect. B) escalator effect. C) ratchet effect. D) stair-step effect.

.The investment demand slopes downward and to the right because lower real interest rates: A) expand consumer borrowing, making investments more profitable. B) boost expected rates of returns on investment. C) enable more investment projects to be undertaken profitably. D) create tax incentives to invest.

2. The aggregate demand curve is: A) vertical if full employment exists. B) horizontal when there is considerable unemployment in the economy. C) downsloping because of the interest-rate, real-balances, and foreign purchases effects. D) downsloping because production costs decrease as real output rises.

A nation's real GDP was $250 billion in 2011 and $265 billion in 2012. Its population was 122 million in 2011 and 125 million in 2012. What is the growth rate of real GDP per capita in 2012? A. 1.1% B. 2.5% C. 3.4% D. 5.0%

A rightward shift of the investment demand curve might be caused by: A. an increase in the price level B. a decline in the real interest rate C. businesses planning to increase their stock of inventories D. an increase in business taxes

All of the following would affect the position of the supply curve for cranberries except the: A. Price of agricultural land for cranberries B. Cost of fertilizers for cranberry production C.Popularity of cranberry drinks D. Development of a new pest control for cranberries.

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a: A) rightward shift of the aggregate demand curve. B) leftward shift of the aggregate demand curve. C) movement downward along a fixed aggregate demand curve. D) decrease in aggregate supply.

Dissaving occurs where: A) income exceeds consumption. B) saving exceeds consumption. C) consumption exceeds income. D) saving exceeds income.

For the aggregate demand curve, when the price level changes, there is a (movement along, change in) the curve. When the entire aggregate demand curve shifts, there is a change in (the quantity of real output demanded, aggregate demand). A. movement along; the quantity of real output demanded B.change in; the quantity of real output demanded C.movement along; aggregate demand D. change in; aggregate demand

Graphically, cost-push inflation is shown as a: A) leftward shift of the AD curve. C) leftward shift of AS curve. B) rightward shift of the AS curve. D) rightward shift of the AD curve.

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a: A) rightward shift of the aggregate demand curve along a fixed aggregate supply curve. B) rightward shift of the aggregate supply curve along a fixed aggregate demand curve. C) rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. D) leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

If a $100 Billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round income will eventually decline by: A. 200 billion B. 300 billion C. 400 billion D. 500 billion

If an unintended increase in business inventories occurs: A. we can expect aggregate production to be unaffected. B. we can expect businesses to increase the level of production. C. we can expect businesses to lower the level of production. D. aggregate expenditures must exceed the domestic output.

If for some reason households become increasingly thrifty, we could show this by: A) a downshift of the saving schedule. B) an upshift of the consumption schedule. C) an upshift of the saving schedule. D) an increase in the equilibrium GDP.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A) leftward by $40 billion at each price level. C) rightward by $50 billion at each price level. B) rightward by $10 billion at each price level. D) leftward by $20 billion at each price level.

If the United States wants to increase its net exports, it might take steps to: A) increase its GDP. B) reduce existing tariffs and import quotas. C) decrease the dollar price of foreign currencies. D) increase the dollar price of foreign currencies

In a private closed economy, when aggregate expenditures equal GDP: A. consumption equals investment. B. consumption equals aggregate expenditures. C. planned investment equals saving. D. disposable income equals consumption minus saving.

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because A. Of changes in trade deficits and surpluses B. the length of the workweek has declined historically C. inflation arises over time D. depreciation may be greater or smaller than gross investment

In national income accounting, consumption expenditures include A. Purchases of both new and used consumer goods B. Consumer durable goods and consumer nondurable goods but not services C. Consumer durable goods, consumer nondurable goods, and services D. Changes in business inventories

In the above diagram, a shift from AS1 to AS2 might be caused by a(n): A) increase in market power of resource sellers. C) decrease in the prices of domestic resources. B) increase in the prices of imported resources. D) increase in business taxes.

In the above diagram, a substantial appreciation of the U.S. dollar with no immediate change in the U.S. price level would result in a: A) movement upward along an existing aggregate supply curve such as AS1 B) movement downward along an existing aggregate supply curve such as AS1 C) rightward shift of the aggregate supply curve, such as from AS1 to AS2 D) leftward shift of the aggregate supply curve, such as from AS1 to AS3 .

In which of the following sets of circumstances can we confidently expect inflation? A) aggregate supply and aggregate demand both increase B) aggregate supply and aggregate demand both decrease C) aggregate supply decreases and aggregate demand increases D) aggregate supply increases and aggregate demand decreases

JR sells RV's. In 2012 she added 400,000 to her inventory. In 100,000 of this addition was from used RV's she purchased while the remaining 300,000 was from her purchases of newly manufactured RV's. How much of JR's inventory is included in 2012 GDP A. O B. 100,000 C. 300,000 D. 400,000

Menu costs: A) increase during recession. B) decrease during recession. C) are the costs to firms of changing prices and communicating them to customers. D) are sunk costs and therefore should be disregarded.

Monopoly or market power is the ability of a firm to: A) shift its demand curve to the right. C) set its price. B) shift its demand curve to the left. D) achieve economies of scale.

Other things equal a 10 percent decrease in corporate income taxes will A. decrease the market price of capital goods B. have no effect on the location of the investment-demand curve C. shift the investment- demand curve to the right D. Shift the investment-demand curve to the left

Other things equal, a 10 percent decrease in corporate income taxes will: A) decrease the market price of real capital goods. B) have no effect on the location of the investment-demand curve. C) shift the investment-demand curve to the right. D) shift the investment-demand curve to the left.

Other things equal, an improvement in productivity will: A) shift the aggregate demand curve to the left. C) shift the aggregate supply curve to the right. B) shift the aggregate supply curve to the left. D) increase the price level.

Other things equal, appreciation of the dollar: A) increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. B) increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. C) decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. D) decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (B) and (C).

Refer to the above diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE1 to AE2 would: A) move the economy from A to C along AD1 C) increase aggregate demand from AD1 to AD2 B) move the economy from C to A along AD1 D) decrease aggregate demand from AD2 to AD1 .

Refer to the above table. If equilibrium real GDP is $31 billion, the equilibrium price level will be: A) 128. B) 125. C) 122. D) 119. E) 116.

Refer to the above table. The interest-rate effect of changes in the price level is shown by columns: A) (1) and (4) of the table. C) (1) and (3) of the table. B) (5) and (6) of the table. D) (2) and (4) of the table.

Suppose a family's consumption exceeds its disposable income. This means that its: A) MPC is greater than 1. B) MPS is negative. C) APC is greater than 1. D) APS is positive.

Suppose an individual sees a tremendous opportunity to produce and sell a new product, but dismisses the idea because there is no way to exploit the opportunity for personal gain. This situation best identifies the: A. Self-Sufficiency dilemma under communism B. Asymmetric information problem under communism C.Incentive problem under communist central planning D. Coordination problem under communist central planning.

The aggregate demand curve is the relationship between the total demand for output and the: A. Income Level B. Interest Rate C. Price level D. Real GDP

The aggregate expenditures model and the aggregate demand curve can be reconciled because, other things equal, in the aggregate expenditures model: A) changes in the price level have no effect on the equilibrium level of GDP. B) an increase in the price level increases the real value of wealth. C) the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level. D) the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: A) real-balances, interest-rate, and foreign purchases effects. B) determinants of aggregate supply. C) determinants of aggregate demand. D) sole determinants of the equilibrium price level and the equilibrium real output

The interest-rate and real-balances effects are important because they help explain: A) rightward and leftward shifts of the aggregate demand curve. B) why fiscal policy cannot be used effectively to curb inflation. C) the shape of the aggregate demand curve. D) the shape of the aggregate supply curve.

The investment demand curve will shift to the right as the result of: A) the availability of excess production capacity. B) an increase in business taxes. C) businesses becoming more optimistic about future business conditions. D) an increase in the real interest rate.

The price of a small sized soft ice cream cone at Dairy Queen is 2.50 and jack has 10 dollars he could spend on ice cream or other items. Jack feels the first unit of ice cream is worth 3.50, the 2nd ice cream is worth 2.75 and the 3rd is worth 2.25 and all subsequent ice creams are wroth 1.50. How many ice cream cones could he purchase? A. Four B. Three C. Two D.One

The relationship between consumption and disposable income is such that: A. an inverse and stable relationship exists between consumption and income B. a direct but very volatile relationship exists between consumption and income C a direct and relatively stable relationship exists between consumption and income D. the two are usually equal

What is the primary reason that economic shocks lead to cyclical changes in output in employment? A. Government is unable to respond by changing the amount of money in circulation B. Changes in total spending cause supply shocks that cause cyclical variation C. Prices are sticky in the short urn D. Prices are flexible in the long run

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of: A) the foreign purchases effect. B) inflexible product prices. C) wage contracts. D) the wealth effect.

When oil and energy prices rise, the economy tends to experience: A. Natural inflation B. Demand-Pull inflation C. Cost-Push Inflation D. Unanticipated inflation

When one speaks of "demand" in a particular market this refers to: A. One price-quantity combination on the demand curve B.One point on the demand curve C. The whole demand curve D.How much of an item buyers want to buy at a given price.

When the US dollar appreciates relative to foreign currencies it means that: A. We need more dollars to buy each unit of another currency B. We can buy less foreign currency with a given amount of dollars C. The value of foreign currencies decreased relative to our dollar D. Foreigners need less of their currency to buy one dollar

Which of the above diagrams best portrays an improvement in expected rates of return on investment?

Which of the above diagrams best portrays an improvement in expected rates of return on investment? A) A B) B C) C D) D

Which of the above diagrams best portrays the effects of an increase in consumer spending? A) A B) B C) C D) D

Which of the above diagrams best portrays the effects of an increase in foreign spending on U.S. products?

Which of the above diagrams best portrays the effects of an increase in foreign spending on U.S. products? A) A B) B C) C D) D

Which of the following is incorrect? A) As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B) As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases. C) When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D) Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

10. The short-run aggregate supply curve represents circumstances where: A. both input and output prices are fixed. B. both input and output prices are flexible. C. input prices are fixed, but output prices are flexible. D. input prices are flexible, but output prices are fixed.

C. input prices are fixed, but output prices are flexible.

Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left? A) a reduction in business taxes B) production bottlenecks occurring when producers near full plant capacity C) an increase in the price of imported resources D) deregulation of industry

(Advanced analysis) Answer the question on the basis of the following data: Which of the following equations correctly represents the above data?

C = 40 + .6Yd

7. In the above diagram for a private closed economy, investment: A. decreases as GDP increases. B. increases as GDP increases. C. is $40 billion at all levels of GDP. D. is $60 billion at all levels of GDP.

C. is $40 billion at all levels of GDP.

22. Assuming that Alpha and Beta are the only two nations in the world, the equilibrium world price of steel must be between: A. $5 and $4. B. $4 and $3. C. $3 and $2. D. $2 and $1.

C. $3 and $2.

9. At equilibrium in the above market for money, the total amount of money demanded is: A. $500. B. $480. C. $460. D. $440.

C. $460.

16. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by: A. $0 billion. B. $7 billion. C. $9 billion. D. $10 billion.

C. $9 billion.

12. Which of the following would reduce the money supply? A. Commercial banks use excess reserves to buy government bonds from the public. B. Commercial banks loan out excess reserves. C. Commercial banks sell government bonds to the public. D. A check clears from Bank A to Bank B.

C. Commercial banks sell government bonds to the public.

24. Which of the following actions by the Fed will increase commercial bank lending potential? A. Raising the reserve ratio. B. Increasing the Federal funds rate target. C. Expanding the amount of reserves available through the term auction facility. D. Selling bonds to commercial banks and the public.

C. Expanding the amount of reserves available through the term auction facility.

33. In the above diagram Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. The size of the import quota: A. is vz. B. is vy. C. is wy. D. cannot be determined.

C. is wy.

22. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? A. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held. C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion. D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

5. On the basis of the above information: A. Gamma should export both tea and pots to Sigma. B. Sigma should export tea to Gamma and Gamma should export pots to Sigma. C. Gamma should export tea to Sigma and Sigma should export pots to Gamma. D. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

C. Gamma should export tea to Sigma and Sigma should export pots to Gamma.

28. With a per unit tariff of PcPt, the total amount of tariff revenue collected on this product will be: A. PaPt times wy. B. PcPa times x. C. PcPt times wy. D. PcPt times z.

C. PcPt times wy.

25. Which of the following statements is true? A. The Federal Reserve sets the Federal funds rate. B. The Federal Reserve sets the target for the Federal funds rate, and then uses the reserve ratio to push banks toward that target. C. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations. D. The Federal Reserve will set a higher target for the Federal funds rate if pursuing an expansionary monetary policy.

C. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations.

2. Which of the following is incorrect? A. As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B. As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases. C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D. Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

3. When economists say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

C. a monetary unit for measuring and comparing the relative values of goods.

28. The recessionary expenditure gap associated with the recession of 2007-2009 resulted from: A. the government's attempt to control hyperinflation. B. a major increase in personal and corporate taxes. C. a rapid decline in investment spending. D. a rapid increase in imports resulting from large tariff reductions.

C. a rapid decline in investment spending.

12. If the price level is 250 and producers supply $450 of real output: A. a shortage of real output of $150 will occur. B. a shortage of real output of $100 will occur. C. a surplus of real output of $150 will occur. D. neither a shortage nor a surplus of real output will occur.

C. a surplus of real output of $150 will occur.

22. In which of the following sets of circumstances can we confidently expect inflation? A. aggregate supply and aggregate demand both increase B. aggregate supply and aggregate demand both decrease C. aggregate supply decreases and aggregate demand increases D. aggregate supply increases and aggregate demand decreases

C. aggregate supply decreases and aggregate demand increases

13. Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit: A. at all levels of GDP. B. at any level of GDP above $400. C. at any level of GDP below $400. D. only when GDP is stable.

C. at any level of GDP below $400.

27. Which of the following is the best example of public investment? A. salaries of Senators and Representatives B. government expenditures on food stamps C. construction of highways D. funding of regulatory agencies

C. construction of highways

33. According to the Taylor rule: A. for every 1 percentage point that unemployment exceeds the natural rate of unemployment, there is a 2 percentage point gap between potential and actual GDP. B. growth in the money supply should be limited to the long-run average growth rate of real GDP. C. if inflation rises by 1 percentage point above its target, then the Fed should raise the real Federal funds rate by one-half a percentage point. D. the rate of money growth should be set at 4 percent per year.

C. if inflation rises by 1 percentage point above its target, then the Fed should raise the real Federal funds rate by one-half a percentage point.

17. The American Recovery and Reinvestment Act of 2009: A. created a $700 billion rescue package for financial institutions. B. cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers. C. implemented a $787 billion package of tax cuts and government expenditure increases. D. substantially lowered interest rates in an attempt to stimulate investment spending.

C. implemented a $787 billion package of tax cuts and government expenditure increases.

19. In the above diagram, a shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n): A. decrease in aggregate supply. B. decrease in the amount of output supplied. C. increase in investment spending. D. decrease in net export spending.

C. increase in investment spending.

23. The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008: A. severely depleted the assets of the Federal Reserve. B. have been little used, and therefore ineffective. C. increased the moral hazard problem by limiting losses from bad financial decisions. D. were designed to offset the moral hazard created by the TARP and other bailout programs.

C. increased the moral hazard problem by limiting losses from bad financial decisions.

In the above diagram, a shift from AS3 to AS2 might be caused by an increase in: A) business taxes and government regulation. C) the prices of domestic resources. B) the prices of imported resources. D) productivity.

26. The Fed directly sets: A. the prime interest rate but not the Federal funds rate. B. both the Federal funds rate and the prime interest rate. C. neither the Federal funds rate nor the prime interest rate. D. the discount rate and the prime interest rate.

C. neither the Federal funds rate nor the prime interest rate.

22. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1000. B. liabilities are $300. C. net worth is $100. D. annual profit is $200.

C. net worth is $100.

7. Refer to the above diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if: A. the asset demand for money increased. B. the transactions demand for money increased. C. nominal GDP decreased. D. the overall price level rose.

C. nominal GDP decreased.

3. In which of the following situations is it certain that the quantity of money demanded by the public will decrease? A. nominal GDP decreases and the interest rate decreases B. nominal GDP increases and the interest rate decreases C. nominal GDP decreases and the interest rate increases D. nominal GDP increases and the interest rate increases

C. nominal GDP decreases and the interest rate increases

23. Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts? A. the discount rate B. the reserve ratio C. open market operations D. the Federal funds rate

C. open market operations

5. The aggregate supply curve (short-run) is upsloping because: A. wages and other resource prices match changes in the price level. B. the price level is flexible upward but inflexible downward. C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output. D. wages and other resource prices are flexible upward but inflexible downward.

C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

2. In international financial transactions, what are the only two things that individuals and firms can exchange? A. currency and real assets. B. services and manufactured goods. C. preexisting assets and currently produced goods and services. D. currency and currently produced goods and services.

C. preexisting assets and currently produced goods and services.

20. If government desired to raise the equilibrium GDP to $650, it could: A. raise G by $45 and reduce T by $10. B. raise G by $40 and reduce T by $30. C. raise G by $30 or reduce T by $40. D. raise both G and T by $40.

C. raise G by $30 or reduce T by $40.

5. Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to: A. increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2. B. reduce taxes on businesses to shift the aggregate supply curve leftward. C. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2. D. do nothing since the economy appears to be achieving full-employment real GDP.

C. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2.

3. If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A. leftward by $50 billion at each price level. B. rightward by $10 billion at each price level. C. rightward by $50 billion at each price level. D. leftward by $40 billion at each price level.

C. rightward by $50 billion at each price level.

9. Other things equal, an improvement in productivity will: A. increase the equilibrium price level. B. shift the aggregate supply curve to the left. C. shift the aggregate supply curve to the right. D. shift the aggregate demand curve to the left.

C. shift the aggregate supply curve to the right.

25. To say that "the U.S. public debt is mostly held internally" is to say that: A. only interest payments on the public debt are an economic burden. B. official figures understate the size of the public debt. C. the bulk of the public debt is owned by U.S. citizens and institutions. D. the public debt is equal to the land and buildings assets owned by the Federal government.

C. the bulk of the public debt is owned by U.S. citizens and institutions.

36. Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary? A. the increase-domestic-employment argument B. the cheap-foreign-labor argument C. the diversification-for-stability argument D. the infant-industry argument

C. the diversification-for-stability argument

16. The immediate primary cause of the swing from Federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was: A. the tax cuts of 2001. B. spending increases relating to the wars in Afghanistan and Iraq. C. the recession of 2001. D. the acceleration of inflation in 2001 and 2002.

C. the recession of 2001.

10. In the aggregate expenditures model, technological progress will shift the investment schedule: A. downward and increase aggregate expenditures. B. downward and decrease aggregate expenditures. C. upward and increase aggregate expenditures. D. upward and decrease aggregate expenditures.

C. upward and increase aggregate expenditures.

37. A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that: A. labor costs and product prices are not related. B. there is no discernible relationship between wage rates and labor productivity. C. wage rates and labor productivity are directly related. D. wage rates and labor productivity are inversely related.

C. wage rates and labor productivity are directly related.

13. If the price index rises from 100 to 120, the purchasing power value of the dollar: A. may either rise or fall. B. will rise by one-sixth. C. will fall by one-sixth. D. will rise by 20 percent.

C. will fall by one-sixth.

In the above diagram, the most favorable shift of the aggregate supply curve for the economy would be from: A) AS1 to AS2 B) AS1 to AS3 C) AS2 to AS3 D) AS3 to AS2 .

(Last Word) Why is there a shortage of human organs available for transplant? A. The quantity supplied is greater than the quantity demand at the current zero price. B. The supply curve for human organs is horizontal at the current zero price. C. The demand curve for organs is vertical at the current zero price D. The quantity demanded is greater than the quantity supplied at the current zero price

. If the dollar appreciates relative to foreign currencies, we would expect: A. the multiplier to decrease. B. a country's exports and imports to both fall. C. a country's net exports to rise. D. a country's net exports to fall.

1. The aggregate demand curve: A) is upsloping because a higher price level is necessary to make production profitable as production costs rise. B) is downsloping because production costs decline as real output increases. C) shows the amount of expenditures required to induce the production of each possible level of real output. D) shows the amount of real output that will be purchased at each possible price level.

12. Unintended changes in inventories: A. cause the economy to move away from the equilibrium GDP. B. are treated as components of consumption. C. bring actual investment and saving into equality only at the equilibrium level of GDP. D. bring actual investment and saving into equality at all levels of GDP.

An increase in investment spending caused by higher expected rates of return will: A) shift the aggregate supply curve to the left. B) move the economy up along an existing aggregate demand curve. C) shift the aggregate expenditures curve downward and the aggregate demand curve to the left. D) shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

An increase in net exports will shift the AD curve to the: A) left by a multiple of the change in investment. B) left by the same amount as the change in investment. C) right by the same amount as the change in investment. D) right by a multiple of the change in investment.

An increase in taxes will have a greater effect on the equilibrium GDP: A. if the tax revenues are redistributed through transfer payments. B. the larger the MPS. C. the smaller the MPC. D. the larger the MPC.

Economists develop economic principles at two levels: Microeconomics and macroeconomics. Which of the following statements do NOT pertain to macroeconomics? A. "More Workers are being hired by the nation's business" B. "The U.S. economy imported more goods and services than it exported last year." C. "The U.S. economy grew at an annual rate of 2.4 percent last year." D. "New Discoveries in medicine are leading to strong growth in the biotech industry."

Graphically the market demand curve is: A. Steeper than any individual demand curve that is part of it B. Greater than the sum of the individual demand curves C. The vertical sum of individual demand curves D. The horizontal sum of individual demand curves

If the US dollar appreciates relative to foreign currencies, then: A. U.S goods will look cheaper to foreign buyers B. Foreign goods will look more expensive to U.S buyers C. Net exports of the U.S will increase D. Foreign buyers will find U.S goods becoming more expensive

If the dollar appreciates relative to foreign currencies, we would expect: A) the multiplier to decrease. B) a country's exports and imports to both fall. C) a country's net exports to rise. D) a country's net exports to fall

In a mixed open economy, if aggregate expenditures exceed GDP: A.Ig +X+G=Ca. B.Ca +Ig +Xn +G<domesticoutput. C.Ig >S. D.Ig +X+G>Sa +M+T.

In a private closed economy, when aggregate expenditures exceed GDP: A. GDP will decline. B. business inventories will rise. C. saving will decline. D. business inventories will fall.

In deriving the aggregate demand curve from the aggregate expenditures model we note that: A) the real-balances effect is irrelevant to both models. B) a change in the price level will have no impact on the aggregate expenditures schedule. C) an increase (decrease) in the price levels shifts the aggregate expenditures schedule upward (downward). D) an increase (decrease) in the price level shifts the aggregate expenditures schedule downward (upward).

In the treatment of U.S exports and imports, national income accountants A. Subtract exports, but add imports in calculating U.S GDP B. Subtract both exports and imports in calculating U.S GDP C. Add both exports and imports in calculating U.S GDP D. Add exports but subtract imports, in calculating U.S GDP

Investment spending in the U.S. tends to be unstable because: A. expected profits are high variable B. Capital goods are durable C. Innovation occurs at an irregular pace D. all of these contribute to the instability

Other things equal, a decrease in the real interest rate will: A) shift the investment demand curve to the right. B) shift the investment demand curve to the left. C) move the economy upward along its existing investment demand curve. D) move the economy downward along its existing investment demand curve

Prices and wages tend to be: A) flexible both upward and downward. C) flexible downward, but inflexible upward. B) inflexible both upward and downward. D) flexible upward, but inflexible downward.

Refer to the above diagram. At income level F the volume of saving is: A) BD. B) AB. C) CF-BF. D) CD.

Refer to the above diagram. If equilibrium real output is Q2, then: A) aggregate demand is AD1 C) producers will supply output level Q1 B) the equilibrium price level is P1 D) the equilibrium price level is P2 .

Refer to the above diagram. If the equilibrium price level is P1, then: A) aggregate demand is AD2 C) the equilibrium output level is Q2 B) the equilibrium output level is Q3 D) producers will supply output level Q1 .

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by: A) panel (A) only. B) panel (B) only. C) panel (C) only. D) panels (A) and (B).

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in: A) panel (A) only. B) panel (B) only. C) panel (C) only D) panels (A) and (C).

Refer to the above graph. A movement from a to b along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in real GDP.

Refer to the above information. All else being equal, if the price of each input increased from $4 to $6, productivity would: A) fall from 2 to 3. B) fall from .50 to .33. C) rise from 1 to 2. D) remain unchanged.

Refer to the above information. If the per unit price of raw materials rises from $4 to $8 and all else remains constant, the per unit cost of production will rise by about: A) 100 percent. B) 50 percent. C) 40 percent. D) 30 percent

Refer to the above information. The level of productivity is: A) 20. B) 10. C) 5. D) 2.

Refer to the above table. A decline in the international value of the dollar would: A) increase the values in columns (5) and (6) and reduce aggregate demand. B) decrease the values in columns (5) and (6) and increase aggregate demand. C) decrease the values in column (5), increase the values in column (6), and reduce aggregate demand. D) increase the values in column (5), decrease the values in column (6), and increase aggregate demand.

Refer to the above table. If the equilibrium level of real GDP is $43 billion, its level of consumption will be: A) $20 billion. B) $22 billion. C) $24 billion. D) $26 billion.

Shifts in the aggregate supply curve are caused by changes in: A) consumption spending. B) the quantity of real output demanded. C) the quantity of real output supplied. D) one or more of the determinants of aggregate supply.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: A) 80 percent. B) 8 percent. C) 2 percent. D) 20 percent.

Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The persons real income will: A. fall by about 1 percent B. Remain constant C. Rise by about 4 percent D. Rise by about 1 percent

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.75. The Federal government now finds that it must increase spending on military goods by $21 billion in response to deterioration in the international political situation. To sustain full-employment-noninflationary GDP government must: A. reduce taxes by $28 billion. B. reduce transfer payments by $21 billion. C. increase taxes by $21 billion. D. increase taxes by $28 billion.

The APC can be defined as the fraction of a: A) change in income that is not spent. B) change in income that is spent. C) specific level of total income that is not consumed. D) specific level of total income that is consumed.

The aggregate supply curve (short-run) slopes upward and to the right because: A) changes in wages and other resource prices completely offset changes in the price level. B) the price level is flexible upward but inflexible downward. C) supply creates its own demand. D) wages and other resource prices adjust only slowly to changes in the price level.

The consumption schedule shows: A) that the MPC increases in proportion to GDP. B) that households consume more when interest rates are low. C) that consumption depends primarily on the level of business investment. D) the amounts households plan or intend to consume at various possible levels of aggregate income.

The determinants (shifters) of aggregate supply: A. Are consumption, investment, government and net export spending B. Explain why real domestic output and the price level are positivley related C. Explain the three distinct ranges of the aggregate supply curve D. Include input prices and input productivity

The determinants of aggregate supply: A) are consumption, investment, government, and net export spending. B) explain why real domestic output and the price level are directly related. C) explain the three distinct ranges of the aggregate supply curve. D) include resource prices and resource productivity.

The industries or sectors of the economy in which business cycle fluctuation tend to affect output most are: A. Military goods and capital goods B. Services and consumer nondurable goods C. Clothing and education D. Capital goods and consumer durable goods

The real-balances effect indicates that: A) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B) a lower price level will decrease the real value of many financial assets and therefore reduce spending. C) a higher price level will increase the real value of many financial assets and therefore increase spending. D) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

The short-run aggregate-supply curve is (horizontal; up-sloping) because nominal wages are (quick; slow) to adjust to changing economic conditions. In other words, wages are (sticky; flexible) in the short run. This particular speed of adjustment of nominal wages is attributable to (short-term; long-term) wage contracts between workers and firms that fix nominal wages for as long as three to five (months; years). A. horizontal; quick; flexible; short-term; months B. up-sloping; slow; flexible; long-term; years C. horizontal; slow; sticky; short-term; months D. up-sloping; slow; sticky; long-term; years

The size of the multiplier is equal to the: A) slope of the consumption schedule. B) reciprocal of the slope of the consumption schedule. C) slope of the saving schedule. D) reciprocal of the slope of the saving schedule.

The value of the multipler is likely to fall if there is a fall in: A. the marginal propensity to save B. Income C. Total Spending D. The marginal propensity to consume

Unemployment: A. Can exist at any point on a production possibilities curve B. Causes the production possibilities curve to shift inward C. Is illustrated by a point outside the production possibilities curve D. Is illustrated by a point inside the production possibilities curve

Which of the above diagrams best portrays the effects of a substantial reduction in government spending?

Which of the above diagrams best portrays the effects of a substantial reduction in government spending? A) A B) B C) C D) D

Which of the above diagrams best portrays the effects of declines in the incomes of U.S. trading partners?

Which of the above diagrams best portrays the effects of declines in the incomes of U.S. trading partners? A) A B) B C) C D) D

Which of the following explains why the aggregate demand schedule is downward sloping: A) the real-balances effect C) the foreign purchases effect B) the interest-rate effect D) all of the above

Which of the following is a consequence of rent controls established in large cities to keep housing affordable for the poor? A. The quality of rental housing declines as landlords lack the funds and incentives to maintain properties. B. Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices C. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled D. All of these are consequences of rent controls

Which of the following is a demand factor in economic growth? A. More human and natural resources B. Technological progress and innovation C. An increase in the economy's stock of capital goods D. An increase in total spending in the economy

Which of the following is a true statement? A) firms and resource suppliers generally find it easier to reduce prices than to raise them. B) as the price level increases, interest rates will rise and therefore consumption and investment spending will also rise. C) an initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes. D) a decline in aggregate demand will primarily affect real output and employment if prices are inflexible

Which of the following would increase GDP by the greatest amount? A. a $20 billion reduction in taxes B. $20 billion increases in both government spending and taxes C. $20 billion decreases in both government spending and taxes D. a $20 billion increase in government spending

Which of the following would not shift the aggregate supply curve? A) an increase in labor productivity C) a decline in business taxes B) a decline in the price of imported oil D) an increase in the price level

Which of the following would reduce GDP by the greatest amount? A) a $20 billion increase in taxes B) $20 billion increases in both government spending and taxes C) $20 billion decreases in both government spending and taxes D) a $20 billion decrease in government spending

20. Under a system of freely flexible (floating) exchange rates a U.S. trade deficit with Mexico will tend to cause: A. the United States government to ration pesos to U.S. importers. B. a flow of gold from the United States to Mexico. C. an increase in the peso price of dollars. D. an increase in the dollar price of pesos.

D. an increase in the dollar price of pesos.

30. With a $1 per unit tariff, price and total quantity sold will be: A. $3 and 7 units. B. $5 and 2 units. C. $3 and 7 units. D. $2 and 11 units.

D. $2 and 11 units.

7. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of: A. $8,000. B. $15,000. C. $48,000. D. $25,000.

D. $25,000.

4. This commercial bank has excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000.

D. $5,000.

5. This bank can safely expand its loans by a maximum of: A. $7,000. B. $25,000. C. $12,000. D. $5,000.

D. $5,000.

17. After the deposit of $10 billion of new currency, the maximum amount by which this commercial banking system can expand the supply of money by lending is: A. $9 billion. B. $45 billion. C. $36 billion. D. $90 billion.

D. $90 billion.

34. Which of the following best describes the cause-effect chain of an expansionary monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

12. The above data show that: A. Beta has a comparative advantage in producing chips. B. Alpha has a comparative advantage in catching fish. C. Alpha is subject to constant costs and Beta is subject to increasing costs. D. Beta is more efficient than Alpha both in catching fish and in producing chips.

D. Beta is more efficient than Alpha both in catching fish and in producing chips.

27. Which of the following resulted from the financial crisis of 2007-2008? A. A national bank holiday was declared that shut down banks for one week. B. The Fed raised reserve requirements to keep cash from flowing out of banks. C. The Fed raised interest rates to entice depositors to keep their money in banks. D. FDIC insurance was increased from $100,000 to $250,000 per account.

D. FDIC insurance was increased from $100,000 to $250,000 per account.

9. Which of the following is correct? A. Both the granting and repaying of bank loans expand the aggregate money supply. B. Granting and repaying bank loans do not affect the money supply. C. Granting a bank loan destroys money; repaying a bank loan creates money. D. Granting a bank loan creates money; repaying a bank loan destroys money.

D. Granting a bank loan creates money; repaying a bank loan destroys money.

4. Differences in production efficiencies among nations in producing a particular good result from: A. different endowments of fertile soil. B. different amounts of skilled labor. C. different levels of technological knowledge. D. all of these.

D. all of these.

19. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase the Fed could: A. sell $20 billion of U.S. securities to the banks. B. buy $20 billion of U.S. securities from the banks. C. sell $40 billion of U.S. securities to the banks. D. buy $40 billion of U.S. securities from the banks.

D. buy $40 billion of U.S. securities from the banks.

3. Which of the following is an example of a capital-intensive commodity? A. clothing B. wool C. sunflower seeds D. chemicals

D. chemicals

6. Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not sustainable because the: A. supply of bonds in the bond market will decline and the interest rate will rise. B. supply of bonds in the bond market will increase and the interest rate will decline. C. demand for bonds in the bond market will decline and the interest rate will rise. D. demand for bonds in the bond market will rise and the interest rate will fall.

D. demand for bonds in the bond market will rise and the interest rate will fall.

17. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. B. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. C. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

25. Under a system of fixed exchange rates, a nation that has chronic balance of payments deficits may: A. initiate protectionist trade policies. B. run short of international monetary reserves. C. be forced to invoke contractionary monetary and fiscal policies. D. do all of these.

D. do all of these.

26. Credit card balances are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2.

21. Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. they held mortgage-backed securities they had purchased from investment firms. C. homebuyers defaulted on mortgages held by the banks. D. of all of these reasons.

D. of all of these reasons.

24. TIAA-CREF, Teamsters' Union, and CalPERS, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

D. pension funds.

6. In the above diagram, a shift from AS3 to AS2 might be caused by an increase in: A. business taxes and government regulation. B. the prices of imported resources. C. the prices of domestic resources. D. productivity.

D. productivity.

24. In the above table, if the full-employment real GDP is $100 the: A. inflationary expenditure gap is $30. B. inflationary expenditure gap is $10. C. recessionary expenditure gap is $30. D. recessionary expenditure gap is $10.

D. recessionary expenditure gap is $10.

18. Refer to the above data. Suppose the Fed sold $10 billion of U.S. securities to the banks. This would: A. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. B. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion. C. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

20. When the required reserve ratio is increased, the excess reserves of member banks are: A. reduced, but the multiple by which the commercial banking system can lend is unaffected. B. reduced and the multiple by which the commercial banking system can lend is increased. C. increased and the multiple by which the commercial banking system can lend is increased. D. reduced and the multiple by which the commercial banking system can lend is reduced.

D. reduced and the multiple by which the commercial banking system can lend is reduced.

48. In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of: A. the crowding-out effect. B. "pulling on a string." C. the Taylor rule. D. the liquidity trap.

D. the liquidity trap.

28. Refer to the above diagram for the Federal funds market. If the Fed supplies $200 billion in reserves, the equilibrium prime interest rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given.

D. undeterminable with the information given.

T OR F: The price level in the United States is more flexible downward than upward.

False

the paper money used in the United States is:

Federal Reserve Notes

Which one of the following would not shift the aggregate demand curve?

a change in the price level

The consumption schedule is:

a direct relationship between consumption and disposable income.

if you write a check on a bank to purchase a used honda civic, you are using money primarily as:

a medium of exchange

money functions as:

a store of value, a unit of account, a medium of exchange.. ect

which of the fallowing is a tool of monetary policy? a) open market operations b) changes in banking laws c) changes in tax rates d) changes in government spending

a) open market operations

Assume the economy is at full employment and that investment spending declines dramatically. Under these conditions government fiscal policy should be directed toward:

an excess of government expenditures over tax receipts.

Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy?

an increase in Federal income tax rates

The saving schedule shown in the above diagram would shift downward if, all else equal:

consumer wealth rose rapidly because of a significant increase in stock market prices.

Holly's break-even level of income is $10,000 and her MPC is .75. If her actual disposable income is $16,000, her level of:

consumption spending will be $14, 500

If the government increases its spending during recession to assist the economy, the funds for such expenditures must come from some source. Which of the following sources would be the most expansionary?

creating new money

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:

decreasing taxes by $25 billion.

Countercyclical discretionary fiscal policy calls for:

deficits during recessions and surpluses during periods of demand-pull inflation.

The size of the multiplier associated with an initial increase in spending will be:

diminished if inflation occurs.

The aggregate demand curve is:

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

An increase in wealth from a substantial increase in stock prices will move the economy along a fixed aggregate demand curve.

false

Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve.

false

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending.

false

The interest-rate effect is one of the determinants of aggregate demand.

false

The real-balances effect indicates that inflation makes the public feel wealthier and they therefore spend more out of their current incomes.

false

The shape of the aggregate supply curve is determined by what happens to aggregate demand as real output expands.

false

most modern banking systems are based on:

fractional reserves

The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.

true

a $200 price tag on a cashmere sweater in a department store window is an example of money functioning as a:

unit of account

In the short run, a reduction in aggregate demand is:

unlikely to cause a reduction in the price level because of menu costs and efficiency wages.

The real-balances, interest-rate, and foreign purchases effects all help explain:

why the aggregate demand curve is downsloping.

Built-in stability means that:

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

Refer to the above diagram. Assume that the initial aggregate demand curve is AD1 and the government undertakes fiscal policy that shifts the aggregate demand curve to AD2. If the horizontal distance between AD1 and AD2 is $100 billion, the change in real GDP in this situation:

would be less than $100 billion.

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