ECON 202 FINAL
Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of unemployed persons is _____. a. 10 b. 15 c. 40 d. 30 e. 90
10
The price index in the base year always equals_____. a. 0 b. 10 c. 100 d. 1 e. 0.01
100
A water bottle manufacturing plant uses a three-step procedure to produce each unit of bottle. The first step is casting, which needs 35 workers to operate the furnace. The second step is quenching, which needs 35 workers. At the third step, bottles are prepared for dispatch in the assembly line with the help of 70 workers. If the factory produces 14,000 bottles per day, then the productivity of labor in the factory is equal to _____. a. 200 bottles per worker b. 400 bottles per worker c. 100 bottles per worker d. 140 bottles per worker e. 220 bottles per worker
100 bottles per worker (35+35+70=140) (14,000/140=100)
Suppose a loaf of bread sold for $3.00 in 2008. The price of bread then increases to $3.60 in 2009. The price index for bread considering 2008 as the base year is _____. a. 1.20 b. 83.33 c. 120 d. 100 e. 20
120 (3.60/3.00=1.2) (1.2x100=120)
In 2016, welfare spending accounted for almost _____ of federal outlays. a. 5 percent b. 10 percent c. 14 percent d. 20 percent e. 31 percent
14 percent
Industrial market countries make up about _____ of the world population but produce more than _____ of the world's output. a. 16 percent; 50 percent b. 40 percent; 75 percent c. 40 percent; 58 percent d. 55 percent; 65 percent e. 38 percent; 55 percent
16 percent; 50 percent
Demand-pull inflation scenarios took place in the: A) 1960s for the United States and from 1985 to 1995 for Japan. B) 1930s for the United States and from 1985 to 1995 for Japan. C) 1960s for the United States and in the 1930s for Japan. D) 1930s for both the United States and Japan.
1960s for the United States and from 1985 to 1995 for Japan
If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately increases by $200, the multiplier equals _____. a. 1 b. 2 c. 3 d. 4 e. 5
2 (200/100=2)
If investment increases by $100 and, as a result, gross domestic product (GDP) ultimately increases by $200, the multiplier equals _____. a. 1 b. 2 c. 3 d. 4 e. 5
2 (200/100=2)
If the real GDP of a country in 2011 was 300 billion, its price index was 108.3, and its population was 150 billion, then real GDP per capita for that year was: a. 0.5 billion. b. 1 billion. c. 8.3 billion. d. 258.3 billion. e. 2 billion.
2 billion (300/150=2)
If the marginal propensity to consume is 0.6, then the spending multiplier is: A) 6. B) 4. C) 2.5. D) 2.
2.5 (1-0.6=0.4) (1/0.4=2.5)
If income increases by $100 and saving increases by $25, the slope of the consumption function equals _____. a. 1/4 b. 1/5 c. 1/2 d. 3/4 e. 3/5
3/4
In 2016, Social Security and Medicare payments accounted for almost _____ of federal outlays. a. 7 percent b. 25 percent c. 15 percent d. 38 percent e. 52 percent
38 percent
If the marginal propensity to consume (MPC) is 4/5, the value of the simple multiplier is: a. 4. b. 1/5. c. 4/5. d. 5/4. e. 5.
5 (1-0.8=0.2) (1/0.2=5)
If the marginal propensity to consume (MPC) is 4/5, the value of the simple multiplier is: a. 4. b. 1/5. c. 4/5. d. 5/4. e. 5.
5 (4/5=0.8) (1-0.8=0.2) (1/0.2=5)
If you returned a $5 Federal Reserve note to the Fed, you could receive: a. $5 in silver. b. $5 in gold. c. 5 one-dollar bills. d. 10 one-dollar bills. e. a small gold bar.
5 one-dollar bills
If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $200 million, the required reserve ratio is: a. 0. b. 5 percent. c. 10 percent. d. 20 percent. e. 2 percent.
5 percent (10/200=0.05)
Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is _____. a. 100 percent b. 60 percent c. 50 percent d. 40 percent e. 10 percent
60 percent (60/100=0.6) (0.6x100=60)
Labor cost on an average accounts for about _____ percent of the total cost of production. a. 10 b. 30 c. 50 d. 70 e. 98
70
If the marginal propensity to save (MPS) is 1/8, the value of the simple spending multiplier is: a. 8. b. 1/8. c. 2. d. 1/2. e. 4.
8 (1/8=0.125) (1/0.125=8)
Suppose an individual can earn 3 percent interest on an annual term deposit. His opportunity cost of holding $100,000 in cash instead of investing in the term deposit will be: a. $3,300. b. $330. c. $1,000. d. $6,000. e. $3,000.
$3,000
Suppose checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S. government securities. This implies that the maximum value of the required reserve ratio is: a. 5. b. 0.75. c. 0.2. d. 1.2. e. 1.0.
0.2 (1,200/6,000=0.2)
Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption from $2.5 trillion to $2.6 trillion. The marginal propensity to consume is _____. a. 0.1 b. 0.2 c. 0.5 d. 0.8 e. 0.9
0.5 (0.1/0.2=1/2=5)
If the money supply is $600, the price level is $2, and real GDP is $300, the velocity of money is _____. a. 1 b. 150 c. 300 d. 600 e. 1,200
1
Which of these does not hold true if an economy is simultaneously in long-run and short-run equilibrium? a. The actual price level equals the expected price level. b. Aggregate quantity supplied equals potential output. c. Aggregate quantity demanded equals potential output. d. Aggregate quantity supplied equals aggregate quantity demanded. e. Aggregate demand curve is horizontal at the potential output level.
aggregate demand curve is horizontal at the potential output level
An increase in planned investment will shift the _____. a. aggregate demand curve rightward b. aggregate demand curve leftward c. aggregate supply curve rightward d. aggregate supply curve leftward e. consumption function upward
aggregate demand curve rightward
Fiscal policy focuses on manipulating _____. a. aggregate demand to smooth out business fluctuations b. aggregate supply to smooth out business fluctuations c. both aggregate supply and aggregate demand to smooth out business fluctuations d. aggregate demand to stimulate the economy and aggregate supply to contract it e. short-run aggregate supply to stimulate the economy and aggregate demand to contract it
aggregate demand to smooth out business fluctuations
The aggregate output demanded for a given price level occurs at the point where: a. an economy reaches the full employment of labor. b. aggregate expenditure equals real GDP. c. actual aggregate expenditures exceeds real GDP. d. inventories of goods and services are increasing. e. inventories of goods and services are decreasing.
aggregate expenditure equals real GDP
According to John Maynard Keynes, what determines employment and income? A) aggregate supply B) government spending alone C) aggregate expenditures D) wages, prices, and interest rates
aggregate expenditures
During the 1970s, some countries stopped oil sales to the United States. As petroleum prices rose: A) both aggregate supply and the aggregate price level fell. B) aggregate demand fell and the aggregate price level fell. C) aggregate supply fell and the aggregate price level rose. D) both aggregate demand and the aggregate price level rose.
aggregate supply fell and the aggregate price level rose
If the market power of firms increases, what happens in the AD/AS model? A) Aggregate supply shifts left. B) Aggregate supply shifts right. C) Aggregate demand shifts left. D) Aggregate demand shifts right.
aggregate supply shifts left
The purpose of deregulating banks during the 1980s was to: a. eliminate the risk that banks incurred. b. allow banks to compete with other financial institutions. c. allow U.S. banks to compete with foreign banks. d. help consumers earn more interest. e. decrease the cost of banking regulation.
allow banks to compete with other financial institutions
Which of the following would indicate the beginning of an expansionary phase in an economy? a. A minor increase in the number of new firms b. A decline in stock market prices c. An improvement in consumer confidence d. A slowdown in housing construction e. A decrease in the number of orders for new equipment
an improvement in consumer confidence
Which of the following best describes aggregate expenditure? a. C + I + G + (X − M) b. C + S + G + (X − M) c. C + I + G + (X + M) d. C + I + T + (X − M) e. C + I + T + (X + M)
C + I + G + (X - M)
Which of the following best describes aggregate expenditure? a. C + I + G + (X − M) b. C + S + G + (X − M) c. C + I + G + (X + M) d. C + I + T + (X − M) e. C + I + T + (X + M)
C + I + G + (X − M)
Which of the following countries had the highest percentage of young adults with a college degree in 2012? a. Norway b. Canada c. Japan d. France e. Italy
Canada
The law that established the Federal Reserve System is the _____. a. Federal Reserve Act of 1913 b. National Banking Act of 1863 c. Banking Act of 1933 d. National Banking Act of 1813 e. Federal Reserve Act of 1963
Federal Reserve Act of 1913
Most of the Fed's liabilities are in the form of: a. Federal Reserve notes. b. checkable deposits. c. U.S. Treasury deposits. d. loans to member banks. e. certificates of deposit.
Federal Reserve notes
Suppose a booming stock market encourages consumption spending to rise dramatically. What would be the most likely long-run impact? A) Prices fall. B) GDP first rises, and then falls back to long-run equilibrium. C) A recession occurs. D) The impact cannot be determined from the information given.
GDP first rises, and then falls back to long-run equilibrium
If real gross domestic product (GDP) in a particular year is $5,000 trillion and nominal gross domestic product (GDP) in that same year is $4,000 trillion, then the: a. consumer price index (CPI) is 125. b. economic activity has decreased by 20 percent. c. GDP price index is 125. d. GDP price index is 80. e. economy has grown by 20 percent.
GDP price index is 80 (4,000/5,000=0.8) (0.8x100=80)
Since 1990, a major industrial country with the lowest growth rate in per capita GDP has been _____. a. West Germany b. Italy c. The United States d. Great Britain e. Canada
Italy
Which of the following countries has the largest projected net debt as a percentage of their GDP for 2016? a. Japan b. The U.S. c. Germany d. Italy e. Australia
Japan
Which of the following countries hold the most U.S. Treasury securities? a. Japan and China b. Taiwan and Brazil c. United Kingdom d. Belgium e. Switzerland
Japan and China
The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the: A) Keynesian model assumes that prices are constant. B) AD/AS model assumes that prices are constant. C) Keynesian model assumes full employment. D) AD/AS model assumes that equilibrium always occurs at less than full employment.
Keynesian model assumes that prices are constant
The U.S. government's fiscal year extends from: a. January to December. b. April of one year to March of the next year. c. June of one year to May of the next year. d. September of one year to August of the next year. e. October of one year to September of the next year.
October of one year to September of the next year
Suppose at a particular level of real gross domestic product (GDP), there are no unintended inventory adjustments. In this context, which of the following is true? a. Real GDP is less than the equilibrium level of real GDP demanded. b. Real GDP is greater than the equilibrium level of real GDP demanded. c. Real GDP equals the equilibrium level of real GDP demanded. d. At equilibrium real GDP, there is no inflation. e. At equilibrium real GDP, there is no saving.
Real GDP equals the equilibrium level of real GDP demanded
A government program that invested financial institutions and automakers to help stabilize markets during the great recession of 2008 was the _____. a. Troubled Asset Relief Program b. Social Security System c. Supplemental Security Income Program d. Public Housing Assistance Program e. Deposit Insurance Program
Troubled Asset Relief Program (TARP)
Coins in the United States are manufactured and distributed by the: a. Federal Reserve. b. U.S. Mint. c. International Trade Administration. d. Federal Bureau of Investigation. e. Comptroller of the Currency.
US Mint
Which of the following is the largest component of the assets of the Federal Reserve? a. U.S. Treasury deposits b. U.S. government securities c. Foreign exchange d. Time deposits e. Checkable deposits
US Treasury deposits
If the U.S. aggregate price level rises: A) U.S. imports rise. B) the aggregate demand curve shifts to the left. C) the aggregate demand curve shifts to the right. D) business investment increases.
US imports rise
Which of the following is least likely to cause a shift of the consumption function? a. A change in the level of saving b. A change in consumer expectations about future prices c. A change in household wealth d. A change in investment spending e. A change in the interest rate
a change in investment spending
Which of the following would NOT cause a shift in the aggregate demand curve? A) a change in consumption spending B) a change in the price level C) a change in investment D) a change in net exports
a change in the price level
Which of the following is not a thrift institution? a. A savings and loan association b. A commercial bank c. A mutual savings bank d. An employee credit union e. A college credit union
a commercial bank
A bank holding company is: a. a conglomerate that owns a bank to service the other businesses it owns. b. a loose federation of private banks that holds assets in common. c. a corporation that owns one or more banks. d. a bank that is owned by the depositors. e. a subsidiary of a major corporation.
a corporation that owns one or more banks
Which of the following will shift the investment demand curve rightward? a. Higher interest rates b. Gloomy sales expectations c. A cut in corporate taxes that raises after-tax profits d. A decrease in the marginal propensity to consume e. An increase in aggregate income
a cut in corporate taxes that raises after-tax profits
When budget deficits during recessions are covered by budget surpluses during expansions, it is called: a. an annually balanced budget. b. a cyclically balanced budget. c. crowding out. d. crowding in. e. a biennial balanced budget.
a cyclically balanced budget
The Great Depression was primarily the result of: A) a decrease in aggregate demand. B) an increase in aggregate demand. C) disequilibrium. D) an increase in aggregate supply.
a decrease in aggregate demand
Which of the following supply shocks would shift the aggregate supply curve inward? a. A decrease in business taxes b. A decrease in gasoline taxes c. A decrease in the cost of raw materials d. A decrease in agricultural output e. A decrease in the amount and cost of government regulation
a decrease in agricultural output
Which of the following is likely to cause a decrease in labor productivity? a. An increase in student achievement scores b. A service sector that is growing slower than the growth rate of GDP c. An increased spending on research and development d. A decrease in capital formation e. A low federal budget deficit
a decrease in capital formation
Which of the following changes will cause a downward movement along the money demand curve? a. An increase in the interest rate b. A decrease in the interest rate c. A decrease in real GDP d. An increase in real GDP e. An increase in the price level
a decrease in the interest rate
Which of the following is likely to be an effect of inflation? a. An increase in the willingness of lenders to lend money for longer periods b. A decrease in the willingness of borrowers to borrow money for longer periods c. A decrease in the purchasing power of lenders in the economy d. An increase in the willingness of people to buy bonds as a hedge against rising prices e. An increase in the willingness of people to buy physical assets as a hedge against rising prices
a decrease in the purchasing power of lenders in the economy
The collapse of home values that began in 2008 led to ____ in Americans' consumption and _____ in their saving rates. A) a decrease; a decrease B) a decrease; an increase C) an increase; a decrease D) an increase; an increase
a decrease; an increase
Which of these is most likely to reduce the potential output of an economy? a. An increase in the size of the labor force b. A deterioration in the quality of the labor force c. A decrease in the cost of using computers d. A decrease in the price level e. An increase in the price level
a deterioration in the quality of the labor force
Each member of the Board of Governors of the Fed serves: a. a four-year term that begins at the same time as that of the newly elected president. b. a four-year term that does not coincide with the term of the current president. c. until a new president is elected. d. a fourteen-year term. e. a six-year term.
a fourteen-year term
Despite the large federal deficits during the last few decades, public capital in the U.S. declined because: a. a growing share of the federal budget goes toward income redistribution, especially for the elderly. b. of less labor productivity. c. of increasing farm subsidies. d. of the growing portion of the national debt owed to foreigners. e. a growing share of the federal budget goes toward income redistribution, especially for national defense
a growing share of the federal budget goes toward income redistribution, especially for the elderly
The ultimate effect of a reduction in the money supply is: a. a leftward shift of the aggregate demand curve. b. a rightward shift of the short-run aggregate supply curve. c. a movement upward along the aggregate demand curve. d. a movement downward along the aggregate demand curve. e. a movement upward along the short-run aggregate supply curve.
a leftward shift of the aggregate demand curve
A subprime mortgage is: a. a mortgage in which the borrower gets an interest rate below the prime rate. b. a mortgage in which the interest rate is adjustable. c. a mortgage for which the home is valued below its true market value. d. a mortgage in which the borrower has a poor credit rating. e. a mortgage for a home that was in foreclosure.
a mortgage for a home that was a foreclosure
In 2015, the U.S. gross national debt was _____. a. about $1 million b. about $1 billion c. $1 trillion d. $3 trillion e. about $18 trillion
about $18 trillion
An annually balanced budget: a. is the surest path to economic stability. b. is required by the U.S. Constitution. c. dampens cyclical swings by decreasing government spending during expansions and increasing it during recessions. d. accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions. e. is a goal that has only been achieved twice in the past 5 years.
accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions+
In the long run, an increase in aggregate demand: a. increases the price level and real output, but the effect on the price level is larger. b. increases the price level and real output, but the effect on output is larger. c. affects only real output. d. affects only the price level. e. affects neither the price level nor real output.
affects only the price level
The curve that shows how much GDP is demanded at various price levels is called: A) the aggregate expenditures schedule. B) the consumption line. C) aggregate demand. D) aggregate supply.
aggregate demand
Which of these is not assumed to be constant along a short-run aggregate supply curve? a. The actual price level b. The state of technology c. The size and quality of the labor force d. The expected price level e. The size and quality of the capital stock
the actual price level
Which of these is the most likely impact of an increase in the wealth of consumers? a. The aggregate supply curve shifts outward. b. The aggregate demand curve shifts outward. c. The aggregate demand curve shifts inward. d. The aggregate supply curve shifts inward. e. Both the aggregate demand and aggregate supply curves shift inward.
the aggregate demand curve shifts outward
If both consumers and businesses are pessimistic about the future of the economy: A) there is a movement up along the aggregate demand curve. B) the aggregate demand curve shifts to the left. C) there is a movement down along the aggregate demand curve. D) the aggregate demand curve shifts to the right.
the aggregate demand curve shifts to the left
If Europe has a large increase in income, what will happen in the United States? A) The aggregate demand curve will shift to the right. B) The aggregate demand curve will shift to the left. C) The aggregate demand curve will not change. D) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.
the aggregate demand curve will shift to the right
If businesses expect to start earning more profit, what will happen to the aggregate demand curve? A) The aggregate demand curve will shift to the right. B) The aggregate demand curve will shift to the left. C) The aggregate demand curve will not change. D) The aggregate demand curve will shift to the left in the short run and then to the right in the long run.
the aggregate demand curve will shift to the right
Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true? a. The bank must have lent out an additional $4,000. b. $500 is the value of the bank's required reserves. c. The bank now has excess reserves of $100. d. Both the bank's assets and its liabilities rise by $500. e. The bank now has $500 in excess reserves.
the bank now has excess reserves of $100
The consumer price index measures: a. the cost of all goods and services produced in the U.S. economy. b. the average change over time in the selling prices received by domestic producers for their output. c. the cost of a fixed market basket of consumer goods and services produced in the U.S. economy. d. the ratio of an economy's nominal GDP to its real GDP. e. the income distribution of an economy.
the cost of a fixed market basket of consumer goods and services produced in the U.S. economy
An increase in aggregate demand can be caused by: A) the depreciation of the dollar. B) a cut in government spending. C) an increase in interest rates. D) a rise in consumer debt.
the depreciation of the dollar
The liquidity of an asset indicates: a. its buying power. b. the ease with which it can be converted into cash without a significant loss of value. c. the ease with which it can be converted into another asset. d. how likely people are to trade it internationally. e. its intrinsic value.
the ease with which it can be converted into cash without a significant loss of value
The long-run economic growth model assumes that: A) the economy always moves toward equilibrium at full employment. B) the long run takes a long time to arrive. C) macroeconomic equilibrium at full employment is only a theory and has little to do with reality. D) the economy is at all times at full employment.
the economy always moves toward equilibrium at full employment
The long-run aggregate supply curve is vertical because: A) many inputs are fixed. B) it incorporates the assumptions of Keynesian theory. C) the economy will gravitate to the position of full employment when all variables are flexible. D) wages, prices, and interest rates are not flexible in the long run.
the economy will gravitate to the position of full employment when all variables are flexible
A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is: a. zero. b. the prime rate. c. the discount rate. d. the federal funds rate. e. the required reserve ratio.
the federal funds rate
Which of the following variables is measured only at a particular point in time and not over different time periods? a. The unemployment rate b. Consumer income c. The federal government's debt d. The federal government's budget deficit e. Total expenditure
the federal government's debt
A spike in "All Other Outlays" of the federal government in 2009 was due to: a. an increase in the financial aid given to Greece earlier that year. b. an increase in the expenditures on Social Security and Medicare. c. the fiscal stimulus package passed earlier that year. d. a sudden increase in military expenditure as a result of the war in Iraq. e. an increase in the national debt earlier that year.
the fiscal stimulus package passed earlier that year
When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand: a. the increase in real GDP will be relatively small and the increase in the price level will be relatively large. b. the increase in real GDP will be relatively large and the increase in the price level will be relatively small. c. the increase in both real GDP and the price level will be large. d. the increase in both real GDP and the price level will be small. e. the decrease in real GDP will be larger than the decrease in the price level.
the increase in real GDP will be relatively small and the increase in the price level will be relatively large
If the Fed increases the money supply, then: a. the interest rate declines and the quantity of money demanded increases. b. the interest rate declines and the quantity of money demanded declines. c. the interest rate increases and the quantity of money demanded increases. d. the interest rate increases and the quantity of money demanded declines. e. the interest rate increases but the quantity of money demanded remains unaffected.
the interest rate declines and the quantity of money demanded increases
If the Fed purchases government securities in the open market, _____. a. the money supply will decrease b. the money supply will increase only if the seller of those securities is a commercial bank c. the money demand will increase immediately d. the money demand will decrease immediately e. the money supply will increase through the commercial banking system regardless of who the seller is
the money supply will increase through the commercial banking system regardless of who the seller is
The idea that new spending creates more new spending is known as: A) the crowding-out effect. B) the multiplier effect. C) the wealth effect. D) the interest rate effect.
the multiplier effect
Macroeconomics is a branch of economics that studies: a. the different costs associated with production. b. the price and output decisions made by different industries. c. the overall performance of the economy. d. the role of a market in determining an efficient outcome. e. the role of input suppliers in determining the price and quantity of output.
the overall performance of the economy
A change in _____ will cause a change in the quantity demanded of real GDP. A) consumer spending B) investment C) the price level D) imports
the price level
Economists use the price index to eliminate year-to-year changes in GDP due solely to changes in: a. the exchange rate. b. the unemployment rate. c. fiscal spending. d. consumer demand. e. the price level.
the price level
Most policy makers agree that in the long run, changes in the money supply influence: a. the price level and inflation. b. the real interest rate and aggregate demand. c. the planned investment expenditure. d. the exchange rate. e. the potential GDP and unemployment.
the price level and inflation
The aggregate demand curve of an economy illustrates the relationship between: a. interest rates and income levels. b. the price level and real gross domestic product (GDP). c. the price level and interest rates. d. income levels and real gross domestic product (GDP). e. real income levels and nominal income levels.
the price level and real gross domestic product (GDP)
How does money function as a unit of account? a. Money has intrinsic worth as a commodity. b. Money is convertible into commodities that have intrinsic worth. c. The prices of all goods and services are measured in terms of money. d. Things that function as money can do so because people know there is a standard of value that ultimately backs the money even if it is only faith. e. Bank accounts make it easy for people to store their wealth.
the prices of all goods and services are measured in terms of money
Which of the following is measured along one axis of the production possibilities frontier diagram? a. The quantity of a produced good b. The price of a produced good c. The quantity of natural resources d. The state of technology e. Society's welfare and satisfaction
the quantity of a produced good
Short-run macroeconomic equilibrium cannot be achieved when: A) inflation rates are low. B) the short-run aggregate supply and aggregate demand curves intersect. C) the quantity of short-run aggregate supply exceeds the quantity of aggregate demand. D) inflation rates are high.
the quantity of short-run aggregate supply exceeds the quantity of aggregate demand
Which of these is the most ideal measure of aggregate output? a. Disposable income b. Nominal GDP c. Personal income d. The real GDP e. Gross national product
the real GDP
Which of the following would be included in the calculation of gross domestic product (GDP)? a. The value of a used automobile purchased by Jim b. The sale price of a new house purchased by Joe c. The receipt of $100 in food stamps by Sandy d. The $200 that Kurt spends on the purchase of bonds e. The amount of money that Laurie receives as unemployment benefit after losing her job
the sale price of a new house purchased by Joe
Which of the following statements regarding the short-run aggregate supply curve is TRUE? A) The short-run aggregate supply curve shifts to the left when tax rates on businesses are lowered. B) The short-run aggregate supply curve shifts to the right when the costs of capital rise. C) The short-run aggregate supply curve shifts to the left when business expectations become more positive. D) The short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations.
the short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations
Suppose the reserve requirement is 15 percent. Which of the following is true? a. The simple money multiplier is 15. b. The simple money multiplier is 1/15. c. The simple money multiplier is 30,000. d. The simple money multiplier is 1/30,000. e. The simple money multiplier is 1/0.15.
the simple money multiplier is 1/0.15
The higher the required reserve ratio, _____. a. the larger the money multiplier b. the smaller the money multiplier c. the more the excess reserves after each round of the money-creation process d. the more the money that can be lent in each round of the money-creation process e. the lower the demand for cash by the non-banking public
the smaller the money multiplier
If the marginal propensity to consume (MPC) in your classmate's nation is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true? a. The spending multiplier is larger in your classmate's nation than in your country. b. The spending multiplier is smaller in your classmate's nation than in your country. c. Autonomous consumption is higher in your classmate's nation than in your country. d. Autonomous consumption is lower in your classmate's nation than in your country. e. Total consumption is lower in your classmate's nation than in your country.
the spending multiplier is smaller in your classmate's nation than in your country
The smaller the marginal propensity to save, other things constant, _____. a. the smaller the marginal propensity to consume b. the smaller the multiplier c. the flatter the consumption function d. the steeper the consumption function e. the steeper the saving function
the steeper the consumption function
When a firm produces and sells a refrigerator worth $1,000, its contribution to the gross domestic product (GDP) on the income side is measured by: a. the price paid by the consumer. b. the investment made by the firm to manufacture the refrigerator. c. the stock of inventories used by the firm to manufacture the refrigerator. d. the cost of raw materials used by the firm to manufacture the refrigerator. e. the sum of the wages, interest, and rent paid by the firm's owners and the profit of the firm.
the sum of the wages, interest, and rent paid by the firm's owners and the profit of the firm
On a bank's balance sheet, the value of its assets must equal: a. net worth only. b. liabilities only. c. owner's equity. d. the value of its liabilities plus net worth. e. its revenues minus costs.
the value of its liablities plus net worth
Which of the following is true of an improvement in technology? a. An improvement in technology shifts the per-worker production upward. b. An improvement in technology shifts the per-worker production downward. c. An improvement in technology increases the concavity of the production possibilities frontier. d. An improvement in technology decreases the concavity of the production possibilities frontier. e. An improvement in technology increases the quantity of input in the production process.
an improvement in technology shifts the per-worker production upward
Which of the following will shift the short-run aggregate supply curve to the right? A) an increase in the minimum wage B) an increase in immigration from other countries C) an increase in the price of oil D) an increase in the actual price level
an increase in immigration from other countries
Capital deepening refers to: a. an increase in the amount of capital per worker. b. an increase in the amount of workers per unit of capital. c. a decrease in the amount of capital per unit of output. d. an increase in the amount of output per unit of capital. e. an increase in the productivity of capital.
an increase in the amount of capital per worker
Which of the following will shift the short-run aggregate supply curve to the left? A) an increase in the minimum wage B) a decrease in immigration from abroad C) a decrease in the price of oil D) a decrease in the actual price level
an increase in the minimum wage
Which of the following is likely to happen if people suddenly become more willing to lend money? a. An increase in demand for loanable funds will increase the interest rate. b. An increase in the supply of loanable funds will increase the interest rate. c. An increase in the supply of loanable funds will decrease the interest rate. d. An increase in demand for loanable funds will decrease the interest rate. e. A simultaneous increase in both the supply of and demand for loanable funds makes it impossible to predict what will happen to the rate of interest.
an increase in the supply of loanable funds will decrease the interest rate
A production possibilities frontier can shift inward if there is: a. an increase in the unemployment rate. b. a stable political environment. c. an improvement in technology. d. larger work force. e. a larger capital stock.
an increase in the unemployment rate
The collapse of home values that began in 2008 led to ____ in Americans' saving rates, shifting aggregate demand to the ____. A) a decrease; left B) a decrease; right C) an increase; left D) an increase; right
an increase; left
The aggregate demand curve reflects: a. a direct relationship between the price level in an economy and the real GDP demanded. b. a direct relationship between real GDP demanded and total unemployment. c. an inverse relationship between the price level in an economy and the nominal GDP demanded. d. an inverse relationship between the price level in an economy and the real GDP demanded. e. an inverse relationship between the real GDP demanded and total unemployment.
an inverse relationship between the price level in an economy and the real GDP demanded
The drop in aggregate demand that occurred during the Great Depression caused a drop in real GDP: A) and deflation. B) but an increase in the price level. C) but no change in the price level. D) but a modest rise in inflation.
and deflation
A(n) _____ is a budget philosophy that was followed prior to the Great Depression that aimed at matching annual revenues with outlays, except during war time. a. annually balanced budget b. annual surplus budget c. biennial deficit budget d. biennially balanced budget e. cyclically balanced budget
annually balanced budget
Which of the following factors will cause the aggregate demand curve to shift to the left? A) rise in consumer confidence B) fall in excess capacity at businesses C) increase in foreign income D) appreciation of the dollar
appreciation of the dollar
The actions of the Fed: a. must be approved by the president and Congress. b. must be approved by the president alone. c. must be approved by Congress alone. d. are not subject to approval by any branch of government. e. are subject to the approval of the electorate.
are subject to the appropval of the electorate
The beginning of the formal budget process is signified by: a. in the form of the Economic Report of the President. b. in a report followed shortly by the Economic Report of the President. c. at the beginning of the fiscal year. d. in a report that should be voted up or down within 60 days. e. in a report that requires a two-thirds vote for ratification.
at the beginning of the fiscal year
The demand for _____ is most severely affected by a recession. a. medicines b. automobiles c. breakfast cereals d. haircuts e. gasoline
automobiles
6. A major reason for the development of money market mutual funds in the 1970s was that: a. open-market operations were suspended. b. bank deposit rates were capped at levels below market interest rates. c. money market funds offered more flexible checking privileges than banks. d. they were considered to be safer than banks. e. money markets did not exist until 1970.
bank deposit rates were capped at levels below market interest rates
86. If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000, then the: a. bank must keep $5,000 in excess reserves. b. bank's required reserves increase by $45,000. c. bank's liabilities increase by $100,000. d. bank can increase its loans by up to $50,000. e. bank can increase its loans by up to $400,000.
bank's liabilities increase by $100,000
The earliest type of exchange involved __ . a. coins b. barter c. commodity money d. fiduciary money e. fiat money
barter
A firm's level of investment depends on the market interest rate: a. only when the firm has to borrow funds to invest in new equipment. b. only when the firm has to borrow funds to buy stocks and bonds. c. only when the firm already has sufficient funds and could lend them. d. because the interest rate represents the opportunity cost of investing in capital. e. because investments are always made with borrowed funds.
because the interest rate represents the opportunity cost of investing in capital
If the inflation rate in an economy is higher than expected, which of the following groups in the society would be most likely to gain? a. Borrowers b. Lenders c. Persons holding large amounts of money d. Persons on fixed incomes e. Workers under contract without a cost of living adjustment
borrowers
The Federal Reserve System has the power to: a. raise or lower federal income tax rates. b. balance the federal government budget. c. increase or decrease federal government spending. d. compete with commercial banks in making loans to business firms. e. buy and sell federal government securities.
buy and sell federal government securities
A downward-sloping straight-line production possibilities frontier indicates: a. that society cannot decide which good it prefers. b. an absence of scarcity. c. constant opportunity cost. d. inefficiency. e. specialization.
constant opportunity cost
In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to: a. consumption plus saving. b. planned investment plus saving. c. disposable income plus the price level. d. consumption plus planned investment. e. planned investment minus saving.
consumption plus planned investment
A period of sustained decline in output in an economy is known as a(n) _____. a. expansion b. stagnation c. peak d. trough e. contraction
contraction
The 1973 oil shocks created: A) demand-pull inflation. B) cost-push inflation. C) a shift to the right of the aggregate supply curve. D) a shift to the right of the aggregate demand curve.
cost-push inflation
An expansionary gap in the short-run results in: a. lower resource prices in the long run. b. unemployment in the long run. c. a recessionary gap in the long run. d. cost-push inflation in the long run. e. demand-pull inflation in the long run.
cost-push inflation in the long run
Stores need not accept your check but must accept currency because: a. currency is backed by gold. b. checks are not money but currency is. c. currency is legal tender, but checks are not. d. currency is easier to handle. e. currency is a medium of exchange, but checks are not.
currency is legal tender, but checks are not
When the economy produces its potential output, _____ is zero. a. frictional unemployment b. cyclical unemployment c. seasonal unemployment d. structural unemployment e. disguised unemployment
cyclical unemployment
Which of the following does not exist when an economy is operating at full employment? a. An unemployment rate of 5 percent or 6 percent b. Seasonal unemployment c. Structural unemployment d. Cyclical unemployment e. Frictional unemployment
cyclical unemployment
When an economy is operating at full employment, _____. a. structural unemployment does not exist b. cyclical unemployment does not exist c. the unemployment rate is zero d. seasonal unemployment does not exist e. the number of discouraged workers is zero
cyclical unemployment does not exist
Which of the following is not included in the calculation of federal debt? a. Debt held by banks b. Debt held by firms c. Debt held by the U.S. Treasury d. Debt held by households e. Debt held by foreign entities
debt held by the US Treasury
Suppose energy prices spike. In the short run, output will ____; in the long run, output will _____from its starting point. A) decrease; remain unchanged B) decrease; increase C) remain unchanged; decrease D) remain unchanged; increase
decrease; remain unchanged
The U.S. spent 3 percent of GDP building and maintaining the public infrastructure between 1950 and 1970. Since 1980, that share has: a. decreased slightly to 2 percent. b. decreased all the way to zero. c. stayed constant at 3 percent. d. increased slightly to 4 percent. e. increased significantly to 8 percent.
decreased slightly to 2 percent
Which of the following events will shift the aggregate demand curve to the right? A) a catastrophic hurricane hitting the northeastern United States B) an increase in household debt C) decreased taxes D) decrease in military spending
decreased taxes
If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves, the money supply: a. decreases by $10,000. b. increases by $5,000. c. decreases by $5,000. d. increases by $50,000. e. decreases by $50,000.
decreases by $50,000 (10,000/0.20=50,000)
The situation when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises is known as ________ inflation. A) cost-push B) unnecessary C) overextended D) demand-pull
demand-pull
_____ occurs when aggregate demand expands so much that equilibrium output exceeds full employment output. A) Demand-pull inflation B) Demand-push inflation C) Cost-push inflation D) Cost-pull inflation
demand-pull inflation
The short-run aggregate supply curve shows a(n): a. direct relationship between the expected price level and nominal GDP supplied. b. inverse relationship between the actual price level and real GDP supplied. c. direct relationship between the actual price level and nominal GDP supplied. d. direct relationship between the actual price level and real GDP supplied. e. inverse relationship between the expected price level and real GDP supplied.
direct relationship between the actual price level and real GDP supplied
Which of the following correctly describes the effects of a decrease in net taxes? a. Disposable income increases, consumption decreases, and saving decreases. b. Disposable income increases, consumption increases, and saving increases. c. Disposable income decreases, consumption increases, and saving increases. d. Disposable income decreases, consumption decreases, and saving decreases. e. There is no effect on either disposable income, consumption, or saving.
disposable income increases, consumption increases, and saving increases
A decrease in the price level in an economy is likely to cause a: a. decrease in the real value of dollar-denominated assets. b. downward shift of the aggregate expenditure line. c. decrease in the equilibrium level of output demanded. d. downward movement along the aggregate demand curve. e. leftward shift of the aggregate demand curve.
downward movement along the aggregate demand curve
A decrease in the price level in an economy is likely to cause a: a. decrease in the real value of dollar-denominated assets. b. downward shift of the aggregate expenditure line. c. decrease in the equilibrium level of output demanded. d. downward movement along the aggregate demand curve. e. leftward shift of the aggregate demand curve.
downward movement along the aggregate demand curve
The aggregate demand curve slopes _____ and has _____ on the vertical axis. A) downward; output B) downward; the price level C) upward; output D) upward; the price level
downward; the price level
Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the: a. economy will move rightward along the short-run aggregate supply curve. b. economy will move leftward along the short-run aggregate supply curve. c. short-run aggregate supply curve will shift to the left. d. long-run aggregate supply curve will become steeper. e. short-run aggregate supply curve will become flatter.
economy will move leftward along the short-run aggregate supply curve
The cumulative power of productivity growth: a. emphasizes the importance of short-term growth. b. emphasizes the importance of long-term growth. c. emphasizes the importance of capital-labor ratio. d. increases poverty in an economy. e. leads to capital deepening
emphasizes the importance of long-term growth
Lowering the discount rate: a. encourages banks to borrow from the Fed, and they can more easily accommodate their customers' needs for loans. b. encourages business customers to borrow directly from the Fed. c. reduces the amount of reserves banks are required to keep. d. automatically reduces excess reserves. e. encourages banks to sell U.S. government securities and increase their cash reserves.
encourages banks to borrow from the Fed, and they can more easily accommodate their customers' needs for loans
The simple money multiplier: a. equals the reciprocal of the required reserve ratio. b. assumes banks hold excess reserves. c. becomes larger as the required reserve ratio increases. d. equals required reserves plus excess reserves. e. equals total reserves minus required reserves.
equals the reciprocal of the required reserve ration
One lesson of the Great Depression was that potential GDP could _____. a. be too low to ensure full employment if the population was growing b. be too low to ensure full employment in a capitalist economy c. be too low to ensure full employment in a market economy d. fall short of full-employment GDP e. exceed equilibrium GDP
exceed equilibrium GDP
Banks want to minimize their holdings of excess reserves because: a. they will be penalized by the Federal Reserve System if excess reserves are too high. b. required reserves are also minimized when banks minimize their holdings of excess reserves. c. the money multiplier becomes too large if the excess reserves are high. d. they want to borrow more on the federal funds market. e. excess reserves earn no interest.
excess reserves earn no interest
The money expansion process continues until there are no more: a. required reserves in the system. b. demand deposits in the system. c. excess reserves in the system that banks are willing to lend. d. liabilities in the system. e. assets in the system.
excess reserves om the system that banks are willing to lend
Classical economists believed that if saving were greater than investment, the interest rate would _____, causing saving to _____ and investment to _____ until the two were equal. a. rise; decrease; increase b. fall; decrease; increase c. fall; increase; decrease d. rise; increase; decrease e. fall; increase; increase
fall; decrease; increase
During cost-push inflation, aggregate output _______ and the aggregate price level _________. A) rises; rises B) rises; falls C) falls; falls D) falls; rises
falls; rises
Over the past 40 years, the most frequent target for the Fed's monetary policy has been the: a. prime interest rate. b. federal funds rate. c. M1 money supply. d. M2 money supply. e. required reserve ratio.
federal funds rate
A federal budget deficit occurs when: a. there is deflation. b. federal government purchases exceed net taxes. c. there is inflation. d. aggregate demand is greater than aggregate supply. e. aggregate supply is greater than aggregate demand.
federal government purchases exceed net taxes
The budget of an economy is said to be in deficit when: a. federal outlays exceed revenues. b. federal revenues exceed outlays. c. anticipated inflation rate exceeds its actual rate. d. there is a loss of value of a country's currency with respect to one or more foreign reference currencies. e. anticipated interest rate exceeds its actual rate.
federal outlays exceed revenues
Which of the following would slow down productivity growth? a. A change in the composition of the workforce so that more middle-aged people and fewer young people are working b. A change in the composition of the workforce so that organizations hire more men who work steadily throughout the year than men who frequently enter and leave the workforce c. The quality of education remaining unchanged d. People starting to invest more in capital goods e. Firms starting to cut down the size of their labor force
firms starting to cut down the size of their labor force
In the Keynesian model, the price level is ___________; in the aggregate demand and supply model, the price level is _______________. A) fixed; fixed B) flexible; flexible C) flexible; fixed D) fixed; flexible
fixed; flexible
_____ were the first bankers. a. Seigniors b. Governments c. Savings and loan institutions d. Farmers e. Goldsmiths
goldsmiths
Which of the following items is NOT a determinant of aggregate demand? A) consumption B) investment C) government saving D) government spending
government saving
Fiscal policy is concerned with _____. a. government spending and taxation b. government spending and changes in money supply c. money supply and taxation d. government spending, taxation, and money supply e. only money supply
government spending and taxation
______ are components of consumer spending that affect aggregate demand. A) Expected rates of return on investment B) Taxes C) Exchange rate changes D) Government spending programs
government spending programs
Fiat money: a. has value because people accept it. b. has a high intrinsic value. c. is backed by commodity reserves. d. is money because of its metallic content. e. is frequently clipped.
has value because people accept it
Which is NOT consistent with the level of output in the long run? A) the natural rate of output B) full capacity output level C) high inflation D) the natural rate of unemployment
high inflation
When home values collapsed in the period that began in 2008, it reduced many Americans': A) bank balances. B) household wealth. C) household income. D) retirement accounts.
household wealth
If the marginal propensity to consume, MPC, is less than 1 and a household's disposable income increases by $2,000, the household's consumption will _____. a. increase by less than $2,000 b. increase by $2,000 c. decrease if the total income of the household is above $100,000 d. remain the same unless the change in income significantly affects the household's wealth e. increase by more than $2,000
increase by less than $2,000
The federal budget surplus recorded in 1998 resulted from a(n): a. decrease in taxes and rapid growth in federal outlays. b. increase in taxes and sluggish growth in federal outlays. c. decrease in taxes and a decrease in federal outlays. d. increase in federal outlays and taxes. e. increase in export earnings and decrease in import bills.
increase in taxes and sluggish growth in federal outlays
An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _________ in the ____________ U.S.-made products. A) decrease; aggregate demand for B) increase; short-run aggregate supply of C) increase; aggregate demand for D) decrease; short-run aggregate supply of
increase; aggregate demand for
If the federal government budget deficit increases, then interest rates will _____, the U.S. dollar will _____, and the foreign trade deficit will _____. a. increase; depreciate; decrease b. increase; appreciate; increase c. increase; depreciate; increase d. decrease; appreciate; increase e. decrease; depreciate; decrease
increase; appreciate; increase
A(n) _______ in oil prices and a(n) _______ in taxes will shift short-run aggregate supply to the left. A) increase; increase B) increase; reduction C) reduction; increase D) reduction; reduction
increase; increase
Suppose consumers spend more than usual. In the short run, prices will ____; in the long run, prices will _____ from their starting point. A) increase; remain unchanged B) increase; increase C) remain unchanged; decrease D) remain unchanged; increase
increase; increase
Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24. Based on this information, we can conclude that the price level has: a. increased by 20 percent. b. increased by 25 percent. c. remained unchanged. d. decreased by 10 percent. e. decreased by 20 percent.
increased by 20 percent (formula?)
Since the end of World War II, the U.S. price level has: a. increased tenfold. b. increased by an average of 10 percent each year. c. increased and decreased with equal regularity, leaving the price level almost constant. d. increased by 50 percent. e. doubled.
increased tenfold
When a customer deposits $100 into a checking account, it: a. increases the bank's liabilities only. b. decreases the bank's liabilities only. c. increases the bank's assets only. d. decreases both the bank's liabilities and its assets. e. increases both the bank's liabilities and its assets.
increases both the bank's liablities and its assets
If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution, the money supply: a. increases by $15,000. b. increases by $5,000. c. decreases by $5,000. d. increases by $50,000. e. decreases by $50,000.
increases by $50,000 (5,000/0.10=50,000)
Output definitely increases if aggregate demand ______ and aggregate supply ______. A) increases; increases B) rises; falls C) falls; rises D) decreases; decreases
increases; increases
Suppose a booming stock market encourages consumption spending to rise dramatically. What would be the most likely short-run impact? A) recession and falling prices B) inflation and rising GDP C) recession and rising prices D) The impact cannot be determined from the information given.
inflation and rising GDP
When people exchange money for financial assets, the _____ rises. a. real GDP b. price level c. unemployment rate d. nominal GDP e. interest rate
interest rate
Which of the following changes is most likely to happen when there is a decrease in the supply of money in a market that was initially in equilibrium? a. The demand for money increases b. Planned investment spending increases c. Interest rate increases d. Aggregate expenditure increases e. The demand for money decreases
interest rate increases
For monetary policy to be effective in changing planned investment spending: a. interest rates must not be responsive to changes in the money supply. b. interest rates must be sensitive to changes in Gross Domestic Product. c. investment must be sensitive to changes in interest rates. d. investment must be sensitive to changes in the price level. e. interest rates must be sensitive to changes in the price level.
investment must be sensitive to changes in interest rates
Which of the following components of aggregate expenditure is most subject to crowding out? a. Consumption expenditures b. Investment spending c. Imports d. Government purchases of goods and services e. National saving
investment spending
The national debt: a. is a flow variable measuring the net accumulation of past deficits. b. is a stock variable measuring the net accumulation of past deficits. c. measures the amount by which government revenues exceed outlays in a particular year. d. includes the projected liabilities of Social Security, Medicare, and other federal retirement programs. e. includes outstanding liabilities of federal, state, and local governments minus government financial assets.
is a stock variable measuring the net accumulation of past deficits
The short-run aggregate supply curve: a. is positively sloped. b. is negatively sloped. c. is a vertical line parallel to the price level axis. d. is a horizontal line parallel to the output axis. e. is a ray from the origin with slope exactly equal to 1.
is positively sloped
Which of the following is true of a recession? a. It is typically accompanied by inflation and investment growth. b. It lasts for more than two years on an average. c. It is typically longer than periods of expansion. d. It begins after an expansion has peaked. e. It continues as long as actual output exceeds the potential output.
it begins after an expansion has peaked
Which of the following is true of a beneficial supply shock? a. It can lead to a temporary lower price level. b. It can create a recessionary gap. c. It can permanently decrease the economy's price level. d. It can shift the aggregate demand curve rightward. e. It can shift the aggregate demand curve leftward.
it can lead to a temporary lower price level
What activity does the Fed undertake when it carries out open-market operations? a. It buys and sells the bonds, but not the notes, of leading U.S. corporations. b. It changes the legal reserve requirements for member banks. c. It changes the discount rate, which generally increases the amount of available credit. d. It provides funds so that healthy depository institutions can purchase weaker ones on the open market. e. It deals in the purchase and sale of U.S. government securities.
it deals in the purchase and sale of U.S. government securities
Which of the following is a problem associated with gross domestic product (GDP) as a measure of social welfare? a. It includes many nonmarket activities. b. It takes into account the value of only those goods which are widely used. c. It takes into account the cost of environmental damage caused by pollution. d. It includes intermediate goods as a separate entry. e. It excludes the value of leisure time.
it excludes the value of leisure time
Which of the following is correct regarding the discount rate? a. It is the interest rate that commercial banks charge their most creditworthy customers. b. It is the interest rate that thrift institutions charge for home mortgages. c. It is the interest rate at which depository institutions can borrow from the Federal Reserve. d. It is the interest rate set in the market for U.S. Treasury Bills. e. It is the prime interest rate.
it is the interest rate at which depository institutions can borrow from the Federal Reserve
Which of the following is true of the short-run aggregate supply curve? a. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. b. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. c. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. d. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant. e. It shows an inverse relationship between the price level and real GDP.
it shows an inverse relationship between the price level and real GDP
Which of these is an advantage of long-term contracts in resource markets? a. Long-term contracts decrease the duration of recessionary gaps. b. Long-term contracts reduce unemployment below its natural rate. c. Long-term contracts help avoid recession in an economy. d. Long-term contracts increase the flexibility of nominal wages. e. Long-term contracts reduce the average cost of negotiation.
long-term contracts reduce the average cost of negotiation
An important function of commercial banks is to _____. a. print new currency b. issue fiat money c. mint coins d. redeem currency for precious metals e. make loans
make loans
The effect of automatic stabilizers on the business cycle is to: a. make upswings larger and downswings smaller. b. make upswings smaller and downswings larger. c. make both upswings and downswings smaller. d. eliminate fiscal drag. e. make both upswings and downswings larger.
makes both upswings and downswings smaller
Which of the following is not an activity of the Fed? a. Making loans to the public b. Clearing banks' checks c. Lending funds to the Federal government d. Purchasing U.S. government securities e. Holding deposits of the U.S. Treasury
making loans to the public
The gross domestic product (GDP) of a country measures the _____. a. market value of all intermediate goods and services produced by resources located within the country b. market value of all goods and services produced by resources located outside the country c. market value of all final goods and services produced by resources located within the country d. value added to the economy by intermediate goods and services minus original cost e. value of the total sales of financial assets
market value of all final goods and services produced by resources located within the country
The unit of account function of money: a. means that money should be durable. b. means that money makes price information more accessible. c. requires that money be made of something valuable. d. means that money can be used to save up purchasing power. e. means that money is more easily counted than goods.
means that money makes price information more accessible
The three important functions of money are _____. a. medium of exchange, facilitation of trade, and unit of account b. unit of account, facilitation of trade, and store of value c. store of value, facilitation of trade, and double coincidence of wants d. facilitation of trade, medium of exchange, and unit of account e. medium of exchange, unit of account, and store of value
medium of exchange, unit of account, and store of value
To maximize its profit, a bank will: a. minimize the number transactions it engages in. b. maximize required reserves. c. minimize excess reserves. d. maximize excess reserves. e. minimize required reserves.
minimize excess reserves
The U.S. economy is best characterized as a: a. barter economy. b. command economy. c. mercantile economy. d. mixed economy. e. traditional economy.
mixed economy
Whatever serves as a medium of exchange is: a. money. b. money, as long as it is also the best such medium of exchange available. c. money, as long as it is not also a commodity. d. money, as long as it is not also legal tender. e. not money, unless it continues to be backed by its issuing institution.
money
Which of the following statements is true? a. Money market mutual funds were originally introduced by the Federal Reserve Bank of New York. b. Money market mutual funds initially constituted serious competition to banks and thrifts for the deposits of savers. c. Money market mutual funds were not originally offered by commercial banks and still are not offered by them. d. Money market mutual funds represent a pooling of cash assets from many countries, like dollars, francs, and pesos. e. Money market mutual funds are not able to offer their customers check-writing privileges.
money market mutual funds initially constituted serious competition to banks and thrifts for the deposits of savers
The tendency of bankers to take unwarranted risks in making loans because deposits were insured is an example of _____. a. anchoring bias b. self-serving bias c. moral hazard d. hazard pay e. banker's lobbying
moral hazard
Any movement along a bowed-out production possibilities frontier involves the production of: a. more of both goods. b. more of one good and less of the other. c. less of both goods. d. more resources. e. better technology.
more of one good and less of the other
Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5. The final increase in output will be: a. $6000. b. $500. c. $200. d. more than $200. e. less than $200.
more than $200
Which of the following is generally true of nominal wages? a. In the long run, nominal wages tend to equal real wages. b. Nominal wages are more flexible downward than upward. c. Nominal wages are more flexible than prices. d. Nominal wages tend to adjust slowly in the downward direction. e. Nominal wages do not rise during labor shortages.
nominal wages tend to adjust slowly in the downward direction
Fiat money is backed by: a. gold or silver. b. fractional reserves. c. the promise of a bank to redeem it upon presentation. d. the commodity in which it is denominated. e. nothing.
nothing
The primary tool the Fed uses to control the money supply today is: a. the discount rate. b. the required reserve ratio. c. the discount window. d. chartering. e. open market operations.
open market operations
On a straight-line production possibilities frontier, which of the following is true? a. The problem of scarcity does not exist. b. Resources are imperfect substitutes. c. Opportunity costs are constant. d. Technology is rapidly expanding. e. Some resources are not being used efficiently.
opportunity costs are constant
Barter is the direct exchange of goods and services for: a. any kind of money. b. other goods and services. c. either goods or money. d. commodity money. e. foreign currency.
other goods and services
Which of the following occurs when an expansionary gap is closed in the long run by the action of firms? a. Output decreases, and the price level increases. b. Inflation decreases, and unemployment rises. c. Both the equilibrium output and the price level increase. d. Both the equilibrium output and the price level decrease. e. Inflation rises, and unemployment decreases
output decreases, and the price level increases
Which of the following is associated with the problem of hyperinflation? a. Money is in short supply. b. The value of money rises dramatically. c. The government runs out of money. d. People look for alternatives to using money. e. People start to hold on to money for long periods of time.
people look for alternatives to using money
Which of the following is associated with the problem of hyperinflation? a. Money is in short supply. b. The value of money rises dramatically. c. The government runs out of money. d. People look for alternatives to using money. e. People start to hold on to money for long periods of time.
people look for alternatives to using money
Which of the following serves as money in many federal prisons in the United States these days? a. Postage stamps b. Energy bars c. Plastic-and-foil pouches of mackerel d. Cans of tuna e. Cigarettes
plastic-and-foil pouches of mackerel
In the short run, the aggregate supply curve is: A) horizontal. B) negatively sloped. C) positively sloped. D) vertical.
positively sloped
The demand for money in an economy is high when the: a. real GDP is low. b. personal tax rate is low. c. unemployment rate is high. d. price level is high. e. interest rate is high.
price level is high
Which is a determinant of aggregate supply? A) interest rates B) productivity C) prices of substitutes D) household expectations
productivity
The short-run supply curve slopes up because: A) profits increase at higher price levels. B) productivity increases at higher price levels. C) wages increase at higher output in the short run. D) resource costs increase at higher price levels.
profits increase at higher price levels
Which of the following is a component of aggregate demand? a. Transfer payments from government b. Taxation by government c. Purchases by government d. Borrowing by government e. Saving by consumers
puchases by government
High taxes and/or heavy regulation: A) can cause firms to boost production so they can cover the added costs. B) raise costs of production so that the aggregate supply curve shifts to the left. C) are not likely to affect firms' behavior, since they are more concerned about profit than taxes or regulation . D) are likely to shift aggregate supply to the right.
raise costs of production so that the aggregate supply curve shifts to the left
A tax is considered to be independent of: a. investment. b. consumption. c. government spending. d. real GDP. e. the price level.
real GDP
The aggregate demand curve displays: A) real GDP demanded at various price levels. B) nominal GDP versus real GDP. C) GDP demanded at various investment levels. D) the business cycle.
real GDP demanded at various price levels.
The least liquid of the assets listed below is: a. real estate. b. currency. c. traveler's checks. d. oil. e. checkable deposits.
real estate
If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct? a. Real wages will increase by 2 percent per year. b. Real wages will increase by 3 percent per year. c. Real wages will decrease by 3 percent per year. d. Real wages will decrease by 2 percent per year. e. Real wages will remain constant.
real wages will increase by 2 percent per year
Suppose there is a 3 percent increase in the nominal wages of workers in an economy. The annual rate of inflation in the economy is about 6 percent. Which of the following is true in this case? a. Real wages would fall by about 3 percent. b. Real wages would increase by about 20 percent. c. Real wages would fall by about 25 percent. d. Real wages would increase by about 50 percent. e. Real wages would increase by about 10 percent.
real wages would fall by about 3 percent
One purpose of interest-rate ceilings was to: a. establish a ceiling on bank profits. b. establish a floor on bank profits. c. encourage competition in other areas. d. eliminate the need for the FDIC. e. reduce the chance of bank failures.
reduce the chance of bank failures
Before the 1970s, bankers were happy with interest-rate ceilings because those ceilings: a. reduced interest-rate competition for deposits among banks. b. guaranteed them high profits. c. guaranteed them a minimum profit. d. enabled them to expand into other lines of commerce. e. allowed them to hold corporate stock.
reduced interest-rate competition for deposits among banks
Because of the wealth effect, a rising aggregate price level ____ the purchasing power of wealth and therefore _____ output demanded. A) increases; increases B) increases; reduces C) reduces; increases D) reduces; reduces
reduces; reduces
The nominal gross domestic product (GDP) for a country was $1,000 in 2003 and $1,500 in 2004. The GDP price index was 100 in 2003 and 150 in 2004. Between 2003 and 2004, real GDP _____. a. increased by $500 b. increased by $333 c. increased by $50 d. remained the same e. decreased by $50
remained the same (100/1,000=0.1) (0.1x100=10) (150/1,500=0.1) (0.1x100=10)
Which of the following is true if a nation's official money fails to serve as a medium of exchange? a. Nothing will replace money to help facilitate exchange. b. There will be an increase in economic efficiency. c. Resouces will divert from production to exchange. d. Transaction costs of exchange will decrease. e. Fewer barter exchanges will be completed.
resources will divert from production to exchange
An increase in the quantity of capital per worker would: a. rotate the per-worker production function outward. b. rotate the per-worker production function inward. c. shift the per-worker production function downwards. d. shift the per-worker production function upwards. e. result in a rightward movement along the current per-worker production function.
result in a rightward movement along the current per-worker production function
Which of the following is not a power of the Federal Reserve System? a. Setting the prime interest rate b. Issuing Federal Reserve notes c. Buying and selling U.S. government securities d. Extending loans to member banks e. Clearing checks
setting the prime interest rate
The Board of Governors of the Fed consists of: a. seven elected members. b. seven members appointed by the president. c. a representative from each of the 12 district banks. d. 12 elected members. e. 12 members appointed by the president.
seven members appointed by the president
An increase in the price level in an economy will _____. a. shift the aggregate expenditure line upward b. shift the aggregate expenditure line downward c. cause an upward movement along the aggregate expenditure line d. cause a downward movement along the aggregate expenditure line e. shift the aggregate demand curve downward
shift the aggregate expenditure line downward
A decrease in the price level will _____. a. shift the consumption function upward b. shift the consumption function upward c. result in an upward movement along the consumption function d. result in a downward movement along the consumption function e. shift the consumption function downward
shift the consumption function upward
Expectations that the price level will increase in the future will: a. shift the current consumption function upward. b. make the current consumption function steeper. c. make the current consumption function flatter. d. result in a downward movement along the current consumption function. e. shift the current consumption function downward.
shift the current consumption function upward
If the national incomes of foreign countries fall at the same time the dollar appreciates, then in the United States the aggregate demand curve: A) shifts to the right. B) shifts to the left. C) remains unchanged. D) does not shift, but there is movement up along it.
shifts to the left
Commitments to make or receive payments in the future are made easier by money's function as a _____. a. unit of account b. store of value c. medium of exchange d. form of barter e. commodity
store of value
A decrease in regulation would cause aggregate: A) supply to shift to the left. B) demand to shift to the right. C) demand to shift to the left. D) supply to shift to the right.
supply to shift to the right
Which of the following is an example of a leakage from the circular flow of income and expenditure? a. Government purchases of goods and services b. Taxes c. Investment d. Exports e. Consumption expenditures
taxes
Which of the following events causes a decrease in aggregate demand? A) consumer confidence improves B) taxes increase C) interest rates fall D) government spending increases
taxes increase
Alan puts $20,000 in an uninsured savings account at the Boston National Bank. Susie borrows $20,000 from the Boston National Bank, flies to a Central African country, and is never heard from again. Which of the following is true in this case? a. Alan will lose her $20,000. b. Alan will lose her $20,000 if she and Norma are related. c. Alan will lose her $20,000 if the First National Bank makes all of its loans to people who run off to South Pacific islands. d. Alan will not lose her $20,000 no matter what happens to the First National Bank. e. Alan will not lose her $20,000 unless the Fed fails
Alan will lose her $20,000 if the First National Bank makes all of its loans to people who run off to South Pacific islands
Suppose you borrow $1,000 to purchase a car. Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money, but before you spend it? a. Assets: loan, +$1,000; Liabilities and net worth: checking deposit, +$1,000 b. Assets: loan, -$1,000, checking deposit, +$1,000; Liabilities and net worth: no change c. Assets: loan, +$1,000, checking deposit, -$1,000; Liabilities and net worth: no change d. Assets: checking deposit, +$1,000; Liabilities and net worth: loan, +$1,000 e. Assets: checking deposit, +$1,000; Liabilities and net worth: loan, -$1,000
Assets: checking deposit, +$1,000; Liabilities and net worth: loan, +$1,000
_____ varies along a given aggregate demand curve. a. The nominal interest rate in the domestic country b. The exchange rate between the domestic currency and a foreign currency c. The aggregate supply in a foreign country d. The price level in the domestic country e. The prices of resources used in production
The price level in the domestic country
Which of the following best illustrates the double coincidence of wants? a. Both Tom and Jerry would like to purchase the same good. b. Tom has something he's willing to trade with Jerry; Jerry has something he's not willing to trade with Tom. c. Tom and Jerry have very similar tastes; hence, Tom's wants coincide with Jerry's. d. Tom has something he's willing to trade with Jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it. e. Tom has something Jerry wants; Jerry has nothing Tom wants.
Tom has something he's willing to trade with Jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it
The reserve ratio is the ratio of: a. Federal Reserve member banks to nonmember banks. b. Federal Reserve nonmember banks to member banks. c. Federal Reserve member banks to all U.S. banks. d. a bank's total deposits to its reserves. e. a bank's reserves to its total deposits.
a bank's reserves to its total deposits
Which of the following people would be counted among the unemployed? a. A new college graduate selling newspaper advertisements part time while looking for other work b. A new college graduate selling newspaper advertisements full time while looking for other work c. A new college graduate selling newspaper advertisements part time and not looking for other work d. A new college graduate who gets tired of selling newspaper advertisements and takes off on a motorcycle trip to Alaska e. A new college graduate not qualified for any of the jobs available in his small town
a new college graduate not qualified for any of the jobs available in his small town
Which of the following is not a depository institution? a. A commercial bank b. A thrift institution c. A pension fund d. A savings and loan institution e. A credit union
a pension fund
Which of the following is most critical for the maintenance of an efficient and productive economy? a. Money backed by gold or silver b. Steadily rising prices c. An unlimited and unregulated supply of money d. A properly functioning monetary system e. A well-organized barter system
a properly functioning monetary system
The amount by which actual output falls short of potential output is called: a. a deadweight loss. b. real GDP. c. a recessionary gap. d. the full-employment output. e. an expansionary gap.
a recessionary gap
What would cause the price level to rise and employment to increase? A) a shift to the left of the aggregate demand curve B) a shift to the right of the aggregate demand curve C) a shift to the left of the short-run aggregate supply curve D) supply shift to the right of the short-run aggregate supply curve
a shift to the right of the aggregate demand curve
Which of the following people would be counted as employed? a. A retired naval officer b. A high school student c. A stay-at-home father d. A teenager who has given up looking for work after a year of trying e. A ski instructor who is working during the summer
a ski instructor who is working during the summer
A bank can legally hold reserves as: a. gold and coins. b. gold and checks. c. cash in its vault and non-interest-bearing reserve deposits at the Fed. d. gold and non-interest-bearing reserve deposits at the Fed. e. U.S. government securities and coins.
cash in its vault and non-interest-bearing reserve deposits at the Fed
The actual money multiplier is smaller than the simple money multiplier because: a. the actual multiplier affects M2 rather than M1. b. cash withdrawals reduce the amount banks can lend out. c. the actual multiplier affects the amount of excess reserves each bank holds. d. the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier. e. the actual multiplier uses a different measure of reserve requirements.
cash withdrawals reduce the amount banks can lend out
Which of the following will NOT cause a shift in the short-run aggregate supply curve? A) changes in the aggregate price level B) changes in input prices C) changes in productivity D) changes in inflationary expectations
changes in the aggregate price level
The Ml money supply consists primarily of: a. savings deposits. b. certificates of deposit. c. miscellaneous near-monies. d. checkable deposits. e. money market mutual fund accounts
checkable deposits
Which of the following is included in the narrow definition of the money supply? a. Cash in bank vaults b. Savings deposits c. Money market mutual fund accounts d. Negotiable certificates of deposit e. Checkable deposits
checkable deposits
Many people prefer debit cards to checks because: a. checkbooks are not required and direct payments are made. b. checks are unsafe for use. c. debit cards delay money payments. d. using checks is time consuming. e. debit cards help account holders get a loan from the card issuer.
checkbooks are not required and direct payments are made
The long-run aggregate supply curve is most consistent with the ________ school of economic thought. A) Keynesian B) classical C) monetarist D) libertarian
classical
The more time a free market economy has to adjust to price changes, the: A) greater the rate of inflation. B) closer GDP gets to the natural rate of output. C) closer the economy gets to the horizontal portion of the aggregate demand curve. D) more volatility is seen in the business cycle.
closer GDP gets to the natural rate of output
An increase in the money supply leads to a(n): a. decline in interest rates, an increase in investment, and an increase in aggregate demand. b. decline in interest rates, a decrease in investment, and an increase in aggregate demand. c. decline in interest rates, an increase in investment, and a decline in aggregate demand. d. increase in interest rates, an increase in investment, and an increase in aggregate demand. e. decline in interest rates, a decline in investment, and a decline in aggregate demand.
decline in interest rates, an increase in investment, and an increase in aggregate demand
A new tax introduced by the government will: a. decrease disposable income. b. increase disposable income. c. lead to a reduction in government spending. d. lead to an increase in government spending. e. have no effect on disposable income.
decrease disposable income
Suppose the government raises income taxes, so consumers have less take-home pay. This policy action will cause a(n): A) increase in aggregate demand. B) decrease in aggregate demand. C) increase in short-run aggregate supply. D) decrease in short-run aggregate supply.
decrease in aggregate demand
Which of the following factors causes a shift in the aggregate demand curve to the left? A) increase in consumption B) increase in wealth C) increase exports D) decrease in government spending
decrease in government spending
The immediate effect of a bank's purchase of U.S. government securities from the Fed is a(n): a. decrease in the bank's assets. b. increase in the bank's assets. c. decrease in the Fed's assets. d. increase in the Fed's assets. e. decrease in both the bank's and the Fed's assets.
decrease in the Fed's assets
A household that expects a decrease in disposable income in the future will _____. a. increase its current consumption spending b. decrease its current consumption spending c. maintain its current consumption spending d. first increase its current consumption spending and then decrease spending when income falls e. first decrease its current consumption spending and then increase spending when income falls
decrease its current consumption spending
A household that expects a decrease in disposable income in the future will _____. a. increase its current consumption spending b. decrease its current consumption spending c. maintain its current consumption spending d. first increase its current consumption spending and then decrease spending when income falls e. first decrease its current consumption spending and then increase spending when income falls
decrease its current consumption spending
To increase the money supply, the Fed might: a. increase the discount rate and sell bonds in the open market. b. decrease the reserve requirement and buy bonds in the open market. c. increase the reserve requirement and sell bonds in the open market. d. increase the discount rate and lower the reserve requirement. e. sell government securities and increase the discount rate.
decrease the reserve requirement and buy bonds in the open market
To increase the money supply, the Fed might: a. increase the reserve requirement and the discount rate. b. decrease the reserve requirement and the discount rate. c. increase the reserve requirement and decrease the discount rate. d. sell government securities and increase the discount rate. e. sell bonds on the open market and increase the reserve requirement.
decrease the reserve requirement and the discount rate
The rate at which aggregate supply changes to restore equilibrium at potential output depends crucially on: a. how quickly planned investment spending adjusts to changes in population growth. b. how quickly planned consumption spending adjusts to changes in the price level and nominal wages. c. how quickly technology changes to increase aggregate supply. d. whether the economy is experiencing a recessionary gap or an expansionary gap. e. how quickly real wages adjust to restore full employment in the labor market.
how quickly real wages adjust to restore full employment in the labor market
Barter may be the only alternative: a. if the supply of money dries up. b. if the price system is not allowed to function properly. c. if disinflation sets in. d. if hyperinflation sets in. e. if fiat money is discontinued.
if the price system is not allowed to function properly
If incomes in the United States increase, other things equal, then U.S. _____. a. imports increase and exports remain constant b. exports increase and imports decrease c. imports decrease and exports decrease d. imports remain constant and exports increase e. net exports remains constant
imports increase and exports remain constant
Which of the following statements is true of a barter system? a. In a barter system, an individual offers one good or service to get another good or service. b. In a barter system, an individual offers money to get a good or service. c. In a barter system, an individual offers a good or service to get money. d. In a barter system, different kinds of money are exchanged for one another. e. In a barter system, all individuals are self-sufficient.
in a barter system, an individual offers one good or service to get another good or service
To minimize the effect of short-term political pressure on the Fed's Board of Governors, the governors are all appointed to their terms: a. in different years, and their terms are long. b. in different years, and their terms are short. c. in the same year, and their terms are long. d. in the same year, and their terms are short. e. in the same year, and their terms are shorter than that of the chairman of the Federal Reserve Board.
in different years, and their terms are long
Which of these is a flow variable? a. Money b. Income c. Jewelry d. Bank deposit e. Foreign currency reserve
income
The aggregate expenditure line shows total planned spending at each _____. a. consumption level b. investment level c. income level, holding the price level constant d. price level, holding the level of income constant e. interest rate, holding the price level constant
income level, holding the price level constant
Which of the following is true of the short-run aggregate supply curve? a. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. b. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. c. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. d. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant. e. It shows an inverse relationship between the price level and real GDP.
it shows the relation between the price level and the quantity of aggregate output firms supply, other things constant
All of the following are part ofM2 except one. Which is the exception? a. Money market deposit accounts b. Coins c. Traveler's checks d. Large-denomination time deposits e. Savings deposits
large-denomination time deposits
A shift to the ________ of the __________ curve would cause the price level to decrease and employment to decrease. A) left; aggregate demand B) right; aggregate demand C) left; short-run aggregate supply D) right; short-run aggregate supply
left; aggregate demand
A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded. A) left; decrease B) left; increase C) right; increase D) right; decrease
left; decrease
If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will be _____. A) left; increased B) left; reduced C) right; increased D) right; reduced
left; reduced
Money that is acceptable because the government requires that it be accepted in payment of debt is _____. a. legal tender b. commodity money c. bad money d. backed by government's wealth e. hoarded by the people
legal tender
The Federal Reserve banks could probably have prevented many of the bank failures in the early 1930s by: a. raising the reserve requirement of the commercial banks. b. lending money to the commercial banks. c. improving the system whereby checks are cleared. d. helping to create a commission of experts to engage in a prolonged study of the problem. e. selling large amounts of government bonds.
lending money to the commercial banks
Whatever functions as money must be _____. a. authorized by the government b. accepted as deposit by banks c. backed by precious metals like gold or silver d. completely indestructible e. limited in supply
limited in supply
Which of the following correctly describes factors that contributed to the change in the federal budget deficit between 1990 and 1998? a. Federal taxes were cut by President George H.W. Bush and Congress in 1990, which helped in his reelection campaign in 1992 and contributed to a continually rising budget deficit during the 1990s. b. Federal taxes were cut again by President Bill Clinton in 1993, which further contributed to a continually rising budget deficit during the 1990s. c. Accelerated growth in federal outlays triggered the rapid expansion of the federal workforce between 1990 and 1998, which further contributed to a continually rising budget deficit during the 1990s. d. Taxes were raised, spending was cut, productivity rose, consumer spending increased, the stock market was the strongest in history, and the country experienced a short-lived budget surplus. e. Defense and international programs were identified as the only two areas of potential spending cuts.
taxes were raised, spending was cut, productivity rose, consumer spending increased, the stock market was the strongest in history, and the country experienced a short-lived budget surplus
Along a bowed-out production possibilities frontier, as more of one good is produced, _____. a. the opportunity cost of producing that good remains constant b. the opportunity cost of producing that good decreases c. efficiency decreases d. the opportunity cost of producing both goods must remain constant e. technology remains constant
technology remains constant
Which of these factors can explain the short recession experienced by the U.S. in 2001? a. Terrorist attacks b. The stock market crash c. Bursting of the real estate bubble d. A rise in international oil prices e. Expenditure on war
terrorist attacks
Commodity money is something: a. that has no intrinsic value. b. that has an intrinsic value. c. that is based on a valuable metal. d. whose value never changes. e. whose value cannot be determined.
that has an intrinsic value
Which of the following monetary policies would be appropriate to close a recessionary gap? a. A tax cut b. A decrease in government purchases c. An increase in reserve requirements d. The Fed's purchase of U.S. government securities e. The Fed's raising the discount rate
the Fed's purchase of U.S. government securities
Which of the following best illustrates the wealth effect? A) Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. B) Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth. C) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. D) Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.
the Jones family has $50,000 in a bank; price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished
Identify the incorrect statement about the U.S. federal deficit. a. The U.S. is now the world's leading creditor. b. The U.S. borrows huge sums from abroad. c. Some critics blame U.S. fiscal policy as reflected in the large federal deficits for the switch of the U.S. from creditor to debtor nation. d. Japan and China are big buyers of U.S. Treasury securities. e. The federal budget, on an average, had a deficit of 3.0 percent relative to GDP.
the US is now the world's leading creditor
Comparative advantage refers to: a. the ability of an individual to specialize and produce a greater amount of some good than another individual. b. the number of units of a good given up in order to acquire something. c. the ability of an individual to produce a good at a lower opportunity cost than some other individual can. d. the amount of labor a particular individual needs to produce a fixed amount of capital goods. e. the ability of an individual to produce a good using fewer labor hours than other individuals.
the ability of an individual to produce a good at a lower opportunity cost than some other individual can
The powers of the Federal Reserve System do not include: a. the ability to buy and sell U.S. government securities. b. the ability to extend loans to commercial banks. c. the ability to provide deposit insurance for customers of member banks. d. the ability to impose reserve requirements on both member and nonmember commercial banks. e. the authority to clear checks.
the ability to provide deposit insurance for customers of member banks
The United Bank of Glassen only lent money to a limited number of big business houses. After a financial crisis, the bank went out of business. Which of the following reasons could have contributed to the collapse of this bank? a. Their decision not to lend funds to the Federal Reserve b. Their decision not to diversify their asset portfolio c. Their decision to extend loans to a diversified pool of borrowers d. Their decision to extend mainly short-term loans e. Their decision to unnecessarily scrutinize each borrower's details
their decision not to diversify their asset portfolio
A 2005 quarter is called token money because: a. it is legal tender. b. its metal value exceeds its face value. c. there is less than a quarter's worth of metal in it. d. it can be used in the subway. e. it is generally not accepted in exchange.
there is less than a quarter's worth of metal in it
A decrease in the price level in an economy implies that _____. a. the spending multiplier will be equal to the marginal propensity to consume b. there will be an increase in investment c. there will be a decrease in investment d. the value of the spending multiplier will be equal to one e. the value of the spending multiplier will be equal to zero
there will be an increase in investment
Which of the following is true about classical economists? a. They argued that the sources of depressions and high unemployment lay within the market system. b. They advocated laissez-faire policies to promote economic growth. c. They believed the economy would naturally tend toward unemployment. d. They believed prices and wages were rigid. e. They encouraged government intervention in markets.
they advocated laissez-faire policies to promote economic growth
Which of the following is true of government purchases? a. They are positively related to current income. b. They are negatively related to current income. c. They are directly related to taxes. d. They are decided by public officials. e. They depend on the market rate of interest.
they are decided by public officials
Which of the following is true of credit cards? a. They have eliminated the use of money. b. They are currently the most popular means of payment in the United States. c. They are included in the narrow definition of money, M1. d. They are near-monies. e. They are used to postpone the payment of money.
they are used to postpone the payment of money
People will be likely to spend a higher percentage of any additional income when _____. a. they believe that the increase is permanent b. they believe that the increase is temporary c. the increase is large d. the increase is small e. interest rates on savings accounts are rising
they believe that the increase is permanent
Unanticipated inflation penalizes: a. those who are saving. b. those who are borrowing. c. governments. d. those who are in high-growth industries where wages are growing faster than prices. e. those who can't find jobs at any wage rate.
those who are saving
In which of the following ways does government affect the consumption component of planned aggregate expenditures? a. Through net taxes, which change disposable income b. By purchasing goods and services, which increase consumption c. By using subsidies to encourage firms to invest d. By reducing the interest rate to encourage firms to invest e. By producing public goods
through net taxes, which change disposable income
Coins are minted with serrated edges: a. to make it obvious that they were made of cheap alloys. b. so that cheaper metals did not have to be used. c. to allow words to be printed on the border. d. to prevent the coins from being clipped. e. to make them jingle less when they rub together.
to prevent the coins from being clipped
A possible budget reform involves: a. a quadrennial budget. b. breaking down the budget into increasingly small budget lines. c. appointing agency heads with different priorities than those of elected representatives. d. to simplify the budget document by concentrating only on major groupings and eliminating line items. e. to eliminate the operating budget.
to simplify the budget document by concentrating only on major groupings and eliminating line items
Which of the following is an example of an injection into the circular flow of income and expenditure? a. Net taxes b. Saving c. Transfer payments d. Government borrowing e. Disposable income
transfer payments
Which of the following statements is correct regarding the Fed? a. Under the Federal Reserve System, there is one Federal Reserve Bank, located in Washington D.C. b. Under the Federal Reserve System, there is one Federal Reserve Bank whose location changes every 14 years. c. Under the Federal Reserve System, there is a Federal Reserve Bank in each Congressional district. d. Under the Federal Reserve System, there is a Federal Reserve Bank in each state. e. Under the Federal Reserve System, there are 12 Federal Reserve banks, one in each of the 12 Federal Reserve districts.
under the Federal Reserve System, there are 12 Federal Reserve banks, one in each of the 12 Federal Reserve districts
Uncertainty about inflation: a. shifts the attention of business managers away from exchange rate movements and toward concerns about productivity. b. reduces the difficulty of making international business decisions. c. make suppliers link the selling prices of their goods to the overall inflation rate. d. undermines money's importance as a link between the present and the future. e. makes contracts easier to negotiate.
undermines money's importance as a link between the present and the future
The value of fiat money is fundamentally determined by the: a. reputation of the bank that holds it. b. reputation of the person who holds it. c. value of the gold or silver for which it can be redeemed. d. value of the commodities for which it can be traded. e. value of comparable stocks and bonds.
value of the commodities for which it can be traded
The long-run supply curve is: A) vertical. B) horizontal. C) elastic. D) inelastic.
vertical
The real wage is equal to the: a. wage measured in terms of the quantity of goods and services it buys. b. wage measured in terms of the dollar value of the goods and services it buys. c. nominal wage net of taxes paid on wages. d. non-wage benefits received by workers. e. product of the nominal wage and the price level.
wage measured in terms of the quantity of goods and services it buys
If Monica has a comparative advantage in baking and George has a comparative advantage in sewing, then: a. Monica must have an absolute advantage in baking. b. Monica must have an absolute advantage in sewing. c. George must have an absolute advantage in baking. d. George must have an absolute advantage in sewing. e. we can conclude nothing about absolute advantage.
we can conclude nothing about absolute advantage
In the short run, a decrease in market power (or monopolization): A) will increase the price level. B) will decrease the price level. C) will not affect the price level. D) will not affect output.
will decrease the price level
The velocity of money is defined as: a. the time it takes the average worker to get to the bank with his/her paycheck. b. the time it takes banks to clear checks. c. the average number of times per year each dollar is used to purchase final goods and services. d. the ratio of money supply to the average price level in an economy. e. the average number of times per year each dollar is spent for goods, payrolls, Social Security payments, etc.
the average number of times per year each dollar is used to purchase final goods and services
A biennial budget: a. is more useful than an annual budget as a tool of discretionary fiscal policy. b. is implemented by the federal government, while an annual budget is implemented by state governments. c. would ensure that cabinet members spend more time on administering an approved budget and defending a proposed budget. d. would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations. e. would require shorter-term economic forecasts than an annual budget.
would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations
Which of the following is a difference between net domestic product (NDP) and gross domestic product (GDP)? a. GDP includes the cost of polluting the environment, while NDP does not. b. GDP excludes net taxes, while NDP includes it. c. GDP excludes that part of the capital stock used up in the production process, while NDP includes it. d. GDP includes all government spending, while NDP excludes government spending. e. GDP includes that part of the capital stock used up in the production process, while NDP does not.
GDP includes that part of the capital stock used up in the production process, while NDP does not
Which of the following is most likely to increase long-run aggregate supply in an economy? a. A decrease in the size of the labor force b. A deterioration in the quality of the labor force c. A reduction in the cost of using computers d. An increase in the price level e. An increase in aggregate demand
a reduction in the cost of using computers
Which of the following would increase labor productivity? a. A labor deepening production method b. A decrease in the amount of capital per unit of labor c. A lower unemployment rate d. Recruitment of new and young labor force e. An increase in the education level of per unit of labor
an increase in the education level of per unit of labor
By a leading economic indicator, economists mean: a. an indicator of future economic activity. b. an indicator that reflects economic fluctuations as they occur. c. a highly accurate indicator that is easily measured. d. an indicator that predicts the level of inflation in an economy. e. any variable that follows changes in economic activity.
an indicator of future economic activity
An adverse supply shock would shift: a. only the short-run aggregate supply curve outward. b. only the long-run aggregate supply curve outward. c. only the long-run aggregate supply curve inward. d. only the short-run aggregate supply curve inward. e. both the long-run and the short-run aggregate supply curves inward.
both the long-run and the short-run aggregate supply curves inward
Open market operations involve: a. opening the discount window. b. buying stocks in the stock market. c. buying and selling government securities in the open market. d. opening new markets for commodities. e. selling failed banks to other banks.
buying and selling government securities in the open market
When the Fed sells U.S. government securities to a member bank, the immediate effect on that bank's balance sheet is a(n): a. decrease in assets and an increase in liabilities. b. increase in assets and a decrease in liabilities. c. increase in both assets and liabilities. d. decrease in both assets and liabilities. e. change in the type of assets the bank is holding, but no change in liabilities.
change in the type of assets the bank is holding, but no change in liabilities
Which of the following is a disadvantage of using debit cards? a. Debit cards are unsafe for use. b. Debit cards do not provide a grace period between a purchase and required payment. c. Debit cards delay payments. d. Debit cards are not not easy to use. e. Debit cards make purchases more expensive than they actually are.
debit cards do not provide a grace period between a purchase and required payment
If the expected price level exceeds the actual price level in an economy, _____. a. firms increase production in the short run b. firms decrease production in the short run c. firms maintain production in the short run but increase prices d. firms maintain production in the short run but decrease prices e. firms raise prices in the short run.
firms decrease production in the short run
Potential output is the amount produced when: a. firms' and workers' expectations about the price level are realized. b. the actual price level is higher than the price level expected by workers. c. firms and workers have the same expectations about the price level. d. the actual price level remains constant. e. the actual price level is lower than the price level expected by firms.
firms' and workers' expectations about the price level are realized
A lender of last resort is a financial institution that is willing and able to lend to: a. individuals who have other debts outstanding. b. individuals who do not have a positive net worth. c. banks that are not members of the Federal Reserve System. d. fractional reserve system banks experiencing runs on their deposits. e. Federal Reserve System member banks experiencing runs on their deposits.
fractional reserve system banks experiencing runs on their deposits
An increase in income in other countries, other things equal, would cause U.S. _____. a. exports to decrease and imports to increase b. exports to increase and imports to increase c. imports to decrease and exports to decrease d. imports to increase and exports to remain unchanged e. imports to remain unchanged and exports to increase
imports to remain unchanged and exports to increase
The Employment Act of 1946: a. guaranteed full employment. b. allowed the federal government to hire as many people as it could to achieve full employment. c. gave the federal government the power to levy an income tax. d. imposed a responsibility on the federal government to promote maximum employment. e. obligated the federal government to run budget surpluses to achieve full employment.
imposed a responsibility on the federal government to promote maximum employment
Which of the following statements is true of a barter system? a. In a barter system economy, no rates of exchange are defined. b. In a barter system economy, there are as many different rates of exchange as there are pairs of goods to trade. c. In a barter system economy, rates of exchange are expressed in goods per dollar. d. In a barter system economy, rates of exchange are expressed in dollars per good. e. In a barter system economy, rates of exchange are denominated in gold or silver.
in a barter system economy, there are as many different rates of exchange as there are pairs of goods to trade
In the aggregate demand-aggregate supply model in the short run, an increase in the money supply will lead to a(n): a. increase in both the price level and real GDP. b. decrease in both the price level and real GDP. c. increase in real GDP and a decrease in the price level. d. decrease in real GDP and an increase in the price level. e. increase in the price level only.
increase in both the price level and real GDP
Which of the following is true of the gross domestic product (GDP) of a nation? a. It can be measured by the stock of consumer goods in a nation at a particular point in time. b. It can be measured by the stock of capital goods in a nation at a particular point in time. c. It can be measured either by calculating the total spending on production or the total income from that production. d. It is the sum of total spending on production and total income from that production. e. It can be measured from the stock of wealth in the nation.
it can be measured either by calculating the total spending on production or the total income from that production
One advantage of a money market mutual fund account is that: a. it is guaranteed for a larger amount than are FDIC-insured deposits. b. it is a riskless asset. c. its holders typically earn more interest than they can with a regular bank account. d. it earns high interest and is liquid. e. it is completely liquid and riskless.
its holders typically earn more interest than they can with a regular bank account
Interest-rate ceilings on deposits: a. meant banks were guaranteed "cheap money" from depositors. b. were imposed because without them, as was the case in the 1970s, banks couldn't be profitable. c. led to banks losing deposits whenever market rates went above the ceiling rates. d. are only effective when market rates are below the ceiling rates. e. were developed by money market mutual funds as a marketing device.
led to banks losing deposits whenever market rates went above the ceiling rates
The main effect of a decrease in the stock of capital is a(n): a. rightward shift of the short-run aggregate supply curve. b. rightward shift of the aggregate demand curve. c. leftward shift of the long-run aggregate supply curve. d. leftward shift of the aggregate demand curve. e. increase in the price and output levels.
leftward shift of the long-run aggregate supply curve
If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves, the Fed is: a. forcing banks to increase the money supply. b. forcing banks to decrease the money supply. c. making it possible for banks to increase the money supply but not forcing them to do so. d. making it possible for banks to decrease the money supply but not forcing them to do so. e. conducting open market operations but not changing the money supply.
making it possible for banks to increase the money supply but not forcing them to do so
Thrift institutions encountered serious difficulties in the 1970s because: a. money market mutual funds became serious competitors for their deposits. b. the U.S. Treasury deposited larger sums of money than the thrift institutions could effectively manage. c. the interest rates they had to pay on deposits began to fall. d. each of the largest banks increased the pressure on the thrifts by building a nationwide network of branch banks. e. the FDIC increased the reserve requirement for thrifts.
money market mutual funds became serious competitors for their deposits
Problems with the federal government budget process include: a. budgeting that allows the President too much discretion in spending decisions. b. budgeting that increases the flexibility of discretionary fiscal policy. c. a budget outline that needs to be approved with at least a two-thirds majority vote. d. most of the expenditures being for entitlement programs. e. a brief budgeting that does not allow Congress to study whether the budget is an appropriate tool for fiscal policy.
most of the expenditures being for entitlement programs
A temporary tax cut is not likely to be effective in stimulating aggregate demand if: a. the tax cut is large. b. the MPC is relatively high. c. the economy experiences a contractionary gap. d. the short-run aggregate supply curve is relatively flat. e. people based consumption decisions on their level of permanent income.
people based consumption decisions on their level of permanent income
An increase in the market interest rate, other things equal, will _____. a. have no effect on investment b. increase the amount invested since the rate of return will be lower c. increase the amount invested because income will increase d. reduce the amount invested because the opportunity costs of investing will be higher e. increase the amount invested because the rate of return will be higher
reduce the amount invested because the opportunity costs of investing will be higher
The short run is a period of time during which: a. there is an expansionary gap that cannot be corrected using the passive approach. b. actual output equals potential output. c. there is a recessionary gap that cannot be corrected through discretionary policy. d. resource buyers and sellers cannot adjust fully to changes in the price level. e. resource buyers and sellers can adjust fully to changes in the price level.
resource buyers and sellers cannot adjust fully to changes in the price level
In the income-expenditure model, if autonomous saving increases by $15 billion, _____. a. the aggregate expenditure line shifts upward by $15 billion b. planned investment increases by $15 billion c. the aggregate expenditure line shifts downward by $15 billion d. planned investment decreases by $15 billion e. the equilibrium level of real GDP demanded decreases by $15 billion
the aggregate expenditure line shifts downward by $15 billion
A point on the per-worker production function shows: a. the total output produced by the labor force of an industry on the vertical axis for each level of capital per worker on the horizontal axis. b. the marginal output per worker on the vertical axis for each level of worker per unit of capital on the horizontal axis. c. the marginal output per worker on the vertical axis for each level of capital per worker on the horizontal axis. d. the level of capital per worker on the vertical axis for respective average output per worker on the horizontal axis. e. the average output per worker on the vertical axis for each level of capital per worker on the horizontal axis.
the average output per worker on the vertical axis for each level of capital per worker on the horizontal axis
The reserve requirement refers to: a. the fraction of deposits that banks are required by the Fed to hold as reserves. b. the amount of gold required to back up all Federal Reserve notes. c. the requirement that banks reserve part of their lending capacity for small businesses. d. the requirement that Reserve bank presidents be part of the FOMC. e. the Treasury deposits held by the Fed.
the fraction of deposits that banks are required by the Fed to hold as reserves
If the Fed increases the required reserve ratio at a time when banks are holding excess reserves, then: a. the Fed's aim is to increase the money supply. b. banks are likely to lend out more money than they would if the Fed left the reserve ratio alone. c. banks are likely to earn higher profits than they would. d. the money supply will not increase as much as it would if the Fed left the reserve ratio alone. e. the Fed's aim is to conduct open market operations without changing the money supply.
the money supply will not increase as much as it would if the Fed left the reserve ratio alone
If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment, then: a. the potential GDP will decrease. b. the potential GDP will increase. c. the only lasting impact of the policy is a higher price level. d. the only lasting impact of the policy is higher real GDP. e. the only lasting impact of the policy is lower real GDP.
the only lasting impact of the policy is a higher price level
Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur over the long run? a. The economy will move rightward along the short-run aggregate supply curve. b. The economy will move leftward along the short-run aggregate supply curve. c. The short-run aggregate supply curve will shift to the right. d. The short-run aggregate supply curve will shift to the left. e. The short-run aggregate supply curve will become flatter.
the short-run aggregate supply curve will shift to the left
If the marginal propensity to consume (MPC) in your classmate's nation is 3/5 and the marginal propensity to save (MPS) in your country is 1/10, which of the following must be true? a. The spending multiplier is larger in your classmate's nation than in your country. b. The spending multiplier is smaller in your classmate's nation than in your country. c. Autonomous consumption is higher in your classmate's nation than in your country. d. Autonomous consumption is lower in your classmate's nation than in your country. e. Total consumption is lower in your classmate's nation than in your country.
the spending multiplier is smaller in your classmate's nation than in your country
Which of the following is true in the long run? a. The aggregate demand curve determines the level of potential output. b. The long-run aggregate supply curve is horizontal. c. The actual price level and the expected price level are equal. d. Cyclical unemployment is between 5 percent and 6 percent. e. The price level is determined entirely by the long-run aggregate supply curve.
the actual price level and the expected price level are equal
