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Which tax system will provide the greatest built-in stability to the economy? a) Progressive tax system. b) Proportional tax system. c) Regressive tax system. d) Flat tax.

A. Progressive Tax System

The largest component of total expenditures in the United States is: a) net exports. b) government purchases. c) gross investment. d) consumption.

D. Consumption

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the: a) Supply of money curve is vertical b) Supply of money curve is horizontal c) Demand for money curve is directly related to the interest rate d) Supply of money curve is inversely related to the interest rate

Supply of money curve is vertical

You invest $200 at an annual interest rate of 3 percent. What will your investment be worth at the end of one year? a) $206 b) $203 c) $230 d) $300

a) $206

Inflation caused by a rise in the prices of inputs is referred to as: a) Cost-push inflation b) Demand-pull inflation c) Unanticipated inflation d) Hyperinflation

a) Cost-push inflation

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are: a) Excluded from the labor force b) Included as part of the unemployed c) treated the same as part-time workers d) Used to determine the size of the labor force

a) Excluded from the labor force

Compound interest a) describes how quickly an interest-bearing asset increases in value. b) measures the rate of return of a portfolio of stocks and bonds. c) measures the after-tax, inflation-adjusted rate of interest. d) refers to the multiple rates of interest of various types of bonds in a portfolio.

a) describes how quickly an interest-bearing asset increases in value.

The current account section in a nation's balance of payments includes a) its goods exports and imports and its services exports and imports. b) foreign purchases of domestic assets. c) purchases of foreign assets. d) all of these.

a) its goods exports and imports and its services exports and imports.

If the slope of the aggregate expenditures schedule were 0.6, what is the multiplier? a) 2 b) 2.5 c) 5 d) 7

b) 2.5

The GDP of a country was $220 billion last year and $235 billion this year. What is the growth rate of this country? a) 4.8 percent b) 6.8 percent c) 7.2 percent d) 9.1 percent

b) 6.8 percent

In competitive markets a surplus or shortage will: a) Never exist because the markets are always at equilibrium b) Cause buyer and seller reactions which tend to eliminate the surplus or shortage c) Cause shifts in the demand and supply curves d) Cause buyer and seller reactions which tend to intensify the surplus or shortage

b) Cause buyer and seller reactions which tend to eliminate the surplus or shortage

The best example of a "frictionally unemployed" worker is one who: a) Reduces productivity by causing friction in a business b) Is in the process of voluntarily switching jobs c) Is laid off during a recessionary period in the economy d) Is discouraged and not actively seeking work

b) Is in the process of voluntarily switching jobs

The rate of unemployment when cyclical unemployment is zero is called the: a) Full-employment rate of unemployment b) Natural rate of unemployment c) Structural rate of unemployment d) Frictional rate of unemployment

b) Natural rate of unemployment

The banking system in the United States is referred to as a fractional reserve bank system because a) a fraction of all monetary assets are in banks. b) banks hold a fraction of deposits on reserve. c) a fraction of the money is lent out. d) banks keep a fraction of reserves available.

b) banks hold a fraction of deposits on reserve.

The production of durable goods varies more than the production of nondurable goods because: a) durables purchases are nonpostponable b) durables purchases are postponable. c) the producers of nondurables have monopoly power. d) producers of durables are highly competitive.

b) durables purchases are postponable.

The asset demand for money: a) is unrelated to both the interest rate and the level of GDP. b) varies inversely with the rate of interest. c) varies inversely with the level of real GDP. d) varies directly with the level of nominal GDP.

b) varies inversely with the rate of interest.

If the dollar appreciates in value relative to foreign currencies: a) Aggregate demand decreases because C decreases b) Aggregate demand increases because C increases c) Aggregate demand decreases because net exports decrease d) Aggregate demand increases because net exports increase

c) Aggregate demand decreases because net exports decrease

The two ways of looking at GDP are the: a) Output approach and expenditures approach b) Income approach and saving approach c) Expenditures approach and income approach d) Output approach and consumption approach

c) Expenditures approach and income approach

A bank has actual reserves of $100 billion and required reserves of $10 billion must have: a) liabilities of $75 billion. b) excess reserves of $110 billion. c) excess reserves of $90 billion. d) liabilities of $10 billion.

c) excess reserves of $90 billion.

When economists say that monetary policy can exhibit cyclical asymmetry, this means a) recessions are shorter than inflations. b) the Fed is only able to deal with inflation. c) expansionary and restrictive monetary policy do not have the same potential for economic expansion and contraction. d) expansionary and restrictive monetary policy cannot both be used for economic expansion and contraction.

c) expansionary and restrictive monetary policy do not have the same potential for economic expansion and contraction.

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

c) increase aggregate demand.

In sequential order, the four phases of the business cycle are a) recession, trough, peak, and expansion. b) trough, peak, expansion, and recession. c) peak, recession, trough, and expansion. d) expansion, recession, peak, and trough.

c) peak, recession, trough, and expansion.

For economists, the word "utility" means: a) versatility and flexibility. b) rationality. c) pleasure or satisfaction. d) purposefulness.

c) pleasure or satisfaction.

The immediate-short-run aggregate supply curve represents circumstances where: a) both input and output prices are flexible. b) input prices are flexible, but output prices are fixed. c) input prices are fixed, but output prices are flexible. d) both input and output prices are fixed.

d) both input and output prices are fixed.

Excess reserves refer to the a) difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. b) minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. c) difference between actual reserves and loans. d) difference between actual reserves and required reserves.

d) difference between actual reserves and required reserves.

Other things equal, a decrease in the interest rate will: a) expand investment and shift the AD curve to the left. b) reduce investment and shift the AD curve to the right. c) reduce investment and shift the AD curve to the left. d) expand investment and shift the AD curve to the right.

d) expand investment and shift the AD curve to the right.

The basic objective of monetary policy is a) to eliminate inflation and lower interest rates. b) to maintain steady exchange rates and lower inflation. c) to increase employment and stabilize exchange rates. d) to assist the economy in achieving a full-employment, noninflationary level of total output.

d) to assist the economy in achieving a full-employment, noninflationary level of total output.

Investment is unstable because a) like most consumption, it can be put off. b) like most consumption, it cannot be put off. c) unlike most consumption, it cannot be put off. d) unlike most consumption, it can be put off.

d) unlike most consumption, it can be put off.